Trust-Based Selling Between Cultures

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The hardest thing about describing Trust-based Selling to Americans is the idea that the first step in selling has nothing to do with selling. They just don’t get it. Maybe this will help.

Jim Peterson—lawyer, accountant, former newspaper columnist, blogger—told me this delightful story about himself.

I’m an American, and had moved to Paris as an expat, to be senior in-house counsel in Europe for my global firm. The dossier included oversight of our litigation, disputes and risk management.

I inherited a very large piece of pending litigation: we were one of the several defendants — the lead plaintiff was a large French bank. The case had been going on in the course of Germany for several years — but it was then dormant.

I got from the files the name of my in-house counterpart at the bank — whose office was near mine in Paris — and invited him to meet over lunch. The ground rule was–no discussion of the case or its details or merits, since I had no background on the matter and there was no activity then or on the horizon. We did in fact meet up — had a fine and proper French meal including a good bottle of wine — and parted company.

The case ran on in Germany for a year and a half or so. Eventually the local lawyers for both sides called to say that it was time for a settlement, but that they were at an impasse and there was no prospect for fruitful discussions.

I went back to my phonebook. I called the bank’s lawyer in Paris, got caught up on the current status, and asked for a meeting. In a Paris conference room, in about an hour, a successful resolution was reached.

To the French, relationships are vitally important in the conduct of business of all kinds. This could not have happened if we had been coming together for the first time. (The American mis-apprehension about the rudeness of French shop-keepers, waiters and taxi drivers is misplaced — they simply don’t know or have any relationship with a new arrival. By taking the time to be courteous and conversational, ahead of the desire to transact business, the entire atmosphere can be changed. And even more so when you become a repeat customer.)

We Americans, with characteristic brevity and impatience, have an urge to “get on with it.” We consider this a virtue, despite the fact that this approach will often leave us frustrated and will yield sub-optimal results. Neither does this alter our belief that we are results-driven.  But the truth is: slowing down rather than rushing to finish in time to catch the afternoon plane will often yield a better outcome.

By extension, I have used variations on this approach even in the American context — where the investment of a small amount of time and effort is often seen to bear fruit.

Jim is not alone. One Japanese bargaining technique (as per Riding the Waves of Culture, a great book) is to wait until the Americans have confirmed their return flights before demanding an additional item or making a small concession in their position. The urge to hold to a preset plan is so strong that the Americans will jump at the offer rather than reschedule.

The point is not just that Americans are prisoners to our own US-centric views of culture, but that we are mistaken even about our own culture. The simple powerful truth, anywhere in the world, is that people prefer to do business with those with whom they have some kind of relationship. The mechanics of that differ; the principle does not. Tons of sales are left on the table in the US because of an inability to deal with relationships.

Want to sell? Then first Stop Trying to Sell.

This truth is no less truthful for being a truism: People don’t care what you know, until they know that you care.

The best sales begin with relationship. Deal with it.

This post first appeared on TrustMatters.

When the Client Cuts Your Face Time in Half

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Are you having trouble with scheduled client meetings getting blown off?

For example: your progress update meeting with the client is scheduled for an hour, starting at 11AM. You’re hopeful it might extend to a lunch invitation.

11AM comes and goes, and the client is still in a meeting. Word comes from the client’s AA that the meeting has to move to 2PM. At 1:30, it gets kicked to 5:30 – and it’s cut to half an hour, as the client really has to leave no later than 6PM.

What do you do?

This came up in a large workshop recently; the setting was such that only a 1-minute answer was appropriate.  I gave the 1-minute answer – and I’ll include the longer answer here.

Involve the Client in Problem Resolution 

The quick answer is you start the meeting by saying something like, “Listen, it’s late in the day, and it sounds like yours has been hectic. Ending up in a review session may not be your idea of a good time. Would you rather reschedule?”

And then go with the client’s answer, whatever it is. If the client prefers to push on, then do so. And you’d better be willing to trim your presentation to 30 minutes, rather than trying to double-time it, or passive-aggressively running out of time.

The principle here is to make the client part of the problem resolution.

Involve the Client in Problem Definition

The longer answer is to make the client part of the problem definition – not just problem resolution. Why is it that a previously scheduled meeting slipped so drastically?  That it got cut in half?  That’s a discussion worth having on occasion.

Is it because the client doesn’t particularly care about an update, and it’s really your need for approval that’s driving the meeting? Are you able to specify real decisions that are needed from the client? Is this a box-ticking meeting to fulfill your internal processes? Are you trying to cover your behind? Do you know what the meeting was bumped for, and are you satisfied with the decision? Is this a meeting that neither one of you really wants, resulting in joint procrastination – and if so, what’s that about?

The answers may be perfectly innocuous, or they may uncover a deeper issue – where there’s smoke, there might be fire. The point is not about the answers – it’s about having the vulnerability and courage to re-invite the client to visit the tough questions, to define the issues jointly.

 

How Effective Was that Sales Training?

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If you’ve ever received a personal performance evaluation at work, there’s a decent chance you left the meeting thinking, “Well, it would’ve been good to know that about four months ago!” In other words, advice—even if valuable—has to be timely to add value. And, of course, an evaluation that doesn’t offer any recommendations at all feels even less valuable.

In the realm of personal evaluations, we all “get” the need to add value, and to do so on a timely basis. But what about when it comes to evaluating training programs, particularly sales training programs? How does your firm go about evaluating its training offerings? Would you say it adds value? And if so, how fast does that value accrue?

I also want to suggest a simple, but basic, change in how we evaluate such programs: by shifting from metrics to communications. But first, let’s explore how evaluation usually works.

