Wayne Wilson on Companies in Transition

Pricing Pitfalls

It takes a strong manager to consider raising prices in a period of declining consumer demand and falling profitability. And yet pricing is one of the most important tools available for improving margins, strengthening customer relationships, and trimming the business’ overall profile.

There are right ways and wrong ways to manage pricing. Per Sjofors, [1] a pricing consultant, recently offered his list of the Top 10 Pricing Mistakes Most Companies Make. [2] Here is an abbreviated version:

1. Basing prices on costs, not customers’ perception of value
2. Basing prices on the marketplace (whatever that is)
3. Trying to achieve the same margin across multiple product lines
4. Failing to segment customers
5. Holding prices for too long at the same level (too high or too low)
6. Compensating sales reps on revenue rather than profitability
7. Changing prices without considering competitor reactions
8. Failing to actively manage pricing practices
9. Failing to establish internal procedures to optimize prices
10. Spending too much time serving the least profitable customers

Improve your business’ prospects for prosperity by taking charge of the product or service pricing process.

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[1] Managing partner at Atenga Inc., a Newport Beach California, strategic pricing consulting company

[2] Financial Executive, May 2009, p 30.

Countering the decline in sales closing rates

Jill Konrath (Selling to Big Companies) recently reported, “It now takes 4.5 prospects to get a sale – up from 3.0 prospects just a short time ago.” That’s a closing rate decline of over 30% - an alarming, though not surprising, decline given the current economic environment.

The causes are many – longer sales cycles, fewer customers buying, more pressure on pricing, too many me-too products, not to mention management paralysis all around.

Countering the decline in closing rates requires that companies and their sales organizations focus on all the metrics in the sales cycle:

• Increasing the numbers of prospects – most sales forces are working with too few prospects to begin with. Shift more marketing resources to targeted lead generation.

• Accelerating prospect qualification – too many prospects in your pipeline are “china eggs” – they will never hatch. Sales executives can improve sales force effectiveness by rigorously scrubbing the pipeline to eliminate or downgrade poor prospects.

• Creating compelling offers – customers who routinely purchased your products in the past now require a compelling reason to turn loose of their cash. Product positioning is critical here. If your product is not a must have, it will be left by the wayside.

• Improving the overall customer value proposition – most customers today are pressing for pricing discounts, but it’s not always about the price. They are often seeking improvement in the overall value transfer from you to them. What problems can you solve for them that create more value for your customers than cost to you?

• Getting to a yes today – the sales process must drive a sense of urgency; everyone has quarterly sales targets to meet. The solution is to work backwards up the sales funnel and address the problems in the earlier stages of the sales process.

If you are generating a large flow of high-quality prospects that need your products and you rely on conservative conversion metrics, there will be plenty of qualified buyers to close each quarter.

Sales and marketing alignment

Brian Carroll over at B2B Lead Generation Blog recently wrote a post that ties in directly with our recent posts on this subject - Sales and marketing alignment: tips for getting it right with lead generation.

"According to the 2008 Miller Heiman Sales Best Practices Study, only 37% of respondents agreed that their sales and marketing organizations are aligned in what their customers want and need. I discussed this disconnect with Bill Golder in the February issue of Sales & Marketing Management. You can check out the interview online: Chronicles of a Sales Leader: The Lack of Sales and Marketing Alignment in Organizations Today."

Read Brian's article ...

Get some smart people to challenge you!

Business owner/CEOs can get so wrapped up in our own plans and worldviews that we miss our full potential, or worse we can be heading for a ditch without realizing it! Physicists call it a closed feedback loop. In lay terms, if we only talk to ourselves, we will only hear our own voices.

One of the essential roles of a board of directors or board of advisors is to challenge and vet the ideas and plans proposed by management. The end result should be that good plans are strengthened and poor plans are discarded or significantly re-worked.

My best investor relations meetings were the ones with the toughest analysts who asked the most difficult questions. They were experts at ferreting out the weak spots in our story, in effect telling us the areas we needed to work on going forward.

Customers and clients are often the best sources of real world feedback. Don’t fight them; embrace them. Your future may depend on it.

Balancing Marketing and Sales

Many companies are suffering from a significant imbalance between their marketing and sales efforts – skimpy marketing budgets with lots of expensive sales reps.

Business owner/CEOs justify this mix because it’s often hard to measure marketing results while a sales rep is either producing or he’s not. Such a tight bottom line orientation can be short sighted, especially when the sales reps’ production begins to decline and a remedy is not obvious.

There is a better way. The best marketing programs are ones that generate qualified leads for the sales organization to pursue. Here is an example.

A technology reseller uses product-based, solution-oriented seminars to develop interest among its customers and prospects.

1. The company produces monthly seminars in partnership with its vendor partners who supply the technical specialists to lead the seminars.
2. Email invitation lists are compiled from existing customers, prospect lists, and vendor mailing lists.
3. Marketing staff follows up to ensure that each seminar has at least 25 participants.
4. Sales reps are assigned to each attending company to build relationships, gather feedback, and follow up as appropriate.
5. The company tracks and measures the deal flow and sales results for every company attending each seminar.

