Why She Buys: The Lesson of Ryland Homes

Why She Buys: The New Strategy for Reaching the World’s Most Powerful Consumers by Bridget Brennan is a fascinating book which provides a different perspective on selling to women. Below is an excerpt from the book:

The Lesson of Ryland Homes: If the woman doesn’t want it, the man doesn’t get itWhy She Buys.jpg

Myth: Men drive all the big decisions in married households.

Reality: Women are the deal breakers.

You’d be hard-pressed to find an industry more male-dominated than home building. The average home-building company is staffed like a World War II aircraft carrier, at least in its management ranks. But times are slowly changing. While most senior executives are still white and male, these companies are waking to the fact that their real customer are women, and that they’ve been leaving money on the table by creating and selling homes from a male perspective, from underdesigning closets to using sell sheets that focus purely on technical data and architectural blueprints.

The Ryland Group is a $2 billion, publicly traded home-building company-one of the top in its industry-that has changed the way it designs houses, based on a new understanding of who rules America’s roosts. In one of the world’s biggest housing downturns, the company is leveraging its knowledge of the alpha consumer ever way it can.

If you’ve never thought of a home as a product before think again–a new home is the ultimate consumer lifestyle product. For most people, there is no bigger purchase, literally or figuratively. As is the case with all major consumer product categories, women dominate.

“Women influence 91 percent of new home purchases,” Eric Elder, the senior executive who has championed most of Ryland’s female-focused efforts, For several years now, single women have been the fastest-growing segment of the home-buying market, buying twice as many homes as single men. I worked with Ryland on a two-year research project to understand what: women want in a new home. As a result, the company implemented a variety of covert, female-friendly efforts across the company. The goal was to make these changes imperceptible to home buyers, so that women would feel drawn to Ryland’s homes but men would not feel excluded.

DESIGNING WOMEN

As discussed in Chapter 3, when a woman goes off to the workforce, she changes her personal traffic patterns, along with those of everyone in her family. As such, working mothers were the biggest catalyst for modifying Ryland’s floor plans. The company redesigned the common areas Of many of its models so that multitasking moms could keep one eye on the kids and eye on the stove. Windows were built over kitchen sink to provide a direct line of sight to the backyard. Open kitchen/family room layouts were designed with nooks for decks, so that kids could do their homework on the computer or watch TV while Mom looked on from nearby. These designs were an acknowledgment of the “time compression” that occurs within families when both parents work. Instead of parents spending an hour or two helping kids with homework and then making dinner, both activities are now likely to happen at the same time.

Time compression and the blurring of boundaries between work and home means that home isn’t quite the sanctuary it once was. With cell phones, BlackBerry devices, laptops, and the Internet, work is “part of the furniture” at home, too. In an effort to replace what’s been lost, Ryland redesigned its master bedrooms as oases for stress relief. New master suites were designed as retreats for the adults in the house-and in particular, women. “A private, relaxing, reenergizing space is especially important to single mothers, who don’t get much time on their own,” says Elder. Many of Ryland’s master bedroom suites now feature a coffee bar, mini fridge, and lounge area.

WELCOME TO THE NEIGHBORHOOD

Modifications to Ryland’s floor plans were just the beginning. The company also embarked on design changes to its neighborhoods. It learned that women don’t view themselves as buying just a house with four walls; they feel like they’re buying an entire community, a neighborhood, a school district, and a lifestyle. Women believe a new house is going to improve their life, along with the lives of everyone in their family. If it won’t, they might as well stay where they are. Subsequently, Ryland began creating more female-friendly amenities in its neighborhood designs, including cul-de-sacs, better street lighting, pocket parks, electronic garage doors as a standard feature, better lighting around home entryways, and secure gated entries in townhouse communities.

EMBRACING PERSONALIZATION

As part of the female-friendly process, Ryland completely overhauled its design centers, the places where customers pick out their options and upgrades after signing a contract for a new home. These centers had a history of being housed in the bare garages of model homes.

