Front Cover

Back Cover

I hope to have a “galley proof” in my hands by the end of the week. After that, a few final edits and we begin printing. I hope to be able to announce the book for sale by the end of this month, so keep watching here for the announcement.

The book will be for sale on my web site and you’ll have the option to get an autographed copy if you prefer.

Stay tuned!

I  have been busy completing the details on my first book (click here) and have been working like a one-armed paper hanger in a hurricane behind the scenes on my second book– a book I am tentatively calling “The HVAC Territory Manager’s Field Guide.”  (My editor may suggest a better title, so for now, this is a working title.)

I finalized the paperwork on the contracts over the weekend, and we should be in print in about 90 days +/-, so expect it to be ready in mid-June of this year!  (Just in time to help rescue your career from a worsening economic nightmare…)

This is going to be a huge book– the manuscript is 564 pages long!  It will also have a CD-ROM as part of the project, and there will also be a Sales Manager’s Guide (on CD-ROM only) for sales managers who wish to take their sales teams through the process.

Here are the chapter titles for now…

CHAPTER 1: WHAT IS YOUR JOB?

Overview of what it means to be a territory manager

CHAPTER 2: MAXIMIZING YOUR INCOME

How to do the things best for which you get paid

CHAPTER 3: WHAT IS YOUR TIME WORTH?

Determining how much you are worth per hour; and then, why would you do stupid stuff with your time when you are worth that much?

CHAPTER 4: RULES OF THUMB

Quick ways to determine key averages and performance indicators for dealers

CHAPTER 5: TERRITORY ANALYSIS

Simple ways to analyze a territory and build a sales plan

CHAPTER 6: TERRITORY FORECASTING AND PLANNING

How to forecast sales, expenses, margins and profit and then build a plan to achieve these

CHAPTER 7: THE TYPES OF CONTRACTOR

Commercial, residential, service, low-temp, and so on– how are these business segments handled differently by successful contractors?

CHAPTER 8: THE LIFE CYCLES OF A CONTRACTOR

How contractors change as they go through their life cycles and what you can do to be of the greatest value to them at every step along the way

CHAPTER 9: HEY, IT’S A BUSINESS!

Understanding the fundamentals a dealer has to know– how to run a successful business (no TM is born with this knowledge)

CHAPTER 10: FINDING NEW DEALERS

How to recruit to find diamonds and rubies, not lumps of coal

CHAPTER 11: HELPING CONTRACTORS DEVELOP AND MATURE

How you can bring what a dealer needs to his party to help him grow and earn his business

CHAPTER 12: ACCOUNT SEGMENTATION

How to organize your accounts along logical lines and differentiate your sales calls with those classifications

CHAPTER 13: KEEPING SCORE

Tracking the numbers; what and how, and why!

CHAPTER 14: GOT DEALERS?

How many dealers do you need to achieve a given sales goal (such as share of market or dollar level)?

CHAPTER 15: BASIC CONTRACTING FINANCIAL MANAGEMENT

The HVAC business by the numbers; what every dealer needs to know (and most TMs don’t)

CHAPTER 16: KNOWING YOUR STUFF

Being the right balance of subject-matter expert and resource versus being useless to your dealers

CHAPTER 17: INFORMATION MANAGEMENT

How you pass information up and down the channel to help all concerned; how to leverage technology to get more done face to face

CHAPTER 18: DOING THE GRIND

Seeing to the details of the job– finishing the paperwork, dotting the i’s, crossing the t’s

CHAPTER 19: SALES REVIEWS

How to survive a sales review!

CHAPTER 20: MARKETING AND ADVERTISING

Can you speak audience ratings?  Column-inches?  Gross rating points?  You need to if you are going to be of great marketing help to your dealers

CHAPTER 21: SALES SKILLS—THEY AIN’T WHAT THEY USED TO BE!

The old days of feature/benefit selling and trial closes belong in museums; learn the new low-key way to persuade dealers to take action.

CHAPTER 22: DEEP COMMUNICATION, THE KEY TO AMAZING SALES

Reading people beneath the surface and unpacking their decision processes so you can influence their decisions

CHAPTER 23: DISPUTE RESOLUTION

Problems are going to arise; how do you handle them effectively?

