Tilting the Playing Field Strategy for 2015-2016.

Tilting the Playing Field

Strategy for 2015-2016

Today’s Purpose

• suggest a strategic direction for 2015• synthesis of information from our experience and analysis• shaped by outstanding results• discuss a new strategy

Concepts

Trading Customers

“the market leader is the company

with the lion’s share of the profitable accounts”

― Bruce Merrifield

Trading Customers

customersUs Them

How Money is MadeReally!

How Money Is Made

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$GP $CTS

What Makes Gross Profit

$GP = X +

What Drives Cost-to-Serve

$CTS ≈

How Money Is Made

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How Money Is Made

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Whale Curve

Whale Curve

PIP (Peak Internal Profit)$5.5M

Realization27%

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Customer Cross-Subsidies

Customer Cross-Subsidies

• entire basis of current business operations• good customers support theirdysfunctional competitors• hidden by accounting systems:competitors without WayPoint can’t see this•would you say this to a greatcustomer…?

Pricing

Stokes Merrill Millennium Revenue $272,743 Revenue $261,580 Gross Profit $57,703 22.1% Gross Profit $43,161 15.8%Selling Exp $4,454 Selling Exp $3,589 Order Entry Exp $1,611 3 orders / week Order Entry Exp $1,243 2 orders / weekWhse Exp $38,212 762 picks Whse Exp $21,212 423 picksDelivery Exp $8,516 4 deliveries / wk Delivery Exp $5,076 2.5 deliveries / wkG & A $10,279 3 invoices / wk G & A $7,709 2 invoices / wkCost-to-Serve $63,072 23.1% Cost-to-Serve $38,831 14.8%NBC ($5,369) NBC $4,331

Can Confer Price Advantage

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Customer Cross-Subsidies

Competitor’s Whale Curve

New Strategy

Objectives

• have all the most profitable accounts• have no unprofitable accounts• deliver the best customer experience• have a significant price advantage• lead in profitability• reward contributors

Strategy: Road Map

1. reform or trade profit drain accounts2. reduce transaction counts (CTS)3. build price advantage by reducing

cross-subsidies4. aggressively pursue target most

profitable accounts with using service and pricing

Strategy: Steps

5. reduce margin-support policies and actively trade GM% for CTS%

6. incent by profit to motivate and share gains (extraordinary pay for extraordinary profit performance)

7. build GP with intelligent pricing and add-ons

8. build a better breed of customer

Competitors’ Limiting Beliefs

• every sale adds increment to bottom line•must win every account•GM% = profit, therefore margins must be defended (lower margins will hurt profits)

Strategy: End State

• 50%-75%+ of the most efficient (profitable) customers in the market• profit generation 2x industry rates at margins 5%-10% below market•market-leading concierge service and corresponding reputation

Conclusion

• use what we know about profit mechanics• new action on cross-subsidies• tilt the playing field:• get the best accounts• trade off money losers