中国经济管理大学 Mini-MBA《营销管理学》：Managing Personal Communications: Direct and Interactive Marketing, word of
Managing Personal Communications: Direct and Interactive Marketing, word of
中国经济管理大学/中國經濟管理大學
I. Chapter Overview/Objectives/Outline
A. Overview
New technologies combined with subsequent changes in consumer behavior as they leverage the new technologies have presented organizations with challenges and opportunities. The challenges include the ability to remain competitive in adopting technology into the interactive marketing effort. Consumers have raised their expectations of what business should be doing to interact with their customers. 24/7 with instant access for not only transactions but also distribution of products in an expeditious manner is becoming the norm. Organizations must keep up with advancing technology to stay even with the competition. This includes hardware, software and methodologies. The Internet has aggregated customers. Buzz and Viral marketing can extend positive as well as negative information about a company and its products and services. Companies are attempting to quantify what is being said in the social media environment (e.g. Facebook, Twitter, blogs, both company and non-company sponsored or managed). Word-of-Mouth can be a powerful marketing strategy as it comes from the consumer and not the company. Companies need to measure the value of Word-of-Mouth in an effort to determine how much to spend to promote Word-of-Mouth.
Companies need to evaluate how well they have integrated their consumer interaction channels. Timely flows of information from one interactive channel to the next are necessary to meet consumer expectation. This means that a company’s Direct Mail, Inbound and outbound telemarketing, Internet, and brick & mortar methods of interaction should be integrated to ensure customer’s expectations are met. This may also include the integration of all value chain members.
But companies must also pay attention to privacy and ethical issues as these become more pronounced the more companies and consumers interact.
Most companies use sales representatives, and many companies assign them the pivotal role in the marketing mix. Salespeople are very effective in achieving certain marketing objectives. At the same time, they are very costly. Management must give careful thought to designing and managing its personal-selling resources.
Sales force design calls for decisions on objectives, strategy, structure, size, and compensation. Sales force objectives include prospecting, communicating, selling and servicing, information gathering, and allocating. Sales force strategy is a question of what types and mix and selling approaches are most effective (solo selling, team selling, and so on). Sales force structure is a choice between organizing by territory, product, customer, or a hybrid combination, and developing the right territory size and shape. Sales force size involves estimating the total workload and how many sales hours—and hence salespeople—would be needed. Sales force compensation involves deter-mining pay level and components such as salary, commission, bonus, expenses, and fringe benefits.
Managing the sales force involves recruiting and selecting sales representatives and training, directing, motivating, and evaluating them. Sales representatives must be recruited and selected carefully to hold down the high costs of hiring the wrong persons. Sales-training programs familiarize new salespeople with the company’s history, its products and policies, the characteristics of the market and competitors, and the art of selling.
Salespeople need direction on such matters as developing customer and prospect targets and call norms and using their time efficiency through computer-aided information, planning and selling systems, and inside support salespeople. Salespeople also need encouragement through economic and personal rewards and recognition because they must make tough decisions and are subject to many frustrations. The key idea is that appropriate sales force motivation will lead to more effort, better performance, higher rewards, higher satisfaction, and therefore still more motivation. The last management step calls for periodically evaluating each salesperson’s performance to help him or her do a better job.
The purpose of the sales force is to produce sales, and this involves the art of personal selling. One aspect is salesmanship, which involves a seven-step process: prospecting and qualifying, pre-approach, approach, presentation and demonstration, overcoming objections, closing, and follow-up and maintenance. Another aspect is negotiation, the art of arriving at transaction terms that satisfy both parties. The third aspect is relationship management, the art of creating a closer working relationship and interdependence between the people in two organizations.
The primary variables for the sales force/management effort include the following: (1) Setting Objectives—Objectives can be general rules for guiding salespeople or more specific expectations for behavior. Regardless, the sales objectives should address the relationship between sales, customer satisfaction, and company profit; (2) Designing Strategy—Strategy requires decisions on sales force structure, size, and compensation. Variations in this mixture are appropriate for differing industries, markets and sales objectives; (3) Recruiting and Selecting—Knowing in advance what characteristics will always produce good salespeople is very difficult. Selection procedures should screen candidates for both ability and retention-related issues; (4) Training Salespeople—Issues in training center on skills such as order taking, order getting, and seeing customers as people who require problem solutions; (5) Supervising Salespeople—Supervision addresses problems in directing and coordinating salespeople’s organization, time management, motivation, and customer relationships; and (6) Evaluating Salespeople—Evaluation requires both qualitative and quantitative measures of sales force performance.
B. Learning Objectives
· Gain an insight into how organizations can leverage direct marketing and interactive marketing techniques to gain a competitive advantage.
· Identify impact of word of Mouth
· Understand the fundamental principles of personal selling.
· Learn the key factors in designing a sales force.
· Work with and understand some of the tools for successful management of a sales force.
C. Chapter Outline
I. Introduction - Marketing communications today increasingly occur as a dialogue as technology and software have enabled the consumer to dynamically interact with a company 24/7. Various classifications of sales positions ranging from least to most creative types of selling (deliverer, order taker, missionary, technician, demand creator, and solution vendor)
II. Direct Marketing – use of consumer-direct channels to reach and deliver goods and services to customers with reduced reliance of a middleman.