CHAPTER 24: DOING A GOOD SHOW

Showmanship and presentation finesse– it’s what separates the territory makers from the order takers

CHAPTER 25: PRUDENT ETIQUETTE

Know when to walk away and when to dig in and get involved

CHAPTER 26: EXPENSE REPORTS AND THEIR ROI

The ever-present pain in the neck of expense reports and why you need to track them carefully

CHAPTER 27: TIME MANAGEMENT

The first myth of time management is that it exists.  Learn how to manage yourself to be effective in the now.

CHAPTER 28: GETTING YOUR SALES MANAGER TO WORK FOR YOU

Your boss should also be your greatest coach and helper; use him (or her) to make big gains

CHAPTER 29: MENTORING THE NEXT WAVE

Doing what you can to prepare the next generation (or, if you ARE the next generation, doing what you can to shorten your learning curve)

CHAPTER 30: IS SALES MANAGEMENT IN YOUR FUTURE?

So you think you want that corner office and those nice little perks?

The book will retail for $79.95, but once the publisher has the order form up on his web site, I’ll be offering pre-printing deals for volume orders.  Stay tuned for that in a future blog post!

]]> http://www.lodestarconsultinginc.com/one-step-closer-to-the-tm-field-guide/feed/ 4 http://www.lodestarconsultinginc.com/lessons-from-the-desert/ http://www.lodestarconsultinginc.com/lessons-from-the-desert/#comments Fri, 05 Feb 2010 22:51:50 +0000 Richard Harshaw http://www.lodestarconsultinginc.com/?p=685 My wife got me a new book for Christmas- The Secret Knowledge of Water, by southwestern explorer and writer Craig Childs.  (A friend, Lynn Blackburn, highly recommended the book, and after hearing him read a few passages from it, I decided I had to get it.)  I cannot recommend this book enough to lovers of the Southwestern US!  His style is poetic and earthy at the same time, and you can almost feel the loneliness and ancient mystery of the Sonoran desert (and other sites in Arizona).

Childs writes this chilling line in the introduction:  “There are two easy ways to die in the desert: thirst or drowning.”

Most people get the first option; few understand the second.  But the fact is, every year, Arizona has brief but furious rains and the washes (gulleys), which are normally dry, quickly fill with raging flood water and can become lethal to anyone unlucky enough to be in a wash when a flash flood comes galloping down upon them like a thundering herd of wild stallions.  (Another of his books, The Desert Cries, recounts a summer in Arizona where over 20 people died in such flash floods, including a hiking party caught by a killer flash flood in the awesome Antelope Canyon, in our state’s northeast corner).

But what many people don’t realize is that the desert holds a surprising amount of drinkable water (even though you may need to filter it and treat it with purification tablets) if you know where to look for it.

An even casual scan of some of the topographic maps of Arizona show numerous “tanks”– like White Tank (for which the White Tank Mountains west of Phoenix are named), Red Tank, Smith Tank, and so on.  When I first moved to Arizona and started poring over the topo maps to find benchmarks to recover and possible sites from which to do astronomy, I thought these referred to water tanks for cattle.  But there were so man of them!  And frankly, there aren’t that many cattle on some of these quadrangles!

Then I learned in Childs’ book that a tank is the ugly English word for a beautiful Spanish word, tinaja, which is probably better translated as “basin”, like a large ceramic shaving basin.  Tinajas are depressions in rock that are carved out by fast-moving water that cascades down from the mountains during our furious thunderburst storms.  They take thousands of years to form.  They are shaped sort of like a gravy boat, being steep at the input end, and tapering to shallower and shallower water as the water approaches the exit point, where it cascades down the mountainside to the next tinaja.  (This shape keeps them purged of sediment, so that a free-fowing tinaja will be full of fresh rain water after a rain and little, if any, sand and silt.  Ranchers, thinking it would be good to build up the walls of tinajas to trap more water find that they then lose their hydrodynamics and silt in quickly, becoming useless.  It seems like every time people try to improve on God’s designs, they mess up things!)

