The smartest company builders are abandoning old-style sales for a whole new kind of relationship with customers -- and are finding they have to remake their businesses in the process
If you're still selling the old-fashioned way, mark our words, you won't be for long. As companies in one industry after another are discovering, a good product at a fair price, backed up by a responsive customer-service department, is merely the price of admission to the new competitive marketplace. To stand out from the pack today, you need to tailor your products and services to meet the particular needs of each of your customers. That, it turns out, is a major undertaking that can affect your entire operation. Leegin Creative Leather Products, for example, set out to make itself indispensable to its customers -- and totally reinvented itself in the process. (See "A Business Transformed," [Article link].) To help prepare the way for you, we've asked several companies that have already made the shift to tell us the biggest challenges they faced along the way. But first, some background.
Much of the pressure for change comes from large corporations intent on cutting their costs and their payrolls. They are choosing as suppliers companies that are aggressively helping them to streamline their operations. That has been the experience of Manco Inc., a Westlake, Ohio, company that transformed itself from a $4-million distributor of industrial tape in 1977 to a retail supplier of tapes, weather stripping, and mailing supplies, with sales of $76 million, in 1992. "Retailers are pushing inventory management off on us," says the company's president, Tom Corbo. "It's a burden we like; it gives us more control." Today one of the ways Manco distinguishes itself is by helping to manage the inventory of its 30 products for such big customers as Wal-Mart and K mart. That, Corbo notes, requires an entirely different approach to selling.
At the extreme, as the experience of G&F Industries Inc. shows, it can mean no selling at all -- at least in the traditional sense. In 1987 G&F, a small manufacturer of molded-plastic parts in Sturbridge, Mass., got an unusual request from its largest account. Bose, a $500-million acoustic-speaker maker in nearby Framingham, wanted to know if G&F would consider assigning a full-time employee to work at the Bose plant -- eliminating the need for a salesperson to call (and helping Bose shave the cost of buyers and planners). It was a risky move for little G&F, which at the time barely cleared $3 million in sales. President John Argitis had some sleepless nights before agreeing to give it a try. "This has changed our whole way of doing business, but I never thought it would work this well," he now says. "Instead of spending time trying to get new accounts, we concentrate solely on servicing and pricing. You don't really sell, you look for opportunities." Over the past five years, G&F has grown 25% to 40% a year, on average, despite a depressed plastics industry. Sales were close to $15 million last year.
What G&F has in common with the other companies thriving in the new environment is its focus on adding value to what in the past was sold as a commodity. The trick is to figure out how to shape that commodity so it meets the needs of individual customers. Often, as in the case of duct-tape manufacturer Manco, that means adding on services that will reduce your customer's work load. That's also what Business Interiors, a $55-million office-furniture dealership in Irving, Tex., accomplished. Seven years ago CEO John Sample started moving beyond selling upscale office furniture to provide additional services, such as renting, refurbishing, and repairing furniture, for his recession-racked Texas clients. Sample's strategy: "Forget what we sell, let's ask customers what they want and organize ourselves around that." The strategy has paid off. J. C. Penney, based in Plano, Tex., selected Business Interiors as its 1991 supplier of the year. When the large corporation moved its headquarters to Texas, Terry Palmer, its senior project manager, used almost every service Business Interiors offered -- including its computer-aided-design system, which saved on architect's fees. How does Palmer look at the role of a supplier? "I expect support from ser-vice people, from upper management, from shipping, the whole cycle. Everyone should be trying to make J. C. Penney number one and get more of our business. That needs to come across to us."
It's not just business-to-business sales that are taking on a new look. Customers, all types of customers, expect more these days. And the switch from commodity selling to value-added selling requires a whole new understanding of those expectations. You must know much more about the problems your customers are trying to solve, and be creative in figuring out how your product or service can help them achieve their goals.
Some of the companies that have been most successful in value-added selling have turned to it to get out of a rut. Fletcher Music Centers Inc., in Clearwater, Fla., used to sell keyboard instruments. Period. Today it does all it can to meet the musical, physical, and social needs of its primary customers, retirees. Since 1986 president John Riley has reworked every aspect of customer service -- from designing Fletcher's own home organ (with oversize print and controls) to making free group lessons a social event. In recent years sales have more than doubled, to $22 million, despite a long decline in the organ market.
