1. Some Difficult Issues in Selling Today
Neil Rackham
Milano
June 22nd, 2011
©2011 Neil Rackham
©2009 Neil Rackham 1

2. Seven Nasty Issues The end of the better mousetrap model
The death of f-t-f transactional selling
The unsustainable hybrid sales force
The ever-extending sales cycle
The decline of RFP selling
Skyrocketing costs of chasing an opportunity
The need for new selling models
©2011 Neil Rackham

3. What’s Happening in the USA
Unique
Products/Services
Substitutable
Products/Services 10 9 8 7 6 5 4 3 2 1
6.4
3 years ago 10 9 8 7 6 5 4 3 2 1
4.5
Today 10 9 8 7 6 5 4 3 2 1
3.7
In 3 years
SSI Data: 47 corporations
773 sales executives
©2009 Neil Rackham 3

4. Horrid rumors
The average company has more than twice as many competitors as it had five years ago.
Customers today can access more than 20 times as much data on competition than they could five years ago.
©2011 Neil Rackham

5. What does decreasing differentiation mean for the way we sell?
Station Break
What does decreasing differentiation mean for the way we sell?
©2011 Neil Rackham 5

6. The Better Mousetrap Business Model
Create a mousetrap that is unique or highly differentiated
The value lies
in the mousetrap
The role of sales is to communicate the value of our mousetrap
So sales is value communication
©2009 Neil Rackham

7. The Alternative Business Model
Our mousetrap is one of many ways to kill mice
There’s not enough value in the mousetrap to differentiate us from competition
So the role of sales is to add value to our mousetrap
Sales becomes value creation, not value communication
©2009 Neil Rackham

8. Seven Nasty Issues The death of f-t-f transactional selling
The end of the better mousetrap model
The death of f-t-f transactional selling
The unsustainable hybrid sales force
The ever-extending sales cycle
The decline of RFP selling
Skyrocketing costs of chasing an opportunity
The need for new selling models
©2011 Neil Rackham

9. Two Customer Value Types
Value = Benefits – Cost
Consultative customers
Transactional customers
Have a problem
Value your time
Buy on expertise and trust
Know what they want
Treat you as a commodity
Buy on price and convenience
©2010 Neil Rackham 9

10. Most customers would pay a little extra for some advice
Three to Five Years Ago
10% were consultative
10% were transactional $
Most customers would pay a little extra for some advice
TRANSACTIONAL
CONSULTATIVE
Cost focus
Convenience decision
Don’t want to meet
Advice focus
Expertise decision
Want meetings
©2010 Neil Rackham

11. The middle is going away.
Customers Today
More want deeper consultative relationships
More clients buy transactionally $
TRANSACTIONAL
CONSULTATIVE
Cost focus
Convenience Decision
Don’t want to meet
Advice focus
Expertise decision
Want meetings
The middle is going away.
©2010 Neil Rackham

12. The Transactional Problem
A face-to-face transactional sales force costs too much in a market that, by definition, buys on cost.
Transactional customers don’t want and don’t need face-to-face salespeople.
The talking brochure is cumbersome, costly and inconvenient.
More than one third of the average sales force are talking brochures.
©2009 Neil Rackham

13. Seven Nasty Issues The unsustainable hybrid sales force
The end of the better mousetrap model
The death of f-t-f transactional selling
The unsustainable hybrid sales force
The ever-extending sales cycle
The decline of RFP selling
Skyrocketing costs of chasing an opportunity
The need for new selling models
©2011 Neil Rackham

14. Station Break
Most sales forces have hybrid salespeople who pursue both transactional and consultative business. Does it work?
©2010 Neil Rackham 14

15. Mixing Transactional and Consultative:
A Great Truth
No sales force can be effective if the same salespeople are chasing a mixture of Transactional and Consultative opportunities.
©2010 Neil Rackham

16. Why Transactional and Consultative Don’t Mix:
Economic Reason
Any salesperson who is talented enough to make Consultative sales is too expensive to use for Transactional opportunities where customers don’t want, don’t need and won’t pay for high-level sales talent.
©2010 Neil Rackham

17. Why Transactional and Consultative Don’t Mix: Psychological Reasons
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.
©2010 Neil Rackham

18. A Case to Show it Works
Oracle’s sales force sold database products [transactional] and applications [consultative].
Predictably, sales of database products were good; sales of applications were failing.
Despite initial sales force opposition, Oracle took database sales away from the sales force and sold them through Oracle store, telesales and internet.
Sales of applications rose dramatically, database sales remained at the same level with lower cost of sales.
©2010 Neil Rackham

