Ringing the changes in pharmaceutical sales

pharmafile | May 25, 2006 | Feature | Sales and Marketing |   

Every business and every market is unique, but there is a huge expanse of common ground when it comes to selling your business to your customers. This article looks at what the pharmaceutical business can learn from the highly successful techniques of the automobile, financial services and mobile telecommunications sectors.

Let's be clear at the outset that these three sectors are neither infallible nor uniformly good: they simply incorporate a good deal of the best practice and a minimum of the iffy bits. Proving that there is some justice in the world, the companies who behave most professionally within those markets also tend to be the most successful.

Generally speaking, successful companies make use of two fundamental concepts: customer value and customer needs.

Customer value is at the core of strategic planning. It is a salutary experience to calculate just how much a customer is potentially worth during their spending years; this information can be invaluable when making what would otherwise be short-term decisions. At its simplest, it may well be worth losing money on a customer today if he or she is going to come back tomorrow, and the next day and the day after that. Conversely, if they are as likely to go as to stay, it may be wise to gather rosebuds while you may.

The mobile phone market is a good example of this approach, frequently offsetting the discount on the handset against the profit on its use over an extended contract, using a sprat to catch a mackerel. Mobile phone providers have also developed a systematic approach that offers upgrades at regular intervals to tie the customer in afresh, constantly dreaming up the next 'must have' accessories or features.

Financial services does much the same in a different way, generally by offering short-term deals to new customers, but it has rather shot itself in the metaphorical foot by creating a phenomenon that the industry now refers to as 'loyalty tarts' who hop from one discounted rate to another. The lesson here is that if all you have to offer is a low interest rate or a competitive price then someone else will match it or go one better.

Acquiring and retaining customers

Any strategy based on consideration of lifetime customer value will also incorporate some allowance for the cost of acquiring or replacing a customer: if you lose customer A you have to replace that business by recruiting customer B, which carries a cost that exacerbates the loss of income from A. There is also a degree of uncertainty about whether B will come along, so an A in the hand may be worth two Bs in the bush.

Most companies owe a debt to the Italian economist and sociologist Vilfredo Federico Damaso Pareto (1848-1923) who formulated the principle that has been named after him.

Pareto's Principle is that 20% of the population represents 80% by wealth or importance. He originally framed it in the context of Italian income at the time, but it has proved remarkably accurate when applied to most other defined universes. The question for pharmaceutical sales organisations is how much attention and resources are they devoting to the 20% who are worth 80%. Is it 20%? Is it 80%? Is it somewhere in between?

Sales coverage

Once you begin thinking along these lines, as some more enlightened manufacturers have done for years in office equipment and telecoms, it can produce an entirely different pattern of sales coverage. Some accounts may not be worth regular personal calls, and can be managed adequately by telephone or subject to a minimum economical order. Some may require high-level, high-authority executive support from head office. Some may even justify installing an 'implanted' representative on the customers premises. Some may justify special terms in return for making increased forward commitment.

The fact that 'it has never been done before' is not a good enough reason on its own to reject it now. Various parts of the commercial world now operate in a way that is unrecognisable from yesteryear, and, of course, the internet has had immense impact on the way that information is displayed and exchanged. It may be worth a full-scale review of each customer account to ascertain whether they are still worth calling on and, if so, establish how often those calls should take place.

In this context, it will also be worth defining what constitutes a call. Certainly some salesmen of yore made call after call, and fully documented them in their itineraries and expenses, but had only a perfunctory conversation on each occasion because the person they wanted to see was busy. In extreme case, their appearance might have been seen as an unwelcome interruption or, worse, a manifest waste of everybody's time. Salesmen shall not live by calls alone: it is their quality rather than their quantity that counts, and the value of the customer being called upon is a key part of the calculation.

Managing key customers

But, of course, the most basic way of incorporating customer value into the relationship is in determining the terms of doing business with them. In some cases you have no choice: the largest customers have the loudest voices and the biggest muscles. But key customers can be given preferential treatment other than discounts, as the automotive industry has certainly discovered.

Classically, there are three tiers in a car dealership: the dealer principal who runs (and often owns) the business as a whole: the sales manager who controls the work of the sales department, and sales executives who face the customers directly. It follows that if a manufacturer can provide incentives for sales executives to sell more cars, they will be happy, their boss will be happier and their boss's boss will be happier still. The cups of happiness will be running over if the sales manager and dealer principal can also participate in the incentive and share in the manufacturers largesse. 

In the 1970s and 1980s this was exactly what happened, and you could tell how successful a dealership was from how well tanned the sales team were  a typical incentive campaign offered travel as the top prizes, but one of the problems was that the same people kept winning.

