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eil Rackham, founder of Huthwaite, Inc., and the author of the wildly popular “Spin Selling,” spent an hour on the phone with SalesLobby.com last month to talk about his latest book, “Rethinking the Sales Force,” (McGraw-Hill, 1999).

In the '70s and '80s, Rackham led a groundbreaking research effort analyzing more than 35,000 sales calls. The results of this study published in 1988, “Spin Selling,” challenged the view that good closing techniques are the key to successful sales.

Once again, Rackham is the voice crying in the wilderness making way for a fresh perspective on the sales arena. This time, instead of teaching a more effective method of selling, Rackham paints a picture of a brave new world of sales and selling shaped by technology and the evolution of the customer.

SLC: Can you talk about the hunter/farmer analogy that’s central to your book?

Rackham: I wouldn’t say that it’s central, but it’s certainly an element in the book. Let me go back into history, and say that one of the great breakthroughs in selling was in the 19th century, when insurance salespeople used to go around, they’d make a sale, and then every week they’d call and collect the premiums.

Some really smart entrepreneur thought of a way of doing this far more efficiently. What they said is that there are really two functions in insurance sales. There’s what you call the producer who goes and makes the sale. And there’s the collector, who comes every week and picks up the premiums. Now, why are we using our smart people to go out and pick up the premiums every week when they could be out producing new sales?

That was the beginning of the hunter/farmer idea. It’s really a very good idea; it’s got a lot of elements about it that are quite seductive, because when you think about it, you’ve freed-up your best people to now go and make new sales. Anyone can come along to take the premiums. You don’t need any skill to do that.

That was how the hunter/farmer idea started. In fact, it got resurrected in the 1960s, because people thought well, perhaps it applies to business-to-business sales. You have the people that go in and kind of kill it, and the people who come behind to the account once it’s been sold, and they’ll sort of look after the account, and they’ll create new sales, and they’ll care for the customer and so forth.

Now, the problem with the theory was really very simple: It’s assumed that the skills you need to hunt and the skills you need to farm are different. And in fact, in today’s world they’re not.

For example, if you’re going to make a new sale, you don’t come in and make some dynamic presentation or persuade customers in a business-to-business sale, you go in, and you really get close to them, you understand them, you get an appreciation of their issues. You invest a lot of time. Now, you then hand it over to another person who’s going to be the farmer, and they’re going to start doing that thing all over again -- educating themselves on the customer’s nickel.

The skills that they need are in fact not different -– hunting and farming are essentially the same thing nowadays. They do have to go in and diagnose needs and analyze problems, and come up with solutions for the customers. So, what you need to have is both very good hunters and very good farmers all rolled into one.

SLC: So, how do you develop that in your sales people?

Rackham: The first thing that you have to do is help your sales people understand that selling is no longer about persuasion. Selling is about understanding the customer’s problems and solving them.

SLC: That leads me to the next question: Of course, anytime is a good time to at least take a long hard look at the sales force, but why do you think it’s important to rethink the sales force now?

Rackham: Because sales is going through a radical change. And, put very simply, the change is this: In the past, sales people could be very successful by just communicating to customers the value of their products and services.

So, I have an amazing mousetrap, and I explain to you, I communicate to you what’s better about my mousetrap and I make a sale. Now, because of two major forces, that doesn’t work anymore. The first force is that my mousetrap’s no longer unique. It’s now become one of fourteen different ways to kill mice. So, the customer isn’t interested in hearing about how my mousetrap’s different, all the customer wants to know is ‘can I give them dead mice cheap?’ So, that’s the first change.

Neil Rackham enjoys the outdoors with his dogs.

The second change is if all I’m doing is communicating to customers the value of what I’ve got, in other words, if I’m a talking brochure, the customer can get that information more cheaply, and more easily from other sources.

Let me give you an example. Ten years ago if you wanted to buy a new car you had to go to the car showroom because it was the only place you could get to know what was in the option packages, what your alternatives were, maybe you could look at a two-years-out-of-date consumer reports. But, you didn’t have up to date information. Now you can go on the Net and in five minutes learn everything you want to know.

So, the kind of salesman who tells you what the car has, what his packages are, what the options are, is actually just a very expensive way of telling customers information that they can get more conveniently and more easily elsewhere.

And, that’s true in the business-to-business sale, too. The customers who want to know about products can pull that information off the Internet more quickly and more easily than having a salesperson turn up.

