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Is Money the Right Pitch?
By
Peter Meyer, for Business & Economic Review,
Do
your pitches often tout how much money your customer could save with your
product or service? A second, related question - do you find that you have to
discount to get those sales? A recent survey of owners and executives shows
that there may be a direct relationship between the two. The results also
suggest an alternative that can shorten sales cycles and increase margins for
your business.
Businesses repeatedly build business plans that
focus on saving money for customers, pitching cost control as a primary benefit
to doing business with their companies. When you look at many
business-to-business proposals, you'll find that reducing cost often leads the
list of benefits. But is it the right benefit to pitch?
The
idea is straightforward - if the product will reduce costs, customers will buy
it. Why? Because any rational person wants to save money. The operating
assumption is that saving money is the highest priority for the customer. In a
down economy, you may assume cost control is at or near the top of the
executive and business agenda.
Unfortunately, all too often the first savings
that your customer gets comes not from using your product or service. You may
pay the first savings from your coffers - as a discount to make the deal
happen. The focus on price is not optimal either for you or for your customer.
Reducing your price cuts the margins of your business, and the price
negotiation process can lengthen the sales cycle if the customer decides to
wait until the end of a quarter to negotiate a better deal. Your prospective
customer may focus more on that bargain than on taking advantage of the
benefits that your product or service can offer the business. Worse, the
customer who buys a product or service to save dollars may shelve the
investment if higher priorities arise. The customer loses the business benefit
and your company loses the reference and the opportunity for downstream
revenue.
Clearly, attention to costs is important when
the economy seems weak. At any time, the presence and level of profits are
yardsticks for overall success. What makes cost controls easy to pitch is that
most companies will have it on the list of urgencies. What makes it harder to
close deals is that other problems rank even higher. If you want to increase
sales in difficult times, you want to address the problems that feel most
critical to your customers. Cost control is not one of these. Your customer may
have better urgencies for your team to address.
If
Not Cost Control, What?
If you
are going to look for problems that business executives feel that they need to
solve, you might do best simply to ask your prospective customers. So we did.
During the 2001 recession our consulting firm conducted a wide-ranging survey
of business-to-business companies. We wanted to find out where cost control
ranks in the list of problems to manage, so we asked owners and executives to
tell us what problems mattered most on the day we asked.
The
survey covered four hundred managers, owners, Directors, Vice Presidents, and
Chief Executive Officers on three continents. Of the owners and managers who
answered, more than two-thirds of the respondents were at the Vice President
level or above, with almost half being CEO or the equivalent. (Chart 1.) We
asked each to tell us the top two urgent operational problems on their desk
that specific day.
Chart 1
This
question came at a unique time, a period of downturn and unsettled economic
news. Instead of growing, many companies found themselves seriously
overextended. Many high-flying companies were discovering unprofitable quarters
for the first time. In some places layoffs were starting in businesses that had
never before made an employee redundant. Given all that, you might expect cost
control to be high on the list of immediate problems that owners and executives
needed to solve. Yet, the survey gave us the unexpected. Only 1 percent of the
respondents identified cost control as one of the top two urgencies. (Chart 2)
For selling to these owners and executives, pitching cost control is selling to
a lesser concern.
Chart 2
First - Eliminate Roadblocks to
Growth
What
topped the list? The most common issues (given top billing by just under a
third of the respondents) were day-to-day functional problems, focused
internally to the business. A Vice President with an international telecom
company noted that "Management of real-time business information (concerning)
sales, customers, and business metrics." For him, the issue was not information
technology, the issue was the information itself.
Processes appear in this list often. A Sales
Vice President at a software company said simply, "Process improvement . . . .
Are we making it easy to do business with" the company? Infrastructure problems
were also common. Several executives noted how much difficulty they have
getting basic services, and they seemed frustrated. Making tools work and be
useful garnered the largest number of exclamation points among all the answers.
We are not just talking about computers. These responses detailed issues with
E-mail, phones, lights, offices, and buildings. Basic operations issues
challenged the ability to get the work done.
Second - Create Revenue and Opportunity
This
grouping was followed closely (about a quarter of the executives) by revenue
and market positioning issues. This problem focuses on the external view,
problems around making deals happen, marketing to groups of customers, and
ensuring that the committed revenue actually arrived. The challenges listed by
one CEO included "balancing a transition from old to new without
disturbing/impacting revenue." The CEO of a software services company
highlighted "forging our value proposition into our client communications and
marketing message." A network products company CEO was concerned with
"expanding the product portfolio to cover additional markets." Repeatedly,
executives and owners were more concerned about growing out of the recession
than controlling costs.
Communications and people issues came next (17%
and 16%), followed distantly by Information Technology and Partnerships (6% and
3%). When we asked the people to whom you may be presenting, cost control came
up only 1% of the time. Saving money may be important, but the issue is simply
not as critical to owners and executives as any of the others that they
mentioned.
The
Effect on Your Margins
When
you pitch cost savings, you create two traps for your business. One is the
competition. If you base a proposal on savings, you are no longer competing
just with other companies in your market. You are competing with every other
proposal to save money across the entire business. Your product or service
becomes a commodity in the savings race, and it becomes hard to command a
premium price. The result - you may need to discount your price to get a sale,
a discount that comes directly from your margins.
The
second trap is the problem that you are solving. When you address the top
problems on the owner or executive's desk, you command mind share and the
ability to charge a premium. Cost savings is not one of the top issues. To get
attention and action, you may have to discount the sale with a time limit. You
may get the deal, but be forced to pay out of your pocket to do it. Discounting
often extends the sales cycle. That leads to the hockey stick phenomenon, when
most of the sales get booked at the end of the quarter. Not only can you lose
margin, you may increase your operations costs to create the short turn around
on delivery.
What
to Do?
The
message is clear. What matters most to these customers is the ability to grow
out of economic trouble. If you wish to deal with the most important problems
facing this audience of executives, look closely at the functional and revenue
issues, followed by communications and people concerns. You will not want to
focus on saving money for your prospective customer. Compared with day-to-day
operational issues and revenue issues, cost control pales. Look for the top two
problems on the desk of the owner or manager, and go where these issues lead
you.
Perhaps
most important, saving money solves almost none of the problems most important
to customer executives. If your business pitch focuses on cost savings, you are
missing the target and making it harder for your business to grow out of a down
economy. Instead, focus your plan on removing roadblocks to increased revenue
for your customer, and your business will have a much better chance of success
in today's uncertain economy. It will pay you to solve the right
problem.
Copyright 2002 by the Meyer Group, all rights reserved.
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