Fairy Tales for Sales: How to Stay on the Nice List

Introduction and explanation:
A few years ago, a friend (fellow writer) and I were bouncing around ideas for the future. Somehow we got off topic and started talking about the stories shared with our kids back in the day. In a world where none of the kids’ stories actually relate to the life of a distributor salesperson, we wondered what would happen if we created “Fairy Tales for Sales” – stories which carried meaning for the sales professional and the kiddos as well.

This year we are providing a couple of Holiday Stories which fall under these guidelines. Good reading for the kids and a message for the grownups. We hope you enjoy….

Negotiating with Santa

As Frank looks back, he may have been a bit like Billy...

Looking back at the last year, Little Billy wasn’t sure his behavior would put him onto Santa’s nice list.  There had been a few temper tantrums, a little pouting and an issue at school with his teacher.  Just last week, Billy got into some trouble with his perpetually nice baby sister after trimming her dolly’s hair into a mohawk.  Of course, he had his shining moments; he carried out the trash without being asked, he put away his dirty clothes before bed and helped with dishes on Thanksgiving.  Once last summer, he helped a decrepit old distribution consultant across the street.  Still, these were just isolated incidences of niceness. 

Over the weekend, Billy joined his mom on a shopping trip. As they walked in from the car, he could feel the biting chill of winter in the air.  Once in the mall, they walked by the spot reserved for Santa Claus.  In many ways, young Billy was glad they didn’t make their normal stop to greet the Red Suited Elf.  Billy tried to avoid eye contact with Santa sitting on his big red velvet chair, but as they walked by, Billy peeked over his shoulder and noticed Santa not looking like his merry self.  

For the next several days, Billy was good, actually very good, but he was troubled.  What if Santa didn’t accept his newly improved behavior?  What if the North Pole tally still showed him on the naughty list?  How would he respond on Christmas morning when his little sister’s stocking brimmed with  presents and his contained lumps of coal and bundles of switches? 

Billy's thoughts kept him from being his happy self.  He was truly down in the dumps about something.  Late one night, after the kids were fast asleep, mom and dad discussed their concerns about Billy's moping behavior.  They were troubled.  Christmas being a joyful season, this wasn’t right.  His parents decided that dad would drive Billy to school the next day to try to figure out what was wrong.

The next morning, dad and Billy took the long way to school.  After a stop at their favorite Kwik Shop for dad’s morning coffee and a donut for Billy, dad asked Billy a few questions:

Dad:	Billy, is there something bothering you?  Mom and I have noticed you aren’t your normal cheery self?  Are you feeling ok?  Is everything going well at school?  Is that big kid down the street picking on you again?
Billy:	Dad, I am worried!  (With a tear starting to slip down his cheek) I am concerned that Santa has me on the ‘no fly naughty’ list.  I don’t want a bunch of coal lumps and switches for Christmas.  I really want Santa to bring me the Official River Heights Distributor play set this year.
Dad:	Well, son, I think we can figure out a way to get past this.  You just keep being nice and I will think of a way for you to impress Santa.
Billy:	Thanks, Dad, you're the greatest! Who needs Hatchimals when you can have The Distribution Play Set?

Billy hugged his father, hopped out of the car and skipped into school.  Dad was glad to see his improved mood. 

As dad drove off to his first appointment, he pondered his young son’s dilemma.  Billy was much like himself, overall a good kid, but had reasons to be on the naughty list now and then.  There was no time to stress as he needed to mentally prepare for his next sales call with Tom Bylow, Buyer at Discount Construction.

Digressing just a bit, Mr. Bylow is not a nice person.  Without much of a “Ho, Ho, Ho," Santa and his elves have a saying, “Nobody is Naughtier than ‘Terrible Tom’ Bylow.”  As a kid, he received so much coal in his stocking, he considered contacting Peabody Coal.  Known as the biggest bully on the block, he found his natural calling in the purchasing department.  He used every trick in the book to bully hard working salespeople into giving him undeserved discounts and what he liked to call “Bylow breaks”.

Give yourself an early Christmas present and watch this video… 

Thankfully, Billy’s dad was prepared.  A year or so ago he had attended a special SPASigma course on negotiation skills and took it seriously.  As a matter of fact, each visit to see “Terrible Tom” called for a quick review of the continuing education which was part of the class.  Always a professional, Billy's dad gracefully deflected each attempt to bully a better price.  A sale was made; negotiations done right.  Discount Construction got a good value and dad’s company made great margins. 

