The Price/Value Equation and The $1 Razor

A few weeks ago, my wife and I got a chance to get away for the weekend. On our way to the hotel I realized that I had forgotten to pack a razor. We were passing a shopping center at the time so we pulled in and spotted a Dollar General store.  I went in and bought a $1 pack of razors. A commodity product, down economy, it was necessity, so I figured it was a good decision until…I used it.

The only way I can describe the experience is to say that I couldn’t tell if the razor had a blade on it until it sunk deeply into my skin. It skipped over some parts of my face and dug in on other areas. I had nicks and cuts everywhere; I looked like a school boy after his first shave. The lesson I took from this is that sometimes you have to feel the pain to understand and/or appreciate the value of quality.

From what I have observed lately, companies are starting to, or will come to this same realization soon. We’ve all cut back to weather the economic storm. Are companies doing a much better job at managing costs now? Absolutely. Have they finally made the cuts they should have made a year ago? Yep. Have they perhaps gone too far with some of their cost cutting? We’ll see.

What’s important to remember about this economic downturn is that it started in 2007. It’s only gotten dramatically worse in the past six months, but many companies started cutting back long before the “crisis” hit. As a result, three or four rounds of adjusting cost to meet declining revenues have already occured. The fat got cut a long time ago. They cut into the muscle around mid-year last year and now are cutting into the bone in many industries.

If you’re a vendor or service provider like us, you may have experienced this first hand. But hang in there, I believe that companies will return to quality providers. It’s only a matter of time before the results of the “nicks” and “cuts” really begin to hurt. Each company has a different tolerance for pain, but when, for example, the "cost saving" decision to change your outsourced customer service provider leads to rising customer attrition and declining service levels, those “cuts” will begin to sting. When this happens, and customers can see recovery on the horizon, they will come back to quality.

The question you need to ask yourself is; has your organization created the $1 razor? With all the cost cutting, is your product/service at the same quality level and/or can you deliver the same customer experience. When customers do return…so do their expectations.

Be careful, during an economic downturn the price/value equation can become unbalanced. Like many companies, you’ve probably created a lower cost, stripped down model, hoping to gain or hang on to market share. If customers return with smaller budgets, will they adjust their expectations of value as well? Should they expect less? Probably, but will they? Not unless you manage their expectations.

Adjustments will have to be made, and it will not be a smooth shave. You may already have the “nicks” to prove it but don't let your customers end up feeling the pain.

CMO to Chief Revenue Officer

What will the post downturn CMO look like and how can you position yourself now?

My inbox is full of resumes of good marketers that I’ve been fortunate to come to know or work with over the years. Solid people, with great experience who are now having a challenging time finding new opportunities in this incredibly difficult economic environment. Many of these people could have had their pick of jobs as recently as last year. Given the situation, I thought I’d try to help by providing a viewpoint on what skills set, background and experience companies will be seeking once they start hiring again. I'll use two data sources to make the case.

A few years ago, we teamed up with a professor (John Josephs)at Kellogg on a couple of research projects aimed at getting a better understand of what creates a high performance marketing organizations. Internally, we thought of it as the “head” and “body” studies because we first studied the marketing organization (the body) and then the follow year CMO’s (the head). We surveyed not only CMO’s and marketers, but also CEO’s, about their views on what makes marketing effective. The research was then published by the CMO Council. Here are a few things we discovered along the way.

CEO’s view on how to measure marketings performance

CMO’s view on what is driving the need for new skill sets.
This information is a few years old now, but I can tell you that based on client work that the down turn has done nothing to change this, if anything, it has placed greater importance on the top 3-4 responses. And I’d bet that "Analytics and Accountability demands" has move up the chart. Keep the top responses on these charts in mind as we move to the next section.

Last month, I was given access to a database of senior level marketers (SVP and up) to do some analysis for the organization that owns it. We looked at the background and experience of over 800 marketers with the following titles:

• 50% were CMO’s
• 32% EVP’s of Marketing
• 8% SVP’s of Marketing
• And interestingly enough 10% had CEO titles but had recently been the head of marketing

They came from large, medium and small companies including start ups:

• 25% - Large (over $500M)
• 32% - Medium ($100-$500M)
• 23% - Small ($50-$100M)
• 22% - Start up or under $50K

We were interested in assessing their area of expertise, experience and tenure.

