As a result of the liquidity crisis and the giant sucking sound that followed, business-to-business customer relations have taken a dramatic turn.  Salespeople, beaten down by heightened customer demands and rampant discounting have become far more tactical.  As customers have attempted to flatten the playing field through RFQ’s and reverse auctions, vendors have been conditioned to comply with a new set of norms. How tedious and unfortunate.

The art of dissecting customer needs has deeply eroded. These new realities put the seller at a tremendous disadvantage, and often impacts margins and profitability. Selling organizations are better off identifying the minority of customers who are still willing to have strategic conversations.  Below are 4 types of questions you should be prepared to ask in a strategic meeting.

Perhaps the most critical element of consultative selling is getting to a decision maker. Procurement departments are typically focused on one variable; price. One way to orchestrate a senior level meeting is to ask for a strategy session or peer review. This can be positioned simply as…”the senior management of my company is planning a trip to…and they wanted to know if we can have a strategic conversation about the future and how we can; take cost out of the system, improve customer experience, reduce cycle time, etc…” In some cases, you may need to be prepared to suggest that you are considering investments that will decrease the total cost of doing business for the customer (that does not mean a price concession).

Salespeople should prepare rigorously for the meeting, digging up every possible piece of information on the company, their customers, their competitors, your competitors and about the people you are meeting with. Linked In, Facebook and other internet sites offer all type of information about clients-everything from the alma mater, to hobbies and interests.

Always allow the client to be seated first, but if possible, position so that your organizations are not seated on opposing sides of a table. Begin the meeting with opening questions and quickly transition to strategic questions. You want to first set a tone that you are there to probe and listen:

Stage 1: Opening Questions

• How many years have you been in the industry, or how many years have you been here?
• What did you do before?

Stage 2: Strategic Questions

• What is your vision for growing the business?
• What are your strategic objectives?
• What separates you from you competition?
• How will your company need to change to maintain its advantage?

Explain to your salespeople that if they interrupt the customer, or speak while you are asking questions, you will fire them on the spot (and mean it).  Many will have an overwhelming desire to present (and not to listen). Here is the golden rule: if you are speaking for more than 20% of any meeting, you are losing!

While asking strategic questions, you are observing the customer’s tone, pace and body language. If they are tactical thinkers, or simply don’t want to have a strategic conversation with you, you will observe their discomfort and move on to lower level discussions (which you should be fully prepared for).

After you have established the fundamental business problems, create a transition where the customer views you as the solution (without you even suggesting it).

Stage 3: Anchor Questions

• What are the long term ramifications of …?
• What would be the affect on revenue/profit/cycle time/customer experience, if …were to continue?

Stage 4: Closing Questions

• Do you have any initiatives to outsource … to suppliers?
• What if we were to…?

Here is the hammer. Companies (and especially purchasing departments) have seen dramatic contraction of headcount. If there is a way for your organization to accept the burden of certain  activities on behalf of the customer, you have reduced their total cost of ownership.

This approach will not work with all of the customers all of the time, but it will promote dialog the most profitable customers and those are the ones who are worthy of our time and investment.

Adapted from A Seat at the Table by Marc Miller

Being Opportunistic in a Volatile World

Last week my post drew considerable attention, perhaps because of its shock value at a time when the news was truly shocking. While the tsunami was a natural disaster, the response on the part of the Tokyo Electric Company was a human calamity. Lack of preparation will invariably lead to unintended consequences, if you are managing a nuclear power plant or any other business.

The reverse is also true. The entrepreneur capable of understanding seemingly unrelated external forces, and weaving them into a thoughtful strategy, will clearly realize strategic advantage. How might the strategist consider social, technological, economic, ecological and political factors to gain insight on how to take advantage of ever changing market conditions?

Scenario planning is a methodology whereby the entrepreneur considers converging factors that (in combination) creates a tipping point. Consider some of the following predictions, based on facts already in evidence today.

In the next decade, we are likely to see:

Predicative Modeling-Cloud computing enables the migration and cross-referencing of large institutional databases.  For example, actuaries, using sophisticated algorithms are able to model ailments based on lifestyle choices monitored in real time. They are able to calculate your risk of a heart attack based on which smoothie you tend to order at Jamba Juice, your frequency of exercise, prescriptions you use, etc. Offered as a benefit of a health care plan, the member is offered incentives to opt-in and receive preferential rates. Such tools slow down rampant health care inflation.

A Cashless Society-The majority of transactions amongst big banks are managed by exchanges where no money actually changes hands. Coins of small denomination are nearing extinction. Today, you can download an iPhone app that serves as a debit card, and can be swiped within Starbucks locations.  For most transactions, cash is already irrelevant.

Smart Infrastructure- Automobiles come preinstalled with all of the features of an iPad (the 2011 Hyundai Equus will come with one) and all the benefits of the internet. Smart grids control the flow of traffic, directing drivers to particular lanes at a given speed to optimize drive time and reduce accidents. Traffic signals are regulated based on traffic volume. Sensors predict bridge and rail failures.

Of course, rapid change will occur in every industry, and the strategist must weigh various opportunities based on an organization’s ability to take advantage of them. As a general rule, organizations should seek to achieve scale and reach within its core (at least 30% market share) before expanding into new endeavors. As Jim Collins points out in his sequel to Good to Great (How the Mighty Fall), many companies fail because of an “Undisciplined Pursuit of More”.  In their zeal for diversification they often leap too far from their core competency.

Each opportunity must be assessed within the context of the organization’s resources, bandwidth, and human capital.  For every opportunity there is a cost, and an opportunity cost. To pursue any new opportunity an organization must leverage resources which dilutes focus on the core business.  Choose your opportunities carefully.

On the Friday after Thanksgiving, I wanted to vomit. Not because of the overwhelming consumption of pie, but because of the destruction done to the U.S. economy. As a purveyor of value creation, I find Black Friday truly mortifying.

In U.S. retailing, the 4^th quarter used to be the Pareto Principle in action, with as much as 75%-80% of profits being realized by retailers in the 4^th quarter. The shopping season has turned into a race of who can open the earliest, offer the deepest discounts, and finance purchases the longest. Uggh! The problem I have with all of this is that merchants have become conditioned to discount during peak demand, and seem to have no logical strategy for switching shoppers to higher margin products.

Retailers face the most rampant hyper-competition we have ever seen. Consumers have taken on a treasure hunting mentality, scouring the shelves for the best prices. The need for deep discounts is clear. Or is it?

I was shopping for greeting cards recently and was struck by the fact that they are astronomically high priced and never on sale.  You might find a closeout on Christmas cards after Xmas, but that is about it. They are only discounted when demand is weak. If you go to buy a birthday card, you are in effect a captive audience, with few switching options. In the Apple store, prices aren’t even posted. These examples may seem overly simplistic, so let me offer a practical approach.

Many retailers work on the concept of blended margin. On the weekend, say you like to stop at McDonalds and have a hot fudge sundae, which is on the Dollar Menu. However, your bratty children in the back of the car want McFlurrys which cost $2.59. Your family is acquired at $1, but McDonald’s trades you up to the full margin McFlurry, and the McFlurry never goes on sale.

The problem with retailers today is that they have put their entire stores on sale. They have reinforced to their customers that they need not pay full price for anything. I was talking to a woman the other day that bought 17 items on Black Friday, and did not pay full price for any item. There was no McFlurry.

Retailers are marginalizing themselves. Do not fall into this trap. You may need to have products or services at a low cost to acquire customers, but the pricing strategy must also include methods for cross-selling or actively trading customers up. Happy Holidays!