After the call, Billy’s situation danced back into dad’s mind.  Then an answer came ringing like a string of Christmas Bells.  Billy was nothing like Terrible Tom.  Deep down inside he was a good little boy who sometimes misdirected his energy.  Maybe Billy could negotiate with Santa.

After dinner that night, dad asked Billy if he would like to help make popcorn while mom and sister watched their favorite show.  Always anxious to spend special time with dad, Billy Boy jumped at the opportunity.   

As they bustled around gathering ingredients for their snack, dad asked Billy if he was ready for their upcoming mall visit to see Santa.  Billy turned gray and started confessing his many excursions into the naughty realm.  Midway through the third episode of bad behavior, Dad interrupted with, “What about the nice things you’ve done?  I know you have helped mom clean and even assisted your sister with a couple of chores.  Those count.”

With tears forming on his cheek, Little Billy pointed out that in his seven previous visits with Santa, he was always asked the question, “Have you been a good boy?”  This would be no different and he didn't want to lie to a man with magical lie detecting skills.  At this point, Dad asked Billy if he had ever heard the word, "negotiate."  Billy wasn’t sure.

Dad explained, negotiation is a way of communicating that helps people work out better agreements; both sides use this form of communications to get what’s really important to them.  Real negotiators take the time to understand what’s important to the other guy.  While Santa may be magical, he is also reasonable, making him the perfect negotiation partner.  Dad shared a list of things he knew about Santa:

• Santa was already planning to make a stop at Billy’s house to bring presents to little Sis.
• Santa gets jolly when he sees the happy look on little boys’ and girls’ faces.
• Santa really doesn’t like to deliver lumps of coal or bundles of switches.
• Santa often overlooks a few naughty behaviors if the nice behaviors are sincere.

Based on his SPASigma training, dad knew that practicing, or role playing, negotiation strategies gave salespeople an extra advantage.  So he asked Billy to think about what he would say to Santa during his visit at the mall.

The next day on the way to school, Billy practiced his talk with the man in the big suit.  He even asked dad to play the part of Santa:

Dad (as Santa):	Ho, Ho, Ho… Hi Billy, Have you been good this year?
Billy:	Hi Santa, I admit that I have made a couple of naughty mistakes this year, but I have done a lot of nice things too.
Dad (as Santa):	What do you mean Billy?
Billy:	I try to be nice all the time, but some days I make mistakes and feel bad about my actions. Overall, I have had more nice days.
Dad (as Santa):	Well, it’s the thought that counts in the world of naughty and nice.  So, I guess Santa will need to see what he can do!

               

After role playing, dad and Billy both thought the story was good, but Billy needed to continue practicing.  His exchanges in the mirror every day paid off.  Things went wonderfully.  Santa not only agreed that Billy’s behavior was worthy of being on the nice list, but he also gave a big thumbs up to the elves cranking out another of those cool Official River Heights Distribution play sets.

The moral of the story:  Negotiation is good, Tom Bylow is bad and everybody negotiates… including Santa.

The Future of Knowledge-based Distribution

Earlier this month I was asked to lead a discussion on the future of distribution.  In this case, we focused in on the future of members of the Fluid Power Distributors Association (FPDA).  Since many of our readers are not FPDA members, allow me to provide a bit of background.  The members of FPDA tend to be deeply involved in providing customer solutions.  In many ways they epitomize the knowledge-based distributor.  Their products are complex, sellers understand product technology and application nuances, customers lean on the distributors to provide technical support and most offer up additional fee based services.

Referring to the infographic below and the evolution of the distributor model, FPDA distributors are the poster perfect picture of the Knowledge-based distributor.  Deep product expertise, product specialists, customer centric engineering and solution selling is their mode of operation. 

  

While the argument for Amazon-like eCommerce may make great sense for the distributors falling into the “Logistics” side of the distribution industry, similar investment on the Knowledge-based side of the evolutionary line is likely to be poorly spent.

