McKinsey: What the future science of B2B sales growth looks like

Are you engaging customers the way they want to be engaged? Are you invested in finding and developing world-class talent? “Driving market leadership in B2B sales takes undivided focus from the CEO and his/her top team, and significant investment of time and resources. However, companies that have achieved proficiency across the three dimensions of the science of B2B sales are already outpacing their competitors and driving disproportionate growth, profitability, and shareholder value.” Below is a blog post from McKinsey & Company by Tim Colter, Mingyu Guan, Mitra Mahdavian, Sohail Razzaq, and Jeremy Schneider: (Reading time is 9 minutes.)

What the future science of B2B sales growth looks like

B2B sales are on the verge of a revolution, with a number of trends completely redefining what it will take to be a market leader over the next five years.

Advanced analytics and machine learning have given sales executives access to historically unprecedented amounts of data and computing power, allowing them to predict with a high degree of precision the most valuable sales opportunities. The fastest-growing companies are using advanced analytics to radically improve their sales productivity and drive double-digit sales growth with minimal additions in their sales teams and cost base.

Also, radical changes in buyers’ preferences, with buyers being more content-driven, technically savvy, and comfortable engaging via digital channels, has led to the rise of a new breed of sales leaders who bring technical expertise and a strategic mind-set. This is also transforming what sales organizations look like, with a sharp reduction in field sales and marketing, and rapid growth in inside sales and analytics teams.

Finally, a significant shift toward subscription-based business models has redefined how customer relationships are managed. No longer is a sale a one-time “won and done” deal. In a world of recurring revenues, sales need to be won every month, quarter, and year. As a result, successful customer-relationship managers are becoming increasingly more valuable, and sophisticated sales teams are aligning themselves closely to the long-term success of their customers.

Emergence of a new science of B2B sales

As a result of these disruptive changes, B2B sales has evolved from an art to a science. By that we mean that sales is data-driven, enabled by digital tools, underpinned by advanced analytics, and focused on really understanding the “what, why, and when” of the customer. Companies that have embraced what we call the “science of B2B sales” have already started to pull ahead of their peers in terms of revenue growth (registering 2.3 times industry average revenue growth), profitability (3 to 5 percent additional return on sales) and shareholder value (8 percent higher total return to shareholders than the industry average).

A key feature distinguishing market leaders from the rest of the pack is that the CEOs of the market leaders actively lead the sales transformation, rather than leaving it to the head of sales. These CEOs realize that redefining their go-to-market engine is a cross-functional sport that requires their direct engagement and flawless execution from sales, marketing, HR, IT, and finance. Market leaders have realized that winning in B2B sales in the next five to ten years will require them to fundamentally transform their go-to-market engine around three defining principles:

  1. Engaging customers the way they want to be engaged

Days when sales executives debated between investing in a great sales force or great digital assets are a figment of the past. Driving growth in the future will require bringing the best of both worlds. Our research indicates that market leaders view digital investments as the glue that holds together a powerful multichannel sales strategy. We surveyed more than 1,000 large organizations across industries and four continents to better understand their preferences in buying goods and services from B2B sellers. Our research showed that the ideal channel to reach B2B customers depends heavily on whether they are making a first-time or repeat purchase (Exhibit 1). Some 76 percent of B2B buyers found it helpful to speak to a salesperson when researching a new product or service. That figure fell to 52 percent for repeat purchases of products with new or different specifications, and only 15 percent indicated a desire to speak with a salesperson when repurchasing exactly the same product or service.

Exhibit 1

Exhibit 1.png

Engaging customers in the future will require a multichannel sales strategy powered by smart digital investments, which caters to the different needs of first-time and repeat customers.

When targeting first-time customers who are looking for direct interaction with sales teams, the fastest-growing companies are using digital tools to help their sales teams address customer needs at each stage of their purchase journey. For instance, they are using interactive product demos powered through tablets or browsers to help salespeople engage customers in the research stage of their journey. A significant proportion are using relatively simple customer-relationship-management software to track customers’ past questions, thus allowing their salespeople to anticipate future inquiries and offer lightning-fast responses when customers compare their products with competitors’. A few cutting-edge companies have also invested in customer analytics that empower sales reps with price recommendations based on analysis of deals other sales reps have closed with the same customer in the recent past.

When catering to repeat customers who are comfortable being online, the fastest-growing companies are using digital tools and inside sales to keep them loyal, speed up the sale process, and encourage them to spend more. For instance, they are creating online comparison engines that allow customers to seamlessly compare products and services with competitors’ offerings. They then supplement that with inside sales teams to answer customer questions via email, live chat, and video conferencing. In addition, they are using next-product-to-buy algorithms that send customers relevant recommendations of complementary products based on their purchase history to grow customer share of wallet.

  1. Using advanced analytics and machine learning to make better decisions faster

In the next five years, we believe that the fastest-growing companies will be using advanced analytics and machine learning to address fundamental strategic issues, such as what sales opportunities to pursue, what resources to allocate to which accounts, and what behaviors to prioritize to drive sales productivity. Already the days when lead generation relied entirely on local field knowledge are fading fast. Market leaders of the future are using advanced analytics to build a granular account, product, and geographic profile of each of their customers. These profiles are then augmented with relevant external data such as news reports, public financial information, and social media to generate a truly 360-degree view of each customer.

