Selling Value: Increasing Customer Retention and Profitability

SELLING VALUE: INCREASING CUSTOMER RETENTION AND PROFITABILITY E-book Realize Your Potential SELLING VALUE: INCREASING CUSTOMER RETENTION AND PROFITABILITY 1 Contents Retaining Your Customers When Competitors Are At Your Door .............. 2 What Causes New Competitive Challenges To Arise?............................ 3 5 Tips For Winning At Higher Prices While Retaining Customers ............. 5 Differentiating Your Sales Offers In A Rapidly Changing Market ............. 6 Making The Case For Sales Effectiveness Technology ............................ 8 Developing Your Customer Retention Strategy ....................................... 9 Adapting To Changing Customer Needs .............................................. 11 Conclusion: Technology’s Role In Customer Retention ............................ 13 SELLING VALUE: INCREASING CUSTOMER RETENTION AND PROFITABILITY 2 RETAINING YOUR CUSTOMERS WHEN COMPETITORS ARE AT YOUR DOOR When the latest order arrives from a long-standing customer, it looks a little light — don’t they usually order 20 units instead of 15? Come to think of it, they also usually place their order at the beginning of the month, but this one arrived on the 15th. What’s going on? Could there be some problem with your sales effectiveness? You look up the account to review the last few purchase orders from the customer. Yes, they used to order 20 units, but that number has been slowly declining over the past six months. And it looks like they’ve dropped a couple of the add-on products they used to buy from you every month. Picking up the phone, you call the customer to see what’s causing these changes. Your usual contact can’t be reached, so you leave a voicemail. Later, you leave another message. A week goes by. Eventually, your contact calls you back, and explains that they’ve decided to move to a dual-source supplier relationship. In other words, you’ve slowly been losing business to another supplier for months. You get that anxious feeling in the pit of your stomach: What other accounts could this competitor be pulling away from you? This kind of slow erosion over time is one of the signs that you’re losing business to a competitor. First, you see subtle changes in buying behavior, and then changes in attitude. Your customer may be less responsive to phone calls and stop including you in conversations and strategic discussions around their company’s future direction. And once the customer moves to a dual-source supplier relationship, it indicates they may see risk with you as their supplier. The other warning sign to watch for is an event catalyst, a change that’s pushing your customer into a new business relationship. A variety of changes in your customer’s business could become event catalysts, such as changes in personnel or senior management. The new people probably have their own way of doing business and will try to recreate their preferences in this new environment. SUMMARY Slow erosion over time is a sign that you’re losing business to a competitor. You need to plan your attack and fight for your customers. SELLING VALUE: INCREASING CUSTOMER RETENTION AND PROFITABILITY 3 Mergers and acquisitions are also event catalysts. If you supply the company that gets purchased, but not the firm that acquired them, there’s a good chance you could lose that business when the firm makes changes in direction. It also happens to you. Should you get acquired, competitors see that event as a great opportunity to swarm your customers. Another change to watch for is when your customer introduces a new product or goes after a new market. They’re likely to need different types of products, opening the door to competitors. Your customer may bring in new suppliers for the new venture, and those suppliers are going to do their best to expand, targeting your existing business. Whether you’re dealing with slow erosion or an event catalyst, it’s time to plan your attack and fight for your customers. Through differentiating your products and services in the sales process, implementing a customer retention strategy and learning to adapt quickly to changing customer needs, you’ll develop the necessary agility and skills to fend off competitors and grow your business. WHAT CAUSES NEW COMPETITIVE CHALLENGES TO ARISE? Before developing strategies for customer retention, let’s take a step back and get a broad sense of what causes new competitive challenges to arise in your market. While slow erosion and new management are customer-driven changes, there are also five major competition drivers to consider at the market level: 1 Redefined strategic direction: Your customers need to periodically adapt and change direction to stay relevant in their own markets, just like you. When they change direction by introducing a new product or business model, they also look for new business opportunities and better ways to run the organization. These changes could introduce competitive challenges in your marketplace. 2 Deregulation and rule changes: If you’re selling to highly regulated industries and sectors, changes in their regulations could make it easier for other suppliers to compete with you. In general, deregulation tends to increase competition by eliminating rules about who is allowed to supply your customer. Through differentiating your products and services in the sales process, implementing a customer retention strategy and learning to adapt quickly to changing customer needs, you’ll develop the necessary agility and skills to fend off competitors and grow your business. SELLING VALUE: INCREASING CUSTOMER RETENTION AND PROFITABILITY 4 People have different opinions about the virtue of deregulation — for example, banking deregulation in financial markets — but it does happen periodically, and tends to open the door to competition. 