A. The benefits of direct marketing
1. Convenient for consumer
2. Provides information to consumer on products and services
3. Supports relationship building efforts with consumers
4. Allows for more individual targeting and personalization versus mass media
B. Direct mail
1. Can target consumers at different geographic areas or specific to one consumer (i.e., state, sectional center (first three digits of zip code), zip code, zip+4, or specific mailing address
2. Leverages technology to capture and analyze consumer information in forms of data to deliver more personal communications
3. Can create different marketing campaigns for current customers and prospects (never were a customer or are an aged customer with no recent activity). Retention strategy is used for existing customers and acquisition strategies are used for the latter
4. Each business vertical market has best practices of direct mail
5. Provides opportunities to measure lifetime value and word of mouth effects
C. Catalog marketing
1. Use of print to provide consumers with product information and ability to order products
2. Can be supplemented by in-store merchandise if cataloger has retail presence
3. Catalogs can be customized at individual consumer level
4. Business to business catalog marketing supports personal selling effort
5. Business to business catalog marketing is challenged by frequent movement of employees versus consumer residential movement, which can be tracked via ancillary processes such as national change of address and other USPS sponsored capabilities
D. Telemarketing
1. Use of telephone to attract, promote, sell, and service consumers and businesses
2. Recent legislation places constraints on who may be solicited (e.g., do not call list)
3. Inbound telemarketing (receive calls from customers or prospects)
4. Outbound telemarketing (organization initiates calls to customers or prospects
5. Telemarketing functions
a) Telesales - take orders, open, or manage customer accounts
b) Telecoverage - calling of customers to sustain or improve customer relationships
c) Teleprospecting - generate and qualify new leads either by phone or another channel
d) Customer service and technical support
E. Other media for direct-response marketing (all contain a call-to-action mechanism such as 1-800 numbers, web addresses, brick and mortar addresses
1. Newspapers and magazines can also contain response cards to be placed in mail
2. Radio
3. Direct response TV ads
4. TV Infomercials
5. Billboards (effectiveness enhanced by web addresses as one word may be sufficient for consumer recall versus 10-digit phone number)
6. E-marketing
a)
F. Public and ethical Issues in Direct Marketing
1. Hard-sell and computerized telemarketing offend consumers
2. Unscrupulous marketers can take advantage of unwary public
3. Marketing communications and offers can be misleading
4. Growing consumer of too much information being collected on consumers
III. Interactive Marketing (leverage Internet for interaction)
A. The advantages of interactive marketing
1. Internet provides marketers and consumers with opportunities for greater interaction and individualization.
2. Availability of contextual placement, buying ads on sites related to the marketer’s offerings
3. Increase ability to reach consumers and track behavior
4. Individualized messages optimize investment
5. Increases reach cost effectively
6. Online communities precipitate knowledge for companies and consumers
B. Disadvantages of interactive marketing
1. Consumers can opt-out of communications
2. Companies can lose control of the message
3. Online “Clicks” may give companies misleading information. For example, a large number of clicks by a consumer on the web site may be a result of a poorly designed web site.
C. Designing an attractive web site (Table 17.1 defines elements of effective web design)
D. Some of the main categories of Interactive Marketing are:
1. Web sites
a) Key issues is attracting first time and encourage repeat visits
b) Microsites – Limited area on the web managed and paid for by external advertiser/company, designed to supplement a primary site
2. Search related ads –
a) Links provided along with consumer search results, fee paid only when link is clicked on by consumer (cost per click correlated with click rank and popularity of keyword searched)
b) Search Engine Optimization has become a crucial part of marketing with greater emphasis creating more effective search ads
3. Display or banner ads
a) Small rectangular boxes containing text and images, which are paid placement. So the larger the audience the higher the cost
b) Consumers only spend 5% of their time online searching for information
c) Interstitials are ads, often video and animation, which pop up between changes on a web site. Consumers often block these ads
4. E-mail campaigns are cost effective but run risk of spamming consumers and thus may be filtered by consumers
5. Mobile marketing growing
a) Major opportunity with cell phones for advertisers to reach consumers on the “third screen”, TV and computer being the other two screens.
b) Mobile apps – “Bite-sized” software programs that can be loaded onto smart phones.
c) Monitoring consumer location allows for location-specific promotions.
IV. Word-of-Mouth (WOM) (key aspect of social networking, e.g. MySpace and FaceBook)
A. Consumers use WOM to share information on products and services
1. Positive WOM may be generated organically but may be managed and facilitated.
2. Paid Media results from press coverage of company generated advertising
3. Earned Media – also called Free Media, is all the PR benefits a firm receives without having directly paid for anything. Not really free as firm invests in products, services and marketing, but expense are not devoted to eliciting a media response.
B. Social Media
1. Means for consumers to share information
2. Useful but cannot be sole source of marketing communication
3. Three main platforms for social media:
a) Online Communities and Forums – may be formed by consumers with no affiliations or by firms
b) Blogs are regularly updated online journals or diaries. Brings people together based on common interests. Consumers create most but some are created by firms. FTC requires disclosure from bloggers if they have a relationship with marketers.
c) Social Networks – consumers looking to connect with others. Current popular networks are Facebook, LinkedIn and Twitter
C. Buzz and Viral marketing try to showcase by creating a splash in the marketplace.
1. Buzz Marketing generates excitement, creates publicity, and conveys new relevant brand-related information through unexpected or outrageous means. Refer to “Marketing Skills: How to Start a Buzz Fire” for more information on how to generate buzz.