Inevitably, if you haven't yet started down the value-added road, you will. And if it's any comfort, you should know that there's no one way to make the transition. But while the solutions vary, the challenges each company faces along the way are remarkably similar. Value-added selling, says Tom Corbo of Manco, "requires teamwork, a different kind of salesperson, and investing the time where it's worth it." Here, then, are some of the issues you'll need to address as you move into the new selling environment. Be warned ahead of time: the transition involves much more than adjusting your sales techniques. Before it's over, you may find yourself forced to reexamine your entire operation.* * *
The switch to value-added selling will take more of your time -- and more of your managers' time -- than you may be ready for. In the early days and months, you'll want to hit the road, asking clients what they do and don't like about your company, asking them for a wish list of sorts.
Some companies involve their customers much more intensely in the planning stages. Delta Dental Plan of Massachusetts, an insurance company in Medford, Mass., convened a "customer-partnership committee" in 1986, soon after the company had spun off from Blue Cross and Blue Shield. The committee members, some from big-name companies such as Polaroid and Gillette, talked candidly about their concerns. "It definitely gives customers a buy-in," says Delta senior vice-president Tom Raffio. Later the committee (which now includes a rotating group of 20 customers that meets quarterly) played a big role in crafting Delta's cash-back service guarantee, the company's best tool for bringing in and satisfying new customers. With Delta's revenues now at $109 million, Raffio gives much of the credit to its customers: "Certain customers drove us to new heights that made the service guarantee possible."
Manco also turned to customers. As a small distributor of duct tape, it volunteered to be a guinea pig for the new systems being tried out by retailers such as Wal-Mart and K mart. "If you sell to the best customers in the world, they're going to be the most demanding. So rather than get dragged along, screaming, into the 21st century, we volunteered to be first," says Tom Corbo.
Even long into the transition, prospective customers are likely to request that you and other managers be part of the team making major presentations. You'll be selling to people higher up in the organization, and it will take longer to work out the details of the value-added sale. Executives tell us the new selling is more challenging but more fun, too. Nevertheless, it takes time, on top of everything else you're trying to do. And it creates tension. "The stress," as one entrepreneur sums it up, "comes from not knowing how it's going to turn out."
The other huge demand on your time will be educating employees. To succeed in the new sales environment, your entire company -- from the accounting department to the person who answers the phone -- must be organized to serve your customers. John Riley of Fletcher Music Centers estimates that as he was getting his new program off the ground, he spent roughly a third of his day on some detail of getting the company focused on the new approach to its retiree customers. His first goal was to get the regional managers to buy in and spread the word to the retail stores. "I had to keep the message in front of them however I could, on the phone and in person." At the same time, Riley was introducing the idea to the rest of the company through employee focus groups and monthly sales meetings open to all employees.
Tom Pechacek, general manager of Displaymasters Inc., a $10-million trade-show-exhibit manufacturer in Minneapolis, was doing fine in sales but still decided to redefine the company's product two years ago. He created teams of employees to work with customers, allowing the company to take on more complex projects and to take over for downsizing customers. In hindsight, Pechacek says he would have spent even more time with employees than he did.
"If I had to do it over again," he says, "I would have talked more about the need to do this, and educated every-one more on why. I would have shared more of what I was reading up front instead of along the way." Displaymasters did companywide workshops, including a two-day seminar on what it means to be customer driven.
Back in 1987 Argitis of G&F Industries, the molder of plastics parts, knew that if he could get his five production supervisors excited about the new way of working with Bose, the spirit would spread among the 75 employees on the shop floor. So rather than spending time with all his employees, he concentrated on the supervisors. And it worked. Argitis says it took about a year to demonstrate that you can change the relationship between customer and vendor. But then the momentum fed off itself, he says. Workers were ready when G&F set up similar exclusive contracts with two other key customers. G&F is up to 200 employees today, and, Argitis says, "everyone knows the prime customer partnerships we have."* * *
As your role changes you can be sure your salespeople will need to work differently, too. Clients aren't interested in a round of golf anymore; they're concentrating on survival. Since the selling cycle is longer and presentations are made higher up in the chain of command, the person making the sale has to be comfortable conversing with CEOs. And, increasingly, selling to the big accounts is not about overcoming objections or about closing techniques. It's about having the gumption to ask the sensitive questions that will reveal opportunities for your company.
