Chapter 9: Customers Demands For More--Buying Behaviors and Attitudes


Chapter 9: Customers’ Demands For More—Buying Behaviors and Attitudes

Overview

“Buyers want their suppliers to make life simpler for them. They say, ‘Show me real productivity gains in a simple way that won’t burden my IT shop; don’t promise me the world.’”
—Sales Manager

Customers today may be more demanding than ever. With the information available to them on the Internet and the growing efforts among organizations to improve customer service, customers have not only come to expect more from suppliers, but they are more knowledgeable, more sophisticated, and more price sensitive. It has indeed become a buyer’s market, and the increasing leverage held by customers is putting unprecedented pressures on suppliers and leading to increased competition, lower prices, lower margins, and sales organizations scrambling to differentiate themselves in the marketplace.

Sales organizations have caught on to the customer-focused movement by pursuing many of the organizational and technological strategies discussed in this book. For some of these organizations, however, their efforts to better serve customers are guided by their own ideas of what their customers value and how those customers prefer to buy. Even with elaborate customer service data-gathering techniques, figuring out what customers want is not easy, and their true preferences are not always observable or predictable.

Industry- or organizational-level changes among customers, such as consolidation, use of buying committees or electronic reverse auctions, and other “buying practices,” may be spotted fairly easily, but more team- and individual-level attitudinal changes in how and why customers buy can be far more difficult for sales organizations to pin down. For example, customers’ perceptions of relationships, what they value from suppliers, what they value or don’t value in their salesperson, and what drives their buying decisions, change often and are difficult to track.

This chapter attempts to paint a more complete picture of customers’ preferences and buying practices by identifying what they want, how they buy, and how that’s changing at the industry, company, and buyer levels. We look specifically at the changes in the behaviors and attitudes of customers as observed by the leading organizations interviewed for our study and compare them with findings from our survey study of customer buying behaviors and attitudes. This study, a survey of more than 500 buyers of information technology (IT) from small and medium-sized organizations across a wide variety of industries, attempts to shed light on what customers value most in their supplier, how they prefer to buy, where they prefer to buy, and what most influences their decision to buy or not to buy. This chapter reports the findings from this survey study to compare what sales organizations think customers want to what customers actually say they want from their salesperson and vendor organization. Reconciling what customers want with what and how salespeople deliver their products and services has important strategic implications for a sales organization’s ability to win over smarter and more demanding customers.



Customers Want More of Everything

The leading sales organizations we interviewed shared with us their observations of how customers are changing the way they buy, and the challenges customers present in terms of being able to meet their needs, provide value, create relationships, and ultimately grow sales. In this section, we review the changes taking place among customers as perceived by sales organizations, with the objective of highlighting the most significant changes in the marketplace that successful organizations must address. We’ll also draw comparisons of these observations with what customers actually had to say about their buying behaviors and what they value most and least in their salespeople.

Customers Know More and Expect More

Customers are more knowledgeable, more sophisticated in terms of how they make buying decisions, and ultimately more demanding of suppliers. They expect the same level of service regardless of channel, and with access to information about products and pricing on the Internet, they expect to get the best deal possible from their suppliers. These trends among customers hold true for all of the organizations we interviewed, from those selling yellow pages advertising to those selling large enterprisewide networking systems.

For example, small business customers of BellSouth have changed significantly in the past few years both in their buying behaviors and knowledge of technology. With an increase in the number of telecommunications providers, small business customers have been able to significantly increase their knowledge of both technology offerings and pricing. According to the company, customers understand technology and are less inclined to look at long-term contracts because they know they will have a lot of choices in the future because technology changes so rapidly. Even smaller customers are more technologically competent than in the past. According to one manager at BellSouth, it “used to be that customers were just happy if they picked up the phone and had a dial tone. Now they are concerned about other issues like wireless capabilities or disaster recovery systems.”

Organizations such as TD Waterhouse that are in business-toconsumer (B2C) markets are also experiencing more demanding and knowledgeable customers. According to the company, “Customers are generally more sophisticated and intelligent when it comes to equity research, product knowledge, and balancing portfolios.” One company from the automotive industry said their customers have a sharper eye for value and are better at gathering information on products. Customers used to go to auto shops to collect information, whereas now they come knowing what they want. Given this new level of expertise, customers are asking sales representatives for more advanced information on product features, which requires salespeople to be on top of any product changes. Another company we interviewed noted that with customers becoming more knowledgeable through information available on the Web, such things as regional pricing and fulfillment are becoming more difficult.

Finally, customers expect faster service. According to Diebold, one of the leading producers of automated teller machines (ATMs) in the United States, just in the past couple of years, product lead time from contract to delivery has been reduced by two-thirds. Because their customers are building branches more quickly, they expect faster outfitting of ATMs and security systems.

Customers expect more, in part, because their business requirements are becoming more complex. Business today, even for small organizations, is more complicated, and as organizations become more sophisticated, they demand more from their product and service suppliers. Several organizations noted a trend toward increased complexity of contract requirements, including such things as customization of solutions, logistics, and longer-term fulfillment issues. At Marriott International, for example, with declining meeting attendance and tight travel budgets becoming the norm in today’s business world, organizers of meetings, conventions, and conferences now require more complex and sophisticated contract negotiations around such parameters as price, guaranteed room nights, locations, and cancellation policies.

Customers Are More Concerned with Price

The organizations we interviewed identified several underlying causes for the dramatic increase in the focus on price among their customers: customers have become more aware of competitive pricing, they understand the financial implications of their purchases, their customers are expecting lower prices, and in many industries, products have become commoditized whereby differentiation among competitive offerings has been reduced to price alone. As customers come under greater financial pressures, they are naturally fixated on short-term solutions and this fixation with price carries on throughout the sales cycle.

