9 minute read
So, you've no room to grow?
...or have you? Asks PETER COLMAN in his second article on behavioural economics in sales management – reacting to biases to grow profits
When we ask companies about uncovering new markets and customer segments, we often hear the reply, “We know everyone in our market”, especially in mature sectors. While sometimes true, it can often be an example of “overconfidence bias” from within sales teams – and we regularly surprise them by highlighting the amount of untapped sales potential available. Though we all like to think that we are rational, studies of behavioural economics show that we are heavily influenced by biases like this, which can cause poor decisions and actions.
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As a top-line focused consultancy, we at SimonKucher conduct many commercial excellence programmes every year. In my previous article
‘WHO ARE WE DESCRIBING?’ AND THE DANGERS OF DEMOGRAPHIC SEGMENTATION
As a fun example in our value selling training we ask the participants to guess who this description refers to:
“He is male, 69 years-old and was raised in UK. He is married and has two children (who are now both adults themselves). He lives in a castle. He is both wealthy and famous.”
Who are we talking about? A couple of bright sparks usually guess Prince Charles. When we reveal Ozzy Osborne as the mystery man, it usually gets a few laughs. That same demographic segmentation fits both though – and no doubt others – and therein lies the danger of demographic segmentation. It makes it very hard to target customers effectively. (Following the money,Winning Edge, No 2 2018) I covered sales incentives. This time, I focus on sales strategy and how firms approach their markets, segment their customers and define their territories in their search for revenues. Once again, I will explore barriers that can prevent them exploiting their full market potential – and some practical ways to overcome these.
#1 “We are clear on our
objectives” (Groupthink) If you are going to have a clear sales strategy, you need to understand what you are aiming for (ie. you need to set clear objectives). Pretty straightforward stuff so far. Probe a little deeper though and the story is not always so clear-cut, especially if trade-offs related to a particular course of action have not been discussed.
For example, in one of our projects we asked the sales leadership team the following trade-off question: “If in two years the overall number of customers was lower but revenue was higher, would this be seen as a success?” The group was pretty much split down the middle, with four people saying it would be a success and five people saying it would be a failure.
Now, if we had asked this during an open meeting, we suspect we would not have had such differing opinions. Once one or two strong characters voice their opinion it becomes harder for others to take a differing position. Instead, to avoid this “group think” bias, we asked the question blind, so each respondent was unaware of, and
NEEDS-BASED SEGMENTATION CASE STUDY: “HALF OF WHAT WE BELIEVE ABOUT OUR CUSTOMERS IS WRONG” #3 “We’ve got pretty good territory coverage” (Panini effect) As a reminder of my own childhood, I recently watched my youngest son complete one of the
In one customer segmentation for money. The anecdotal evidence pages of his Panini World Cup sticker album. There project, we were able to capture a from interviews was only half right. is something very satisfying about seeing each area list of 10 truths that described the While quite a surprise to them, of a page (or territory map in the case of sales) client’s customer base from a the management team also saw the covered by a sticker (sales rep). In the case of sales series of internal interviews. opportunities it offered. First, the territories, however, this nice balanced pattern of
It covered a range of things: what findings were presented back by geographical coverage is usually far from optimal. bigger versus smaller customers the management team to the wider It means that money is left on the table in high wanted from their relationship, how organisation to ensure that some of potential territories, while at the same time it the client was perceived, and which the myths were displaced. Then, we demotivates sales reps in lower potential regions, customers would say they weren’t worked together to create a distinct who complain that their quotas are unfair. good value for money. When we offering for each of the so-called Defining territories and setting more objective tested this with an extensive needs-based segments. Finally, the targets/quotas based on better data is a start. It is customer survey, we could only insights that we had gathered were also worth mentioning that the changes need to be validate about half of the points. turned into a value-selling story managed carefully to ensure that the sales team