“In our industry, picking out home options and upgrades used to be a back-office function,” says Elder. “We’d have a hodgepodge of display cases given to us by random suppliers, with a few samples of products here and there; bad lighting … the whole experience was an afterthought.” It couldn’t be more different now. “We actually embrace the personalization process, when we used to fight it,” explains Elder. “It’s one of the biggest changes that’s occurred at the company, and it’s wholly driven by women.” A senior female executive at Ryland, Diane Morrison, was the force behind the company’s new design centers. She recognized that for many women, the appointment at the design center is the most exciting part of the home-buying process: it is here that they get to pick out all the things that will make the home distinctly their own.

Ryland also broadened the color palettes on its home exteriors, to help women feel that their new home has a unique, personal identity, and to diminish the dreaded “cookie cutter” effect. Instead of offering three exterior colors in a one-hundred-house community, Ryland now typically offers from nine to fifteen.

LESSONS FROM THE COVERT APPROACH

Ryland is a great example of a masculine industry that’s responded to women with subtle design changes that benefit both sexes.

“Every architect that’s designed homes throughout the history of this company has been a man,” says Elder. “Closets used to be leftover spaces that were essentially a door and a hole. Now they are a design element of the home, with functionality built into them. Our sales lobbies, which used to be fairly bare, now have places to sit down, with inspirational reading materials, like home design magazines, and toys for kids. And we’ve changed our merchandising displays so that they are more emotionally charged and filled with pictures of people.”

When the covert approach is done right, men don’t even notice the design elements that have been added for women. , It turns out that men like the idea of having a hot cup of coffee in their master bedroom, too. “From a consumer stand-point, men would live in the garage if they had to,” says Elder with a grin. “Women want the home, and men want the women to get what they want. The great thing for us is that the changes we’ve made have been driven by women but are appreciated by men, too.”

When you appeal to women in a covert fashion, the men find themselves on the receiving end of things they never knew they wanted but are happy to get-and maybe even pay more for the next time. The lesson is this: when you make women happy, you make everyone happy. Women are the leading economic indicators of what people want. Key learnings from Ryland include:

  1. Never underestimate the influence of women in a couples” purchase. Women are the veto vote for buying decisions large and small, from deciding what home to buy to where to eat. The individual who conducts the financial transaction (which can often be the husband) is not always the primary decision maker. If you sell to a lot of couples, figure out the “hot buttons” for both your male and female customers. They may be very different.
  2. Study how the divorce rate and the increased spending power of single women may be impacting your industry. The phenomenon can open new opportunities in product design, as it did with Ryland and its master bedroom retreats, and also in the services that support your product offerings.
  3. A well-crafted, subtle approach attracts women and pleases men, too.
  4. It’s socially unacceptable for men to buy products that are overtly feminine. By being subtle in your appeal to women-through a covert approach-you have the ability to attract both sexes without alienating either one. Married women never want to see their husbands alienated or emasculated. (Not if they’re happily married, anyway.)
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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: How to Improve Your Sales Skills, Even If You’re Not a Salesperson

Do you think selling is a fundamental skill you need in business? Do you think it’s your job to determine what motivates your customer? Below is a blog from the Harvard Business Review by Rebecca Knight:

How to Improve Your Sales Skills, Even If You’re Not a Salesperson

At some point in your career, even if you’re not a salesperson, you’re going to have to sell something — whether it’s your idea, your team, or yourself. So how can you improve your sales skills, especially if you don’t pitch people often? What should you focus on first? And what should you do if you lose a sale?

What the Experts Say
Selling has a bad rap, says Thomas Steenburgh, professor at the University of Virginia Darden School of Business. “Very few parents say they want their kids to grow up to be a salesperson,” he says. His MBA students are no different. “Many of them tell me that sales is something they never want to do in their careers.” And yet, he says, “Sales is the most fundamental skill.” Scott Edinger, the founder of Edinger Consulting Group and the author of The Hidden Leader, says that the resistance to sales stems from an “antiquated idea that selling is pushing people to buy something they don’t want, don’t need, or can’t afford.” But that notion is outdated. “Selling is moving somebody else to action,” he says. And that is part and parcel of professional life. “If you look at things you do over the course of your day, from internal meetings with colleagues to clients calls, almost all of your interactions involve some form of selling.” Here’s how to get better at it.

