The concept of Service Marketing is often misunderstood.

Very often, service marketing is still misunderstood to merely refer to the marketing of services, i.e. of non-tangible products. This is not to say that services would not be important, to the contrary. In many industrialized countries the service(s) industry accounts for more than 70% of the the GDP (Gross Domestic Product). In companies, often more than 60% of purchases are services. Thus, marketing of services (as opposed to goods) is important. However, the concept of service marketing goes beyond this.

When looking at business transactions or business engagement from a customer’s perspective, they do not buy goods (tangible products) or services (non-tangible products), rather customers buy the benefits that goods and services provide them with. When a customer buys an offering that consists of e.g. goods, services and information, they acquire something that is beneficial for them. When buying a shovel, the service rendered can be e.g. being able to dig a hole in the ground to plant a tree. The shovel enables a more efficient way of digging a hole in the ground when e.g. compared to digging one with your bare hands. When service means supporting customers’ actions, activities and processes – when viewed from the perspective of the customer - all solutions (consisting of goods, services or combinations of these) are services: “Service is all there is” (Grönroos, 2011).

For those of you who do not celebrate Christmas, we wish you happy holidays. Furthermore, for those of you who choose not to take a break from work during this time of the year, we urge you to do so – you deserve a break! In fact, all of us do.

This is a good time to have a look in the rear-view mirror and see all the things that one has accomplished during the calendar year. Focus on the good things, because this will keep you motivated and eager to take on new challenges. This is a time to reflect, learn, and become better at doing things well and doing them right. Regardless if you consider your relationship as a private person to e.g. your spouse, or as a sales professional to your customer, it is important not only to find the right one, but foremost to be the right one. Thus, quoting my brother, I suggest we all “focus on being the right one”.

Best wishes

The reason for writing this post is to share my thoughts on with you, because many of you are asking this question when considering us (or our competitors). The trigger for posting this now is a sad one. A few days ago I followed up on my discussions with a previous potential client that eight months ago decided to employ a person in their country (Finland) to drive sales in Central Europe from there. The VP sales told me:

“We made a stupid recruitment, which has cost us way too much. We lost 50K€ and some deals.” – VP of sales (person and company kept confidential)

Employing a person is always a considerable undertaking, especially when seeking to penetrate new markets and generate sales revenue from strategic new or existing customers or channel partners. If the person is to be responsible for penetrating new markets (for example Germany, Italy, Spain or France), employing someone in the company’s remotely located home-country is hardly advisable; penetrating new markets from a remote location will prove difficult.

In the scenario where for example a US-based company is seeking to penetrate the European markets, the company usually has a customer base in America. In order to do business in Europe, the company will need a local sales team or resource. It is usually the VP of global sales that is responsible for making the decision regarding how they will approach Europe; often the alternatives include employing a person or using an external party (i.e. a sales accelerator / business catalyst, such as ibd) to accelerate manage and drive their market entry and increase sales performance.

Which approach is the correct one; to employ a person or to choose a sales service (like our Sales Acceleration & Management service)? My answer is: “it depends”. It depends on various factors, such as: a) the novelty of the service/solution, b) how well-known the company already is, c) the budget, d) the time horizon.

Novelty of the service/solution: The less-known the service/solution is, the harder it will be to attract a professional sales person who wants to take the responsibility for the business. Reasons for this include that if the market is in its infancy, the expected sales commissions to be earned are scarce. Additionally, it involves a considerable amount of ‘risk-loving’ of a person to jump into a business that is risky, especially if this is his/her only source of income. Let’s not forget about the market; the higher the novelty of the service/solution, the more evangelizing to create a market is usually required: i.e. it will be more difficult and slow to sell (which puts certain requirements on the sales person).