3 Globalization: In our increasingly global economy, companies face much lower barriers when entering new markets. This gives rise to new competitive challenges, especially in a large market like the United States, as international companies compete to gain a foothold. It also means companies that offer localized solutions have greater opportunity to enter new markets. Everyone wants to gain a foothold in developing markets to take advantage of their growth, often resulting in severe competition. 4 Expansion in your target markets: When the particular areas your company services undergo vertical and horizontal integration, these changes drive growth requirements and could introduce competitive challenges. For example, as consumer electronics manufacturers branch into offering services, they create competition to supply the services delivery business. 5 New technology: Breakthroughs in hardware, processes and conceptual models (such as cloud computing) have the potential to be highly disruptive, and the rate that technology advances is accelerating. New technology is clearly a driver of competitive challenges: It changes the playing field and the rules, and gives the advantage to nimble competitors on the cutting edge. When these competitive challenges arise, they change your market — often quite rapidly, especially when there’s new disruptive technology. To stay competitive when your market is rapidly evolving, it’s important to review your company’s strategy for differentiating your sales offers and adjust as necessary. To stay competitive when your market is rapidly evolving, it’s important to review your company’s strategy for differentiating your sales offers and adjust as necessary. SELLING VALUE: INCREASING CUSTOMER RETENTION AND PROFITABILITY 5 5 TIPS FOR WINNING AT HIGHER PRICES WHILE RETAINING CUSTOMERS To retain your best customers, some might assume that you have to slash prices and accept a lower profit margin — whatever it takes to keep them happy. But that’s not necessarily true. Some of the same practices that help with retention also result in happy customers with a willingness to pay for the quality experience you offer. Here are five tips for customer retention and winning at higher prices: 1 Know your product: The foundation of discount discipline is having sales reps that know your products. But many sales organizations provide only minimal product training before they send reps out to start selling. Especially if you have a large product portfolio, you should consider in-depth training and sales guidance tools, such as a configure, price, quote (CPQ) solution. 2 Know what’s important to your customer: The usual phrase people use is “know thy customer.” But that’s too general. Your sales organization needs to know what your customer thinks is important, such as their current top initiatives, what they’re focused on right now and how they get measured on performance. 3 Match product value to customer priorities: When reps know your product well and what’s important to your customer, it helps them create value-oriented sales offers that align with customer needs. But if they don’t know the product and its value, they can’t have effective conversations focused on what’s important to the customer. 4 Replace intuition with a scientific pricing strategy: Instead of sales reps making pricing decisions based on their gut feeling, use hard data to generate prices that win. The pricing technology in a CPQ solution needs to be sophisticated enough to analyze a big data set and deliver data-driven pricing guidance. 5 Think about the big picture, not just transactions: The basics of winning opportunities is having your reps present your products and the value it brings to solve what’s important to your customer. But there might be more to the opportunity if you look at the big picture and start asking questions. Perhaps the customer is looking to improve how they manage inventory and supply, support and service. Challenge conventional thinking to find unique opportunities to add value. When you demonstrate product expertise and find additional ways to add value around your product and your relationship, you’re making a meaningful impact for your customers, helping you to retain their business and capture the real value your solution provides. SELLING VALUE: INCREASING CUSTOMER RETENTION AND PROFITABILITY 6 DIFFERENTIATING YOUR SALES OFFERS IN A RAPIDLY CHANGING MARKET A useful acronym for reviewing your differentiation strategy is “PELT.” It stands for three ways to set yourself apart from competitors: price, experience and (leading) technology. Price: Setting an explicit price strategy with emphasis on optimization is often a great way to differentiate your product in a rapidly changing market. In these situations, customers are reluctant to pay higher prices for a product because they know a new product is going to come out relatively soon — that’s true in both B2C and B2B sales. Low-cost airlines offer a good example of this pricing strategy. Making a strategic decision to compete on the lowest price guides their