Experience & Expertise

Tenure by year
Although executives with Product Management and Sales Enablement/Demand Gen experience represent only 27% of the total group, they represented a disproportionate amount of executives with the longest tenure. In fact, they were twice as likely (as a representative percentage) to be in the 2-5 years tenure category than those with Brand, Advertising and Corp Comm backgrounds. And they made up half of the individuals in the more than 5 year category.

Another interesting thing we picked up is that markerters in the NYC area were more likely to be new in role versus other regions (higher than average churn...probably attributed to a higher supply of talent).

Spencer Stuart has for many years reported CMO tenure rates (less than the life of a gold fish) but I’ve never seen them look at tenure by background…which makes a difference based on our assessment.

Finally, let’s look at Supply & Demand.

The Top 20 Advertisers in the US have been decimated. Think about…half of the Top 10 advertisers in 2007 were automobile manufactures. As a result, agencies have put hordes of people on the street. GDP in Q4 2008 is estimated to have declined by 6.2% from Q3 that declined by 0.5%. Revenues are down on average of 30-40% from the prior year in most firms (at least the ones we work with).

As a result, there are a slew of marketers with advertising, branding, and corporate comm backgrounds (73% of the database that we analyzed) in the market.

Let's put it all together:

1. CEO's measure marketing effectiveness by revenue growth and market share
2. CMO's see the greatest need for new talent being driven by the integration of sales & marketing
3. A large supply of "above the line" marketers exist in the marketplace
4. Conclusion - potentially high demand and a low supply of marketers who can drive revenue

So…the marketers that will be in the highest demand coming out of the recession will be the ones who have been aligned or have had direct responsibility for growing revenue. Marketers that can speak the language of sales. Unfortunately, it will be a slow process for folks with a Brand PR and Corp Comm or the Ex-Agency/Media guys.

Marketers with backgrounds in Product Management/Marketing who have owned a P&L, folks with sales backgrounds and/or marketers who can show that they can drive revenue/growth will be in demand first. The challenge for the other groups is that of supply. It’s not to say that good Brand and Agency folks won't find positions it’s that it’s going to be hard. Expect that you will be competiting with many other qualified candidates and it may be difficult to differentiate yourself.

What to do:

• Downplay the advertising awards (Clio’s, Echo’s, etc.)
• Play up your experience in driving revenue and results
• Find contract work that is connected to driving sales/revenue
• Invest time in learning more about digital and analytics
• Seriously consider relocation, especially if you live in the NYC area

Unclogging the Pipeline

This post was recently featured in an article on MarketingProf's

Pipeline slowed to a trickle? Opportunities backing up, lead-to-close time seem like forever…yea, welcome to the recession. With customers delaying and/or postponing decisions altogether the ol’ pipeline ain’t what it used to be.

Here are 7 Pipeline Management Best Practice tips taken from leading companies that might help:

1. Weekly Pipeline Meetings with Sales AND Marketing - yes weekly…and with Marketing, do it in country and at the region level. You may also do it at the corporate level with the CEO , like IBM.
   
2. Apply BANT – CRM is great at increasing visibility into opportunities but it tells you nothing about why opportunities aren’t advancing. BANT will. By qualifying and re-qualifying opportunities based on Budget, Authority, Need and Time you will get to the bottom line on why leads are not advancing. Reps will say that it’s “B” but I wouldn’t assume that. Companies are still spending (not as much) but now it takes a C-Level to approve (is your sales force getting to “A)? Budgets have moved higher in the organization and have been centralized. Also, business cases are required for EVERYTHING so if you aren’t submitting one with every proposal you’re not address “N”. Timing (T) of course, things are slow so you need to find out as much as you can about when budgets might get released and then check again, then again...


3. 90 day Movement Limit – this is one of my personal favorites. If a lead (that is truly a lead) does not advance within a 90 day window it moves back to the previous stage in pipeline or is killed. Given that lead cycle times have lengthened…considerably, you may want to make the window 120 days. Up or Out…learn it, live it, love it.
   
4. Define a lead and stick to it – look, it’s going to be difficult road but be honest with yourself on what is truly a lead. A response to a campaign offering a free gift card, or a download of a white paper off the website, aren’t leads…they’re responses and should be treated that way. Leads are defined by meeting a BANT criteria…see above. People will want to get fast and loose with the facts to satisfy the sales force or make marketing targets but don’t let them…stay firm, you’ll thank me when the recovery starts.
   
