Good and great companies don't sell price, they sell value. Still, too many businesses approach sales as if it is pricing combat between the seller and the buyer, and it is the seller's duty to win at all costs, especially by discounting. This results in two things: discounting to any level to close the deal, and razor-thin margins that can ultimately mean the death of your business.
Before spending a dime on anything, managers, executives and owners must ensure they spend money wisely; that investments in business development and growth offer potential return based on established margins and a targeted bottom line; and that the money works to achieve measurable goals.
Analysis of why some leaders fail to execute on the plan suggests they may not always be held entirely responsible. As long as shareholders and board members insist upon short-term results, only the most powerful and fearless executives will reap the long-term rewards and margins that strategic planning can deliver. Meanwhile, short-term thinking prevents American businesses, small and large alike, from becoming the best they can be, and in the long-term this short-term thinking short-changes everyone, including shareholders.
Need proof? In December 2005, Consumer Reports identified the 31 most reliable cars–29 of them were Japanese models. I do not believe for a moment that American engineers and workers are any less competent than their Japanese counterparts. That leaves leadership, innovation and planning as the culprits behind the failure of the American automotive industry.
I believe that if Ford and GM continue to miscalculate their customers' needs, wants and desires and continue to fail to look toward society's future needs, generations to come will look at these companies as examples of an automobile industry that once existed in the US, but no longer does.
Fortunately, America is still blessed with brave and bold business leaders attempting to pilot American businesses toward greatness. As James C. Collins and Jerry I. Porras put it in Built to Last, "Maximizing shareholder wealth or profit maximization has not been the dominant driving force or primary objective through the history of the visionary companies." Ironically, they add, the result is that "visionary companies attain extraordinary long-term performance–." and that "visionary companies have done more than just generate long-term financial returns, they have woven themselves into the very fabric of society."
Unfortunately, too often the attitude engendered by the Sales reward system and the job description leaves a sour taste in the customer's mouth. It seldom does anything to build Brand, to build solid business relationships based on trust and credibility, or to share the company's values, which lead to long-term relationships and customer loyalty and in turn greater revenues and margins. The system of grabbing money quickly translates into the best deal wins, lower revenues, lower margins, and little to no relationship-building or customer loyalty.
As mentioned earlier, you must never throw money at advertising, public relations or direct marketing without first understanding who specifically you are targeting; what those customers think and feel and need; what your value is to them; and what their value is to you. This requires analysis, intelligence and research before you invest money in any aspect of marketing.
Far too frequently, businesses think they need to advertise because everyone else does. And there are lots of advertising and marketing firms willing to spend a business's dollars. The metaphor for that is a doctor who diagnoses himself based on his own experience rather than the science, and a surgeon happy to accept that diagnosis and perform the surgery, despite the fact no deep study of the symptoms was conducted.
I argue that advertising should be carefully and infrequently used. It is expensive and seldom returns profit equal to margins possible when money is invested elsewhere. But you won't know where to invest your money if you don't you have a thorough understanding of the "who," if you don't perform a deep analysis of your objectives, and if you don't run your numbers before committing to tactics
In his new book, customer loyalty expert Fred Reichheld says turning loyal customers into word-of-mouth promoters is critical to your business growth. As examples, he cites Costco, which has grown to 45 million members despite spending little on advertising and marketing. Reichheld sees quality customer service, which results in high-quality relationships, as the primary mover. Starbucks employs the same philosophy to use as a foundation for growth.
Of course, Reichheld says, most companies would focus on building excellent customer relations if it did not cost anything–but building relationships is not free. Reichheld argues, failing to build excellent customer relations may result in short-term profits but in the long run those customers will spend far less with your business than a loyal customer. Furthermore, short-term relationships mean customers who are "shopping the deal" and who often are unwilling to pay for value, reducing your margins.
Furthermore, every employee, especially sales reps and the marketing staff, must thoroughly understand where the business is going, how it is going to get there, and what they must do to support the process. Compensation should be based on the results they achieve in making the business's goals.
And, just as a reminder: Compensation packages for sales reps should not be based on their individual sales revenues, which encourages and rewards discounting. Instead, their goals should be based on margins and their compensation measured on how well they achieve their overall goals.
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