For example, size was not a great back out to the customer base to understands and accepts the reasons behind it. proxy for identifying their needs promote the new offers. In effect, For some it may require relocation and for others it and, despite being the most the needs-based segmentation had could be perceived as restricting their earning expensive, the survey showed that been deployed consistently across potential. In other words, you may need to the customers on the whole sales, customer service, marketing overcome some loss-aversion biases. The last thing believed they were very good value and product development. you want is for your best salespeople to become therefore not influenced by, their colleagues’ disgruntled and start to think the grass might be greener elsewhere... answers. Highlighting the two differing opinions #4 “Our customers tell us we are made the discussion much less political and allowed expensive” (Confirmation bias) us to get a clear decision on the agreed direction. Of course they do. During the course of our client interviews we often hear such things. If the #2 “All our prospects are salesperson hears this often enough from customers, in the CRM” (Availability bias) it can easily become a self-fulfilling prophecy. When For a well-established firm that has been using a we analyse “reason codes” within lost deals, price is customer relationship management (CRM) system usually the most frequent cause (conversely though, for years, it can come as a price is seldom quoted as the major surprise when we reason when the deals do highlight the number of “It is rare to find price come in). As an example, in potential customers missing as the sole determining one interview with an from the database. In a recent factor across all customers executive we heard, “Our project, we did a quick cross-check on two divisions within the portfolio” market is almost completely commoditised. We have lost within the same client to see the power relative to our overlap between their CRM databases (which did customers and we are seen as expensive”. To test not talk to each other). Two clear opportunities this explanation, we conducted a series of “voice of emerged from this exercise. the customer” interviews. Here is an extract of one The first was that there was very little overlap such conversation. between their existing customer bases, despite both Us: “Since you give [Client X] an 8 or 9 out of 10 targeting similar segments (with different types of for service, do you feel like you have to pay a products). Clearly, this showed there was quite premium for that service?” PETER COLMAN is a partner considerable cross-sell potential (as well as a need for Customer interviewee: “No, I don’t.” at global strategy and marketing consultancy Simon-Kucher & Partners, where he leads the some CRM system improvements). The second opportunity was that their prospect Us: “How easy is it to negotiate the price down with [Client X]?” sales effectiveness practice for lists also had very little overlap, making us suspect Customer interviewee: “Pretty easy. In fact the UK and Ireland. He specialises in commercial excellence programmes to address strategy, that the market potential was considerably bigger than first thought. By segmenting the market and [Client X] is a ‘cheap date’ compared with its competitors.” sales, marketing and pricing buying in third-party data, we were able to map, So do you know and record which are your truly topics. Email peter.colman@ simon-kucher.com or visit size and prioritise their market, giving their reps a price-sensitive customers as part of your customer www.simon-kucher.com richer and much more targeted hunt list. segmentation? Even in highly competitive markets it
is rare to find price alone as the sole determining factor across all customers within the portfolio.
#5 “When you say ‘strategic’ account, I hear ‘loss-making’
account” (Gamblers’ fallacy) I am afraid this one is one of my own quotes, borne out of experience. When looking for outliers within a client’s customer portfolio, a few blue-chip names often show up with both low revenues and margins. The usual explanation given for this is that it is a “strategic account”, often a firm that has had the potential to be a key account but for some reason is not. The assumption is that, if we keep trying, the bad luck will eventually reverse. To try to encourage growth, increasingly better offers are put on the table. If such a client ever were to grow to the size of a key account though, it would then expect even bigger discounts and so the account would end up underwater, if it is not already. The reality is usually that the service level from a competitor is superior, that switching costs are prohibitively high and/or that the client is happy to dual-source to keep their primary supplier on its toes. At some point it will be worth directing your energies elsewhere.
#6 “They don’t understand what
we do” (In-group bias) This is as much a lament as a quote. With the rise of professional procurement, many salespeople, particularly those in highly technical/engineering companies, are having to come to terms with the need to visit a wider range of people within the buying centre. While much more comfortable with like-minded technical buyers, with similar backgrounds and interests to their own, topperforming salespeople know they must make an effort to identify, adjust their selling style to, and develop relationships with, a wider range of influencers (finance directors etc.) within the customer organisation.
In some cases, the biggest influence lies outside the firm paying the bills. For example, within the building technology sector we have seen smart companies targeting architects rather than contractors. They hope that such an influential specifier and stakeholder will help ensure that the contractor will not, or cannot, switch them for an inferior but cheaper alternative.
Summary: data is your friend
Once again, when it comes to providing antidotes to the above biases, data is your friend. This can and should take many forms: internal interviews, days with sales, customer surveys, voice of the customer research, transactional/invoice data, and CRM reports. A multisource approach is usually the most rigorous as it allows you to compare and contrast the answers to questions from different methods. It also helps when you know where to look.