2. Viral Marketing is another form of word-of-mouth or “word-of-mouse” that encourages consumers to pass along company-developed products and services or audio, audio video, or written information to others online
D. Opinion Leaders – society contains cliques and members of each clique tend to interact frequently which facilitate communication but also insulates the clique from new ideas. Malcom Gladwell identifies three factors working to ignite public interest in an idea:
1. Reach the three types of people who can spread an idea like an epidemic, mavens or knowledgeable people, connectors who know and communicate and salesman who possess persuasive power
2. “Stickiness” or expressing and idea so it motivates people to act
3. “The Power of Context” controls whether those spreading an idea are able to organize groups and communities around it.
E. Measuring the effects of Word-of-Mouth (WOM)
1. Intuit classified blogs into several categories velocity, share-of-voice (how much talk occurred), voice quality (what was said and to what positive or negative degrees), and sentiment (how meaningful were the comments)
2. Researcher Keller Fay notes that 80% of WOM occurs offline but many marketers focus on easy-to-track online efforts
V. Personal Selling and The Sales Force
A. Types of Sales representatives - six positions
1. Deliverer – major task is delivery of product
2. Order taker- inside or behind counter, outside which goes out and makes calls
3. Missionary – do not takes orders but build relationships
4. Technician – serve as a knowledge resource
5. Demand creator – use creative skills to sell tangible goods
6. Solution Vendor – Consultative selling by providing solutions to solve the customer problem
B. Personal Selling and Relationship Marketing (refer to Table 17.2 for the Major Steps in Effective Selling
1. Personal Selling steps appropriate for transaction situations
2. relationship Marketing steps required to build long-term customer relationship and ensuing loyalty
C. Company must develop sales force objectives, strategy, structure, size and compensation. (Refer to Figure 17.1 for a flowchart of steps)
D. Sales Force Objectives and Strategy
1. Objectives - tasks to perform include prospecting, targeting, communicating, selling, servicing, information gathering, and allocating
2. Strategy - approach can be sales rep to buyer, sales rep to buyer group, sales team to buyer group, and conference selling or seminar selling. A company can utilize a direct (company) or contractual (outside) sales force
3. Direct sales force – full or part-time sales representative that work directly for the selling firm
4. Contractual sales force – external partners who work on commission (e.g. manufacturers’ reps, sales agents, brokers)
E. Sales Force Structure – 3 types. Refer to “Marketing Insight: Major Account Management” for a discussion of a specialized form of sales force structure.
1. Territorial – use when selling one product line to one end-using industry with customers in many locations
2. Product – use when selling many products to many types of customers
3. Market – option similar to product structure
4. Example - Motorola uses four types of sales force structure: strategic market, geographic, distributor sales force focusing on distributors and an inside sales force using inbound and outbound telemarketing. Some companies categorize their large and valuable customers as strategic accounts and create a strategic account management team to manage each of these types of customers.
F. Sales Force Size – A workload approach is one way to establish a sales force size (5 steps)
1. Group customers into size classes according to sales volume
2. Establish call frequencies (# of account calls per year)
3. Multiply # of accounts in each size class by call frequency to arrive at total workload, in sales calls per year
4. Determine average # of calls a sales rep can make per year
5. Divide total annual calls (calculated in step 3 above) by the average annual calls made by a rep (calculated in step 4 above) to see number of reps needed
G. Sales Force Compensation – Quantify four components of sales force compensation
1. Fixed compensation
a) Salary satisfies need for income stability
b) Common in jobs with a high ratio of non-selling to selling duties and jobs here the selling task is complex and requires teamwork
2. Variable Amount
a) Commissions, bonus, profit sharing, serve to stimulate and reward effort
b) Works best where sales are cyclical or depend on individual initiative
c) Attracts High performers, but they may emphasize selling at the expense of the relationship
3. Expense Allowances - Enable sales reps to meet expenses of travel and entertainment
4. Benefits – such as paid vacations provide security and job compensation
5. Combination plans feature benefits of both while limiting their disadvantages
VI. Managing the Sales Force (see figure 17.2 for sales management steps)
A. Recruiting and Selecting Sales Representatives
1. What makes a good sales representative? One survey shows 25% of reps generate 52% of sales
2. Average sales rep turnover for all industries s almost 20%. Turnover leads to:
a) Lost sales
b) Expense of finding new replacements
c) Increase pressure on existing reps to pick up slack
3. Recruitment procedures
a) Solicit names from existing reps, agencies
b) Recruit from colleges
c) Length of time and expense varies by organization
d) Universities are collaborating with firms as they develop sales training programs within their curriculum
4. Applicant-rating procedures
B. Training and Supervising Sales Representatives – Median training period is 28 weeks in industrial – products firms, 12% in service firms, 4% in consumer-products
1. Goals - to know and identify with the company, to know the company’s products, to know the customers’ and competitors’ characteristics
2. Other goals - to know how to make effective sales presentations, and to understand field procedures and responsibilities
C. Sales Rep Productivity
1. Norms for customer calls
2. Norms for prospect calls
3. Using sales time efficiently
a) Time and duty analysis/improving productivity
b) Inside sales force
(1) Due to rising cost of outside sales force
(2) Rising automation (for inside and outside sales forces)