A quick survey of those attending the meeting revealed the following statistics:
• 38 percent of attendees’ companies did zero eCommerce
• 50 percent did less than 5% of their business via eCommerce
• Only 12 percent of attendees indicated eCommerce represented between 11-20% of their sales

Thinking about available resources like time, effort and money, knowledge-based distributors investing in eCommerce do so at the expense/neglect of other potentially more rewarding investment opportunities.  The pressing question is where should a knowledge-based distributor invest?

This question can be broken into four segments:
• What customers are best matched for the offering of products, service and knowledge provided by the distributor?
• How can the distributor better their ability to drive solutions to this group of customers?
• How might the distributor scale up their ability to provide the solutions?
And the most important question of all….
• How can the distributor ensure they will be paid for the value they provide?

With all of this in mind, let’s dwell on the critical topic of getting paid for the value provided. 

For this breed of distributor it’s not about value-added sales, instead the crux of the equation is value-metric selling.  Simply put, knowledge-based distributors provide value far above the logistically based guy whose “value-add claim to fame” comes by way of timely deliveries, consolidated invoicing and the occasional cross reference to a more conveniently purchased part.  Instead, knowledge-based distributors provide the stuff needed to help the customer develop better manufacturing processes, reduce costly downtime, reduce rejects and drive profitability.  

Strangely, only a few of the sellers in this high value world really understand the true worth of their actions.  Research indicates, their sellers go the other way, undervaluing what they do.  Instead of measuring the financial impact of their ideas in terms of impact to the customer’s business, they shrug off the economic benefit as part of their “service”; often struggling to justify a percent or two greater margin than the person who provides just products without much needed technical support.  This puts the group in a dangerous position.

As knowledge-based distributors move into the future, their reliance on technical advice, engineering support and turnkey engineered solutions as a competitive advantage deepens.  Demographic shifts point to escalation of human side and other associated costs for the distributor.   Without an understanding of the customer value they create, the distributors will see profitability sag.

Knowledge-based distributors need a different kind of training.  The selling advantage goes to the distributor salesperson who can explain the value of their proposed solution in real customer-centric terms.  It’s no longer acceptable to pepper the conversation in technical jargon and call it good.  Improved cycle times, communication speed, scan rates and other data may be factors for selecting components.  But when a solution is being discussed, the conversation must focus on advantage to the customer.  Going further, customer advantages are best described in financial terms.  For instance, the product feature of improved cycle times, translates into 10 percent more parts generated and that newly created production generates $500,000 additional revenue to the customer.  

While training focused on understanding customer economic value is critical, it must also be understood that rarely are solutions outlined in black and white.  To better understand the situation, let’s explore a hypothetical interaction with the customer.

Acme Manufacturing has an issue with a new machine design.  They would like to employ a robotic arm to properly

locate parts.  The distributor proposes a solution capable of reaching into the machine grabbing the part and properly aligning the part thus eliminating a great deal of human interaction and reducing scrap.  It’s a nice marriage of technology and customer need.  The economics justify the work and the purchase is given the green light.  However, midway through the design stage, the customer asks for a new feature.  Instead of only one positioning action, the robot will require an extra move in order to add a date stamp to the part.  

On the surface, the hardware required to complete the job remains about the same.  But additional engineering is required to make a software adjustment.  And the distributor seller is faced with a dilemma; eat the software cost, avoid conflict and keep the customer happy or negotiate a new price with the customer.

A study of distributors conducted earlier this year, points to a deficit in distributor negotiation skills.  Looking more closely, we have sales teams who constantly negotiate solution and system pricing yet have very little formal expertise in the practice.   

Anticipating questions, allow me to address a couple of points.
• Our customers see us a partners and don’t negotiate when dealing with us.  This misconception is rampant in the distributor landscape.  Customers certainly do negotiate as many have had formal negotiation skills training.  Have you ever formalized the technical side of a solution only to be handed off to a purchasing person to finalize the details?  This in itself is a negotiation tactic.
• Our sellers have been doing this for years and know how to negotiate.  Selling is typically about knocking down roadblocks to getting the order.  Giving away a little margin, or throwing in some added engineering time is an easy way to close the deal.  Further demonstrating the phenomenon, distributors who run engineering organizations report reoccurring conflicts between those required to generate profits in the technical operation and the salespeople.  Truth is, the sellers are better at negotiating with their co-workers than with customers.
• Since our sales team is paid on the gross margin they generate, it’s in their best interest to capture as much gross margin as possible.  From a purely cerebral standpoint, this makes good sense.   However, many salespeople reason that a commission on a small gross margin is better than “haggling over a few bucks” and possibly jeopardizing the order or customer relationship.  Pushing further, antiquated commission policies sometimes encourage sales types to capture less than optimal margins because giving away technical support or engineered services does not reflect on the gross margin number.  In this case, the salesperson gets a commission on bad business. 

