The Hindu Business Line : Target the threesome

JOHN DeVincentis and Neil Rackham offer a framework in their book, Rethinking the Sales Force: Redefining Selling to Create and Capture Customer Value, that identifies different types of customers and the focused sales techniques required for each.

Historically, the marketing function has been viewed as creating value — through innovation and branding — while the sales function has been to communicate the value (created by the marketing department).

Most sales management practices keep encouraging the `communicating value' approach. Ted Levitt, the marketing guru, calls this "marketing myopia". Customers are looking for value beyond just the end product or service: they are looking for value in the buying process itself! A good first step is to understand the different types of customers and what they care about — DeVincentis and Rackham provide a handy guide. They identify three types - the intrinsic buyer, the extrinsic buyer and the strategic buyer.

Intrinsic buyer

This buyer sees value only in the end result.

Value is defined as the cheapest and easiest way to obtain the required goods and services. A common example would be providing programming services to an IT department through contractors — a highly commoditised offering with arguably little differentiation — a classic transactional sale. Success in a transactional sale requires slim managerial and administrative overhead — reducing cost and making acquisition easy create value. The trick in most transactional sales is to use the sales force more efficiently by codifying sales knowledge in systems rather than in people. A transactional sales force needs to keep costs down by automating the sales function, exploring lower-cost channels (mass e-mail or offshore tele-sales) and reducing sales overhead by using less experienced employees.

Extrinsic buyer

This kind of buyer sees value beyond the product; values input from the supplier in terms of advice, problem-solving, customisation or the capacity to meet special and unique needs. The buyer knows pretty much what she wants but is willing to listen to a supplier on how things could be done better. The customer wants value addition by the sales team during the initial contact itself — a consultative sell. The sales organisation must identify and articulate the benefits of a particular purchase decision beyond just the immediate product or service; value needs to be defined in terms of upfront advice, problem-solving, customisation or the capacity to meet special and unique needs.

Strategic buyer

This kind of buyer looks for an extraordinary level of value from a deep strategic relationship with a few chosen suppliers. The strategic buyer is all about leveraging distinctive competencies and the full range of corporate assets between partners for mutual strategic advantage. Enterprise selling is the coming together of buyer and seller to create an offering that neither could create on their own. An enterprise sale leverages the cross-functional capabilities of the seller's company by the buyer. By way of example, the seller's R&D, manufacturing, design, product development, marketing, sales, and all other departments work with their counterparts on the buyer's side to create value, which neither could generate individually.

Thus, enterprise selling is function-to-function selling. Given the breadth and scope of an enterprise sale, such a sale may take anywhere from between one to three years to materialise and failure is expensive in both monetary and psychological terms. A great example would be an alliance between Microsoft and Wipro to take on IBM.

The intrinsic buyer values low-cost over all else: a quick, cheap and low-overhead sales approach is desirable.

The extrinsic buyer, on the other hand, is looking at the benefits of a solution - this necessitates a sales strategy that takes a little longer and requires understanding the customer's problem and demonstrating how a given solution is optimal.

The strategic buyer looks for an extraordinary level of value by leveraging distinctive competencies and the full range of enterprise assets for mutual strategic advantage.

Play the strategy right

Given this taxonomy of customers, firms will have to fashion their sales organisation to satisfy the needs of such buyers. Important questions arise: Can a single sales organisation handle all three types of customers? How do we create such a sales organisation? The simple answer is, yes, it can be done. It requires critical thinking that impacts the organisation structure, training programmes and compensation strategies. Typically, an IT firm sells to three main functions in a client organisation: the IT organisation (programming services), Operations department (consulting services), and Corporate management (strategic outsourcing). Each constituency has a different "language" that requires a targeted selling strategy. The IT services provider has to create a sales force that caters to these different types of buyers in different ways. This has huge implications on a company's sales force right down to organisation, training, compensation and selling tactics used.

Thus the sales organisation needs to be structured such that it can penetrate an account at multiple levels with a sales approach that is tailored to the dynamics of the different buyers. The sales and marketing organisation has to be organised around the three levels of `sells' — downstream services like contract programming, midstream services like business consulting and upstream opportunities like process outsourcing. The biggest challenge to selling a diverse portfolio of services is to transform salespeople from order takers into consultants. This requires de-emphasising the traditional focus on knowledge about the firms' services and products in favour of how to understand and evaluate problems that a potential client may be facing.

Performance-based pricing

The nature of competition in the IT services sector is rapidly shifting from cost to value-added differentiation because most large firms are able to offer lower cost offshore services. Indian IT service providers have to come up with new and innovative ways of `standardising' the software delivery process to ensure repeatability and predictability. This will help commit to innovative performance-based pricing that provides comfort to the customer and lays the foundation for a long-term partnership — this is easier said than done. Look at EDS' recent disaster with the $7-billion US Navy fixed-price contract that went horribly wrong.

The key to long-term and deep relationships with new customers is creating a software delivery process that is `better-cheaper-faster' — is this just a dream? Can one really create a software factory when dealing with brainware? Yes, it is possible. This has been a historical trend in most industries, which mature after a bout of aggressive growth.

Admittedly, this process has been slow in the IT services industry given the people-based nature of the product. Using a robust software development methodology, not only in letter but also in spirit, helps provide a repeatable guide to successful project execution; deep knowledge management and best practice sharing across the organisation helps delivery staff be more productive by reusing lessons learnt elsewhere; extensive use of industry patterns for analysis and design deliverables reduce the learning curve and allow for rapid application delivery. This will be the primary source for sustainable competitive advantage — clients have historically been unconvinced that the firms they hire are very efficient; indeed the IT service providers have every reason to stretch a project implementation on a traditional time and materials project — not anymore.

Any IT service provider that demonstrably commits to saving their client money through improved productivity and backs it up with a fixed-price and fixed-time commitment with a 100 per cent satisfaction guarantee or your money back is going to be unbeatable!

As David Maister, uber-services consultant, says, performance-based pricing allows the firm to say, "We'll bet on ourselves that we can deliver what we promise.

We don't ask you to believe that uncritically up front, but can we agree that if we do deliver value, you'll reward us?" Increasingly, clients are accepting such deals.

Service providers looking to become global players have to innovate and come up with sustainable strategies that differentiate them from the pack.

They will have to provide a complex mix of services sold through a custom-tailored sales effort that suits the dynamics of the different buyer constituencies.

Also, by resorting to `skin-in-the-game' delivery commitments, they'll raise the bar for their competition, thereby building on their initial cost advantage. Indian IT firms have to roll-up their sleeves and slug it out in the global marketplace — the honeymoon is over!

The first part of this article, titled Break away from the pack, appeared in eWorld dated June 4, 2003.

Concluded

The author is a senior consultant for private firms in Healthcare, Insurance, Telecom and Real Estate and can be reached at gpal@indeusglobal.com

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