execution, affecting what airports they chose to serve and the variety of airplanes in their fleets. Using a single type of airplane reduces maintenance costs across an entire fleet, and that’s an advantage when you’re competing for the lowest price. Focusing on price is also key to building demand and moving from early adopters to more mainstream customers. Before Henry Ford used price to change the market, automobiles were relatively low-volume luxury items. Ford’s goal was to drive demand for his cars, so he focused on developing products around his pricing strategy, making sure they were affordable to a much larger group of potential customers. Additionally, with dynamic markets, your sales team needs to be armed with data-driven pricing guidance so it can negotiate from an informed position. With so many factors to consider in a B2B negotiation, pricing in these situations is not subjected to a predictable elasticity curve. As such, most B2B sales teams use little more than gut feel and experience to initiate their price negotiation. Pricing guidance gives your teams a data-driven starting point for their negotiation that is proven to increase win-rate and overall sales effectiveness. SUMMARY Price, experience and leading technology represent three ways to set yourself apart from the competition. Having a clear basis for differentiation is an effective tool for keeping competitors at bay. SELLING VALUE: INCREASING CUSTOMER RETENTION AND PROFITABILITY 7 Experience: When it comes to the customer’s experience, there are a variety of ways to differentiate your product, including speed, service, quality and customization. In the B2C space, Amazon is a great example of using a fast customer experience to differentiate. Amazon has differentiated itself as the place to order an item online and get it quickly. In B2C and B2B, plenty of companies focus on the service aspect of customer experience, such as their ability to handle rush jobs. Quality is also a way to compete in terms of customer experience, as is customization. For example, a supplier that focuses on customization offers an experience that draws in customers who value getting exactly what they want. Sales teams can play a key role in defining the experience. The ability to respond quicker than competitors and ease of doing business are examples where your sales team can drive the experience. Leading Technology: Having products with the latest and greatest capabilities is another key differentiator. When you’re providing your customer with the latest technology, it allows them in turn to differentiate their product in the same way. In a rapidly changing market, this approach leads to margin uplift. The other option is to have lagging technology. Being a fast follower can be an effective approach, especially when combined with complimentary pricing and experience strategies. The PELT acronym offers a good rule of thumb for making sure the products and services you offer stand apart from your competitors. Having a clear basis for differentiation is an effective tool for keeping competitors at bay, enabling you to adapt to changing customer needs and retaining your customers. The ability to respond quicker than competitors and ease of doing business are examples where your sales team can drive the experience. SELLING VALUE: INCREASING CUSTOMER RETENTION AND PROFITABILITY 8 MAKING THE CASE FOR SALES EFFECTIVENESS TECHNOLOGY Technology plays a major role in your sales organization’s speed and efficiency, which is especially important when it comes to retaining customers and protecting your revenue and margins from competitors. But when many sales organizations are already being asked to do more with less, how do sales leaders make the case for new technology, information and training? The key is to present a clear business argument for the additional training or new sales effectiveness technology. Here are five factors that go into a successful business case: 1 Establish clear metrics for success: State your metrics for measuring success up front, and make sure they’re linked to achieving the company’s top business goals. Explain why that success metric is important, and how the investment you’re proposing (training, technology, etc.) allows you to influence that metric. Establishing these metrics in the beginning helps your business case. 2 Be specific: Decision makers need to understand exactly how the investment you’re proposing is going to drive additional value. Provide specifics, and be prepared to show your numbers. For example, your pitch might be: “If you give me this sales effectiveness tool, I’m going to be able to give you back a 5 percent incremental revenue uplift” or “a 100 basis point improvement in our margin.” It has to be that precise. 