QDI Strategies Behavioral Segmentation Project Example
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This document summarizes the results of a behavioral segmentation study conducted by QDI Strategies for a manufacturing client. The study found that 61% of the market valued application sales support enough to purchase directly from manufacturers. It recommended the client pursue a hybrid strategy of direct sales for some customers while working with distributors for others. Specifically, it suggested direct sales for customers who highly value solutions and allowing distributors to handle customers who prefer buying through them or don't need additional services. This would allow the client to capture more value while managing conflicts between direct and distributor sales channels.
QDI Strategies Behavioral Segmentation Project Example
- 1. COPYRIGHT 2014 QDI STRATEGIES, INC. QDI: Behavioral Segmentation Project Example
- 2. COPYRIGHT 2015 QDI STRATEGIES, INC. Behavioral Segmentation to Develop Distribution Strategy One of QDI’s clients, a manufacturer of process equipment, believed that the market valued application sales support enough to give the sale to the vendor who provided that support. To act on this belief, the client would have to build a large direct sales force that would replace or co-exist with the traditional distribution network. This was a high risk strategy. The client needed market proof that the customers would behave as he projected. Likewise, the client needed a strategy for working with distribution in the event he decided to build a large direct sales force. The purpose of this joint project was to measure the value that customers place on application sales support and determine if a segment that valued this support was large enough to justify a change in strategy to a direct sales model. The result enabled our client to capture a higher portion of the value created. (VALUE CAPTURE) This presentation shows the results of the Value Modeling and the channel implications of a direct versus distribution sales approach. Direct vs. Distribution Strategies for Value Capture
- 3. COPYRIGHT 2015 QDI STRATEGIES, INC. Project Objectives • Size the portion of the market that places high value on the solutions that our clients can deliver • Size the portion of the market based on its channel purchase preference: – Prefers direct – Prefers distributor – Neutral • Determine the advantages of a direct versus distributor sales strategy • Recommend a go-to-market strategy based on this research Methodology: Project Objectives
- 4. COPYRIGHT 2015 QDI STRATEGIES, INC. What We Did • Market Research – 164 interviews across 9 Standard Industrial Codes (SICs) • Mix of engineering and purchasing titles • About 1/3 in big, medium, and small process system owners • Names from many sources; objective to have some “random” effect – 20 additional “focus” interviews across the same segments • Buying behavior relative to supplier consolidation • Logistical service level requirements • Market Modeling – Attractiveness maps • Attractiveness based on $ potential independent of how you go to market • Attractiveness of “distributor required” segment • Attractiveness of “would buy direct” segment Methodology: Sample & Value Model
- 5. COPYRIGHT 2015 QDI STRATEGIES, INC. Percent of Market Purchases - Value Application Sales vs. Projected Sourcing Behavior Low High 1 2 3 High 4 1 $9,370,963 $10,352,249 $44,641,831 $48,372,485 2 $7,121,346 $5,832,946 $6,887,411 $7,518,747 3 $7,300,872 $794,946 $14,166,882 4 Low $12,314,943 $3,160,726 $9,006,846 $7,324,566 Value Sourcing Scale: Green = Direct, Orange = Questionable, Pink = Distributor Methodology: Value Model Results
- 6. COPYRIGHT 2015 QDI STRATEGIES, INC. Channel Opportunity Recap – % of Revenue Distributor 20% Direct 61% Questionable 19% Methodology: Project Objectives Methodology: Value Model Results
- 7. COPYRIGHT 2015 QDI STRATEGIES, INC. Opportunity for Value-Add Sales Approach Very High Value 40% High Value 31% Medium Value 10% Low Value 19% Value Opportunity Methodology: Value Model Results
- 8. COPYRIGHT 2015 QDI STRATEGIES, INC. Requirements for Distributors • Distribution controls logistics to 20% of the market – More if you include HPI and CPI (38% of the market) – While the customer places high value on value-added services, he places higher value on purchasing efficiency • Client will not be able to force these customers to buy direct – Therefore, you will need to work with these distributors – These are the same distributors who sell to the general industry market Methodology: Channel Role Evaluation
- 9. COPYRIGHT 2015 QDI STRATEGIES, INC. Distribution Requirements MRO Value Chain Specifying Purchasing Logistics Product 30% - 40% 60% - 70% Reducing Purchasing Costs Has Major Bottom Line Impact Methodology: Channel Role Evaluation
- 10. COPYRIGHT 2015 QDI STRATEGIES, INC. Direct vs. Distributor Sales • Factory “controls” all elements of customer satisfaction – Pre-sale • “Application selling” • Price • “Responsiveness” – Transaction • Take the order • Ship and deliver – Post-sale • Troubleshooting • Distributor is involved in most aspects of the sale – Pre-sale • “Application” - Factory rep can do on his own • Price - Factory rep must coordinate with distributor • Responsiveness - up to rep and distributor – Transaction • Distributor takes order, ships and invoices – Post-sale • Troubleshooting request could come to distributor instead of Factory rep Methodology: Channel Role Evaluation Direct Sales Distributor Sales
- 11. COPYRIGHT 2015 QDI STRATEGIES, INC. Direct vs. Distributor Sales • Rep learning curve – Rep has to learn products, customers, customer specific product applications – Learn company operating procedures – Takes 2-3 years for a new rep to become competent enough in application sales to build a territory from $500K to $1000K • Rep learning curve – Rep has to learn products, customers, customer specific product applications – Learn factory operating procedures – Rep has to learn how to work with distributors • Build relationships with distributor reps • Learn distributor operating procedures – Learn to manage intra- distributor conflict Direct Sales Distributor Sales Methodology: Channel Role Evaluation
- 12. COPYRIGHT 2015 QDI STRATEGIES, INC. Direct vs. Distributor – Value Comparison 12 Activity Present Strategy Potential Strategy Direct Dist. Direct Dist. Relationships + + Customer Sat + + Info. Power + + Presence + = = Mix Control + + Application selling = = + Rep learning curve = = + Methodology: Channel Role Evaluation
- 13. COPYRIGHT 2015 QDI STRATEGIES, INC. Direct vs. Distributor Sales - Costs Marketing Costs •Sales •Inventory •Logistics •Order handling Retained by the manufacturer Transferred to the distributor Duplicated?? Distribution is a “cost transfer” system. The distributor performs functions for you (hopefully more efficiently than you can) that must be performed to service the customer. When activities are redundant, the system is inefficient. Methodology: Channel Role Evaluation
- 14. COPYRIGHT 2015 QDI STRATEGIES, INC. Recommendations • Capture the value using direct application sales – About 60% of the market values solutions and would accept direct sales • Work with distributors on the balance of the business – Customers who value solutions but prefer to buy direct – jointly sell with distributor – Customers who do not value solutions and prefer to buy from the distributor – assign them to the distributor • Manage conflict through activity based discounts and account assignments – Assign distributors “distribution neutral” accounts based on the strength of their existing relationships Methodology: Action Steps
- 15. COPYRIGHT 2015 QDI STRATEGIES, INC. Get To Know Us • Exploratory Meeting - No-cost discussion of the issues you are facing and our perspective • Customized research - Have us design a study for you • Strategy project - Have us design a project to address your strategic issues Contact Information QDI Strategies, Inc. 1580 S. Milwaukee Avenue, Suite 620 Libertyville, IL 60606 847-566-2020 www.qdistrategies.com Steve Bassill President sbassill@qdistrategies.com