The salesperson as Lone Ranger is becoming something of an anachronism. The new salesperson has to have the smarts -- and the humility -- to know when to call on resources back at headquarters. But for most salespeople that is not an easy role to take on. As John Sample of Business Interiors explains it: "Salespeople, especially successful ones, are entrepreneurs. And they are used to doing things on their own and having control of what they do, and they like to look at a job from start to finish. And all of a sudden we're saying, Look, your job is to bring the business in, and this person's job is to make sure it's specified properly, and this person's job is to make sure it gets entered and acknowledged correctly, and this person makes sure it gets installed."
For companies that have treated their sales reps as sole providers, it's a major shift in thinking, the corporate equivalent of becoming a two-wage-earner household. "The salesperson doesn't have all the answers," says Manco's Tom Corbo, "and is foolish to pretend to. Now the partnership is with the whole company. You're judged by the brainpower you bring." In Manco's case, since superstores are competing with it in efficiency and logistics, the company includes people from information systems and operations in its sales presentations. The talents of 20 people might go into any one presentation.
With rare exceptions, companies switching to value-added sales are improvising on ways to promote team selling. Some have set up loosely defined teams, made up of salespeople and a limited number of key players outside sales who have generally agreed to make themselves available for important presentations. At the other extreme, some companies have assigned just about every employee to a sales or sales-support team. Business Interiors, the office-furniture dealer, has six sales teams and four support teams. Included on the sales teams are employees from different parts of the company, such as project managers and order-services people.
CEOs are trying out a variety of ways to bring salespeople closer to the rest of the company, and the rest of the company closer to customers. Manco brought its far-flung sales force permanently back to headquarters. The 11 salespeople now drive or fly out to meet clients. An extreme measure? Perhaps. But Corbo found that when reps were out of the loop of what Manco was trying to teach back at headquarters, some made bad decisions, such as loading retail customers with too much inventory. Plus, he says, "there was rapid change going on, new products, new customers, and a lot of learning. Having reps out in territories didn't work."
At Robinson Brick Co., a $14-million family-held manufacturer of residential brick, in Denver, salespeople must take one employee a month into the field. Robinson broke out of the commodity business by offering such unexpected extras as 68 colors, state-of-the-art delivery technology that makes same-day delivery possible, and responsive field service. ("A lot of competitors still think they're selling just bricks," says CEO George Robinson. "We hope they keep thinking that way.") As the company increased its customer base from 15 brick distributors in 1987 to 115 in 1992, Robinson started a distributor training school that employees also can attend. Since 1987 about 100 of 170 workers have been through the school.* * *
Compensation is an issue that no CEO has been able to ignore as roles shift within a company. And, so far as we've been able to tell, no CEO (or consultant) has the answer to compensation, because of all the variables -- the industry, the company culture, the type of salesperson, the customer mix, the role of service and support people, and so on.
There's an almost staggering range of options in thinking about how to compensate salespeople. Do you tie incentives to individual product margins? The gross margin of the sale? The size of a long-term contract? The mix of products? Number of new accounts? Number of presentations? Number of customers retained? Customer-survey results? Team goals? Regional goals? Companywide goals? Many companies are mixing and matching to suit their individual needs.
Some companies have switched to all commissions for salespeople and have set up a customer-service point system to determine commission rates and bonuses. Others have dropped individual commissions and quotas altogether, preferring to pay straight salaries and a bonus on the profits. Still others use a combination of commissions based on gross margins, and a series of bonuses tied to individual and corporate goals.
Once teams begin selling and employees who never leave the premises commit themselves to customers, the issue of fair compensation gets very murky. How a company compensates the people who service and support key accounts is an area that's ripe for overhaul. Many CEOs admit they underpay in this area simply because service people in general across many industries are paid less than salespeople. Still, owners who believe everyone in the company helps that company's sales are finding ways (monetary and otherwise) to reward everyone when customer-related goals are achieved.
Those companies recognize a variety of employees for their part in adding value for customers. Fletcher Music selects two employees of the month for customer service -- one from sales, one from support (including administration, service, and delivery). Winners get $250 and their name on a company plaque. Recognizing "all levels of customer-service achievement," says John Riley, helps foster goodwill between sales and support. It also rewards salespeople "in front of their peers for something other than selling."