3 Demonstrate a clear business value: In the end, the investment you’re proposing needs to help the company make more, do more or spend less. 4 Choose a meaningful timeframe: If the time to ROI is longer than 18 months, you’re facing an uphill battle. Look for ways to bring that investment timeframe down to 18 months or less. 5 Evaluate in context: In a large organization, there are plenty of ideas circulating for technology investments. It’s important to evaluate your business case in the context of those other ideas, then use your information from the prior tips to show why yours is the superior investment and should take priority. SELLING VALUE: INCREASING CUSTOMER RETENTION AND PROFITABILITY 9 DEVELOPING YOUR CUSTOMER RETENTION STRATEGY Offering the lowest price, the best service or the latest technology are all great ways to keep people coming back. But there’s much more to retaining customers in a B2B sales environment. And when new competitors are looking for any opportunity to steal your business, you can’t afford to just wait until customers call to complain. That’s why a customer retention strategy is essential. A strong customer retention strategy starts with being proactive and using analytics to alert you early to any changes in buying behavior. You also need to engage your customers with strategic conversations at the right organizational levels, and foster these relationships through frequent interactions. Being proactive is essential to retaining your most valuable customers. If you’re just reacting to situations, such as when a customer brings in a second supplier, you’ve already lost ground. The key is getting out of being a transactional supplier and becoming a trusted partner by helping them to improve and move toward their business. Instead of waiting for them to come to you with problems or ask you about new products, look for every opportunity to stay in front of your customer and drive the agenda. Pick up the phone and surprise them with ideas and offers that move the relationship in a positive direction. The question is, when you’re being proactive instead of reactive, how do you know when it’s time to start your customer retention activities? When a customer starts to look elsewhere, you need to know early so you’re able to intervene, not after six months of slow erosion. But the average sales organization doesn’t have the bandwidth to constantly watch every account for changes in buying behavior. The solution is to bring in tools that help you be proactive, such as analytics platforms that monitor customer buying behavior and send you an alert any time there’s a negative change. SUMMARY To develop a strong customer retention strategy, you must be proactive, staying in front of customers and driving the agenda. SELLING VALUE: INCREASING CUSTOMER RETENTION AND PROFITABILITY 10 Using customer analytics data with alerts and automation has a double benefit: It provides timely, factual assessments that help you be proactive in retaining accounts while also freeing up account managers to interact with customers in order to discover what’s changing their behavior and to build relationships. For your retention efforts to be successful, account managers need to engage with people at the right levels in the organization to have strategic conversations. These conversations have two advantages: First, they’re an opportunity for early warnings about changes in your customer’s business, from new strategies and expansions to rule changes or new directions that could open the door to competitors. Second, when you’re bringing new technology or products to your customer’s attention, you want to have those conversations with decision makers. The challenge is that reaching these higher-level people isn’t easy, and it takes time to build the relationships. And since these strategic conversations also don’t usually lead to immediate quota retirement, many account managers put them on the backburner. In the short term, such conversations are difficult and don’t drive sales, but in the long term they’re essential. To facilitate these connections, you may need to bring in your own senior level management and have them help build the right relationships in your customer’s organization. Once these high-level connections are made, it’s time to actively foster and develop the relationships. Here are three sales effectiveness tips for interactions that help you retain your best customers: 1 Open conversations: The goal of these customer retention interactions is to discover and deal with real problems, not to defend or try to explain away mistakes. For that to happen, people on both sides need to be comfortable with an open conversation and feel no risk in putting the real issues on the table. 2 Meaningful agendas: These conversations aren’t the appropriate forum for administrative details, and it’s important for both you and the customer to invest your time and energy in productive business pursuits. Strive for a 40/60 mix, with 40 percent of the conversation focused on what happened and 60 percent on what’s next. This ensures you’re learning from the past and identifying how to move forward together in a meaningful way. For your retention efforts to be successful, account managers need to engage with people at the right levels in the organization to have strategic conversations. SELLING VALUE: INCREASING CUSTOMER RETENTION AND PROFITABILITY 11 3 Frequent interactions: Meeting once or twice a year isn’t enough for customer retention. With general operations and business leaders, you need to connect a minimum of once per quarter to prevent amnesia from setting in. A good place to start is by conducting quarterly business reviews. These reviews give you a clear line of site into what your customer is thinking, from how they view your performance to the value you bring to their business. When you have this kind of forum to engage and gather information, you’re less likely to get blindsided by a competitor. ADAPTING TO CHANGING CUSTOMER NEEDS At this point, you should know what causes competitive challenges, you’re differentiating your products and services in the marketplace, analytics are in place to alert