Marketing activities are an integral part of the sales process. They should support and be linked to specific sales objectives.

The Facebook Business (Advertising) Model

Fascinating interview with Sheryl Sandberg, Facebook COO, in Business Week:

“We believe advertising needs to blend into the experience. … What we have are ads that act like our site.

“So, for example, on Valentine's Day, Honda gave a virtual gift, which was a little heart that said—I forget the exact language, but "Your heart is full, so your tank should be, too." It was a little Honda-branded gift. They paid for 750,000 of them to be given. So 750,000 people gave this heart to 750,000 other people. Then what that generated on the site was talk about Honda, talk about their cars, excitement about some of the things they're launching, and then more than 200 million impressions. So [those ads] didn't look like the huge ads you're used to seeing on other sites, but what they looked like were [Facebook’s] news-feed stories. So the advertising experience itself is very integrated into the Facebook experience.”

Read the interview …

Facebook is a classic example of jumping ahead to an entirely different variation on a business model. The model is still advertising but a very different kind of advertising – no banners, no search based text ads; call them “experience ads.”

The Question – how will advertisers measure impact? Banner and pay-per-click ads have become popular partly because real sales results could be tracked back to specific ads.

Sales versus marketing

Many business owners and managers confuse sales and marketing. They question the need for marketing programs or worse, they complain when they spend money on marketing and sales do not increase.

Marketing is like air cover in a military operation. It softens up the enemy and prepares the way for the ground forces, but only boots on the ground (the sales force) can secure new territory.

Marketing can:

• Identify, research and analyze potential markets
• Educate those markets about your company’s products and services
• Generate leads for the sales force

But the sales force must:

• Qualify those leads
• Close the business and
• Service the customers

Marketing does not and cannot replace sales. Done properly, marketing can improve the efficiency and extend the effectiveness of your sales organization.

20 Ways to Cut Costs

Business owner/CEOs all struggle during turbulent economic times with the dilemma: revenue is falling and profits are disappearing; do I focus on stabilizing/growing revenue or do I cut costs to minimize the profit erosion?

The truth is you have to do both!

ZweigWhite, consultants and advisors to architectural and engineering service firms, is offering a DVD program 20 Ways to Cut Costs: Cut wasteful spending and improve profitability.

While their list is specific to professional services firms, it’s a great place for any business to start:

• Unbillable principal-level staff
• Sacred cow administrative assistants and secretaries
• Unused office space or overly expensive office space
• Outside professional services
• Insurance
• Lights, heat and more
• Company vehicles
• Excess luxuries
• Employee benefits
• Unnecessary overtime
• Principal salaries and perks
• Non-billable travel
• Dumb, dead, or too small branch offices
• Unnecessary meetings
• Recruiting expenses
• Family members on the payroll
• Training for the sake of training
• Library and subscriptions
• Professional society dues and meetings
• "Don’t be left out" marketing expenses

Costs come in two varieties:

1. Investments that support current revenues or generate new revenues, and
2. Other spending, which is the profit leaking out of your business

Click here to order the program.

Applying ‘The Only Three Questions That Count’

I have been reading Ken Fisher’s The Only Three Questions That Count: Investing by Knowing What Others Don’t. Ken’s focus and business is managing stock portfolios at Fisher Investments but his questions and methods can also be applied to running a business.

Here are Ken’s three questions:

Question 1 - What do you believe that is actually false?

This one really set me back because it can be applied to everything you do. Life, investing and business are filled with myths. You think you know what your customers want, but have you asked them? You think you know what your competitors are up to, but have you gone into the market to see? You suspect that some of your employees are not happy working for you, but have you tried to find out why?

Question 2 - What can you fathom that others find unfathomable?

This is classic specialist, niche marketing for business owner/CEOs. How can you own a particular market segment? What products or services could address an unmet need? Or meet that need better, quicker, or cheaper? What knowledge, organizational, facility, design or production investments need to be made to position your company uniquely in that market?

Question 3 - What the heck is my brain doing to blindside me now?

This question could be summed up as “we see what we expect to see and we are simply blind to what we do not expect to see.” Each of us have pre-conceived notions or screens that filter the information we receive from our environment. Problems arise when the information we expect to see is incorrect or irrelevant to our situation, or worse, the information we filter out (are blind to) is warning us of impending disaster!

Business success is partly about the ability to challenge and vet what we see and hear. We might do well to start by challenging ourselves first.

Counting calories

Anyone who has ever attempted to lose weight hates counting calories. And yet the quantity, type and frequency of caloric intake largely govern whether a dieter will reach his/her goal.

Businesses must also count their calories. Spending cash is the business equivalent of calories. Like foods, there are several types of calories:

• Muscle building calories from proteins – strategic investments in products, services, and processes

• High-energy carbohydrates – operating expenses that support effective production, sales and marketing, and customer service

• Empty calories like alcohol – spending on perks and overhead items that do not contribute to the business’ success and which would never be missed by customers

What kind of calories are you feeding your business?