Here is the point: people are often found dead in the desert because they run out of water and instinctively head for the low ground, thinking that this is where water goes in a rain storm (it does), but not realizing that the desert sand in such lowland is like a sponge!  Often, a flash flood will disgorge a wall of water, silt and mud out of a canyon in a 20-foot tall freight train (carrying trees, cacti, and house-sized boulders), and within a mile or two of hitting the shallow, open washes, be totally absorbed by the thirsty desert.  Too often, people trying to enter the United States illegally from Mexico are found dead in these areas, their plastic milk cartons of water having gone dry two days earlier.

Our economy is something like the desert right now– unpredictable, and dangerous.  Yet almost every HVAC salesman is looking for water in the wrong places– the low ground, the easy places to walk to.  Yet, they will find no water there, only death.

If an HVAC sales person wants to survive this desert, he must climb into the mountains, seeking the trapped and life-giving rain water that can only be obtained by herculean effort, climbing higher and higher.  There are no easy solutions.

In this economic desert, where will you seek your water?  In the easy places (where many will die this year), or will you climb the hard mountains and work hard and find the life-giving water in the heights?

Think about it…

Two of the Pros who helped me in my sales career: Larry Skorupan (L) and Bob Coe (C).

The seasoned veteran sales professional is a person who has been selling residential and light commercial HVAC systems for several years. He or she has a good grasp of sales skills as evidenced by a closing rate of 65% or higher.  (Some I know hit 90%, and not on price!)

They are masters of the subtle question and know how to elicit strong emotional drivers from their clients and harness their solution to those drivers so sales are (to a casual observer) very easy. (But they fully understand how complex and difficult selling at such a high level is!)

Such professionals often have the ability to compose a job completely from scratch and do not have to rely on a retail price book prepared by the company’s management, but as a good team player, will use such a book when it is available. They know how to mark up a job for the correct margins and complexity factors and are good at assembling all the components of a superior system and understand their crews well enough to peg the labor required to within minutes of the actual time the job will take.  They are good at load calculations and equally at ease with duct design and piping problems. They understand controls like the backs of their hands and know how to use retail financing programs with grace and finesse.

Such people easily sell $1 million and more a year in residential and light commercial jobs. Some score as high as $3 million a year. And they are all driven to succeed, and wear the badges of their success— the cars they drive, the clothes they wear, the jewelry they use, even their club memberships— with pride.

So how do you pay such beasts?

Recognize that they want pay that says to the world, “I am in the best of the best club! I know how to do it better than the rest!” They want big paychecks, and they usually despise draws or base salaries. To them, pure commissions are the best way to fly.

So consider giving a veteran little (or no) base or draw, and basing their compensation entirely on commissions.

How you structure the commission plan will depend on how they sell for you.  If they sell off a company-supplied retail price book, you can make their commission a percentage of the sales contract they write.  A veteran of such volume should easily earn 8% to 10% (sometimes even more) of their gross sales. [Note: to be sure the company nets the net profit it needs after the commissions have been paid, please see my article on pricing for job commissions by clicking here.]

Thus, if Susan sells $1,500,000 a year off a retail price book and she gets 9% of the sales, she will knock down $135,000 a year, in line with the top producers in most markets according to the web site salary.com.

But what if the sales veteran has complete control of the job pricing and does not use a retail price book?  Then they should be paid a percentage of the gross margin dollars they write up on contract.

Here, it gets a bit stickier, but can still be done with relative ease and good results. I suggest that companies that use such a system base the gross margin payout on a gross margin that nets the company its target gross margin after paying the commissions. (See the article I referenced three paragraphs above.)

I also suggest you stipulate a floor below which commissions are paid at a reduced rate.  For instance, if you determine that your company needs 36% gross margin to be successful, and that to fund the commission the sales veteran must sell jobs at 44% gross margin to fund his commission, you could say that any job that sells below 44% gross margin has reduced commission.  (In this example there is an 8% cushion for a job at 44% and less than 8% for jobs from 43.9% down to 36%.) For instance, the veteran earns half the normal commission rate for sales below 44%, or a sliding scale, such as 7/8 of the commission at 43%, 6/8 (or ¾) at 42%, 5/8 at 41% and so on down to 1/8 at 37%, with no commissions at or below 36%.

But if the veteran brings in a job at 55% gross margin he should get his commission rate on that sale, and it will be a doozy of a commission check! But then, it was a heck of a sale!

