White Paper

Strategic

Customer

Relationships

and

the Secret to

Profitable

Growth

By Adrian Davis

Whetstone Inc. 161 Bay Street, Suite 2700 Toronto, Ontario M5J 2S1 T (416) 410-1456 F 866-226-0404 adavis@whetstoneinc.ca

Table of Contents

Introduction 1

Increased Competition 2

Understanding the Buying Process 4

Lagging vs Leading Indicators 5

Why Relationships Matter 6

Strategic Innovation 6

Conclusion 7

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Introduction

Industrial Age

The Industrial Revolution of the late 18th and early 19th centuries gave rise to large, powerful

corporations that forever changed the way business was conducted. Conversely, the evolution of

the Information Age and so-called Knowledge Economy has spawned a different type of

socioeconomic revolution, in which the balance of power has once again shifted.

From the dramatic improvement of the steam engine by James Watt in 1700 to the creation of the

World Wide Web in 1991, large corporations have typically held the power, since they usually

controlled the means of production and were the only source of credible information.

The same way Gutenberg’s printing press caused a dramatic shift in an organization’s ability to

disseminate information to the masses, so too did the introduction of the World Wide Web further democratize people’s

ability to publish and share information, and more importantly, knowledge.

Information Age

Today, we no longer rely solely on large corporations to provide us with credible information. Furthermore, technologies

like Google and Wikipedia empower us to find the information we’re looking for at the exact time we need it, while

technologies such as Twitter and YouTube enable us to simultaneously publish

information on demand. The result has been a significant shift in the balance of power

away from the corporation and towards the individual.

In the Information Age, there are the four key resources from which economic activity

and competitive advantages are created: knowledge assets (what people know and

put into use), collaboration assets (who people interact with to create value),

engagement assets (the level of energy and commitment of people), and time quality

(how quickly value is created).

Responsibility for profitable corporate growth falls squarely on the shoulders of the

CEO or business owner. Charting a path for such growth, however, can be more than a bit challenging, especially when

faced with rising customer power and the commoditization of all goods and services, not to mention: increasing

competition from non-traditional niche vendors and sales forces that lack the necessary skills to navigate the realities of

this new world.

CEOs and business owners must acknowledge and adapt to the realities of a rapidly changing economic landscape if

they are to be successful. This white paper outlines the most important issues corporate leaders must address if they

hope to successfully lead their companies in the unchartered territory of the turbulent times that lay ahead.

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Strategic Customer

Relationships and the

Secret to Profitable Growth

Increased CompetitionChris Anderson's seminal work, The Long Tail (www.longtail.com), gives us a glimpse into where we are heading with

respect to rising customer power.

In a nutshell, when the means of production and dissemination of

information was limited to large corporations, we lived in a "hit driven"

culture. The key to success was to release the product that "everybody"

wanted. The truth of the matter was that everybody "wanted" these

products because choice was limited and there was more demand than

supply. As customers begin to wield more power, they are less and less

willing to tolerate sacrifices (differences between what they really want

and what a supplier provides.) As the means of production becomes

more and more automated and digitized, it is becoming increasingly

viable for suppliers to cater to a customer’s specific needs or desires. Consequently, the Long Tail phenomenon reveals

that there is some demand for almost every product and the ability to provide goods and services down the long tail is

becoming an increasingly profitable venture. As more and more products are digitized and the cost of production drops,

demanding customers are seeking relevant suppliers who will meet their specific needs.

Demanding customers are now driving their trusted suppliers into product and service lines they would not traditionally

provide. Customers are also much more willing to work with "niche" providers who really understand their needs rather

than large brand names that are enamored with their products but disconnected from the customer’s true needs.

We are only at the beginning of the shift from a supplier-dominated economy to a buyer-dominated economy. Change

gives rise to more change. As this shift matures, there will be many casualties along the way. Some will die gradually as

their profits erode, while others will perish quickly, as a result of customer anger and frustration.

A Sales Force That Lacks Necessary Skills

The rise of customer power and the rise of non-traditional and niche competitors has left many sales forces confused

and ineffective. The more they engage in the sales techniques that worked so well in the past, the more rapidly they fail.

