“It’s a hard world to get a break in / All the good things have been taken.” When the Animals sang those lyrics in 1965, they certainly weren’t thinking about unique selling propositions.
But companies seeking to differentiate themselves often find that “the good things” so far as competitive distinctions are concerned have indeed already been taken. Competitors attack from the high end of the market sector to cherry-pick customers and from the low end to win on price. As a result, many businesses find themselves stuck in the middle, with costs too high to enable them to compete successfully in the high-volume, low-cost segment yet lacking the sophistication in approach and products to compete in the high-cost sector.
Nevertheless, you can compete — and win. What you need to set your business apart is a new, modular three-step approach to sales and service.
The first step is identifying your company’s full range of sales and service situations, from simple transactions to complex consultative interactions. From there you can segment customers based on how they want to interact with the sales and service process and what your company can afford in terms of interactivity. For example, customers who are solely or principally deciding based on price will form one category; those who seek a “win-win” will require a different way of interacting.
Step two involves building a “lean backbone” — a high-quality, low-cost platform of sales support and service processes for interactions that cuts across all customers. This typically encompasses efforts to supply customers with information as well as order entry, fulfillment, training, and after-sales service.
In step three, you develop affordable standard modules or high-touch overlays — teams of industry experts, perhaps, or application-development teams — for situations where customers value additional sales or service support enough to cover its cost.
This strategy may sound more complex than you’d hoped. But taking a patchwork or quick-fix approach tends to just increase costs while the underlying problem remains — and perhaps gets worse — and you lose more market share to competitors.
Conversely, companies that have taken this three-step go-to-market approach have driven down their overall costs while growing their business in priority segments. Another benefit of the three-step approach: It provides a dashboard to guide future investments.
Step one: focusing on sales and service needs
Many companies devote too many sales and service resources to simple transactions and too few to complex ones. You should therefore begin rethinking your approach by deciding exactly what type and quality of sales and service interaction you must provide to your various customers.
Consider the case of a global network components provider that until recently was stuck in the middle between low-cost competitors from Asia and companies that offered new solutions and stronger field expertise to high-end customers. Analysis revealed that 70% of this company’s customer interactions were relatively simple. An additional 10% of its interactions required a modest level of customization. Only 20% of the time was a true “high touch” customer interaction required.
By matching the needs and service levels of customers more effectively, this company reduced its overall go-to-market costs by nearly 20%. It was also able to improve the quality of its customization work and speed the development of new solutions by concentrating its expertise on those high-touch interactions.
Step two: boosting service quality and reducing costs with a lean backbone
Once you profile your company’s sales and service interactions you will recognize possibilities for standardization. These typically include transactional interactions (such as order entry, processing, and tracking), the providing of product information, and simple customer service (including basic training and after-sales support). You should strive to carry out these interactions in a way that is highly cost-effective and consistent, so that customers have the same experience executing transactions, obtaining information, and receiving basic service regardless of the type of purchase they’re making.
This sort of standardization usually involves centralizing many of the above activities and then adopting a lean philosophy that emphasizes the elimination of waste and redundancies, the uniformity of processes, and continuous improvement. The resulting sales and service delivery system is a lean backbone that eliminates costly ad hoc approaches where each business, segment, and channel has its own sales and service infrastructure.
In the case of one company, the first step was to separate all of its routine and offline customer-care efforts from its live, high-touch interactions. Next, it standardized work processes and the way it captured information. This allowed the company to organize offline efforts into more-efficient regional and national “transaction factories” that created economies of scale and improved the company’s execution. It then encouraged customers to migrate their routine work and inquiries to electronic channels, reserving live interactions for the resolution of complex problems.
These changes not only cut the company’s customer-care costs by 25%, through the consolidation of 14 customer-care centers into seven, but it also improved response times and boosted customer satisfaction. While that may appear counterintuitive at first glance, this is in fact the power of this approach: less money spent to create more satisfied customers.
|Step three: adding affordable high-touch overlays|
In some situations, competitive differentiation demands truly distinctive sales or service. A key-account team that includes product-development experts might be needed to close deals involving leading-edge products. Or a rapid-response technical-service team could be essential for customers using products in mission-critical applications.
