Neil Rackham has built a strong international reputation in the global business community as a speaker, writer, and seminal thinker on sales force effectiveness.
Three of his books have appeared on the New York Times best-seller list, and his works are translated into over 50 languages. Recently he has been named by the Speaker’s Bureau as one of 2009’s ‘9 Business Speakers you need to know’, and was included in The Speakers Group list of ‘8 High-impact Speakers’.He is Visiting Professor of Sales and Marketing at Portsmouth University and a Visiting Professor at Cranfield University.
I’ve had a number of conversations with Neil recently, and one of the topics which I know many have asked to hear about is “lessons from past recessions”. In this discussion, Neil outlines 3 things that salespeople and sales managers should focus on – in good times as well as bad.
Neil, could you please give us some background about recessions of the past – and things we should focus on in more difficult times?
Let me start by just talking about the specifics of the selling in the economy we’re in, because that’s a good starting point. It so happens if you look at people selling today, less than 20% of them had ever before sold in a real recession. It’s a sign of how long that prosperous boom went on.
And now, we’ve got to the point where, frankly, people are making a lot of mistakes. And I’ve gone into my research files. In the ‘70s, ‘80s, ‘90s even, I did a lot of foundation research into what makes people successful in selling. As it turns out, a big piece of that was done in a fairly bad recession, particularly the recession of the 1980s. And I’ve gone back into those research files and looked at the mistakes people made. And I’m just going to raise those as an opener here. Because I think exactly those same mistakes are being made by sales people, sales managers, and by sales forces all across the world today. And I’d like to in particular raise three of them and talk about why they’re such problems and what to do about it.
So let me being with number one. In hard times, sales people try harder. Now, that doesn’t sound as though that’s a particular sin. That sounds like it’s a sensible thing to do. They try to be more active, to make more calls, to knock on a few more doors, to try to open up more opportunities, because that seems the best way of dealing with hard times. We haven’t got enough business going in, so let’s go out and beat the streets for a bit more.
Well, the issue is – what’s wrong with that? Because you might think that’s actually the smartest strategy you could adopt. In fact, in certain cases, it is. We did studies in the recession of the ‘80s, where, for example, we had one company in New York that was selling office supplies. They had a new Vice President of Sales who said – I want you to make twice as many calls a day. And in fact, sales went up by 40%. So, in that case, the strategy of let’s go out and make more calls, let’s work that bit harder, turned out to be very, very successful.
But, now let’s look at some other cases. What we found is that if you’re in a very large sale – the kind of sale which usually can’t be completed in one call, and in fact may make two, three, or five calls to complete – things are different. When you make more calls, you actually reduce your sales. We did studies of this in Motorola and found that happening there. We looked at it in a dozen other companies. The same thing happened.
And there’s a fundamental rule here, which is, when you’re in fairly large significant sales, it costs a lot to go after any piece of business. And to go after a piece of business that you’re going to lose is actually very bad strategy. So one of the things that you find happens is, looking at the companies that were most successful in the 1980’s recessions, they actually reduced the number of opportunities they chased after. They didn’t try to increase them. But to each opportunity they chased after, they put in more resources, and they over resourced the best opportunities. And that’s what kept them out of trouble. The less successful companies were the ones that tried to chase more business. Because what that meant was they could give less effort to each piece of business. And in sales, there’s no prize at all for coming in second.
So one of the things that came out very, very clearly from that research was, an unsuccessful strategy in the larger business-to-business sale is to half chase twice as much business. And yet I will guarantee you, whether we’re in Sydney, whether we’re in Singapore, whether we’re in Auckland, wherever you happen to be right now, right now there are people trying to go out and knock on more doors as a way out of the recession. It doesn’t work. There’s one absolute rule that people should always follow, and that rule is this: if you wouldn’t chase a piece of business in good times, never, never chase it in bad times.
There’s a huge body of research findings that shows that’s a bad strategy. But it makes common sense. To most sales people, they feel they’re doing something. They feel, if I could just start a few more business cycles, if I could just open a few more doors, I could get out of this. Well, no no no no. The evidence says the people who succeeded best in the last recession actually consolidated their opportunities. They put more effort into the ones they were the most likely to win, and they outsold their competitors. That’s how you win in hard times.
So the first rule of our take, of my three rules for how to sell in hard times would be, chase fewer, deeper opportunities, not try and chase more. Unless you’re in the very low end sale.
And what do you mean by understanding the difference between selling and negotiating?
There’s selling, and there’s negotiating. And we need both to get business. We sell and we negotiate with our customers. Now, what’s the difference between selling and negotiating? And we use these words all the time. But I don’t think we’re always crystal clear about what the difference is.
The difference, put at its simplest, is that when you sell, you’re trying to get an agreement without changing the terms. But the moment you start to vary the terms, you make a price concession, or you alter the specification, or you change delivery in order to induce the customer to buy, then you’re negotiating. So negotiating basically is about altering the terms. It’s about giving things away as an inducement to get the business. And keep that in mind as the difference between negotiation and selling.
Now, what research has always shown in good times or in bad times is that the most effective sales people who do the best job of maintaining margins negotiate little and they negotiate late. The less successful people can’t wait to start bargaining with the customer.
