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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Where Clients See Value 98765432101 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

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

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

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

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

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

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

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

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

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

Three Sales Model Milestones 1975 - 1985 Consultative Selling Models July 1925 E K Strong’s Psychology of Selling Circa 1890 The Producer / Collector split ©2011 Neil Rackham

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

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

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

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

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

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

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

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

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

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

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

S B A O F L E D SAFE or BOLD? S B A O F L E D mall Scale ig chievable 1 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