OPERATION

Rewarding Business with Pleasure

Believe nothing,no matter where you read it or who

has said it, not even if we have said

it, unless it agrees with your own

reason and common sense.

Wholesale distribution companies of every size and description are being squeezed hard by a number of mounting factors: the erosion of margin, the struggle to maintain differentiation, and the rapid imitation of technological innovation. Having top notch employees and knock-your-socks-off customer service have become table stakes and no longer provide competitive advantage.

Competition is beyond fierce – it’s cutthroat. The hunt for more sales, new sales, and especially take away sales has intensified. It’s a war. Fought battle by battle. And the ground to be won is customer share.

And that’s where we come in.

DEPARTMENT P helps wholesale distribution companies gain competitive edge through the tactical use of high impact incentive programs that create excitement, guide behavior, build loyalty, and most importantly, produce jaw dropping results.

Since our founding in 2009, DEPARTMENT P has maintained an unbroken track record of successful incentive marketing initiatives; among our clients are some of the largest and most forward-thinking wholesale distribution companies in America.

The cornerstone of DEPARTMENT P’s approach to incentive marketing is customization. We believe that each targeted customer in an incentive program has a unique backstory and that lumping customers into categories, expecting everyone to think and act alike, is nonsensical. A well-designed incentive program must have the flexibility to be customized to fit individual customers.

P IS FOR PERFORMANCE

We also believe that in order to thrive in the hyper-competitive, dog-eat-dog world of wholesale distribution, you constantly need a strong and steady stream of new marketing ideas to drive more business your way. No matter what you’ve done to get to where you are today, you are going to have to do something different tomorrow.

And that’s where OPERATION GODFATHER comes in.

It is an immutable law in business

that words are words, explanations

are explanations, promises are promises

but only performance is reality.

THE OPERATION GODFATHER

MANIFESTOOPERATION GODFATHER is a highly targeted, fiercely creative, and extraordinarily effective incentive marketing strategy created specifically for wholesale distribution companies to use in the ongoing battle for customer share.

Like most highly effective strategies, OPERATION GODFATHER is remarkably simple, even obvious, once you understand how it works. There are six basic principles to consider:

#1 80 percent of your sales and profitability comes from 20 percent of your customers. Of course, the ratio is not always 80/20. Maybe it’s 75/25, 70/30 or even 90/10. However, the situation the ratio describes is always the same: a few Core Customers buy a great deal while a great number of small customers buy very little.

#2 Core Customers are the lifeblood of your business and servicing them should be a company-wide obsession. Indeed, the real measure of a healthy distribution business lies in the strength, depth, and length of its relationship with its Core Customers.

#3 Regardless of the extraordinary measures you may take to delight your Core Customers, attrition is inevitable. When a company gets acquired or closes its doors, there’s not much you can do about it. And you certainly can’t assume that those customers currently giving you the lion’s share of their business will continue doing so in the future; even your best and most loyal customers can and will break your heart. Every time you lose a Core Customer, your profitability takes a hit-- sometimes a big hit. That’s why the long-term expansion of your business is critically dependent on continually cultivating new Core Customers.

#4 Most of your small customers are low impact customers with no potential for significant growth. Many of them , however, have the buying power to become Core Customers and significantly impact your bottom line. We refer to these high-potential, under-penetrated customers as “Sleeping Giants.”

#5 Like your Core Customers, Sleeping Giants are savvy business people who practice economic calculation in every choice they make and who are only loyal to one thing—best value. In those selling situations where all things are equal, including the price, the buying decision almost invariably comes down to the personal relationship between the customer and the sales rep. Essentially, the relationship becomes the tiebreaker. However, personal relationships always have limitations. If customers can find better value in another supplier, they will often take their business there without looking back.

#6 In the eyes of many Sleeping Giants, there aren’t any sharp differences between you and your most formidable competitors. These are the customers that can be motivated to change their buying behavior with only a small improvement in value such as the opportunity to earn insanely desirable Big Splurge Awards in exchange for a greater share of their business. Granted, not all of the targeted customers will take advantage of this opportunity; however, for many of the targeted customers, it will be “an offer they can’t refuse.”