The commission check should be based on a percentage of the gross margin dollars. Since the gross margin dollars will be smaller than the gross sales dollars, the commission rate obviously needs to be higher than a commission rate based on sales dollars. For instance, if a sales person normally earns 8% of the sales dollars on a retail price book method, a veteran paid on gross margin would need a rate that yields the same commission dollars as the retail price book price using the gross margin dollars.  For instance, if the retail price book gave a price of $8,000 for a job and it had 44% gross margin in the job, the job would generate $3,520 in gross margin. A commission of 8% of the sale is $640. So a veteran on gross margin commissions would need a rate of 640/3520 or 18% to make the same income.

Two fallback ideas need to be considered. One is the issue of expenses. For high output veterans, many contractors use a generous commission rate and pay no expenses. For instance, a veteran might have a commission rate of 20% or more of gross margin dollars. In return for the chance to earn well into the six figures (say, $2,000,000 volume at 50% gross margin times 20% = $200,000!!!), the veteran pays for his own car and gas, cell phone, sales tools, fax machine at home, and so on. (The company, of course, would still provide normal payroll benefits.)

The second issue is whether or not to pay the veteran his commission on the job after the job is finished and costed out.  I am in favor of this, but some folks wince at the thought. Here, the sales person turns in a job and figures it will take 4 man-days. The job is installed and then costed out.  During cost-out, it is found that the job took 4.5 man-days, and that the sales person overlooked some material that the job needed, so material costs were higher than estimated as well.  The sales person had figured the job at $4,000 gross margin at bid time, but the job actually only generated $3,720 gross margin.  The commission would then be paid on the $3,720 that actually was generated, not the $4,000 that was estimated.

Such a plan keeps the sales person realistic with his labor estimates.

Such a plan can also be combined with a high-throughput incentive program for installers and the sales person can be given a portion of the company’s cut of the savings on a job. For details on how this would work, use the “Contact Us” link at the top of the page, or “Leave a Comment” and ask for the article and I will email it to you as an attachment to my reply.

One final thought— if you have a well-structured commission program (one that brings more money to the company than it costs you to pay out), don’t worry if you have a sales veteran who makes as much (or more than) you do. Think of how much wealth he or she is bringing you in the process! Oh, that you would have a DOZEN such producers selling for you!

I am putting the finishing touches on a manuscript for a book I am tentatively calling “The Territory Manager’s Field Guide.” This practical book will contain 30 chapters that contain helpful tips on how to run a successful territory. The information has been drawn from my own experience as a pace-setting territory manager as well as leading territory managers from around the country I have met in workshops over the years.

Dave learned a lot from me!

This will be a large work– the manuscript in Word 2007 is about 600 pages long! It will also come with a CD-ROM with PDF files, Excel spreadsheets, and other useful tools to help a territory manager be the best he or she can be.

I have already begun talks with my publisher and hope to be able to make a formal announcement and take pre-publishing orders by the end of the year.

Come back to my web page from time to time to get updates and release announcements.

So how do we pay sales people who are no longer rookies but not yet at that level of experience and skill that the truly great sales people attain?

Sam goes for a sale!

Clearly, a level of pay that is above that of a first-year rookie is appropriate, provided the sales person is producing at a rate that is better than a rookie. (For convenience, let’s call this sales person an apprentice. They have graduated from pure rookie-dom, but are not yet at the level of a journeyman.)

A rookie sales person should produce between $300,000 and $600,000 in sales the first year they are on the payroll. Some do even better than this. But these are decent lines in the sand to aim for and are based on contractor surveys.  There is a very high correlation between first year performance and good sales training, by the way, suggesting it is well worth the contractor’s money to send his rookie to a good sales school early in their career.

How much an apprentice should produce will depend on a number of factors, such as population density of the area, the median household income, and the dealer’s brand and pricing levels. Let’s set up a case that should be typical.

Let’s compare two cases: one where the apprentice lives in a fairly populated area of good median household income, and the other where she lives in a remote area with a lower MHI.

For the “rich” case, let’s suppose the apprentice works in Charles County, Maryland. This county has a population of 124,691 people and a MHI of $80,697 (well above the US average of $51,283).  My research shows that the residential and light commercial potential of Charles County, MD is $31,600,000 or so. Since most rookies don’t do much in the commercial arena, let’s say that our apprentice’s market is about $20 million retail. There are 66 HVAC shops in Charles County, MD. 18 of these are of a size large enough to warrant a full-time comfort consultant.

