So, You've No Room to Grow... or Have You?

October 29, 2018

So you've no room to grow

From sales territory management to how to better meet sales targets, Peter Colman busts some myths and biases surrounding the sales strategy.

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 behavioral economics show that we are heavily influenced by biases like this, which can cause poor decisions and actions.

 

‘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.

 

As a top-line focused consultancy, we at Simon-Kucher conduct many commercial excellence programs to boost sales performance every year. In my previous article (Following the money) 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 sales goals” (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 sales managers were 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 “groupthink” bias, we asked the question blind, so each respondent was unaware of, and therefore not influenced by, their colleagues’ answers. Highlighting the two differing opinions made the discussion much less political and allowed us to get a clear decision on the agreed direction.

#2 “All our prospects are in the CRM” (Availability bias)

For a well-established firm that has been using a customer relationship management (CRM) system for years, it can come as a major surprise when we highlight the number of potential customers missing from the database. In a recent project, we did a quick cross-check on two divisions within the same client to see the overlap between their CRM databases (which did not talk to each other). Two clear opportunities emerged from this exercise. The first was that there was very little overlap between their existing customer bases, despite both targeting similar segments (with different types of products or services). Clearly, this showed there was quite considerable cross-sell potential (as well as a need for some CRM system improvements).

The second opportunity was that their prospect lists also had very little overlap, making us suspect that the market potential was considerably bigger than first thought. By segmenting the market and buying in third-party data, we were able to map, size and prioritize their market, giving their reps a richer and much more targeted hunt list.

 

NEEDS-BASED SEGMENTATION CASE STUDY: “HALF OF WHAT WE BELIEVE ABOUT OUR CUSTOMERS IS WRONG”

In one customer segmentation project, we were able to capture a list of 10 truths that described the client’s customer base from a series of internal interviews.

It covered a range of things: what bigger versus smaller customers wanted from their relationship, how the client was perceived, and which customers would say they weren’t good value for money. When we tested this with an extensive customer survey, we could only validate about half of the points.

For example, size was not a great proxy for identifying their needs and, despite being the most
expensive, the survey showed that the customers on the whole believed they were very good value for money. The anecdotal evidence from interviews was only half right.

While quite a surprise to them, the management team also saw the opportunities it offered. First, the findings were presented back by the management team to the wider organisation to ensure that some of the myths were displaced. Then, we worked together to create a distinct offering for each of the so-called needs-based segments. Finally, the insights that we had gathered were turned into a value-selling story back out to the customer base to promote the new offers. In effect, the needs-based segmentation had been deployed consistently across sales, customer service, marketing and product development.

 

#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 pages of his Panini World Cup sticker album. There is something very satisfying about seeing each area of a page (or territory map in the case of sales) covered by a sticker (sales rep). In the case of sales territories, however, this nice balanced pattern of geographical coverage is usually far from optimal. It means that money is left on the table in high potential territories, while at the same time it demotivates sales reps in lower potential regions, who complain that their quotas are unfair.

Defining effective sales territories and setting more objective targets/quotas based on better data is a start. It is also worth mentioning that the changes need to be managed carefully to ensure that the sales team members understand and accept the reasons behind the sales territory planning. For some it may require relocation to a different geographical area, and for others it could be perceived as restricting their earning potential. In other words, you may need to overcome some loss-aversion biases. The last thing you want is for your best salespeople to become disgruntled and start to think the grass might be greener elsewhere...

#4 “Our customers tell us we are expensive” (Confirmation bias)

Of course they do. During the course of our client interviews we often hear such things. If the sales person hears this often enough from customers, it can easily become a self-fulfilling prophecy. When we analyze “reason codes” within lost deals, price is usually the most frequent cause (conversely though, price is seldom quoted as the reason when the deals do come in). As an example, in one interview with an executive we heard, “Our market is almost completely commoditized. We have lost power relative to our customers and we are seen as expensive”. To test this explanation, we conducted a series of “voice of the customer” interviews. Here is an extract of one such conversation.

Us: “Since you give [Client X] an 8 or 9 out of 10 for service, do you feel like you have to pay a premium for that service?”
Customer interviewee: “No, I don’t.”
Us: “How easy is it to negotiate the price down with [Client X]?”
Customer interviewee: “Pretty easy. In fact [Client X] is a ‘cheap date’ compared with its competitors.”

So do you know and record which are your truly price-sensitive customers as part of your customer 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 sales people, 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. Sales reps are much more comfortable with like-minded technical buyers, with similar backgrounds and interests to their own. However, top performing sales people 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 organization.

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 multi-source 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.

 


This article was originally published in the Institute of Sales Management Winning Edge Magazine.  

Read more from our series:

Part 1: Following the money: “Show me the incentive and I’ll show you the outcome”

Part 2: So, you've no room to grow... or have you?

Part 3: Sales Enablement Tools, a Path to Growth

Part 4: If You Build It They Will Come!

Part 5: Can You Sell a Price Rise?

Part 6: If You’re Good At It, Don’t Do It For Free