Major Home Entertainment Company
The client is a major distributor and marketer of home video and DVD products from some of the world’s leading motion picture and television studios.
As a key player in the booming home entertainment industry (which generates $15 billion annually in the United States), the client owns distribution rights to several top-selling video and DVD titles. The client’s channel customers include major retail chains, video rental companies, and others.
The Challenge
The client had already developed some customer profitability reporting capabilities, but desired a more complete solution that delivered a comprehensive view of the direct costs of doing business with specific channel customers, and provided accurate forecasting capabilities to identify future channel customer requirements. Other requirements included support for the following activities:
- Channel customer investments and profitability analysis
- Pricing structure analysis
- Trade promotion spending and profitability analysis
- The client’s ultimate goal was to improve customer relationships, better understand costs that impact profit margins, and enhance the company’s overall efficiency and effectiveness.
Capgemini Approach
The client chose Capgemini based on our knowledge of the consumer products industry as well as our leadership position in developing processes and technologies to support this strategic undertaking. Capgemini brought to the project a history of implementing best-in-class solutions for the consumer product goods industry in areas that include sales forecasting, trade promotion planning, retail execution, and customer profitability.
Capgemini worked with the client to develop a Channel Customer Profitability analysis capability for eight pilot customers in seven different retail channels as well as four products in four different product categories. In the first phase, data was manually collected and entered into Capgemini’s propriety Customer Profitability Analysis Accelerator Tool. In addition, activity-based costing models were developed for cost allocation in areas where expenses were not directly attributed to a specific customer. These activities resulted in the creation of a set of reports and deliverables that broke down customer costs into categories that were most relevant to the way that the client operates their business.
When the pilot study was completed, Capgemini presented the results of the analysis to key client stakeholders, and described a strategic framework to implement a channel customer profitability initiative across the complete organization.
Value Delivered
The CCP Solution translated the complex, opaque data in the client’s financial statements into a language and format that both executive and operational decision makers understand. The pilot Channel Customer Profitability Analysis revealed the following areas of opportunity for the development of business profitability and cost containment strategies:
Promotional Reporting and ROI Analysis. The channel customer profitability analysis revealed that trade promotion costs were the most significant as well as the most variable. Opportunities to increase customer contributions to promotional costs were identified as well. To address these issues, Capgemini worked with the client to develop a Siebel-based trade promotion and fund management solution to enable effective planning, management, and execution of profitable trade events.
Reinvestment Modeling and Customer Collaborative Planning. The Customer Profitability analysis provided visibility into which costs drivers added value and which did not, and identified which costs were controlled by retailers, by manufacturers, or by both. This information helped the client develop immediate insight into several kinds of customer costs, providing fact-based information to be used in top-level discussions with major customers. In the long term, customer profitability analysis results can provide the client with a foundation for an automated reinvestment capability. Pricing structure and services provided by the manufacturer on the customer’s behalf would be allocated systematically based on client and customer negotiated cost metrics and performance measures. This would support a business model of collaborative planning and negotiations between the company and a specific customer.
Customer Pricing Strategies and Models. The analysis provided visibility into unique, customer-specific cost drivers based on services provided by the client. In addition, the analysis identified costs that result from a customer’s limited capabilities. As a result, the client can use this information as the foundation for updated pricing models and business rules that reflect the true level of service being provided to the customer, while strategically setting prices to optimize the bottom line. The price modeling could be used to support procedures, policies, and terms defined for customers and/or channels.
In addition to these customer-facing improvements, the data collection and automation process revealed opportunities for internal business process improvement that will lead to higher quality channel customer data.
Executives at the client company plan to use the results of the pilot Channel Customer Profitability study to support customer policy and procedure decisions, and prioritize business planning and information technology investments. The success of the pilot study prompted a senior sales executive to remark,”This is the best consulting work that I have ever seen in such a short period of time.”