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For a business-to-business application, how do you go about determining the next best product for each of your customers Let us assume that you already have a database with information on your customers and their purchases for the past 2 years and that you have overlaid your le with SIC codes, number of employees, and annual sales. These data can be obtained from D&B. Your rst job is coming up with meaningful SIC categories. For each SIC group, determine your total sales. You may have to do some grouping to get something to work with. For example, Table 9-1 gives just a few out of perhaps a hundred SICs. I would not waste time on SICs B and F. They should be combined with others. You might want to collapse SIC E as well. You will end up with perhaps 40 meaningful SICs or even fewer. Then I would divide the nal SICs into categories on the basis of either number of employees or annual sales, depending on your preference. We can divide them into three categories as shown in Table 9-2. We now have divided our customer base into 21 different groups on the basis of SIC group and size. Table 9-1 Sales by SIC Groups
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SIC A B C D E F G Your sales $1,889,000 $23,000 $4,599,000 $102,000 $56,000 $124 $3,445,220 Number of companies 14 1 18 3 15 1 178 Average sales $134,929 $23,000 $255,500 $34,000 $3,733 $124 $19,355
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Table 9-2 Customer Companies by Number of Employees
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SIC A&B C D, E, F & G H I J Total Your sales $ 1,912,000 $ 4,599,000 $ 3,603,344 $ 1,002,000 $ 4,567,000 $ 2,089,000 $17,772,344 Number of companies 15 18 197 41 101 43 415 Number of employees Under 400 $ 552,001 $ 45,000 $2,001,000 $ 200,000 $1,002,000 $ 45,001 $3,845,002 401 1000 $ 200,000 $ 456,000 $ 500,000 $ 62,000 $ 890,000 $ 1,998,000 $ 4,106,000 1001+ $1,159,999 $4,098,000 $1,102,344 $ 740,000 $2,675,000 $ 45,999 $9,821,342
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Next, we turn our attention to the products sold to these companies. We have to do some consolidation here as well. Some companies are buying 100,000 different products, and others are buying only 4 or 5. To make sense out of these numbers, we have to break these products down into meaningful categories. By meaningful, I mean that not only do they have to have suf cient sales to be worth bothering with, but they also have to have some relevance to one another. For example, we might have categories like those shown in Table 9-3. Looking at these categories, I might concentrate on the four product categories in which the average sale per buyer is $27,000 or more. Depending on the situation, you might also combine some of the categories. Now it is time to use a sophisticated model. We take each of our 415 current customers and determine that customer s sales in each of our major product groups. We look at the SIC group and the employee size category. The model will create a next best product for each of the 415 different customer companies based on that company s product purchases relative to those of the other companies in its SIC and company size group. Each of the 415 different company scorecards will look like Table 9-4. Table 9-3 Average Sales by Product Type
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Total sales Hoses Fasteners Valves Pipe Wire Switches Connectors Total $ 6,001,000 $ 778,001 $ 1,002,000 $ 9,001,000 $ 339,000 $ 603,000 $ 46,001 $17,770,002 Total buyers 220 198 18 144 201 22 32 415 Average per buyer $27,277 $ 3,929 $55,667 $62,507 $ 1,687 $27,409 $ 1,438 $42,819
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Table 9-4 Next Best Product for XYZ Company
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Total average annual sales Hoses SIC group average This company Next best product $38,002 $22,001 Valves $60,003 $78,003 Pipe $42,001 $ 1,001 $42,001 Switches $2,002 $8,990 Total $142,008 $109,995
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