Consultative Selling

Mack HANAN

• Publisher: AMACOM
• Year: 2011
• ISBN:
  9780814416181
• Edition: 8
• Topic: Business
• Subtopic: Sales
• Index: Business

When you help your customers and clients make profitable business decisions, the result is a win-win solution that can lead to a mutually beneficial long-term business relationship.

In Consultative Selling, sales consultant Mack Hanan helps you achieve just that by introducing a formula that will take your sales to the next level--one that involves you exchanging your salesperson hat for that of a trusted consultant. You'll learn how to:

• create a two-tiered sales model to separate consultative sales from commodity sales;
• build and use consultative databases for value propositions and proof of performance;
• study your customers' cash flows to win proposals;
• use consultative selling strategies on the web;
• and cope with--and reverse--the inevitable "no."

For over four decades, Consultative Selling has empowered countless sales professionals to reap maximum success.

Now, packed with new partnering strategies, cost/benefit analysis templates, detailed monetized value proposition models, outcome-based branding approaches, and powerful consulting tactics, the eighth edition of this invaluable resource will bring you wide-ranging success--making the competition irrelevant.

PART 1
POSITIONING AND
PARTNERING TO
PROPOSE HIGH-
MARGIN VALUE
PROPOSITIONS

How to Co-Manage Cash
Flow Opportunities

Like all sales strategies, Consultative Selling is based on comparison. In vendor selling, one supplier’s features and benefits are compared against those of other suppliers. Consultative Selling compares a customer’s current competitive advantage with the improved advantage that can be added by the seller. It is the customer’s competition, not the seller’s competitors, that must be surpassed.

A customer’s competition takes two forms. For a customer who manages a cost center, his competition is the lower costs resulting from the better practices of alternative suppliers. For a line of business manager, competition comes from other suppliers’ higher margins, greater market share, or lower costs of sales. These competitive challenges are reflected in the managers’ key performance indicators (KPIs).

Consultative sellers must position themselves as enablers of greater competitiveness for their customers. By reducing operating costs, they help customers compete as lower-cost suppliers. By increasing operating revenues, they help customers compete as makers of more profitable sales and holders of higher market share.

When reduced costs and increased revenues are added together, their sum total is profit improvement. For nonprofit and not-for-profit customers, the benefits are expressed as cost improvement or revenue improvement. In both cases, consultative sellers are positioned as improvers of customer value. They sell improvements. They price improvements. They never stop improving their customers. This is their claim to partnership.

Partnering a customer manager requires a consultative seller to meet three requirements:

• Common objectives. The seller must embrace the customer’s KPI objectives as if they are his own.

• Common strategies. The seller must convert a customer’s cost of doing business with him into a returnable investment. The profit on the investment must zero out its cost. The investment’s return must be guaranteed so risk = 0.

• Common rewards. The seller must share the customer’s risk in every transaction. This puts the seller’s skin in the game, awarding him the right to share in the gain.

KPI objectives are the common bond between consultative sellers and customer managers. Zero cost and zero risk is the seller’s compelling proposition for why his customer must invest with him in order to realize the customer’s KPI objectives. Sharing in the gain gives the seller incentives, in his own self-interest, to meet or exceed the KPIs.

Guaranteeing and gain sharing are two sides of the same coin. The seller’s guarantee puts a floor under the customer’s risk. All downside exposure is eliminated. Gain sharing removes the ceiling on the partners’ benefits. The upside for both the customer and the seller becomes unlimited. The partnership becomes win-win.

CONSULTATIVE
POSITIONING
STRATEGIES

1
HOW TO BECOME CONSULTATIVE

In just three sentences, you reveal whether you are a consultative sales representative.

In the first sentence, a consultant identifies a customer’s problem in financial terms—what the problem is costing the customer or what the customer could be earning without the problem. If you mention your product or service, you are vending and not consulting.

In the second sentence, a consultant quantifies a profit-improvement solution to the problem. If you mention your product or service, you are vending and not consulting.

In the third sentence, a consultant takes a position as manager of a problem-solving project and accepts single-source responsibility for its performance. In the course of defining the project in terms of its contribution to customer profit, you are able to mention your products and services for the first time.

If you are selling as a consultant, it is easy to predict what the fourth sentence must be. It will be a proposal to partner with your customer’s managers in applying your system to solve the customer’s problem.

A consultant’s problem-solving approach to selling requires helping customers improve their profits, not persuading them to purchase products and services. To solve a customer’s problem, a consultant must first know the needs that underlie it. Only when a customer’s needs are known can the expertise, hardware, and services that make up a system become useful components of a solution. This is the difference between servicing a product and servicing a customer. It allows your relationships with customers to be consultative rather than the simple sell-and-bill relationship that characterizes traditional customer-supplier transactions at the vendor level.

The ideal positioning for a consultative seller is as a customer profit improver. You can achieve this position by affecting one of a customer’s operating processes in two ways: reducing its contribution to cost or increasing its contribution to sales revenues. A consultative seller’s primary identification with profit improvement rather than with products, equipment, services, or even systems themselves gives the sales approach an economic objective. It focuses attention on the ultimate end benefit of a sale, not its components or cost. This gives you the same profit-improvement positioning as your customer has. It also professionalizes your mission by expressing it in business management terms, not sales talk.