5. Response Management – so now that you’ve removed the “junk” out of the pipeline it’s time to do something with it. In reality responses aren’t “junk” (well, some are), they’re potential leads that just need to be nurtured…for a long time in today’s environment. Don’t disregard them, I’ve seen too many companies do nothing with this group. In the good times most of them would be leads. How to find them? Simple, ask this question during you pipeline call; “who owns responses that aren’t qualified leads…” wait for the silence. Bingo, there’s your answer. Take the last 6 months of campaign response and start digging.
   
   Sort through the “junk” and find the diamonds in the rough, pick out the ones who are in the right companies or have the right titles and work them. These are folks who are in the learning process, they may see the need but may not have the funding or approval yet. Make an effort to nurture it will pay off in the long run.
   
6. Lead Gen to Sales Enablement – it’s time to move marketing down the pipeline. Lead generation aimed at acquiring new opportunities is a waste of money in a recession. The cost of a qualified lead has skyrocketed…don’t believe me go do the analysis you will be surprised and in some cases shocked. So it’s time to invest against sales enablement and helping the sales force move opportunities already in the pipeline. Here’s another fact for you…B2B sales channels create 80-85% of all leads so cutting lead generation programs will not hurt you…I’ll say it again, redirecting investments away for lead gen activities will not hurt the pipeline. What is sales enablement, and how does it help the sales force? Well, it’s things like business tools that can prove a ROI, sales presentations loaded with proof points (case studies) on your value, and a robust customer reference program (see the graph above). By aligning marketing activities to moving the BANT levers you will be investing marketing dollars were they can have the greatest return…and your sales force will thank you for it.


7. Comp on or Emphasize Customer Meetings – if you build comp plans based on revenue and lead targets/production you may want to consider over emphasizing face time in front of the customer for the first half of the year. You’re probably saying to yourself, “but Scott, why would I do that if customers aren’t buying?” Right, but they can tell you why, when things might loosen, and who you need to get to (see my rant on BANT in bullet #2). It’s during these times that you need to have your reps in front of customers so they can collect the information needed to provide you with update during the weekly pipeline call. Use your sales enablement team (see paragraph above) to provide them with high value material to share with customers in order to get those meetings. See how it all connects?

I hope this helps. Unfortunately, it looks like we’re going to be stuck in this situation for all of 2009. Be strong…the bad times, just like the good times, don’t last forever.

Managing the "U"

Happy New Year! Well...I'm not sure if happy is the right word, maybe we should just hope that it will be better than 2008.

Anyway, I know that the current economic conditions have many executives scrambling to cut costs and keep their heads above water. As I mentioned in my post on November 6, 2008 entitled Best Practices from the Last Downturn, we’ve gone back and looked at what leading companies did to weather the storm, steal share and come out of the downturns ahead of their competition.

In the video above, MarketBridge CEO Tim Furey looks at what leading companies are doing this time around, and shares some best practices for firms going into 2009.

In Part 2 of this discussion Tim will more closely examine how a few specific companies (namely HP and CapOne) are utilizing the downturn as an opportunity to position themselves as market leaders.

Pre-register Here

Best Practices from the Last Downturn

Every “expert” and every business publication seems to be giving advice on how to manage the downturn nowadays and it’s great to have those thoughts and ideas. It struck me the other day that we’ve gone through this before (remember the “Dot.com” bubble) but no one seems to be talking about what we’ve learned from that past experience.

So I became interested in learning if there were any “best practices” that we could use to help make better decision this time around. I’ve talked to a few clients, folks here and looked at some work we did with clients during the post bubble burst years (2002-2003). From that research I’ve pulled together nine “best practices” and have listed them below.

1. Cut Fast and Deep – the last go around folks were very optimistic that the economy was going rebound quickly so they delayed decision or cut less than they should have given the reality of the situation. We did exactly that and went through three rounds of RIF’s needless to say it was painful and demoralizing…ever heard the expression “There are two ways to die: get shot or bleed to death?” Well, we choose the latter. This time around we went back and looked that the low point of the recession, the point at which our revenues bottomed out (let’s say it was 30%) and we took that percent and cut expenses to that level last month, even though our revenues are off forecast only by… let’s say its 15%. It gives us a cushion in case things get worse and allows us to preserve cash which we didn’t do the last time…which is the next topic.
   
2. Cash is King – got to have it, keep it and watch it like a hawk. Customers will take liberties with payment terms and there may be nothing you can do about it. If DSO starts to tick up, pull down on a line of credit (if you have it…and do it now) to give yourself some cushion to absorb cash flow issues. This killed thousands of small business during the last go around.
   