Reflect
Getting comfortable with sales requires an “understanding of what selling is,” says Edinger. Move beyond the used car salesman cliché. “Selling is not about putting undue pressure on and talking incessantly,” all while “wearing a light blue polyester suit,” he says. Rather, selling “is persuading, inspiring, and leading.” Your goal is “to work in collaboration” with a client or colleague “to drive change.” To get into the right mindset, Steenburgh recommends reflecting on your past positive experiences as a customer. “When you think about the best sales interactions you’ve had in your life, it’s almost like the salesperson wasn’t there,” he says. The seller was just “a person who’d taken a genuine interest in your problem and was helping you solve it.”

Put yourself in your counterpart’s shoes
“People buy for two reasons,” says Steenburgh. They either have a business problem that needs to be solved or they have a personal need, such as a desire to move up in the organization” that your idea helps accelerate. It’s your job to figure out your customer’s motivations: “What would it take to get your boss to sign off on a project or to get your clients excited about what you have to offer?” says Edinger. Do your research by talking with the people you’re trying to win over, and others in the know, well in advance of making your proposal. Think about what information you need to uncover. “Be empathetic. Focus on understanding the other party — what they need to accomplish and how they measure success.” This will help you tailor your recommendations.

Plan and practice
Crafting your sales pitch should not be a solo endeavor. Edinger suggests enlisting “a trusted peer or manager” to “role-play” so you can “see what works and what doesn’t.” Your goal is “to understand how the flow of these conversations feels and sounds.” Your colleague can coach you on how you come across and how to improve your delivery. Steenburgh recommends practicing in front of novices. “Talk to someone who is not an expert in the field, such as your grandmother,” he says. “Her questions will help you frame the problem.” Chances are, your first attempt at a pitch will miss the mark. “People spend so much time in their own heads, thinking about their idea, that they fail to draw the connection to how the product will improve someone else’s life,” he says.

Stay calm and don’t brag
Even with meticulous preparation, pitches can go awry. Your adrenaline is surging, so you may end up talking too much or failing to get to the point quickly. There is no easy solution, says Edinger. His advice: “Chill out.” Try to “relax your facial expressions” and keep your body language confident and loose. Check your tone and pacing. “Nobody wants to be lectured. Be respectful” but not overly deferential, he adds. “Establish a peer-level interaction. You’re not begging on bended knee.” Another common problem, says Steenbergh, is “letting your ego get in the way.” Sometimes, you get caught up in “talking about your strengths, and not what your counterpart wants,” he says. “At best, the person gets bored. And worst, it sends a message that you’re [not right] for the job.”

Close the deal
Being good at selling means you both “understand the ‘customer’ and understand the path they need to go through to buy,” says Steenburgh. It’s rare that anyone will immediately bite upon hearing your pitch — no matter how brilliant it is. Your counterpart “might need to assess the financial impact of such a purchase,” review competitors, or check with a higher-up before signing off. Regardless of what that next phase may be, you should “ask permission to move forward.” He recommends saying something like, “Are you ready to take the next step? What else can I do to help you make this decision?” Be “flexible” and willing to brainstorm, says Edinger. Think about ways you can “work together in collaboration to improve a product, service, or idea.” If the answer is no, or not yet, use the opportunity to gently probe. “Is the new idea too threatening? Too difficult? Or too expensive?”

Think long term
Veteran salespeople know it’s possible that “you’re going to fail more than you will succeed,” says Steenburgh. “You just have to have the guts to keep moving forward.” To summon that courage, remind yourself “that it’s not always about you.” Your counterpart has to take many interests into account. Remember, too, that sales is rarely “a one-and-done deal.” If your pitch is unsuccessful, “go back to your target in three months and ask, ‘How’s it going? Are your needs being met?’ If they are, great, but if not,” you may have another shot. “Think about the big picture.”

Principles to Remember

Do:

  • Your research. Figure out what’s important to your counterpart and what business problems they’re trying to solve.
  • Role-play your pitch with a trusted colleague and ask for feedback on ways to improve your presentation
  • Ask permission to move forward after your initial pitch by saying something like, “Are you ready to take the next step?”