D. Motivating Sales Representatives - the higher the salesperson’s motivation, the greater his or her effort
1. Sales quotas
2. Supplementary motivators (meetings, contests, etc.)
E. Evaluating Sales Representatives
1. Sources of information - sales reports including activity plans and write-ups of activity reports
2. Formal evaluation - current-to-past sales comparisons, customer-satisfaction evaluation, and qualitative evaluation
3. Key indicators of sales performance
a) Average # of sales calls per rep per day
b) Average sales call time per contact
c) Average revenue per sales call
d) Average cost per sales call
e) Entertainment cost per sales call
f) Percentage of orders per hundred sales call number of new customers per period
g) Number of lost customers per period
h) Sales force cost as a percentage of sales
4. Performance may also be related internal factors (effort, ability, strategy) and external factors (task and luck)
VII. Executive Summary
II. Lectures
A. Direct and Interactive Marketing
Direct marketing methodologies have been used for decades. Initially, direct marketing methods were simple and limited in their effectiveness. They consisted of “push” strategies with a rudimentary form of a “call-to-action.” They usually consisted of single direct mail programs to current customers and prospects. Prospects were found by purchasing lists of names and addresses from firms called list brokers. The message was similar, if not the same, for every consumer. Catalogers were the primary users of direct marketing as the nature of their business, i.e., remote selling without a storefront, provided the only means of communicating and transacting with their customers. Direct mail and the telephone were the main means of communication. The catalogers, who had deeper financial and technical resources, performed some analysis on their customer information and to a certain extent created a somewhat personalized message to the customer. This was more at a sub-segment level rather than a specific individual level. For example, if they overlaid their information with purchased demographic information, they may identify which of their customers or prospects were nurses and send a uniform catalog to only these individuals. Each communication was usually a standalone communication with no or very little integration of managing multiple communications. A promotion would be mailed, responses would be tracked, no lifetime value would be calculated, and marketing models were basically a means of attempting some prediction of the promotion response.
As technology capabilities improved and became more affordable, organizations started to capture and analyze more information. This may have included information on prior promotions, economic conditions, pricing strategies, or competitive information. This information was then input to their customer response analysis to gain a better understanding of their customer behavior. Organizations started to maintain customer historical information and calculated customer lifetime value. They also started to create behavior change models in addition to their predictive behavior models.
In the mid- to late 90s technology, fueled by the Internet, smart kiosks and other technology innovations created an environment where customer information could be captured more quickly and accurately, which enhanced their behavior changing methodologies. Computer processing and storage cost reductions, increasing efficiencies in data capture, storage and retrieval complemented by marketing specific software tools and innovative advances in technologies that supported consumer interactivity enabled marketers to execute sophisticated strategies while sustaining and growing relationships with individual consumers. It is no longer an option, but instead a necessity that organizations adopt best practices in technology and interactive strategies to remain competitive.
Growing consumer social pressure related to privacy has placed new constraints on organizations. Along with an organization’s ability to capture and use vast amounts of consumer information in support of their marketing strategy comes an ethical and legal obligation. Larger organizations have the challenge of ensuring that they are in compliance with current legislation related to the use of customer information and must be prepared to handle pending legislation if enacted. Smaller organizations have the same challenges, and additionally, they do not have all of the resources to ensure their compliance. Being aware of these challenges and being able to execute a strategy to meet the challenges are two distinct things. For example, a multi-division corporation may find that the consumer has alerted one area that they no longer wish to have their information kept and used to maintain the relationship. However, another division in the same corporation may not be aware of this request and continue to operate as before. The web site www.ftc.gov is a good place to find information regarding current and pending legislation in these areas.
B. Sales Function Considerations
“The Death and Rebirth of the Salesperson”
This discussion focuses on the process of and changes in this important area of marketing. We also consider the role and value of effective sales force policy and strategy in the overall marketing process for the organization. It is useful to update the examples so that students will be able to identify readily with this concept based on their general knowledge of the companies and products involved in the lecture/discussion.
The discussion begins by considering past sales force strategy variables. This leads into a discussion of the implications for the introduction of new strategies for the future, given the substantial technological and other changes sales professionals and firms will encounter in the medium and long run environment.
Teaching Objectives
· To stimulate students to think about the critical sales force and policy issues.
· To recognize some of the directional variables in sales force policy.
Discussion
Introduction—Is the Customer Your Partner?
Today’s customers want solutions, and companies are remaking their sales forces to satisfy them. Nevertheless, total quality goals and sales quotas still clash. This is the primary theme related to the new enlightened sales force of the future. In the past, sales people would brag that their primary purpose in life was to push metal (IBM) or slam boxes (Xerox). Today, the sales force gauges success as much by customer satisfaction as the units sold. The former is generally a much more rigorous yardstick than the latter. As companies today are finding that if you anticipate what your customers need and then deliver it beyond their expectations, order flow takes care of itself.
As more managers awake to the challenge, old stereotypes are fading faster than Willy Loman’s smile and shoeshine. Forget the mythical lone-wolf salesman; today’s trend-setting salespeople tend to work in teams. The traditional sample case is more likely to hold spreadsheets than widgets. Today’s best salespeople see themselves as problem solvers, not vendors. They gauge success not just by sales volume but also by customer satisfaction. They do not “sell”; they “partner” with the customer.
Companies that dismiss the new, more collaborative sales methods as a fad are likely to slip behind. Today’s demanding buyers are running out of patience with mere product pushers, whether at the new-car showroom, on the floor of a department store, or in the corporate conference room. They will tell you that do not want to deal with anyone selling anything unless they can tell the firm exactly how it will help their business.
