Rethinking Sales Strategy During the Age of Long-Tail Disruption

September 08, 2022

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Strategy is the method by which companies establish competitive advantage in a crowded marketplace. Sales strategy is the point of the spear: the place where that competitive advantage is proven or disproven every day. As the marketplace changes, old strategies can become obsolete. The last 3-5 years have been a time of massive change globally, and improved sales strategies are required to maintain a company’s relevance and value. Current economic uncertainty further emphasizes the need for companies to adapt and evolve their sales strategy. The Sales Success Series will cover evolving trends and dispel some myths around sales strategy, structure, and investment. In this series of articles, we will explore the following key lessons and actions suggested by these trends across the fundamental elements of sales strategy:

  • Confirm the value your portfolio of products and services can provide to customers in different segments
  • Listen to your teams and customers on new areas of opportunity
  • Leverage new channels and techniques to drive and fulfill demand efficiently
  • Revisit the fundamentals with basic analysis to plan and capture wins

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Rewire your organization to leverage volatility as an opportunity for growth rather than as a restraint

Conventional wisdom suggests avoiding changes to your portfolio of products and services during economic volatility, yet our learnings from the pandemic and recessions make clear that this is the perfect time to be proactive. Maintaining a status quo won’t get you far and may even restrain your ability to effectively compete against rivals. Volatility, inflation, and other economic changes can act as prime catalysts for short-term innovation and portfolio rationalization that lead to high quality revenue in the long-term.

Three prevalent actions can give your company the flexibility and resources required to unlock competitive advantage from disruption:

  • Securing your market position by entering new markets and developing loyal customer bases in areas that weather upheaval well
  • Creating recurring revenue streams by introducing and capitalizing on products that meet new needs for existing customers
  • Reallocating and investing resources in ways that allow you to minimize risk while selling better, faster, and more consistently

The first two points above require either great luck or great planning -- and sometimes you need both. However, the third opportunity that presents itself can be unlocked by any firm at any time, even during challenging macroeconomic circumstances. There are many ways to optimize your go-to-market approach that typically involve cross functional efforts to identify markets, engage customers, adapt product, and execute a clear channel strategy. To succeed amidst a rapidly changing world, companies will need to take a conscientious look at their portfolio balance, competitive positioning across target segments, and available opportunities to invest in R&D now and in the future.

Listen to your teams and customers to anticipate market evolution and discover new areas of opportunity

Markets shrink, and markets grow. As inflation reaches a 40-year peak, we are also seeing markets divide based on willingness to pay, with prepared customers quickly absorbing price increases and passing them on while a subset of highly risk-averse customers reduce purchases dramatically. This is a painful lesson if you don’t see it happening. But if you segment markets properly and peel them apart, you can see ups and downs within what you once viewed as a homogenous group. Businesses that effectively re-allocate resources never stop learning about sub-segments of markets and the distinctions that drive their purchasing decisions. What is important to keep in mind as you make key decisions on resourcing, coverage, and goal setting is that you must refocus and remap your understanding of markets and competitors to unlock both the present and future available opportunities.

However, you can’t learn these things once and set your course forever. There is a constantly evolving timeline at work. To thrive in uncertain environments, companies will need to understand the impact of compounding macroeconomic events – for example, which markets will change as the world returns to normal, which markets will change in the face of economic contraction, and which will be impacted by both.

Historically, companies might assess their market size, growth, and share every four or five years, or when faced with an impending transaction. One way to gain early insight into emerging changes is revisiting your total addressable market (TAM) assessment and understanding new drivers from the buyer’s viewpoint. Whether it’s a recession-prompted refresh, or building foundations anew, sales strategy can start with foundational exploration -- identifying which markets have potential growth, which need protection from competitors, and which ones are time-sinks for sales teams. Supplemental research will allow you to look at sources for strategic differentiation, like customer budgeting processes, procurement guidance, pipeline lead flow, win rates, and competitor interviews. Using these inputs, sales leaders must rally sales resources around markets that have the greatest opportunity and align with both the short- and long-term business plan.

