category needed to be encouraged
to increase stocks in order to reduce
delivery frequency. If they couldn’t
stock up, a stockist nearby to collect
from, when they run out, would
suffice.
Customers who purchased high
volume, but less frequently, should
have been rewarded for saving the
company cost of frequent delivery.
But if their daily counter sales were
also low, promotional activities
should have been carried out to
improve sales.
For those not buying at all, activities
to encourage them to stock key
products would have worked. Also it
would have been important to carry
out a survey to find out why they
were not buying.
We used this categorization
for a retail shop and the
recommendations were the same.
There were customers who visited
the shop more regularly and spend
less in every visit. There were those
who came to the shop once a year
and bought big. Some came once or
twice a year and spent less, and there
were those who came regularly and
spent big every time.
Using this categorization, the
retail shop came up with varied
sales strategies on how to reward,
incentivize, encourage, or retain
customers in each category.
The 80-20 principle is a great
approach of categorization. In sales,
the principle implies that out of
your total customers, only 20 percent
contribute to 80 percent of your
total volume sales and revenues, and
vice versa. It is important to carry
out this exercise and identify those
20 percent.
When you identify them, establish
strategies to retain and grow them.
If the entire 20 percent decided to
take their business elsewhere, 80
percent of your business is gone.
This exercise will also bring out the
other 80 percent of your customers
who only contribute 20 percent of
your sales. You might be shocked to
discover that some of them are the
most troublesome customers. Some
could even be getting preferential
treatment just because they
complain the loudest.
Nevertheless, don’t ignore this group,
but don’t give it all your attention
and ignore the crucial 20 percent.
‘‘Categorization will
also bring out the
other 80 percent
of your customers
who only contribute
20 percent of your
sales. You might be
shocked to discover
that some of them are
the most troublesome
customers. Some
could even be
getting preferential
treatment just
because they
complain the
loudest.’’
This principle also applies to the
range of stocks that you carry. Only
20 percent of your entire stock
contributes to 80 percent of your
total sales and vice versa. Seek out
that 20 percent and create sales
growth strategies in that category.
Also identify the suppliers of those
products and have strategies to
improve relationships with them.
The other 80 percent of the stock
will be made up of slow moving
products. Manage their sales and reorder quantities to ensure minimum
stocks.
Thinking commercially, you may
ask; and why then stock the 80
percent? The truth is that you need
the 80 percent category to sell
the 20 percent range. If you apply
this principle to most EABL beer
products, only Tusker, Pilsner and
possibly Guinness would be in this
20 percent category. But to sell those
06 MAL 11/16 ISSUE