Categories matter more in a downturn

Written by Paul Maher

Three reasons categories matter most during downturns

There’s no escaping the economy. Some recent conversations with Enterprise Tech sales teams have been uncharacteristically downbeat. They are already feeling the headwinds of a consumer spending downturn, even before it really takes hold. 

Now, some B2B boards may think `Why would it matter if fewer lattes are being sold when I am selling AI software?”. But their sales leaders are right to be concerned. For enterprise sales pros selling across a vast swathe of the economy, the knock-on effects are very tangible. 

How B2C and B2B interconnect
It starts small. Reduced disposable income gives fewer reasons for consumers to browse online. Then it grows. With fewer online shoppers, online ad budgets come under pressure. 

Soon it snowballs back to the sales frontline. 

Reduced headline trading by their employers, puts potential IT department budgets in the crosshairs. They may decide their existing supply chain infrastructures and supporting IT projects, no matter how much ROI was projected, will suffice throughout the downturn. 

Whether for HR, for sales, marketing, accounting or logistics, those already-signed-off initiatives can seem, well, very postponable. Pretty soon new IT budget approvals are harder and on it goes. 

So what is the best move for salespeople facing this perfect storm? 

Suicide by price war
With fewer buyers and lower budgets there is a massive temptation for vendors to drop prices. One sales pro we spoke to recently described seeing up to 90% discounts being offered, ‘to stop the competition from winning’. 

But there is no guarantee this will have the desired effect. Give away all but 10 percent of your product and why would a customer want to ever pay the rest?. Eventually they will want the last tenth for free too, leaving you, at best, in a world of freemium and hoping the value of that provided gratis for free creates a future sale. Risky stuff. 

Sure, you may win a few deals and even hurt your competitors in the short term, but with dozens of vendors in well-established categories, your rivals will soon learn to do the same. This game of discount chicken is a race-to-the-bottom and eventual commercial suicide. In contrast, fewer customers, paying full price validates your leadership in a category and provides a platform for future growth. 


The last category for the axe
When tech buyers are asked to trim IT budgets they use a certain logic. Not the critical logic of an engineer, but the visceral logic of survival.  A ‘kill list’, perhaps only mental, which clearly prioritises IT projects, applications, services and vendors they could do without, if absolutely necessary. Not proving differentiation and relevance irrelevance ais the silent killer here.

This is where Category thinking comes into its own. For instance, fewer customers, paying full price validates your leadership in a category and provides a platform for future growth. 

As an analogy, think about the dilemma facing many households in Europe. They can reduce spending on holidays, cars, home improvements, entertainment and even food. Energy though is an illiquid, purchase, rarely-negotiable and an absolute need for most in European winters.  Energy is the last item for the axe. That is exactly where well-designed Categories need to sit.

It is for this reason that Categories need to differentiate their leaders from other, less business-critical, categories. When two items on a customer’s list are interchangeable, someone’s likely to lose out. Most likely the most expensive option. 

Reacting to this dilemma with a price cut stokes the price war. What you need to become is last on the list. But how? There are a number of plays to emphasizse why your category, and so you as leaders should be last to be axed. Here are three:





So use the ‘downtime’ of a market slowdown to your advantage. This Gainsight video literally shows how customers value thought leadership from their category-leading vendors. 

They say salespeople have to be optimists. Economics tells us scarcity drives value.  So, when optimism is in short supply is when optimism is most valuable. Your customers want leaders and need new tech to drive through and out of recession. Think beyond today and build your Category for tomorrow.

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