Lead-scoring algorithms can then use these detailed customer profiles to predict which customers to target, when to contact them, and what factors truly drive lead conversion rates. A few of the most cutting-edge companies are also experimenting with AI-enabled agents that use predictive analytics and natural-language processing to automate early lead-generation activities such as handling basic customer questions and automating initial presales questions. While these predictive lead-scoring algorithms are still relatively nascent, some companies deploying them are already experiencing 15 to 20 percent improvement in their lead-conversion rates.

In the past, sales leaders used to rely on gut instinct to identify behaviors that drive sales productivity and make account coverage decisions. Advanced analytics is revolutionizing our understanding of how to match the right people to the right deals. The most data-savvy sales organizations are combining sales, customer, and HR data to understand the intrinsic attributes (e.g., professional background, education, personality traits, cognitive ability) and behaviors (e.g., frequency/duration of customer interaction, time devoted to sales planning, listening skills, persistence, risk taking) that are statistically correlated with distinctive sales performance. Armed with this knowledge, they can identify the best sales people and allocate them to their most strategically valuable accounts.

  1. Continually investing in finding and developing world-class talent

Buyers are becoming increasingly sophisticated and technically savvy, which has led to the rise of a new breed of sales leaders who bring a strategic mind-set and rock-solid technical skills. These leaders are “growing up” across multiple roles in their organization and come with a truly cross-functional and cross-geographic skill set. They view themselves as coaches whose primary job is to turn rookies into rainmakers.

“Getting the right individual in the right role” was a common theme that came up in our interviews with more than 400 sales executives. Despite the stated importance of hiring the right talent, not all organizations believe they are equipped with the right talent for the future (Exhibit 2). While all companies struggle with getting world-class talent, fast-growth companies fare better than slow-growth companies: 51 percent of the former believe they have the right sales talent for the future compared with only 30 percent of slow growth companies.

Exhibit 2

Exhibit 2.png

Hiring the right talent is only part of the puzzle. The fastest-growing companies also invest significant time and resources in nurturing and growing their talent. In our survey, 48 percent of fast-growth companies indicated that they invest significant time and resources in sales training versus only 22 percent of slow-growth companies (Exhibit 3). Behavioral economics and social psychology have revealed powerful insights into how to nurture high-performing individuals who thrive on independence and entrepreneurship. A defining insight has been that adult learners only remember 10 percent of what they heard and 32 percent of what they saw three months after the learning program concludes. In contrast, they remember 65 percent of what they learn by doing. This insight is driving a transformative change in the nature of sales trainings. They are evolving from classroom and digital modules to “on-the-job” experiential, immersive programs in which sales reps are paired with experienced coaches and learn from doing.

Exhibit 3

Exhibit 3.png

How to embrace the science of B2B sales

Companies who embrace the science of B2B sales generally begin with a three-part journey:

First, they make an honest assessment of the status quo. This starts with a look at the customer. Customer preferences for buying should shape the investments the sales organization makes, yet many sales leaders fly blind. In our experience, most companies tend to underinvest in the sales capabilities that actually matter most to their customers.

Second, they plan for the long term. Sales winners are moving past quarterly planning and adopting instead a long- term view. Of the fast growers we have studied, more than 50 percent take a minimum 12-month view in their sales plans, and 10 percent look more than three years out. This long-term view means that sales leaders can invest in the right capabilities based on a specific (though flexible) roadmap.

Third, they move fast and get quick wins. Speed matters now more than ever. Winning sales organizations are using test-and-learn strategies to become more nimble. Some set up a sales war-room model to launch new digital campaigns and messages. Others adopt an agile test-fail-learn-adapt operating model to rapidly ideate and refine sales tactics. Through these quick-win approaches, sales orgs are seeing dramatic results, some with up to 300 percent growth in digital sales within the first 30 days of action. In the next few years, we expect to see more of the winners enjoying these results.

Driving market leadership in B2B sales takes undivided focus from the CEO and his/her top team, and significant investment of time and resources. However, companies that have achieved proficiency across the three dimensions of the science of B2B sales are already outpacing their competitors and driving disproportionate growth, profitability, and shareholder value.

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HBR: How to Reduce the Costs of Salesperson Turnover

What is your strategy when a salesperson leaves? How do you handle the vacant period? Below is a blog from the Harvard Business Review by Andris A. Zoltners, Sally E. Lorimer, PK Sinha:

How to Reduce the Costs of Salesperson Turnover

 Even the best sales forces can’t keep every good salesperson. Loss of salespeople to competitors occurs frequently in high-growth industries in which the demand for experienced salespeople exceeds the supply, such as in fast-evolving technology markets. Poaching of salespeople also occurs when sales are driven largely by relationships. For example, wealth management companies frequently recruit advisors who have built a strong book of business at competitive firms.

Companies facing high sales force turnover situations can try to reduce undesirable loss of salespeople, but they should also use another strategy, by taking steps to reduce the negative consequences on customers and the company when salespeople do leave, as some inevitably will.

