Neil Rackham

Creating Value through the Sales Force
Neil Rackham
Author of lots of stuff
1999 Neil Rackham, John DeVincentis
Station Break . . .
In one sentence: Whats the purpose of a sales force?
Whats the purpose of a sales force? Some answers . . .

The reason for a sales force is to ensure that the customer has the right information about the advantages of your products at the right time, so that the purchasing decision is influenced in your favor.
Regional Sales Manager Printing Equipment Company
The sales force convinces the client to buy from you rather than from a competitor by showing how your services are superior.
Senior Consultant Systems Integration and Software Company
Whats the purpose of a sales force?

The sales force exists to show customers that you have something worthwhile to offer that meets their needs.
Salesperson Office Products Company
The sales function is like a translator: its job is to take your products and services and translate them into language that the customer understands.
Sales Manager Control Systems Manufacturer
The purpose of a sales force is to communicate to customers the value of your offerings.
Senior Vice President Sales and Marketing, Large Regional Bank
The common factor:

Each definition is about
The shifting marketplace

Unique products/services Substitutable products/services
10

no competitors buyer has no alternative source perceived uniqueness
numerous competitors buyer has many options/choices no perceived uniqueness
Where are you?

10
3 years ago
10
Today
10
In 3 years
Whats happening in the USA

10
7
6.4
3 years ago
10
4
4.5
Today
10
3
3.7
In 3 years
SSI Data: 47 corporations 773 sales executives

Station Break . . .
Why are products and services in most markets becoming less unique?
Market Forces
Decrease Differentiation
Products/services look more similar More of them (Increasing competition) More demanding clients New Technologies (quicker time to market, internet, etc.)
Corporate Strategies

New products/services Value-added services and support Product bundling & pricing Customized options
Create Differentiation
Creating value vs. Communicating value

10
Product/service creates the value
Selling process must create value for clients
Market Forces
Salespeople communicate product benefits Salespeople succeed through value communication
Not enough for salespeople to communicate value Salespeople must become value creators
Corporate Strategies
Station Break . . .
and customers are changing too. Whats the biggest difference in how major customers behave today compared with 3 years ago?
Most people agree that

Customers are getting tougher to deal with They treat you more like a commodity But they also demand more expertise and support than ever before They are using new purchasing techniques to force greater concessions from their suppliers
Buying strategies in the new purchasing world

high
Leverage
Strategic importance of product/service
Partner
Shop
Manage Risk
high
low Difficulty of obtaining substitute product/service
Station Break . . .
Define value
What is value?
Value = Benefits
Practical test:
Cost
Value is something the customer is prepared to pay for.
Station Break . . .
What things do we do for our customers during the sales process that are so valuable that customers would be prepared to pay for them?
Customer value survey We asked 1,100 buyers from US companies: Has anyone ever made a sales call on you that was so valuable you would willingly have pulled out a check book and written them a check for the call?
Bringing Value in Face-to-Face Sales
Talking brochures add no value. Information on customer relevant trends and issues adds minor value. Acting as the customers advocate creates value. Problem solving and customizing solutions add high value. Helping customers change strategic direction adds most value.
Where customers perceive value

Change of strategic direction Problem solving & customized solutions
+ -
Customer advocate Time-stamped info on industry/competition
Talking brochures: negative value add
2004 Neil Rackham, John DeVincentis 1999 Neil Rackham, John DeVincentis
The value map

High cost offering (Y) can compete with low cost Cost offering (X) if it has more benefits.
VALUE VALUE DISADVANTAGE DISADVANTAGE
Y X
VALUE VALUE ADVANTAGE ADVANTAGE
Benefits
but . . . Y cant
compete at higher cost without additional benefits.
Cost
Y X
Y
Benefits
Value map in selling

SALES COST
Y
VALUE CREATED IN SELLING PROCESS

Value selling strategy

OPTION 1:
Create more value in selling process
1
SALES COST
Y
3 2
OPTION 2:
Slash sales costs
OPTION 3:
Hybrid of options 1 & 2

Station Break . . .
Which option has the highest success rate?
Y
3 2
The toughest strategy to execute

Y
3 2
Most people believe hybrid should be easiest Very, very difficult with many failures
The 3 customer value types

Intrinsic value buyers
VALUE
= BENEFITS - COST
a cheaper, no-hassle pie Extrinsic value buyers a bigger, better tasting pie Strategic value buyers a balanced diet
+
Enterprise Assets
Intrinsic value customers

Understand the product Perceive product/service as readily substitutable Focus on the cost Resent time/cost associated with sales people
Extrinsic value customers

Focus on how product is used Interested in solutions and applications Value advice and help Willing to invest time and money with sales people to create solutions
Strategic value customers

Focus on leveraging suppliers core competencies Prepared to radically change current process to get best from suppliers Connection between supplier and customer so close individual roles are blurred
Selling models for value creation

COST OF SALE
Enterprise model
Consultative model Transactional model

VALUE CREATION POTENTIAL
Intrinsic
Extrinsic
Strategic
Convenience Problem solving Business process changes Cost Customization Leveraging total enterprise resources Availability
The 3 selling models

Transactional
Value created through cost reduction and ease of acquisition "I know what I need; I don't want to waste time/effort"
"I don't know the answer; I need help/ expertise"
Consultative
Value created through advice, problem identification, problem analysis, and customized solutions
Enterprise
Value created through leveraging enterprise capabilities beyond products
"I need a partner; I'm willing to change my organization"

