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:
- We deliver something others cannot
Knowing what the competition is up to is smart business. Great sales teams openly ask their customers about their competition openly. Yes, what are they bad at, but also what are they doing well. It is only with this knowledge that they can offer a difference. Starting by defining the Category means others have to play on your chessboard. With a large and compelling vision for the future and the knowledge of what rivals can achieve, there is minimum chance competitors can argue for a like-for-like comparison to try to establish `better`.
- We deliver in a way others cannot
Great categories are not just about products and services, they are about defining how and why the world will change. So review not just what, but how you are delivering customer value. Need inspiration? Go back to the Category Point of View and remind yourself how you solve your clients’ issues differently. Doing this well is where Category-aligned sales teams shine. Smart sales teams are well-used to negotiating last-minute ‘tchotchkes’ to sweeten deals. “Want a different payment schedule? Sure!” or “Can you throw in a customer reference as a contra for a quick sign?”.This offers an opportunity to differentiate by delivery, not just on ‘feeds and speeds’, features and line items, but on WIFBOU?, What’s In It For Both Of Us?. After all, a successful deal is where both sides feel they have `won`. This could be provisioning, your channel, the offers you make, the unseen savings elsewhere and of course every conversation is an opportunity to remind buyers of the strength of your Category vision.
- We lead thinking in this Category
Nothing lasts forever and that includes annual budget cuts, recessions, customer gloom, or even wars. By contrast, categories take years to build, traditionally around three. It is also proven that a great time to start a business is during a recession. So it follows that coming out of a recession is a great time to be perfectly pre-positioned as the Category leader, because of the thinking during a recession.
Think about it, a renewed sense of optimism, a need to drive growth, the fear not of cutting more, a bit of growing slower as a driver all favours the Category Leader. It is also a perfect time to de-position old thinking and tired Categories. “Are you still working like that?”, “Aren’t you concerned your team has last generation tech?/’, “Why would you use three tools to achieve one goal?”
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.