SOMEBODY HAS TO BE THE BEST!For an incentive program to be effective (we mean really effective) nothing is more important than selecting highly desirable rewards; rewards that excite; rewards that inspire; rewards that have the power to actually entice Sleeping Giants to give you more of their business.

And that’s where our Big Splurge Awards come in.

You can search far and wide and comb the Internet until your eyes bleed and you won’t find any rewards more desirable than our Big Splurge Awards.

After all, who wouldn’t be ecstatic to receive a Big Splurge Award that can be redeemed for a custom-tailored vacation anywhere in the world—with no blackout dates, no fine print, and no restrictions whatsoever. Those recipients not interested in vacation travel have the option to redeem their Big Splurge Awards to purchase anything their heart desires from any store in the United States or Canada.

This unprecedented degree of choice and flexibility is what makes our Big Splurge Awards so enticing and such remarkably effective change agents.

Big Splurge Awards, however, are only as good as the people that stand behind them. After all, the ultimate measure of success comes down to just one thing: Happy Customers!

And that’s where our “Escape Artists” come in.

DEPARTMENT P’s team of enthusiastic and dedicated Escape Artists thrive on the challenge of achieving total customer satisfaction and that includes securing the absolute lowest prices on airline tickets, hotel accommodations and other travel related services. Their experience is our guarantee that your customers will return from their vacations with great big smiles on their faces—feeling really smart about being your customers.

OPERATION GODFATHER is a turnkey promotion which is intended to complement , not replace ,your existing marketing efforts. The lead time to launch the OPERATION GODFATHER is approximately 60 days; the length of the promotion period is usually 9 or 12 months.

As you will see when you review the following action plan, our methodology is based on the premise that the clearer the salesreps and branch managers are about the objectives of OPERATION GODFATHER, the more efficient and effective they will be in achieving their personal performance goals. Perhaps Henry Thoreau said it best: “In the long run, men hit only what they aim at.”

NOV 1 Blast email to the participating Branch Managers announcing the program and inviting them to participate in a webinar (or meeting ) that will provide them with all the details of the program. In conjunction with this briefing, the Branch Managers will receive Program Briefing Booklets and samples of all promotional mailings.

NOV 8 Branch Manager webinar or meeting to be orchestrated by DEPARTMENT P.

NOV 11 Blast email from the Branch Managers to their respective Sales Reps announcing the program. The Sales Reps will also receive Program Briefing Booklets and copies of all promotional mailings. Although this email will be sent by the Branch Managers, the content for the email will be provided by DEPARTMENT P.

NOV 12-28 Sales Reps do the necessary “opposition research” to compile their lists of viable Sleeping Giants. Depending on the make-up of their individual territory, each Sales Rep will be responsible for identifying 5-15 Sleeping Giants.

NOV 29 Deadline for the Sales Reps to submit the names of the Sleeping Giants to their Branch Managers.

DEC 2-13 Branch Managers and Sales Reps work together to finalize the list of SLEEPING GIANTS that will be invited to participate in the program. The Sales Reps must be able to justify in definitive terms why each targeted customer deserves to be included in the program.

DEC 16 Branch Managers email their final lists of targeted Sleeping Giants to DEPARTMENT P.

JAN 2 Teaser Mailing

JAN 7 Sales Reps start making appointments to personally deliver the Program Launch Booklets to their customers.

OPERATION GODFATHERMETHODOLOGY

OPERATION GODFATHERTACTICS

In a “perfect world,” all of your Sales Reps would understand that tremendous sales gains come from converting Sleeping Giants into Core Customers and would treat these situations as prime opportunities. This, unfortunately, is not the case.

This being the “real world,” most of your Sales Reps are essentially Customer Service Professionals that provide excellent service to their best customers and will follow up on a lead if it’s sent their way, but are out of their comfort zone when it comes to strategically pursuing Sleeping Giants.

And that’s where the Promotion Campaign comes in.

The Promotion Campaign is a turnkey action plan that will allow your Sales Reps to engage their targeted customers with new found enthusiasm and confidence, knowing that in many selling situations they will have a clear competitive advantage.

JAN 2 Personalized Teaser Mailing from the Sales Rep introduces the customer incentive program, without revealing much in the way of details.

JAN 7 Sales reps begin to contact their targeted customers to schedule appointments.