Don’t:

  • Tense up. Relax your facial expressions and keep your body language loose.
  • Talk too much — and especially don’t brag. Focus on how you can help your counterpart.
  • Beat yourself up if you’re unsuccessful. Think big picture. Stay in touch and look for opportunities to try again.

Case Study #1: Develop an understanding of your customer’s needs, and show empathic concern
Damian Vaughn, head of programs at BetterUp, a San Francisco–based company that connects employees with executive-level coaching, believes that being good at sales means that you understand both the “political and personal element” behind every buying decision.

“You need to be able to connect the dots between [your customer’s] business needs and their personal needs,” says Damian, a former NFL player turned entrepreneur. “And you need to show empathic concern.”

Earlier in his career, Damian worked as a management consultant. He wanted to sell his company’s organizational assessment and leadership development services to “George,” a CEO who had taken the reins of a technology firm poised for a great deal of change.

Before he developed his pitch, Damian did his research. “I needed to get a sense of the broader macroeconomic environment George was operating in,” he says.

He talked to George’s colleagues to develop a deeper understanding of the CEO’s personal motivations. The conversations were illuminating. “George was a seasoned CEO but not a veteran, and this was his first transformation,” he says. “He wanted to deliver business results, but he also had a need for significance. He wanted to prove that he belonged in this orbit.”

In addition, George was eager to connect with his employees. “The people component was really important to him,” Damian says.

He used this information to tailor his pitch to George. It was subtle: “The messaging was that the success we were going to achieve would tie directly back to him,” he says.

Damian also demonstrated how his consulting services would allow George “to engage and collaborate with his employees. I showed him how everyone would feel connected.”

At the beginning of the pitch, Damian provided a brief overview of his company’s services. Then he paused. It was George’s turn to talk. “I listened to George’s vision and intentions,” he says.

After George was done, Damian presented his case. “Our solution was what I’m sure felt like a customized service,” he says. “It was what the business needed and what he wanted.”

George signed on, and the successful engagement lasted about 18 months.

Case Study #2: Learn from mistakes and be willing to collaborate with your customers on a solution
David Neenan, president of international at TransUnion, a consumer credit reporting agency, often attends sales meetings at the C-suite level. “I am not a salesperson, but I have to represent the best of what we do and why it’s relevant,” he says.

Early on, he made mistakes. “I sometimes came in with too many ideas of where we might be helpful, and it overwhelmed the listener,” he says. “I have learned that sales takes discipline and that I need to pick and choose what to talk about once I understand the customer’s problem.”

Other times, “I left regretting that we didn’t make ‘the ask,’ or that we didn’t make it aggressively enough,” he says. Now he knows that the team needs someone in the meeting who is “not afraid to ask the customer to commit to a next step.”

He says he’s picked up a lot from TransUnion’s best salespeople, and from conversations with customers: “A client once said to me, ‘A good salesperson takes you where you want to go. A great salesperson takes you where you need to go,’ and it’s true,” he explains.

A few years ago, David was in a sales meeting with a big bank that wanted to cut its approval process for credit seekers to less than 10 seconds.

“We understood that this was not going to be a quick fix, because we did not have an off-the-shelf solution,” he recalls. “We needed to take a couple of leaps forward and brainstorm with the client to see how we might build a model or framework to solve the issue.”

David enjoys this kind of collaboration. “I work in 30 countries, and I like sharing experiences from other markets by taking what we know works in Market A and applying it to Market B,” he says. “That’s when you start to use the word we, as in ‘We are solving the problem together.’”

David and his team marshaled the internal resources to build a solution for the bank, and it signed with TransUnion.

HBR: What Most Companies Miss About Customer Lifetime Value

Are you measuring your customers’ lifetime value? Are you investing in and enabling customer capabilities? Below is a blog from the Harvard Business Review by Michael Schrage.

What Most Companies Miss About Customer Lifetime Value

For managers and marketers alike, the power to calculate what customers might be worth is alluring. That’s what makes customer lifetime value (CLV) so popular in so many industries. CLV brings both quantitative rigor and long-term perspective to customer acquisition and relationships.