you of any changes in buying patterns and you’ve used this information to develop and deploy a strong customer retention strategy. Now you’re able to proactively identify changes in a customer’s buying behavior and have meaningful conversations about the problems and how to address them. That’s great — but is your sales organization able to adapt to your customers’ changing needs fast enough to prevent the competition from gaining a foothold? While sales reps want to be responsive to customers, it is challenging to deliver the numbers and have a thorough understanding of what’s next with each customer. For many salespeople, it’s not easy or natural to talk with customers about their changing needs and how to meet them. To make sure these retention activities take place, they need to be built into your sales process. Here are four ways to make adapting to customer needs a priority for your organization: SUMMARY It’s not always easy to talk with customers about their changing needs. That’s why retention activities must be built into your sales process. SELLING VALUE: INCREASING CUSTOMER RETENTION AND PROFITABILITY 12 1 Explicitly require retention conversations: It’s not enough to tell sales reps they need to understand how customers are changing in order to adapt more quickly. To drive behavior in your sales organization, you need an incentive. Make customer retention an explicit requirement for your sales process, and build it into how you evaluate rep performance, so they know it’s real. 2 Leverage customer interactions to look ahead: Inertia has set in and many discussions are about what happened in the past and analyzing the metrics from a rear-view mirror perspective. To counter that tendency, it’s a good idea to formalize the forward-looking part of these customer interactions. If a customer anticipates changes, reps need to explore how your company can help the customer move forward. If the customer is moving into a new market, for example, how could you help them attack the market or make their products more interesting? When you’re having open, meaningful and frequent interactions with a 40/60 mix of what happened and what’s next, you’re participating in your customers’ plans for the future. That allows you to align your offers to provide the greatest value both today and down the road. 3 Link your product management teams: To tie your organization into what’s driving a customer’s new direction, build connections and conversations between your product team and theirs. This creates a forum for sharing ideas and getting the energy flowing. Their product team could share how they see the marketplace and where technology is going, and yours could see how that view fits with your roadmap and where you think the business is heading. 4 Align your companies through formal executive sponsorship: In order to adapt quickly to changing customer needs, you need to join forces at the right level. Having executives involved in conversations about new strategic directions helps your organization introduce new ideas and influence new directions. Each of these steps helps you prepare for changing customer needs and adapt quickly. To get the full benefit, integrate all four within your larger customer retention strategy. When you’re having open, meaningful and frequent interactions with a 40/60 mix of what happened and what’s next, you’re participating in your customers’ plans for the future. SELLING VALUE: INCREASING CUSTOMER RETENTION AND PROFITABILITY 13 THINK OTHERS MAY BE INTERESTED? SHARE THIS E-BOOK: CONCLUSION: TECHNOLOGY’S ROLE IN CUSTOMER RETENTION If you’ve detected slow erosion in a customer’s buying behavior or an event catalyst that’s changing their business relationships, you’re probably at risk of losing their business to a competitor. Through differentiating your products and services, implementing a customer retention strategy and building adaptation to customer needs into your sales process, you’re well prepared to retain customers and fend off competitors. But to achieve this kind of agility and skill in managing customer relationships, your sales organization needs to build speed and accuracy into every aspect of your sales process. In today’s business environment, speed and accuracy are essential to managing your customer relationships. And when they’re combined in a predictable customer experience, it helps your customers become faster and more accurate in their businesses. Given the complexity of the information and tasks, the only way to reach that speed and accuracy is through leveraging a variety of sales effectiveness solutions. These solutions might include customer data analytics, pricing guidance and sales operations tools that help deliver a great customer experience. Quotas of quantity must be matched to quotas of quality. If your company is faster and more accurate than the competition, you’re able to rapidly adjust to meet changing customer needs and provide an experience that keeps your best customers coming back. Over time, this agility in managing customer relationships drives improvements in your company’s revenue and margins, brand value and shareholder value. Ready to learn more about how sales effectiveness solutions could help your organization retain customers in a competitive environment? Visit the PROS Pricing Effectiveness blog for expert insights and guidance. PROS.com Copyright © 2016, PROS Inc. All rights reserved. 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