JAN 8-24 At face to face meetings, the sales reps brief their targeted customers on the incentive program and get them registered in the program. At this meeting, each customer receives a Launch Booklet with individualized qualification criteria.

FEB 14 Scorecard #1 is mailed to the customer’s home addressMAR 14 Scorecard #2 is personally deliveredAPR 11 Scorecard #3 is mailed to the customer’s home addressMAY 9 Scorecard #4 is personally deliveredJUN 13 Scorecard #5 is mailed to the customer’s home addressJUL 11 Scorecard #6 is personally deliveredAUG 8 Scorecard #7 is mailed to the customer’s home addressSEP 12 Scorecard #8 is personally deliveredOCT 10 Scorecard #9 is mailed (final results)

END OF OCT Sales reps personally deliver the Big Splurge Awards to the qualifying customers

Y

THE ENDGAME: INCREASED PROFITS

OPERATION GODFATHER will change

the buying behavior of specific high

volume customers by providing them

with a superior value proposition.

CUSTOMERSBRANCH

MANAGERS

OPERATION GODFATHER will improve

the effectiveness of your branch

managers by providing them with a

well-defined process to ensure that

your sales reps devote more time to

securing the most profitable business

and less time trying to make marginal

business more profitable.

SALESREPS

OPERATION GODFATHER will

increase the productivity of

your sales reps by providing

them with a well-defined

process to generate more

business from high-potential

under-penetrated accounts.

Award Sales Goal Year -over-Year Year-Over-Year Face Value Net Incremental LiquidationLevel Jan-Sep 2014 Sales Increase Profit Increase of Award Profit Percentage

I 17,500 12,500 2,500 500 2,000 20%

II 30,000 25,000 5,000 1,000 4,000 20%

III 42,500 37,500 7,500 1,500 6,000 20%

IV 55,000 50,000 10,000 2,000 8,000 20%

V 67,500 62,500 12,500 2,500 10,000 20%

VI 80,000 75,000 15,000 3,000 12,000 20%

VII 92,500 87,500 17,500 3,500 14,000 20%

VIII 105,000 100,000 20,000 4,000 16,000 20%

IX 117,500 112,500 22,500 4,500 18,000 20%

X 130,000 125,000 25,000 5,000 20,000 20%

PROGRAM STRUCTUREHere’s an example of how a program would be structured for a Sleeping Giant with the following profile:

Base Period Sales (January – September 2013) $5,000

Gross Profit Margin 20%

Base Period Profit $1,000

The program is structured in such a way that the Face Value of the Big Splurge Award will always be equal to 20 percent of theYear-Over-Year Profit Increase.

Since Gross Margins vary from customer to customer, the sales required to earn Big Splurge Awards will be adjusted to reflect each customer’s Gross Profit Margin.

PROGRAM BRIEFING BOOKLETS FOR THE SALES REPS & BRANCH MANAGERSPromotion Campaign Samples Kit● Teaser Mailing● Launch Booklet & Registration Card● Scorecards & Spotlight Cards● Big Splurge Award Booklet

DIRECT MAIL PROMOTION CAMPAIGN● Personalized Teaser Cards ● Personalized Launch Booklets & Registration Cards● Monthly Scorecards & Spotlight Cards (9)

OPERATION GODFATHER SERVICE PACKAGE● Strategic Planning ● Mailing Services (first class postage & handling)● Creative Services (copywriting & design) ● Monthly tracking reports for the Sales Reps & Branch Managers● Print Production & Envelopes ● Final Audit & Evaluation● Data Services (data entry, data scrubbing, & list maintenance) ● Big Splurge Award Booklets & Fulfillment Services

COST OF THE SERVICE PACKAGEThere are no deposits or up-front payments associated with implementing OPERATION GODFATHER. You will be invoiced for the Big Splurge Awards and the Service Package at the conclusion of the program according to the following guidelines:

OPERATION GODFATHERIncluded Features & Cost Quotation

Big Splurge Net Incremental Your OurAward Value Profit Per Award Share Share$500 $2,000 $1,700 $300$1,000 $4,000 $3,400 $600$1,500 $6,000 $5,100 $900$2,000 $8,000 $6,800 $1,200$2,500 $10,000 $8,500 $1,500$3,000 $12,000 $10,200 $1,800$3,500 $14,000 $11,900 $2,100$4,000 $16,000 $13,600 $2,400$4,500 $18,000 $15,300 $2,700$5,000 $20,000 $17,000 $3,000