Rounding Up the Usual Suspects

Does this sound familiar? Your firm hires an outside vendor to develop an addition to your portfolio of sales training programs. Your Learning and Development team works hard with the vendor to ensure the program is customized. You do a pilot, you redesign, and you finally release it.

Your firm rolls out several deliveries before the fiscal year-end. A detailed online eight-page evaluation form has been developed, and it is filled out by over half of the participants within a week after each delivery.

Thus at year’s end, the training organization can submit a lengthy data-based analysis of the extent to which each of program’s objectives were met. In consultation with the vendor, changes are made to the program, and the cycle of delivery and evaluation begins anew.

Only one question remains: how much did sales increase because of the program? And isn’t that the only question that really matters?

Of course, there are myriad reasons why it’s a hard question to answer: GDP growth declined in the same quarter, a competitor made an acquisition, you raised prices, the leadership team changed, etc. Those are perfectly valid reasons, yet the only relevant questions remain: Did the training increase sales or not? By how much? And how did it do so?

If those questions can’t be answered, then all your complicated evaluation did was to evaluate. It didn’t add any value. And, just as with your unsatisfying personal evaluation, it leaves a hollow feeling.

The Problem with Evaluations

To over-simplify, the problem with programmatic evaluations is metrics. Not the wrong metrics, but simply the metrics. Business in general overrates metrics, but this is a particularly egregious case. We are easily seduced into thinking that if some data is better than no data, then more data is always better than less.

And that’s not the only mistake. There is also the cognitive trap: believing that if we can “understand” something, we have done the hard work of change. Not when it comes to selling, we haven’t.

Finally, there’s a subtle trap unique to training: the mistaken belief that tweaking the program will directly and causally result in the desired sales behavior changes. In fact, this is largely a leap of faith.

To sum up, the metrics don’t measure what matters (sales). The metrics give a false sense of accuracy, and there’s a leap of faith between the recommended changes and the hoped-for actual results.

The Answer

Many of these problems can be solved through one relatively simple change: replacing metrics-based evaluation with a post-training program of communication between participants. Here’s how it works.

A simple platform and protocol is developed for participants to share stories with one another about their successes in applying the lessons of the training program. Some serious social engineering is required to make it very simple. We have found an online document-sharing approach with an occasional conference call works best, with some admin support to encourage and tease out stories to be effective.

This simple approach does three things:

  • It provides timely feedback—no more waiting until period-end.
  • It provides specific Example: “I ran into a prospect at the airport, and I remembered to talk about her family first rather than diving into business. It resulted in a meeting the following week.”
  • It gives very specific guidance to future training designs about what does, and doesn’t, work.

Also—and maybe the most important thing—it directly addresses the top line. Sales can be identified through the story lines and augmented by a request to participants to periodically identify particular sales and the proportion attributable to the training.

Insist that your evaluation process doesn’t just evaluate. Make sure it adds value. Do so by substituting human-to-human direct communication about what works in place of quantitative and abstract metrics. It’s a human solution to a still-human profession—sales.

This post first appeared on RainToday.com 

How Smart People Get Stupid

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Exhibit A. Google conducted a multi-year, multi-million dollar study called Project Aristotle to determine just what distinguishes successful teams from unsuccessful ones. Tons of data were examined, decades of research studied, multiple hypotheses explored.

The answer? Drum roll: successful team members display more sensitivity toward their colleagues, e.g. granting them equal talk time.

THAT’S IT!

If you find that a stunningly unsurprising flash of the obvious, you don’t understand how things work in business these days. Here’s the reaction of one Googler to that study:

“‘Just having data that proves to people that these things are worth paying attention to sometimes is the most important step in getting them to actually pay attention…I had research telling me that it was O.K. to follow my gut,’’ she said. ‘‘So that’s what I did. The data helped me feel safe enough to do what I thought was right.’’

I’m not picking on Google; they are not unique. (And they are, indeed, really smart). But let me restate what Exhibit A is really telling us:

Millions of years of evolution have brought humans incredibly complex and exquisitely tuned neurological systems, capable of instantly intuiting not just friend vs. foe, but parsing a spectacularly wide array of emotional messages being sent out by our fellow humans.

Yet the smartest of the smart among us have determined that you can’t trust that system – unless it’s backed up by years of technological research that couldn’t have been done even just ten years ago.  Fortunately, we have now been given permission by that research to ‘trust your gut.’

It’s a wonder the human race stumbled along without that study for so many years.

 

Exhibit B. We recently got a plaintive email from a genuinely perplexed  client.

He said:

I hear constantly that being authentic is crucial. But it’s hard to get a clear grasp on the idea. It’s especially hard to figure out how I can know (instead of just feeling or believing) that I am authentic – much less know that someone else is.

Absent knowing we’re authentic, can’t anyone believing they’re authentic just claim to be so? How could anyone prove otherwise?  And since we can’t really know authenticity, doesn’t that also mean we can’t measure it, so we can’t compare it across people or time or situations?

Hasn’t someone come up with a way of getting at authenticity by way of knowing, rather than feeling or believing? I’m struggling to know how I can know I’m authentic. I hope this makes some sense.

This person’s pain is real, and deep; I don’t want to appear insensitive by citing it as a cautionary example, we can all relate to the sentiment. Yet, contrary to their hope, the query makes no good sense at all. Instead, it represents the abandonment of commonsense.

Authenticity – to pick that particular example – speaks to an alignment of beliefs and feelings with the cognitive functions that our writer called “knowing.”  When we run across someone who accesses solely their cognitive talents, we don’t think of them as authentic – we think of them as Sheldon Cooper. They are inauthentic because they are presenting not their full selves, but only their frontal cortexes to others.