These strategies focus on minimizing sales loss during three critical phases surrounding a salesperson’s departure – the withdrawal period, the vacancy period, and the hiring/orientation period.

Managing the Withdrawal Period

In the period from when salespeople contemplate leaving until they actually depart, salespeople often stop putting full effort into the job. Too frequently, departing salespeople are distracted by their job search. Or worse, if a departing salesperson plans to work for a competitor, the salesperson might feel pressure to convince customers to defect. Minimizing withdrawal period sales loss requires a proactive approach.

It starts with detecting the possibility that a salesperson might leave as early as possible. First-line sales managers are critical to this effort. By keeping in touch with their people, managers can identify and address emerging issues before they escalate to the point where salespeople decide to leave.

One company with a large internal sales force used an early-warning system to track call agent behavior and predict the likelihood of resignations. Signals of impending departure included fluctuating productivity, an increase in the number of vacation days taken one at a time, a drop in call quality, and increased off-phone time. By tracking these signals, the system could direct incoming phone calls from important customers to agents who were not at risk of leaving. In addition, managers could meet with employees at risk of leaving to talk through their situation and try to prevent their departure. Managers could use solutions such as job rotation, job enhancement, relocation, and greater control of their work schedule.

Even when intervention can’t preempt an unwanted departure, early detection gives companies more time to prepare for a smooth transition of relationships with customers before a salesperson leaves.

Managing the Vacancy Period

From the time the salesperson departs until a replacement is found, two strategies help minimize sales loss.

The first is to shorten the vacancy period through aggressive and proactive sales force recruiting. One medical equipment company minimized vacancy time by keeping a bench of screened and trained candidates who were ready to jump into sales positions quickly when needed. Bench programs work best in large sales forces in which the sales job requires significant training time. If training needs are modest or the cost of maintaining a bench is too high, constant recruiting can create a “virtual” bench. By maintaining a list of viable job candidates before an opening occurs (including employee referrals, candidates who rejected past offers, employees in other functions), companies accelerate hiring and reduce vacancy time.

The other key to minimizing the costs of the vacancy period is to avoid lapses in customer coverage. This is especially important for major customers that depend upon and trust a departing salesperson who has in-depth knowledge of their business or who has participated throughout a long sales cycle (which means sales are often left half-completed). Even the most loyal customers may see the salesperson’s departure as a reason to consider competitive offerings. Providing temporary coverage of major customers by a sales manager or by another salesperson until a permanent replacement is found can avoid sales loss.

Managing the Hiring/Orientation Period

Once a replacement is selected, it takes time for that individual to become fully productive.

The costs of this period can be reduced by making it a priority to get salespeople up to speed quickly. Sales managers play a critical role in onboarding and training new salespeople to help them understand the culture, learn the products and customers, and become fully engaged. Hiring experienced salespeople also helps accelerate the learning curve.

An Ounce of Prevention

Defensive approaches can protect companies in high sales force turnover environments. Two strategies help minimize sales loss across all three phases surrounding a salesperson’s departure.

First, build multiple connections between customers and the company. The risk of customer loss is especially great when departing salespeople hope to bring customers along to a new job with a competitor. Take action well before a departure is imminent. Get a sales manager or sales specialist involved with customers in deals with long sales cycles. Provide customers with resources they value outside the sales force, such as a customized ordering website or easy access to customer service or technical support personnel. Such resources can encourage customer loyalty that outlives a connection with an individual salesperson.

Second, use CRM systems to capture critical information. Such systems can document customer needs, track the sales pipeline, and help ensure essential information is not lost in transition.

Turnover of salespeople too often results in missed sales opportunities and loss of business. Even the best sales forces experience some disappointing departures. By taking defensive steps now, and working diligently during the three phases that accompany an individual’s departure, those costs can be minimized.

Original Page: https://hbr.org/2017/11/how-to-reduce-the-costs-of-salesperson-turnover

 

HBR: Selling Products Is Good. Selling Projects Can Be Even Better

As building suppliers, we tend to focus on bigger projects such as new homes and commercial buildings. Is your company or yourself focusing on small projects? Are you helping your customers complete their projects? Below is a blog from the Harvard Business Review by Antonio Nieto-Rodriguez.

Selling Products Is Good. Selling Projects Can Be Even Better

In the beginning companies sold products. And then they sold services. In recent years, the fashionable suggestion has been that companies sell experiences and solutions, solving the needs and aspirations of customers.

Companies, indeed, do all of these things. But increasingly, what companies sell are projects. To understand the difference, think of an athletic shoe company, such as Nike or Adidas. A focus on products means a focus on selling running shoes. A focus on experiences might mean they sell you a membership to a local running club. A focus on solutions might mean they figure out how to help you reach your goal weight. While these clearly offer more value than simply selling you a pair of shoes, they also have limitations. Selling products limits the revenues you can make from clients: Unless you are innovating and continually updating your product offering, customer attrition tends to be high, and incentivizing repurchases can be hard. Selling experiences provides intangible benefits that are hard to quantify and measure, often focusing on meeting the needs of one single customer, preventing any mass production. Selling solutions became popular in the early 2000s when customers didn’t know how to solve their problems. But today, in the internet age, people can do their own research and define the solutions for themselves.