SELLING THE VALUE OF AN INVESTMENT’S RETURN

When GE Capital invited PricewaterhouseCoopers to respond to a request for proposal (RFP), GE said that it wanted to receive “high levels of customer service at the most cost-effective pricing structure possible.” The RFP came from GE Capital’s “commodity leader.” PwC’s presentation, it was advised, should focus on “out-of-the-box thinking which supports how a partnering of our firms can result in cost containment on both ends.” The price for relinquishing the proposal initiative to GE was margin.

PwC management regarded the GE request as proof that the firm had achieved its objective of winning top-of-mind awareness among Fortune 500 companies: “When they’re thinking about changing accountants, we want to come first to their minds.” But a supplier who is on the receiving end of an RFP is nailed to the wall. Value is ruled out from the beginning as the basis for price. The advantage of having top-of-mind awareness is nullified by being pushed down to the bottom of the pile on profit.

Motorola found itself in the same boat by passively waiting for RFPs for its two-way radio business to come in over the transom. Its pricing model ignored value. Instead, it responded to competition and was determined on a cost-plus basis. Yet Motorola’s radios could significantly enhance customer revenues and displace costs: Manufacturers could increase output by communicating production-line problems in real time, and a construction site could decrease costs by requiring fewer workers.

Using Consultative Selling, Motorola took the initiative to “identify a process by which we can partner with our customers to learn what our customers deem as value and assure that each of our functions from product conception through post-sale maintenance maintains that value.”

Motorola concluded, “Pricing our products and services on a cost-plus basis only lends itself to selling our features and not our value. To effectively compete on value, we need to begin defining our value within the context of our customer’s business. Given that our internal people still determine value based on inherent characteristics of our products, there is an immediate need to shift this mindset.”

At Unisys, CEO Jim Unruh put it this way: “Technology alone is no longer enough. We must help customers apply technology to improve their competitive positions and increase their profitability.”

Recognizing that “buying decisions are increasingly based on the need for tangible bottom-line results,” Unruh asked, “What does this mean for Unisys?” He answered by taking the proposal bull by the horns. “It means we must deliver business benefits, not just products.” He defined benefits as revenue enhancement and cost containment “by not simply supplying technology—we must help our customers apply it.”

Value can be achieved through the application of all forms of technology. The $3.2 million cost to install a Metaphor Data Interpretation System might be ruled out as noncompetitive in response to an RFP. But when it is compared against an average annual profit contribution of $8.7 million to customer brand managers’ key performance indicators (KPIs), with payback inside of eight months, Metaphor was constructively proposing to pay its customers to use its system and not the other way around.

As long as the proposal flow is from the customer to a supplier, the moral of the story will always be the same: The supplier will forfeit margin as payment to the customer for identifying his own problem and prescribing his own solution. The customer, in the person of a buyer, needs only the supplier’s price. He is immune to a value proposition because his performance is evaluated on his ability to squeeze acquisition costs, not to enhance contributions to profit from operations. Accordingly, he is un-PIPpable.

TALKING MONEY

In order to consult with customer operating managers on how they can improve their contribution to profits from an investment they make with you—in something you may call your “solution”—you must counsel them in their own terms. These are not the vendor’s terms of product features and benefits or price and performance. They are, instead, the basic language of business management in its most elementary form: Business Management 101.

At the customer manager level, “business-ese” is the only language spoken. It is transaction talk, the language of money being transacted. It is charged with action verbs: funds being invested, investments being returned, cash flowing, payback occurring, profits improving, costs being reduced, revenues being increased, and market share being gained. But these are simply ways of expressing what is happening to the subjects of these verbs, the dollars themselves. Customer manager talk is money talk.

What do you have to know in order to “talk money” well enough to be conversant in business-ese? There are two requirements: to know how money is classified, and to know a customer’s current money base of costs and revenues and how much you can affect them.

Classifying Money

Money is classified into six major categories:

1. Investment—what customers pay out.

2. Return—what they get back on what they pay out. The rate of return is the ratio of the return to the investment.

3. Payback—when they get their investment back.

4. Net profit—what they make on their investment, or their increment over and above payback.

5. Cost—an investment on which there is no return.

6. Opportunity cost—the profit they could have made on a different investment.

Analyzing the Customer Money Base

Consultants ask for incremental investments, money that is over and above the basic fixed-cost investments in the business as a whole. In return, they propose incremental profits. Incremental investments are discretionary. Customers choose among them on the basis of the best combination of muchness, soonness, and sureness that meets their needs.

Most consultative sellers propose incremental profit improvement. The rate of return is calculated only on the incremental investment in the proposal, which tends to make it exceedingly high. The customer’s total investment in the business as a whole, or its total corporate return, is irrelevant. Consultative Selling takes place in the arena of a customer’s microeconomics.

For that reason, the customer’s balance sheet and income statement are neither causes nor effects of Consultative Selling. They will rarely, if ever, suggest leads. Equally rarely will they be affected by a consultative seller’s incremental improvement of any one business manager’s contribution to pr...