“Authentic” is what we feel instantly in our pre- and sub-conscious instinctive feelings about other people. It is the same kind of feeling we get when we jump away from the speeding car, recoil at the sight of a snake, or feel our hearts tug when a puppy wags its tail at us.

An Outbreak of Reductionism

This is hardly the first outbreak of hyper-rationalization. In the social sciences it has a name – physics envy. It is particularly virulent today in neuroscience, where some, having locating certain emotions in particular areas of the brain, claim to have “explained” those emotions. Description is by far the narrowest form of explanation – it’s more akin to translation.

But the disease affects business as well. We have no trouble smiling at the naiveté of Frederick Taylor and his stopwatch, measuring people like machines. Yet we are every bit as mechanical and naive today.

Today, it is an article of faith in many of our most successful companies that “management” is a matter of decomposing goals into a series of cascading behaviors which, properly measured and carefully matched to incentives, produce an internally consistent, humming machine. All you need is a dashboard, which is easily available in the form of widgets.

The manifestation of this belief system (codified in “if you can’t measure it you can’t manage it”) is the enormous investment in training, goal-setting, reporting, progress discussion, and performance reviews – all of them non-direct value-adding processes.  All of them are built around a behavioral view of meaningfulness, a pyramid view of behaviors, and a system for metrics and incentives.

Every training department knows to use the Skinnerian language (“attendees will learn the behaviors associated with mastering the skills of XYZ…and will be rated regularly thereafter on a four-point scale of Early, Maturing, Mature, and Master.”)

Petrification by Metrification

This is precisely the technique used decades ago by Harold Geneen, who believed in rolling up data from all his subsidiaries and managing by the numbers. Except Geneen was measuring profit margins, inventory turns and capital costs. (And it turned out it was Geneen’s outsized personality, not his system, that made it work).

Today’s managers are applying the Geneen model to manage things like trust, authenticity, ethics and vulnerability – with the same tools they apply to measuring click-through rates. There is a huge mismatch. Entire organizations – and not just Left-coast tech companies – are being managed by cascading goals and KPIs, each firm with its own acronym for the process.

This continued reduction of higher order human functions to behavioral minutiae, coupled with the rats-and-cheese-in-the-maze approach to incentives, succeeds only in hollowing out those functions. Try this thought experiment: How do you incent unselfishness?

In the words of ex-consultant and CEO Jim McCurry, all this leads to “petrification by metrification.”  You don’t get the genuine article, but a fossilized replica. It may look real, but it’s checkbox stuff.

Scaling the Soft Skills

George Burns once said, “The most important thing in life is sincerity; if you can fake that, you’ve got it made.”

Ironically, the management teams who try to apply Big Data techniques to rich, basic human interactions are swimming upstream. The right way to scale soft skills and sensitivity not only looks different than the way you incent car  salespeople, but it’s a lot cheaper and faster. It has to do with leading with values, engineering conversations, and role-modeling.

But that’s fodder for another blogpost.

 

 

 

Discounting, Price, Value and Psychology

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Back in 2008, RainToday.com published Fees and Pricing Benchmark Report: Consulting Industry in which they analyzed a ton of data from 645 consultants. There were six price-related topics. One in particular has stuck with me over the years: the analysis on discounting.

As the authors point out, discounting is Ground Zero for hypocrisy in pricing. Everyone decries it – yet everyone (actually, 65%) does it. It reminds me of dieting – “I know I shouldn’t, but this one little brownie won’t hurt. And I’ll get back on the wagon again tomorrow.”

Couched this way, the problem of discounting is one of willpower – we all know we should stick to standards and principles, yet we are morally weak at the moment of truth.

I don’t think that discounting is a moral problem, however. Instead, it is one of bad thinking. And it centers around two false beliefs:

  1. the belief that certain customers are inherently “price buyers”
  2. the belief that feeding the price beast will make it go away.

The truth is that price is a proxy for several different fundamental buyer concerns. It has no meaning inherently. Price per se is a clearing factor, the point at which money exchanged balances with the various benefits received. And this balancing point is not just “value” as most firms mean that term; it is very much tied up with the psychology of the buyer.

What Clients Mean By Price Objections

It seems obvious.  A client expresses an objection to a price. They say they want a lower price. Clearly – they are concerned about money, value and price. Right? So the only question is, shall we discount, and by how much. Right?

No, and no. Here are four distinct things that buyers are saying when they say they want a lower price. And not one is really about price.

