As you wrestle with where will you operate; what products and services will you provide; and to which customer segments will you sell to, the strategic planning team should develop a matrix for each of the three choices: a) geographic markets, b) products and services, and c) customer segments. In each of those three areas, determine for each variable whether it should be viewed as an opportunity for growth, maintaining the status quo or harvest (more below).
ERP and CRM as Strategic Tools for Wholesale Distributors (Part 3)
Selecting Growth for an opportunity means that this geographic market, product or service, or customer segment is targeted for investment of people resources and capital. The company will invest heavily to build its share of the market. Targeting must be done judiciously because all companies have limited resources of time and money. The strong temptation of distributors to “target” everything must be resisted or it is meaningless. Focus. Less is more.
For those situations where the choice is to maintain the status quo the company is determined to hold its position in this geographic market, for this product or service, or for this customer segment. “Maintain” means that the company will continue to invest enough time and resources to protect its share (percentage of the market).
Harvest means a distributor has decided to simply hold onto the customers it already has in this segment. It does not mean the distributor wants to lose the business it has in this area, but the company will not invest additional time and money trying to build its presence in that segment.
Geographic markets, products and services, and customer segments that do not figure into the company’s future are not in the harvest category; they are to be left out of the segment matrix analysis altogether. These are tough decisions. For many distributors, these are the segments for which an exit strategy must be developed, selling, for example to a competitor in a geographic market it makes sense to exit, or asking suppliers to drop ship products it no longer makes sense to carry in inventory,
The three basic choices distributors make - geographic markets, products and services, and customer segments – determine how the business deploys its people (especially sales representatives) and to some degree where it locates its assets (branch locations).
Here are the three basic choices you must make to use this tool effectively:
First, decide where to invest. Start with geographic markets because it is the clearest set of choices. The geographic markets matrix requires a series of decisions about where the company will invest its capital for facilities and the market development efforts of its people.
Geographic expansion is the traditional form of distributor growth because it is easier than expanding into unfamiliar product lines and new vendors. The location where a distributor started is often thought of as a home market, a fortress where the company has historically been a strong player. As distributors grow they tend to move into markets close to the home market. More about geographic expansion in Part 4.
Continued in Part 4