“Rather than thinking about how you can acquire a lot of customers and how cheaply you can do so,” one marketing guide observes, “CLV helps you think about how to optimize your acquisition spending for maximum value rather than minimum cost.” By imposing economic discipline, ruthlessly prioritizing segmentation, retention, and monetization, the metric assures future customer profitability is top of mind.

For all its impressive strengths, however, CLV suffers from a crippling flaw that blurs its declared focus. The problem is far more insidious than those articulated in venture capitalist Bill Gurley’s thoughtful CLV vivisection. In fact, it subverts how customers truly become more valuable over time.

When my book Who Do You Want Your Customer To Become? was published, five years ago, its insight was that making customers better makes better customers. While delighting customers and meeting their needs remain important, they’re not enough for a lifetime. Innovation must be seen as an investment in the human capital and capabilities of customers.

Consequently, serious customer lifetime value metrics should measure how effectively innovation investment increases customer health and wealth. Successful innovations make customers more valuable. That’s as true for Amazon, Alibaba, and Apple as for Facebook, Google, and Netflix. No one would dare argue that these innovators don’t understand, appreciate, or practice a CLV sensibility.

Pushing organizations to rethink how they add value to their customers stimulates enormously productive discussion. A fast, cheap, and easy exercise for clarifying the innovation investment approach emerged when I operationalized my book’s principles. The simple but provocative tool generates actionable insights. Having facilitated scores of workshops around it worldwide, I know it gets results.

Ask people to complete this sentence: ”Our customers become much more valuable when…”

The immediate answers tend to be predictable and obvious. For example, customers become much more valuable when “they buy more of our stuff” or “they pay more” or “they reliably come back to us” or “they’re loyal to our brand.”

There are no prizes for recognizing that these initial responses reflect the variables that go into computing traditional CLVs. While everyone agrees these things are important, participants in the exercise quickly recognize how limited, and limiting, those instant answers are.

It doesn’t take long before the answers start to incorporate an investment ethos that sees customers more as value-creating partners than as value-extraction targets. For example:

Our customers become much more valuable when…

  • they give us good ideas
  • they evangelize for us on social media
  • they reduce our costs
  • they collaborate with us
  • they try our new products
  • they introduce us to their customers
  • they share their data with us

Almost without exception, these follow-on answers are disconnected from how the firm calculates customer lifetime value. But, almost without exception, these responses push people to revisit and rethink how customer value should be measured. At one company the immediate response was to look for correlations between CLV and net promoter score. At another, the conversation led to discovering a core group of top-quintile CLV clients, who served as essential references for closing deals with firms identified as top-decile CLV clients. Those reference firms instantly won renewed attention and special treatment.

The more diverse and detailed the answers, the more innovative and insightful the customer investment. The most-productive conversations came from cross-functional, collaborative interaction — not just from marketing, R&D, or business unit leaderships.

For example, for a global industrial equipment provider, customers became more valuable when they performed more self-service diagnostics and shared that information with the firm. That led directly to the firm’s technical services teams offering cloud-connecting APIs and SDKs that let customers customize remote diagnostic gateways for their equipment. Customers embracing self-diagnostics inherently boosted their CLV. Not incidentally, information access swiftly redefined how the company qualified prospects and computed lifetime customer value.

By investing in and enabling new customer capabilities, firms create new ways for customers to increase their lifetime value. Making customers better truly does make for better customers.

But in keeping with the segmentation spirit of CLV, the question can easily be edited and modified to produce targeted insights. For example, at one workshop we used two versions of the sentence: “Our best customers become much more valuable when…” and “Our typical customers become much more valuable when…”

The innovation investment insights for one’s best customers proved qualitatively and quantitatively different from those for one’s typical customers. Forcing people to rigorously define the distinctions between typical and best frequently leads to even greater creativity around customer value.

My favorite CLV vignette emerged from a session at a global financial services giant in London. As the responses grew longer, richer, and more detailed, one of the participants called attention to an interesting fact. Some of the answers, he observed, began with “we,” as in, “Our customers become much more valuable when we do something.” The others, however, began with “they,” as in, “Our customers become much more valuable when they do something.”

