Change in Business Strategy

The Situation

The client was an industrial valve manufacturer that catered to large oil and gas firms in Asia. They specialised in custom designed valves that controlled a variety of fluids ranging from water to crude oils and gases. They had a committed and talented R&D facility to simulate and test fluid dynamics within the valves they built. 

The Business Need

The client’s valve manufacturing provided sufficient profit margins and they were comfortable with their market share. However, over the last few years, the top management has clearly noticed a steady decline in sales volume. One of the reasons for this was because of the top management’s adamant hold on profit margins. On one hand, if they had reduced margins to increase sales, the reality of declining sales volume would not be very evident in a few years. The sales volume would have been propped up by less profitable sales. On the other hand, since they held onto the profit margins, the increasing competition that was causing the loss of sales became quickly evident.

The question that was posed to our consultants was this: should the client change their stand on holding onto current profit margins or should they reduce profit margins to increase sales volume and therefore compensate for revenue loss.

Analysis

Our initial discussion with the client, showed us that their market awareness was quite limited. As a first step, we conducted a market study of the valve industry for the Asian region. The results of the market study presented the fact that the price of the custom designed valves had dropped in the region. Purchasers of these valves also had new manufacturers in the region to procure from. One obvious step was to get into a price war with the new entrants in the valves industry.

The other aspects that came out of our structured analysis of the client’s strengths was their maturity in tool and die manufacturing. Though the client did not have expertise in materials other than steels, their basic engineering capability for working with homogeneous and composite materials was evident. Our analysis also pointed to the client manufacturing process needing significant improvements that can be made, to reduce product costs. For example, advanced software simulations can be used to reduce or avoid physical testing to a large extent and improve quality related failures.

Our market study in India pointed to a burgeoning residential and commercial plumbing market for valves. This was an eye opener for the client’s management.

The Solution

The solution that was proposed was a two-pronged approach to change the overall business strategy. One was to look at the collapsing profit margins and the other was into new product development.

As a stop-gap, a revision of profit margins could be done, however a clear minimum was to be determined upfront by the management. Our consulting team guided the management through a pricing exercise to come up with these profit margins. 

A new product development was started to look at plastic and composite plastics-based valves for the retail market, especially for residential homes and commercial buildings. The client’s capability in tool and die manufacturing was quickly realised with plastic mold and plastic forming dies. 

Results

The client got a revenue boost by gently reducing the profit margins. This boost helped with the product development of retail plastic valves. The product development took a few months because the R&D in plastics had to be done. They initially released 3 valves into the market and achieved better market acceptance than the existing plastic valves because of their higher quality standards they brought to the manufacturing process. 

Our team had pointed out that the client sales teams were not capable of doing retail sales and an entire sales restructuring had to be done to approach the new retail market. 

The market research and strategy change for the client took 3 months to complete. The retail sales team creation and restructuring of the sales effort took another engagement of 6 months.

Aligning IT Systems

The Situation

The client was a food manufacturer based in Western Europe. They were a third generation, family owned business, that was very interested in expansion. With this focus they acquired a logistics company to scale up their capability to deliver to a larger geography.

The Business Need

One of the reasons for acquisition of the logistics company, was to cater to a larger geography. The other reason was to respond to changes in demand in a more flexible manner. After the acquisition of the logistics company, the parent manufacturing company, found that the market changes were more pronounced and therefore could not keep up with the rapid changes in demand. The demand changes caused more issues within the parent company than before the acquisition of the logistics company.

Analysis

The client mentioned that the systems of the logistics company were integrated to the parent company. However, a closer look at how the parent company had envisaged the workflow to serve the market was significantly different from what the systems in the logistics company was set up to do. The logistics company had a variety of controls in place to understand the flow of materials through its systems but there was no need for the company to understand actual market demand. Market demand and in turn, the rate of flow of materials through its systems was always determined by an external firm, such as the parent company. 

The demand measurement was added to the logistics firm and the parent company expected demand management to be met by the newly acquired logistics firm.

The Solution

The solution was a compromise between the decision making in the logistics company and the decision making in the manufacturing company. ACPL decided to segregate certain functions of demand management to the logistics firm and certain functions to the parent manufacturing firm. Based on this segregation the processes had to be slightly changed, and there were significant changes to the IT systems.

Some of the functions were automated and the upper and lower bounds of operations were set using historical data from the both the firms. This automation helped remove the pressure points between the two IT systems that had caused numerous errors and issues during rapid demand changes.

Results

The alignment of the two IT systems was the key to success for this client. Throughout the engagement, there were significant ups and downs because of the disparate systems of the two firms. The data flow could only be corrected once the workflow of how the materials moved through both the firms were understood, and how the decisions were supposed to be made were understood. Both the IT systems had to work as a cohesive system along with all the people who were responsible to ensure that demand changes were being catered to. Though our engagement took nearly 18 months, the end result was quite satisfying.

Customer Segmentation

The Situation

The client was a printing firm based in Kerala, India. Their focus was on outdoor media, mainly in flexible hoardings, and signages. They catered to a wide variety of clients, ranging from walkins, to large corporate clients. Anyone who needs signage could approach them. For the last five years, their turnover has slightly increased however, their profit margins have dropped considerably.