SLC: What do you have to say to the sales force managers who are going to read this and are going to think: ‘So, what do I do with my sales people, if to a certain degree, they’re becoming obsolete?’

Rackham: I think the issue is this: Sales people of the future have to actually create value, not communicate value. So, another way to put this, is that the sales person in the future has to make the kind of sales calls where the customer would pull out a checkbook and write a check for the call because it was so valuable.

Now, most sales people in the business to business world do this once in a while, because they solve a problem for a customer, they change the way the customer thinks about something, they save the customer from what would have been a bad decision, so they create some value. But they only do that in a relatively small percentage of their calls. In the future, they’re going to have to do that in every call.

SLC: What does value creation really mean?

Rackham: Let’s look at value creation from the customer’s point of view. We’ve done surveys where we’ve asked customers, have you ever had a sales person call on you where you really would have pulled out a check book and written them a personal check for a sales call?

To those that said yes, we said, tell us about it. The most common single factor in what they described is that this sales person ‘changed the way I thought about my problems. I did something very differently as a result of talking to them.’

Now, if you’re going to do that with your customers, you’ve got to be much more challenging, you’ve got to be able to come in as business equals, you’ve got to focus on the problem and not on the product, it’s a different type of selling.

SLC: That almost sounds like a consultative sale. But I also know that one of the central things in your book is that companies need to stop segmenting by account size and segment more by transactional, consultative, or enterprise type sales. But what you said almost sounds like all selling needs to be somewhat consultative.

Rackham: A way of looking at it is like this: All sales that can afford to have a face-to-face sales person will be fundamentally consultative sales.

Because, think what the big difference is between a transactional sale, and a consultative sale. In a transactional sale, the customer knows what they want. They know the solution, they’re just looking for the most easy and cheap way to acquire it.

So, I’ve decided that I want to buy a simple commodity, I need 50 boxes of paper clips. Now, I don’t need a sales person to come along and try to create value for me around these paper clips, because I know what the paper clips are for, I know I need them, all I want to know is ‘what’s your price and when can you deliver it?’

Now, for transactions like that, it’s easier, quicker, and simpler for me to go ahead and make that transaction on the Web, to buy electronically, to buy through a catalog, or perhaps to buy on the phone. If I need a face-to-face salesperson to come along to sell me paper clips, then the paper clips are going to be so expensive I’m not going to be interested.

Perhaps the issue here is that you have to have a business model that creates customer value. You can create customer value in two different ways. Value, after all, equals the benefits minus the costs.

So, if you want to create more value, you can increase the benefits, or you can cut the costs. Now, in a transactional sale, you create value by cutting the cost. Instead of having a salesperson selling your paper clips, you sell them over the Web, you sell them through a catalog, and as a result your paper clips are cheaper than your competitor’s paper clips so they provide greater value.

On the other hand, if what you’re doing is solving problems for customers, then if you can get better at problem solving… Let’s suppose I’m selling you some software solutions. If I bring in good technical experts who can customize my solution so it fits your needs better, I’m going to have a much more expensive piece of selling to do, but I can charge you a lot for that because I’ve provided more benefits.

I’ve created value in that case by increasing the benefits that I offer, not by reducing the cost, and I will beat a competitor who just has sales people going around selling a standard software product, because I can do something the competitor can’t do. I can actually customize a solution that really solves your problem better and provide you with extra benefits as a result.

SLC: Another point of your book is that people tend to think of “improvement” as moving from transactional to consultative selling, as if there were something inherently bad with transactional sales. Moving from transactional to consultative is not necessarily a step up.

Rackham: Yes, as a matter of fact, I think this is a very central thing: You serve a customer better very often by moving them to a transactional sale. Because, for a customer who knows exactly what they want and just wants a cheap and convenient way to get it, you actually serve customers enormously better.

Think of what happens when Schwab slashed its costs and created eSchwab. You could go online and you could make trades, much more cheaply than you could with Merril Lynch. Now, they actually moved a lot of customers away from a rather consultative form of selling, the telephone broker, to an absolute transactional form, but because it cost $15 rather than $90, it created more value.

SLC: Is the Internet the biggest driver for change?

Rackham: The Internet has been a very big driver for change, for two fundamental reasons.

One is that it’s given the customer information, and information is power. It shifted the balance of power to customers. It’s made the sales process far more efficient. So, information-based selling, the talking brochure selling, is just going to die out because you can’t afford it when it’s more costly and less convenient and until the Internet came along, you had to have it because you had no alternative.