At Business Interiors, the entire sales team is rewarded when it hits certain profitability levels. "It's like an instant reward. If they hit it today, then tomorrow they'll be rewarded," says John Sample. "There are multiple levels to it, and there's an ultimate goal for team performance and profitability. You still have to make sure there are individual rewards for the salespeople who are actually selling, causing the stuff to happen. But you want everybody to feel as if they're part of the sale, because they are. So you reward them on the success of the team."
At Robinson Brick, a part of every employee's performance bonus is based on the bottom line and on customer-survey responses. Some companies up the ante by also subtracting points for customer complaints.
Whatever your approach to compensation, you can be sure that if you radically change the way salespeople and the rest of the company work, something's got to give. When John Sample switched to a team-selling approach, he soon faced a bevy of hard questions, including, How do you measure different people's worth? His reply: "I use the analogy of a boat. You've got somebody steering and somebody running the engine and somebody bailing. Most of the time the bailing might not be the most important job. But if the boat fills up and is ready to sink, that becomes the most important job." Sample spent a lot of time talking to his teams about what they felt was fair. The company conducted a wage-and-salary survey, which has become an annual event. Sample also asked his sales teams to submit proposals on how and how much they'd like to be paid. "We weren't real far apart when we finally did that. It was my biggest concern, but it was really one of the smallest problems when it got down to it."
Rest assured you won't get it all right the first time. Delta Dental has tweaked its compensation yearly since it changed the way it does business. CEO Bob Hunter won't pretend his salespeople look forward to it but says they accept change "when they understand and participate in goal setting." Today Delta's four salespeople are charged with opening doors; they're paid a small base salary, plus various commissions tied to regional goals for new accounts, a group goal for adequate rates, and overall corporate goals. By contrast, the five account executives, who take over the accounts from the sales force, are compensated for maintaining existing business. Their base salaries are higher than the salespeople's, and they are eligible for three possible bonuses: for retention, profitability, and overall corporate goals. The profitability bonus is linked to how well the account execs work with the underwriting team to determine rates adequate for the claims.* * *
There's no way around it. When you start to change your relationship with customers, you're going to get some mixed signals. CEOs even use contradictory words to describe the experience: "joyful burden"; "exciting but painful"; "evergreen sales but not all roses." While many companies say they evolved into this higher form of selling, don't expect it to feel all natural. At times it will feel anything but. Here's what you may find:
You're likely to experience a sales dip even as margins rise, for several reasons. Often "better" sales take more time because you're selling higher up and to more people in a potential client's organization than before. (But as several CEOs point out, the longer a prospect "lets you stay," the greater your chances of getting and keeping the customer.)
When John Sample changed the compensation system at Business Interiors, there was a three-month phase-in, during which salespeople underwent training and retraining. "We took a hit in pay and some sales. Anytime you make a change like that, you've got to be willing to take the hit," he says.
Sales also took a dive at Fletcher Music Centers when the company lost about a dozen key salespeople. Those who left couldn't understand the new emphasis on service and couldn't accept the company's getting out of commodity-type sales. "They thought we were crazy," says John Riley. "In an organization like ours, in our industry, that was a very big hit. Back then, we were like everyone else; 80% of sales came from 20% of the people."
Riley wasn't alone in losing employees. Some can't or won't do business the new way. Just about all the companies featured in this story lost at least a few employees during the transition. Displaymasters was one of the fortunate exceptions. Still, Pechacek, the general manager, concedes it took a good six to eight months before everyone started getting comfortable in the new environment. "For those of us who've been around a long time, it's been difficult to change," says Displaymasters salesperson Judy Okerstrom, who's been with the company for 10 years.
The best companies have worked hard to come up with a fair program of evaluations, retraining, counseling, peer reviews, and, when all else fails, outplacement help. Most CEOs say it's critical to distinguish between those employees who can't accept change on any terms and those who haven't been given the tools to succeed.
We wish we could say this new way of working with customers will always bring you better prices and more customers. It won't. And you may not want it to. If, like Manco and G&F, you head toward doing more business with fewer customers, your increased efficiency means you can even offer key customers a lower price. And the more business your big customers give you, the more you can afford to be very competitive on price. Higher volume, greater efficiency, and lower selling costs, for example, have combined to push G&F's profits up even as its prices have stayed the same or dropped a bit over eight years.
