Reversing the Deterioration of a Cash Cow
The company’s largest business unit accounted for over 60% of company revenue and more than 80% of its profit. They were the commanding market share leader and clearly the company’s “cash cow”. Notably, the company “cash cow” had two consecutive years of poor, concerning performance and senior management could not answer the simple question of “why” and “how” it happened. More to the point, they needed it “fixed” – quickly.
The company initially hired KGK to assess how the company would solve its prospect data quality issues. In short, it was an enterprise problem, as no one trusted, or could effectively use their own data to make well informed strategic or tactical decisions. At KGK’s request, the company allowed and encouraged KGK to have “free reign” to seek and receive any and all information KGK requested.
The company “cash cow” had two consecutive years of poor, concerning performance and senior management could not answer the simple question of “why” and “how” it happened.
Over the course of several months, KGK studied and probed the business unit’s financial statements, strategic plans, market research, organizational goals, ongoing activity, IT systems, key policies, performance metrics, operational data, and routine reporting.
Our findings were jaw-dropping for senior management. In short, KGK uncovered 4 crucial strategic and tactical flaws which had been building for years, and we financially rationalized their effects on the business:
- Varying customers/segments had hugely different revenue/margin structures, but were acquired and serviced in virtually identical ways, resulting in almost 50% of activities being focused on customers that generated less than 2% of revenue. The margin contribution of the last $1M in growth was delivered with a meager 10% contribution margin, while the overall business unit enjoyed 64% gross margin. Digging further into their sales practices, it was clear that the expense of acquiring and servicing customers was not appropriately adjusted to the customer’s revenue or profitability potential.
- The company lacked an articulated competitive strategy to justify their premium positioning, resulting in revenue and margin erosion. Without tactics to effectively defend against competitive attacks, sales succumbed to pricing pressure in order to retain and win customers. This had the further consequence of ballooning the time (i.e. operational expense) expended on negotiation, internal approval, and accounting errors resulting from a mind-numbing 128 price codes.
- Research showed their prospects were shifting to online information sources far faster than the company’s investment in digital, which had remained virtually the same for years. The company’s market research showed in a period of just 2-3 years, that there had been a tidal shift of prospect awareness from in-person events to digital sources. Not only was the brand less present where its prospects were looking, but the cost-effectiveness of digital channels relative to offline channels presented a real opportunity to more efficiently maintain visibility and generate revenue.
- The company lacked an IT strategy, particularly with regards to data and reporting, depriving senior management of information needed to operate efficiently and profitably. As a result, the business continued to emphasize spending on its previously established mix of activity. Further, important data related to the mix of marketing and sales efforts was scattered all over the enterprise and often inaccurate, misleading or misunderstood – all resulting in most of it being unused in routine performance measurement. A prime example was sales performance being measured by activity completion rather than by revenue productivity.
KGK unearthed 4 crucial strategic & tactical flaws which had been building for years, and financially rationalized their effects on the business.
Senior management applauded our discoveries, and after extensive discussion decided the first solutions should address two urgent, important objectives:
- Continuous visibility of what activity is proven to drive revenue, allowing for careful elimination of unimportant activities and improved capacity utilization to serve more profitable customers.
- A sustainable solution to maintaining prospect / customer data quality and a leapfrog in the company’s digital marketing capabilities.
With that guidance, KGK developed a roadmap of 12 projects for execution over the course of one year. We calculated successful completion of these projects would yield the client a minimum of 3.4x and up to 4.5x ROI (multi-7-figure return) by the end of year 3.
The company requested KGK lead the project and hire any necessary third parties to complete the projects described below:
- Competitive research and rollout of a new competitive strategy
- A digital marketing program across their prospect and customer journeys, simultaneously enabling them to request and have prospects unwittingly self-maintain and provide new data
- Optimization of customer relationship management (CRM) policies and systems
- A data warehouse containing the enterprise’s information
- An omni-channel attribution model to assign sales credit of all interactions with prospects
- Revised business metrics and performance reporting within a new and trusted KPI dashboard
- Revision of pricing policies, allowing efficiencies in approval process, structured authority levels, and greater speed in client response.
As a major strategic initiative, work began by educating all key managers in the facts, data, and conclusions that we had uncovered. With their buy-in and support, we executed our plan to change policies and exploit technology to inform more purposeful and profitable behavior.
Three months after work began, the client also elected to expand the project scope to include determining the profitability of each customer, defining customer segments, and developing sales and service models in-line with and to maximize customer profitability. In just the initial 9 months, we had achieved:
- A trusted, enterprise-wide dashboard of all sales and marketing activity, and each effort’s contribution to revenue. This additionally resulted in a changed incentive plan to reward what was now known as “profitable revenue generators” and a change to where almost 75% of sales effort was previously invested.
- A total change in their pricing and discounting policy, combined with a new competitive strategy, reducing 128 pricing codes down to a more efficient and manageable 24. This increased ASPs (Average Sale Price) by 1.3% and freed 17% of sales activity previously invested in price- focused negotiation, with long waits for internal approval.
- A fresh, well organized, new series of “attacks” on major competitors to better defend its #1 share position.
- A new, substantially evergreen, email marketing program allowing for content personalized to the prospect’s status in the consideration cycle, 30%+ higher engagement with the brand’s emails, and 7% higher conversion rates from email.
- A surprising improvement in job satisfaction, as the people “in the field” now have authorities and clearer accountabilities, with the information they need to succeed at their fingertips.
With these results, this breakthrough initiative is now forecasted to save the company a full 12% in operating expenses, without headcount reduction, exceeding even our most optimistic initial calculations.
This breakthrough initiative is now forecasted to save the company a full 12% in operating expenses and better defend its #1 share position.
Higher conversion rates