If you wish to succeed in the disrupted post-pandemic era, the foundation of which is still in flux; then as an enterprise, you need to revisit your business strategy and customer targeting to keep your place in the market while growing your share of the pie. A re-aligned strategy is a pre-requisite of the ‘new normal’ and demands enterprises to tailor their business model around it to capture and dominate their target market.
The problem that arises is that most companies are unwilling to build competitive assets that are now a must-have of the post-pandemic era. Market fragmentation has increased even further today, and this has allowed digital giants, powered by their capabilities of market micro-segmentation, to expand their reach and revenues even further. However, many companies have not been proactive enough when faced with the necessity of changing their business models to keep up with the tide of the times.
Many managers have kept functioning on age-old broad-market business models causing them to lag in terms of relevance and competency instead of building brand loyalty. On the other hand, financial analysts have continued to evaluate companies purely on expense reduction and sales growth, further adding to the catch 22 that traditional businesses face in the new normal.
How to build an aligned business model?
The first step to building an aligned (read: post-pandemic) business model is understanding your enterprise’s profit segmentation. The utilization of metrics based on transactions can help to segregate customers into three separate profit segments.
- (High revenue, Low-profit customers) – Profit drains
- (Low revenue, Low-profit customers) – Profit deserts
- (High revenue, High-profit customers) – Profit peaks
IN the new normal post COVID, an enterprise should build business models that target at least two of these profit segments. By targeting specific profit segments, numerous innovative businesses have increased customer value and reduced cost to serve.
Now let’s dive a little deeper into what each of these profit segments entails.
3 Profit segments enterprises should target post-pandemic
1. Profit Peak Customers
Targeting profit peak customers immediately results in enhanced value on both sides of the table. The customer gets a premium product, and the enterprise can charge a premium cost. Consider the example of GE’s aircraft engine division.
In the past, the major chunk of GE’s business came from the sale of spare parts and engines. This segment was extremely vulnerable to competitors when product price was the denominator.
After being constantly on the defensive, GE’s executive had a breakthrough. They understood that their end consumer wanted an airplane that flew flawlessly and not components that allowed the airplane to do so. IN response to this ‘A-HA moment,’ GE developed a new business model where the airline that once used to buy engines and components from GE now paid GE a ‘rent’ for the engines and machinery they used. This was termed- ‘Power by the hour.’
GE now had a strong incentive to maintain and even enhance the quality of their engines and components, given that longer flight times meant higher revenue. Third-party maintenance providers were also reduce the cost of operations drastically.
2. Profit Drain Customers
Targeting profit drain customers can boost revenues; however, the margin of profit remains flimsy. While there is a large segment of people who want to utilize your product, they are unwilling to pay a premium for it either because of multiple similar products available in the market or a low-value perception of the product. Consider the example of Nalco.
Nalco is in the business of producing and distributing water treatment chemicals. The company was under immense competitor pressure in terms of price points. Nalco decided to add a tech layer to their product offerings, a wireless monitor that could read chemical-draw down in the customer’s tanks. Armed with the data from the monitors, Nalco was able to drop delivery and manufacturing costs, driving the company ahead of its competitors.
The Monitor installations also offered a critical insight to the executives at Nalco. By monitoring draw-down rates and comparing them to calculated optimal system efficiencies, Nalco could now detect operational issues and alert the customer’s engineers.
Given that the cost of running an inefficient system was a lot more than the cost of the actual chemicals, Nalco was able to reposition itself as a strategic partner by following business survival strategies. Nalco now had the very first movers advantage, and price wars with its competitors soon vanished.
3. Profit Desert Customers
Profit desert segments are the most complicated to target while building an aligned business model. Here the customer doesn’t care about the product given numerous alternatives available at a very low cost. The product itself is sold at a low margin of profit resulting in most executives ignoring the product altogether while forming a business strategy. However, with a little tweaking, an enterprise can activate a whole new customer group that can easily convert to a profit peak segment. Consider the example of Pacific distributors.
Pacific distributors distribute alcoholic beverages. Upon review, high-selling brands like Budweiser, Miller, etc., were revealed to have a low gross margin but high profits. However, the premium product of craft beers that Pacific distributed was losing immense amounts of money.
These craft beers were sold at a high-profit margin and considered a premium offering. While buyers flocked around the anchor products of Pacific Distributors, their premium products were completely ignored.
Upon further scrutiny by the management, there was a surplus of Pacific’s craft beers in the market. Sales reps were delivering over 2-3 consignments a week to local shops, and most of the stock was being returned as unsold. When questioned, the sales reps stated that their managers were controlled by the number of consignments delivered, resulting in every rep hustling as hard as possible to deliver multiple consignments a week, regardless of demand.
This issue was easily resolved by a mutually decided and much more realistic benchmark for sales reps regarding delivering consignments. By simply dropping the number of orders required by one, the whole premium segment of Pacific distributors flipped into profit, with craft beer becoming a profit peak product.
Right Segment, Right Business Model
The examples mentioned above are not from the software or tech domain, but the insights offered by them apply to every market, inclusive of custom software development services. In the post-pandemic world of today, accurate customer targeting and aligned business model adoption is a life-or-death need.
To succeed in the new normal, an enterprise needs to get the following two things right.
- Target a defensible market segment.
- Create a business model that edges out the competition.
The choice of the target customer is also crucial as you have to say no to customers that seem appealing. Creating an innovative, high-profit business model is imperative. Targeting the right customers with high customer value is one of the most critical aspects of business strategy.
Markets are consistently changing, be it software development or manufacturing. And business models need to change in step with the market. Constant innovation, of the kind practiced by Radixweb, is key to success for both the customer as well as the enterprise, and by focusing on the right segment while armed with an aligned business model, your enterprise can thrive in the post-pandemic world of today.
