Applications – An Antidote to Eroding Margins?
Sales Tips: Are Applications the Antidote to Eroding Margins?
By John Holland, Co-founder & Co-author of CustomerCentric Selling®
Many people are unaware that sales is a challenging profession requiring a broad skill set and personal attributes far beyond “having a nice way with people.” Most new sellers struggle early in their careers as they strive to achieve competence in a difficult job. With the vast majority of organizations lacking a formal sales process, development is largely a sink or swim proposition aided only at times by a nurturing sales manager.
For complex offerings, I believe there are four (4) types of transactions that sellers are challenged to learn how to execute. Here they are in ascending order of difficulty:
Product: While in no way easy, product sales are the least difficult to execute. A seller can learn features and specifications. Buyers can look at brochures and gain a sense for the product. In demonstrations, buyers can see and touch the product. Over time a seller that learns how to position offerings against competitors will increase their chances of winning the business. In many instances there is criterion that buyers must satisfy if they are going to be viable prospects for the product so that demand creation may be a challenge.
Software: In contrast to products, software by its nature is conceptual and intangible. While companies usually provide sellers with an idea of applications for their software, there is a broader range of potential buyers that can and should be called on. Software will often have significantly more features than hardware. Competent sellers learn to relate the software in different ways to different titles within a buying committee. If and when a demonstration is required, it is vitally important to avoid “watch it do” demos. With software, there is more of a required ability to create demand or needs for buyers. Seldom can value be established only by calling within IT.
Services: A major challenge in selling services is that the activities consultants can provide cover a broad spectrum. If the seller (or buyer) doesn’t have an idea of the type of engagement or desired outcomes, it can be nearly impossible to define what will be provided. The ability to differentiate is harder when the person selling the services will not be delivering them, as the buyer cannot get a sense for the competence of whoever will be performing the tasks. If differentiation cannot be established, buyers may view services as a commodity sale and allow price to be the deciding factor.
Applications: The reason I believe application sales are most difficult is that in many instances they entail selling products, software and services. Beyond that there is the challenge of implementation activities (vs. installation or activation) that often involve several different groups or departments. Sellers must call at fairly high levels and as with software, have the ability to create demand for applications. When executed properly these sales provide more ability to differentiate overall offerings and include such things as support, company reputation, etc.
While any application sale is difficult, those done at departmental levels are significantly easier to execute as opposed to enterprise-wide opportunities. I’m hard pressed to think of a more challenging application sale than ERP, which affects all major departments in manufacturing. Implementation can require executive commitment to make needed cultural changes.
Many vendors have a mix of these four types of sales, but face the following realities:
1. Hardware/product margins shrank during the 80’s.
2. Software margins shrank during the 90’s.
3. Managed services margins shrank during the last decade.
Application sales can create opportunities for larger transactions with higher margins because they present more ways to differentiate from other vendors. A seller executing an application sales competing with someone trying a product sale enjoys many advantages as evidenced by the results achieved by one of our clients.
We featured a Success Story for SymQuest, the first CustomerCentric Selling® client that was struggling due to declining margins on printers, copiers and faxes. It was common practice for competitors to sell machines at razor thin margins or even at losses in the hopes of gaining margins on toner, maintenance and supplies. The underlying problem was that sellers were executing product sales in what buyers perceived as being a commodity market.
Starting in 2002, they shifted from product to application sales by implementing CCS™. Instead of calling on Procurement or IT, they started calling on people in finance to discuss workflow and productivity. Workflow sales usually involve hardware, software and services. SymQuest has leveraged CCS™ to grow EBIDTA 71% over the last 8 years. Further details are available in their Success Story featured in our Customer Showcase on our Website.
An application can be defined as:
Offerings used to achieve specific business outcomes. While you may have a mix of product and application sales opportunities, there may be instances where you can migrate product sales to application sales with the proper messaging and positioning as SymQuest did back in 2002.
CustomerCentric Selling® is committed to helping our clients make the way they sell a competitive advantage. It may be a good time to take inventory of your library of Sales Ready Messaging®. Better margins and top line can be achieved by executing application sales.