Big Splurge Net Incremental Your OurAward Value Profit Per Award Share Share$5,500 $22,000 $19,000 $3,000$6,000 $24,000 $21,000 $3,000$6,500 $26,000 $23,000 $3,000$7,000 $28,000 $25,000 $3,000$7,500 $30,000 $27,000 $3,000$8,000 $32,000 $29,000 $3,000$8,500 $34,000 $31,900 $3,000$9,000 $36,000 $33,000 $3,000$9,500 $38,000 $35,300 $3,000$10,000 $40,000 $37,000 $3,000

PREDICTING THE RESULTS

VARIABLE #1: The magnitude of the programClearly, there is a direct relationship between the number of Sleeping Giants participating in the program and the amount of incremental profit that will be generated. The magnitude of the program is determined by (a) the number of “high quality” Sleeping Giants that you have the ability to identify and (b) the number of Sales Reps that will be involved in the program. For planning purposes, figure one Sales Rep per 15-20 targeted customers. Since no up-front expenditures are required to launch OPERATION GODFATHER, cost is not a limiting factor in determining the size of the target audience.

VARIABLE #2: The number of customers that qualify for Big Splurge AwardsOn average, 20%-30% of the targeted customers will qualify for Big Splurge Awards. For planning purposes, 25% is a good working number.

VARIABLE #3: The number of awards issued at each of the various award levelsPredicting how many Big Splurge Awards will be issued at each of the various award levels is impossible. However, it’s interesting to note that Pareto’s 80/20 Principle does apply: very few customers qualify for upper level awards, compared to the number of customers that qualify for lower level awards.

VARIABLE #4: The performance of the Sales RepsNot surprisingly, Pareto’s 80/20 Principle once again comes into play: approximately 80% of the Net Incremental Profit will be generated by 20% of your Sales Reps. Please note that the biggest gains will not only come from your “heavy hitters,” but also from average Sales Reps who have a knack for “working the program.”

The amount of Incremental Profit generated by OPERATION GODFATHER is largely influenced by four variables:

Case Study #1HOMANS ASSOCIATES

Qualification Period 9 MonthsNumber of Targeted Customers 445 Number of Sales Reps 29 (average 15 customers per sales rep)Number of Big Splurge Award Qualifiers 98 (22% of the target audience)Incremental Profit $1,000,000Total Value of Big Splurge Awards $250,000

Number of Award Total Incremental Percent of Total Percent ofQualifiers Value Award Cost Profit Incremental Profit Total Qualifiers46 $1,000 $46,000 $184,000 18% 47%

26 $2,000 $52,000 $208,000 21% 27%

8 $3,000 $24,000 $96,000 10% 8%

6 $4,000 $24,000 $96,000 10% 6%

2 $5,000 $10,000 $40,000 4% 2%

1 $6,000 $6,000 $24,000 2% 1%

2 $9,000 $18,000 $72,000 7% 2%

7 $10,000 $70,000 $280,000 28% 7%

98 $250,000 $1,000,000 100% 100%

Based on these results, it should come as no surprise that Homans Associates gaveOPERATION GODFATHER a perfect “10,” calling it one of the best marketing programs they had ever run.

Case Study #2BEACON ROOFING SUPPLY CANADA

Number of Award Total Incremental Percent of Total Percent ofQualifiers Value Award Cost Profit Incremental Profit Total Qualifiers16 $500 $8,000 $32,000 2% 13%25 $1,000 $25,000 $100,000 6% 20%8 $1,500 $12,000 $48,000 3% 6%14 $2,000 $28,000 $112,000 7% 11%3 $2,500 $7,500 $30,000 2% 2%12 $3,000 $36,000 $144,000 9% 10%3 $3,500 $10,500 $42,000 3% 2%6 $4,000 $24,000 $96,000 6% 5%4 $4,500 $18,000 $72,000 4% 3%15 $5,000 $75,000 $300,000 18% 12%3 $6,000 $18,000 $72,000 4% 2%2 $7,000 $14,000 $56,000 3% 2%1 $7,500 $7,500 $30,000 2% 1%2 $8,000 $16,000 $64,000 4% 2%1 $8,500 $8,500 $34,000 2% 1%3 $9,000 $27,000 $108,000 7% 2%2 $10,000 $20,000 $80,000 5% 2%1 $11,000 $11,000 $44,000 3% 1%1 $12,000 $12,000 $48,000 3% 1%1 $13,000 $13,000 $52,000 3% 1%1 $15,000 $15,000 $60,000 4% 1%124 $406,000 $1,624,000 100% 100%

