The Low Margin Business

I have shared this with a few people before, but it is surprising how often the industries that NAV competes in most successfully are "low margin ". While our segmentation exercises will tell us that NAV sells well in verticals such as construction, or food and bev; and diagonals such as manufacturing, retail and distribution this is merely descriptive segmentation and is not causal.

The causal segmentation suggests that NAV customers purchase in order that they can improve their processes that most immediately affect the bottom line. Businesses with the greatest propensity to do this operate in low margin industries or supply chains. A 10% improvement in logistics, wastage, speed of order processing or picking accuracy can make our customers industry leaders.

Of course segmentation must be addressable and usable, and it will very difficult to ring up a list broker and request a list of low margin businesses. But we can make reasonable guesses in choosing our target markets for NAV. And of course "low margin" itself is only a signpost towards the need of the customer to improve processes.

But customers don't just wake up one day and decide to faciliate a process improvement - so what drives them over the edge? One important factor seems to be changes in the power balance of a supply chain. No wonder so many mid-market suppliers to our major supermarkets have looked to replace their old systems - their margins no longer support their business. Similar forces would seem to be at play in FMCG in general, especially where we see the influence of BRIC economies coming into the supply chain.

So what else is out there - which other industries are changing radically. And who are the smart companies in those industries who will grasp the opportunity to change and prosper, rather than stay still and get trampled on?

Posted by Steve Farr