Throughout the Industrial Age, the sales function was at the tail end of the production process. Corporations developed

new products and then educated the sales force on new product features and benefits. In turn, the sales force went out

into the marketplace and educated prospects and customers about their products. Throughout the education process,

salespeople were mindful of the ABCs of selling (i.e., Always Be Closing). This emphasis on closing, led to elaborate

objection handling techniques. Fundamentally, objection handling meant the customer’s true desires were subjugated to

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the desire of the salesperson. Sales calls were simply a battle of wills. Closing the deal was the equivalent of winning an

arm wrestling contest.

We now find ourselves in a world where buyers can learn about a product's features online. Desired benefits are no

longer generic. Buyers need to understand how specific features will solve the unique problems they are facing.

Salespeople with a superficial knowledge of product features is no longer perceived as helpful. Buyers don’t have the

time or patience to digest a salesperson’s spiel and then translate it into what it might mean for them. Consequently,

decision makers are less willing to give salespeople their time.

The Race for Value

Unlike their predecessors, who were in a race for market share, today's business leaders are in a race for value. Many

executives who focused solely on increasing market share have found they had to buy it at the expense of their bottom

line. Today, sales efforts must result in both top and bottom line growth. This requires a new set of skills from the sales

team as well as a reconfiguration of the relationship between sales and marketing. Rather than simply giving sales

people products or services to sell, companies must now rely on their sales and marketing teams to represent the voice

of the customer.

Value is not something organizations produce. Value, like beauty, is in the eye of the beholder. Value is a psychological

perception. We create goods and services. Customers assign value to these goods and services depending on the

context they find themselves in. For example, what I am willing to pay for a bottle of water depends not only on who

bottled the water (the brand), but also on the situation I am in (next to a well with perfectly good drinking water or

traveling overseas where clean water is scarce). Those leaders that are able to steer their corporations based on an

intimate knowledge of customer context and perception of value, will be far more profitable than those that rely solely on

selling the features of their products and services. The key skill business leaders must possess in today's economy is

corporate alignment with the perceptions of their target customers.

Getting Straight A's in Alignment

In an economy where buyers are increasingly flexing their muscle, more emphasis must be placed on the sales and

marketing functions. Rather than position sales and marketing at the back end of the production process, these

functions must be positioned at the front end. In other words, corporate strategy must begin with deep insight into the

customer's world, the customer's strategic priorities and how those priorities shift over time. Instead of seeing the sales

force as the mouthpiece of the organization, whose sole purpose is to tell customers how great a company's offering is,

CEOs must now see the sales force as the company's strategic ears. Strategy must be "outside-in" rather than "inside-

out". It must begin with proprietary customer insight and end with strategic innovation based on that insight. The CEO

must upgrade the skills of the sales force so they methodically position their company as a potential strategic ally to

customers and not just show up as a vending machine providing products and services for a fee. In today’s world the

ABC’s of selling now stand for “Always Be Consulting”.

In order to move from stranger to strategic ally in the customer’s world, every interaction with the ideal customer must be

strategic, measured and in alignment with the customer's changing needs. Fundamentally, what this means is that sales

and marketing leaders must drive their teams based on the buying process rather than the sales process. Sales and

marketing teams that are driven from a sales process will inevitably “push” the buyer prematurely and, consequently,

create an adversarial relationship with the buyer.

Pushing products and services (i.e., going for the close), will not serve the buyer. In order to serve the buyer's needs,

sales and marketing teams must understand how to help the customer “pull” solutions into their environment. During

every interaction, sellers must understand where the buyer is in the buying process and satisfy the specific needs the

buyer has at each stage. At the highest level, all buyers go through five distinct psychological steps when making a

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major decision. Each step has specific needs. Satisfying the needs of one step is the prerequisite to staying in alignment

and getting to the next step with the buyer. With the help of marketing, sales people must become adept in getting

straight A's in alignment as outlined in the following chart.

Understanding the Buying Process

Buying Stage Description Buyer Needs

1) Awareness Decision-makers enter a state where they realize

there is a gap between their status quo and an

improved state. They conclude that something

must be done to close the gap. The decision maker

experiences emotion of fear when contemplating

unpleasant consequences of not addressing the

gap and the emotion of desire when contemplating

a future with the gap closed. The decision to pur-

chase is emotional and it is made here.