Those 18 shops probably comprise about 67% of the sales in that county (shocking, but true!), so the 18 shops that would probably have a comfort consultant account for maybe $13.5 million in sales. 1 of the 18 shops is much larger than the others (and thus probably does more commercial than residential) so 17 shops are making about $13 million in residential sales. Each shop is thus averaging about $765,000 in residential sales.

This would be the median point of the data, so I would expect to see perhaps one comfort consultant writing up $1.5 million in sales a year and the rest trailing off from that. An average of $765,000 in sales is a decent level for an apprentice in an area like Charles County, MD.

The “poor” case comes from Jackson County, Alabama— population of 53,134 and MHI of only $38,761. The residential potential here is  only about $7 million, and 6 contractors who might employ a comfort consultant. But these 6 probably account for $2.5 million in sales, or only about $410,000 per comfort consultant. Again, that would be the median value, with some apprentices selling perhaps as little as $200,000 and others up to $650,000.

Quite a difference from the denser and richer county in Maryland!

Now that we know the boundaries of the playing field, we can begin to construct a reasonable comp plan for each case.

For an apprentice, we need to start weaning them off a strong base and small commission towards a smaller base and larger commission (the ultimate goal being 100% commission).

I would also consider moving the total pay for an apprentice up from the bottom of the range we saw in the first blog in this series (see here).  If we started a rookie at about $42,000 total pay, we might consider $55,000 or so a good starting point for an apprentice (but again, we must be sure to base this on the local market using a tool like salary.com).

If we made the base only 60% of the total pay, the apprentice would draw about $33,000 a year as base pay (or draw against commissions) and $22,000 in commissions and bonuses. If sales are $500,000 a year, the commission rate would be about 4.4% of sales (when made off a company-supplied retail price book)— we had the rookie set at 1.6% of sales.

For a $750,000 producer, a pay around $64,000 would be reasonable— 60% as base ($38,400) and 40% as commission (based on 3.4% of sales).

In the third (and last) blog in this series, we’ll consider the journeyman sales professional, the seasoned veteran who knows how to sell in a variety of environments and brings in jobs that make the company very profitable!

In the LIBRARY section of this web page, you can download an article titled “Pricing For Commissions.” I explain in that article (click here to download a copy) how to set your pricing to recover commissions so your company nets out the profit you want. But I do not explain in that article how to pay sales professionals in the first place.

Let this first article of a series of 3 lay some groundwork.

Let’s begin with a first-year sales person (I won’t call him or her a professional yet—that honor has to be earned, and they have not earned it yet). We’ll call this person a Rookie.

Pay must be tuned as much as possible to two vectors (forces): performance and motivation. I’ll come back to performance later in this blog. But for the motivation vector, let’s consider some key issues.

Most sales Rookies today are going to be entering from a younger generation than those who will probably hire and oversee them. This is important because as it turns out, motivators vary with age groups.

In 2005, I wrote a white paper titled “Managing a Sales Force”, which contained several pages on compensation. (I will post that white paper in the Library soon.) Based on recent research on managing and compensating sales professionals, some of the findings revealed that for older sales professionals (“veterans”), these things are highly valued:

• Retirement contributions
• Exceptional pay for high performance
• Independence
• Job security
• Location
• Travel
• Vacation

Contrast this with younger sales professionals:

• Total compensation
• Base/incentive mix
• Promotion opportunity
• Skills development
• Flexible work environment
• Co-worker quality

These are totally different lists! It suggests to me that a pay plan that works well for seasoned veterans will not work well for Rookies!

Rookies as a rule (and this is only a generalization) distrust commission only plans (where most veterans prefer them because of their unlimited earning potential). They prefer heavy base pay with small incentive pay because they don’t yet trust their skills to make sales at a level where incentive pay becomes a heavy element of their pay. They lack skills so value an environment where they can obtain them, and don’t like lock-step working conditions, preferring flexibility over structure.

