Most people forget that by the time a recession is declared they have been living with it for six months already. It’s a simple fact, a recession is defined as two quarters of a decline in GDP. So, we are probably about to declare a recession in the UK and most of the rest of the world and the people who already know this are those working in sales.
They have been seeing the pressure applied to them by buyers already, and I thought it would be an opportune time to talk about the types of buyers that typically exist in the business world today, how they behave during a recession and how you can still serve them.
The one most salespeople know already is the buyer who is only concerned about price. One of the clearest ways to identify them is they often operate sealed bid type arrangements. By this I don’t mean those people who use web-based purchasing approaches and auctions. Many of these are very sophisticated, so as a salesperson you should not dismiss the idea of placing bids on a website. What you should do is find out what the buyers’ criteria for awarding business is however they ask you to submit your prices to them.
But price buyers are actually easy to deal with as a salesperson. One thing they and you can be sure of is they know precisely what they want to buy and the maximum price they want to pay for it. Recognising someone as a ‘price buyer’ gives you a simple decision to make, do you want their business at the price they are willing to pay?
This may sound harsh, or even foolish, but so many salespeople have an inability to walk away from bad business with bad margins. This is often caused by their own compensation schemes, or a general instruction from their own business seeking growth at all costs.
I always try to encourage a business to construct a simple two by two matrix on which they can place each customer as a data point. The Y axis is annual revenue derived from the customer. The X axis is the cost to serve that customer. Any customer in the bottom right-hand quadrant of that graph is potentially a problem. So, if you find your price buyers company in that quadrant, and they are committed to remaining a price buyer, you have a decision to make. My advice would be finishing your current contracts with them and find a way to either make the cost to serve them cheaper or decline bidding for any business with them. Remember, they are a price buyer, they will always be open to listen to your offers if your price is right. You are not walking away from them forever; you are simply choosing not to supply them at the prices they are willing to pay right now.
Normally any attempt to turn a price buyer into a value-based buyer, where you try and lead the conversation with the value of your product or service compared to your competition is wasted effort on a genuine price buyer. They are simply looking for a product or service that meets the specification they are seeking. Often, organisations that follow this approach also have quite sophisticated means of preventing salespeople going around their buyers.
It is a truism that companies who serve price buyers operate the strategy I described above, of selective participation. They only trade with price buyers when their short-term objectives can be served. Such as gaining business that provides an incremental contribution, or winning business that does not undermine more profitable business with other customers.
During a recession many companies appear to switch to becoming price buyers. In my experience few companies actually achieve this. Buyers are often trained and operate in the way of my second type of buyer, those who believe in building relationships with their suppliers. These people are the exact opposite of the price buyers. They value consistency and performance, as a salesperson you have probably worked with them for a number of years. You have been a trusted advisor and provided significant market information to this type of buyer, in return you have learned a great deal about them and your competition. Even in a recession relationship buyers value you and your business. Their loyalty to you is often built on the risk associated with introducing new suppliers, but they will know the cost of changing supplier and the best relationship buyers have other suppliers waiting in the wings.
During a recession it is even more important with this type of buyer to focus on your past performance. Stress the concerns they will have themselves about buying an inferior product or service. Identify and explain your unique pricing and quality benefits to this type of buyer. It’s not your job to make it easy for the buyer to compare you to your competition, and you should certainly never openly undermine your competitors to this type of buyer. If you have a truly relationship-based agreement with this buyer, they will share with you the concerns they have about your offer compared to those of your competitors. At that stage it’s important for you to understand what about your offering the buyer truly values most of all. If you are in a mature market, you will be faced with competition which in many ways will be equal to or superior to you in some areas. It is for this reason that you need to understand where you provide greater value. On the two-by-two matrix a relationship buyer typically appears in the top right-hand quadrant. Revenues are generally higher but so is their cost to serve. During a recession relationship buyers do come under pressure and some migrate to become value buyers.
Most buyers I know consider themselves to be value-based buyers. They look to derive the maximum economic benefit for the price they pay. They don’t need the highest quality; they need something that does the job. They operate within a series of attributes and constraints. You provide the attributes; your job is to understand their constraints. They will try new products, services, and suppliers and you will typically see them splitting volume across two or three suppliers with one holding the most favourable position. You will find value buyers loyalty fades as competitors come to the marketplace. Good salespeople, when they recognise value-based buyers quickly demonstrate and differentiate the value of their offering compared to their competitors. Value buyers are typically found in the top left-hand quadrant of the two-by-two matrix I described, but they can appear anywhere. Often your task as the account manager is to help the value buyer reduce the cost it takes to serve their need. Engaging with them at this level appeals to their sense of value and they will be keen to share the benefits of any savings you make if you want to undertake a project with them to reduce this cost. Value based buyers will challenge you during a recession on factors other than price, and you must be able to address the issues and opportunities they raise.
Every salesperson reading this has been experiencing changes in the way the buyers they sell to have been operating in the last six months. Price buyers had been applying pressure for even lower costs, relationship buyers have started to perform more like value buyers. Value buyers have not changed to price buyers generally, but they have been working with their suppliers to maintain value for their business.
In a recession it is more important than ever to identify the type of buyer that you are dealing with. It is critical to know the cost to serve each customer and although it is counter intuitive giving low revenue earning and high cost to serve customers notice that you will not be trading with them in the future is a wise approach. Where you have a high revenue customer that has a low cost to serve you should get closer to them, else your competitors will. Where you have a high revenue client with a high cost to serve you must work with them to reduce that cost whilst maintaining their profitability to you or indeed increasing it.
During a recession it is more important than ever to become a profit leader, your position as a market leader driven by unprofitable growth, if indeed that is what you are, is likely to lead you into gaining nothing more than a greater number of unprofitable customers.