A focus on selling projects would mean helping someone do something more specific, such as running the Boston Marathon. Nike could provide you with its traditional sports gear, but in addition it could include a training program, a dietary plan, a coach, and a monitoring system to help you achieve your dream. The project would have a clear goal (finish the marathon) and a clear start and end date.

And that is just one type of project. More so than products, the possibilities with projects are endless.

From Products to Projects at Philips

Consider the evolution of Philips. Founded in Eindhoven, in the south of The Netherlands, in 1891 by Gerard Philips and his father Frederik, it began by producing carbon-filament lamps. Its success was achieved by a culture of innovation and the speedy introduction of new products. Over more than a century of profitable existence, the range of products offered by the company has mushroomed. Today, Philips produces everything from automated external defibrillators to energy-efficient lighting for entire cities. It even applies its smart sensor technology to teeth brushing.

This profusion of products means that Philips is cash-rich, yet sales have stagnated in the last decade, and concerns about the company have been reflected in its stock price. Faced with this changing reality, Philips took a long, hard look at itself. It identified the absence of focus and lack of strategy implementation capabilities as crucial elements that needed addressing. Five years ago, with intensifying competition, the Philips board split the organization into three different companies: Consumer Health, Lighting, and Healthcare.

It then went on to launch “Accelerate,” a program aimed at accelerating growth by transforming each new independent company into a focused organization. At the heart of the changes brought about by the Accelerate program are projects.

Over the years, Philips had become an intricate, blurred matrix. Accountabilities and responsibilities were shared between products, segments, countries, regions, functions, and headquarters. It set out to simplify this convoluted and archaic organization structure.

To do so, Philips put projects center stage. Projects were identified as the best management structure to break up silos and encourage teams to work transversally (end-to-end) in the organization.

As part of this, Philips Health Tech was divided into just three divisions. Essential to making this happen was a substantial increase in the work executed through projects. The shift was from selling customers a few products every year to creating an engaged relationship over decades.

One of the biggest challenges facing Philips Health Tech is that the life expectancy of its products is becoming shorter and shorter. Soon after launch, products are copied by the competition, which means they must be priced more cheaply. Soon, they become a commodity. This removes any opportunity for steady, high margins over the long term. Philips has experienced this even with its high-end health care products. Shifting its emphasis to selling projects rather than products was a strategic response to this problem.

For example, Philips sells high-tech medical devices. In the past it sold them simply as products (and it still does). But now Philips seeks out the projects in which its products will be used. If a new health care center is being considered, Philips will seek to become a partner from the very beginning of the project, including the running and the maintenance of the new center.

Among the results of this project focus at Philips is a partnership with Westchester Medical Center Health Network aimed at improving health care for millions of patients across New York’s Hudson Valley. Through this long-term partnership Philips provides WMC Health with a comprehensive range of clinical and business consulting projects, as well as advanced medical technologies such as imaging systems, patient monitoring, telehealth, and clinical informatics solutions.

In similar long-term partnerships with Philips, hospitals have been able to significantly improve radiology volumes and cut MRI waiting times in half. These organizations are seeing a 35% reduction in technology spending while improving clinical quality.

The Project Revolution

Philips is not alone in using an increased focus on selling projects as a means of disruptive transformation. At Microsoft, the company’s entire focus has shifted to Cloud services, most of which are offered as projects. It now has around 10,000 operating projects. Airbnb, valued this year at $30 billion, recently announced that it will start selling “experiences” — small tourism projects — as a way to create new revenue streams and address the increased regulatory scrutiny in some of its bigger markets. The biopharmaceutical industry is also seeking to work with governments and other purchasers on focused treatment programs, rather than simply offering individual drugs.

Clearly, the shift to becoming a project-driven organization and selling projects rather than products or services presents sizeable challenges to corporations and their business models. Working in projects throughout my career, I have identified these as the important ones:

  • Revenue streams. Revenues will be generated progressively over long periods of time, instead of right after the sale of a product. This will affect the way revenues are recognized, as well as accounting policies and the overall company valuation.
  • Pricing model. New pricing models will need to be developed. It is easier to price a product, for which most of the fixed and variable costs are known, than a project, which is influenced by many external factors.
  • Quality control. Delivering quality products will not be enough to meet customer expectations. Implementation and post-implementation services will also have to be of the highest possible quality to ensure that clients continue to buy projects.
  • Branding and marketing. Traditional marketing has focused on short-term immediate benefits. Marketing teams will need to promote the long-term benefits of the projects sold by the organization.
  • Sales force. The buyer of the project will no longer be the procurement department of an organization. Sales will be pitched to leaders of the business, so the sales force and sales skills will have to be upgraded with strategy and project management competencies.

Stop for a moment and consider what your organization is selling. Is it a project? Increasingly, the answer is clear and affirmative. If not, beware, your products might soon become part of a project sold by someone else.

