Matching strategy to customers
But it is not only in resource allocation that salesforces typically go awry. They also
fail to recognize that different approaches to selling may be needed for different
customers, even if they are similar in size. To succeed, they must learn that customers
should be segmented according to the way they perceive value. Such a segmentation yields
three distinct categories, each requiring its own approach
(Exhibit 1).
Transactional sales
For customer A and its peers, value is intrinsic to the product alone. The salesforce
adds little or nothing for them, since they already under- stand what they are buying
and know how they want to use it. Viewing it as a commodity, they simply want a favorable
cost, reckoned either by price or by ease of acquisition, and they resent the time they
have to spend with salespeople. Such customers call for transactional sales techniques
that should be as risk-free, hassle-free, and efficient as possible.
Wal-Mart, for example, deals with relatively small suppliers, but it refuses to meet
regularly with their salespeople. As a Wal-Mart spokesperson noted, it would be better
if “their salaries and commissions were taken off the price. Why should we pay for
something that takes up our time without providing anything in return?” And it is
no longer only traditional industrial commodity suppliers that sell in this way;
such professional service providers as lawyers, accountants, consultants, and doctors
- people who never dreamed that their activities might be regarded as commodities -
find that more and more of their clients want to purchase transactionally.
Consultative sales
Customer B looks largely at the extrinsic elements of the value equation. For such
customers, value is not inherent in the product; rather, it lies chiefy in how the
product is used. In this case, a salesforce can create a great deal of new value.
Putting a premium on advice and help, these customers expect it to enlarge their
understanding of their needs and options. This kind of consultative selling, which
calls for a salesforce that gets close to customers and has an intimate grasp of their
business needs, involves an investment of time and effort by seller and customer alike.
In consultative sales, the ability to listen and build up an understanding of the
customer’s business is a more important selling skill than persuasion; empathy takes
precedence over product knowledge. A salesforce of this kind creates value in three
primary ways: it can help customers understand their problems and opportunities in a
new or different way; it can provide better solutions than customers would have
discovered themselves; and it can act as their advocate inside its own company to ensure
that resources are allocated to them in a timely way and that solutions meet their
particular needs.
Because these are demanding tasks, good consultative salespeople are hard to find.
Organizations seeking to improve their consultative selling abilities can easily fall
hostage to highly paid star performers. For this reason, effective consultative sales
efforts increasingly use diagnostic tools, sales processes, and information systems
that allow ordinary mortals to perform the increasingly sophisticated consultative
selling role.
Enterprise sales
Customer C and others like it demand an extraordinary level of value creation.
They do not simply want the products or advice of the supplier; they also want to
make full use of its core competencies, and will transform their own organizations
and strategies to make the most of their strategic value relationship. In such a
situation, it is almost impossible to tell who is selling and who is buying. This
is an alliance between business equals working together to capture an extraordinary
level of new value that neither could have created alone.
Such customers call for an enterprise sales effort in which both the product and
the salesforce are secondary: its primary function is rather to leverage any and
all of the supplier’s corporate assets to contribute to the customer’s strategic
success. No single salesperson, or even sales team, can set up or maintain an
enterprise relationship; it is invariably initiated at a very high level in both
organizations. It is closely linked to the customer’s strategic direction and usually
implemented by crossfunctional teams on each side.
A good way to think about enterprise selling is to see it as the redesign and continuous
improvement of the boundary between supplier and customer. Often, hundreds of people
participate directly in such a relationship, and it is difficult if not impossible to
tell where selling begins and ends.
Can I think about this tomorrow, please?
Since the days of Julius Caesar, it has been convenient to think about complex problems
by dividing them into three parts. But is there any real advantage to classifying sales
efforts under the headings of transactional, consultative, and enterprise? Don’t most
sales organizations survive well enough by dividing customers by size? What is the
benefit of segmenting them according to the way they perceive value?
In our view, the answer is simply this: any salesforce that wants to survive has no
alternative, for unless its approach to creating value closely reflects its customers’
needs and value perceptions, its efforts are bound to fail. Three examples will show
what we mean.
A bottom-line buyer
A manufacturer of packaging materials competed in a marketplace where more than 90
percent of customers were bottom-line value buyers who bought transactionally.
Because the manufacturer’s costs were slightly higher than those of competitors, it
was losing business. It decided that the best way to halt this decline would be to
upgrade its salesforce. Instead of sales reps, it now sent out packaging consultants
charged with adding value by giving customers help and advice.
The effort to recruit, retrain, and develop a new marketing strategy cost upward of
$10 million. Operating expenses were even more frightening. The average cost of each
sales call was no less than $890, and the average cost of acquiring a new account was
$112,000 - far more than a normal account generated in profits over its entire life.
The strategy was a disaster. These customers neither needed nor wanted help and advice;
for them, value lay only in the product. They needed packaging material, pure and
simple, and that was all they would pay for. In other words, they made their purchases
transactionally, but the manufacturer had em- barked on a costly consultative strategy.
Not long after, a major competitor bought the company at a bargain price and cut the
cost of sales by reverting to a transactional selling force that suited the way customers
created value.