Also, tailoring products to individual customers' needs can be tough on cash flow, at least in the beginning. You'll feel the effects of the longer selling cycle. And meeting customers' needs today may call for an investment in people, training, and systems that can eat into cash reserves. Manco found that to reduce customers' costs, it had to increase some of its own. When it began managing its inventory for big customers, that meant keeping more inventory on hand and shipping smaller orders. It also meant investing in people and computer systems. None of that is great for cash flow.* * *
You may get many mixed signals in the process of changing the way you sell, but it won't take long to see results. The evidence will be all around you. Customers will quickly take note of the change and become your most vocal supporters. Displaymasters recently received a letter from a large client that credited the entire company for the client's success at a major trade show. The letter begins:
Displaymasters is a first-class operation. That became evident from the moment we began discussing the project, to when you made your proposal. The "teamwork approach" may be new to the exhibit industry, but it is definitely apparent that this trend is the only way to go. Nothing could be more "customer-friendly" and productive, to both employees of Displaymasters and clients alike. . . .* * *
Of course, glowing customer feedback is the stuff that repeat and word-of-mouth sales are made of. Nearly all the CEOs interviewed said they've reduced selling-and-marketing costs by working so much more closely with customers. And one of the best feelings, John Argitis says, is when customers call. It's no longer the old refrain: "Uh-oh, it's the customer calling -- what's wrong now?"
Employees take pride in a job well done and enjoy working for companies dedicated to customers. Judy Okerstrom, the Displaymasters salesperson who talked about the difficulty of changing roles, now sings a different tune. "It's like a breath of fresh air," she says. "I am accountable. We all feel a real responsibility to each other with the team concept." Riley of Fletcher Music says he even gets good comments in exit interviews.
Finally, you should know that no matter how topsy-turvy things get, the investment you make now will pay off many times over. When more employees start thinking about (and eventually taking responsibility for) customers' needs, it takes the weight off you. CEOs who've taken their companies down this road say it's their managers and employees who now suggest how to organize work to better serve their customers. And the effort never ends. "It was probably the start of our quality process," says John Sample of Business Interiors, "even though we wouldn't have called it that eight years ago."
READINGS TO SELL BY
SPIN Selling, by Neil Rackham (McGraw-Hill, 1988, $22.95). Companies small and large use this book in sales training. "It's selling the way you ought to be doing it," says John Sample of Business Interiors. Offers strategies for making the high-ticket sale, based on extensive research into why salespeople succeed or fail. ("SPIN" is an acronym for "situation, problem, implication, need-payoff.")
Value-added Sales Management, by Tom Reilly (Contemporary Books, 1993, $9.95). A handy primer on what it means to sell on value rather than price. Includes basic questions to get you brainstorming. Gives practical tips on how to rally your sales force, including a chapter on motivating the person who's reached a sales plateau.
Customers for Life, by Carl Sewell and Paul Brown (Doubleday, 1990, $10). The book for customer-respecting CEOs. If a Texas car dealership can do it . . .
The Virtual Corporation, by William Davidow and Michael Malone (HarperCollins, 1992, $23). A richly annotated look at how the best companies are structuring themselves around "customer control." There's great stuff in chapters like "A New Kind of Worker" (learning to learn, teamwork) and "Spreading the Word" (value marketing). On Manco president Tom Corbo's reading list.
New Benchmarks for Worldclass Sales Success (The H. R. Chally Group, 1992, $5; send fax orders to the attention of Customer Services, 513-299-0630; or call 513-299-1255). Large companies are dealing with the same issues you are; there's proof in this 20-page booklet. More than 60 top sales and marketing executives reflect on the challenges of selling in the global 1990s. Nucor Corp.'s John Correnti sets the tone: "Good American sales companies see the customer as king. The Japanese see the customer as 'God.' "
The Great Game of Business, by Jack Stack (Doubleday Currency, 1992, $24). Stack, CEO of Springfield Remanufacturing, is one of the few who have put all the pieces together -- from setting goals based on open-book management, to bonus plans, cost accounting, and employee ownership. It's all here, told in lively, no-holds-barred fashion.