In this case interview, a promising approach is presented for all companies that are heavily involved in discussions with their clients about prices. It offers a way to turn away from the single-topic-discussion by introducing a carefully selected pallet of services to enrich the sales conversation. The ultimate goal is more happy customers and profitable growth of sales.
Hella Benelux, the local sales company for the German producer of car parts, finds itself confronted with a changing business landscape. Increasing market concentration on the client side heavily influences the current market position of Hella. Together with increasing technological possibilities on the supplier side, the result is changing customer behaviour.
In close collaboration with The Next Organization (website), in 2017 Hella Benelux develops a new commercial strategy the Growth Performance Strategy. Based on extensive data analysis the value of each client was calculated. From this, a new customer segmentation and service concept were developed. The result: increasing revenues in each segment. The basic elements that are used in the approach to develop the strategy are of universal value to many organisations that operate in price driven markets.
Didier Tensi, as a director of Finance and Operations closely connected to the project at the time, answered seven questions on how the project helped to achieve ambitious goals.
About the client
What is your role at Hella, and how were you involved in the project?
I am Director of Finance & Operations Benelux, and together with the two other members of our management team, we assigned the project to an internal project team and The Next Organization, of course. I strongly supported to take on the project as several market trends were threatening our position. Later on, I took charge of the data management subproject in which we developed the functionality and requirements for our CRM application, Salesforce to build the learning of the project in our daily operation.
How would you describe the challenge that Hella saw herself confronted with?
The main reason is that the market has changed over the last three years. We notice a consolidation via mergers and acquisitions. Our customers are getting larger and become more demanding in the areas of prices and services. This was putting pressure on our margins and the growth of our turnover. This meant that Hella proactively needed to rethink its business model. We took a broad perspective, including our sales approach, conditions, services, the technical helpdesk, marketing, supplies, credit limits, our way of working and more.
Initial data analysis, conducted by The Next Organization, drew our attention to the strategic challenge to find the right balance between what we can offer to our customers and the costs thereby generated. The ambition is to ensure profitability per customer by carefully monitoring the daily business with appropriate KPIs.
What was, in essence, the approach you chose?
We started the project with a strategic pressure cooker workshop. We invited all key management of the company, with whom we had gathered 'all functions in one room' so to speak. During one day we looked at our business from every angle. We were able to get a full picture of our business: our ambitions, how the market structure was changing and what challenges and obstacles stood in our way. It was then that we decided that we needed to segment our customers in a different way. We had to make a clear distinction between customers based on their client value: the value (or potential value) they have for Hella Benelux. We had to conduct extensive data analyses, create three distinct customer groups, and build service concepts to offer to these groups corresponding with their needs. And then implement the service concepts of course. It was the phased realisation of these activities, which we later started to call our 'Growth Performance Strategy'.
What was the main insight that you gained in the project?
Frankly, this came from the first data analysis that The Next Organization performed. It showed to our surprise that customers whom we thought were moderately profitable, were, in fact, loss giving. And clients whom we thought were quite profitable to us already, were much more profitable. The extensive data analysis, later on, confirmed this insight. We then were able to attribute more than 90% of our total costs to individual clients and could establish client value per customer.
This opened up the new way of working in which we offer carefully selected services, free of charge or on payment. The better the client value of the customer, the more services become available. This client value is not just based on turnover or margin. Many variables are taken into account, such the intake of the specific stock or the number of returns. You might expect that customers are reluctant to the new approach. But, as the services offered are based on client needs as well, the approach turns out to be logical to our customers.
"It is of utmost importance to know the client value of each of your customers, it is even more important to steer your business upon it".
Can you give an example?
Our customers can place their orders in several ways. They can email us, call us, or put their orders in an online application. In the project we were able to assess how much each method costs. The online method is the most cost effective, you can imagine. As it turned out, smaller customers are relatively often using the most expensive method: calling our sales office. Probably their personnel doesn't invest time in figuring out how to order online because of the low frequency of ordering. While it is the quickest way to place an order, by the way. Now, we will start charging them a fee for each order that is placed by phone or email. They can switch to online ordering for free.
What are the results from this Growth Performance Strategy?
The overview of services and costs per customer group was compiled last year. Now, since the beginning of this year, new terms and conditions for our small customers apply. What we see is that with the new approach the sales conversation is enriched. Account management now has much more to talk about than prices and some related sales conditions alone. The services pallet has become an important subject, because the agreements on the usage of certain services will impact the prices that we charge for the products. But since we just started with some of the adjustments from the new strategy, most effects are still expected to come. What we see already now is that we win big deals with our largest customers, so turn over is growing in that segment.
Do you have any more insights you would like to share?
Any management team should bring its current business up for discussion, at least once a year. Only with a fresh, independent look you can find the insights that help you fundamentally renew your day to day routines. The help of The Next Organization was vital in the project.
Then, the use of data is crucial. At Hella, we happen to have a lot of relevant data at our disposal. Yet, gaining insights from it, is a different thing. With the amounts of data we have, we needed specialised tools and analytic competencies that we didn't possess. The analysts from The Next Organization were capable to reveal insights we otherwise would never have found.
And then, lastly, to bring a project like this to a good end, you really need the whole company involved as it impacts all departments. We used a project team structure with bi-weekly meetings in which all subproject teams came together. The regularity of these presentations of the progress and the clear agreements on the next steps brought us the necessary discipline. Additionally, it involves those who have to carry out the new strategy and bring it to an actual success.