They also mean more costs, lack of transparency and more headaches for the CSO. This is also confirmed by Valcon’s latest Growth Survey, in which more than 50% of the group of executives with commercial responsibilities state that optimisation across sales channels constitute a significant challenge.
At the end of the day, the sales channels represent the company’s handshake with the customer. They play a critical role in the customer experience and consequently also for the customer’s perception of your brand. As a rule of thumb, approximately half of the price paid by the end customer for a product consists of costs in connection with selling and delivering the same product to the customer, and I find that this share is steadily increasing as production costs go down, and the number of sales channels goes up. It is therefore critical to implement continuous quality assurance and selection of your sales channels to ensure that you invest in the most profitable channels to ensure growth. I am sure you already do this. But do you also measure the profitability of each individual sales channel? And are your investments in sales channels weighted according to the profitability of each individual channel?
Your handshake with your customer: When does it pay off?
It is by no means an easy exercise, but it offers strong competitive advantages on a market in which the previous links in the value chain have all been optimised and top-tuned. I would argue that the main challenge is to create transparency. How do you measure in money the profitability of one sales channel compared with another? In my experience, the prioritisation of the selected sales channels is often done on the basis of softer parameters, which are difficult to measure.
66% of the respondents in Valcon’s latest Growth Survey state that they have a clearly defined channel strategy. But only half of the respondents measure sales channels on profitability. This is despite the fact that there may be major benefits to gain by focusing on the profitability of the individual sales channels. The survey also shows that the participating executives with commercial responsibilities have ambitious EBIT growth targets at an average of 21%, which makes it even more important to be able to grow organically.
How do you measure the value of the good customer experience?
So instead of preaching Anytime Anywhere, I would recommend that you make sure your company is always able to say which sales channels you make money from, and why you make your money through those exact sales channels. I would also recommend that you take a gradual approach to using new channels. The key words to getting started are transparency and defining the right KPIs:
- Make sure to have complete transparency and control so you have a clear overview of the profitability of each sales and distribution channel. It is important to measure your sales channels on the relevant parameters such as sales per channel (measuring productivity), contribution margin per product for each channel (measuring profitability) and the rate of return for each channel (measuring the efficiency of the investment)
- It is important to differentiate between the properties of each sales channel. Should the channel excel through low costs, a unique customer experience or the opportunity to provide bespoke products? It is not possible to differentiate through all three parameters in one channel, and it is therefore critical for your competitiveness to specify the properties of each channel and to prioritise the importance of the individual parameters.
- Use new channels when it is relevant to your business, but take a gradual approach, and learn to sell efficiently through the individual channels as you go along. Experience shows that it pays off to make room and time for a learning curve with specific platforms, before you move on to a fully developed omni-channel strategy.
By beginning with these three steps, you ensure that you always have an overview of when your handshake with your customer pays off, and you are on the right path to realising the ambitious growth targets, our Growth Survey indicates are present in the industry.
Originally published in Børsen Ledelse.