What Makes a Product Sticky?


Sticky

I don’t mean what makes something self-adhesive… that’s glue. I am talking about a product that customers seem to carry on buying with little chance of the competition getting a look in.

Investors will often salivate over a business that appears to be operating in a sticky market. There is a fairly simple definition of this type market in rational economic terms:

The cost or risk of changing supplier is greater than the likely saving in price or increase in value to be gained by doing so.

There are common conditions which often indicate a market is sticky:

Relatively Low-priced Items
This means that any saving from switching is likely to be small. A 20% saving on next to nothing is next to nothing.

Perceived as Critical
Anything where failure has a cost to the organisation or disruption to everyday life i.e. a new untried supplier might bring things to an ugly or chaotic halt.

Repeating Purchase or Subscription
The purchase decision was already made some time ago. The rationale may be lost in the mists of time but people assume it was logical, hence you automatically purchase from the current supplier.

Effort Required to Disengage or Switch Supplier
Difficult to cancel subscription, complicated to research and evaluate a substitute supplier. Reconfiguration, reorganisation or re-training needed to use an alternative.

These are the logical and rational reasons that make a product sticky. There are loads of other emotional and instinctive drivers of sticky markets some of these are perfectly logical when dig a bit into the human psyche. Popular sayings often give clues to these. For instance: “Better the devil you know…” “There’s no such thing as a free lunch” “They are not perfect, but they do the job”. If any of these show up in market research or commercial due diligence, they are good indicators.

Often, but not always, businesses like this have pricing power – headroom to increase prices without losing too many customers. The reason for this is simple if you think about it:

It is not the supplier, but the category of product that is sticky. Therefore, it takes a lot to win business in the first place. The incumbent may have had to offer an eye-watering discount. So, when the customer was first won, the supplier had under-priced the product. Unless there has been a strategy to increase the price significantly over time, they are likely to be still under-priced now.

Herein lies the catch that many investors don’t spot. It is by definition difficult to grow in a sticky market. Salespeople will struggle to get appointments, products will find it difficult to get listings or shelf space and worst of all, the heavy discounts required to shift the incumbent make the price look too good to be true.

So, a word to private equity… If it looks like a sticky market, check it ticks the boxes above. If it is a sticky market, don’t expect any organic growth… even if the product has competitive advantages. The exception to this is where the product category is new and the market not fully penetrated or the supplier’s offering is unique and ideally has some IP associated with it.

The good news is though, unless the management have been actively on the case, there is usually a fantastic pricing opportunity with all the pleasing results this brings to EBITDA and enterprise value.

Why Most CRM Systems Don’t Work…


In both our pricing and our sales effectiveness work we find most clients we visit have invested in some sort of CRM system. There are lots of them about and in the main they are all pretty good products. However, time and time again we see them not fulfilling their potential to help salespeople grow the business.

The problem is always the same; the moment senior management decide to spend the money on the system they start salivating at an opportunity to see what the sales team is actually doing… and better still measure it. After all what gets measured gets done doesn’t it?

Everyone in the office always wonders what those flash gits swanning around the countryside in their expensive company cars actually do for their over-generous salaries… now is the chance to hold their feet to the fire!

The CFO is ecstatic… with the sales pipeline in a nice piece of interrogatable software, forecasting is going to be a breeze from now on.

…But somehow it doesn’t all work out as planned.

There is an underlying problem. The CRM system will deliver numbers for you… nice crisp numbers often to two decimal places… but this is not data. It is actually an amalgamation of a bunch of extroverts’ opinions, wishful thinking and exaggerations expressed in numerical form.

Assessing the Sales Pipeline from CRM

The most popular form of sales pipeline before the days of CRM was a spreadsheet hastily prepared the night before a sales meeting. If all you do when you set up CRM is to type this in then you will get what you deserve… a bunch of three year old ‘opportunities’ that are never going to land in a month of Sundays.

Forecasting from CRM

If your sales pipeline is made up of fairly hefty chunks of business… big contracts or new customers… then let’s consider just three of the inputs the salesperson is required to put into the system:

The Value of the Deal – Is the customer really going to tell you how much they spend already before they have seen your quote? If so, might they exaggerate how much they spend in order to make you price more keenly? Do they know how much of your product they are going to be able to sell on to their customers before they have tried it? We would suggest that until you are well into the sales process and have done some proper discovery, you can’t tell what it is worth…partly because you haven’t properly set the price.

The Likelihood of Winning – Sometimes the system applies this. Otherwise it is a measure of the caffeine intake of the salesperson in the 90 minutes prior updating the system.

The Expected Close Date – If you have a sales cycle that typically takes more than 30 days, this is a nonsense field unless it is filled in the day after the order is received. If it is a big opportunity and it slips over a month end… or worse still a year-end… there goes your phased forecast to hell in a hand-cart.

