I realize I’m about to induce headaches, but it’s critical you stay with me. I’m losing sleep, because every day I’m seeing really good businesses throw themselves into the middle of the commoditization trap. Once there, your future is best described as quicksand – either do nothing and sink slowly and fight like mad and sink more quickly.
The fatal error can best be described as taking what you do and selling it. If you think what you do is what you sell, YOU ARE A COMMODITY, AND YOU WILL BE RIGHTFULLY COMMODITIZED. If that’s the case, then you must play the commoditization game to have any chance of success. (That game, by the way, is won by growing volume and cutting prices faster than anyone else. It is a race to the bottom.)
I created the following SlideShare presentation to illustrate my point. If you’re new to the blog, you can read these posts about pricing and value creation.
At the beginning of the year, I asked you to take a 90-Day Snapshot of your first quarter. I asked you to define success on April 1, 2010.
Well, April 1 is two days away – How did you do?
My top objective was to add 4 new franchisers to our prospect list. We added three and one is already been filtered out. So, I didn’t hit my objective this quarter, but we definitely made some progress and have learned a lot about what we really need to do to be successful.
Now it’s time to take your second quarter snapshot. Here it is:
Stop what you’re doing and answer this question:
It’s July 1, 2010 and you’re reviewing the second quarter of the year. Precisely how will you measure success? What will it take to give yourself an ‘A’?
Are you done with the list?
Now, choose the single most important item – if you could only achieve one item on your list, what would it be?
Why is answering this question so important? Because we all have a tendency to try to do too much and to lose focus. The key to success, especially in challenging markets, is to focus. It is far, far better to over-allocate resources to fewer opportunities than it is to underallocate resources to many. Don’t ever lose sight of what is most important – and ensure that you over-allocate your resources – time, money and energy – to that.
Want to exponentialize the results? Have every single person in your company answer the same question and post the answers in a central location – or company wiki.
If you’d like the benefit of public accountability, share your most important success in the comments section.
Mine? To successfully launch our new salesperson leadership program tentatively titled The Sales Genius Network.
In this installment of The Demand Creator Minute, I share with you a key insight into positioning yourself effectively and how positioning can support your lead generation. There’s an old saying, “Seek and ye shall find.” Well, the marketing implication of that is be careful what you seek, because there’s a pretty high probability that’s what you’ll find.
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In this video, I referred to a post from last week, here’s a link to it: The Most Powerful Question.
Lead Generation for Small & Mid-Market
The 5 Critical Actions That Will Increase
Thursday: April 8, 2010
2:00 PM EDT
To win in business today, you must overcome The Drought:
Today’s business environment requires every company, and especially small and mid-market B2B companies, to accomplish significantly more from their sales and marketing efforts with less.
The question is simple:
How Do You Profitably Accelerate Growth In Tighter, More Competitive Markets?
In the third installment of The Demand Creator Webinar Series, we will focus on the first three steps of The New Marketing Funnel:
The vast majority of lead generation tactics are not only ineffective, they actually encourage prospects to shop and to be price sensitive. Additionally, more profitable business opportunities are lost because lead generation techniques push too hard and actually send buyers online and cause procurement departments to seize control of the buying process. If you want to create demand, avoid procurement, and eliminate competition, you do not want to miss this webinar.
For just $99, you’ll learn:
In today’s hyper-competitive drought, can you afford anything but the best selling approach to drive your profitable growth?
If you could get your prospects to ponder any question, what question would best position your company as the ideal fit?
Stop for a moment and think about that – it’s probably the most important question you’ll ever come up with for your business.
The entire nature of marketing communication is undergoing radical change. Today, successful communicators are moving away from traditional broadcasting approaches, and instead, are positioning themselves for influence. A key step in this transformation is provoking awareness of problems rather than providing answers.
The challenge with 90% or more of the of marketing messages I see is that they are all solutions focused. But, as I’ve written before, your solution is not my problem. With so many solutions out there, customers can no longer afford to spend the time to fully understand what makes your solution different and better than alternatives. As a result, they are increasingly reducing everything to its lowest common denominator (typically price) and sellers find themselves smack in the middle of the commoditization trap.
This is where your question comes in. If you can get your customers and prospects to frame the issue with your question, then everyone else must play your game. You’ll stand out and enjoy more wins and greater margins.
Our question is: How must we change our go-to-market approach so that we will continuously drive increased profits?
Over the last six months, I’ve been writing about price and pricing a lot more. It’s been my intent to help you identify ways that you can not only protect your price (and by extension your margins) but enhance them as well.
To further support that ideal, we’ve just finished our latest training video Moving Beyond Price. This 30-minute video will introduce you to the critical ideas, philosophies, and actions that successful companies use to consistently and sustainably earn higher margins. We’re going to be making available to the public soon for the (low, low ) price of $24.95.