3. Little Things Mean a Lot – as you tighten the belt be careful what you cut. Yes, you should control travel cost and really asked yourself whether or not to you really need to be there but there are little things that you may be tempted to cut things that may mean more to your employee and/or customers than you realize. If you experience a RIF, be careful not to cut other little things that may demoralize the remaining staff. For example, if you have bagels or donuts brought in one day a week continue to do that. The cost savings is minimal and the unattended message that you may end up sending is that the company has cash flow issues…spooking the folks that remain. Keep in mind their senses will be heightened and if you have inexperienced staff (recent graduates, for example) it will kick in the fight or flight reflex. The last thing you want is the remaining employees to be unproductive because they’re job hunting.
   
4. Strengthen the Core – this is a great time to refocus your core business, customers, partners, markets and employees. In the good times companies have a tendency to drift away from their core…what built the business. If you’re a software company focus on building, supporting and refreshing your offerings…put the transition to a “services” company on hold until the recovery. Take a long hard look at your customers, partners and markets…are these the folks you want or will need in the future? If the business is hard to get or maintain it is expensive…think about what you can really afford. I heard through the grapevine that a profession services firm recently pulled out of 15 markets, including Asia. Their comment on doing it…”those markets will be there in the future we can reenter when its right.” This can help guide your decision with bullet #1 - Cut Fast and Deep.
   
5. Take a “Pit Stop” – many companies have been operating with inefficiencies in their go to market engine for years. The demand for meeting quarterly performance has kept many CEO’s from taking the car off the track for a “Pit Stop.” Now is the time. It’s a good chance your stock is down and not going anywhere soon regardless of your performance so take advantage of this situations to do some work on the engine, flush the systems, and get the car ready for the next 500 miles. Actively look for opportunities to gain greater efficiencies even if it means setting aside funds as a write off. Take the hit now, MasterCard recently announced their 3rd quarter earnings and they took a $500M after tax charge to settle a lawsuit with Discover card. That lawsuit had been out there for years and was settled a while ago but they took the hit this quarter…there’s a reason. We’ve spoken to a number of CEO’s recently who said that they regret not doing this in the past.
   
6. Adjust Your Message…Carefully – yes, you need to realign your value proposition to today’s economic reality but be careful. The temptation is to jump to a “cost” message but not all of your customers maybe feeling the pain…yet. If you abruptly switch a message from “growth”, “revenue performance,” etc. to one of “cost savings, “ be forewarned that it can damage your brand and/or confuse your customers. Know how your customers perceive your value and how it varies by segment or type of customer (and don’t guess, do your homework) and finds ways to enhance it with key messages that play today around value for the money.
   
7. Focus on Strengthening and Deepening Relationships - the good thing about a downturn (if there is one) is that it’s a great time to strengthen and expand your relationship with your best customers…and it’s worth the investment. A “spending freeze” takes the pressure off your interactions with customers. It can go from you trying to sell something to them, to you talking to them about their situation and needs. Customers may no longer be in the “buy” mode but they very well may still be in the “learn” and “shop” phase of the buying cycle so take advantage of that to introduce them to new information, services, and employees (senior executives in particular). This “value added” period can go a long way in growing your business when they start buying again.
   
8. You May Have to Give Some to Get Some – your customers may need to do business with you differently during this down turn. You don’t have to go to the extent of a Microsoft or IBM in creating special demand generation and financing programs to help partners and/or customers but think about their situation and how you might be able to help. Chances are the gesture will speak volumes and relating to the bullet above goes a long way in deepening the relationship and increasing customer loyalty.
9. Lastly, Prepare for the Upturn NOW – bad times, just like good times don’t last so start preparing your recovering plan now. Many companies use times like these to create an aggressive plan to gain/buy/steal share from competitors as soon as they sense the start of a recovery. Don’t become financial myopic and only focus on cost reduction. Something that we have learned from the past is that companies have a tendency to turn over the keys to the CFO in times like these and for good reason…they drive out cost, watch cash flow, etc. Unfortunately, they can hang onto the keys a little too long. As Beth Comstock, the CMO of GE told me (in her first stint on the job) during the recovery after the “burst”; ”...finance did its job of controlling cost but it impacted growth… the CEO is looking at my role as being the Chief Growth Officer…” .

Draft a plan and have your organizaiton commit to coming out of the downtown stronger, leaner and more aggressive than you went in to it. It will help focus the organization during this challenging time. To do that you'll need to learn from the past (see above) and be ready to invest. Now get started!

After the Party: The Corporate "Hangover" Caused by High Demand

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:

1. profitable customers
2. unprofitable but could be profitable given some minor changes
3. 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.