  • Mismatch with competitors. Frequently clients faced with competitive bid situations will say, “Company X is cheaper than you by 25%—you need to discount to stay in the game.” Let’s assume the claim is true on the face of it.  There are two reasons for one firm pricing 20% below another; one is intentionally buying the business, with the intent to raise price later.  The other—and most common—is that the client is comparing apples to oranges.
    • The solution to the first is easy: explain to the client why your competitor’s cost structure is virtually identical to yours, and why a 25% discount is inherently unsustainable—therefore the client is facing a relationship vs. transaction issue.  If they choose transaction, then be glad your competitor just trashed their bottom line to buy a price-shopping client.  They’ll eventually be back.
    • The solution to the second is to have the client carefully compare features of your bid with features of competitor’s bid. You know where costs get built up and where they don’t; have the courage to give your client the data to do the comparison.Competitive mismatches aren’t really price objections; they are fundamentally rooted in a misunderstanding of either industry economics or project design economics. The answer is not discounting, but education.
  • Mismatch with budget. Sometimes buyers just have a limited budget. They feel trapped, and often a little embarrassed that they have asked you to quote into a situation in which they under-budgeted—or over which they have no real control. Their natural reaction is to push back, in hopes that you can solve their problem without their having to confess their embarrassing ignorance, or go back to their boss for more money.This too is best not seen as an “objection;” it is a simple constraint of the world—budget vs. cost. Again, discounting just confuses the matter, and reinforces the idea that the client can afford to not be open and transparent with you.
  • Mismatch with expectations. Only experienced buyers do a good job of guesstimating price quotes from professional services firms. They tend to focus on a basic mental model of time vs. rate, and naturally under-estimate each.  (Recall your own shock at first finding out your billing rate as a newcomer; and the shock of industry hires when they first see time estimates for what they thought was just a request for a data-dump from an expert).This “objection” isn’t an objection at all—it’s just the natural human expression of surprise and dismay when we find out our expectations didn’t match reality.  Discounting just confuses them more, and rewards their delusions for the future.
  • Mismatch with motivation. Professional services firms suffer disproportionately from the delusion that clients make decisions on purely rational, monetary, statistical criteria. Clients, like everyone (including ourselves) make our decisions with the heart, and justify (rationalize) them with the brain.A basic human need is to make sure we didn’t get a “bad deal.”  You can give all the “value” data you want, but unless a client feels you are being straight with them and/or they’re getting the best possible “deal,” they will remain suspicious.
    • When suspicious, our innate tendency is to bargain, to determine some subtle psychological resistance point, just as we would at a bazaar or yard sale.This behavior has nothing to do with price per se, and everything to do with transparency of your economics and the prices others have gotten from you.Not paying attention to motivations leads to discounting, which has the perverse effect of convincing buyers that—aha!—you really were holding out on them! Which leads them not only to haggle again the next time, but to fundamentally mistrust you because you quoted them a price that was an attempt to “get by.”

What to Do About Price Objections

So what’s to be done? We all know the answer – don’t discount – but we think it’s a moral weakness, a failure of principles. It’s not– it’s a failure of understanding the reason for price objections.

Armed with the truth—that it’s not about price, and it never is about price – we can do the right thing; be curious, probe and sensitively get one level deeper when presented with price objections.

Back to RainToday’s survey. Why do 65% of consulting firms discount, even when, as the authors point out, the average 11% reductions could go straight to the bottom line?

It is simple fear – fear of losing the deal, particularly—which drives us inward rather than outward.  Rather than asking curiously, “Please, help me know what’s behind that?” we fearfully back off in the face of the aggression in the client’s tone – and start discounting.

The only two good reasons to discount are:

a. to reflect real cost differences due to volume purchases (which is great – you pass on some lower cost of sales, everyone’s happy), or

b. to buy your way into a strategically new piece of business. But be careful when you do so, because only certain clients buy that way.

The most tragic result of inappropriate discounting is not even the lost profit; it is that we confirm the client’s suspicion that we are untrustworthy.  It leaves the client thinking, like Sir Winston Churchill’s apocryphal line, “we have now established what you are, we are merely haggling about the price.”

Integrity: What’s Up With That?

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Integrity, like trust, is something we all talk about, meaning many different things – but always assuming that everyone else means precisely the same that we do.  That leads to vagueness and confusion at best – and angered accusations at worst. Particularly in this time of elections, a careful examination of how we use the words in common language is useful.

Integrity and the Dictionary

Merriam Webster says it’s “the quality of being honest and fair,” and/or “the state of being complete or whole.”

If you’re into derivations of words (as I am), then it’s the second of these definitions that rings true. The root of “integrity” is Latin, integer.  That suggests the heart of the matter (integral), and an entirety. “Integer” also has the sense of a non-fractional number, i.e. whole, not fragmented, complete.

In manufacturing, we have the idea of “surface integrity,” the effect that a machined surface has on the performance of the product in question: integrity here means keeping a package of specified performance levels intact. Similarly, a high-integrity steel beam is one that will not break or otherwise become compromised within certain parameters of stress.

Related also to this theme of wholeness is the idea of transparency, of things being whole, complete, not hidden – in this sense, we have high integrity to the extent we appear the same way to all people. Think of the phrase “two-faced” as an example of someone without integrity. (For a somewhat different and nuanced take on this issue in cyberspace, see @danahboyd on Mark Zuckerberg and multiple online identities).

Sometimes when we say someone has integrity, we mean they act consistently, in accord with principles. We say someone has high integrity when they stick to their guns, even in the face of resistance or difficulty.

Which raises an interesting question: where’s the line between integrity and obstinacy? For that matter, can a politician who believes passionately in the art of compromise ever be considered to have high integrity?

Then there’s that other common use of integrity that has a moral overtone – honorable, honest, upright, virtuous, and decent. Some of it has to do with truth-telling; but some of it has to do with pursuing a moral code.

Yet that raises another interesting question: can a gang member or a mafioso be considered to have integrity? Can an Occupy person ever consider a Wall Streeter to have integrity? Or vice versa? There may be honor among thieves, but can there be integrity?

Integrity – Your Choice?

So which is it?  Does integrity mean you tell the truth? Does it mean you operate from values? Does it mean you always keep your word? Does it mean you live a moral life? Does it mean your life is an open book?

Let’s be clear: there is no “right” answer. Words like “integrity” mean whatever we choose to make them mean; there is no objective “meaning” that exists in a way that can be arbitrated.

But that makes it even more important that we be clear about what we do mean. It just helps in communication.