How well-known the company is: In the event that the company has already made a strong name for itself (e.g. through a huge success in, let’s say, the USA that carries all the way to Europe), it may be that their brand name is strong enough to attract excellent sales persons who are eager to be part of that success story. In most of the cases, however, this is not the situation. Like a German sales director that was approached by a headhunter for a small US-based software company said:

“Why should I take the risk to jump onboard a company that I have never heard of and know nothing about? Besides, I would have to do everything myself – I’m a director, not an entrepreneur.” – Director, Sales DACH (person and company kept confidential)

Budget size: Setting up a local operation from scratch can be a considerable investment, which include costs related to: recruitment/headhunting costs (which often are 25-30% of the annual target salary), employer costs (i.e. costs related to the social security and pension schemes carried by the employer), payroll costs, office lease (often costly and time-bound), office equipment, IT-systems, and car lease for employee(s). Employing a person to locally manage the market entry is, simply put, costly.

Time horizon: In the event that the company has the luxury of taking it slowly to find their way on the new market, they can consider themselves very fortunate. In most cases, however, this is hardly the situation. Most companies are facing fierce competition (where patents are in fact of little value) and as buyers are increasingly consolidating the amount of suppliers that they deal with, most supplyer-companies are facing a rapidly closing window of opportunity, regardless how innovative a solution they may have. Innovative products/solutions are easily copied, at an increasing speed (think of the iPhone or iPad for example). If a company has a head-start of 6 months over their competitors, it does not seem optimal to use between 5 to 6 months for employing an EMEA Sales manager. (Explanation: Usually it takes some time to draw up the profile and find a headhunter; 3 months for a headhunter/direct search company to come up with a short-listed candidates; 1 month for the company to select one; and the person may have a notice/vacation before he/she can start working.)

In summary, employing a person locally in the target market can be a good decision, especially when the product/solution already has some traction on the market, the company has a name, the budget is not too constrained, and the company is not facing fierce competition (and closing windows of opportunity). In other situations, in order to accelerate sales and penetrate new markets, using a sales service resource (such as ibd, I just had to say that) that has a strategic mindset, adopts a value-based sales approach, has excellent consultative selling skills, is highly mobile, and that is willing to accept risk-reward-sharing, is the better alternative.

We usually advise our clients to first use our sales service resource to build up their business in Europe. By doing this, we can jump-start their business in Europe, at a lower risk, faster, and at a lower total cost as compared to applying the traditional market-entry approach (involving employing people and setting up a location). Once we have helped them building their sales (i.e. have built up their European customer base and already have a considerable revenue stream), then we are glad to help them set up and staff their local sales office(s). After all, by working according to a success-oriented business model, it is also in our own interest that our clients business takes off and thrives.

Hope this helps you to avoid some of the pitfalls during your internationalization process. In case you need help, let us know.

What makes the customer happy, and how can the seller affect this? These questions have resulted in various ways of rewarding customer. In business-to-consumer scenarios, this has resulted in for example loyalty programs involving loyalty cards and in building communities, which, at least from the seller’s perspective make sense (or at least so one would hope). As a business traveller you are rewarded with points for each mile that you travel or for each dollar that you spend when staying the night at a specific hotel (chain), and so on.

In a business-to-business scenario however, the situation is somewhat different. A question that some of our clients sometime ask is: how do companies reward companies? Do they set up loyalty programs? Well, in some way some companies argue that they do, for example through service level agreements (SLAs), but then again – not really. Customers (companies) usually pay for the service level that they are provided based on what has been stipulated in the SLA. In some situations, the selling company may reward their contact person at the buying company in one way or the other. However, instead of rewarding their customer (i.e. the buying company), they settle for remembering the person(s) so he/she (they) would continue doing business with the salesperson. This is one way of getting around the actual challenge related to how companies can reward companies.

Regardless if referring to a business-to-consumer or a business-to-business scenario, the seller (person or selling company) should reward its good customers in a way that makes sense to the customer. Far too often, rewarding the customer is conducted in a way that makes sense for the seller, without finding out if this also makes sense for the customer. What usually makes sense is something that the customer considers being valuable. Thus, the seller should find out what the customer finds valuable. Providing the customer with something that is of value (either for themselves or for improving value-creation to their customers) is probably the best and longest lasting way of rewarding them for being good customers.