What do I recommend for Negotiation Training? 
Over the years I have had the opportunity to sample a number of negotiation skills training packages.  Unfortunately, I have not been impressed.  The big names push tactics over substance.  Most fail to understand that our kind of selling is different.  Distributor-customer relationships are living breathing and ongoing bond.  Every interaction adds to (or subtracts from) the tie between companies.  Tragically, most sellers attending were turned off by the whole seller wins at buyer’s expense mentality.

Thankfully, someone recognized this issue and did something to change the landscape.  SPASigma sprang from

the work done by David Bauders and his Strategic Pricing Associates (SPA) team.  With nearly a quarter century of experience helping distributors apply scientific analytics to their pricing process, SPA has assisted nearly 500 distributors in their quest for developing fair and equitable system pricing.  SPA understands the how distributor business works.  SPASigma has taken a new approach to negotiation training.  Along the way, they have developed a whole system of in-person seminars backed up with online retention tools to assist in changing the outlook of sellers in this field.   You can access SPASigma here. 

Before we go,
We started off by saying, money spent on eCommerce could be better spent in other ways.  Following this path of skill development centered on understanding your value to the customer, understanding the cost of the services you bundle and negotiation for the best deal will position your company for immediate payback.   Payback capable of funding the future.

A Few Thoughts on The Reactionary Sales Model

Talk to any sales manager and they will tell you they want their team to be proactive.  Proactive as in sales calls, targeting, prospecting and product introductions.  Planning and setting detailed customer-centric goals is also viewed as proactive.  Sales managers preach proactivity.  Detailed studies of distributor salespeople, however, reveal a lot of folks who are anything but proactive.  In spite of the directives from their managers, a lot of these guys seem happy in their roles.

Defining Reactionary Sales…

A good many knowledge-based distributor salespeople have quietly slipped into what I call the reactionary sales model.  Here is the premise of their system:

·         The seller becomes engaged with the customer.  Sometimes this is an inherited relationship, other times, it builds gradually over time as the seller proves their worth as a provider of sound advice, support and technical assistance. The seller builds a level of trust and becomes one of those called in to assist in problem solving and solution building.

·         The seller becomes available on demand.  The deeper the relationship, the more available the seller becomes as a source of advice and assistance. It is not uncommon for sellers working in this mode to drop whatever proactive plans they may have developed to run to their customer’s location at a moment’s notice.  This activity is typically rewarded emotionally with appreciative words and with a regular stream of orders.

·         The seller develops deep loyalties with customers.   As loyalty builds, the customer begins moving business to the salesperson’s company and business grows.

Sounds pretty good so far….

But there is more, maybe even vindication.  A recent study of engineers in the OEM side of our business reveals much about the way our industry sells.  Three things are made clear in the study:

1.      Engineers prefer to request information – “don’t call us we’ll call you”.

2.      Once a salesperson is established as a source of information – they call often.

3.      Local and Regional Distributors are viewed as better sources of information than National Chains (something we have always known but didn’t have the data to prove.)

But there are problems…

The story doesn’t end with “they all lived happily ever after” because there are some issues standing in the way of great business.  While time and the nature of this post don’t lend themselves for a detailed study, we should touch on the issues.

·         This model takes time.  Engaging with customers, proving yourself and building trust take time; probably measured in years.  How long can a salesperson wait for business to come? 

·         Distributors lose customers by attrition.  Depending on the expert, between five and ten percent of our customers drop off each year.  We’re not speaking of business lost to competitors; instead customers go out of business, are purchased by another organization or move to another location.  When this happens, it takes a long time for a reactive guy to replenish their customer base.

·         Reactive salespeople are slow to introduce new products and technologies.  When salespeople operate in the reactive mode, they wait for the customer to request information.  Since the customer has someone else providing assistance with the new line of technology, the time to introduce new products is painfully slow (years.)