“Make the sale and move on”
A small consulting company developed a number of offerings to improve the
productivity of its clients. As a consulting firm, it did not have a dedicated
salesforce; instead, its consultants worked closely with clients to define their
needs and create tailored solutions - a classic example of consultative sales. Seeing
an opportunity to expand its market, the company brought in a chief executive who
had previously worked in the packaged software business. He was horrifed at the length
of the selling cycle and the use of expensive consultants in the business development
process.
The new chief executive removed consultants from the direct selling role.
He created a telephone sales organization staffed with salespeople on commission who
were managed with ruthless cost effciency to increase coverage. Instructed to “make
the sale and move on,” they did not spend what was now regarded as unnecessary time
understanding the business needs of their customers. The number of new customer
contacts quadrupled, while the cost of each contact fell by more than half. In this
way, the chief executive succeeded in creating a high-coverage, low-cost transactional
salesforce.
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Unfortunately, the company’s clients - especially the most profitable ones - were
extrinsic value buyers who bought consultatively. They were willing to pay well
for the understanding of their business and the customized solutions that the
company had provided in the past. Under the new regime, many of them defected to
competitors that offered value-creating salesforces. The company began to lose
business, and soon decided to lose its chief executive. By returning to a more
expensive model that matched its clients’ value expectations, the company was able to
regain some of its lost ground.
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Unless a salesforce's approach to creating value closely reflects its customers'
needs and value perceptions, it is bound to fail
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The end of a relationship
A manufacturer of containers had a long-term association with a major food company,
which it supplied not only with containers but also with special machinery and advice
on container design. The relationship was good and happy on both sides. One day, the
customer asked if the manufacturer would be interested in a different kind of
relationship that would involve taking on some of the customer’s production activities
and joining with it to develop (and share the risks of) radically new approaches to
packaging.
Lacking the authority to respond to such a revolutionary proposal, the sales team
took it back to top management. “We’re not equipped to run their lines,”said the CEO.
“We’re not a food production company, and this codevelopment idea sounds mighty risky.
But they are a valued customer, so let’s offer them lots of extra design and
engineering support.” To the CEO’s surprise, the customer declined the help and
switched to a new supplier whose president and executive team had worked for six
months at a high level within the food company to create new risk-sharing strategies.
The new supplier agreed to manage all the production lines of the food company and
work with it to develop a range of innovative packaging concepts created by an R&D
team that included members from both companies. The customer had wanted a strategic
value relationship with its old supplier, which was unable to offer it within the
constraints of its consultative selling effort. A new supplier that understood how to
initiate high-level enterprise sales was able to shatter a 30-year relationship. The old
supplier recently announced a downturn in its results and a major restructuring.
These cases - and hundreds like them - show that it is fatal to adopt one sales model
if customers want another. No amount of selling skill, clever strategy, or well-crafted
value proposition can bridge the gap between what a customer wants and what a supplier
has to offer. A salesforce cannot transform transactional customers into consultative
ones, or vice versa. At best, effective selling can shift the balance slightly, but it
is an uphill struggle. In an age when customers not only demand more value than ever
before but are increasingly clear about the kind of value they want, a salesforce must
align its values with theirs.
What is more, the value expectations of big business customers, small business customers,
and even individual consumers are changing dramatically. As a result, salesforces are in
the early stages of a transformation that will affect every aspect of selling. From the
simplest transactional sales right through to massive enterprise relationships that are
reshaping the entire business strategies of the participants, the changes are profound
and irreversible. And they are gathering speed. Individual salespeople are bound to feel
alarmed, confused, and uncertain, but, unlike Rip Van Winkle, their predicament is more
likely to keep them awake than put them to sleep.
We wish we could say the same of the salesforces they work for, but too many seem to be
dozing, oblivious of the forces that will ultimately drive them to extinction. Almost
everywhere, transactional salesforces have unsustainably high cost structures; consultative
salesforces don’t sell deeply enough to win business; and would-be enterprise players
lack the crossfunctional capacity to create enough value to cover the huge costs of this
approach (Exhibit 2). Salesforces of companies that are household names remain firmly
convinced that their mission is to communicate value, seemingly unaware that some of their
smarter competitors are already learning to create it.
The message for these sleepy sales functions is simple: wake up fast! Our corporate Rip
Van Winkle may have slept for a generation and woken to find not much changed, but any
sales function today that dozes off even for a few months will not be worth waking. Salesforces
must think in terms of value creation and understand how to structure and manage the
transactional, consultative, or enterprise elements of the sales effort to forge new value
for customers.
This is a time of unprecedented opportunity for thoughtful players. In the past, selling
offered high rewards to those with the energy to sell hard and the tactics to close deals.
In the new era, it will offer even greater bounty to those that can sell smart and
understand and implement strategies for creating customer value.
Neil Rackham is chairman of Huthwaite, Inc., an international research and consulting company.
His academic background is in experimental psychology. While a research fellow at Sheffield University, England, he developed a range of behavior analysis
techniques which has allowed precise statistical measurement of complex interactive skills such as negotiating and selling. He has worked in over 30 countries and with more than 20 of the Fortune 100 companies. Rackham, whose works have been translated into
13 languages, is the author of more than 50 research and technical papers. His books include SPIN® Selling and Managing Major Sales and his most recent , Getting Partnering Right. He has been a board member of several international consulting and research organizations
and is adviser on training to several large multinationals.
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