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You won’t be the only one revisiting key markets. Expect to fight with the same number of competitors over less total available sales dollars as customers tighten their purse strings. Even top performing firms will have to remap their understanding of the competitive landscape, with specific focus on how price relates to value on both sides. This can be a team sport if you organize a robust internal exercise to assess firm competitiveness, identify which spaces you own in the market, and hypothesize how a competitor could attack your share. Use these conversations as north stars as you think about countering competitive moves and maximizing customer retention.

To compete more effectively, this TAM must then be divided to produce actionable segmentation for marketing, sales, and product management. Simon-Kucher research has shown that companies utilizing more sophisticated, needs-based segmentation outgrow companies using basic segmentation by more than 3x. For example, dividing the market by size, industry, growth rate, competitiveness, and willingness to pay (as shown below) can support a more precise sales deployment.

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Articulate your ideal customers, their changing needs, and their sales journeys to allocate sales resources more effectively

Identifying for each segment not only who you’re selling to, but how they interact with your sales processes, makes your insights actionable and helps your sales team focus their efforts, allowing you to do less with more. What is important to understand in this time of volatility, however, is that customers, just like markets and industries, change over time. Some foundational elements may remain the same, but groups of customers and consumers change their behaviors depending on larger economic circumstances. Mapping your value in markets is key, and so market prioritization exercises should be run in tandem with similar profiling processes centered around your customers.

In the world of sales, understanding your customer starts with outlining the ideal customer and working backwards. If your company does not have a robust ideal customer profile (ICP) already, begin to build one. If you have this but it is more than three years old, it may not hold up as the world moves from pandemic to recession. Sales leaders should look at several factors and assign points based on rating against multiple criteria like transaction size, profitability, win rate, cost of acquisition, etc.

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Though a robust ICP sets the baseline for who you’d like to sell to, understanding how they engage and operate with your firm is also critical. Companies of all shapes and sizes have been adjusting to new, extinct, and returning customer behaviors over the last two years, but at the inflection point we find ourselves in, it will be just as important to account for more frequent evolution of behavior. You should look to understand not only how your customers currently interact with your sales process via extensive and segmented journey mapping, but how this behavior has adjusted pre-pandemic, post-recovery, and what behaviors will stick or slip as the economy enters recession.

Focus efforts on your strategic product areas, protect your core, and treat all other sales events as opportunistic

An effective product portfolio will allow your organization to adapt and tailor incredible experiences that retain customers and invite new ones without significantly impacting your profitability and cost base. Now is the time to evaluate which products are truly driving your revenue and margins and which products are not? What is their role in your portfolio? Have your preferred customers been asking for new products or innovations? Now is the time to look at your current mix and evaluate levers to optimize your mix.

Our recent work with a major food service equipment manufacturer illustrates the importance of this principle in our current moment: we recently guided their expansion into complimentary product categories by sizing and prioritizing their key markets and accounts and optimizing their go-to-market strategy. Our analysis and guidance allowed them to capture market share in new channels and build a buffer that will protect their core business despite the looming recession. This will have a significant financial impact within 1-2 years, allowing them more time to make strategic shifts.”

Simon-Kucher uses a simple four-tiered ABCD analysis to split the wheat from the chaff: we use this method to separate what products drive a firm’s revenue (“A” products) from those that are laggards and may be unprofitable for them to sell (“D” products).

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This can be a largely a data-driven exercise with either existing or new KPIs being used to organize historical performance in search of leading indicators. Recent customer feedback and sales team inputs are also great places to start as you review your portfolio. Complement your feedback with a thorough SKU analysis and dig into what drives performance, making thoughtful decisions on how you optimize product mix based on firm strategy. Often these decisions prompt resistance from sales teams that customers won’t migrate, but don’t let these short-sighted fears prevent you from making decisions that lead to long-term growth, as our research suggests otherwise if you apply a disciplined and consistent process.