So for a Rookie, I would suggest the following setup: start with a compensation package that is heavy on base (80% or more) and light on incentives. Offer them ample opportunity for training and skills enhancement. And don’t require them to punch the proverbial 8-to-5 clock.  In fact, since many of their sales calls will be made in the evening when they can talk to both decision makers of a household, having them report to work at 8:00 AM or 9:00 AM is not reasonable.

As for pay levels, you have to set them carefully. I would suggest that for those who live in a major metropolitan market that they consult a web site—www.salary.com.  This amazing site lets you analyze pay scales for free in major markets (and you can purchase detailed and deeper reports as an option). The trick is to select the right job category to get comparison numbers.

For instance, if I search the Phoenix, Arizona database at salary.com, using the “Salary Wizard” on the Employee side of the home page, I get to a dialog where I can ask to see typical salaries for various job titles. If I type “Sales representatives” for the job title and select “Arizona-Phoenix”, a whole screen of job positions that are in sales appears. I then search for the one that is closest in description to a Rookie position at an HVAC shop—say, Sales Representative I. I then ask to see the Base Salary range. In this case, base pay runs from $38,748 on the low end to $71,889 on the high end. The “Bonuses” tab reveals that with bonuses, compensation ranges from $42,423 to $93,243. The median salary is $52,955 and the median bonus is $11,019. The total comp has a large range—over 100% from bottom to top.

I would rank a truly brand new Rookie (with no sales training yet, no experience) at the bottom of that range. I might start a really good Rookie (with some training and a little experience) closer to the middle of the range. But I don’t think a true Rookie in Phoenix would be able to command $93,000 a year—unless he or she produced like a veteran!

Since I advocate that at least 80% of the salary be base, this would mean giving a Rookie (in Phoenix) a starting salary of $34,000, with a chance to earn another $8,000 or so in bonuses. This would result in a bi-weekly pay check of $1,414 gross plus bonuses.

The $8,000 in bonuses would come through a number of possible reward systems. But for a Rookie, I suggest that the bonus be earned as a percentage of the sales he generates when the Rookie uses a company-generated retail price book. In other words, the company has a “cookbook” pricing system that the Rookie must sell jobs from, not create his own take-off and job price on the jobsite unsupervised.

So how should we set the bonus rate?

That depends on a number of factors. The easiest approach is to assume the number of jobs a Rookie could sell in a year, using a retail price book. If he sells two jobs a week, that would be about 100 jobs a year. $8,000 divided by 100 jobs is $80 per job. If the average job is $5,000, that would amount to 1.6% of sales. Or, the owner could just set the first year bonus at $80 per job. (But the problem with that approach is that as the Rookie sells a big job, he gets the same $80 bogey that he would have made for a smaller sale.)

I would also set up an aggressive training program for this Rookie. (Personally, I would send him to The ACT Group’s No-Pressure Selling school for starters.) I would then explain to the Rookie that as he gains education and starts having better and better sales results, he will move towards a more incentive-based plan with higher earning potential. (That’s the performance vector.)

In the next post in this series, I will address how to pay newer sales reps who are no longer Rookies, but not yet seasoned veterans either.

The latest issue (September 2009) ran a short article on pages 15 and 16 titled “Selling to the Debt-Averse Consumer.” Here is how the article started:

The successful consumer-oriented companies in the coming years will be those that can figure out how to make do without the former life of the economic party: the monthly payer. In his heyday, this kind of consumer asked himself not whether he could come up with the whole cost of a vacation or landscaping or a car but whether he could afford the resulting increase in his monthly bills.

The article goes on to suggest that to succeed in our new economic reality, sellers will need to promote value and utility over luxury and brand.  They say, “Consumers won’t be able to buy as many goods as before” but will be favorably disposed towards a vendor who helps them see their decision as a lifestyle choice rather than an option forced on them by the sour economy. They suggest sellers focus on messages around family, life simplification and getting back to the basics.

In his crystal ball, author Eric Janszen says, “Will the monthly payment consumer ever come back? The Federal Reserve wants to reinflate the credit bubble and engineer a return to the old days. But that isn’t possible”  because the cash flows just won’t be there.

I pondered this recently on a plane flight to Georgia and wondered if this was being felt in the HVAC business yet.  So when I got to my client in Georgia, I asked his assembled TMs if their dealers were finding it harder to sell people on retail financing. They replied that it was, due (they felt ) to a higher turn-down rate from the financing companies (a good point). When I asked them what they thought of the HBR’s premise, they said that it sounded reasonable— and that it scared the bejeebers out of them!