Assistance in under-

standing the strategic

and immediate implica-

tions of gap and the

benefits of resolving it.

2) Assessment Decision-maker is now emotionally unsettled. The

logical part of the mind engages to prevent decision

maker from making irrational decisions. Decision to

purchase is usually reversed here.

Assistance in under-

standing available op-

tions.

Relevant information to

determine best option

from a range of compet-

ing alternatives.

3) Apprehension A logical course of action has been decided upon.

Emotional discomfort arises as a result of the risk

associated with the decision. Decision to purchase

is usually reversed here if it has not been reversed

previously.

Understanding of risk

associated with decision

to bring a foreign ele-

ment into the organiza-

tion and developing

strategies for mitigating

the risk. Confirmation

that the status quo is

unacceptable

Evidence that the seller

really cares about the

buyer’s success

4) Action Buyer engages in behaviours to bring the solution

into their environment (e.g., begin contract negotia-

tions, issue purchase order, etc.). Decision is re-

versed only if engaging in these behaviours proves

too difficult or unpleasant.

A supplier that is easy to

do business with and

who clearly demon-

strates they will take

care of the buyer.

5) Adoption Buyer attempts to integrate the solution into his or

her environment. Purchase decision is reversed

here if supplier fails to live up to promises.

A supplier who follows

through to ensure spe-

cific purchase objectives

are met.

Managing sales opportunities by these stages rather than the traditional sales process (e.g., set appointment, gather

requirements, present solution, prepare proposal/quote, negotiate terms and conditions, close), will not only result in

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more accurate forecasts, it will ensure that the sales team is providing relevant information during every interaction with

the buyer. This in turn will increase the likelihood that the buyer will request the seller to spend additional time with their

organization.

Lagging vs. Leading Indicators

From a strategic perspective, the time the buyer is willing to spend with the sales

team is a critical leading indicator of an organization's value. Traditionally, the

sales function is measured based on the amount of revenue each sales person is

able to generate.

Enlightened sales and marketing leaders are learning that revenue is a lagging

indicator. It demonstrates that a buyer acknowledged, in the past, that sufficient

value was proposed for them to make a purchasing decision. In today's rapidly

changing and discontinuous environment, a past decision is no longer an accurate

indication of a buyer’s future decisions.

Furthermore, the profitability of the sale is more important than the top line

revenue associated with it. CEOs must be hyper-sensitive to where customers will

allow them to make a profit and where customers will aggressively commoditize

vendor offerings. But profitability, like revenue, is also a lagging indicator. It says

value was provided last month, last quarter or last year. It does not necessarily

reflect where value will be created in the future.

The most important leading indicator of a company's ability to create value in the eyes of customers is simply time. Time

is a currency just like money (we “spend” time, we “pay” attention). In fact, of the two, time is the more valuable currency.

Money can be replaced, time cannot. In an economy of abundance, buyer attention is a scarce resource. The fact that

a buyer gives a salesperson their time indicates the receipt of value. If a buyer continues to give a sales person or team

their time and includes other buying influences in meetings, it means they continue to perceive

value in the exchange. People spend money based on how they spend their time. Sales

managers must, therefore, become highly attuned to how much time prospects and customers are

willing to give their sales team. The inability for a sales team to book the required number of

appointments within a given time period, needs to be addressed proactively and immediately.

Revenue implications may not be noticeable for months, by which time competitive offerings may

have gotten a foothold. The inability to book appointments and get on the calendars of prospects

and customers must be flagged and dealt with in real time rather than lag time. CEOs must

perceive their salespeople's abilities to get on the calendars of prospects and customers as an

early warning system on the movement of value into or out of their organizations.

Why Relationships Matter

During the Industrial Age, demand outstripped supply. Consequently, customer relationships were taken for granted.

Emphasis was placed on cold calling and closing and quickly moving on to the next prospect. In an increasingly

competitive environment, each relationship an organization is able to secure with customers must be valued. All

relationships develop based on time people spend with each other. It is important that CEOs ensure that their sales

teams have a proactive process for deepening customer relationships.

