What's Your Plan for 2004?
Will your sales strategy for the next business year produce results? Of course you hope it will. But is there a way you can be more certain?
This is the time of year when many companies start the planning process for the next business cycle. Senior sales executives will forecast next year's sales, and that number will drive many plans throughout the organization. Sales managers will look carefully at year-to-date results for their own businesses. They'll examine market trends, competitive entries, economic projections, consumer confidence reports, and an array of other data. They'll look at who's gaining and losing share among their competitors. They may consider financial information such as economic value added, discounted cash flow, and a wheelbarrow full of other information.
Almost every company places a high value on an executive's ability to forecast the future correctly, develop plans that will optimize opportunities, and execute according to those plans. The employment future of many sales executives is linked directly to their track records in correctly predicting the future and capitalizing on it. Being right counts a lot, because if you're wrong too often, you may soon find yourself updating your resume.
The amount of data available to executives has multiplied considerably over the past few years. Advances in computer technology and customer software programs have yielded mountains of information. Yet, it's hard to see much evidence that executive projections are more accurate now than they were before all of this information was available. That's because good plans don't come from looking at the most information, but from looking at the right information, the crucial data that can best help sales managers predict next year's outcomes.
How does your company rate?
Gallup Organization research has uncovered the key factors that have strong predictive linkages to sustainable growth. We've found that knowing how successful your company--and particularly your individual sales team--is at building customer engagement and how your success compares to that of your competitors is one the most valuable pieces of information you can have.
Not surprisingly, your company's relationship with its customers, compared with the relationship that your competitors have with their customers, has a lot to do with your future success. Yet traditional methods of evaluating customer relationships have had little predictive value.
Take customer satisfaction, for example. Although satisfaction data seems like it should be important, in most cases, it isn't. The reason is that your company's customer satisfaction levels--and those of your competitors--probably look similar; both measures are probably between 75 percent and 80 percent. Sure, if your company suddenly experiences a steep decline in satisfaction levels, then you know you have a serious problem. But that usually doesn't happen, so customer satisfaction data alone won't tell you which competitor will be able to take business away from you.
Recently sales and marketing managers have been looking more closely at customer loyalty indicators. These indicators typically point to the percentage of your customers who intend to keep buying your products or who claim they would recommend your company to others. It seems reasonable to evaluate those indicators. But the truth is, many repeat customers aren't loyal at all. And those who are loyal may not be profitable.
Repeat customers are more like hostages of your company. They may have a contract that would be expensive to get out of, or there may be other incentives bundled with their purchases of certain products, all of which makes leaving difficult. While these customers may continue to repurchase for a while, there's no guarantee that they're happy or that they'll renew their contract when it comes up for renegotiation. If they're disenchanted, there's a good chance they can be costing you other business.
Only when Gallup looked at an entirely different kind of customer connection did we find any meaningful predictive information. It's not enough to measure customer satisfaction, the willingness to repurchase, or even the willingness to recommend. Instead, it's imperative to measure another key element: the strength of the emotional bond that customers have with your company. Customers who give high scores on this enhanced measure of customer engagement--those who are fully engaged--can't imagine a world without your company.
For many companies the number of fully engaged customers may represent only a small fraction of the total customer base. In the automotive industry, for example, roughly 85 percent of customers who buy a new car are satisfied with their purchase. But just 25 percent of all new-car owners become fully engaged. These customers are the lifeblood of your business. For example, Gallup found that optimized car dealerships--those with high proportions of both engaged customers and engaged employees--earned an average of $400 more profit per vehicle than dealerships with lower levels of customer and employee engagement.
In industries like medical devices it's more reasonable to expect that 35 percent to 40 percent of the customer base would describe themselves as fully engaged, and companies that market "high-touch products" like investment management, private club memberships, professional services, and high-level consulting, should see even higher percentages. Every industry is different and has its own norms.
The key question is, how does your company stack up against your competition? If you have more engaged customers than your competitors, you are better equipped to take business away from them. If your rivals have about the same percentage of engaged customers, then it's likely you'll have a heated battle on your hands. And if your numbers are significantly below those of your competitors, watch out. You'll have a hard time defending against the competition if they become aggressive.
Sales strategy can be broadly described as a plan to take customers away from your competitors and to stop your competitors from taking customers away from you. The details of this plan may involve lower prices, product improvements, new product features, increased advertising, or enhanced customer service. But customer engagement scores will influence the relative success you'll have with any of these approaches.
In some sales forces, the likely success of any strategy can be tracked right down to the individual territory level. Territories that have the highest percentage of engaged customers are much more likely to be successful with your tactics than those with the lowest percentage of engaged customers.
What the research means for your business
First, customer engagement data may be among the most important information you can have at your disposal when you're forecasting growth and planning strategies for the upcoming business cycle. Second, increasing your company's percentage of engaged customers is an important strategic objective every year.
Admittedly this thinking is in stark contrast to what many of us learned in business school. We were all taught that market share was the high ground--the company with the biggest share almost always had the most significant advantages. And those companies could easily attack their rivals and fend off challenges. However, many reversals of share leaders in the past decade have demonstrated that how your customers feel about your company is even more important strategically than how many customers you have.
If you're a sales executive for AT&T and you want to know how you're going to fare next year against MCI or Sprint, don't depend solely on the size of your market share to predict success. Instead, look at the percentage of your customers who have the strongest emotional bonds to your company. If your company has a greater percentage of engaged customers than your competitors do, you'll stand a much better chance of achieving your growth objectives--especially if that number has been increasing.
What does customer engagement look like in your industry? How do you rate against your competitors? How likely are you to achieve the growth objectives that you set next year? And if sustainable growth is important to you, what are you going to do next year to improve customer engagement?
To find the answers you can continue to look at the mountain of data your company has assembled--no doubt there is value in at least some of that information. But in our view, clearly understanding how well you engage your customers--versus how well your competitors engage them--is the most important and predictive piece of information you can use in the planning process.
About the Author
John Fleming, Ph.D., is a global practice leader for Gallup's customer engagement management practice. Benson Smith is a consultant, speaker, and author for The Gallup Organization and an expert in the area of sales force effectiveness. He is coauthor of Discover Your Sales Strengths.