·         Reactive salespeople struggle to justify which account receives their high quality reactive service.  Oftentimes, reactive salespeople peak out early.  One of the main causes is they run out of time.  This level of service takes time.  If they don’t “justify” their time against customer potential or business volumes, they get consumed by helping accounts which cannot provide the necessary volume to fuel their business.  Since the emotional reward can be high from small accounts, who thank them profusely for their assistance, they struggle to prioritize their time. 

By now the point should be clear, the reactive model works but does not align itself with the goals of most distributors.  Expansion into new product technologies is hampered and organic growth is slow (even if arguably steady.)

Improving the situation…

If your team is overloaded with reactive mode sellers, you must answer this lucky seven list of questions:

1.      How can we speed up the relationship process?  We’ve determined the reactive seller is good once a relationship is built.  But, they need help with jump starting the relationship.

2.      How can we help focus their efforts?  Most sellers don’t track their time, even though CRM Systems are good tools.  If we can help them understand the value of their time, they may refocus energies on accounts with greater potential.

3.      Can we develop tools for introducing new products?  Training is the new marketing.  Are you exploring all the opportunities to increase your training portfolio?

4.      Are add on products well understood?  If the salesperson is assisting the customer with a solution, do they understand the nuances of expanding the products by providing a bigger piece of the solution?

5.      Does the reactive seller know how to leverage existing contacts to expand their customer contact base?  Since the time to build trust and establish a relationship is long, we need to find ways to leverage the relationship.  Does the seller ask his contacts for referrals within their company?  Does the reactive guy understand the importance of knowing everyone within their account?

6.      Are negotiation tools part of the reactive seller’s skillset?  Long sales cycle… check.  High service… yep.  Products customized to the customer’s needs… inherently clear.  If the seller has not been trained on negotiation tactics, there is a very good chance you are missing out.  Research indicates negotiation training is not part of the distributor vocabulary.  I have seen SPASigma’s training and believe the reactive salesperson needs all of the advantages offered.

7.      Should a reactive seller be paid the same commission as a “rain making” sales guy?  This one is a lightning rod, but I am convinced there is a difference.  Plus, reactive sellers don’t bring the same level of value to the business. 

Finally….

I’ve made some pretty brash comments.  I am sure some will disagree.  If I’ve upset you, send me a note.  Heck, post it right hear for everyone to read.  I look forward to hearing back from you.  Who knows, you might receive the River Heights Consulting Grand Prize: a postcard from Iowa.

By the way… I made reference to SPASigma’s fabulous distributor-centric Negotiation Training.  Founded by Distributor Pricing Expert David Bauders of Strategic Pricing Associates.  David has helped 500 distributors grow their gross margin (typically around 2 points) through a scientific analysis of price sensitivity and customer type.  SPASigma moves the needle forward again.  There’s a five minute video at www.SPAsigma.com.  

The Life and Times of an Elephant Hunter

Last week I had the opportunity to meet a real live Elephant Hunter. No, not the African Safari kind, this elephant hunter

was of the sales variety. After years of bouncing from manufacturer to distributor and back, he called me to help him find his next opportunity. During the normal introductory niceties, (contrary to my wife’s opinion, I am a nice guy,) he boasted about a dozen or so really big deals he had singlehandedly managed during his two decade career. Make no mistake, this made an impressive list. I was buying into his story hook line and sinker. Until, we reached the point where I asked him, why he was looking for a new opportunity.

For some reason he didn’t share upfront, he was currently “between jobs.” With this impressive list, one would wonder how such a rain-maker could possibly be out of work. I know lots of sales organizations and very few willingly separate ways with someone who can really bring in business. It made me scratch my head. I asked him about it and the answer was shocking, he said my last couple of deals didn’t come through and my business dropped off substantially.

For distributors in his industry, business can be divided into “project” business and flow business. Even during the darkest hours of the Great Recession, the flow business for most customers continued to roll in. The ratio for a healthy end-user customer looks something like 70 percent flow and 30 percent project. Things look slightly different for OEM customers, but even there most have some flow business remaining.

