Marketing lore tells us that the customer is king and always right. Such naive theories can lead to poor decision making and ineffective allocation of resources.
When on-hand inventory is scarce, or transportation capacity is limited, the marketing tendency would be to allocate resources among all customers, which ignores the importance and profitability of key customers.
Rather than blindly serving all demand, produce companies must evaluate the relative value of customers. By segmenting customers according to their individual profitability over time, segments can be established, and service priorities set accordingly.
A simple strategy is to rank all customers by profitability and designate those that collectively account for 80 percent of sales as A customers. The next 15 percent are B customers, and the final 5 percent are C customers. Segmentation ensures A customers, who account for the vast majority of sales, are properly identified and treated accordingly.
Just as the airlines provide upgraded service to high-value frequent flyers, produce companies must prioritize high profitability A customers for inventory allocation, order fulfillment, and value-added service provisions.
This is an excerpt from the most recent Produce Blueprints quarterly journal. Click here to read the full article.