So I wonder, and ask you— as contractors or territory managers (or as consumers), are you finding fewer and people going with financing on their jobs? And if they are, how does that change our sales approach?

Let me know your thoughts. I’ll post any and all replies that are well-thought and printable!

TIDE TURNS ‘BASIC’ FOR P&G IN SLUMP

By Ellen Byron

DALLAS—Procter and Gamble Co., under assault by penny-pinching consumers, has quietly rolled out a version of Tide detergent that the company freely admits isn’t “new and improved.”

The product, Tide Basic, is currently for sale in about 100 stores throughout the South. It lacks some of the cleaning capabilities of the iconic brand—and costs about 20% less. Its very existence is one of the most telling signs to date of how the sour U. S. economy is forcing mass marketers to shift course…

The article goes on to state how Tide powder has dropped 9% in market share since 2007 (from 34% to 30%) and Tide liquid has dropped 19% (from 31% to 26%).

As I read the article, I could not help but be struck by how much this parallels the four major brands I work with closely. All four of them have a broad and rich product lineup with some truly amazing high-end models.  All four of them offer their dealers a strong menu of dealer growth and enrichment programs. And all four of them have, until recently, put their gross margin eggs in the high end of their product line up.

Having worked for over 20 years for one of the largest global manufacturers of HVAC equipment at both the distribution and manufacturing levels, I can tell you that the factories rake in gross margin in direct proportion to the AFUE or SEER of their products. That is to say, as SEER and AFUE go up, so do the gross margin percents (as well, of course, as dollars).  If distributors (or even dealers) knew the amount of gross margin on some of the “trophy” models made by some manufacturers at the factory level, their toes would curl! Of course, distributors copy that gross margin model as they re-sell the products to contractors (getting higher gross margin percents and dollars on trophy units), and contractors likewise do the same to their customers. So by time you compound extra gross margins three times, it is no wonder that trophy units are becoming price-bloated dinosaurs in a new post-Jurassic market.

I have counseled one of my manufacturing partners over the last two years to rethink their pricing strategy (at least in certain US markets) as their trophy pricing was costing them market share. They have finally woken up to this fact and are now aggressively pursuing the market with new pricing tiers, but not until after they took what most manufacturers would consider a staggering hit to their share of market.

So what does all of this have to do the average HVAC contractor? Just this (here, here and here).

I want to believe that when the economic volcanoes and financial asteroids stop pummeling us that life will go back to what it was before the CRASH, but history shows us that 65 million years ago, when the Chixalub Asteroid hit just off the Yucatan Peninsula, things changed drastically and rapidly and a whole fauna of complex biological organisms (the dinosaurs) died off and a new bunch of tiny leaf-munchers (the mammals) took over . I don’t think the major brands will become extinct (although I cannot be 100% certain of that!), but they will have to evolve quickly to survive, and I think they are beginning to do that.

The question that remains is, What will the contractor community look like after the asteroid dust settles? Will contractors still charge head-long into the consumer financial environment with a trophy approach (“good, better best” and so on), or will they evolve and learn how to fit their offering to their customers quickly and efficiently and thereby survive?

The future does not belong to the cheapest. It belongs to the smartest!

Consider two sales scenarios— in one, a customer is trying to decide between two purchases. In the customer’s eyes (and that is the operative phrase), both offers look alike. Both do the same things for the customer, both have the same basic features and benefit clusters. So which one will the customer probably choose? The one that costs less. After all, if both offers are identical (except for the price), the only differentiator IS the price.

In the second case, there are again two offers on the table, but one is clearly far and away much better than the other. Yes, it costs more, but it clearly does much more for the customer than the cheaper offer. How will the customer choose now? She will probably opt for the offer with the better benefit cluster, even though it costs more.

(I am not saying that price is never an issue in a sale. It is always an issue. But it is not always the issue. In the second scenario, if the better offer costs ten times as much as the cheaper one, the customer may not have selected it.)

So in sales, our mission is to create inequalities so that competing offers are viewed in a disadvantageous light. Then, if our price is higher (and maybe up to 30% higher), the customer will still select our offer over the cheaper offers.