Developing a New Attitude in Selling
If ever there was a business that cried out for a new way of selling, it is that of moving cars from the showroom floor to the driveways of America. The familiar but widely despised old approach is known among automotive historians as the Hull-Dobbs method, named after Memphis dealers Horace Hull and James Dobbs, who reputedly created it following World War II. In the old Hull-Dobbs drill, customers exist to be manipulated, first by the salesman, who negotiates the ostensibly final price, then by the sales manager and finance manager, who each in succession try to bump you to a higher price.
Car buyers are fed up. A recent survey by J.D. Power & Associates found that only 35 percent felt well treated by their dealers, down from 40 percent a decade ago. In 1983, 26 percent of buyers rated the integrity of their dealers excellent or very good; by 2001, that figure had dropped to under 20 percent. “People feel beaten up by the process,” says the owner of 13 import and domestic franchises in the suburbs of Washington, D.C. “You think you got a good deal until you walk out the door. The salesmen are inside doing high fives, and the customer is lying out on the street.”
This is where Saturn came into the car game a few years back and presented its original, no-argument, guaranteed lowest price sticker system. The price you pay for a Saturn is the one on the sticker (between $9,995 and $18,675, depending on model and features). However, that is only part of the package. Buy a Saturn and you buy the company’s commitment to your satisfaction. Their contact with and to the customer may appear corny, but consistently Saturn has scored high in the J.D. Power customer satisfaction study, just behind or above Lexus and Infiniti, vehicles that cost up to five times as much. Maybe it is corny, but it works. The philosophy of “new economy” car dealers, following the Saturn model, is to exceed customer expectations.
Saturn reformed their sales methods to exploit an obvious market opportunity; the same is true for the reformed IBM sales force, which is only half the size it was in 1990. Those who survived are part of a new operation that is a cross between a consulting business and a conventional sales operation. Big Blue now encourages buyers to shop for salesmen before they shop for products.
Consultants obviously need a more sophisticated set of skills than metal pushers, and in their new role, as purveyors of solutions rather than products, IBM’s sales teams do not always recommend Big Blue’s merchandise. About a third of the equipment IBM installs are made by DEC and other competitors.
One aspect of managing a sales team has not changed much: How you motivate flesh-and-blood salespeople. It remains the same idiosyncratic bleed of financial incentive, inspiration, and cajolery. As the sales pros will say: “There is nothing magical about sales. You want to be truthful and present a credible story so people will want to do business with you now and in the future. To sell effectively, you need to present the facts, list your supporting arguments, and learn all the nonverbal cues your customer gives while you’re making your presentation.”
With one element of sales motivation, how they pay their salespeople, many companies believe they can improve on tradition. IBM, for example, is following a growing trend to base compensation partly on customer satisfaction. For some of the new wave salespeople, 45 percent of the variable component of a paycheck depends on how customers rate the salesperson. In addition, usually this depends on how well the salesperson has done in helping the customer meet their business objectives. Result: the salesperson can make a lot more or a lot less.
We’re All Salespeople—Officially or Unofficially
What does it take to be a truly outstanding salesperson? As is always the case, there are no simple answers. Moreover, achieving excellence in one type of sales endeavor, say selling personal insurance undoubtedly requires somewhat different aptitudes and skills than achieving excellence when selling sophisticated information systems to corporate buyers.
High-performing salespeople generally differ from other salespeople in terms of some general attitudes they have about the job and the manner in which they conduct their business. High-performing salespeople:
· Represent the interests of their companies and their clients simultaneously to achieve two-way advocacy.
· Exemplify professionalism in the way they perform the sales job.
· Are committed to selling and the sales process because they believe the sales process is in the customer’s best interest.
· Actively plan and develop strategies that will lead to programs benefiting the customer.
III. Background Article
Issue: The Biggest Problem in Sales
Source: Erin Strout, “To Tell the Truth,” Sales & Marketing Management, July 2002, pp. 40-48.
To tell the truth, call it what you like: a fib, an untruth, or a fabrication. A new SMM survey reveals that nearly half of all salespeople may lie to clients. Are U.S. firms creating a culture that promotes deception?
Every fat commission check has a price tag. For Matt Cooper (sales person’s name has been changed for this case) the cost of earning up to $150,000 per sale was spending every day lying to his customers. It was the promise of huge bonus checks—not his $40,000 base salary—that lured him to join the sales force of a large, well-known Internet company two years ago. In his early twenties, hungry, and aggressive, Cooper fit the dot-com’s sales culture mold, but what he didn’t realize was that dishonesty was the price of admission.
The New York-based start-up formed a big-deals team, a group that sold multimillion-dollar advertising campaigns to some of the world’s largest companies. The sales force’s key strategy? Do whatever it took to close those deals. Almost 100 percent of the time that meant lying to the client. “If you didn’t lie you were fired,” Cooper says. “It always came down to careful wording and fudging numbers.” Among various other deceptive tactics, the Internet Company’s salespeople would book $2 million deals, promising a certain amount of impressions on the client’s banner ads for the first million and guaranteeing a certain amount of sales for the second million dollars. “We’d almost always be able to deliver the impressions, but you really can never guarantee somebody sales,” Cooper says. “Back then you could base deals on the industry standard by taking the impression rate, comparing it to the industry standard, and using the conversion rate to determine a sales projection.”
