Client Situation
A middle market manufacturer of capital equipment, in business for over 50 years, had become increasingly dependent upon one key customer outside the US who made up over 50 percent of the company’s revenue. The client was under continual pressure from this customer to reduce pricing and customize the equipment at no extra charge, resulting in declining gross margins and net profit. While focusing on this single customer, the company had strayed from its core business in its original market segments, and was losing touch with long standing customers who had been using the client’s equipment for decades.
Solutions
An experienced executive, who is now a E78 partner, was engaged to perform a detailed analysis of the client’s revenue by market segment, customer, distribution channel and product. Working with the client’s functional managers in production, sales and engineering, an aggressive marketing and sales channel development program was implemented that refocused the client’s sales and product development efforts on the core market segments where the client still had good brand name recognition.
The sales team was redirected to focus on these long-standing customers, many of whom were ready to replace their aging equipment. A sales channel partner training program was developed to enable the onboarding of a new group of specialized contractors and distributors to better serve these core market segments, including technical training on the installation and maintenance of the equipment. The increased dialogue with this important set of core customers revealed opportunities to develop product line extensions. Under the direction of the executive, the client’s engineering staff developed three product line extensions to address the needs of these long-standing core customers and generate additional revenue.
Results
- The client was able to increase sales to a more diversified and stable customer base, reducing dependency on the single key international customer to 25 percent of revenue
- The client captured new sales opportunities as the longstanding core customers replaced their equipment. The profit margins for sales to these diversified customers were 20 percent higher, allowing the client to increase overall company gross margins, while still maintaining the existing pricing with the key international customer.
- The product line extensions were successful with the core customer base, allowing for additional sales growth at higher profit margins