Now this has been established over 30 or 40 years of research, not just by my research teams, but by research teams all over the world. That if you start negotiating very quickly in the sales cycle, what you do is you give the customer an appetite for more concessions. Because the customer thinks, if you go in the door and you say, we can really do a deal here. We can offer you a discount. If you say that early on, the customer thinks, I can get an even bigger one if I hang on here. So what you do is you create an appetite for more concession. You come across as being anxious, and you come across as being pushy. And these are the kinds of things which create a negative climate within the customer and a more demanding climate. And in hard times, it really hurts you.
But I can guarantee you this, that most sales people when times are hard will start negotiating more quickly than they would when times were tough. Now that’s hard to resist. If you’re out there and you’re under pressure and you know that your competitors are prepared to cut their prices, and the buyer says to you, look. I’m not prepared to pay the sort of prices I would have paid a year ago, I’m under pressure to. The temptation is immediately to go into negotiating, changing price, changing specification, changing delivery, and so forth. But what that does is it actually weakens your position without strengthening it. It doesn’t increase your chances of getting the business. But what it does do is it increases the customer’s appetite for yet more concessions from you.
So that again is something where people should advise their sales teams, don’t get into early negotiation, even though times are hard. The temptation is to do it. It’s a bad, bad strategy. So that would be my second point. Don’t negotiate.
And what about price, Neil – how important is this in the sale?
I suppose that’s what sales people have come to believe because it’s what the customer says. But if you look at the hard research coming out of the 1980’s recession, actually price was much less important than safety. In hard times, customers will buy what’s safe rather than what’s cheap.
In fact, here, everyone is listening to me now. Think in your own mind, if I had to make a decision to buy something expensive, some big item, and I had the choice between buying something which was a safe decision and buying something that was a cheap decision, what would you do? Well something like 80% of people say, I choose the safe decision. And your customers are no different.
And I could argue this on all sorts of good psychological reasons. But maybe the best example is a purely practical one. The 1980’s recession was fairly bad. Not as bad or as sudden as the recession now, but really a very significant one. One company above all others prospered. And that company was IBM. IBM not only didn’t cut its prices during the 1980’s recession. IBM actually increased prices several times on its most popular lines. In contrast, its competitors like Digital, and Fujitsu cut their prices quite ruthlessly, averaging something like a 30% price cut. They were the ones who went out of business. None of them are around now. IBM increased its profits, increased its sales volume.
And how could they in a recession increase prices and at the same time, make more sales and increase market share? And the answer is fairly simple. Anyone who was around in those days will know that IBM had a brilliant value proposition. Their slogan was, “nobody got fired for choosing IBM”. Now, when you think about it, that’s one of the most brilliant, brilliant pieces of marketing of all time. Because what happened was, IBM positioned itself as being safe.
Now, IBM was overpriced and under featured. In terms of advanced technology, Digital was way ahead of IBM. And Digital was reducing its prices fast. But by the very fact of that price reduction, Digital was trying to sell technology at a low price. They were making the price sale. IBM was making the safety sale. And history says, it was IBM that won, not Digital. And I could quote more cases. But I think the fundamental point is there. And the fundamental point is that customers may talk about price as their primary decision criteria. If you happen to be selling a commodity, like metals, or basic chemicals, then it is a price decision. Because commodities fluctuate by price, and that price is determined by factors on the exchange. But if you’re selling what most of us sell, proprietary products and services and solutions, then price is secondary. Safety is primary.
And one of the things that worries me as I look around is that very, very few people are good at selling safety. If you lead a sales team, or if you’re training sales people, or if you’re responsible for sales management, just ask yourself, how good a job do our people do of making the customer feel safe about coming to us? Well, the chances are that we’re not doing a very good job at all. And one of the examples we’ve already mentioned. If sales people start negotiating too soon, that makes customers distinctly nervous. They think, uh oh. They may be in trouble.
So, how do we sell safety? Most sales people are not good at doing this. One of the things that we would advise sales people to do is just think about this. People spend an awful lot of time thinking about how do we overcome price issues and price objections, but very few people think, how do we make customers feel that we’re the safe pair of hands to be with? There are lots of little things, of course. It’s the way you use your proof sources, the way you have case studies of success, the way you introduce customers to successful, satisfied customers where you’ve done it before. You do it by the assuredness and self confidence in your sales people. There’s a lot of ways in which we transmit safety. But we need to think about doing that and doing that more.
And so, Paul, if I could just summarize this is what I’d say:
- Number one, in hard times, sell more deeply to fewer opportunities. Don’t just try to generate more opportunities. Remember that lesson, if you wouldn’t chase an opportunity in good times, never, never chase it in bad.
- Point two, don’t start negotiating earlier in the cycle. It will only hurt you.
- And point three, sell safety rather than sell price.
And those would be the three pieces of immediate advice I’d give your readers about handling these hard times. And I believe the hard times aren’t going to just stop, even though the optimists are saying the recession is over. I think we’re going to have a fairly difficult time for the foreseeable future, and sales people need to take these lessons on.
But you know, they’re not bad lessons for good times either, because they’re fundamentally lessons about good selling.
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Thanks Neil – great points for anybody selling in today’s world.
Neil’s been researching the world of professional selling for many years, and always has insights worth hearing. Find out more about Neil and his views on selling at his website:
Thanks for reading this post – Paul Sparks, Sales Effectiveness Australasia.
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If you would like to connect with Paul Sparks please email paulsparks [at] saleseffectiveness.com.au