“What is the difference between the potential customer lifetime value when we do something versus when they do it?” he asked. After a few moments of silence, the conversation went to a whole other level of engagement, around how the firm wanted to engage with and invest in its customers.

The best investment you can make in measuring customer lifetime value is to make sure you’re investing in your customers’ lifetime value.

HBR: Sales Reps, Stop Asking Leading Questions

What is your approach to selling? Do you use a consultative sales approach? Below is a blog from the Harvard Business Review by Scott Edinger.

Sales Reps, Stop Asking Leading Questions

Most executives recognize a need for their sales team to act as consultants and sell “solutions.” But many CEOs would be shocked at how poorly their sales teams execute on the strategy of consultative selling. I recently had a conversation about this with the director of purchasing at one of my client companies who told me: “I can always tell when a rep has been through sales training, because instead of launching in to a pitch, they launch into a list of questions.” Too often, sales teams trying to “do” consultative selling don’t move beyond the rudimentary application of solution-sales principles: “Get the team to ask questions, and then match our capabilities to what the client has said.” So the sales force sits down and makes a list of questions designed to extract information from their prospective clients, in a kind of interrogation. I’ve sat through many sales calls like this, and trust me it isn’t pretty.

To maximize the power of consultative selling, we have to move beyond a simplistic view of solution selling. It’s not about grilling the buyer but rather engaging in a give-and-take as the seller and buyer explore the client’s priorities, examine what is in the business’s best interests, and evaluate the seller’s solutions. Asking questions is part of this engagement process, but there’s a right way to do it. Here are some important pitfalls to avoid:

Avoid checklist-style questioning. A few years ago I was working with a financial services firm that hadn’t seen much success in adopting a solution sales approach. When I watched a few meetings it was easy to see why. The sellers I traveled with did a decent job of asking questions and getting answers, but it felt more to me (and to the prospects, based on their responses and disposition) like they were going through a checklist. As a result, their sales calls felt mechanical and staid. While they gleaned some good information about clients’ needs, allowing them to dovetail the products they were selling into the conversation, there was little buy-in from the prospects they were talking to. There was no sense of shared understanding or that the client had confidence that the seller would be able to help them grow their business. I’ve observed this scenario with both beginner and experienced sellers, as well as senior partners in Big Four consulting firms: when they focus solely on asking questions, they rarely get the information they really need.

Avoid asking leading questions. Nothing falls flatter in a sales call than a question that is clearly self-interested, or makes the seller the master of the obvious. I joke about this in speeches using the example: “If I could show you something interesting, would you be interested?” The kind of questions sales professionals are taught to ask typically focus on drawing attention to client problems, pain points, and sources of dissatisfaction, so the client will then view the seller’s offerings as a solution. It can be useful to explore the buyer’s challenges, but when a seller asks a ridiculous question with an obvious answer such as, “What’s the implication of data center failure?” it can backfire. It’s counterproductive to ask patently manipulative questions because buyers immediately put up their defenses and will be skeptical of the seller’s intentions – and intelligence. Instead, ask questions that demonstrate genuine curiosity, empathy, and a desire to understand. Try to go deeper than uncovering a list of problems to be solved: ask what the buyer hopes to achieve with your product or service, and why this is a priority now.

Avoid negative conversational behaviors. When sellers are myopically focused on persuading a prospect or winning a piece of business, it creates a negative vibe in the relationship. In fact, when we look at what happens in the brain during this kind of one-sided selling interaction, we find that buyers may experience that negativity at a chemical level. In her article, “The Neurochemistry of Positive Conversations,” Judith Glaser highlights specific behaviors that contribute to negative chemical, or “cortisol-producing,” and positive chemical “oxytocin-producing” reactions in others. Among the behaviors that create significant negative impacts are being focused on convincing others and behaving like others don’t understand. Precisely the stereotypical behaviors that give sellers a bad name: being too aggressive, not listening, and going on and on about their offerings. Conversely, the behaviors that create a positive chemical impact include being concerned about others, stimulating discussions with genuine curiosity, and painting a picture of mutual success. Masters of the consultative sales approach apply these conversational techniques to their discussions with prospects and clients to create a collaborative dynamic with positive outcomes.