19. Seven Nasty Issues The ever-extending sales cycle
The end of the better mousetrap model
The death of f-t-f transactional selling
The unsustainable hybrid sales force
The ever-extending sales cycle
The decline of RFP selling
Skyrocketing costs of chasing an opportunity
The need for new selling models
©2011 Neil Rackham

20. Why are selling cycles getting longer?
Station Break
Why are selling cycles getting longer?
©2010 Neil Rackham 20

21. Why Cycles are Getting Longer
More complex product / service offerings.
More customers involved in the decision.
The need to invest earlier in the cycle [the end of RFP selling]
Customers expect much more from the sales process.
Customized solutions.
©2009 Neil Rackham

22. The Customer Decision Process
Recognition
Of Needs
Negotiation Of
Terms
Evaluation Of
Options
Resolution Of
Concerns
Earlier entry
is essential for success
By the time the RFP is issued:
your value creation opportunity is limited
80% of the decision has already been made
RFP
©2010 Neil Rackham 22

23. Another Changing Business Model
The OLD Model . . .
PRE-CONTRACT
POST-CONTRACT
Understanding & scoping the problem
Developing the solution
Delivering the solution
©2009 Neil Rackham 23

24. Another Changing Business Model
. . . the NEW Model
PRE-CONTRACT
POST-CONTRACT
Understanding & scoping the problem
Developing the solution
Delivering the solution
©2010 Neil Rackham 24

25. Station Break
With selling cycles starting earlier, extending longer and involving more people, how much does it cost to pursue a typical complex sales opportunity today?
©2010 Neil Rackham 25

26. Seven Nasty Issues Skyrocketing costs of chasing an opportunity
The end of the better mousetrap model
The death of f-t-f transactional selling
The unsustainable hybrid sales force
The ever-extending sales cycle
The decline of RFP selling
Skyrocketing costs of chasing an opportunity
The need for new selling models
©2011 Neil Rackham

27. Sales Costs: some facts
It costs IBM Global Services an average of $480,000 to pursue each opportunity.
The “Big 4” accountants spend upwards of a million to try to get an audit.
Very few companies know what it costs them to chase an opportunity.
©2009 Neil Rackham

28. So what can organizations do to control these skyrocketing costs?
Station Break
So what can organizations do to control these skyrocketing costs?
©2010 Neil Rackham 28

29. Five practical suggestions
Over-resource the best opportunities
Take opportunity selection out of the hands of salespeople
Involve marketing and marketing tools in opportunity selection
Push transactional opportunities to cheaper channels
Upgrade the consultative selling effort 29

30. More nasty thoughts
What if we don’t create the kind of value the customer wants?
Or worse, what if we create expensive value and – once we’ve solved the problem – the customer goes to a cheaper competitor?
©2009 Neil Rackham

31. What is Value? Value = Benefits – Cost
Value is something the customer is prepared to pay for
©2009 Neil Rackham 31

32. 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?”
©2009 Neil Rackham

33. Where Clients See Value
Change of strategic direction
Problem solving & customized solutions
Client advocate
Time-stamped info on industry/competition
Talking brochure: negative value added
©2009 Neil Rackham 33

34. Station Break This was a general study of business-to-business buyers.
Do professional services clients see advisors’ value in the same way?
©2009 Neil Rackham 34

35. How do Advisors Create Value?*
Objective/challenging point of view
4.8
Useful frameworks to see problems clearly
4.6
Play trusted advisor/counselor role
4.5
Bring new ideas
4.3
Solve problems we’re not equipped to deal with
4.1
Help spot trends
4.0
Bring approaches from other industries/companies
3.9
Prevent re-inventing the wheel
3.9
Dedicated resources without ‘run the business’ pressure
3.5
©2009 Neil Rackham
* Adapted from John DeVincentis BAH study

36. How much of the value we create happens before the contract is signed?
Station Break
How much of the value we create happens before the contract is signed?
©2009 Neil Rackham 36

37. Before? During? After? . . . All 3?
Objective/challenging point of view
Useful frameworks to see problems clearly
Play trusted advisor/counselor
role
Bring new ideas
Solve problems we’re not
equipped to deal with
Help spot trends
Bring approaches from other industries/companies
Prevent re-inventing the wheel
Dedicated resources without
‘run the business’ pressure
©2009 Neil Rackham 37