Customer relationships mature through five distinct phases from the customer's perspective as outlined in the following

chart:

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Relationship Lifecycle

Relationship

Level

Description

Stranger Vendor is on the outside and does not provide any goods or services to us.

Supplier We contract with vendor to provide goods or services. Relationship is transac-

tional. Problems presented to the supplier are well understood and solutions are

equally well understood.

Desired Supplier Supplier consistently delivers above our expectations and has engaged us emo-

tionally. We have a favourable disposition toward the supplier and, where possi-

ble, we prefer to do business with this supplier.

Trusted Advisor Supplier has not only demonstrated expertise in their business, but also demon-

strates expertise in our business and industry. Supplier understands our corpo-

rate culture, organizational history and industry idiosyncrasies. We are able to

turn to this supplier for strategic advice. We work with this supplier to help us

understand the emerging challenges we are facing. Supplier does what is in our

best interests and often recommends other suppliers to help us address our

challenges.

Strategic Ally Supplier is a key strategic resource to our business. We work with this supplier

to co-create value. We are keenly interested in this supplier’s success as our

success depends on theirs.

Strategic Innovation

CEOs and business leaders must become adept at spotting those customers who

will always keep them at arms length (transactional customers) and those who will

invest money and time with them in order to make them more relevant (strategic

customers). Lumping customers together as a "market" will result in a lack of

customer insight. Treating each strategic customer as a micro market is the window

to proprietary insight. The implication here is that today's CEO must be tightly

aligned with the sales and marketing leader who, in turn, must be tightly aligned

with the customer base. Alignment with the customer base will occur if the sales

process is a function of the buying process.

Moreover, today’s market requires us to have two separate sales processes - one focused on reach and the second on

richness.

Reach

Relationships take time to develop. People do not marry complete strangers. Neither do customers engage in strategic

alliances with strangers. The initial sales process should be set up to enable customers to sample an your offerings at

low or no cost so that risk is minimized. Once sampled, customers should experience you exceeding their expectations.

How your customers treat you after having their expectations exceeded is the signal to you as to how much effort to

continue investing in the relationship. Those customers that take the extra value and show no appreciation for you going

the extra mile, should be kept on the "reach" program which should be designed to reach a high quantity of people with

minimal investment.

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Richness

Those customers that demonstrate being emotionally impacted by the experience and show appreciation for the extra

effort should be pursued with a sales process focused on richness. The "richness" process should be strategic and

involve your best people. The process should encourage the sales and marketing team to go deep and wide in the

customer's organization and empower the customer to interact with multiple contacts within your organization. The CEO

should be intimately involved in the "richness" process. Ultimately, the focus of this process must be on investigation -

not with an emphasis to sell but with an emphasis to understand the customer's strategic priorities, frustrations and

fears. It is these proprietary insights that will provide the basis for strategic innovation.

Conclusion

As our economic landscape changes, those CEOs and business owners who adhere to the following principles will have

a significant advantage in leading their companies to unprecedented levels of growth and profitability:

1) Raise the internal profile and influence of their sales & marketing teams,

2) Understand the power of tracking how customers spend their time (as an early warning system of value moving in or

out of the organization),

3) Engage customers in deeper levels of relationship, and

4) Co-create valuable solutions with their customers as strategic allies providing proprietary insights.

If you would like to learn more about what you can do to increase profitable sales growth for your organization, please

contact Adrian Davis at Whetstone Inc.

Adrian Davis is a business strategist and trusted advisor for business owners and chief executives. As President and CEO of management consulting firm Whetstone Inc., he has worked with SMEs and organizations such as AOL, KPMG, Motorola, PricewaterhouseCoopers, Phonak, Aviva and Dupont. His team has developed a reputation for leading organizations to innovative and practical solutions that enhance customer value and dramatically increase sales and profitability. Adrian is a certified professional in Business Process Management (P.BPM) and a certified Competitive Intelligence Professional (CIP). He holds a Bachelor of Business Administration from the University of Ottawa (Dean’s Honour List). He is a thought-provoking speaker and is frequently called upon to address senior management teams and sales groups on the subjects of customer strategy, and sales excellence. He can be reached at 416-410-1456 or adavis@whetstoneinc.ca.

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