For my part, I’m going to use “integrity” mainly to mean whole, complete, transparent, evident-to-all, untainted, what-you-see-is-what-you-get.

For other common meanings of “integrity,” I’m going to stick with synonyms like credible or honest; or moral and upright; or consistent.

What do you mean when you think of integrity?

This post first appeared on TrustMatters. 

The Prisoner’s Dilemma: Trust & Selling

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What is it about selling?

It can sometimes leave a bitter aftertaste the mouth – whether you’re the seller or the buyer. Why is that? I think it comes down to a few things – but mainly how we approach the sale and what we bring to the relationship between buyer and seller.

You may know “The Prisoner’s Dilemma.” In game theory, it’s a classic conundrum. As Wikipedia states, it “demonstrates why two people might not cooperate even if it is in both their best interests to do so.”

It turns out that the solution to The Prisoner’s Dilemma is also the solution to a great many sales problems—those in which your customer doesn’t trust you. Are you living in the Dilemma? Or are you living in the solution?

The Dilemma of the Prisoner

Here is a classic version of The Prisoner’s Dilemma:

Two suspects are arrested by the police. The police have insufficient evidence for a conviction and, having separated the prisoners, visit each of them to offer the same deal:

  • If one testifies for the prosecution against the other (defects) and the other remains silent (cooperates), the defector goes free and the silent accomplice receives the full 10-year sentence.
  • If both remain silent, both prisoners are sentenced to only six months in jail for a minor charge.
  • If each betrays the other, each receives a five-year sentence.

Each prisoner must choose to betray the other or to remain silent. Each one is assured that the other would not know about the betrayal before the end of the investigation. How should the prisoners act?

What’s a poor prisoner to do?

If you analyze the situation rationally (the way a game theorist or economist defines that term), your odds are a lot worse if you remain silent—either you get 10 years or six months. But if you rat on your partner, you either get out free or—at worst—five years.

So, reasons the economist, Option A’s average “value” is five years and three months in prison. Option B’s average is two and a half years. “Ah ha,” says the economist’s rational player, “I’ll go for Option B.”

Of course, the other player does the same math and comes to the same conclusion. As a result, each gets five years in prison—a total of 10 prison-years between them.

If only the prisoners had cooperated with each other; they could have each gotten out with just six months in prison—a total of one prison-year between them.

The question is: why don’t they cooperate?

At least, that’s the economists’ question. In the real world, cooperation is quite common.

So the real question is: why do so many people listen to economists?

The Dilemma of the Salesperson

Before answering the Prisoner’s Dilemma, let’s note the similarity with The Salesperson’s Dilemma.

The salesperson has a similar series of trade-offs. For example:

“I could take some extra time to study up on tomorrow’s sales call, getting to know more about the prospect. That would improve the odds of my getting a sale tomorrow.”

“On the other hand, I could make another cold call with the time saved if I don’t spend it studying up for tomorrow’s call.”

Or, another example:

“I could tell them we have very little experience in this area, which would increase their sense of my honesty, which would help me in the long run.”

“On the other hand, experience might be the key in getting this job, and I’d better make the best case I can and fudge the rest.”

Still another:

“I could share a lot of my knowledge with them, which would really impress them and make them grateful to me.”

“On the other hand, if I give it all away in the sales call, they’ll just steal my knowledge and not pay me for it—I’d better wait until after we have a signed contract.”

And one more:

“I could go out on a limb and make some really far-sighted observations that would help them—it would go way beyond what they asked for.”

“On the other hand, we don’t have much trust built up yet. They might see that as presumptuous or unprofessional; I’ll just answer the questions they asked.”

Just like with The Prisoner’s Dilemma, if the salespersons continually choose Option B, they will sub-optimize. They will do cold calls, leading with no relationship, taking no risks, treating the customer like a competitive enemy, and offering no great help.

In other words, they’ll lose. Just like the prisoners.

In theory, the prisoners are identical, whereas the salesperson and the customer are distinct. But that’s theory. In the real world, sellers somehow tend to find buyers who are similar to them. Sellers who are fear-driven and guarded somehow often find buyers who justify their worst fears.

Both seller and buyer often operate from the Prisoner’s script. And the result is just as sub-optimal.

The Prisoner’s Solution

As postulated by economists and game theorists, The Prisoner’s Dilemma is usually presented with two key assumptions:

  1. The game is played only once
  2. The players do not know each other

The solution lies in changing each of those assumptions. If you tell the players the game will be played 10 times, cooperative patterns begin to emerge. If it’s played 100 times, cooperative strategies take over.

If the players are given information about each other, they become less abstract to each other. If the information is personal, then the relationship changes tone as well.

These two dimensions—time and relationship—are critical. Without a sense of continuity over time, and without a sense of personal relationship, those playing the game will opt to “rat out” each other—even knowing that the result, system-wide, is negative for them on average. But given time and relationships—the optimal solution emerges. Everyone is better off.

In other words, the solution to behaving stupidly is to develop personal relationships over time. Now let’s see how that insight applies to selling.

The Sales Solution

The sales solution should look pretty obvious now. Suboptimal behavior is the result of short timeframes and shallow relationships. In a Prisoner’s Dilemma world, both buyer and seller fear each other, suspect the worst, don’t have relationships beyond the transaction, and are interested primarily in their own self-aggrandizement, without regard to cost to the other party.

If that sounds familiar, just look at this quick list of sales topics that are hot these days: sales automation, lead screening, CRM, social media lead generation, multi-channel messaging. Think about the last step in nearly every sales process model you’ve seen—closing. Think about some of the trends in procurement: online, blind auctions, and RFPs.

