Having cut their expenses as deeply as possible in recent years, and with no signs of rebounding growth in their markets, many B2B companies are looking for new ways to grow their top and bottom lines. Commercial excellence may be the answer. As an approach that imposes discipline on a company’s pricing decisions and aligns its service offerings with its customers’ needs, commercial excellence can quickly improve margins in designated regions, on select products, and on key accounts, and support an overall rise in corporate profitability
A company embarking on a commercial excellence initiative must develop expertise in more than a half-dozen disciplines that touch customers and its operating model. The most important disciplines are margin diagnostics, customer segmentation, and pricing. Margin diagnostics creates detailed, graphic insights into a company’s economics, and gives managers at every level a crucial tool for decision making. Customer segmentation, when done correctly, sets the stage for B2B companies to win more business and package their service offerings in efficient ways. A well-conceived pricing approach matches the value a company captures to the value it creates — and lets B2B companies base pricing more on science and less on guesswork. When reinforced by other disciplines in a commercial excellence initiative, these three areas can materially improve results in as little as six months to a year.
The last few years have been tough for many B2B businesses. Their end markets have been flat and their cash flows weak, and after several years of aggressive cost containment, their options for continued profit gains through cost reduction are limited. But they can still derive significant value through commercial excellence.
Companies beginning commercial excellence initiatives should take a holistic approach, rather than pursue piecemeal change. That said, they would be well advised to focus first on the three interlocking commercial disciplines that form the basis of future improvements. Margin diagnostics gives management confidence that commercial processes are under control. Customer segmentation ensures that the company is aligning its various activities with customer needs to achieve a pricing premium. The premium, in turn, depends on strong capabilities in the area of pricing.
Building these three disciplines requires commitment from an organization, and can benefit from a high-level champion. But such a commitment can pay off handsomely. We have seen commercial excellence programs add 3 to 5 percentage points to profit margins within six months. It’s easy to create the business case for that.