 

S+B: Three Promises Every Sales Team Needs to Make — and Keep

Are you focusing on what matters to your customers? Are you providing value to build profitable, lasting relationships? Below is a blog from s+b Blogs by Elizabeth Doty:

Three Promises Every Sales Team Needs to Make — and Keep

Customer loyalty has always been the holy grail of organic growth. The fastest way to increase revenue and margin is not to push sales and marketing teams to land new customers, but to stop leaking customers. In their classic study, W. Earl Sasser Jr. and Frederick F. Reichheld found that reducing customer churn by just 5 percent could increase profitability between 25 and 85 percent, depending on the industry. Loyal, satisfied customers usually cost less to serve, are willing to pay for quality, bring more of their business your way, and are more likely to refer other customers.

Today, however, as the sales model shifts further toward subscription-based services, longer-term relationships have become more critical than ever before. Under a traditional, product-driven model, suppliers receive all their revenue up front. But with subscription-based services, customers pay as they go and can usually switch suppliers easily. In many cases, accounts are not profitable for suppliers until the second year. This means suppliers need to ensure they keep customers happy just to maintain their revenue streams over time.

To reduce customer churn, many experts promote techniques for convincing unhappy customers to stay. But what they should be asking is: Why do customers want to leave in the first place? Often, it’s because they feel the company has not delivered the value that was promised. Despite the current focus on continual innovation, what customers tend to value most is reliability, as Reg Price and Don Schultz wrote about in their book, Reliability Rules: How Promises Management Can Build Your Company Culture, Bid Your Brand, and Build Your Bottom Line (Racom Communications, 2009). And, as marketing legend Christian Grönroos has explained, building relationships requires making and keeping promises throughout the process of engaging your customer. The next logical question thus becomes: Who makes promises on behalf of your firm?

Ultimately, it’s your own salespeople who are responsible for your company’s promises. Marketing may craft your brand promise, but your sales team makes the commitments that count for specific customers — what your company will deliver, when, and with what level of quality. In the past, faced with pressure to meet a quota, salespeople might have been tempted to say whatever they thought it would take to close a deal, then move on to the next customer. But sales strategy expert Steve Thompson, who coaches both buying and selling organizations, suggests that “in a world of relationships, a different kind of salesperson succeeds.”

To win in this new world, sales teams need to focus on whether customers are receiving the value promised — and whether their firm is getting credit for the value delivered. Thompson proposes three specific promises that can help any direct-sales business build longer-term relationships.

  1. “I will focus on what matters to you.” The sales process begins with an exploration. What outcomes are your customers trying to achieve? How will they measure success? Without this context, you cannot advise them on the right solution. Unfortunately, customers often find this exploratory phase frustrating. They invest time and share information, but too often, reps do not listen or focus only on the products or services they want to sell. In this type of situation, you can differentiate yourself by taking a serious interest in your customer’s business and aiming to create value throughout the sales process. Thompson explains that “90 percent of the time, the buying organization isn’t clear about what they need. Right off the bat, a sales team can create significant value by helping them clarify their needs.” And if their desired outcomes are not ones you can deliver, you build credibility by telling them who may be able to.
  2. “I will craft the right deal.” The next phase involves crafting and presenting the right solution, and negotiating an agreement. “When salespeople focus on features, the discussion often devolves to price,” warns Thompson. “We turn our products and services into commodities by the way we sell them.” Instead, design a few possible solutions, each tied to a customer outcome. Make sure you can articulate exactly how each component is necessary. Then ask the buyer: Which option do you like best? How could it be improved? Now you are negotiating, but not as opponents. As you work together to adapt your solutions to their priorities, they will gain confidence that you can deliver, and pricing will be based on a win-win division of value. Crafting deals in this way also helps suppliers avoid the need to discount to close a sale to meet a quarterly deadline. For example, as one sales manager told me, “Our most successful sales reps are focused on the customer. These reps do not rush to recommend products until they are sure they would truly meet the customer needs. They are in it for the long term. And that means they can set their own prices.”
  3. “We will focus on delivering these outcomes.” If you want to keep a customer for life, stay invested after the deal closes. This is the moment when most sales reps move on to the next prospect, leaving customers anxious about whether they made the right decision, and operations staff in the dark about the details of delivery. The sales team, which consists of your organization’s promise-making units, needs to be joined at the hip with the delivery team, your promise-keeping units. The sales team, your organization’s promise-making arm, needs to be joined closely to the delivery team. Sales staff can dramatically improve delivery reliability by involving service staff early in the process, which helps service staff know the customer and why they are buying. Once you have delivered, you solidify the relationship by self-reporting on the outcomes achieved. This demonstrates accountability and protects the buyer from a superior who might ask, “What did you spend all that money on?”

Focusing on what matters to your customer, crafting a deal you can deliver on, and providing outcomes all help you build profitable, lasting relationships. Of course, sales teams alone cannot make this shift. It requires organizational changes in management focus, delivery processes, and technology tools — with an eye toward customer retention, revenue, and relationships, not just costs. Sales compensation may also need to change, to reward reps for the long-term relationships they develop. Moreover, as your company delivers more reliably and self-reports, you earn the right to ask customers about new needs. “There is a whole lot of sales pipeline sitting there that companies don’t know about, because buying organizations are not voluntarily offering up the information,” laments Thompson. What richer source of leads could there be than your own happy customers?