However, before we do that, I’d like to do two things. First, I’d like to thank the most loyal of my readers, and second, I’d like to get some feedback to make the video better. To that end, the first 15 people who leave a comment sharing why they want to move beyond price or how they’ve been able to move beyond price will get a free copy of the video. All I ask is that you provide your feedback after watching.
Here’s an excerpt of the video:
Earlier this week, I wrote that the price you charge for your products and services is the signal that says more about you than anything you can do. I also shared the formula for determining what someone is willing to buy something for. Today, I’d like to go deeper into part of the formula, so that you can get paid more for what you do – even in difficult markets.
So for those of you who haven’t seen this formula, here it is:
Commodity Value + Intelligence/Enterprise Value = Price
Now, take a moment and think about the factors or contributors that your prospects and customers should use to establish the commodity value (or fundamental value) and the intelligence/enterprise value (the factors that you or your company bring to the table). Feel free to download the sheet below to use for this.
In my experience there are only five factors that drive the commodity value:
- Distribution costs
- Need (both the amount and the timing)
- Supply or Access
- What someone else is willing to sell it for
When I was at Merrill Lynch I used to keep a sign above my door that said, “Don’t confuse brains for a bull market.” And don’t get me wrong, I’d much rather be a bad salesperson in a favorable market (i.e. lots of demand, tight supply, and not a lot of competition) than a great salesperson in a bad market (i.e. light demand, lots of supply, and intense competition). But here’s the thing:
We have no control over the left side (commodity) contributors of value!
In my post Monday, I referred to Todd Sattersten’s ebook on pricing. He discusses the choice companies have in setting their price and one of the interesting insights he provides is the difference in price and profit cell phone handset makers Nokia, Blackberry (RIM), and Apple experience.
Why does RIM get 4 times what Nokia gets for their cell phones? Why does Apple get 50% more for the iPhone than RIM gets for the Blackberry?
I can tell you this, the difference lies almost completely on the right side (the Intelligence/Enterprise Value) of the equation. It doesn’t cost Apple 50% more to make an iPhone than it costs to make a Blackberry. And because of that, almost all of the price difference goes right to the bottom line.
Go back and look at the right side contributors for you. What makes you a better choice for your prospects and customers? Why specifically should someone buy from you? Now, answer this question:
What are those contributors worth?
Are they worth 1%? 5%? 15%? 50%? More?
Whatever it’s worth, remember that every dollar you earn from the right side of the equation is highly leveraged for you (it also works against you if you make price concessions).
Your job is to focus all of your go-to-market efforts on supporting the “what’s it worth (right side of the equation)” conversation instead of the “what’s it cost (left side of the equation)” conversation.
Here are the highlights of this month’s issues of The Demand Creator. You can read the entire issue here.
As always, thanks for you attention. I’d love to hear what you think of this month’s issue.
The entire concept of “relationship” is being radically re-created today. Last year, I wrote a post asking if what salespeople were doing under the banner of “relationship selling” wasn’t more akin to what I call “acquaintance-ship selling.” In the last year, I’ve had lots of conversation on this topic and I’m more convinced than ever that the post is totally on-point.
What I’ve realized is that traditionally sales “relationships” were about being “liked.” Salespeople were good guys and gals. They were easy to get along with. They made customers feel good. They took people to ball games and had big(ish) entertainment budgets. I remember sitting in a Tom Hopkins Boot Camp and reciting that my job as a salesperson was to get them to “like me and trust me” first and foremost.
The challenge is that being liked is nowhere near enough today. In a world of zero discretionary budgets, if salespeople (and selling organizations) want a customer’s attention they must be valued. And there’s a HUGE difference between being liked and being valued.
While by no means mutually exclusive, you can be valued and liked, these two attributes must be prioritized. If the goal is to be liked first and valued second (which by the way is the old school style – I’ll get them to like me then I’ll get them to value me), the behaviors will not support what’s needed to drive profitable growth today. You’ll be less likely to challenge or provoke. When the customer asks for a quote, you’ll be less likely to tell them they are not ready for a quote, and so on. You’ll be deemed irrelevant and, at best, you’ll be positioned to “catch” opportunities that happen to fit.
When you focus on being valued first and liked second, you’re far more likely to take on the behaviors to create demand. Rather than waiting for customers to tell you what they need, you’ll provoke their awareness. You’ll dig deeper, even if the customer is uncomfortable. You’ll talk to the people in the buyer’s organization that need to be talked to, even though your contact didn’t like the idea, and you’ll withstand the pressure of closing too soon, even though your customer is asking for a proposal.
Being valued means risking, even for a few moments, not being liked. Going forward, the only business relationships that will matter will be the ones where you’re highly valued, even if they like someone else a little more.