 

The consultative sales approach may seem simple, but it isn’t easy to execute well. Sales people cannot just go to training for a few days and gain mastery of this skill set, any more than an accountant going to a week-long course can emerge with the skills of a CFO. Consultative selling is a fundamental business strategy centered on creating value through insight and perspective that paves the way toward long-term relationships and genuine solutions for your customers. When sellers do it right, that strategy comes to life.

 

HBR: Organizing a Sales Force by Product or Customer, and other Dilemmas

Sales can be full of double-edged swords. How do you leverage the edge you want and blunt the ones you don’t? Below is a blog from the Harvard Business Review by Andris A. Zoltners, Sally E. Lorimer, PK Sinha.

Organizing a Sales Force by Product or Customer, and other Dilemmas

HP announced in March that it was combining its printer and personal computer businesses. According to CEO Meg Whitman, “The result will be a faster, more streamlined, performance-driven HP that is customer focused.” But that remains to be seen.

The merging of the two businesses is a reversal for HP. In 2005, HP split off the printer business from the personal computer business, dissolved the Customer Solutions Group (CSG) which was a sales and marketing organization that cut across product categories, and pushed selling responsibilities down to the product business units. The goal was to give each business unit greater control of its sales process, and in former CEO Mark Hurd’s words, to “perform better — for our customers and partners.”

The choice — to build a sales organization around customers or products — has vexed every company with a diverse product portfolio. It’s not uncommon for a firm such as HP to vacillate between the two structures. And switching structures is not always a recipe for success.

Let’s rewind the clock to 2005 at HP, before the CSG was eliminated. Most likely, those responsible for the success of specific products (say printers) were often at odds with the CSG. The words in the air may have been something like “Printers bring in the profits, and our products are not getting enough attention” or “The CSG people want customer control, but we have the product expertise.” And from the CSG sales team, we can imagine the feelings, “We are trying to do the best for HP and for customers. The printing people are not being team players.”

Especially when performance lags, people in any sales structure see and feel the disadvantages and stresses that their structure creates. But they often see only the benefits of the structure that they are not operating in. The alternative looks enticing. Unreasonably so.

HP’s dilemma illustrates one of many two-edged swords of sales management. These swords are reasonable choices that sales leaders make that have a sharp beneficial edge, but the very nature of the benefit is tied to another sharp edge that has drawbacks. Unless the undesirable edge is dulled, the choice cannot work.

Consider a choice like the one HP made recently to organize its sales force by customer rather than by product.

  • The beneficial edge: Salespeople can understand the customer’s total business, can cross-sell and provide solutions (not just products), and can act as business partners rather than vendors for their customers.
  • The undesirable edge: Salespeople will have less product expertise and focus. And it will be difficult for the company to control how much effort each product gets.
  • Dulling the undesirable edge: The company could create product specialists to assist customer managers (although this would add costs and coordination needs, and would work only if salespeople and the culture were team-oriented). It could also use performance management and incentives to manage effort allocation.

    Sales is full of such double-edged swords. For example:

  • If you hire mostly experienced people, they will become productive rapidly. But they will come with their own ways to do things and may have trouble fitting into the new environment.
  • If you drive a structured sales process through the organization, things will be more transparent and organized, and coordination across people will be easier. But out of the box thinking will be diminished, and managers might use the defined structure to micro-manage their people.
  • If you give salespeople customer ownership and pay them mostly through commissions, you will attract independent, aggressive salespeople and encourage a performance-oriented culture. But this will discourage teamwork and create a brittle relationship based mostly on money.

The effective sales leader recognizes the two edges of each of these (and other) choices. He or she works to sharpen and leverage the good edge, while dulling the impact of the other edge. The overly optimistic leader who sees the benefits of only one choice will lead his or her sales force into peril!

We have offered a few examples of double-edged swords of sales management. There are many, many more. Do add to our list, and tell us how you leverage the edge you want, and blunt the one you don’t.