38. Where We Create Client Value
BEFORE
DURING
AFTER
A significant amount of the value we create occurs before the contract is signed
It’s unpaid and clients increasingly expect it
It’s costly [IBM Global Services spends $480,000 on each opportunity]
It’s risky when low cost competitors can undercut us on solutions and approaches we’ve created during the sales process
©2009 Neil Rackham 38

39. Station Break
How do we avoid the value trap of aiding competitors by creating expensive value for clients who then don’t contract with us?
©2009 Neil Rackham 39

40. Three Ways to Avoid the Value Trap
Better opportunity selection
Up-front and frank value discussion
Trust-based
relationships
©2009 Neil Rackham

41. How could they do better?
Station Break
How effective are most companies at selecting which sales opportunities to invest in?
How could they do better?
©2009 Neil Rackham 41

42. Seven Nasty Issues The need for new selling models
The end of the better mousetrap model
The death of f-t-f transactional selling
The unsustainable hybrid sales force
The ever-extending sales cycle
The decline of RFP selling
Skyrocketing costs of chasing an opportunity
The need for new selling models
©2011 Neil Rackham

43. Three Sales Model Milestones
Consultative Selling Models
July 1925
E K Strong’s Psychology of Selling
Circa 1890
The Producer / Collector split
©2011 Neil Rackham

44. What’s New in 35 Years?
So what kind of research do we need to reach the next milestone?
©2011 Neil Rackham

45. Five Profiles for Sales Performance*
Challenger
Lone Wolf
Problem Solver
Relationship Builder
Hard Worker
©2011 Neil Rackham
*Source: Integrated Sales Executive Council 2009 45

46. Comparing High Performers with Core Performers*
“Relationship Builders”
Build strong client advocates
Help others
Give time freely
Get along with all
26% 7%
39%
23%
“Challenger”
Different view of world
Business understanding
Love debate
Push clients
©2009 Neil Rackham
*Source: Integrated Sales Executive Council 2009 46

47. Performance and Complexity of Sale*4%
54%
Relationship Builders
Challengers
HIGH Complexity
Low Complexity
20%
11%
Relationship Builders
Challengers
Percentage of High Performers
©2009 Neil Rackham
*Source: Integrated Sales Executive Council 2009 47

48. Most Important Challenger Skills*
Comfortable discussing fees
Offers unique perspective
Can identify economic drivers
Two-way communication skills
Knows client value drivers
Prepared to
push/pressure client
©2011 Neil Rackham
*Source: Integrated Sales Executive Council 2009 48

49. Why Challenge Matters
Without challenge, we slide lower down the customer organization and become less important to the client agenda.
Without challenge, the customer’s perception of us narrows, so our capabilities are seen as increasingly limited.
Without challenge, we are consulted later in the client’s decision process, when ideas have already been defined by competitors.
©2011 Neil Rackham 49

50. The “Big Four” of Challenge
Challenge starts with ideas that are:
BIG – more comprehensive and further reaching than ordinary ideas.
RISKY – both ourselves and our client are taking a bigger risk.
INNOVATIVE – pushing the envelope with new, often untested and unique approaches.
DIFFICULT – hard to implement because of scale, uncertainty or politics.
©2009 Neil Rackham 50

51. Small Big The “BIG 4”: 1 SIZE 1 2 3 4 5 6 7 8 9 10 Bite-sized
Large-scale
Organization wide
Contained
Short-term
Extended timeframes
©2011 Neil Rackham 51

52. Outperforming Achievable The “BIG 4”: 2 RISK 1 2 3 4 5 6 7 8 9 10
Familiar
Unknown
Ambitious
Modest
Low-risk
High-risk
©2011 Neil Rackham 52

53. The “BIG 4”: 3 INNOVATIVENESS
Following
Leading-edge 1 2 3 4 5 6 7 8 9 10
Responsive
Proactive
New/untested methods
Tested methods
“Me-too”
Unique
©2011 Neil Rackham 53

54. E D The “BIG 4”: 4 DIFFICULTY Difficulty asy ifficult “In your sleep”1 2 3 4 5 6 7 8 9 10
“In your sleep”
Significant stretch
Assured outcome
Uncertain outcome
Confident team/client
Apprehensive team/client
©2011 Neil Rackham

55. S B A O F L E D SAFE or BOLD? S B A O F L E D mall Scale ig chievable1 2 3 4 5 6 7 8 9 10
chievable
Risk ut
performing 1 2 3 4 5 6 7 8 9 10
ollowing
Innovativeness
eading-
edge 1 2 3 4 5 6 7 8 9 10
asy
Difficulty
ifficult 1 2 3 4 5 6 7 8 9 10
©2011 Neil Rackham