How to Compute the Next Best Product
by Arthur Middleton Hughes

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 your customers and their purchases for the past two years, and that you have overlaid your file with SIC codes, number of employees and annual sales. This data can be obtained from D&B.

Your first job is coming up with meaningful SIC (Standard Industrial Code) categories. For each SIC group, determine your total sales. You may have to do some grouping to get something to work with. You will end up with a small group of meaningful SICs.

Then I would categorize the final SICs by number of employees or annual sales, using one or the other, depending on your preference. We can divide them into three categories such as under 400 employees, 401 to 1000, and over 1000 employees.

From all the SKUs sold to customers, group them into categories. For example, a company with 40,000 different products might group them into:

• Hoses

• Valves

• Pipe

• Switches

Now comes the time to use a sophisticated model. We take each of our several hundred current customers and determine their sales in each of our major product groups. We look at their SIC and employee size category. The model will create a next best product for each of the customer companies based on their product purchases ranked against the other companies in their SIC and company size group. Each of the company score card will look like this:

 XYZ Company Average Annual Purchases Hoses Valves Pipe Switches Total Group Average \$38,002 \$60,003 \$42,001 \$2,002 \$142,008 This Company \$22,001 \$78,003 \$1,001 \$8,990 \$109,995 Next Best Product \$42,001

What this table says to the sales force is that for the XYZ company, the Next Best Product to sell them is Pipe, and that their annual sales to this company could amount to \$42,000 per year, based on the purchases of other similar companies.

The customer database can produce numbers like this for every company. They can be given to the sales force. Each salesman can be measured not only on total sales, but on their ability to increase sales into these conquest categories.

Arthur Middleton Hughes is Vice President of The Database Marketing Institute. Ltd. (Arthur.hughes@dbmarketing.com) which provides strategic advice on relationship marketing. Arthur is also Senior Strategist at e-Dialog.com (ahughes@e-Dialog.com) which provides precision e-mail marketing services for major corporations worldwide. Arthur is the author of Strategic Database Marketing 3rd ed. (McGraw Hill 2006). You may reach Arthur at (954) 767-4558 .

The articles on this web site are available to the general public to read, enjoy and for limited business use. If you want to reprint more than one or two of them for resale or use in a business or educational environment, send an email to Arthur Hughes at arthur.hughes@dbmarketing.com. He will give you permission by return email. The cost, depending on the number of copies you want to reprint, is very inexpensive.

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