Qualification Period 11 MonthsNumber of Targeted Customers 404Number of Sales Reps 21 (average 9 customers per sales rep)Number of Big Splurge Award Qualifiers 124 (30% of the target audience)Incremental Profit $1,624,000Total Value of Big Splurge Awards $406,000

Based on the results of its 2012 program, it should come as no surprise thatBeacon Roofing Supply Canada decided to repeat OPERATION GODFATHER IN 2013.

As much as we would like to believe that OPERATION GODFATHER is the “be all and end all” of incentive marketing programs, we’re the first to admit that no incentive marketing strategy is right for every company.

With this in mind, here are three valid reasons why OPERATION GODFATHER might not be right for you:

#1 The objective of OPERATION GODFATHER is to significantly grow your business by taking customer share away from your largest competitors’ Core Customers. If you lack the ability to identify who those Core Customers are, OPERATION GODFATHER is not for you.

#2 By definition, “gross profit margin” expresses profits as a percentage of goods sold. Because your gross profit margins vary dramatically from customer to customer, OPERATION GODFATHER’s metrics are structured around incremental profit, not incremental sales. If you cannot assign a relatively accurate gross profit margin to each targeted customer, OPERATION GODFATHER is not for you.

#3 The success of OPERATION GODFATHER is critically dependent on the ability to provide the targeted customers with monthly scorecards so they can track their progress in qualifying for Big Splurge Awards.Our job is to produce the scorecards; your job is to provide us with monthly sales reports so we can do so.If you cannot generate monthly sales reports on a timely basis, OPERATION GODFATHER is not for you.

THREE GOOD REASONS WHYOPERATION GODFATHER IS NOT FOR YOU

At the end of the day, OPERATION GODFATHER is simply an investment-- no more, no less. Although the program does not require any up front expenditures, it does require an investment of both time and energy.

As you evaluate this investment, it’s important to understand that OPERATION GODFATHER will have no impact one way or another on the majority of targeted customers.

That being said, the reason why OPERATION GODFATHER represents such an excellent investmentis the extraordinary amount of profit you stand to make on those customers whose buying behavior will be impacted by the incentive program – not only during the promotion period, but after the program is over.

Here’s the bottom line: The question is not, “Will OPERATION GODFATHER generate incremental profit for your business? That has long since been settled. The only question is “How much incremental profit will be generated?”

Needless to say, we look forward to having the opportunity to find out!

WHERE THE RUBBER MEETS THE ROAD

Carole / Ken / Al -

I hope all is well with everybody and everybody is knocking the cover off the ball.(Who used to say that?)

In any event , I would like to ask you all a favor and give either Roy Podell or Paul DeLuca from DEPARTMENT P a listen for your next customer incentive program.

We recently used DEPARTMENT P’s “Operation Godfather” program with great success. The data mining they do on your customer base will open your eyes. They prepare monthly pieces that include a scorecard to each customer who registers in the program and individual award books tailored to each individual customer.

The best part is that their "Big Splurge Awards" can be used for anything, and I mean anything. We even had a customer who used his award for his son’s college tuition. DEPARTMENT P handles all aspects of the promotion and redemption, so the program is real turnkey.

If I did not feel that “Operation Godfather” is a “10” I would not be helping them get in touch with you. I truly believe in their program; it was one of the best programswe have ever run.

Again, I hope all of you are doing well personally and at your companies.

Warm regards,

Bob

WHO’S WHO

Bob TisePresident, Homans Associates

Carole PoindexterPresident, Baker Distributing Company

Ken ConnellPresident, The Gemaire Group

Al LendinoPresident, East Coast Metal Distributors

“It ain’t bragging if you can back it up.”