If You Don’t Count, You Won’t Count…*
By Brian Moore, Global Retail Consultant and CEO of EMR-NAMNEWS

Given the increasingly complex combination of a global credit-crunch, a squeeze on liquidity, trade partnerships dissolving in a transactional environment, short-term/long-term imbalance, trade concentration causing fragmentation, responsibility without authority, with ever more accountability, in a legal minefield, auto-resistance to any price increases, long-term strategies diluted by a short-term market, multiple agendas of single-minded people, achieving a fair-share of an unfair market, and all the time, over-churned buyers wanting more...it can be no surprise that profitable customer management has become more demanding in terms of results driven by these contributing factors. In the light of such complexity, it is worth bearing in mind that the only constant is money....

All of these conflicting issues translate into impact upon money, and effective measurement means that they can be factored into a supplier’s financial performance, with the right tools. Essentially, most financial tools simply provide a means of measuring the cost of money and expressing its value in terms of incremental sales required to cover that cost. An organisation’s appetite for levels of tolerable risk, or uncertainty, will be determined by the degree to which a supplier is risk-seeking, risk-neutral or risk-averse and over time will develop portfolios of products, customers and a team that reflect its risk profile.

Ultimately the supplier’s financial performance is measured by its Return on Capital Employed (ROCE). This drives its value in the market via the share price, the cost of its credit from banks, the willingness of trade partners to collaborate, the ‘respect’ of competitors and most importantly, its autonomy. ROCE is thus a reference point for the financial measurement of all factors affecting the financial performance of a company, the beginning and end of all effort and reward, against a benchmark of the going-rate for money in the marketplace. A NAM/KAM who can demonstrate a positive impact on the company’s financial performance develops a higher profile and becomes more valuable to supplier and retailer alike. This results in more autonomy in managing the basic business unit, the customer, with the inevitability of increased responsibility and recognition as appropriate results are delivered.

The twin portfolios of products and customers are simply related-resources that need to be balanced in terms of risk and reward to optimise return on investment for the company. Each product/customer will be at a particular point in its lifecycle, generating different levels of return on investment at each stage. Effective portfolio management ensures that mature products and customers are gradually replaced by new products and customers. This effectively produces acceptable overall growth from the portfolio as a whole, in line with ROCE requirements. This means that brands and customers must be classified as either invest, maintain or divest in terms of strategy and day-to-day management in order to yield an acceptable overall return in order to meet, and be seen to meet, ROCE targets, via the consumer.

On balance, the ability to factor conflicting complexities into company performance can be developed. However, the ability to incorporate sudden change into customer strategies can be more demanding, but anticipation of the inevitable can become part of a personal toolkit. For instance, Alliance Boots and M&S’ ‘sudden’ demands for additional terms could have been seen as inevitable developments following the emergence of the global credit crunch and its impact upon the cost of private equity funding and consumer demand.

The ability to formulate and implement a rapid and sustainable response based upon financial impact upon supplier and customer will characterise the professional NAM/KAM and is acknowledged to be a scarce commodity. In 2008, the ability to count will make you count for more in both organisations. A pity to miss the opportunity for want of a simple toolkit….

*Alan Musgrave

For KamTips on 'Counting in retail - Factoring market issues into trade strategies' see Namnews – February 2008

Date article published: 01/2008