Slower economic growth has reshaped the China market, but companies can retool their sales teams to meet new market demands.
The industrial sector is moving forward and growing after years of slow economic growth. Many manufacturing companies that have been in a defensive posture to protect market share during the economic slowdown now have an opportunity to expand their sales and other core operations that were slashed to reduce expenses. But the impact of the last few years has reshaped the manufacturing and industrial sector. Some important changes to the Chinese market have created a new landscape that may be deceptively different than the environment of just a few years ago.
Executives need to address a number of sales-related issues as they begin retooling their organizations to meet emerging market demands and differentiate themselves from the competition. In many cases, this can be challenging because sales operations are often hardest hit during lean economic times, and the cutbacks are felt across the sales process—go-to-market strategies, lead generation, conversion, and account growth.
In the China market, there are some unique challenges, such as multiple customer segments with different selection criteria, different purchase processes, and behaviors. In addition, a group of domestic competitors with typically acceptable, but inferior quality products sold at a lower price, are forcing multinational companies (MNCs) to alter their sales system and approach in the China market.
We have worked with many organizations in China that have addressed these issues during the recession by using strategies to realign sales operations as new market opportunities emerge.
Strengthen your strategic selling focus
The Chinese industrials market is typically characterized by two segments: a quality segment with higher-priced products, historically populated by MNCs, and a value segment, which supplies cheaper products, usually made by domestic companies. In pressured economic times, conversations with customers tend to be much more focused on price than on product or service differences. Once price-based selling becomes the norm, it is difficult to refocus the value proposition to anything other than “low price.” L.E.K. has identified four ways to target customers who are more likely to value (and pay for) your differentiated value proposition.
1. Reexamine your unique selling proposition (USP)
After an economic downturn, an organization’s USP may be weakened if the competitive landscape and customer purchase criteria have changed. During the recovery, companies should revisit and refresh their USPs by updating customer-focused market research and reassessing the competition to better differentiate your organization from competitors.
For example, L.E.K. recently worked with a company that supplies industrial equipment primarily to the mining sector to refine its USP and improve its sales force effectiveness. The company’s products had initially captured significant market share in China and were viewed by customers to be of higher quality than the competition. However, customer research revealed that as customers became more cost sensitive, non-mining customers believed that local products were sufficient to meet their needs. The company had just begun to lose market share in non-mining sectors, and continued losses could have pushed company to supply equipment primarily to the mining sector. This would have made it difficult to take advantage of the forecast market growth and would make the company highly exposed to one sector.
2. Prioritize customer segments
The relative attractiveness of different industrial customer segments may look quite different post-recession than they did pre-recession. For example, relatively cheap natural gas liquids in North America are driving growth in industrial segments in packaging and chemicals that rely on gas for energy or on gas liquids for feedstock. Coming out of a recession, companies can benefit by focusing on two questions: Which customer segments are experiencing the greatest growth and highest profitability? And which customer segments will most highly value our USP?
Once customer segment priorities are clearly established, assess your commercial resources to ensure they are aligned with your USP. At one leading business services firm, smaller accounts had been under-supported during the downturn due to reductions in the sales staff. Many smaller customers valued the client’s offering—and the economics showed this—but found better service elsewhere. To strengthen the company’s position in this segment, L.E.K. developed a new sales coverage model that assigned existing resources to accounts more efficiently. We also identified key commercial functions that were understaffed and, with modest investments in new resources, enabled the client to address sales and margin opportunities more effectively.
3. Filter strategic sales opportunities
As a company exits a period when “all revenue is good revenue,” there is an opportunity to set sales priorities that focus on high-value customers. A company should ensure that its new priorities were reflected in its new business selling plan and in customer bid requests. Filtering at the front-end of the RFP or bid process will help ensure that resources are not wasted.
For example, a sales force at an industrial packaging company spent a lot of time developing proposals during the downturn, which consumed significant internal sales and support resources. However, there was no firm framework to determine if the company should pursue particular opportunities, and a case could always be made to pursue a particular account. L.E.K. worked with leaders from the sales, marketing, operations, and finance teams to enhance the company’s sales efforts by defining sales criteria and developing a filtering process that now guides their team.
4. Focus on the right service and product mix
A market upswing is an ideal time to introduce new or enhanced products and services. However, new products frequently fail to achieve their sales goals if the sales team can’t explain the benefits of your new product or service to potential customers. Sales force training, performance metrics, incentive plans, and account plans often need to be adjusted reviewed sell new products to existing customers. Coordinating this type of effort with the sales force can sometimes take a backseat to just launching a new product or service. But cutting corners as a new product foundation is being set can lead to long-term problems.
