November MarketingMasters Luncheon Report

Opportunity and Fit: The Customer Evaluation Equation

By Tom Power
Senior Editor, Slack Barshinger

A lot of people claim to have marketing down to a science. Tom Insprucker can prove it, and he did just that at last month’s BMA MarketingMasters luncheon seminar.

Insprucker, head of marketing operations at Schneider Electric USA , told the luncheon crowd at the Metropolitan Club how he and his Square D team came up with its Opportunity and Fit Analysis, a customer selection tool so effective it produced 34% margin growth in the first year it was implemented.

At the heart of this sophisticated, complex tool are a seemingly simple question with an equally simple-sounding answer.

The question is: “What is a good customer?”

The answer? “A good customer is any customer who meets your criteria for good customer selection.”

“Me giving you that simple answer is easy for me to do,” Insprucker said. “Me, having lived through the year and a half of torturous wrack, wretched pain, hell, beatings, bludgeonings, poundings by the sales force, wailings by operations, incredulity from senior management. That’s the part that gets you to the answer.”

The “answer” is a set of criteria for what constitutes a good customer that both sales and marketing can agree upon. And if Insprucker was exaggerating about the pain involved in reaching that agreement, it was only slightly. The reason, he said, is that salespeople have traditionally been trained to be opportunity-driven while marketing people are fit-driven when it comes to evaluating customers. Those are two mind-sets that are at odds with each other, and it made the creation of the Opportunity and Fit Analysis a contentious process.

All of this began in the late 1990s when Insprucker and his Square D team decided to take a look at what its customers were doing. After loading all of its customers into a database, the Square D team found it had 5,786 customers.

“Then what we did is we said, let’s plot it,” Insprucker explained. “Let’s find out how much we’re selling to all of them.” So they took the contribution margin for each customer and mapped out the revenue over the customer base, and the result made their jaws drop. “The top 1,300 accounts represented 90% of our total margin.”

That “astounding revelation,” as Insprucker described it, led the team to ponder how much money the company was spending to service the other customers versus the 1,300 that were responsible for most of Square D’s income.

“That cost-to-serve discussion is really what got us going,” he said. “And this is where we got into trouble with sales. A lot of trouble with sales. Because we started talking about good customers and bad customers.”

Salespeople like orders, especially big orders, Insprucker said, and the top-line numbers are what they’re most interested in. They’re not trained to think about the fact that a $40,000 customer is worth more than an $80,000 customer when the $40,000 customer is at 50% margin and the $80,000 customer is at 20%.

“That’s not how we train people to think in sales. We train them to go out and bag the elephant and bring it home,” he said. “And that’s how they’re adulated and incentivized, when they go out and they bring home the mastodon and the tribe’s happy and we eat in the cave and everything’s great. But they don’t understand that the mastodon’s fat ratio and killer LDL cholesterol are way off and they should have brought home the gazelle. It’s better and more healthy.”

Insprucker said Square D formed a cross-functional team of sales and marketing people to hammer out what eventually became the Opportunity and Fit Analysis. Two key ingredients are the Opportunity Assessment and the Fit Assessment, which consist of a slew of criteria by which a customer is scored, rated and ultimately weighted.

The Opportunity Assessment looks at things like future sales volumes, total potential at the account, switching costs, estimated growth, trend of Square D share at the account and the account’s position in the marketplace. The Fit Assessment asks if the account is project-driven work or repeat business, if the customer fits the company’s competencies, if the customer requires a lot of support and if the customer buys the company’s most profitable products.

By assessing customers according to these criteria and assigning them a weighted score, the model was able to rank customers from least valuable to those with the highest value. Those at the top Square D labeled Major Accounts. The rest it labeled Channel Accounts.

Square D then split its sales force in half. One half was assigned to call on the Major Accounts. The other half was assigned to call on Square D’s 1,800 distributors, which in turn handled all of the Channel Accounts. This way Square D’s expensive, “two-legged assets” were only calling directly on the company’s elite customers.

The result? Major Accounts achieved 54% growth in the first three years of the Opportunity-Fit implementation. Channel Accounts grew 12%.

Insprucker was introduced at the luncheon by Molly Maycock, executive director of the Marketing and Communications Practice at the Washington-based Corporate Executive Board and the former managing director of the Marketing Leadership Council (MLC), one of the programs the Corporate Executive Board administers. The MLC benchmarked a case study on Square D’s Opportunity and Fit Analysis seven years ago and today it remains among the top five most downloaded case studies on MLC’s Web site.