What all these subjects have in common is a view of selling that is a) transactional and b) impersonal. In other words, they have short timeframes and weak relationships—two things sure to hurt sales.

Selling benefits from longer timeframes and better personal relationships. If you can stop thinking like an economist and work to eliminate the fear you and your buyers have, you’ll benefit from the long-lasting trustworthy relationships that develop as a result.

This post first appeared on RainToday.com

The Limits of Value Propositions

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In B2B sales, having a clearly developed and clearly stated value proposition is unquestionably important. This is especially true for large, complex, or intangible offerings.

In fact, some experts go so far as to suggest a value proposition is the key component of successful sales. And most would say that a value proposition is at least a necessary condition for success, if not a sufficient one.

But this is certainly to overstate the value of value propositions. Not only are they not sufficient – sometimes they’re not even necessary. They are frequently less important than classic issues of needs and wants. And discussing value propositions without overtly addressing client confidence in the capability of the seller is not useful.

Value propositions are unquestionably powerful. But if you think nailing down a clear value proposition is going to solve your sales issues, you need to think again.

Thinking about Value

First, some definitions. I’m using “value” in a simple, narrow way to mean economic value. For example, I might offer a client a value proposition that says, “By using a distinctive approach to account development, I can improve top-line revenue by 10% within six months at virtually no cost to margins.” The “value” in that example is “10% of full-margin top-line revenue,” and the total statement includes reference to how I’m going to achieve it and in what realm of the client’s business.

But usually that’s not how clients start out thinking. In my experience, clients go rather quickly from “we’ve got a revenue problem” to “the biggest reason for our revenue problem is sales force turnover,” from whence it’s a quick hop to “we need a salesforce recruiting solution.” In which case, my highly articulated value proposition about the account development process, even if it’s correct and relevant, doesn’t even get invited to the party.

Their problem (“10% top-line revenue gap”) may rhyme with your value offering (10% top-line revenue growth”), but if the buyer is fixated on sales force turnover, game over. You could argue you need to present your value proposition earlier in the buying cycle, but that’s a problem outside the value proposition per se. Call that the “misaligned diagnosis” problem.

Another problem is relative lack of urgency. A 10% increase in top-line growth, while it sounds great, may produce yawns in organizations that are transfixed by products going off patent, or by R&D rejuvenation, or by M&A activity, or by the urgency of a cost-cutting drive.

A value proposition can work its magic only if the client a) agrees on the issue at hand, b) feels a need to address the issue, and c) wants to use the particular value proposition to address the need.

That is not a radical statement. (The value of a glass of water in the desert is greater than when lakeside.) And yet it is violated all the time. Salespeople keen on articulating value propositions to clients risk making the world look like a nail to match their value proposition hammer. We know better than to sell product vs. solution, but it’s so tempting when the “product” is disguised as a total value proposition.

Note: this can work in sellers’ favor. Over half my clients already see what they want in my offerings by the time they contact me. They articulate my value proposition for themselves. And unless they’ve gotten it quite wrong (not very common), there’s little point in forcing them to tweak it. At that point, the imperative to add value as the opportunity presents itself becomes the key task.

Selling Value and Buying Value

Suppose you haven’t productized the value proposition. You’re engaged in a constructive dialogue with an interested client. You’ve articulated your value proposition, they comprehend it, and it meets their needs. However, the same can be said for two competitors, each of whom is also talking to your potential client about increasing top-line revenue by changing the account development process.

Several issues then arise, such as the level of detail. (Just how does your approach to changing the account development process differ from theirs?) You could call this a deeper level of value proposition, but below some level it starts to look like just product variations.

But the biggest issue for buyers at this point is often not the value proposition at all, but the confidence or trust the buyer has in the seller. Confidence and trust can not only overcompensate for lower stated value, but they can overturn the value proposition entirely.

Expected Value

Consider two firms competing for a bid, with general agreement on the value proposition that the client is looking for. Let’s say the economic value calculated by each firm is about net $5 million. Sophisticated decision analytics might reveal the client has 90% confidence that firm A will deliver fully on the expected value, but only a 75% level of confidence that Firm B will do so.

That’s 15 percentage points variation in expected value—the same as if one firm had quoted a value of $750,000 more than the other! It’s also a discrepancy often sufficient to entirely wipe out the fees difference between the two sellers. Even greater discrepancies emerge when the issues turn to, “what if things go wrong? What will they be like to work with then?”

Yet this discrepancy virtually never gets talked about—at least not in a direct and quantitative way. The discussions are more along the lines of, “I don’t know. I just don’t feel like when push comes to shove they’re going to be able to get with our program.”

If you lose a bid and are lucky enough to get some post-bid debriefing, you’re not likely to hear, “Well, we just didn’t feel like when the chips were down you’d be able to get with our program.” That would be the corporate version of politically incorrect speech.

Instead, you will hear, “The other guys had a more compelling set of resumes on their team, ” or “We just felt like we had to go with their longer track record in this area.” In other words, the language of value proposition gets cited as post hoc justification even though it was not the basis for the actual decision. More prosaically, people buy with their heart and rationalize it with their brains.

Trust Can Even Overturn a Value Proposition

I’ve been on both ends of this one. I won a job by telling the client they flatly didn’t need to do a significant part of the job they were requesting. I didn’t win because I came up with a better value proposition; I won because I showed I could figure out the right thing to do. And the proof of it was they didn’t bother to solicit other bids around the new value proposition.

Sadly for me, I’ve lost this way, too. It’s not about picking the right game, it’s about picking the person who knows how to pick the right game.