Service

As companies pursue higher margin segments, they often progress from being transactional and product-based to providing full suites of services for their customers. This idea of “servitization” is one of the key ways that companies have retained key customers during recessions and driven higher multiples through recurring revenue. It is a brilliant way to monetize service in such a way that differentiates offerings (and prices) to customers across willingness to pay segments. These services, by themselves, may be a lower margin than some elements of the product portfolio, but the overall value that these services bring to customers allows you to further differentiate your offerings, increase customer engagement, and create better outcomes for both your organization and your customers.

A key element to watch when expanding service is to beware of the sales team or customer service team spending more time servicing clients without driving compensatory increases in revenue. While customer acquisition cost is an often used and important factor in segmenting customers, cost to serve is just as important, especially if you have low-margin service offerings like many companies. Some of the best firms in the world solve this issue by creating tiers of service that speak to different service needs across segments and create profitability across markets using differentiated pricing. Many firms just hire a group of Customer Success Managers and call it a day, but they can get expensive if they are not focused and productive (for more on this topic, see our next installment on Sales Success).

The strategic role of services must be established with a plan to monetize everything of value. Start by understanding your segments and their needs and optimizing your service offerings by evaluating what is to be offered as a core promise to every customer versus what incremental services are adopted by customer segments over time. Map these offerings to their true profitability to rationalize the business case for servitization.

As you plan for next year, revisit your product and service roadmap. Refresh the supporting research, solicit multiple opinions, and ask the critical questions:

  • Which are our most important customer segments and how are their needs evolving?
  • What’s driving my revenue and margins? Specifically which SKUs?
  • What resources are required to grow without losing high quality revenue, but without over-extending ourselves in times of uncertainty?
  • What role does service play in retention, upsell, fulfilling our core promise to our customers, and differentiating us from the competition?

Leverage new channels and techniques to drive and fulfill demand efficiently

For many companies, investing in omnichannel configurations is not new. To stay competitive, firms need to leverage their entire channel ecosystem to expand buyer influence and improve touch, speed to market, and cost of coverage. Simon-Kucher industry experts have found that in 2020 Inside Sales Representatives were the fastest growing type of sales role and digital marketing platforms were being used to move customers through their buying journey faster, farther, and with lower cost than ever before. Consistent research shows that most of a customer’s purchase process was complete before they ever reached out to a sales rep. This confirmed the old saying “if we didn’t know about the RFP until we received it, we’ve already lost.”

Given the chaos of the past few years, we believe that firms have a hidden opportunity to redefine their competitive edge by rewiring their channel relationships as true collaborative partnerships. While some firms act entitled in dealing with their value chain – some raising prices without compensatory increases in value – the best performing companies we work with depend on strong channel partner relationships. They discuss joint strategies, create mutual value, and find new ways of going to market together.

Trust your channel partners and be transparent with them. Evaluate your channel portfolio during voice of the customer research the same way you assess your product portfolio. Focus and invest channel choices based on historical performance and future opportunity. Trim with restraint, and remember that, during the pandemic, companies who reduced distribution capacity struggled to compete with supply chain disruptions more so than companies with healthy distributor networks. Short term moves can have long term reverberations.

Conclusion

Change reveals opportunity, but only if you embrace some additional short-term investment in search of long-term gains. Our view across commercial and operational teams has shown that a clear, relevant strategy needs to act as the foundation for market prioritization and structural changes. Revisiting your strategic positioning in markets, customers, products, and channels shapes your success, in good times and especially in bad. While the converging trends of inflation, digitalization, and impending recession may be difficult to navigate, Simon-Kucher is here to help you uncover fresh insights and leverage them to gain competitive advantage in these uncertain times. Who knows what your customers, sales professionals, and channel partners will help you find? Contact us today!