Value-Based Account Segmentation
There are many ways to segment accounts in a market. Since you cannot and should not invest in all accounts equally, deciding in advance which accounts will yield the greatest return on investment of additional time and resources is obviously a key decision. Traditionally, among the factors usually considered are historic revenue streams, reference-ability, account profitability, and quality of the relationship.
In Hope Is Not A Strategy, we defined six levels of buyer-seller relationships that have evolved over the years (see Figure 52). On the right side of the figure we define six levels and roles of sales talent that can be committed to an account. We also identify six different types of buyers based on the way they buy.
For firms selling value-added solutions rather than commodities, a developing best practice is to allocate resources and define strategies based on the way the customer is willing to pay for value. For example, if you commit partnering resources to commodity buyers, you will partner yourself broke lavishing attention on firms that will still put you out for bid.
For commodity buyers and repetitive buyers buying noncompetitive add-on sales, the strategy is to make it easy to buy and keep the cost of sales low using the Web or telesales. For buyers who buy in competitive evaluations, hunters who can manage and win these political battles are a necessity. If you put your farmer up against their hunter, you will get creamed.
A solution buyer will allow you to collaborate, understand his or her needs, and co-develop a customized solution with a consultative seller. This obviously takes a significant investment of both time and talent. A demand creator can find a dormant business problem and create a vision of a solution. Then he or she finds a sponsor who is a change agent with enough political power to drive the proposal into buying activity.
A danger exists in investing these resources and valueadded strategies if you are then going to be shoved down to procurement, only to have the value stripped out of your deal. The gamble is that you will have gained enough differentiation through collaboration that you are uniquely qualified to provide the solution and that your sponsors have enough power to arbitrate for you with procurement.
Partnering
is obviously a powerful company-to-company business model, but fewer than 10 percent of your candidates can achieve this special relationship, which must reach all the way up to the CEO level.
Size is not the issue. Its a matter of their culture. Its how the organization buys and sells value. You can judge it by the way the organization treats other vendors. If the organization doesnt partner with anyone else, it isnt going to partner with you.
ROI Alone Is Not Enough
In the area of pain, one observation weve made over the last few years is that in a down economy, return on investment (ROI) alone will not compel an opportunity to close. Many training programs that address selling to executives focus on the financial benefits exclusively by teaching how to calculate the benefits of your solution and then calculate a stream of cash flow and an ROI on that assumed cash flow.
One of our clients was selling new point-of-sale systems to Wal-Mart. In their eight-store pilot, they determined that, using their systems, Wal-Mart could save $2 million a year, spread over eight stores, or $250k per store per year.But, since they didnt link the savings to any strategic opportunities for Wal-Mart, it was no surprise the pilot went on for two years with no closure.
In the grand scheme of things, they failed to recognize that $250k per year per store wouldnt get anyones attention.
For a company that does almost $300 billion a year, a $250k annual savings is merely a rounding error.
There werent enough zeros in their value proposition to be compelling.
Jack Barr tells a story of when he was competing to win the Hershey account while at SAP:
I was involved in a very competitive situation, selling manufacturing/order processing software to the Hershey Company in Pennsylvania.My competitor and I were called in to present to the executive committee. Before the meeting, I went through my presentation with my internal coach to make sure it hit the mark. My coach told me that, as a company, Hershey was very focused on children .
Milton Hershey, the companys founder, never had a formal education.To him, providing this opportunity to others was an important priority. He and his wife established a school for orphans and made sure that the town of Hershey had the finest elementary and secondary schools possible. Every year, millions of dollars are donated to the Hershey Foundation, which continues to fund the orphanage and schools.
Everything is about the children when it comes to Hershey, my coach said. A percentage of our net profit goes to the Hershey Foundation every year. So before we do anything for the business, we always ask ourselves,Will it benefit the children?
Based on that conversation, I added one slide to my presentation that figured how much our solution could save the company in inventory costs. I was able to show them how much this savings would add to their bottom line and how many additional millions of dollars could be donated to the Hershey Foundation, by the Hershey Company, as a result over the next five years.
Though my competitors solution would also have saved them in inventory costs, he didnt present it with the same linkage to the emotional and personal benefit to the Foundation that I did.The feedback I got, after I won the deal, was, Jack really understood what we are all about.