Renewals were, of course, out of the question, which might explain the eventual demise of this and thousands of other dot-coms. The boiler-room culture began to take its toll on Cooper, especially after he had to begin screening his calls to avoid irate customers. “Some of them had just spent two million dollars on an online campaign and got completely screwed,” he says.
One particularly incensed client who had spent more than $1 million on a campaign that failed to produce the results Cooper had promised began pelting him with voice-mail messages that became increasingly hostile. Then came the death threats. “He left a message saying, ‘I know you’re there. I’m going to find out where you live and blow up your house.’ I never spoke to the customer again—I just told the company about it so that it was out of my hands,” Cooper says. “This kind of thing actually happened a few times.”
Finally Cooper couldn’t take it anymore. “I started selling only what I knew worked, because I couldn’t lie anymore—so my managers told me to either close more deals or find another job,” he says. “It was the kind of culture where they broke you down and rebuilt you to be an animal.”
A reformed liar, Cooper quit and now works at another start-up in New York, but one that holds him to a higher ethical standard. Though this dot-com is still struggling through more rounds of funding, Cooper is finding that building relationships with clients is a better long-term sales strategy—not only for his own financial, well-being, but for the long-term financial health of the company. Unfortunately, not all salespeople learn that lesson so early in their careers. A new SMM/Equation Research survey of 316 sales and marketing executives reveals that 47 percent of managers suspect that their salespeople have lied on sales calls—only 16.5 percent have never heard one of their reps make an unrealistic promise to a customer.
But don’t be too quick to blame your salespeople for their deceptive behavior. What drives sales and marketing professionals to lie is often a combination of factors—not the least of which can be the way they are managed.
Back in the dot-com heyday one of the most commonly used tactics in the industry included selling advertising space that didn’t exist. Telling clients that they had about a one-in-300,000 chance of actually seeing their banner ad appear on a page of the site, salespeople would sell a $500,000 ad, cut and paste it onto a page using Photoshop software, print it, and fax it to the customer to “prove” that the banner appeared as promised.
“We might have sold all of our telecommunications inventory, but then another company would call to say they wanted to spend $50,000 on a campaign,” one rep at a New York dot-com says. “What would we do? Book it, even though all the space had already been sold. When the numbers didn’t come back as high as the customer expected, we’d just chalk it up to a bad campaign. We’d take anybody who was willing to spend a dime.”
Internet advertising isn’t the only industry that has sold fictitious products. As California is painfully aware, Enron and other energy companies allegedly made a fortune by selling electricity that didn’t exist, rewarding traders for coming up with new schemes, and lying about how much energy the company had in its supply. As more details emerge about Enron, regulators are requiring traders to disclose full details of all energy sales starting this month. “Examples like Enron show that greed is really a U.S. phenomenon,” says Andy Zoltners, a marketing professor at Northwestern University’s Kellogg School of Management. “Some companies do whatever it takes to make money.”
Such deception may be more common than we think. In the SMM survey, 36 percent of respondents said salespeople now conduct business in a less ethical manner than they did five years ago, and 36 percent believe there’s been no change at all. What kind of fabrications do salespeople resort to? The survey shows that 45 percent of managers have heard their reps lying about promised delivery times, 20 percent have overheard their team members give false information about the company’s service, and nearly 78 percent of managers have caught a competitor lying about their company’s products or services. “It appears that misrepresentation of products or services is prevalent among salespeople,” Zoltners says. “This is a losing strategy, and this kind of behavior is not what the best sales-people do.”
In the short term, unethical sales tactics may prove lucrative, but in the long term every executive should worry about resorting to such strategies. Dishonesty, experts say, eventually ensures a company will have zero customer loyalty. Unfortunately lying is what some of the most profitable salespeople resort to—and experts do not necessarily blame the behavior on the individual. “There are probably three participants in this—the customer, the salesperson, and the company,” Zoltners says. “They are all a part of the pressure to make money and the combination can make a rep succumb to it.”
For top salespeople the pressure, especially in this rocky economy, is almost palpable. More than a quarter of the respondents in the SMM survey said that the recession is causing their salespeople to become more dishonest. In tough economic times the quotas are as high as the stakes, and sometimes it’s enough to make even the most reputable salesperson resort to unethical strategies.
“Where I worked, all of the reps were in this big room, standing up, pitching to clients over the phone,” Cooper says. “People might hold their phones out so everybody could hear them closing a big deal. Making a three-percent commission off of a multimillion-dollar deal makes you willing to lie.”
In fact, the majority of U.S. salespeople are dependent on commission-based pay plans. Experts say this is part of the problem. “If salespeople have to eat what they hunt, it puts stress on them and motivates them toward bad behavior,” Zoltners says. “If you look at some of the companies that are in big trouble, you see that they give negative incentives, such as demanding that reps make quota or be fired. That does not create the best sales forces. You have to create fair rewards for people.”
Brett Villeneuve, operations manager at Go Daddy Software, in Scottsdale, Arizona, says he purposely hires reps that are less money-driven and more relationship-oriented. “Quotas, in general, are usually set too high,” he says. “We increase base pay and make realistic sales quotas that are challenging, but attainable. We don’t want our people to run around scared of losing their jobs—that makes them lose focus on what needs to be done.”
Villeneuve might be on to something. The SMM report indicates that quotas may inhibit salespeople more than motivate them. Seventy-four percent of respondents admitted the drive to achieve sales targets encourages salespeople to lose focus on what the customer really needs.