Consultative and transactional sales on the value map
Enterprise Sale
VALUE VALUE DISADVANTAGE DISADVANTAGE Consultative
SALES COST
Consultative Sale 1
Y
3
VALUE Transactional VALUE ADVANTAGE 2 ADVANTAGE Sale

1999 Rackham, John DeVincentis 1999Neil Neil Rackham, John DeVincentis
Positioning the sales effort - the change

Transactional Transactional Customers Customers Consultative Customers
sweet spot captures most customers


Transactional Transactional clients clients Consultative clients
Transactional clients become even more transactional due to: segmentation strategies internet perceived commoditization

Transactional Transactional Customers Customers Consultative Customers
Consultative clients up the bar: up-front investment increases client expectation is higher winners over-invest in attractive opportunities
The sweet spot vanishes

Transactional Transactional clients clients Consultative clients
sweet spot
A sales force positioned here will fail
unable to compete transactionally too little and too late for winning the consultative business
Optimizing the selling investment 1
WASTE
Investment by Supplier
BALANCE RISK
Investment by Customer

ENTERPRISE create extraordinary value CONSULTATIVE create new value strip cost TRANSACTIONAL Investment by Customer

ENTERPRISE ENTERPRISE
CONSULTATIVE CONSULTATIVE
TRANSACTIONAL TRANSACTIONAL Most sales forces are here
Investment by Customer
too expensive to succeed

transactionally under-resourced and underskilled to succeed consultatively
Station Break . . .
Is this for real? Are these things happening to our industry? If so, what should we do about it?
Using sales resources

We can no longer afford to put the most resources to the biggest customers: this is the era of lean selling, especially in transactional sales. We must put our sales resources where we can create most customer value. The winners shift transactional business to cheaper channels. They put more resources into the opportunities where they can create most value.
Station Break . . .
Can the same salespeople sell both Consultative and Transactional business and be successful?
Mixing Transactional and Consultative

Rackhams Law No sales force can be effective if the same salespeople are selling both Transactional and Consultative products.
Why?
Why Transactional and Consultative dont mix

Economic reason Any salesperson who is talented enough to make Consultative sales is too expensive to use in Transactional accounts where customers dont want, dont need and wont pay for high level sales talent.
Why Transactional and Consultative dont mix

Psychological reason When salespeople have both Transactional and Consultative opportunities, they always pay too much attention to the low-margin transactional business at the expense of higher margin [but longer sales cycle] Consultative opportunities.
. . . So what do I do about it?
1 2 3
Talking brochures cant survive. So dont be caught in the vanishing middle; up the bar and aim for bigger consultative sales.
Ask yourself, would the customer write a check for this call? -- thats how you know if youre a value creator not just a value communicator. Create more value through understanding customers more deeply than ever before, by problem solving and by customizing solutions. See products & services as tools, not ends in themselves.
Station Break . . .
Lets spend a few minutes thinking of questions we have about selling
[Before I answer a question Ill get a vote on how many people are interested in it. The more votes, the more detailed the answer.]
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Creating Value through the Sales Force

1999 Neil Rackham, John DeVincentis

1999 Neil Rackham, John DeVincentis

Whats the purpose of a sales force? Some answers . . .

1999 Neil Rackham, John DeVincentis

Whats the purpose of a sales force?

1999 Neil Rackham, John DeVincentis

The common factor:

1999 Neil Rackham, John DeVincentis

The shifting marketplace

no competitors buyer has no alternative source perceived uniqueness

numerous competitors buyer has many options/choices no perceived uniqueness

1999 Neil Rackham, John DeVincentis

Where are you?

1999 Neil Rackham, John DeVincentis

Whats happening in the USA

SSI Data: 47 corporations 773 sales executives

1999 Neil Rackham, John DeVincentis

1999 Neil Rackham, John DeVincentis

Creating value vs. Communicating value

Product/service creates the value

Selling process must create value for clients

Salespeople communicate product benefits Salespeople succeed through value communication

1999 Neil Rackham, John DeVincentis

1999 Neil Rackham, John DeVincentis

Most people agree that

Buying strategies in the new purchasing world

low Difficulty of obtaining substitute product/service

1999 Neil Rackham, John DeVincentis

1999 Neil Rackham, John DeVincentis

Value is something the customer is prepared to pay for.

1999 Neil Rackham, John DeVincentis

1999 Neil Rackham, John DeVincentis

Bringing Value in Face-to-Face Sales

1999 Neil Rackham, John DeVincentis

Where customers perceive value

Customer advocate Time-stamped info on industry/competition

Talking brochures: negative value add

The value map

1999 Neil Rackham, John DeVincentis

1999 Neil Rackham, John DeVincentis

Value map in selling

VALUE CREATED IN SELLING PROCESS

Value selling strategy

VALUE CREATED IN SELLING PROCESS

Which option has the highest success rate?

1999 Neil Rackham, John DeVincentis

The toughest strategy to execute

1999 Neil Rackham, John DeVincentis

The 3 customer value types

Intrinsic value customers

1999 Neil Rackham, John DeVincentis

Extrinsic value customers

1999 Neil Rackham, John DeVincentis

Strategic value customers

1999 Neil Rackham, John DeVincentis

Selling models for value creation

Consultative model Transactional model

The 3 selling models

"I don't know the answer; I need help/ expertise"

"I need a partner; I'm willing to change my organization"

Consultative and transactional sales on the value map

VALUE CREATED IN SELLING PROCESS

Positioning the sales effort - the change