The Role of the Value Proposition

Too often it’s assumed that the purpose of the value proposition is so obvious it doesn’t need stating. Doh! We assume clients buy value, clearly expressed, and tightly calculated. After all, that’s what they say they do.

There are seriously valuable roles for a value proposition, of course. They are:

  • To force the seller to have a Point of View: my client may or may not buy what I’m selling, but my statement of it marks a beginning point of discussion, a coherent account—one that suggests other ideas, proves I’ve thought things through, and shows I am worthy of valuable time.
  • To give the buyer “air cover” in justifying a decision internally: a B2B buyer wants to be able to tell anyone who asks, but especially his superiors, that they bought a proven product with a 35% ROI that will provide a 15% CAGR by an experienced-based approach to account management. They do not want to tell everyone they chose vendor A because, gee, they really felt good about them—even if that’s the truth.
  • To undergo a required, universal protocol: like meeting ISO standards, following tax rules, or complying with traffic laws, the tight definitions that come from rigorous thinking about value propositions are an assurance of quality. They may be a little pro forma, they may be subject to some tweaking, and they may not be a guarantee. But if everyone must do them, they form a common denominator by which to compare something of importance—value.

Value propositions are powerful, useful, and often necessary. Typically, however, they are not sufficient. Don’t go to into the sale armed with a value proposition alone.

 

This post originally appeared on RainToday.com

When to Offer a Low Price

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Last week, we talked a bit about pricing low to get the sale – and how that is not always the best option. But when is it okay to offer a low or  lower price? There’s always an exception (or two) to every rule out there. So, if you want to know a bit more on when you should offer a discount – read on.

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Few things in business have such dramatic impact on customer perception as how you handle your pricing, particularly when and how you offer discounts.

People may evaluate your products or your service by averaging out multiple experiences. But drop your price just once, and you’ll see how hard it is to recover. For a current example of how powerful your pricing image is, consider Bill Ackman’s painful failure to revamp the image of JC Penney—away from frequent discounts to everyday low prices as a strategy.

Yet in professional services and complex businesses, we play with offering discounts all the time. Shouldn’t we have a strategy behind it?

Don’t Just Stand There: Stand for Something

There is no one “right” approach to offering discounts. Your approach will vary with your business, your objectives, and your markets. But there are some things every approach should do:

  • You should have a rule for when to discount.
  • That rule should be easily explainable to clients.
  • You have to be willing to live by the rule.

That may sound obvious. But how often have you heard things like, “Don’t tell Bill that Joe got that price. It’ll only encourage him to want it,” or “Those guys’ll do anything to get the business.” Those statements indicate a lack of policy, and that’s death on your reputation.

What to Stand For

Again, your business will vary. Here’s what I decided for mine. I run a high-end professional services business, offering speaking, training, coaching, and related services. I want to be known for high quality, professionalism, and subject matter expertise. And in my case, because the subject matter is trust, I need to be seen as completely above suspicion.

It’s clear, then, that I need to articulate and live by some rules about when to discount. Here’s what I came up with over the years.

1. Frequency. I want to be at the opposite end of the spectrum from a JC Penney strategy of frequent discounting. I don’t want clients looking for bargains. If they’re looking to price shop, I want to send a subtle message that they’re in the wrong place.

2. Exceptions. To help that message, I need to be very clear about where discounts are appropriate. In my business, I can clearly state three such situations:

Volume. In my business, perhaps the biggest cost is cost of sales (the time, expense, and investment it takes to generate professional fees). It stands to reason that if someone can reduce my cost of sales, I have room to pass some of those savings along in lower prices.

The biggest example of that is a simply volume discount. The economics of selling one training session to 10 clients vs. selling 10 training sessions to one client are pretty clear. I am happy to receive multiple orders, and I’m happy to offer volume discounts to reflect it.

For me, volume discounts are easy to explain and easy to justify.

Special Situations—For Me. Sometimes I want to work in a new industry or with a novel offering. Those situations are as important for me as they are for the client. In those cases, I will offer a significant discount. I don’t want to shave nickels; I want to send a message about what is important and what isn’t. And in those cases, it’s about the learning. Those kinds of discounts rarely happen.

Special Situations—For the Client. Non-profits never have the kind of money that corporations do; most associations are limited as well. I don’t say yes to all those requests, but when I do, it’s only reasonable to price “off-label.” (Government is a special case, and one I won’t go into here.)

3. Non-Exceptions. That’s about it. That leaves a lot of other situations where I choose not to discount. It’s worth pointing them out:

Pleas for budget. Sorry, I have a list of charities, and corporations with a squeezed budget this year are not on the list. And make that never if you’re in the pharmaceutical or financial services industries, or if you have office space in midtown Manhattan. I have convinced myself that I need your money more than you do.

Bargaining. I have a simple way of declaring that this is not a bazaar: transparency. I explain my business model, explain when and how I give discounts, and—that’s it. I recall one client who, after our initial phone call, said, “I assume that if we go ahead, you’ll grant us our customary 20% discount.” He assumed wrongly.

The Positive Alternative. “Just say no” may (or may not) be a good strategy for drug usage, but it’s not a satisfactory answer to a client on the receiving end. None of us like to be told no, even with a great explanation.

Over the years, I developed another business practice that turned out to have a great side benefit: making people appreciate my saying “no” to discount requests. That practice is to simply take a few minutes extra to talk with them about their situation and refer them to someone else who can help them.

I am a very small player in all the markets I play in. I am far from the only one providing great service. If someone doesn’t happen to fit my business model, they may be caviar and champagne for someone else’s model.

