Remember when you had a unique product, a top-notch sales force, customers who couldn’t get enough of your product and were willing to pay anything for it. Sales reps coudn't close deals fast enough and the factory couldn’t keep pace with the orders. Little to no inventory cost, high margins, an incredibly productive sales force, big bonuses, soaring stock, etc...things couldn't be better. But what happens when demand begins to slip?
One of the first things to occur is that your best customers, who in the past had no leverage, begin to feel the advantage shift their way and sales reps (unknowingly and for the most part unwillingly) help that transition.
As demand cools, good sales reps who are trained negotiators and born manipulators, begin turning their finely tuned sales skills on the organization. Feeling the pressure to close business and meet quota, reps begin "selling" the organization on what they need in order to get the deal done. Instead of driving customers into existing solutions with a premium price, they take the course of least resistance, demanding that the organization bend to meet the customer’s (not the company’s) requirements. The company “customization” party goes on for as long as the sales quotas exceed market demand for the product.
The Hangover Effect
What does the company look like after the party? Unfortunately, like most good parties, the news of the festivities grows and involves most of the organization. At the end, it is not a pretty site and it take years to clean up. Here's a list of the mess left behind:
1. Large contract departments – When demand is high, customers typically agree to standard terms and conditions in order to get the product as quickly as possible. As demand slows customers begin to try to gain leverage by modifying the “T’s & C’s” of a contract to their advantage. Reps desperate to get the deal signed before the end of the quarter apply pressure to the legal and contract departments to accept customer terms. This results in contracts so complex to manage, that additional staff is needed to administer them.
In one hi-tech firm, for example, it takes a staff of four to perform administrative tasks related to just one large customer contract. Multiply that by twenty large customers and you begin to see the problem.
2. Complex product and price configurations – In the eyes of the customer, the value of the rep shifts from problem solver and solution provider to personal customer advocate. The same demand for customization of “T&C” is applied to product configuration and pricing arrangements. The result is highly customized solutions, hard-to-write service agreements, and complex payment terms that may end up costing the company money.
The response from the product management team of an ATM manufacturer working on standardizing product configuration was: “We have been trying to do this for years, but the sales force wouldn’t let us.”
3. Order Taking vs. Order Making -- A nasty side effect of this hangover is that when demand slows it reveals flaws that would otherwise had been hidden. One of those is seen in the quality of the sales force. The difference between “order takers” and “order makers” becomes apparent in a slow marketplace. In this environment of longer sales cycles and fickle customers, sales reps must work harder than ever for the sale that doesn’t hold much appeal for reps who are used to making quota without much effort.
A sales rep at a one-time highflying manufacturer of telecom and web equipment was overheard saying in the hall to a colleague; “...I’m afraid we are back to the bad old days when customers required a business case and ROI for every purchase decision...”
4. A Service Nightmare – When product configuration becomes so highly customized, it limits the number of service reps who have the competency to work on the equipment. This results in long service times. Worse yet is when service reps turn over, new reps, which lack the knowledge of the original configuration, begin applying short term service “band-aids” that sacrifice product performance.
In addition, complex product configurations bring complex service agreements. As is the case for orders, service contracts become incredibly difficult to administer and manage. For example, one customer of an equipment manufacturer demanded that each component of the product have its' own unique service agreement…all 200 parts.
5. Remarketing vs. Marketing – Marketing gets the opportunity to host the party. Because demand for most products already exists, marketers focus their efforts on having fun catering to big customers and satisfying the whims of the sales organization (big expensive customer events, sponsorships of sporting events, etc.). Their activities are nothing more than “remarketing” to existing customers to keep the party going.
As the downturn comes, marketing is stuck with pre-conditioned customers and reps who are looking for "fun" and "fluff". Unfortunately in this environment, marketing never develops the types of programs and core competencies needed to effectively sell products and acquire new customers right when the company needs it the most.
Best Cure for the Hangover
It’s not the hair of the dog that bit you that’s for sure and unfortunately, this hangover does not respond to a quick fix like a couple of aspirin or a new technology. Here are a few tips for getting started:
1. Map out a plan – you didn’t get into this overnight and you're not getting out quickly. Start small and stay focused.
2. Find/Create opportunities to standardize and/or simplify– force events such as technology implementation or new product introduction to standardize process, price and services.
3. Understand that not everyone is going to make it – the hiring profile for reps and managers 10 to 20 years ago when the sales force was built may not make it – order takers vs. order makers. The service and marketing departments may also need retooling. New competencies, skill sets and training are also necessary for those who make it.
4. Utilize new sales and marketing channels and retrain existing channels – introduce and pilot new sales and marketing channels that increase customer coverage, reduce overall sales cost, and improve customer acquisition. Help field sales reps find their “sweet spot” (closing large complex orders in new accounts) by providing training on multi-channel coverage models.
5. Draw a line with customers – Analyze and determine the profitability of your customer base. Segment it into three groups:
- profitable customers
- unprofitable but could be profitable given some minor changes
- unprofitable with no hope
Begin the process of re-conditioning the way customers in segment #2 buy. You’ve created the monster and now you have to tame it. In segment #3, begin the process of terminating the relationship.
In the end, it is like any hangover. You feel terrible, you have a few (or a lot) of regrets, you promise to yourself and others that you'll never do it again -- but...it was fun while it lasted.