When a salesperson adapts his/ her selling style to accommodate for the customer’s preferences (as assumed by the seller), this is usually referred to as adaptive selling. Although adaptive selling may appear to be closely related to relationship orientation, i.e. aiming for a long-term relationship between the seller and buyer, adaptive selling is mostly used as a tactical sales tool. The concept adaptive selling was not developed during an era that was characterised by focusing on building ‘true’ relationships. The concept adaptive selling surfaced in the mid 1980′s and was presented as a tool that could help the salesperson in progressing faster and more efficiently through the selling process. Although to some extent efficient, adaptive selling mostly refers to e.g. adjusting the sales presentation to better fit the buyer’s needs or the salesperson adjusting his/ her tone of voice, clothing style, body language or vocabulary to those of the buyer. Back in the 1980′s, in many industries this worked well.

In today’s world, personal selling and purchasing have become more complex. Instead of having a salesperson and a buyer, it is common to have sales teams and buying teams interacting during the sales-buying process. In the case of customised solutions, it is common that e.g. the design, research & development, production, testing and marketing functions are involved in the sales and buying teams. All these functions usually have and follow their own processes. When taking relationship orientation seriously and aiming for a win-win solution that will benefit both parties, this requires another approach than adaptive selling. As opposed to a situation where both parties are focusing on ‘getting a bigger piece of the pie’, both parties should recognise the value in aiming for a mutual goal. This requires a change in the mindsets of the seller and buyer.

Adaptation on a strategic business level involves matching the key business processes of the seller and buyer firms. Only when matching these can the parties be regarded as being truly relationship oriented. Business process matching is closely related to but does not go quite as far as business partnering. In business process matching the parties can still be viewed as operating for their own and for the shared benefit. In business partnering however, the seller and buyer often operate as if they would form one entity.

Business process matching requires openness from the parties and a strong willingness to seriously aim for mutual business engagement. Once companies become increasingly aware of the value related to mutually aiming for ‘a bigger pie’, business process matching is likely to surface in sales and purchasing literature and to be adopted in business practice. In situations where we consider it appropriate, we guide our clients to conduct business process matching. The results have mostly been positive: business process matching has resulted in win-win situations.

It is not uncommon for us to notice that the company’s and the salespersons approaches are not in synch. Quite often the reason for this is quite simple – the company using the wrong measurements for rewarding its salespersons. Instead of measuring the salespersons according to criteria that adopt a long-term focus and developing relationships with the customers, the salespersons are measured based on sales quotas and other metrics which adopt a short-term focus.

Our suggestion therefore is to check that the company is using the correct measurements for their salespersons and sales force.

Some questions that are relevant to this topic include:What is a sales strategy; Why is this relevant to understand; How does it affect performance; and Which sales strategy should we adopt? After all, we are not only interested in the ‘what’, rather we are more interested in the ‘whys’ and ‘hows’.

Marketing and sales research in general do not provide a widely accepted definition for sales strategy, as noted by Panagopoulos and Avlonitis, who have studied the antecedents of the concept. They define sales strategy as follows:

“Sales strategy is the extent to which a firm engages in a set of activities and decisions regarding the allocation of scarce sales resources (i.e. people, selling effort, money) to manage customer relationships on the basis of the value of each customer for the firm.” (Panagopoulos & Avlonitis 2010)

When studying the sales process, it is important to put it in context. This involves considering not only the firm, but also the environment in which the firm operates, i.e. its customers and competition. The sales strategy should be aligned with the overall and marketing strategies of the firm. In brief, the firm strategy is the specification of the business in which the firm decides to be. This is to a certain degree stipulated based on core competence of the firm. The marketing strategy refers to the marketing approach and activities related to generating and sustaining competitive advantage for a firm. This involves selecting the market segments and developing marketing programs that are tailored to the needs and wants of the new and existing customers in the selected target segments. The sales strategy refers to how the firm chooses to relate to and interact with individual customers within a market segment. The sales function is responsible for selling to all potential customers within a segment.