It costs nothing to spend a little time thinking about alternatives for clients who don’t quite fit with my needs, and it generates huge amounts of goodwill. It’s a small investment with a big marketing return: they may come back when they have a need that is a fit with me, and they may speak well of me to others. And—they’re no longer complaining about how I don’t discount.

Again, my model is not the only one. You have to decide what’s right for you. But whatever it is, it should be clear, it has to be explainable, and you have to be willing to live by it.

 

This post originally appeared in RainToday.com

And the Winner Is Low Price. Wait – No…

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It’s a time-honored business strategy – low prices. Michael Porter codified Low Price as one of three generic competitive strategies, but it’s not like it wasn’t already commonsense in  every business culture. Still, it’s remarkable to see the over-reliance on this particular strategy in our “modern” times.

Which leads me to ask: Just what is it with low prices?

You see products and services being sold on the basis of low price every day, all around you. Yet you’re also well aware that you shouldn’t compete on just price—that price competition is ruinous and that low prices suggest the absence of larger value.

But just what does that mean for your business? Don’t take my word for it; find out for yourself. Are you in a vicious, cut-throat, price-gouging business? Or are you in one of those cushy, big-margin, fat, dumb and happy businesses that doesn’t have to worry about price competition?

You may be surprised at where you fall on the continuum.

The 3-Question Price Competition Quiz

First, make a subjective estimation of where your business stands on a price sensitivity scale of 1 to 10, with 1 being “price ranks very low on the scale of our customers’ concerns” and 10 being “low price is just about the only item our customers care about in this business.” On which side of 5 does your business lie? And how far over toward the end?

Second, make a list of the last 25 competitive bid jobs your company bid on—and lost.

Third, make a list of the last 25 competitive bid jobs your company bid on—and won.

Now, for the “lost” list: in how many of the 25 cases where you lost the competitive bid did the client say something like, “Nice job. Thanks for bidding, but, well, you were just a little too far out of line on price.” In other words, how many jobs did you lose on price? What percent is that of the 25?

And finally, for the “won” list: in how many of the 25 cases where you won the competitive bid did the client say to you, in effect, “Congratulations, you won the job; looking forward to working with you. By the way, the reason you won was you were the low bidder.” In other words, how many jobs did you win on price? What percent is that of the 25?

And the Winner Is …

Let me guess: your percentage lost on price is larger than your percentage won on price.

Let me guess again: your percentage won on price is closer to zero than it is to 25%.

Another guess: your percentage lost on price is less than half.

Another: the ratio of your percentage lost on price to your percentage won on price is 2.5:1 or more.

And finally: looking at your subjectively estimated ranking of your business’s level of price competition, does it fall on the same side of 5 as your estimated wins and losses based on price?

Now, if those guesses are wrong, please write me. I want to know what business you are in! Because for most B2B businesses, particularly those with larger, more complex sales and services offerings, those guesses are well-based on historical data (my data, that is, from giving the quiz in classes).

The Pricing Conundrum

Assuming your results look like my guesses, that raises several conundrums.

One conundrum is this: “If we’re such a price-competitive business, why do both wins and losses appear to be less often based on price than on something else?”

The other is this: “Why do we seem to lose on price more often than we win?”

The answer to both conundrums is that price is overrated as a factor in buying decisions. The real question is why? The answer has mostly to do with buyer psychology.

How Buyers Think about Price

One level of buyer psychology is available to us simply by asking, or by envisioning, what goes on in client organizations. Many consultants and accountants I talk to (and nearly all lawyers) have a tale about how the client’s procurement process is destroying quality—”all they care about is price.”

That is not what the procurement people will tell you, however. Procurement specialists have little interest in incurring the wrath of internal clients with legitimate quality concerns just to be able to say they got the lowest bidder. Value and quality are hardly irrelevant to their concerns.

And assuming your data is like I suggested above, the low bidder doesn’t always win. In fact, the low bidder, it would appear, wins considerably less than half the time, even judging from the higher of the two numbers you estimated (percentage of time you lost on price). And considering the number of times you won on price, one has to wonder how the myth of price competition arose in the first place.

The answer goes deeper into buyer psychology. Suppose you worked for a client and were charged with telling the losing bidders the bad news. How would you deliver the message?

Perhaps you’d prefer to do nothing and just skip the unpleasant task. But you know someone has to do it, and you owe it to the bidders to give a decent explanation.

You don’t want to share too much about the decision process, however, for a variety of reasons—chief among which is you chose the winning firm because, frankly, “we just feel more right about working with them.” You can’t saythat, for heavens’ sake!

So, you end up with several generalizations. Your team wasn’t quite as qualified, the winner had a really strong track record, and that game-ending no-appeals-allowed reason—your price was just a little too high.

Price is an enormously appealing excuse. It’s quantitative (and we all know numbers are good, right?). It’s completely opaque—the proposer has no way of knowing anyone else’s price and would never ask (and only partly because of legal issues).

But most important of all, the bidder wants to believe price was the reason they lost. Because the alternatives are unpalatable: they don’t have good people, they don’t have a good reputation, they don’t appear trustworthy, and so on. No selling team, particularly a team that would be involved in delivering the work, is interested in a message like that!

So, price becomes their refuge. “Darn! If we just could have priced it a little lower. I knew it. The market is tough out there; next time we can’t afford to be so choosy. We need to get in there and fight. And if we have to lower prices to get the work, well maybe we need to do just that.”

And that’s how the myth of low prices gets perpetuated. The moral of the story: if you think you lost on price, think again. Price is just the most convenient excuse for something more fundamental.

 

This post originally appeared on RainToday.