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Identifying Your Key Targets: The First Step to Mastering The Lost Art of Differentiation

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(PART 1 OF 6.5 )

Author’s note: In our last IndustRetail blog post, we introduced the Six-and-a-half Steps to Mastering the Lost Art of Differentiation. This is the first of 6.5 follow-up articles that will take a closer look into each of those steps.

It’s so tempting to be everything to everyone. We see opportunity everywhere.

And whenever we consistently act on all those opportunities, we fail. 

The first step toward differentiating your industrial MRO business is identifying key targets. By definition, differentiation forces you to ignore large market segments. It fosters a discipline whereby companies voluntarily strap blinders on, forcing them to focus on the kinds of customers who allow them to earn the greatest returns.


Fortunately, this might be the most straightforward of the 6.5 steps to mastering the lost art of differentiation. You already have the information you need. You may already know it intuitively–or at least think you do. But relying on hunches can be exceedingly dangerous. If you don’t believe me, Google “Donner Party Shortcut.”

Instead, make fact-based decisions. In your case, the facts you need are in your sales reports. (Manufacturers: this why distributor POS is so valuable. If you’re not getting it, get it–even if you have to pay for it!) Follow these simple steps:

  1. Run sales reports for the last 3 years, then do the following for each year, individually.
  2. Rank order your customers by sales from high to low.
  3. If you don’t track customers by NAICS or SIC codes, look them up and add that data to your spreadsheet. (Note: NAICS codes are more granular and recognize more business types, therefore, have become more popular.)

  4. Look at the top 20% of your customers (A-Customers) by revenue. Chances are, they will comprise very close to 80% of your business.
  5. Sort your A-Customers by NAICS code (or SIC, if you use that system). If using NAICS codes, only use 3-digit codes. Going beyond that is probably too granular.
  6. Rank order your business by NAICS code volume among A-Customers.
  7. Look at largest NAICS code groups. There will probably be a revenue volume break somewhere after the top 3 to 5 NAICS codes. List those top NAICS code groups by year.
  8. Since you’ve done this for each of the last three years, compare your top NAICS code groups by year. Are the lists consistent? If so, those groups comprise your core market segments by industry.
  9. If the 3-year lists are not consistent, is there a migratory trend toward one or more NAICS codes? Is there a reason for the trend? If so, that will probably guide your analysis.
  10. Also, if the lists are not consistent, look for large, one-time-only customers who may have skewed your data. If they are no longer customers, eliminate them from the data and re-run your reports and analysis.
  11. Once you’ve identified your core industries, look at additional firmographics (think: demographics for businesses):

a.       Number of employees
b.       Sales volume
c.       Public vs. private
d.       Headquarters vs. branch or subsidy
e.       Business geography (regional vs. national)
f.        Business condition (growth, stable, decline)
g.       Decision-making process (individual vs. group, nimble vs. bureaucratic, etc.)
h.       Price sensitivity vs. value focus (Are they price buyers only? Or are they willing to pay a premium for higher performance or convenience?)

Note: If you don’t have these details, we can assist you with a data augmentation for points a – d. You or your sales team should have a handle on f – h, based on their interactions with customers.

12. Add the data points outlined to your spreadsheet and rank order your A-Customers by each firmographic data point. Note the trends that emerge and add them to your composite profile.

By the end of this analysis, you should have a rock-solid understanding of your core customer groups. Now look at the things they buy from you. Different customer groups will have different needs and, therefore, have different product selections. Identify the top product groupings by market segment.

Is the picture becoming clearer? Now you have an accurate snapshot of who your biggest customers are from a firmographic and product set perspective. Establishing those customer avatars will serve as the foundation for your efforts to differentiate your brand.

But you’ve only just started. The next step is talking to them to see why they think you’re different and better than your competition…that’s our next blog post.

Until then, remember this old adage: “The man who chases two rabbits, catches neither.”






Tim Rasmussen
Principal, Rivet|MRO


Recommended reading: Profit from the Core, by Chris Zook, with James Allen

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