Office Depot, a leading office equipment supplier to the retail and small business market, said that customers and prospects now more than ever “are singularly focused on per-unit prices.” They believe this new cost consciousness “to be a direct reflection of the renewed priority of businesses to operate more profitably on stagnant or declining revenues.” Similarly, another company said their customers emphasize price to the extent that they demand multiyear contracts with guaranteed price reductions. Clearly, from the perspective of leading sales organizations, price is an important issue for customers; so important that for many it is the primary driver of their buying decisions.

Another organization characterized the relationship with their customers as “strained at best.” The organization relayed how their customers are demanding price concessions with no commitment to buy, and are employing tactics to inhibit relationships with their suppliers. Getting beat up on price and reducing the ability of the sales force to establish important relationships with suppliers are just a couple of examples where customers are leveraging their power over suppliers to gain price concessions.

Customers Are Buying More at “Arm’s Length”

Findings from our study confirm that salespeople are finding it more and more difficult to gain access to buyers. Customers’ buying practices are only making it more difficult. Through the use of requests for proposals (RFPs) and electronic auctions, and by assigning buying decisions to “third parties,” such as the procurement department or committees or consultants, customers are making it hard for salespeople to get face time with the end user, influence decision makers, and ultimately create lasting relationships with customers.

It was common to hear throughout our interviews about customers using the RFP process, Internet auctions, and other means of arm’s-length procurement. One sales representative lamented that the procurement departments of most customers now have ten times the power today than they did four to five years ago. Another company told us that purchasing decisions among their customers are increasingly being made by committees and often managed through a detailed and formalized procurement process. This makes it extremely difficult for sales organizations to show value and differentiate themselves. In the end, products and services are reduced to commodities— forcing competitive bids to focus solely on delivery capability and price.

Diebold has observed the increase in the use of RFPs, which they see as making it more difficult to “be creative” in proposing solutions. According to one manager, “Customers give you RFPs with blanks for the cost . . . sometimes they don’t even allow you to make presentations, just fill in the blanks.” How to configure the deal and include value-added service or other intangibles is difficult to specify in a fill-in-the-blank RFP form. The general feeling is that unless a salesperson becomes involved with an account prior to the RFP being released, there is a significantly lower chance of winning the sale.

For other organizations, buying decisions today take place at different levels in the client organization than in the past. Decisions are being pushed to higher levels in some instances and to lower levels in others, depending on the product and importance of the sale to the client. According to Office Depot, in the past it was purchasers who were generally mid- to lower- level ranking individuals with minimal accountability to their organization that were assigned the responsibility of purchasing “pens and pencils.” Now, the company is seeing more senior- level purchasers, including COOs, CFOs, and company owners, occupying the decision-making chair. To complicate matters, these new decision makers are responsible for much more than purchasing office supplies, so getting their attention can be a major hurdle.

Reverse auctions or electronic auctions take place when a buyer electronically posts a notice to buy a product or service. The request includes product and delivery requirements and sometimes even price limits. Selected vendors will then participate in a bidding war online and in real time, with the contract generally going to the lowest bidder. This is becoming a popular practice in some industries because it’s a cheap and expedient way for customers to do business. Stora Enso, Marriott, Infineum, and Hewlett Packard (HP) are a few of the organizations we studied that have encountered reverse electronic auctions. While they normally take place for traditional commodities, this practice is emerging in some service and high-tech, complex product areas. The phenomenon reflects the commoditization of products and services, the focus on price, and ultimately the customer’s desire for faster and easier business transactions.

More Customers Are Consolidating

As the rate of mergers and acquisitions is growing and organizations leverage the strategic benefits of partnerships, more customers both large and small are consolidating. We found this to be the case across nearly all industries studied. Consolidation of customers increases their buying power while offering fewer, albeit larger, opportunities for suppliers. The organizations interviewed observed that while some consolidation within the customer marketplace meant that there were bigger contracts to be won, more often than not the increasing buying leverage resulting from fewer and larger customers presented challenges for their sales strategies.

Infineum, the manufacturer of fuel and lubricant additives, reports that their customers have become “bigger and more globalized.” The company notes that consolidation began with their largest customers, but is expected to continue among the mid-sized organizations as well. In response, Infineum has had to develop strategies to win the big accounts and then meet their needs in different parts of the world. Finally, a wave of merger and acquisitions among Diebold’s customers over the past several years has created a small number of very large financial services institutions, substantially reducing the number of middle-tier banks Diebold can sell to. This consolidation in both supply and demand will likely continue as cost pressures and slimmer margins make it more difficult for organizations going it alone to remain competitive. In today’s competitive global economy, buying power, access to more markets, and economies of scale are all in the favor of organizations that merge, acquire, or partner in some way.

How Salespeople Are Responding

Sales organizations have adopted various strategies to overcome these challenges and address the increasing leverage customers are gaining vis-à-vis sellers. As discussed in previous chapters, many of the salespeople interviewed stressed the importance of creating relationships for overcoming these challenges, becoming Trusted Advisors, and increasing the value they provide to customers by offering more business and product knowledge.

Salespeople told us they feel that creating lasting and meaningful relationships with customers is critical for winning their business in this new selling environment. Becoming a trusted business advisor to their clients would allow them to recommend the best solutions to their business challenges and thus increase customer retention over time. Similarly, providing value through offering detailed product and service information and demonstrating how those products and services result in strategic benefits for the customer would help reinforce relationships, circumvent arm’s-length buying practices, satisfy price concerns, and ultimately meet customers’ demands for more. As part of our survey study about what buyers want, how they buy, and why they buy, we sought to compare what sales organizations are trying to do to win customers with what customers say will win their business.