 

HBR: Are Sales Incentives Becoming Obsolete?

What sales incentives are you using in your lumberyard? Are your outside salespeople making an impact on their customers? Below is a blog from the Harvard Business Review by Andris A. Zoltners, Sally E. Lorimer, PK Sinha:

Are Sales Incentives Becoming Obsolete?

To motivate, manage, and reward B2B salespeople, many companies use sales incentive plans that link large commissions or bonuses to individual results metrics, such as territory quota achievement. As digital channels continue to reduce and redefine salespeople’s role in customer buying, these traditional sales incentive plans are becoming less effective at driving sales outcomes.

The right sales incentive plan creates a double win. Salespeople win because they are rewarded for their hard work and good performance. The company wins through a better-motivated sales team that produces short-term results and is more likely to achieve company goals.

For a sales incentive plan to produce this double win, there are two necessary conditions:

  • Salespeople must have a large impact on sales results by focusing on activities that add value and directly influence customer buying decisions.
  • The company must have the ability to measure individual results by separating out each salesperson’s contribution and determining how much an individual’s actions affect the outcome.

Today’s multichannel world increasingly challenges both of these conditions.

Before the proliferation of digital information and buying channels, buyers usually relied on field salespeople’s help and expertise when purchasing. Salespeople “owned” relationships with customers, and had considerable impact on purchase decisions. This made it easy to measure individual sales results. In many cases, incentives linked to sales performance were an effective way to motivate and reward individual salespeople.

Today digital channels make buyers more informed, connected, and socially influenced. Buyers no longer view salespeople as their primary connection to companies they want to do business with. For simple product purchases such as office supplies, many buyers are self-sufficient. They get information online and purchase through websites supported by inside sales and service. Field salespeople no longer have impact on buying decisions. The first necessary condition is no longer true.

For complex solution purchases such as customized manufacturing equipment, buyers usually rely on a combination of digital channels and salespeople. The internet allows buyers to easily gather preliminary information about solution alternatives. But when solutions are complex and expensive, digital channels are usually not enough. Buyers want to collaborate with salespeople to reduce uncertainty. Often, they want input from multiple salespeople and technical specialists from the solution provider, in addition to help from digital channels. Salespeople have impact on purchase decisions. But because that impact is shared with multiple sales roles and digital channels, the company’s ability to measure impact and attribute it to a specific salesperson is limited. The second necessary condition is no longer true.

More and more selling situations today are failing to meet one or both necessary conditions for traditional sales incentives to work. Multiple influences on buying reduce individual salespeople’s impact and the ability to measure it. This blurs the connection between individual effort, results, and incentive pay in the minds of salespeople. Incentives become fuzzy and are no longer effective at rewarding and motivating individuals.

New Sales Management and Culture

Companies can no longer rely on large, individual, short-term sales incentives as a primary means of managing salespeople. Instead, they must change their sales compensation plans while emphasizing other ways to direct salespeople and shape sales culture.

Sales leaders must change compensation plans to look more like management bonus plans, designed to encourage people to work together to make the company and its customers more competitive and prosperous in the long run. Changes include:

  • Changing the metrics for determining incentive pay. Instead of short-term individual results (for example, quarterly territory sales), the metrics that determine pay should reflect annual company and team performance, along with individual effort contributing to team results (for example, going above and beyond to meet with key decision makers or to engage product specialists to help customers).
  • Shifting the pay mix more toward salary. Companies should also provide a smaller (but still reasonable) incentive opportunity for salespeople.

In addition to changing sales compensation, sales leaders and managers must take a more active role in managing salespeople. This involves changes such as:

  • Deploying new sales team structures. They must work alongside other channels (internet, inside sales) to meet customer needs.
  • Hiring salespeople with new capabilities. In addition to having solution sales skills, they should be comfortable using digital communication (email, video calls, social media) with customers, appreciate the value of analytics for enhancing the sales process, and be able to orchestrate customer buying across multiple channels.
  • Using performance management, coaching, training, and sales data and tools. Guide salespeople instead of relying on incentives as a primary means of controlling sales activity.
  • Establishing a new sales culture. It should be focused on teamwork and customer success.

Incentives are embedded in the culture of many sales forces, and changing that culture may be difficult. Yet change is necessary for companies to affect sales force behavior and drive results in today’s multichannel sales environment.

Original Page: https://hbr.org/2017/08/are-sales-incentives-becoming-obsolete

 

HBR: Don’t Persuade Customers — Just Change Their Behavior 

“If you are a company, you might think it would be easy to sell this person a solution to their problem. However, it’s not as easy as that – there are deeply ingrained habits here that won’t just go away.” What are you doing to motivate the consumer to change their behavior?  Below is a blog from the Harvard Business Review by Art Markman:

Don’t Persuade Customers — Just Change Their Behavior 

Most businesses underestimate how hard it is to change people’s behavior.  There is an assumption built into most marketing and advertising campaigns that if a business can just get your attention, give you a crucial piece of information about their brand, tell you about new features, or associate their brand with warm and fuzzy emotions, that they will be able to convince you to buy.