Though Villeneuve tries to run a tight ship when it comes to business ethics, he has experienced a few situations where salespeople have crossed the line. “I just had to fire one of our better sellers after I received a complaint from a customer,” he says. “In two days I got four calls that a rep had put charges on clients’ accounts that he wasn’t supposed to. It made his sales look great, but that’s not how we do business.”
Another team leader at Go Daddy decided to boost his team’s sales with an underhanded tactic—one that caused him to get fired. “A client would call in with a problem and his team would refund the order that the client had placed with another sales team, and then put the reorder on his team’s credit,” Villeneuve says. “It made their sales look really good. Even though he wasn’t really lying to the customer, that kind of behavior isn’t tolerated. When you fire somebody because of it, the message you send internally is really strong.”
That message is key to instilling an ethical standard in the corporate culture. Some managers do this by giving employees a means of questioning behavior they may observe. According to the SMM survey 56 percent of respondents have a process in place that enables salespeople to alert managers to ethical breaches. Executives at Go Daddy use the company’s intranet to help employees bring up any questions or concerns. An anonymous section allows for executives to read and respond to e-mails written by co-workers who observe others lying, cheating, stealing, or otherwise behaving badly. “Initially we were scared that it might turn into minor bickering and tattling but so far it’s helped keep us aware of legitimate concerns,” Villeneuve says.
Though the intranet tool is still new to Go Daddy, executives say the most common type of anonymous notifications relate to customer treatment by individual salespeople. Other examples include reporting a coworker’s uncontrollable attitude or anger with a client, and the failure of another salesperson to follow procedures in place to assure proper customer care. “We have zero tolerance for this kind of behavior here and our salespeople know it,” says Bonnie Leedy, public relations director at Go Daddy. “Everybody is trained to understand that customers come to us with all levels of technical understanding, and no one should ever be treated with disrespect.”
The key driver of a sound sales strategy is that the leaders of the organization exhibit the values that they want employees to follow, says Steve Walker, president of Walker Communications, a stakeholder research and measurement firm in Indianapolis. “Most people want to do the right thing, but when bad situations arise it’s usually when the leadership has created an environment that tolerates it,” he says. “Until boards of directors want to sniff it out, the scheming will stay in the hallways.”
Walker Communications offers clients products that determine whether a company’s employees are telling lies, abusing drugs, or otherwise violating the rules. It’s been a tough sell. “Offering these kinds of products in a litigious society is difficult,” he says. “Executives actually don’t want information that may indicate that there’s a problem. They don’t want to officially know that their sales force is lying.”
Sometimes it’s the executives themselves who promote deception. Take VeriSign Inc., a domain registration and Internet security provider. The marketing team sent out domain expiration notices to their competitors’ customers, designed to look like the notices were coming from the company they currently used for their Internet domain registration. The hope was that the notices, which stated that owners would lose control of their domain name if they did not return the form and $29 by May 15, 2002, would get people to transfer or renew their domain names with VeriSign, in some cases at three-times the price they were paying.
A U.S. court ordered the company to cease the direct-mail campaign in May, saying it was misleading to consumers. VeriSign would not comment on the litigation, but a spokesperson said the company is complying with the court order. “The industry is plagued with unethical marketing and sales tactics,” Leedy says (Go Daddy is a VeriSign competitor).
Some executives have their priorities focused solely on profits, thereby placing rewards on the wrong behavior. “I came from a sales organization where the culture was bottom-line focused,” Leedy says. “The top performer was the roughest salesperson I’d ever seen. Customers complained about him, but there was never a response, because he was bringing in money.”
Top salespeople with poor ethics are the trickiest creatures for managers to deal with, experts say. Bill Blades, a sales consultant in Scottsdale, Arizona, has walked away from projects that involved dishonest salespeople because CEOs hesitated to get rid of them. On one occasion Blades asked the president of a company to let one top salesperson go, because he consistently cheated on his expense reports—it was a well-known fact that the company was footing the bill for his “dates” with call girls. “The president agreed he should be fired, but in the end wouldn’t do it. He was afraid of losing clients,” Blades says. “I’d say that 99 percent of all of my clients are ethical, but a bad banana shows up once in a while.”
In May, Blades and executives he was working with on a project sent a rep home for two weeks when they discovered he released false information about an acquisition to a customer. “He’s not allowed to make any client calls while we figure out what value he brings to us,” Blades says. “He’s missing the national sales meeting, which is eMBArrassing for him.”
Such discipline isn’t necessarily the norm among sales organizations. The SMM survey shows that although 87 percent of respondents believe salespeople who are caught lying should be disciplined, 51 percent have never actually punished anybody. Maybe it’s because they’ve never caught them, but likely a percentage of managers don’t know how to deal with superstars fibbing to clients. Blades has suggestions. “If you have a top guy with a lying problem, get the vice president of sales to cover that territory to retain clients,” he says. “If you don’t, people will get hurt down the road. The only reason execs don’t deal with this is cowardice.”
Making an example of unethical salespeople is one way of letting the rest of the team know that lying won’t be tolerated by the company. When somebody is allowed to sell by whatever means necessary, it sends a message that the behavior is acceptable. Where Go Daddy’s Leedy used to work—a call center sales environment—the signals were clear to everybody. “You could hear the top sales guy making false comments to his customers, but no disciplinary actions were ever taken,” she says. “To the people who were lower in the company it was an example of what they needed to do to be recognized.”
