By Nicolas Zimmerman, Editor-in-Chief, SAMA
To challenge or not to challenge? That is the question.
Ever since CEB published its seminal book “The Challenger Sale,” the challenger paradigm has reigned supreme. It has been taken as gospel that the best way to win more deals is to disrupt the status quo by taking control of customer conversations and introducing new, provocative ideas. (On the other hand, SAMA has always considered the idea of “taking control” of your customer to be misguided at best, disastrous at worst.)
Corporate Visions has been at the vanguard of partnering with academics on research designed to test whether challenging actually does what it’s supposed to — and if so, under what conditions. In other words, challenging may work when you’re trying to convince a prospect to move business to you. But does it also work when you’re trying to convince existing customers to:
- Stay with you?
- Pay more for your products/services?
- Do more business with you?
- Forgive you for a lapse in service?
(Sneak preview: The answer is NO.)
If you missed the SAMA/CVI next-practice symposium Feb. 12 in Chicago, first of all: Shame on you. But second of all: You’re in luck, because I’m going to lay out many of the key takeaways here. Read on…
1. Customer acquisition ≠ customer expansion
Why it’s important: The top 20% of your customers are responsible for 90% of your firm’s total customer lifetime value (CLV). Read that again. This means that if you’re creating messaging for your existing customers that’s identical to your messaging for winning new business, you’d better be EXTREMELY confident that it’s a winning formula.
(Hint: It’s not.)
CVI set out to test this. The hypothesis: That a challenging message designed to disrupt a customer’s status quo is a losing formula when you ARE the status quo.
The test: CVI built a test designed to pit two messaging “models” (i.e., a specific sequence of information delivered in a specific order) against each other to see which fared better for a hypothetical scenario faced by strategic account managers all the time: renewal with existing customers.
The message delivered to the test subjects came in two flavors:
- “Why change?” This classic challenging posture aims to push a prospect to move its business to you by creating uncertainty through:
- Introducing new-to-them needs, problems and opportunities
- Calling attention to the limitations of their current approach
- Drawing a clear contrast between business-as-usual and your new approach
- Showing a clear before vs. after, illustrating the benefit of making a change
- “Why stay?” This messaging model leans into your position as the incumbent by:
- Documenting your past results, calling attention to what you’ve already achieved together
- Reviewing the rigorous decision-making process that went into selecting you as a supplier in the first place. You want to plant the seed of regret at the thought of unwinding such a thorough process.
- Sparking fear that by changing suppliers, all that progress will either stall or disappear. Be sure to remind them of all the investment they’ve already made into your relationship — which will have been wasted if they move their business elsewhere
- Close with the “cool” new stuff you want to do with them to stay in front of anticipated challenges and opportunities
The results: The “Why stay?” messaging yielded 10% higher favorability than “Why change?” Test subjects said they were 13% more likely to renew after hearing this message and 11% less likely to switch.
Says Tim Reisterer, Chief Strategy Officer with CVI: “They need to hear they’re on the right, secure path and that you’re someone they can count on — not someone who’s going to come in and disrupt. By provoking your customer, you open them up to other potential customers.”
The conclusion: When renewing business, you want to leverage your position as the incumbent by leaning into and reinforcing the status quo.
Check out “When Challenging Backfires” for so much more on this piece of CVI’s research.
2. Why pay more
Existing customers are the lifeblood of our business. But we don’t just want them to stay. We need them to stay and pay more for all the value we deliver. No one likes this conversation, but considering how (a) important and (b) unpleasant the conversation can be, is there an ideal way to ask for a price increase?
(Hint: There is.)
The hypothesis: Armed with what they learned above (“Why change?” vs. “Why stay?”), CVI set out to test which messaging model fares better when suppliers request a price increase.
The test: CVI offered a similar hypothetical renewal scenario, with a four percent price increase, to see which model yielded the best results. As an added wrinkle, CVI tested whether there is any difference between (a) asking directly for the desired increase or (b) presenting a higher price increase and then offering a time-sensitive (e.g., “Renew within 30 days”) or loyalty discount.
The result: The “Why stay?” messaging model, which is built around reinforcing the existing status quo, absolutely kills the Challenger-oriented “Why change?” message. It resulted in 19% higher favorability, 16% greater likelihood of renewal and a 16% drop in likelihood to change suppliers.
In other words, this status quo-reinforcing message fares even better when asking for a price increase than when asking for a price-neutral contract renewal.
What’s more, anchoring the message with an initial high-price “ask” with a timed or loyalty discount outperformed the “straight ask.” Interesting, right?
But it also makes sense. We’ve all bought something we might not otherwise have bought because we’re subconsciously influenced by seeing the “SALE” price versus the full retail price. It works in B2B too, but only if there’s a rationale behind the discount, e.g., it is only for existing customers.
(One important note: By far the worst-performing message was one that blamed the price increase on supply-chain costs. Says Tim: “Don’t do it.”)
Of course, we don’t want to just maintain the status quo with our most important customers. We want and need to actually grow our business with them. So what’s the best message for convincing an existing customer to not just stick with us but to evolve alongside us?
The hypothesis: that a hybrid messaging model — one that combines a focus on your existing partnership with one that leverages your insider knowledge of the customer business and your vantage point as an industry leader — would outperform both the “Why change?” and the “Why stay?” messages.
(You guessed it: It did.)
CVI proposed a hypothetical cross-selling/upselling scenario and tested three messaging models: “Why change?,” “Why stay?” and the hybrid message, which they constructed like this:
The results were decisive. Test subjects rated the hybrid message 10% more convincing and reported being 13% more willing to make an upgrade and 16% more willing to make a purchase. (The “Why change?” model finished second.) But why?
Prof. Nick Lee, who partnered with CVI to design the research, says it comes down to a basic human instinct: “As humans, we’re driven to reciprocate. When people give us pleasure or they give us pain, we are driven to reciprocate.”
The “pleasure” in this case is the supplier combining its insider customer knowledge, industry expertise and work with other, similar customers to outline challenges and opportunities the strategic customer may be missing out on — and then offering prescriptive solutions. The supplier, Lee warns, has to thread the needle by making the case for change without driving the customer to look at your competitors.
“You risk overplaying your hand and encouraging the customer to look at all options — in which case, you’ve thrown out your incumbent advantage.”
Critical note: Do not wait until right before your contract ends to initiate this conversation. If you wait until then to start giving your customer a “Why evolve?” message, then you have created a critical – and sometimes fatal – messaging gap.
Says Erik Peterson, Corporate Visions’ CEO and co-author of the new book, “The Expansion Sale”: “When you create a messaging void, who do you think is filling it? Competitors, partners and analysts. And what kind of message are they offering? Generally, it’s ‘Why change?’ If you cede this empty space to your competition, by the time you re-engage with your customer, the competition may have reset its thinking.”
There’s so much more to the book, and I can’t recommend it highly enough for anyone working with strategic customers — whether in sales, marketing or management. You can purchase “The Expansion Sale” here.
Want to learn directly from Tim? He will deliver a keynote presentation at SAMA’s 2020 Annual Conference May 18-20 in San Diego. See speakers, sessions and special events here.
- What suppliers can do mid-contract to future-proof their negotiations - September 30, 2020
- The Five Health Care Trends Every SAM Needs to Know - September 22, 2020
- Got CXM? Why customer experience management isn’t just a nice-to-have for strategic account management - September 11, 2020