BASIC STRATEGY GUIDE: STEP 5




Activity One (Steps 1-12):
Segment customers, both by size and by need, to identify targets for the Company.


Step 5: Estimate the average volume by position on the Size/Role matrix.

What:

Use the Size/Role matrix to show the amount of volume purchased by the average customer in each of the size segments on the matrix. Then, consider the growth and profitability of each position on the matrix. This analysis would project the Company's specific profitability from the establishment of a new relationship with a new customer in one of the Size/Role segments. The analysis also considers broader changes in the market as a whole:

  • Larger customers tend to receive larger discounts than do the Medium and Small customers

  • The growth rate by size of customer may vary

  • The segment on the matrix may be growing or shrinking as the industry consolidates or de-consolidates its volume

  • Each segment on the matrix requires a unique cost-to-serve in order to meet the requirements for the role with the customer size

Why:

This analysis enables the Company to project the amount of volume it might expect from establishing a new relationship with a customer in one of the segments on the matrix. This step calculates the pay-off for the Company's investment of marketing and sales expenditures to obtain new customer volume.

What to Watch For:

Action:

Determine those positions that are attractive for the Company based on a combination of the segment's profitability and the Company's ability to meet the requirements of the segment.

More Information on the Size/Role Matrix on the Advanced Site>>

More Information on Profitability of Segments on the Advanced Site>>

For helpful context on this step:

Videos:

Perspectives:

Symptoms and Implications:


Guide Index Next: Basic Strategy Guide Step 6