About fifteen minutes into the conversation, I explained my thoughts on flow business and asked if I was missing something. After a long pause, I heard a reluctant story of no time to build a solid foundation of long term repeat business. This guy prided himself on bringing every resource possible toward capturing the big deal. He felt pursuing what he termed as “piddle” routine stuff was better left for those small minded types who couldn’t hunt the elephants.

The truth about our kind of selling
One of the issues I have with many of the generic off-the-shelf sales training courses comes from the backgrounds of the instructors. Many industries thrive on “one time” sales. The sale is an event rather than a process. For distributors, it works differently. Our sales strategy is a continuous string of discovering customer needs, proposing a solution, assisting with implementation of the solution and repeating the process. Over the years, we develop customer trust, build loyalty and grow our flow. We strive for what some call “customer wallet share.” When things go well, our ongoing actions entice the customer to purchase more from us because they know we desire the orders.

Capturing projects has a place in our world, but only after we have built a solid groundwork of customer knowledge, relationship and trust. Chasing projects which just happen to come floating across our desks is often an exercise in futility. We waste our time and resources developing complex quotes for business with little chance of success. Further, negotiation experts like Anthony Perzow of SPASigma indicate some of our quotations are simply used as rabbits to drive down the price of the guy the customer really wants to buy from. The rabbit has zero chance of closing the order. In a day when most distributors are fighting to channel resources, time spins down the drain.

What should we be doing?
Targeting the right customer list for our efforts makes sense.

Building a relationship and trust takes time. If we spend our time on customers with little potential, the payoff never comes.
Asking the right questions and gathering customer data pays off as well. Nothing accentuates our relationship with a customer like understanding their business. The more we know about the customer’s unique situation, the better our chances of providing valuable solutions.

Understanding our competitors on an account by account basis helps us better position ourselves. We must recognize why the customer buys from others. This is especially important if you “split” the business with several competitive distributors at an account.

Harnessing the efforts of our supply-partners builds our portfolio of business. Very few distributors enjoy exclusive supplier relationships. Protecting business against cross-channel conflicts preserves our margins and frees supply-partners salespeople to work directly in building your position at the customer.

Focus, but don’t be an elephant hunter…
It’s our job to capture as much business from our territory as possible. I believe focus is important. For most distributor salespeople, this means focusing in on 30-40 accounts. Elephant hunters want a list of 200 accounts so they can search for the jumbo sized orders as they appear. Working to create a relationship with 30 or so accounts gives you time to develop the relationship, grow the flow and when the elephant appears take it down in the normal course of business.

What happened to my newly found elephant hunting friend? I am not sure any of this advice sunk in. His last words were something to the effect of... “When the economy picks up, the big orders will come back and I will be there.” I only hope he has enough money to survive in the meantime.  I have a feeling he'll be singing the old Hoyt Axton song "Where did the money go?"

Sales Training for Distributors – Don’t forget Inside Sales

Last week I threw out some thoughts on sales training for distributors.  The response was great, but I received more than a half dozen challenges from inside sales groups.  The overall feedback could be summarized as: Don’t forget about Inside Sales. 

The comments reminded me of a couple of points:

• Outside Sale people may make the phone ring, but it is the service the customer receives when they call that keeps customers coming back (aka customer retention).
• Most customers gauge Distributor customer service by the quality of the Inside Sales team.

Historically, distributors have focused on outside sales improvement…

Experience shows when distributors invest in skills training (which is meager at best,) they tend to focus on the outside sales position.  A quick “Google Search” on the topic of “distributor sales training” brings up something like 28,600 results.  While I didn’t read all 28 thousand of them, I did look at the first twenty listings.  All were outside sales related.  Assuming that training organizations follow the money, we can assume there is darn little effort devoted to the team who keeps the customer calling and by which our customer service is often judged.  Houston, we have a problem...

Inside Sales was once a baby step in
the trail to Outside Sales

There are three potential reasons for this lack of investment in inside sales: 

1. Back in the good old days, inside sales was viewed as a stepping stone job for outside sales.  The career trajectory for most people looked something like this: start in the warehouse, move to the counter, go to inside sales and finally grab a company car and hit the road.  Compensation for inside sales people was meager and anyone who stayed in the department was viewed at lacking in personality, drive, motivation or intellect.  You might say the good old days were not so good for the inside team.
2. Most of the sales managers serving the distribution world grew up in the outside sales world and don’t understand the inside sales role well enough to realize what training should be focused toward.  They realize the need for training but tend to see it as a subset of the training they provide for outside sales people.
3. Again going to distributor sales managers, most grew up in a pre-internet environment.  Only the most progressive managers realize selling roles have shifted.  Customers no longer count on their outside sales person as the harbinger of information.  Research indicates customers review products, find information and make preliminary decisions without waiting for data sheets to be delivered by their friendly outside sales resource.