So what do you need to do to make it work properly?

Firstly.. stop the management looking at it…. at least for a while. So long as the sales team know they are being watched, they will tell you what they think you want to hear (remember: they are good at this… that’s why you hired them). We recommend when first implementing CRM, the CEO and CFO should not get a sign-on for at least six months.

Secondly… make it an indispensable tool for the sales person. A friend and great salesman Tony Dimech says CRM stands for ‘Can’t Remember Much’. A good salesperson might be juggling between 15 and 40 opportunities, they can’t possibly remember who said what to whom and when. CRM when used properly reminds the salesperson who to nag today to bring more business closer to landing in the order book.

It should be set up with the salesperson in mind and worry about the management information later:

Field of View – It should immediately present their pipeline and suggest what they can be doing next on its first screen

Available – If they are out in the field, it needs to be mobile. They should want to look at it several times a day. I update mine when I walk out of the client’s office after a meeting.

Synchronised – Pretty much all of a salesperson’s correspondence diary dates and contact details should live in CRM, or at least by synced with outlook/google.

A well designed CRM system puts pace into sales. It makes its users more successful. It stops opportunities slipping through the grating. When it is working well, it is a selling tool and not a tool for management.

IT SHOULD BE A SATNAV NOT A TACHOGRAPH

If the salespeople come to rely on it as their primary information source, then the information they put in will be accurate and the data coming out the back will be reliable. It doesn’t work the other way round.

Footnote: At Burgin Associates we use Pipedrive. Nobody looks over my shoulder at the data as I am the boss. But I wouldn’t be without it as I know it helps me bring in business. Clients will know that I refer to it as my ‘Nag List’ …once you get on my Nag List, you never get off until you place some work with us !!

We undertake quite a lot of sales effectiveness work for clients and are pretty good at getting CRM humming.

A Warning to Finance Directors…


Occasionally we get approached by the CFO rather than the CEO. What is usually on their mind is a need to ‘tidy-up’ pricing in their business. You see hundreds of different prices for different products to different customers seems unnecessary and confusing to them.

It is true that the price file in most mature companies is a deal more complex than it needs to be and could stand some sorting out. However, the CFO is usually forgetting something. They seem to think that the tidy up is an administrative exercise performed by someone sitting at a computer staring at a spreadsheet.

We sometimes have fun shattering this illusion by asking a simple question: “If we are going to harmonise the prices for you, would you like us to harmonise them up or down?”

It takes a mere moment of thought before they say “Up please”. Whereupon, we say “Then someone is going to have to tell some customers they are going to get a price increase… hadn’t we better talk to the Sales Director?”

It had not occurred to them that generally speaking (but not always) customers notice price movements.

A price file filled with lots of different prices might be a sign that someone has carefully assessed the sensitivity of each customer and each product and priced it accordingly. If this were true, the more price combinations the better in theory. However in our experience much of the untidiness comes from poor attempts to price by badly trained salespeople and then negotiated down by customers. Often the deal was done years ago against a promise of mind-boggling volumes that never materialised in a marketplace with different dynamics and a different competitive landscape…. just nobody has had the gumption to go back to the customer and re-negotiate an up-to-date appropriate price.

Tidying up a complex price file can make you a fortune. But our advice is let’s get the Sales Director in on the project at the outset… because sooner or later we are going to need him.

…unless of course you really want to harmonise prices to the lowest common denominator. In which case you probably don’t need our help.

 

 

 

 

A Definition of Small Print… and how it wrecks customer relationships.


Whilst font size could be used as a measure, a more workable definition of what constitutes ‘small print’ is the stuff you hope the customer doesn’t read until you point it out to them.

“It is there…in writing… you cannot say I didn’t tell you”

This kind of discussion nearly always happens when the customer is looking at a copy of your invoice and has steam coming out of his or her ears. Pointing out the reason for the misunderstanding hidden in the small print may force the customer to settle the bill, but is almost guaranteed to send them looking for another supplier. All you are actually saying to your customer is “See.. you are too lazy or stupid to read everything I send you”. Insulting customers is never a good strategy.

We work on the principle that an invoice should not contain any nasty surprises for the customer… if it does, this is a failure in your communication. The golden rule of communication is: If someone hasn’t understood something it is not that they are thick, it is that you have not communicated properly.

Sales and marketing people like to live in ‘large print’ world… i.e. the stuff you hope the customer does read. Stuff about how wonderful your product is, how nice and clever your firm is and what fantastic value they will recoup by spending money with you.

In between the worlds of ‘large print’ and ‘small print’ we believe there is a much underused form of communication. For want of a better term, we call it Nuanced Large Print.