The elements of the sales process include:

• Customer segmentation
• Customer prioritisation & targeting
• Relationship objectives and selling models
• Use of multiple sales channels
• Sales control/ compensation/ supervision systems
• Value proposition
• Salesperson selling process/ behaviours
• Formulation of sales mgmt program

Customer segmentation refers to choosing the right customers in each customer segment.

Customer prioritisation & targeting involves prioritising the customers or opportunities and targeting and pursuing these based on a set of criteria and in a way that corresponds with the firm and marketing approaches and strategies.

Relationship objectives and selling models refer to that the relationship orientation and selling models (transactional vs. relational) that the sales force adopts for a customer or opportunity should be well thought through. In addition, these should be aligned with how the firm on an overall level operates.

Use of multiple sales channels refers to the decisions regarding which sales channels the firm chooses to use for approaching the customer or opportunity. The sales channels that the seller can choose from include: personal selling through a field sales force, channel sales partners, distribution network, telesales, and Internet-based selling.

Sales control/ compensation/ supervision systems refer to setting up and using appropriate control systems, compensation policies and schemes, and supervision systems for sales that guide sales in the direction that is pointed out by the firm and marketing strategies.

Value proposition refers to understanding the value for the customer of the service that the seller is offering. Value can be understood as the result of the benefits for the customer of the service after all costs involved (of acquiring the service) have been deducted. In brief: Value = Benefits – Costs. It is worth noting, that the costs are not limited to only financial costs, but that ‘costs’ can also include other aspects. In the event that the benefits exceed the costs, the value for the customer is positive. Conversely, in the event that the costs exceed the benefits, the value of the service becomes negative.

Salesperson selling process/ behaviours refers to the sales and selling process and how these are regarded and operationalised. Optimally, the sales and selling process should correspond to the buying process of the customer or opportunity.

Formulation of sales management program refers to managerial tasks such as deciding on sales teams, how to manage sales calls, setting up the sales territories, sales training, sales reporting, sales objectives and quotas, and remuneration of the sales force.

What is sales strategy? – Route for operationalization of mktg program and firm strategy (thereby taking the customer into consideration)

Based on this brief go-through of the sales strategy, the questions that were asked in the beginning of this post can be answered as follows:

• Why is this relevant to understand? An appropriate sales strategy can have a major impact on a firm’s resource allocation, on focusing on the right customers in each segment, and overall success of the company.
• How does it affect performance? When setting up the sales strategy is conducted professionally and in a way that links to the selling firms and customer’s approaches and strategies, this usually has a very positive effect on sales and overall performance.
• Which sales strategy should we adopt? Instead of seeking for one ‘truth’ and trying to come up with a sales strategy that fits all situations, a contextual approach is recommended. This refers to adopting a portfolio approach, i.e. an approach that is based on the firm and marketing strategies, and that takes each customer’s preferences and strategies into consideration.

What does ‘revisited’ in the heading of this post refer to? Instead of regarding the sales process as something that is constructed only from the perspective of the seller, however, does not correspond to today’s world. When constructing a the sales process, not only the selling firm’s firm and marketing approaches and strategies should be taken into consideration. In addition to that, the seller should take the buyer’s buying strategy (which should be linked to the buyer’s marketing and firm approaches and strategies) into consideration. In summary, the sales strategy should take both the selling firm and the buyer/ customer/ opportunity into consideration.

Purchasing has developed from being a clerical function to becoming a strategic function within firms. Further, purchasing has become more important for firms: instead of producing in-house, companies mostly buy from external sources. In fact, in Western economies, the purchasing ratio often exceeds 60%. In other words, for every 1 dollar that firms earns in revenues, they spend 60 cents to pay their suppliers. This puts the importance of purchasing into perspective.

