Competition

The 1980s and early 1990s were generally a seller’s market. Today, the number of competitors in most markets has literally exploded. In this section, we explore three key reasons for this development-globalization of markets, shorter product cycles, and a blurring of market boundaries.

Globalization.

Companies that compete only in the United States or even in a region of the United States are feeling the effects of globalized competition. It is not unusual to compete with companies from other countries, to use suppliers located in other parts of the world, or to sell to customers that are selling in other countries. Any of these situations may result in intensified competition and require that the sales force adjust from a local to a global focus.The most obvious need for a global perspective is for those companies competing in other countries. World trade accounts for more than 20 percent of U.S. gross national prod- uct. This is because almost 95 percent of the world’s population and 75 percent of its purchasing power are outside of the United States. The majority of sales by such well-known companies as Coca-Cola, Colgate-Palmolive, and Avon Products are made outside the United States. Chief Sales Officers (CSOs) know that their companies’ growth is likely to depend on how well they manage customer relationships in global markets. This means more traveling, hiring the right people, defining new roles and duties, and developing a global perspective and world-class skills at addressing an increasingly eclectic sales force.

Shorter Product Cycles.

The rate of technology transfer is increasing. Processes and products that were once proprietary are quickly becoming available to competitors. As a result of the porousness of technology and the increasing number of competitors, product cycles are shorter, imitation is more rapid, and as a consequence, the window of product differentiation has narrowed considerably. Sales and customer relationship skills are most important when a product is new and again when it is late in its life cycle. New products need careful presentation because a buyer’s risk is highest owing to lack of experience with the product. The sales force’s task is to help customers understand that the benefits of the new product outweigh the risks and costs associated with the requisite business changes. In the late stages of the life cycle, the salesperson again becomes very important. With very few important differences in competing products, the personal relationship and intimate customer knowledge of the sales force become the primary point of differentiation and leverage for a supplier.

Blurred Boundaries.

Contributing importantly to increased competition is the phenomenon of boundary blurring: Formerly indirect competitors are entering each other’s businesses. Steel, aluminum, plastic, paper, and glass, for instance, compete for the same application. Banks, insurance companies, mutual funds, new Internet companies, and credit-card companies all compete for the same consumer savings and investment dollars. Developments in information and communication technology are often at the heart of boundary blurring. As a consequence, sellers are having to call on new decision influencers interested in a new value proposition. These developments have made it more difficult and complex to sell effectively against a broader set of competitors.

Customer

The increase in competition clearly calls for new selling and sales management approaches. However, identifying the correct selling and sales management approach is further complicated by customer developments such as purchasing from fewer suppliers, rising expectations, and increasing power.

Fewer Suppliers. The traditional practice of buyers rotating purchases across multiple supplier sources is increasingly being questioned in many industries. Motorola’s Personal Communications Sector group, for example, has reduced its supplier base from 300 to 100 suppliers.Xerox Corporation, Ford, General Motors, and most other major corporations have followed suit in reducing their supplier base by one-half or more. These companies are finding that the costs of maintaining relationships with a large number of suppliers far exceed any possible price savings. Consider the results of a Department of Defense study which found that it costs hospitals $1.50 in administrative costs associated with $1.00 worth of medical supplies. These administrative costs include purchasing and sales call time, receiving, inventory, space, handling, paperwork, processing, leakage, and so forth. Addressing these internal costs associated with procurement and customer inventory holding costs requires a closer supplier-customer relationship than is usually possible when purchasing from a large number of suppliers.

At first glance, customers purchasing from fewer suppliers would appear to benefit suppliers. But what if a large customer asks you to address the total cost issues associated with a purchase, such as those listed above, and your company has not developed the capacity to do so? You are likely to lose this important customer. What if you are not chosen as one of the “In Suppliers”? Among wholesalers of periodicals and magazines, for instance, the shift by large retailers to single-sourcing has resulted in intense consolidation. Contract-winning wholesalers rapidly acquired former competitors in an effort to cover larger territories and service larger accounts. As a result, the number of wholesalers dropped from nearly 182firms in 1990 to 56 in less than 5 years. In other words, the revenue stream from individual customers had become so important that survival had become dependent on maintaining the supplier-customer relationship.

Rising Expectations. Despite a focus on quality and service, customer satisfaction remains low, according, to research by J. D. Power and Associates. Customer satisfaction is difficult to manage because as customers receive good treatment, they become accustomed to it and demand even better treatment. In other words, the bar is being constantly raised. Customer expectations are raised not just by how well a business performs versus competitors, but also by the higher standards set in other industries. People are aware of the standard in the con-sistency of service at McDonald’s, the cleanliness at Disney, and the product quality atSony. Customers are aware of the product and service quality they receive from these com- panies and are holding everyone else to a higher standard.

In business-to-business sales, rising customer demands are occurring in a variety of ways, including:

• Access to greater levels of information, both from electronic and human sources, on demand
• Ever-increasing speed of response to customer problems and issues
• A demonstrated understanding of the customer’s business and issues before being permit-ted to ask questions
• Personalization of offerings, services, and merchandising

Increasing Power. Fewer than 10 percent of all retail stores, for instance, account for more than half of U.S. retail sales. Wal-Mart, Target, Sears, Costco, and many other dominant retailers have grown bigger and more powerful than the manufacturers that supply them, and they are now dictating the supplier-customer relationship.

This shift to large powerful customers has had dramatic impact on suppliers. Procter & Gamble, for example, has well over 100 people located in Bentonville, Arkansas, to sell and service Wal-Mart. When the accounts are huge, consumer goods companies are finding that marketing and sales must make joint decisions about product, price, brand, and all kinds of support. Pricing, product and service customization, and merchandising programs cannot be entrusted to either marketing or sales alone. The economic impact of these large accounts requires an integrated approach.