The other enormous difference that the Internet made -– We think of the Internet sometimes as a selling medium, but in fact it’s a buying medium. Most business-to-business commerce on the Internet is initiation by the buyer, not the seller. What it’s done is enabled people to buy better and more cheaply.

Let me give you an example: Wal-Mart, a couple of years ago, did an analysis of the cost of their huge purchasing operation in Bentonville, Ark. They found that 75 percent of the cost was to acquire products and services that contributed to less than five percent of the profit.

The reason for that is one purchasing agent can see on average six or seven sales people in a day, and if all the salesperson is doing is telling the purchasing agent about products, that purchasing agent in a day can learn about six or seven people’s products. On the other hand, the same purchasing agent can go to the Internet, can read about a product array, and can order from 150 different vendors in one day. So, you can enormously increase the productivity of your purchasing people if you say, don’t send sales people to us, we’ll go to your Web site and we’ll buy from you. Post your stuff there, it’s more efficient for us, we need fewer people, oh, and by the way, now you don’t have the cost of sending us sales people, I hope that’s going to be reflected in your prices.

SLC: You have an interesting background, how did your Ph.D. in Psychology lead you into sales?

Rackham: Essentially, I was a research scientist who went wrong. I was a very rigorous, very precise quantitative research scientist who was once asked a question I couldn’t answer.

The question was: how come that in the average sales force, there’s one person who’s selling four or five times as much as the average person in the sales force, and nobody knows why? How are they doing it? I thought it was a very interesting question. How would you set about answering that question? The obvious thing you’d do is you’d go and talk to these people and say ‘tell us how you do it,’ but good performers can never tell you. Anyone who’s really good at any complicated skill can’t tell how they do it.

We asked a lot of sales people, and they’d give us some strange explanation, but that didn’t correspond to what they were actually doing, because good performers don’t know what they’re doing.

So one of the things that we did is we sent research teams out to watch very effective people while they sold to see if we could analyze scientifically what they were doing, and that was the start of my interest in sales.

SLC: And that spawned your book “Spin Selling” eventually?

Rackham: It did indeed.

SLC: You’ve written that of all the departments within a company, the sales department is the one that’s changed the least in the last 100 years. Why do you think that is?

Rackham: I think one thing is, sales people in the past have been loners. They’ve been out by themselves away from the company. Unlike say, working in a large office altogether where you can see what the next person is doing and adopt their ideas and evolve better ways. When everyone’s out spread by themselves learning new things is far more difficult. That’s one piece of it.

Another piece of it is that their managers very often don’t see them performing enough. They get a lot of reports but they’re not there for a lot of the crucial sales calls. Most managers really don’t know what their people are up to, and they haven’t got very good models to help them see what the good people are doing so they can’t pass it on to others.

I think the final thing is that management’s been afraid to look at the sales force, because one, they don’t understand the sales people. Two, the sales people always have this wonderful excuse of ‘You can’t do that, it would upset our customers.” Whether it’s true or not, it’s a great deterrent for change.

SLC: What are the three emerging selling modes? How do you foresee businesses resegmenting their markets?

Rackham: Firstly, let’s have a look at how we segment our customers right now. We tend to segment them by size, and that was a very good way of working because in the past size was a proxy for profitability. Your big customers were profitable, your small customers weren’t.

Because your big customers were very profitable, you could afford to put a whole well-trained team into a key account, you could afford to give them a lot of freebies, to perform unnatural acts when they wanted something special. These were your special customers, they were expensive to service, but you made a big profit on them.

Then there was middle-tier of customers, they provided less profit and so you put less resources to them, then your mom and pop customers were only marginally profitable, so you tried to find a cheap, standardized way of looking after them.

All that worked very well for 50 years, when profitability and size went hand in hand. But starting about ten years ago, things began to change, companies began to find, for instance, that their middle accounts were more profitable than their major accounts. They found they had some huge customers who were becoming very transactional, so if you were dealing with them at all meant you were on very slim margins and that you just didn’t have any padding anymore.

If you put a huge team in and offer your client lots of freebies, they’ll take it of course, but you’ll lose your shirt in the process. So, companies began to ask themselves whether or not they needed a more sophisticated way of segmenting their customers than just size. That was what lead people like ourselves to search for other buckets to put customers in except for big, medium, and small.

One of the things that we thought was a particularly promising area was looking at customers by the type of value that they wanted from a supplier. The transactional customer is looking for value in terms of low-cost. They know what they want, they’re not looking for a special solution, they see you as a commodity so if you want to create value for that segment, you need a business model to do it.