Recognising the importance of purchasing, and the possibilities that it offers companies to affect their profit margin, it is not surprising that many choose to adopt a transaction-oriented approach in purchasing. Moreover, it is not surprising that the focus is primarily on price, quantity and delivery. The fact is that savings that a company achieves through lower purchasing prices have an immediate effect on the companies profit line. If a company saves 10% in price, this goes straight into the profit line. Indeed, savings through price-oriented purchasing is a fast and efficient way of boosting a company’s profits. However, a company that focuses on price and adopts a transaction-oriented approach, should bear in mind that this approach will affect how the supplier views the buyer. Ultimately, this will affect how the supplier behaves towards and serves the buyer. A buyer that attempts to push prices too low, is unlikely to face a satisfied and motivated supplier. In fact, a supplier that feels that it is being squeezed, will attempt to justify lower prices, which can result in delivering lower quality to the buyer. In other words, a buyer that feels tempted to push prices down, should keep in mind that this may result in short-term business engagement with the supplier. This may result in the need for the buyer to find a new supplier, which may be time and resource consuming.

The lesson of this is, that although purchasing has become strategic and it can have a direct and considerable effect on the profit line, the power of purchasing should be utilised wisely and responsibly.

In marketing it is common to make a distinction between a transactional and relational approach. Transactional approach refers to viewing the interaction between the seller and buyer as based on exchange of products or services. In other words, the focus is on the transaction. This view dominated until service marketing emerged and which pointed at the importance of the relationship between the seller and buyer. Instead of focusing on the exchange, or sale, the focus was switched to continuous interaction between the parties: focusing on the relationship instead of the sale provided a platform for follow-up sales, which is considerably more cost effective than each time chasing new customers. During the last twenty years, relationship focus has grown in importance and has changed marketing. In spite of this development, sales is still struggling with this approach: relationship focus is often sadly used as a tactical tool, rather than a strategic approach.

In sales also a distinction between transaction and relationship approach is made, yet relationship approach often seems misunderstood. In some situations, it is well justified and fully appropriate that the seller adopts a transaction focus. Perhaps there is no up-selling or follow-up sales possibility, or perhaps the seller does not want to establish an ongoing relationship with the buyer. Perhaps the seller is satisfied with achieving one sale per buyer. In most situations however, the seller should aim for establishing a relationship with the buyer. There is of course a considerable difference what ‘seller’ refers to: if seller refers to a salesperson, he or she could be satisfied with focusing on the sale; if the seller refers to the firm however, it is likely that the firm would prefer establishing a continuous business relationship with the buyer. The importance of appropriate guidance and support systems, including reward systems, that affect how salespersons work cannot be overlooked: it is important that the firm strategy, sales approach, sales strategy, and guidance and reward systems for salespeople are aligned and support each other.

The misunderstanding regarding relationship orientation in sales that was pointed at, refers to that the seller may think that a relationship oriented approach is adopted, when this in fact is not the case. Concepts such as relationship selling or even value-based selling have emerged and become fairly popular in sales. However, most sellers misinterpret the fundamental idea of relationship, and simply use relationship as a tactical tool to close the sale. A true relationship-oriented approach is a win-win where mutually profitable long-term business relationship is aimed at. This often includes sacrificing one’s own short-term goals for the greater good: instead of focusing on the immediate gain, mutual and long-term win-win should prevail. In other words, relationship-oriented sales involves focusing on the buyer as much as on oneself, and by doing so the seller focuses on their own interests as well. After all, what benefits the buyer in a relationship where the parties are viewed as partners, is by definition also beneficial to the seller.

Summing up, relationship-oriented sales can be a powerful approach, if understood correctly by the seller. In most situations it is the seller who is the more active party during the phase of initiating a relationship between the seller and buyer, which transforms to that it is mainly the sellers responsibility to adopt a relationship-oriented approach: it is seldom the buyer who proposes to the seller that they should establishing a relationship. This is a recommendation for sellers to look beyond the first deal, and beyond one’s own immediate needs and or short-term goals, and instead focus on long-term profitability and win-win that relationship-oriented sales can provide.