So how do we differentiate ourselves in a meaningful way? I am not

Pitchman Andrew Lesko

suggesting you wear striped slacks, a plaid jacket, and a chartreuse Polo shirt, but I am suggesting that you come across in a different way so that your offer is not framed in the same old boring frame every other sales hack uses.

Think about it. Every HVAC sales professional I have ever seen in action does the same things. Opening banter, compliments about the house or trophies or pictures of the kids, a walk-through, needs analysis (at which some absolutely crash), a “proposal”, reaction to the sticker shock, arm wrestling to overcome the objections… yada yada yada.

Most never ask the most important question, and those who do rarely ask it early enough to do any good. Think about it. When you go into an automobile dealer’s showroom to buy a new car, what is one of the first things the salesman (“vampire”) asks you? “What kind of monthly payments are y’all looking at?” If he knows your payment comfort zone, he can put you in a car you can afford, yada yada yada. And what do most of us do? We tell them. “Oh, around $400 a month.” And we don’t even know this guy. In fact, we instinctively mistrust him because he is, after all, a vampire trying to sink his blood-sucking fangs into our wallets.

Or what is the first thing a realtor asks you as you begin searching for your dream house? “What sort of monthly payments are you comfortable with, and how much do you plan on putting down?” And we answer. We don’t even know them yet, but we answer.

Why do car salesmen and realtors ask this question very early in the dance? Because it is absolutely critical to their success! Any realtor can you that it is the peak of folly to show someone a home they absolutely love but cannot afford!

So why don’t HVAC sales people ask their customers up front how much they had in mind to spend? The typical response I get when I ask this question in workshops is, “Because that’s none of your business!” I usually cock an eyebrow and reply, “What? None of my business? What do you mean?”

The responses usually run along the lines that if I asked THEM that question up front, they’d throw me out of the house. Then I ask if they ever bought a car or house and did they answer the sales person’s first question? At that point, most debates shut down. They  are wrong and they realize it.

Problem is, if most of us asked for the customer’s fiscal comfort zone up front with the way we do our sales calls, we WOULD be tossed out on our butts, and rightfully so.

But I started this blog by talking about making things unequal, and if we do that well, the fiscal comfort zone question is a natural.

Consider this scene: I am on an HVAC sales call to people I have never met. We take a moment to get to know each other, then I get out of my brief case some wooden blocks of different sizes and colors. One block—a blue one—is a 1” cube and is labeled “13 SEER A/C”. Another blue block is 1” x 1” x 2” and is labeled “14 SEER”, while a 1” x 1” x 3” block is labeled “16 SEER”, and so on. I have some red blocks, the smallest one labeled “82% AFUE”, another larger block “90% AFUE” and so on. I also have some yellow blocks of various size, showing the different extended warranty options.  Get the idea? I’ll explain how I have thousands of ways I can stack these blocks to build a system for their needs, but each stack has a different price attached to it. (See here.) I’ll say, “I can design a number of solutions for any home. Some of those solutions are quite elaborate and detailed, but costly. And that could make you uncomfortable, and I don’t want to do that. So you can help us both zero in a on a perfect solution for your needs if you can tell me how much you are comfortable investing in this solution?”

I doubt if most folks would be offended by that and throw me out the door. We then establish a budget (see here) and I build a system that can afford and that will meet their needs.

As sales trainer and motivational speaker Zig Ziglar might say, in an ethical sales transaction, both parties win, because the customer gets the maximally best system at a price they can afford and the seller makes a fair profit for the solutions he provides. (And in my book, an ethical sales transaction is one where I bring the best solution the budget and conditions warrant to the customer, not necessarily the most expensive box on my wagon.)

I close with a wonderful saying by Zig on doing business together:

When we separate the word BUSINESS into its component letters,

B-U-S-I-N-E-S-S, we find that U and I are both in it.  In fact, if U and I were not in BUSINESS together, it would not be business!  Furthermore, we discover that U comes before I in BUSINESS, and the I is silent.  Also, the U in BUSINESS has the sound of I, which indicates it is an amalgamation of the interests of U and I.

When they are properly amalgamated, business becomes harmonious, profitable and pleasant.