The job of inside sales is changing…

Just a decade ago the job of inside sales centered on transferring phone and fax orders to computer system (ERP) orders, answering questions on delivery and selecting the proper part number from a customer’s detailed description.  All good stuff for the time, but nothing like today.

The end of these activities is on the horizon.  New computer technology allows orders entered onto customer PO forms to be automatically entered into the system without human interface.  Further, some of the product selection criteria has been automated or moved to mobile apps allowing customers to better determine the proper catalog number (even in instances where complex part number strings are involved.)

Today customers look to inside sales for more.  For instance, for most distributors, the first line of price negotiations has been switched to the inside sales team.  Front line technical support falls on to inside sales to do some logistical matters like expedites, freight issues and invoice clarification. 

Provide world class technical support and you will attract customers.

How do we train for customer support?

If your companies sells highly technical products (Programmable Controllers, computerized operator interfaces, complex sensors, drives or irrigation controllers, programmable heating systems, etc.), we recommend establishing an inside specialist(s).  This person would be the phone resource for customers with urgent issues. 

The inside specialist need not be a new hire.  We have seen companies delegate slices of their technology to individuals with keen interest in the products.  This will work well assuming the person is not overloaded with other tasks. 

But product support can be taught.  First, let’s assume customers commonly ask the same set of questions.  Identifying these questions and training on the answers grows the overall support.  Rather than being tasked to learn everything, inside sales is taught to understand the 20 most commonly asked questions on the product. 

Further, inside sales is taught a plan for escalating the call to someone more knowledgeable.  Years ago, my own organization created a “who to call list” which allowed the inside team to access factory and internal experts on various topics – but not until the problem was qualified.

Train for add-on product sales…

The most powerful marketing tool in history is McDonald’s

own, “Would you like fries with that?”  Sure, everybody knows Mickey D’s has fries, but just prompting the customer with the question turns a five dollar order into a seven dollar ticket (a 40 percent sales boost not considering fries have a high gross margin for the company.) 

Many of our computer systems (ERPs) allow the addition of suggested sale or “goes with” products.  We need to reinforce the importance of both populating the system and training our people to remind customers of products they may have forgotten.

Proper pricing can improve the inside sales role.  First, without a well-developed pricing system, inside sales teams devote lots of time looking up last prices paid and checking on price levels with their outside sales counterparts.  Inside sales should be trained to spot poorly maintained price files and provide the feedback required to get these fixed.  Second, inside sales people should learn a few basic negotiating tricks to avoid being “duped” by procurement professionals who have been trained in the science of negotiation.  If you have not yet see the information provided by Strategic Pricing Associates or their sister company SPASigma, we recommend you check out this really funny video.  

Again a special offer…

Last time we offered a postcard from Iowa to everyone who shared their suggestions for sales training with a grand prize of a professionally developed training class set up to be shared with your team.  We are repeating the offer.  No obligation, no telesales calls, no nothing.  Everyone will be a winner. 

Postcards from Iowa for every entry.

Free Sales Program to the coolest suggested subject.

BTW –Sue from California was our winner last time.  Sue claims she had never received a genuine postcard from the Tall Corn State.  Sue, we expect more entries.  The USPS wants to bring you another card.  

Discounting based on Quantity?

"Locking in" business without knowing
more about your customer looks more like this.

Let’s think about quantity discounts.  For many folks the idea of “locking in” business by offering up a special discount seems to make sense when future potential is involved.  Here’s how it works.  Acme Manufacturing has yet to purchase your new product but based on your knowledge of the Acme’s size and an intuition that Acme could buy lots of your product, you provide a discount. 