The Business Need

The client mentioned that they were not able to increase price margins, however, they were able to get reductions in purchases because their volumes had increased. The client is worried about losing clients as the competition is increasing.

Analysis

The analysis of the client environment pointed to the large range of clients that they were catering to. Most of the interactions to each type of client had a different approach and requirements. For example, walkin customers did not have a price issue however, they usually had a strong delivery time requirement. This meant that the client had to reschedule any current manufacturing orders and even break running orders to free up the printing machine for the walk-in customer’s order. 

On the other hand, large corporate customers had long deliberations on pricing and delivery dates were well into the future. Since corporate customers needed tight pricing, the discussions were more specific and technical in nature, such as print quality, use of eco-solvents, print media quality, packaging, delivery and many more.

The Solution

Looking at each type of customer, we found that the requirements were spread quite broad and therefore, we could afford to price the services differently. We used a couple of customer profiling methods to cluster the different types of customers into approximate homogeneous segments. There were six customer segments that were identified and for each segment, we suggested a baseline pricing and an additional pricing for the range of additional services that were included for the final delivery. We created a customer feedback service and aftersales support service to ensure that pricing adjustments did not create a backlash to the client in the long run.

Results

Our engagement, from initial discussion to signoff took 6 months. There was a 1.5x increase in turnover and the profit margins were significantly increased. The customer feedback was initially mixed, as the new pricing and delivery took a few months to streamline. A majority of customers enjoyed the pricing as the additional services were clearly specified. There was significant client handholding that was required to ensure the pricing changes were accepted to the end customer. The client’s staff was quite eager to help customers as the process became simplified based on the customer segment. Once the staff identified the segment the customer was in, the rest of the process was to follow a standard script. 

Towards the end of the engagement we found that one customer segment could be divided into two more segments! The client was confident to build the pricing and related services for these new segments based on our training.

Revenue Management

Situation

The client was a rapidly growing food chain based in a metro city in South India. They are focused on the premium cafe customers who are looking for a/c, beautiful interiors and a South Indian menu.

The rapid expansion throughout India has caused their revenues to drop in 3 successive quarters. Most of the newly opened locations have not broken even after 3 months of operations.

Business Need

The client has done a thorough study on the viability of their shop at each new location so they are confident that the location has potential. The client needs to know what changes to make so that their overall revenue per location is increased.

Analysis

The initial knee jerk reaction of the client to the current situation was to increase the advertising budget and start localised advertising, such as flyers and local newspaper and TV channels. Our team had to convince the client’s management to pull back on all the advertising spend and evaluate the entire source of revenue before committing to an advertising budget.

From our expertise in the food and retail industries, we selected a range of parameters to collect data. Most of the parameters that we had selected, such as customer age range, frequency, etc. were available with the client. Some of the parameters such as local events, tourism related customers, etc were not available and therefore we had to setup the collection for the same. Most of the analysis pointed to weak product-market fit for the entire range of menu that was presented.

Solution

The client was instructed to cut back on all menu items to just the ones that were not present in the locality of each cafe. The remaining items on the menu formed the base framework to understand the taste palate of the local customer. We were quite surprised to see the difference between the menu items from location to location. This cut back was held for a few weeks before offering customers additional menu range as a free sample. All new items were provided free for a couple of months until there were some customers who specifically asked for the new menu item. We recommended this ‘ask’ as a trigger to place the item on the menu permanently.

Results

The results were significant to the client as they did not expect the variation in menu items from location to location. The assumption was that the local cafe from a particular location could thrust the opinion of taste to another geographic region and maintain the revenue. 

The client was aware of the taste requirements at their original location but refused to accept that their taste would not be accepted in its native form to another location. 

Once we had shown the client the cut back menu item and only when a customer ‘asked’ for a new item, the results were rather evident to the client. The revenues bounced back to healthy numbers and they have now become a well known eatery in nearly all their locations.

Data analysis in Sales and Marketing

Situation

The client was a small mutual fund company whose parent company was a medium sized Bank based in Western Europe. As part of a major restructuring and cost reduction, a majority of the internal workforce was reduced at the mutual fund company. The marketing department was almost eliminated and the sales department was reduced by more than 50%.

Business Need

The client needed to show that they still have the ability to grab market share in the tight economy in Europe in 2011. The sales force was strained significantly because of the workforce reduction. The client needed a different strategy to approach the market.

Solution

The reduced sales force needed much more quality data to fill the sales pipeline. There was no other alternative. Buying market data sets would lead to large volume of cold calls and turnaround would be very slow.

Based on numerous conversations with the management of the mutual fund company, we found a majority of the board members and operational heads, also reported to the parent Bank. Using this as a key stepping stone to enter the parent Bank we were able to access the customer data of the bank.

We proposed to use the data of all the customers in the parent Bank and map them to the existing clients of the mutual fund company. Using data analytics tools we found potential customers from the parent Bank data that have similar characteristics as those who had bought mutual funds. Using this inference, we were able to rank the potential bank customers who had not yet bought mutual funds.

Results

The results were extremely pleasing to the client. The list of potential customers had a very high propensity to buy mutual funds and in turn the sales team found it very easy and efficient to approach and close new mutual fund accounts

Within a period of 3 months we were able to deliver the entire data set from the parent Bank, rank ordered for potential customers.

There was a 300% increase in new mutual fund account creation for the mutual fund company.