What can you do to increase the true value of your relationships?
It has always amazed me how selling organizations and salespeople deal with the emotional aspects of price. If I were in a room with all the business executives and/or salespeople in the world and I asked the question, “How many of you would like to get more for your products and services?” I’m pretty confident that 100% would raise their hands. Yet, when you watch their behaviors in the market, I’d be surprised if more than 50% of them behaved in accordance with that desire.
In the last couple of months, I’ve written often about price, pricing, and its importance in creating demand. While virtually everyone claims to desire premium margins, I’ve come to realize that most people fall into three camps when it comes to getting a premium price:
- The first group is comfortable and confident pursuing premium pricing and margins. They feel they earn them, they deserve them, and, albeit on the more extreme side, believe they are doing a disservice to their customer base if they are not paid. They believe that these premium margins are what support a superior promise and experience. Companies like Apple, Fedex, BMW, Four Seasons, and McKinsey immediately come to mind when you think about this. In my experience, this group accounts for about 10% of people or companies.
- The second group pursues premium margins, but they view this more as a tactic than a belief. This results in an attitude of “we get a premium because we can,” and it leads to an awful lot of internal conflict and sometimes even guilt. This, ultimately, becomes a major barrier in making such pricing sustainable. In my experience, this accounts for 25 – 50% of people or companies.
- The third group simply doesn’t believe that they deserve premium prices or margins. They may pursue them, but it’s always a struggle, and these people and companies are more likely than not to be the cause of price sensitivity in the client/customer base.
Here’s the thing – price is merely a signal. It’s the tangible component to what is, inherently, an intangible offering (your intelligence value is, by definition, intangible). Charging a higher price is merely making the declaration that you provide a better offering. Pricing is a choice, and buyers will buy a higher price if you back it up with actions. Great companies get that pricing is strategic – not tactical. McKinsey studied pricing in the 90s and found that a 1% increase in price led to an 11% increase in profits.
It is absolutely critical that everybody in a client-facing role understand, truly understand, the importance and rationale about price. Every business executive and salesperson should stop what they are doing right now and download Todd Sattersten’s amazingly simple, engaging and perceptive ebook on pricing. Further you should read it consume it before the day is done. While I’ve read a lot (too much really) about pricing, I’ve not come across anything that puts it in perspective as well as this eBook (it’s also where I learned the tidbit about McKinsey’s study).
It’s your choice – what are you going to do?
The single biggest, and most common, mistake salespeople make is attempting to close business too early. I don’t blame salespeople for this, it’s a natural impulse, and they’ been trained to do it.
In my early years selling, I was taught, ad nauseum, that you learn to close by “closing early and closing often.” This behavior causes several problems:
But don’t take my word for it. One of our longtime clients, Elise Bouchner of Excelerant recently shared her experience with me about how waiting for the right time to close helps, and closing too early (even when it’s the client pushing it) kills. Take a listen:
The trolls are out. They’ve picked up the scent. They know that you’re thinking about growth again, and that maybe – maybe – you’re in a position to open your wallets for that simple magic pill that will mysteriously put you back on the fast growth curve.
You can tell by the increase in emails, and (even) direct mail from companies, and self-professed “gurus”, who have never provided the slightest scintilla of value to you in the last three years.
They’ve been quiet and bunkered until now, but hey, now that people are thinking about growth why not take advantage of “web 2.0” to fill your email, RSS readers, Twitter streams, and Facebook walls with the promise of growth made simple – all you need do is buy their secret code.
Here’s my advice to every fast growth executive out there:
- First, if the person making the offer has not been sharing their wisdom for the last three years – don’t listen to them!
- Second (and far more important than the first), if you want to make a dent in the market, if you want buyers to buy more from you (at higher prices), the start is quite simple – just be relevant to them. Put your needs aside and instead focus on helping your buyers get their results (even if they don’t buy from you).
When I was a financial advisor with Merrill Lynch, I was working with a couple who worked for Nextel. It was following the tech bubble burst of 2000/2001 and we were discussing diversifying their holdings to provide for their future. Their net worth at the time was roughly $2 million, down from a peak of about $3.7 million as a result of the depressed stock. They agreed with every recommendation, but added, “We want to wait for the stock to recover before we do this. I just can’t bring myself to sell a stock for $30 that was worth $60 just a year ago (emphasis added by me).” I responded by saying that you could look at it as being worth ½ of what it was worth a year ago, or 30 times what it was worth two years ago. They didn’t listen, the rest was history, and last I heard their net worth was less than $100,000, and they planned to work for some time.
I was reminded of this story recently as I presented our program on Creating Demand to a group of CEO’s. The topic we were discussing focused on understanding your clients better than they understand themselves. One of the attendees said, “the only thing my customers think about right now is cutting costs – there is nothing else.”