Redeploy sales efforts outward
Sales representatives at one company spent 50-60 percent of their time focusing on administrative and operational issues—instead of direct selling activities—because sales support had been eliminated. So how should companies address this lean staffing reality?
1. Redefine sales and support roles
During the recovery, companies should reprioritize tasks and identify steps that can be eliminated or reduced, and which roles are best suited to manage each responsibility. First, group activities into selling, operational, and administrative work based on current activity volumes and how employees really spend their time. Then estimate resource levels for each activity group to determine the actual staffing requirements for each group. Revisit and update job descriptions to ensure they reflect the new approach. Skills should be evaluated as part of the effort to ensure that the right employees are placed in the right roles. Additionally, training programs should be rekindled to support the new roles and responsibilities.
2. Reengineer core sales processes
Companies can improve the productivity of a reduced sales staff by changing some sales processes. These processes can include reducing administrative work that distracts the staff from making sales or implementing new technologies to boost productivity. . A useful start is to work with sales reps and support staff to understand what works and where there are frustrations and inefficiencies. Often, the initial diagnostic effort can lead to reengineering targeted operations – such as proposal development or pipeline management – that have an immediate impact with only minimal effort and disruption. Some processes may need to be reworked altogether to better fit the current resource levels.
Some companies may consider this approach and entirely rethink their sales strategies. Recently, one manufacturer wanted to find more effective ways to support its sales force amid company growth. Historically, the company used the same process for all opportunities, almost regardless of their importance. We designed new processes that better scored sales opportunities by relative importance to optimize limited resources and ensure that the right capabilities are deployed to improve the odds of making the sale.
Foreign players—particularly those working with local companies through a joint venture—should be aware that sales teams in China can typically have lower productivity metrics and higher sales staff to accounts ratios. Investments in such teams is often required to build relationships and grow sales because of different market norms and cultural dynamics in the sales process.
Reward profitability, not just volume
Companies emerging from a period of significant price discounting often find that selling price discipline must be reinforced in a variety of ways, including salesperson compensation. Introducing a profitability metric to the compensation calculation can quickly reorient the sales force away from price discounting, but this change can be challenging.
Measuring the profit contribution can raise unexpected complexities. For example, if you rely on a gross margin metric, salespeople may “give away” services whose costs are tracked below the gross profit line. For example, if you’re selling high-priced, high-margin products that are highly complex, additional customer queries or the likelihood of malfunction could drive higher after-sales costs that lower overall company profitability. Alternatively, if you rely on an “all in” measure of customer profitability, you must allocate a variety of costs that make the profitability metric more complex to implement.
One packaging company wrestled with this issue while its markets were recovering, but its sales force remained focused on driving volume over price because the company continued to emphasize sales. Incentive plans continued to reward sales reps for revenue growth but not profitable growth. As a result, contribution margins varied widely.
The chart below shows performance metrics aligned with the sales and profit objectives of one L.E.K. client. This brought clarity to the overall selling effort. Incentive plans were also adjusted, which helped to bring the wide variance in contribution margins in line and led to overall margin improvement.
A holistic approach to improve sales force effectiveness
Improving the effectiveness of a sales force can quickly accelerate revenues and profits during an economic recovery. There are often hidden opportunities to increase selling time and improve sales win rates. Companies should take a holistic view of the sales function to identify and realize sustainable performance improvement opportunities in two key areas:
- Sales process and management improvements: Sales processes can break down in a number of areas that may appear minor when viewed in isolation, but collectively can impose a significant drag on an organization’s growth trajectory. Common challenges include poor prioritization of target markets, trouble separating high- and low-quality sales leads, incorporating customer feedback, and using a “one-size-fits-all” approach to vastly different sales opportunities. Addressing these issues in a strategy-driven, results-oriented process can super-charge commercial organizations and have a significant cumulative impact on sales.
- Sales force enablers: Companies need to develop a structure and support across the company to optimize sales team effectiveness. Based on our experience, we work with clients to define and implement sales management processes, performance measurement and incentive frameworks, systems and tools, and help to instill a performance culture that provides a foundation for successful and high-performing sales teams.
[author] Michel Brekelmans ([email protected]) is a partner with L.E.K. Consulting and co-head of L.E.K’s China practice. He has more than 16 years of experience in strategy consulting of which 11 years is in Asia. He works with corporate clients and private equity firms focused in the industrial products, manufacturing and energy sectors. He has extensive experience in evaluating investment opportunities and developing the strategies and capabilities required to drive performance of his clients in these sectors.
Lane Chen ([email protected]) is a manager with L.E.K.’s Shanghai office, and has been with L.E.K. since 2004. He has extensive experience in the industrials industry, having been engaged in various strategy and M&A transaction support projects including heavy equipment, metal processing as well as many other industrial products. [/author]