The Shape Of Customer Demand Has Changed
How big is the problem? Bain & Company analysed the 2003–2011 income statements of roughly 200 large US-based companies in healthcare, technology and financial services. More than half of these companies had increasing sales and marketing expenses as a percentage of revenues over the period, or they failed to demonstrate the scale benefits that one would expect from their growing size.
In our experience, a few key factors account for this reversal, starting with how the shape of demand has changed in many industries:
Customer needs have grown more sophisticated. Buyers increasingly demand a tailored solution anchored in expertise about their industry or a specific function. In software and business process outsourcing, for instance, spending on vertical industry offerings will grow twice as fast as general enterprise software spending through 2016, Gartner estimates.
Customers expect providers to help solve their business problems and measure value based on outcomes, not necessarily the lowest price. Medical device firms that previously sold stents and defibrillators now are being asked by customers to improve patients’ health outcomes. Sellers of oil and gas are being asked to reduce customers’ energy footprint.
Customers have become more experienced with competitive, disciplined bid processes. Buyers can readily gather basic information about products. When I was a Director in a large Sydney based marketing company I worked with many Australian retailers as well as major brands. A real concern then was how to stop or slow the customer down from “showrooming”. I was asked to give a talk in the US regarding the epidemic that was termed “showrooming”. Companies were and are increasingly aware that customers can get competitive prices while on your premises and therefore using your investment in bricks, mortar, staff and stock as a show room. This is why I am blown away when I don’t receive good service… Just the other day I was in a large shopping center looking to buy a watch to treat myself. I went into Myer’s saw the watch I wanted and could not get anyone to sell it to me.Despondent I took a picture and went on line to buy it!!!!!!!!!!!!!!
Customers are less loyal. Customer loyalty has become increasingly important to a business’s long-term health. Sales performance depends on the ability to retain high-value customers, to up-sell at the point of sale and to expand the customer relationship through cross-selling.
In turn, these shifts in demand have caused companies to dramatically change what they sell. Finally, transactional selling based on knowledge of product features, functionality and cost has become less relevant than consultative selling that’s tailored to the customer’s needs and must meet a customer’s threshold for return on investment.
Simply put, most current sales models are not keeping pace with the shifts in demand, as many companies struggle with factors that contribute to higher costs. Account managers may realize too late that they need additional expertise, and they frantically call specialists to join a sales effort at the last minute. This results in overused, misapplied sales resources or missed business opportunities. Companies also are finding they have loaded up on variants of solutions, sales teams and sales coverage—a creeping complexity that raises costs and ironically can stifle the growth that an expanded offering set is intended to provide.
Achieving growth targets profitably requires a repeatable, high-return model for selling solutions. And that means knowing where and how to invest in sales resources. Bain recently surveyed senior sales and marketing executives in 24 B2B companies, and found that 15% more high-performing companies than low-performing companies had built a differentiated capability to deploy their selling resources to the highest-value market opportunities. (Performance was measured by customer loyalty scores relative to competitors and five-year relative market share trends.)
For some leading companies that have started to overhaul their sales models, the upside is equally dramatic, setting them up to once again grow revenues faster than expenses. By contrast, companies that do little to rethink their model will be saddled with a larger, cumbersome sales organization that not only erodes margins, but worse, misses the biggest opportunities with high-value customers.
The smart trend moves from generalist to specialist
For much of the 20th century, when companies had a series of individual product lines or services, their sales model could thrive as long as they had the right account coverage, focused to some degree on key accounts, with a crisp pitch on features and functionality. Today, what’s required is assembling the right team of experts with relevant solution knowledge at the right time (no more, no less) in the sales cycle. In the face of new demand characteristics, successful sales organizations will provide a tailored experience for the customer, but through an efficient, scalable model. Also, the smart business will seek the appropriate advise to assist them in making the best choice when it comes to their own strategy.
Sales organizations need to bring on board people with targeted expertise or new types of skills, including proficiency in consultative sales. The skill gap rarely can be closed through training alone; new people inevitably need to be hired. When B2B companies undertake a sales model transformation from single-product to multi-product or solution sales, they typically experience a 40% to 60% turnover of generalists, or individual product sellers, over two to three years.
Building a new sales regime
Restructuring a sales model for these new realities does require substantial effort and time—but it’s no longer optional. And the transformation will not happen overnight, though it can be designed to rapidly stage the change. In our experience, four mutually reinforcing actions can help senior executives keep on track with greater certainty and pace.
- Identify customer sweet spots and define the appropriate offering, then put a repeatable process in place to expand to other segments.
Leading sales organizations figure out exactly which products and solutions they should sell to which core customers and how to adapt the offerings efficiently for other customer segments. They devise a repeatable model that can be applied to existing customers with new products, or to sell existing products to adjacent segments such as other industries or geographies.
Suppliers can identify the sweet spots for investment by using two criteria: segments with the most attractive lifetime economics and those where a company’s distinctive offerings win consistently.
- Get the right people and channel—no more, no less—in front of the customer at the right time.
It’s not enough to upgrade the salesforce by hiring people with the skills and capabilities to sell solutions to target industries. Companies also find they must restructure their coverage model, which means defining and synchronising sales roles differently. There are several key coverage questions to address, including how much hunting vs. mining capacity to employ; what the role of sales specialists should be; whether to use one or multiple salesforces to serve a segment; and whether to use one or multiple sales teams to serve a customer across different geographies.
When to hunt for new customers and when to mine deeper within current customers is one of the basic coverage choices that needs to be made explicit. Sales people often get comfortable serving their current customers, so an obvious initial step is to charge them with becoming more aggressive about mining the largest customers to their full potential. At the same time, however, there’s limited growth over the long term from relying too heavily on existing customers.
That’s why an effective coverage model needs to be deliberate about who should be hunting and where. Field sales managers should meet regularly with hunting sales representatives to understand and actively refine their target prospects and break-in plan. Given the degree of difficulty and the strategic value of adding a new target customer, sellers should receive a compensation premium for breaking into new accounts.
- Design compensation to promote behaviours that support your business goals.
To raise productivity and control costs, it’s essential that everyone in the sales organisation focus on attaining well-defined business goals and growth targets. The compensation system should be designed in a way that directs people to deliver on specific goals, whether that is penetrating new markets, winning new customers, cross-selling to existing customers or improving the profitability of each deal through higher pricing. Incentives should motivate individuals to reach these goals rather than falling back on traditional measures such as “last year plus 10%,” which will likely be too large or too small an increase.
- Equip the back office to allow sales representatives to spend more time selling.
Many solutions providers have a secret weapon—the back office, which can take on most of the lead qualification, proposal development, pricing approval, contract management and billing management—adding back 20% to 30% of potentially more productive time to a sales representative’s day.
Making sure billing errors get fixed, for instance, consumes a lot of time for some reps who want to protect their customer’s loyalty. With a concerted effort, a company can apply serious process improvement to the billing unit, hire select skilled analysts and look to attain a zero-defect operation.
The back office can also provide post-sale solutions support. To be sure, diagnosing customers’ problems, and trialing requests from multiple customers, requires coordination across several divisions of a supplier.
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