I shared with them my thinking about the psychology of cost cutting and emphasized the need to recontextualize the conversation. Another attendee responded, “when your industry is down 25% and a competitor is willing to provide it at half the price you are, marketing can’t get you out of that mess.”
While I agree that marketing (at least how its’ defined by most executives) is not the answer to every question, I’ve now had time to think about the situation. My response today would be, “Maybe your company was never as big as you thought it was.”
Let me explain.
For at least the past 50 years, margins and financial performance, as measured by percentages, have been on the decline for businesses. When margins compress, the only way you can increase profits is to increase your volume at a greater rate that your margins are compressing.
So, for the last 50 years, businesses (as a whole) have been focused on increasing volume over margins – the center of what most people call commoditization. This resulted in businesses leveraging themselves to greater degrees to: a) increase the resources they had to chase volume, and b) increase perceived rates of return. The problem with this approach is that when relative demand decreases, profits are drained (what many analysts call a “profits recession” which the US has been in since about 1998); and when absolute demand decreases (as it has over the last 24 months), businesses are destroyed.
Fred Reichald talks about good profits and bad profits in the bestselling book The Ultimate Question. While I like Reichald’s definition, we have a slightly different definition:
- Good profits – those revenues and profits that earned because of the unique problems you solve for your target customers. I refer to this as your core business
- Bad profits – any revenue or profit earned from anything other than your core value proposition. I refer to this as your non-core business.
Bad profits are okay so long as you use them to reinforce your good profits and core business. Great companies to this religiously, average companies rationalize that they are being opportunistic.
As the economy appears to be reemerging from its doldrums, it is now more important than ever to remember what great companies do to make recoveries last. They refocus on their core and grow from there, even if that means they must be smaller than they were.
Anyone who has heard me speak about the sales process knows that I’m crazy about the importance of business acumen in creating a successful salesperson or sales team. As I’ve written, business acumen is the key driver of success.
I’m constantly asked the question, how can we increase the business acumen of a sales team. Other than taking advantage of our Business Acumen for Salespeople program (okay, guilty as charged, a shameless self promoting plug), my answer is usually very complicated.
I thought I’d share a simple step to improving business acumen for salespeople (one that we’re going to weave into what we do). Simply assign one of your salespeople to one of Warren Buffet’s annual letter to shareholders (my recommendation is that I’d assign different reports to each rep, but assigning one to all of your reps will certainly save time and could enhance some learning). Then, have them deliver a synopsis. Have them share what they learned and “teach” the business points within the report.
To make the exercise really useful, make sure you’ve read the report and ask questions. Buffet’s Annual Letters are some of the best business teaching tools I come across. If you and your salespeople understand how the businesses of Berkshire Hathaway make money, you’ll naturally see an increase in business acumen.
My favorites for this are the reports from 2006, 2007 & 2008. Personally, I found this year’s report (2009) not to be as effective a tool.
Back when I was a financial advisor, I was warned about “dead cat bounces” and “bear market rallies.” Simply put, both of these terms meant that even when things were deteriorating, a stock or a market could suddenly start performing well, luring unsuspecting investors into making a huge mistake. This is why, I was told, understanding and paying attention to the fundamentals was critical.
I’m reminded of this as I look at the business market and even more at the psychology of the market today. For a lot of companies, things feel as though they are getting much better. Margins have stopped their rapid deterioration (and in some cases they’re even expanding), budgets are beginning to be freed up (at least in terms of beginning the investigation of potential purchases), and the dread and fear of late 2008 and 2009 seems to be dissipating.
The danger here is that there is a BIG difference between things feeling better and things actually being better. This can lead to a deadly form of complacency. Don’t get me wrong, I am not being a pessimist here – I’ve been a proponent that one can grow throughout this entire recession. My concern is that many business executives and salespeople are attributing a supply side adjustment with the return of demand. Just last week, I had a client’s salesperson say to me, “I don’t understand why we’re spending so much time trying to create demand.”
I was having this conversation with one of my clients that is heavily involved in trading. Their business has rebounded because the result of the last three years economy has lead to a significant decrease in supply. Prices and margins are great, but demand is about the same. They realize that supply and demand imbalances are not sustainable, and they are intelligently focused on improving both sides of the equation.
As I pondered the conversation, I realized that this issue is impacting growth oriented businesses just the same, albeit in a slightly less obvious way.
There are only two ways to increase revenue:
- Get people to buy more
- Increase what people are paying
Readers of this blog know I’m a fan of both of these. It’s important to keep in mind, though, that the only way to sustain growth – fast or otherwise – in the long-term (more than a couple of years) is by increasing the demand for you offerings.
That means that you must find ways to get people to pay more for your offerings and get more people to buy from you. Don’t let success in one area creates complacency in the other.