Another way to safeguard your team against dishonesty is by making smarter hiring decisions. “I always talk to a potential hire’s former employers because I find they will say more about a person’s personality than anybody else,” Blades says. “The best predictor of future behavior is looking at past behavior.”
Keeping a sales organization honest means keeping close tabs on its performance. “I find that conducting monthly evaluations is more productive than annual evaluations,” Blades says. “Get salespeople to tell you how they achieved something or what they think went wrong. You have to be strong and let reps know from the beginning that you’re a straight shooter.”
Five Signs (for Sales Managers) that Your Sales Reps Are Lying:
It’s not often that sales executives are caught off guard when they discover salespeople are being dishonest. Experts say that typically, the behavior is ingrained in the corporate culture, starting at the top and permeating throughout the sales organization as accepted—and even expected. But even the most vigilant manager may hire a bad egg now and then. Here’s what to look for if you suspect a salesperson is being untruthful:
You’re Getting Calls from Customers
It’s no surprise that usually the first person to recognize they’re being duped is the customer. Clients are managers’ best resource when it comes to checking up on salespeople, and if they’ve experienced bad service they won’t hesitate to speak up. That’s how Brett Villeneuve, operations manager at Go Daddy Software, discovered one of his salespeople was up to no good: A client called when he discovered activity on his account that he didn’t authorize. “I rarely get customer calls, but one day I received a number of complaints,” he says.
Repeat Business Is Down
You can only lie to a person once—after that trust is gone. If loyalty is something salespeople struggle to attain, it probably means that they don’t do much to deserve it. “You only buy from people that you like,” says Andy Zoltners, a marketing professor at the Kellogg School of Management. “In relationship selling you can’t lie—if you mess up you’ll never hear from the client again.”
Your Salespeople Are Motivated by Fear
It’s not uncommon for sales organizations to have a do-or-die mentality. If executives subscribe to Darwinist philosophies, it’s quite likely their salespeople are doing absolutely anything to close deals in order to earn their compensation and keep their jobs. “There are a few big U.S. companies that tell their salespeople that if they don’t make quota they’ll be fired,” Zoltners says. “That doesn’t encourage salespeople to focus on customer service, because they’re too worried about survival.”
Recognition and Rewards Are Solely Based on Numbers
If the people heralded as sales superstars on your team are the reps closing the most sales, they probably aren’t the ones giving the best service. Recognizing financial gain over how it’s achieved isn’t a sound strategy for producing an ethical sales team.
You Lie, Too
Salespeople are a product of their environment. If executives and managers practice unethical business strategies, it stands to reason that the sales force will too. “Executives have to make it clear to employees that the company is ethical and honest in everything it does,” says Bill Blades, a sales consultant in Scottsdale, Arizona. “If it’s an enforced part of the mission, salespeople will adhere to it.”
IV. Case
Hewlett Packard—Computer Systems Organization: Selling to Enterprise Customers
HBS Case: 500-064 TN: 502-071
Teaching Perspectives
The complexity of handling large customers that buy a range of commodity and specialty products is heart of this case. HP-CSO’s (Hewlett Packard’s Computer Systems Organization) practice of serving such customers with a foot-in-the-door (FITD) approach has been deemed inefficient by a consultant who has recommended that the company move to an all-at-once approach based on the concurrent management of portfolios of opportunities with its customers. Overall, the case shows the challenges faced by firms as they move from selling products to integrated solutions.
This case introduces several sales force management issues. It traces the evolution of the HP-CSO’s sales organization through the eyes of the head of its sales organization. HP has traditionally treated the sales force as a cost center with the product divisions holding profit and loss (P/L) responsibility. While this structure makes sense in HP’s traditional line of business instruments, this might not be the best way to organize itself when selling computer hardware and software solutions. Despite this knowledge, HP-CSO’s head of sales has been unable to implement necessary changes because of HP’s corporate culture. The firm has been so successful using the current structure that there is enormous resistance to change. In exploring these issues in detail, the case discussion helps students understand the substantial challenge faced by firms that would transition away from a technology to a customer focus and from product sales to solution selling.
Background
In late 1996, the head of worldwide sales for HP-CSO, was reviewing the results of an audit of HP-CSO’s enterprise customer management approach with the objective of identifying market and organizational opportunities that might provide the next wave of growth for HP while further reducing sales and support costs. HP-CSO’s customer management approach has been very successful and received very favorably within HP and by the industry. However, it involved structural changes that had forced a deep-rooted overhaul of HP-CSO’s traditional regional sales approach.
New recommendations would necessitate another round of drastic changes in the way HP-CSO manages relationships with its large enterprise customers. Diaz did not want to put the sales organization through another round of changes unless he was sure they were necessary. The situation was also more difficult because HP-CSO was having its best years in terms of revenue and profit growth. Yet, in an industry where prices are falling dramatically over time, the firm might have no option but to think of change.
Questions
1. How is selling instruments (HP’s traditional business) different from selling computer systems? Why does HP treat its sales force as a cost center? What are the implications of such a structure?
2. What is HP-CSO’s approach to building relationships with Enterprise customers? What are its strengths and weaknesses?
3. Do you agree with the findings of the two audits? What about the consultant’s recommendations? How is the new approach different from the HP-CSO’s current approach to managing enterprise customers?
4. Are you comfortable with the conclusions of the audit? What are your recommendations to Diaz?
5. Is this the time for HP-CSO to institute more changes?
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