Our analysis of many first time sales situations, indicates a couple of key points:  

First, the discounts are provided unilaterally, with no probing of the customer’s current purchase price.  What’s worse, we see this tactic used with new, emerging technologies and products never before introduced to the customer.  Sometimes, the seller offhandedly informs the customer, “The normal price for this product is $1,000, but I am going to knock off a hundred dollars so your ‘special price’ will be $900.”  Other times, the seller just provides a discount without even mentioning the deal.

Second, sellers provide these special deals without taking time to gather significant information from the customer on the value created by the product.  Many times sellers base their need to discount on information provided about a solution that didn’t really work; assuming something that didn’t work can even be called a solution.  Here’s an example of how that scenario might play out:

The salesperson is called to look at a waterproof motor in use at the customer facility.  The only issue is, the customer’s wash down procedure causes the motor to leak.  The motor fails regularly causing massive headaches, downtime and other electrical issues.  Somewhere along the way, the seller learns the old motor sells for $500 dollars.  The new technology will replace the motor.  Water issues will go away.  The new technology costs about 30 percent more than the failing technology of the past.  And, the customer uses quite a few of this type of motor.  So, the seller assumes they can’t sell their new product for much more than the $500 dollars already being spent.   I believe this is a major mistake.

There are three points sellers must understand…

1. Customers don’t have a true appreciation for discounts they see as “unearned.” 
According to research cited by negotiation expert Tony Perzow of SPASigma, potential customers see no real value in discounts which do not require something in return on their part.  What might be a better approach?  A discount which is tied to a long term commitment, a discount contingent upon placing a multi-piece order or a discount involving purchasing associated products.

2. Once the price level has been set, it is very difficult to raise the price.
Once a price is set, there is little opportunity to raise the price if the customer doesn’t meet your large order criteria; and this happens quite frequently.  Further, a discount provided up-front minimizes the opportunity to profitably provide added features, services or even a deeper discount if the customer does hold the key to big order potential.

3. Most sellers fail to understand the true cost of quantity discounting. 
For example, in the world of distribution, a gross margin of 25 percent is common.  Assuming there are no offsetting cost reductions such as order processing, shipping charges or discounts from your supplier, the math is relatively straight forward.  Using a 25 percent gross margin and a discount of 10 percent for the sake of easy math, we must sell something like 66 percent more product just to break even on gross margin.  Here is the formula:

Current Gross Margin / New Gross Margin = Unit increase required

We have attached a handy table developed by the State Government of Victoria to provide you with a handy reference guide. 

Checking the effect of discounts on the gross margin
If you cut your prices by...	And your present gross margin (%) is...
	0%	15%	20%	25%	30%	35%	40%
5%		50.0%	33.3%	25.0%	20.0%	16.7%	14.3%
6%		66.7%	42.9%	31.6%	25.0%	20.7%	17.6%
8%		114.3%	66.7%	47.1%	36.4%	29.6%	25.0%
10%		200.0%	100.0%	66.7%	50.0%	40.0%	33.3%
12%		400.0%	150.0%	92.3%	66.7%	52.2%	42.9%
15%			300.0%	150.0%	100.0%	75.0%

Of further concern in the distribution industry is that typical net profits run between 2-4 percent.  Shaving margin without some other offsetting factor can create profitability concerns.

There has to be a better way….

Wouldn't it be more appropriate to understand the customer’s situation before providing a discount?  Let’s start with a few questions:

• What is the customer’s problem with the current product used?  Breakdowns, scrap produced, bad data gathered, downtime, rejects or something else?
• What is the value of your solution to the customer?  To answer this, you must think about the cost of downtime, rejects produced, energy wasted, outsourced labor, repair parts consumed, etc.
• Does your solution help the customer avoid other costs?  Travel expenses might come into play here.
• Are the customer’s human resources better used because of your solution?  Referring back to travel expenses listed above, how much greater might the productivity of existing employees be if they weren’t sitting in a drafty airport waiting for the 5:50 AM flight out of town?

Finally and only after calculating the important stuff already listed, should these questions be pondered?

• What is a reasonable estimate of the cost of the previous solution, assuming one existed?
• What are the other costs associated with the old way of doing things?

I know what you’re thinking.  Sometimes, you don’t have time to explore the whole situation.  The customer calls and asks for a price.  What to do?  My suggestion is to stick with the standard cost.  Then begin to explore the situation.  You can always negotiate your price downward later.