You need pretty standardized products. You need to have a low-cost way of getting to them; Internet, telesales, teleweb, channels. So, you need a lot of routes to market, and you serve them as cheaply as you can and as efficiently as you can, and you drive it by improving the efficiency of your operation. And one part of improving the efficiency is that you don’t employ very highly paid, highly trained sales people to go and sell a product where the customer doesn’t need a sales person to help them.

The consultative model basically says that customers are often looking for more expertise and help and advice than before, and will pay for it. So, build your business around that. If you want to serve this segment of customers you need to have products that you can configure and customize. They have to be flexible; they have to be something which can be assembled in different ways for different customers. They have to be problem-solving products and your sales people have to be good at diagnosis. They have to have expertise, they have to spend a lot of time with the customer, and the customer will pay for this because this is how this customer defines value.

That’s the consultative approach, and the enterprise approach basically says there’s another type of value where customers are not buying individual products or solutions, they’re actually buying the company.

Take the case of Monsanto, the St. Louis-based agricultural and pharmaceutical giant. They had 27 thousand desktops world wide, and they put out a contract to have these desktops maintained. They went to people like Andersen, EDS, IBM, all of whom could do a good job of maintaining desktops, but the reason it ended up with IBM had nothing to with the maintenance of desk tops, it was that Monsanto was buying IBM the organization, the enterprise, because for obvious reasons Monsanto was very interested in IBM’s research expertise.

SLC: Okay, so then is the sales force even necessary anymore?

Rackham: And the answer is, it depends on the market on which you’re in. In many markets a sales force is a very expensive way to work with customers.

SLC: How does a company find out which kind of selling would be best for them besides very expensive trial and error?

Rackham: Well, I think the answer here is, you go out, analyze your customer base very carefully. We’re used to doing market research around products; we have to start now to do market research over how customers want to deal with us. It’s a shift in the way we think about that.

SLC: So in the future, will there be a difference between sales and marketing, or will sales people basically be field marketers and field consultants?

Rackham: The differences will be blurred, and they’ll be blurred because marketing is down to marketing to a segment of one. Sales is using a lot of marketing tools in how they sell. So, the distinction will become blurred but the distinction will still be there.

SLC: I noticed that you are very aware of the trend in business thinking and business management books of the seductive but relatively useless idea. I’ve noticed in your book you said a few times, “This sounds like a good idea but let’s go a little bit deeper into it.” Does that what I would call “good suspicion” come from your research background or something else?

Rackham: I think the research background helps. But also, a practical business background tells you that nearly always, when you read a solution that’s deeply attractive, in fact so attractive that you think, ‘Wow, this can’t be true,’ then it isn’t true.

One of the things that clearly does happen when you’re writing a business book, and I’ve written a lot, is that publishers love you to say, not, ‘This is a modestly good idea, which will help you in about 85 percent of situations.’ It’s much better to say, ‘This is clearly the finest idea since the invention of sliced bread, which will help you not only in every occasion, but will also make your children smart and save your marriage.’

So I think there’s always a tendency, in the business book, if you want the business book to be widely read, it has to nearly always have an oversimplified and overstated message.

Almost every book that sold into the hundreds of thousands of copies or more has badly overstated and as a result of that has got itself read. And, so, when you’re writing a business book, the temptation always is to make it simplistic, to have a really punchy and dramatic message, and to say, this new idea I’m talking about is going to totally change the world as opposed to: ‘This idea is going to a modestly useful addition to business techniques.’

SLC: Why did you want to write this business book? You have an obvious advantage in that you’re not saying this book will change the world, but the world is changing anyway so read this book because it can help you deal with that.

Rackham: I think the thing which got us to write the book was we didn’t understand how it was that organizations were suddenly beginning to fail in their selling effort.

So we looked at a lot of companies, and we found that they adopted what sounded like very sensible strategies that weren’t working anymore. In particular, one of the things that we noticed that prompted the book is that most companies have a sort of one-size-fits-all sales force –- a sales force that was selling to every kind of customer.

We’d find more and more that the sales forces that specialized and sold only to the consultative customers or those that specialized and sold only to transactional customers were so much more successful. That started us thinking that maybe there’s something new happening here. And, that’s how the book began.

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.

Josh Krist is SalesLobby.com's content manager and has worked as a journalist in the United States, Israel, and France. Contact him at (480) 998-9644, or jkrist@alexandergroupinc.com.