Your R&D group develops a unique new product. Manufacturing produces it. Finance puts the systems in place to track the money coming in. Marketing designs the promotional campaign. Your sales force is ready to execute. "We own the relationships with customers," say your salespeople. "The company holds us accountable for revenues and expects us to develop and maintain the connections to drive sales. Just pay us our commissions and leave us alone."
A sales model that pays salespeople almost entirely on commission and gives them exclusive "ownership" of customers often works for a while for products in unsaturated markets. With seemingly unbounded opportunity, salespeople work hard to build relationships and create a book of business that drives their future financial success and creates fast market penetration for the company. But the "salesperson owns customer" model is a double edged sword. Three examples show the issues that can arise.
Sales force complacency and high new salesperson turnover: At an insurance company, tenured salespeople had amassed large territories and now "owned" so many high-potential accounts that they didn't have enough time to provide adequate service and coverage to all of them. These salespeople earned lucrative commissions on sales to current customers and had little incentive to hunt for new customers. With sales slowing, the company struggled to attract and retain new salespeople who couldn't build a book of business to earn a living. Annual first-year salesperson turnover was 60%. Sales leaders tried to realign accounts to help newer salespeople succeed while improving account coverage. But top earners who controlled important customer relationships pushed back. Leaders abandoned their plan to avoid losing top producers and their customers.
Runaway pay: A medical device company needs to cut sales force costs. As a startup, the company gave salespeople customer "ownership" and paid a 4% commission on sales. In the first year, salesperson pay averaged $125,000. As sales took off, management continued to "share the wealth." After several years, salespeople earned $650,000+ a year, resetting the pay scale for the entire industry. When competitors entered the market and customers became more price-sensitive, sales growth slowed, and the value that salespeople added no longer justified their pay level. Yet leaders were hard pressed to cut pay. Competitors were already poaching the company's salespeople, and lower commissions would prompt more to jump ship and take customers with them.
Inability to adapt: As the product line at a technology company broadened to meet the needs of customers seeking comprehensive business solutions, sales leaders planned to expand the company's sales force by adding specialists who could bring technical product expertise to customers. When the company's salespeople learned that this would require them to give up exclusive "ownership" of their customers, they vehemently objected. Leaders lacked the will and courage to make the needed change, resulting in an undersized sales force with inadequate expertise to meet customer needs.
The issue of who owns customers—salespeople or the company—is really a question of who and what the sources of customer value are. In the examples, customers perceive the salesperson as the primary value source—the one who listens, assesses needs, provides solutions, and delivers continuing service. But when the situation changes—due to factors such as customers' need for more complex solutions, market saturation, new competition, or a broadening product line—a salesperson alone no longer delivers adequate value. These sales organizations can better position themselves for long-term success by adapting their go-to-market approach to create multiple customer value sources. Some ways to do this include:
1. Multiplexing to give customers many meaningful connections to the company: For example, an account manager maintains the customer relationship, specialists provide technical assistance, and service people keep the solution working. All are sources of customer value.
2. Creating tools and programs that add value throughout the sales process: For example, a web site makes the purchasing process efficient, or tools provide salespeople insights about a customer's business. The sales and fulfillment process itself becomes something the customer relies upon.
3. Capturing account information using a CRM or other system: That way, people throughout the company, not just one salesperson, can learn the needs and history of each customer. If a salesperson leaves the company, customer knowledge is not lost.
4. Creating a team-oriented sales force culture: Hire salespeople who are team-players. Establish systems and processes that encourage teamwork and best practice sharing among salespeople. Reduce commissions and other short-term incentives and offer more salary or even stock options that reward for longer-term sustained performance. Track team-based metrics and recognize salespeople not only for quarterly quota attainment, but also for making lasting contributions, say by working together to pursue business development opportunities with long-term payback.
When you create multiple sources of customer value, customers will rely on several people from your company and on the tools and processes that support those people in meeting customer needs.
Making the transition to a multiple value source approach is not easy. Companies are more likely to succeed when they use events that create an expectation of change (a merger, new leadership, a new product launch, a missed financial goal) as catalysts for enabling the transformation.
Copyright (c) 2012 by Harvard Business Publishing. Reprinted with permission.
This blog originally appeared on the Harvard Business Review website: http://blogs.hbr.org/cs/2011/12/who_owns_your_customer_relatio.html.