These incentives had to be seen to pay for themselves, so the campaign would be predicated upon a sales increase from which the incremental profit exceeded the cost of the incentives. In most cases, dealers would be working to an agreed (or imposed) target, so it was fairly simple to uplift it by the required amount. While the market and product economics remained the same, everyone was reasonably happy. But just to complete the narrative, two things happened to change the economics: cars became less profitable to sell, and the taxman began sniffing around.

In addition, dealer principals became less and less attracted by the idea of their successful sales people regularly disappearing for destinations in the sun. The more contemporary approach is to create incentives that reflect quality of performance, appealing to the executives' sense of professionalism rather than their desire to travel. Clubs, guilds, circles and the like have all been created to provide recognition, which for some is more important than reward. Indeed, in the traditional sales campaigns for cars and office products, winning sales people frequently made more from extra commission than they did from incentive rewards, but what they valued most was the kudos of coming top and being the best. Thats a salesman for you.

There is one final point to be made in respect of customer value. To accommodate the fact that dealerships would be of different sizes, incentives would often be structured in leagues where at one end of the spectrum a few very big dealers made up one league and at the other end dozens of smaller dealers made up another. This had the desirable effect of shortening the odds for big dealers and lengthening them for the smaller fry. All in all, taking customer value into account gives a sound basis on which to make balanced judgements.

Customer needs

The second concept that underlies the relationship is customer needs, which is a bit less straightforward but equally rewarding to explore.

What do we mean by customer needs? Companies often confuse the fact that they need to sell something with the belief that the customer needs to buy it.  They also spend a good deal of time ostensibly identifying customer needs, but what they are really doing is identifying sales opportunities – which is not the same thing. Clients who are really keen to identify customer needs have found that a remarkably efficient way of doing so is to ask the customer. Apparently this beats the hell out of focus groups, blue-sky thinking, imagineering and much else that youthful MBA graduates have been raised on.

Again taking the car industry as a case in point, many of the franchises have cottoned on to the fact that although they make an operational distinction between sales, service and parts, the customer could not care less about that. The customer has a car, has a problem and he or she wants the dealer to sort it out. The customer does not want to be referred from one telephone extension or department to another. Lexus Centres (no longer known as dealerships) have front-of-house staff to greet and direct every customer. Others still prefer to let customers puzzle it out for themselves from cryptic signs, like a downmarket version of the Da Vinci Code.

Customers often find it a chore to deliver and collect their car when it needs a service: the enlightened dealer now takes care of that for them  and in doing so, finds that the arrangement has the twin benefits of managing the workshop flow better and freeing up some spaces in the car park. The lesson from the automotive world is that giving customers what they need may actually help the provider become more efficient at the same time.

Retailers of mobile phones are finding it harder to give customers what they need, or at least what they want, and many other retailers likewise, because although they know what it is, they simply cannot afford to provide it. The customer wants armies of well-informed people on hand whenever they choose to visit a shop  and, of course, the customer wants rock-bottom prices as well. To make any progress, there needs to be a secondary question. Having established the ingredients the customer wants, we need to know how important each one is. In this example, the customer is probably less concerned with waiting as such than with the quality of service they get when it is their turn. There is little joy in being served quickly by an incompetent.

This line of questioning may also reveal that the customer simply did not have the same priorities as the client. In extreme cases, clients spend millions doing things that the customer neither values nor notices, when they could satisfy their real needs much more cheaply and quickly. Any approach based on customer needs  or client needs come to that  must be sure it is asking the right questions of the right people.

Having established what the customer really wants, companies are in a position to provide it. High on the agenda is making sure that every person who might come into customer contact is prepared and equipped for the task. The accreditation now required within financial services has been an interesting experience, because in some cases companies have, for the first time, been required to prove that their training was effective.

In the good, old, unregulated days, people could turn up for a morning, listen to the presentation, read the notes, eat the lunch, and be selling by teatime. Not now. They have to show beyond peradventure that they understand the product, the market and the process before they can move a selling muscle  again, if not obligatory, it is surely advantageous.

Nowadays, many organisations won't listen to a customer unless he or she has successfully navigated a series of options by pressing numbers on the telephone. In some cases this is admirably convenient checking your account balance in the dead of night in others it is irritating and condescending. Already some banks are offering as a USP the fact that you get to talk to a real person. Before we know it, we will be offered the chance to talk to our own branch whats the French for dj vu?

All of which goes to prove that nothing stands still: just when you think you have got this selling business sorted out, someone goes and messes it up again.

Rik Burrage is managing director at Grass Roots. For more information tel: 01442 829400 or visit: www.grg.com