A lot of these high-touch situations share enough elements that companies can address them in a standardized fashion. Unfortunately, many companies do anything but. They allocate sales and service resources in an imprecise, decentralized way, with each business, segment, or channel manager establishing the teams he needs. These companies squander scale economies, duplicate efforts, and leave the door open for front-line managers to create inefficient customer service models.
The better approach is to establish standard modules that define what is and isn’t included in key-account, application-development, or technical-service teams. Local decision makers should then select the best module for their particular situation.
The development of affordable, consistent modules or overlays calls for a disciplined, investment-oriented approach with clear cost guidelines and strict approval rules. It also demands a healthy dialogue about where to invest. Your company needs to weigh the growth opportunity in a segment and then judge the potential return on investment. For sales overlays, the big challenge is determining whether a higher-touch effort — say, the use of a key-account team — will justify its cost by increasing the likelihood of closing deals, engendering loyalty, or winning preferential treatment. In after-sales service, the questions are whether customers will pay for the higher service level the overlay provides and how to ensure that the right customers are using it.
Developing these guidelines is a highly industry- and company-specific process that typically involves best-practice benchmarking and a careful analysis of sales-team costs. Effective guidelines help differentiate between the overlays received by customers with the most-sophisticated needs and those for customers with simple transaction needs. Clear guidelines also show which overlays should be received by customer segments within each of these broad groups — again, based on the value of the customer and the return on the cost of the overlay.
While such changes can create a better, cheaper sales support system, the transition can also create flux with customers — flux that competitors might seek to exploit. You need to pay careful attention to managing the transition and help customers understand how the new system will meet their needs.
|Putting the pieces together|
This transformation is a major undertaking that often requires 18-36 months to develop and implement. In our experience, the keys to success include sequencing initiatives carefully to generate cost and revenue benefits in the early months, building skills in a focused manner, and enforcing new forms of accountability.
The standardization that is central to a cost-effective rollout of a new sales and service approach often requires that employees acquire new skills. In one case, a company had to dedicate nearly 5% of its sales force to helping all the other salespeople get comfortable with the lean backbone and the overlays — a process that took several years. One important element was learning how to use a new system to optimize the mix of orders that salespeople were seeking. To support the rollout, the company brought in 15 sales experts and built a sales academy. It also focused on mini-transformations (of, for example, the sales support associated with a particular overlay) in one national market and then applied what it had learned to its sales training in another one.
In tandem with a new sales orientation comes clearer accountability for sales and service interactions. Encouraging and motivating salespeople’s efforts to use the lean backbone and the overlays, as well as creating new operational targets (such as customer acquisition rates, time spent with customers, and customer service costs) are examples of this process. In addition to existing functional or business metrics, you should hold all the units involved with a specific type of interaction accountable for the quality and costs of those interactions.
The chart on the left illustrates the overall three-step approach and its benefits. The lean backbone — which applies to all customer segments — includes streamlined administrative, order handling, logistics, and other common functions. This reduced the cost in those processes by four percentage points of return on sales (ROS). The company then decided to reinvest half of those savings (two percentage points of ROS) in high-touch overlays deployed against customer segments that mattered the most. The net result to the company was lower cost and a higher growth rate in priority audience segments.
Implementing this new approach will make it clear that as far as what your company can offer the marketplace, “all the good things” haven’t yet been taken and that you can carve out a sales and service niche that cost-effectively meets your customers’ demands. As another line from the Animals song says, “There are ways to make certain things pay.”
Roland John is a partner in McKinsey & Co.’s sales and marketing practice out of its Atlanta office. Tomas Naucler is a partner in McKinsey’s sales and marketing practice out of its Stockholm office. This article is based on material from the book Profiting from Proliferation.