On the basis of this assumption, most marketing departments focus too much on persuasion.  Each interaction with a potential customer is designed to change their beliefs and preferences.  Once the customer is convinced of the superiority of a product, they will naturally make a purchase. And once they’ve made a purchase, then that should lead to repeat purchases in the future.

This all seems quite intuitive until you stop thinking about customers as an abstract mass and start thinking about them as individuals.  In fact, start by thinking about your own behavior.  How easy is it for you to change?

Consider your own daily obsession with email and multitasking.  Chances are, you check your email several times an hour.  Every time you notice that the badge with the number of new emails has gotten larger, you click over to your browser, and suddenly you are checking your emails again.  This happens even when you would be better off focusing your efforts on an important report you are supposed to be reading or a document you should be writing.  You may recognize that multitasking is bad and that email is distracting, but that knowledge alone does not make it easy to change your behavior.

If you are a company, you might think it would be easy to sell this person a solution to their problem. However, it’s not as easy as that – there are deeply ingrained habits here that won’t just go away.

Let’s go through some of what is required to create different habits.  The point is to recognize how much work goes into changing behavior.

First, you have to optimize your goals. Many people err in behaviors like email by focusing on negative goals.  That is, they want to stop checking their email so often.  The problem with these negative goals is that you cannot develop a habit to avoid an action.  You can only learn a new habit when you actually do something.

For marketers, this means focusing on how to get consumers to interact with products rather than just thinking about them.  As an example, our local Sunday newspaper often comes in a bag with a sample product attached that encourages potential consumers to engage with products.

Second, you need a plan that includes specific days and times when you will perform a behavior.  For example, many people find that they work most effectively first thing in the morning, yet they come to work and immediately open up their email program and spend their first productive hour answering emails (many of which could have waited until later).  So, put together a plan to triage email first thing in the morning and answer the five most important emails and leave the rest until later in the day.

Now that many people have calendar apps that govern their lives, it gets easier to put things on people’s schedule to keep them engaged with a business.  For example, services from hair salons to dentists can schedule appointments and send an email that links to Outlook and Google calendars.

Third, you need to be prepared for temptation. Old behaviors lurk in the shadows waiting to return. If you have an important document to read, and you know that you will be tempted to check your email, find a conference room in the building and use that as a home base away from your computer to get your reading done.

To keep customers from falling back into the “bad habit” of stopping off at the drugstore for oops-we-ran-out-of-it products like laundry detergent or diapers, Amazon makes it easy to schedule regular shipments right to your home. You never need to stop at the drugstore again – or even to remember to check how much laundry detergent is left in the bottle.

Fourth, you need to manage your environment.  Make the desired behaviors easy and the undesired ones hard.  If you want to avoid multitasking, then remove as many of the invitations to multitask from your IT environment.  Close programs (like Skype) that have an IM window.  Only open your email program at times of the day when you are willing to check email.  Shut off push notifications on your phone when you have an important task to complete.

Marketers need to work with their designers to come up with packaging that encourages consumers to put the product into their environment. As I discuss in my book Smart Change, Procter & Gamble helped increase sales of the air refresher Febreze by redesigning a bottle that originally looked like a window cleaner bottle (and cried out to be stored in a cabinet beneath the sink) to one that was rounded and decorative (and could easily be left out on a counter in a visible spot).

Finally, you need to engage with people. Many people feel pressure to accomplish important goals alone, but there is no shame in getting help from others.  Find productive people within your organization and seek them out as mentors to help you develop new habits.

The “positive peer pressure” technique is frequently used in service companies and organizations like Weight Watchers and Alcoholics Anonymous, but can be used by any business that’s trying to encourage repeat visits. For instance, a fitness center might offer a few free or discounted personal training sessions to new members to help them get in the habit of working out – and making them less likely to quit.

None of these factors works by itself.  You need to create a comprehensive plan to change your behavior.  Otherwise, the constant temptations to multitask will sap your productivity despite your best intentions.

This same set of principles applies for marketers.  No matter how motivated consumers may be to try your product or service, or how unhappy they may be with their current situation, if you do not focus on a comprehensive plan for changing their behavior, then you are unlikely to have a significant influence on them.

Your business will not succeed just by trying to change attitudes and preferences.  You will succeed by helping people to develop goals, create plans, overcome temptations, manage their environment and engage with others.  You will influence your customers only when you give them as much support as you would need to change your own behavior.

HBR: 6 Reasons Salespeople Win or Lose a Sale

What selling styles do you think home builders/contractors buyers prefer? Below is a blog from the Harvard Business Review by Steve W. Martin:

6 Reasons Salespeople Win or Lose a Sale

Why does a salesperson lose a sale?

It’s a question I’ve studied for years, as part of the win-loss analysis research I conduct.

There’s a tendency to assume that the salesperson lost because their product was inferior in some way. However, in the majority of interviews buyers rank all the feature sets of the competing products as being roughly equal. This suggests that other factors separate the winner from the losers.