Whether in proposals, emails, website copy or literature, this is where you manage the customers expectations. This is where you subtly point out under what circumstances the invoice might be more than the headline figure in the large print. This is where you sow a few gentle seeds telling them what is included in the price and what will be extra. It contains phrases like:

“The cost for the standard product is £X. We can of course provide many kinds of bespoke packaging and will be happy to work out a cost for you.”

or

Assuming that we are looking at a single division of the group, phase 1 of the project will cost £X”

or

Based on the current specification we can complete the work for £X. We can usually accommodate minor changes in the layout. If you want to alter anything, please let us know as soon as possible so we can see if there is a cost implication before proceeding”.

These are not hidden away in the small print, they are there right next to the large print price. They are couched in open and honest terms and crafted to sound professional and positive.

There may be people in your organisation who get on their high horse when a customer complains about something they should have spotted in the small print….’It’s their own fault… they should have read the terms and conditions!!”. These are usually people who are not responsible for next years sales to the customer in question.

I am not saying you don’t need terms and conditions…. but you should work on the assumption that their only practical use is as something to give to your lawyer to argue over with their lawyer.

 

 

How to stop your staff giving stuff away…


Do you recognise this…

An important customer phones up and asks someone at your firm to do something for them…

“Can you just do this for us…. “ or “Rather than do it that way, it would suit us if you did it this way instead…” (i.e. the non-standard way).

Your people are well trained. They do everything they can to delight the customer… go the extra mile. So with a big smile they agree.

But somewhere in the process the customer doesn’t end up paying for this extra service. You sort of hoped he would, but nobody mentioned anything about it so the job gets done and no invoice is sent… or if it is, the customer is furious because the charge comes as a surprise.

I will let you into a secret. The customer wasn’t sure whether you would charge or not. But they weren’t going to mention it if you didn’t.

Here is a little phrase we train our clients to use that solves the problem. Anytime someone asks you to do something that is outside the normal contractual arrangement, the very first thing your people should say is:

“I am sure we can help with that, let me work out a cost for you”… all one sentence without taking breath.

Get them chanting it out loud at your next team meeting until they say it without thinking.

This little phrase solves the problem in three ways:

Firstly: it puts the principle of charging for the service squarely on the table so no one is in any doubt at the outset.

Secondly: by using the word cost rather than price, it reminds the customer that there is a cost to you associated with providing the service.

Thirdly: it gives them a chance to argue if they want to, before anyone is committed to doing anything…. and that is much fairer to both parties.

A colleague of mine many years ago, having overheard one of his team giving away something, waited until he had put the phone down and asked him to join him outside the front of the building. Looking up at the company sign, he asked the somewhat confused lad “Can you tell me where it says ‘Registered Charity’?”

The moral of the story is it is always best to let people know what they have to pay for (and what they do not) as soon as possible. No one likes nasty surprises.

 

 

 

How to get your customers to deliberately raise their own blood pressure…


“Payment Problems: Authorisation Declined Call us Immediately” … the title on a letter that dropped through my letterbox yesterday.

Now I know that my bank account balance could cover this house insurance renewal twenty times over, so I am looking at an administrative cock up. If you are like me when you see a letter like this your heart sinks. You know that you need to set aside at least 45 minutes of your busy day to deal with this… it may take less, but the last thing you want is to have to drop out of a call to a call centre when the end is in sight, to go to a meeting.

Your heart sinks again when you see “We will also charge you a failed payment fee of £25, as described under ‘Other Charges’ in the ‘Policy Payment Arrangements’ section….” … Now you are going to have to work yourself up into a truly Daily Mail tone of indignation in order to get them to waive the charge… adopting the full “Are you doubting my integrity young man?” approach to frighten the call-centre operative into speaking to their supervisor.

Turns out they tried to use a debit card that had expired and sure enough on page two of my renewal letter in small print  … (page one of which reads NO NEED TO CALL we will automatically renew.” in big blue letters!) …it showed the card details they planned to use including the expiry date as a month before the letter was printed.

A simple piece of computer programming could have been put in place that said – if the renewal date is later than the expiry date, then insert “Please call to give us some new card details as this one has expired” on page one of the letter.

But no… some clever-dick decided to send me a heart-stopping letter that forced me to take time out of my day, pretend to be a Daily Mail reader (stretching my acting skills to the limit)  and make myself angry in order to avoid something deep in their terms & conditions.

There are two morals to this story:

Firstly: If you have to refer to your T&Cs then the relationship with the customer is already broken. Some legally-minded folks fail to see this.

Secondly: Stop people in your organisation from jumping to the conclusion that all customers are setting out to defraud you and need teaching a lesson. If they do they will write this assumption into the company systems.

PS I am now expecting a customer survey asking me how the operative handled my problem. Of course there will be no box to tick that says… Operative was fine (if a little scared), but your systems stink.