In order to identify these hidden decision-making factors, more than 230 buyers completed a 76-part survey. The research project goals were to understand how customers perceive the salespeople they meet with, explore the circumstances that determine which vendor is selected, and learn how different company departments and vertical industries make buying decisions. We had six key research findings:

#1: Some Customers Want to be Challenged

What selling style do prospective buyers prefer? The survey shows 40% of study participants prefer a salesperson who listens, understands, and then matches their solution to solve a specific problem. Another 30% prefer a salesperson who earns their trust by making them feel comfortable, because they will take care of the customer’s long-term needs. Another 30% want a salesperson who challenges their thoughts and perceptions and then prescribes a solution that they may not have known about.

From a departmental perspective, under 20% of accounting and IT staffers want to be challenged, while 43% of the engineering department does. Over 50% of marketing and IT prefer a salesperson who will listen and match a solution to solve their specific needs. The sales department equally preferred having a salesperson listen and solve their needs and being challenged; HR was equally split across all three selling styles.

There’s an interesting explanation for selling styles preferences, which is based on whether the buyer is comfortable with conflict. Seventy-eight percent of participants who preferred a salesperson who would listen and solve their specific needs agreed with the statement: “I try to avoid conflict as much as I can.” Conversely, 64% of participants who preferred a salesperson who challenges their thoughts disagreed with the statement and are comfortable with conflict.

#2: It’s Really a Committee of One

Whenever a company makes a purchase decision that involves a team of people, factors including self-interests, politics, and group dynamics will influence the final decision. Tension, drama, and conflict are normal parts of group dynamics, because purchase decisions typically are not made unanimously.

One critical research finding is that 90% of study participants confirmed that there is always or usually one member of the evaluation committee who tries to influence and bully the decision their way. Moreover, this person is successful in getting the vendor they want selected 89% of the time. In practicality, it can be said that a salesperson doesn’t have to win over the entire selection committee, only the individual who dominates it.

#3: Market Leaders Have an Edge

In most industries a single company controls the market. Compared with their competitors, they have a much larger market share, top-of-the-line products, greater marketing budget and reach, and more company cachet. For salespeople who have to compete against these industry giants, life can be very intimidating indeed.

However, the study results provide some good news in this regard. Buyers aren’t necessarily fixated on the market leader and are more than willing to select second-tier competitors than one might expect. In fact, only 33% of participants indicated they prefer the most prestigious, best-known brand with the highest functionality and cost. Conversely, 63% said they would select a fairly well-known brand with 85% of the functionality at 80% of the cost. However, only 5% would select a relatively unknown brand with 75% of the functionality at 60% of the cost of the best-known brand.

Not surprisingly, the answer to this question differed by industry. The fashion and finance verticals had the highest propensity to select the best-known, top-of-the-line product, while manufacturing and health care had the lowest.

#4: Some Buyers Are “Price Immune”

Price plays an important role in every sales cycle. Since it is a frequent topic during buyer conversations, salespeople can become fixated on the price of their product and believe they have to be lowest. However, decision makers have different propensities to buy, and the importance of price falls into three categories. For “price conscious” buyers, product price is a top decision-making factor. For “price sensitive” buyers, product price is secondary to other decision-making factors such as functionality and vendor capability. For “price immune” buyers, price becomes an issue only when the solution they want is priced far more than the others being considered.

Study participants were asked to respond to different pricing scenarios, and their responses were analyzed to categorize their pricing tendency. From a departmental perspective, engineering would be classified as price immune; marketing and sales as price sensitive; and manufacturing, information technology, human resources, and accounting as price conscious. From an industry perspective, only the government sector would be classified as price immune. Banking, technology, and consulting would be price sensitive, while manufacturing, health care, real estate, and fashion are price conscious.

#5: It’s Possible to Cut Through Bureaucracy

The most feared enemy of salespeople today isn’t solely their archrivals; it’s buyers’ failure to make any decision. This is because every initiative and its associated expenditure is competing against all the other projects that are requesting funds. Do the departments have different abilities to push through their purchases and defeat their company’s bureaucratic tendency not to buy?

The answer is yes. Based on the research results, sales, IT, and engineering have more internal clout to push through their projects as opposed to accounting, human resources, and marketing. Therefore they’re better departments to sell into from the salesperson’s perspective.

#6: Charisma Sells in Certain Industries

Imagine three salespeople who’ve pitched products that are very similar in functionality and price. Which would you rather do business with:

  • A) A professional salesperson who knows their product inside and out but is not necessarily someone you would consider befriending
  • B) A friendly salesperson who is likable and proficient in explaining their product
  • C) A charismatic salesperson who you truly enjoyed being with but is not the most knowledgeable about their product

While top selection in every industry was the friendly salesperson, the media and fashion industries selected “charismatic salesperson” more than most, and the manufacturing and health care industries had the highest percentage of “professional salesperson” responses.

Many salespeople behave as if buyers are rational decision makers. In reality, human nature is complicated, and a mix of factors — some rational, some not — determine how buyers evaluate sales reps and who they select. Ultimately, it is the mastery of the intangible, intuitive human element of the sales process that separates the winner from losers.