November 24, 2012 at 7:00 AM
The purpose of every incentive compensation plan is to influence the actions of sales reps. But an internally-focused plan can encourage behavior that works against the customer. This destroys trust. Today's post will help you evaluate the impact of the behaviors your plan rewards. You still have time before 2013 to fix any blatant disconnects. The post offers tools to make longer-lasting corrections, too. HR leaders should act now to align the compensation plan with the customer's interests. Why is this so important?
Square Pegs in Round Holes
Sales incentives can be like square pegs. They don’t fit the round holes that are the customer's reasons for the purchase. Incentive compensation is intended to reward specific behaviors of the sales force. Ideally, these should be activities that the customer values. This image illustrates potential friction between buyer’s goals and what the comp plan rewards.
Missing the Connection - Some Examples
Here are some real-life examples of poorly designed incentives. The comp plan rewards these activities yet they deliver zero value. If asked, the customer would not pay for any of these activities:
- Margin Incentive
Reps reworking discounts and promotions endlessly to game the comp system. Reps repairing customer satisfaction issues - issues caused by force-fitting a high margin solution.
- Product Launch Incentive
Reps bundling a new product into a deal. The customer does not need it. The rep bakes it in using discount dollars just to score the incentive.
- Customer Satisfaction Incentive
[This runs contrary to what is expected. Customers want to be satisfied - but they do not expect to pay for it.] Reps pestering the customer to give top scores on a Net Promoter survey. Reps doing the jobs of others who are supposed to fix customer issues.
- Competitive Knockout Incentive
Reps manipulating trade-in policies to earn a bonus. Reps wasting time to document a pseudo-competitive win.
Making the Connection
The solution starts by answering two questions:
- What sales rep activities does the customer value?
- How do sales reps spend their time?
Answering these questions requires an understanding of the buying process. It also requires awareness of what really happens in the field. These insights usually can’t be found in existing data. They require dedicated investigative work.
Q1: What Does the Customer Value?
SBI is regularly engaged by clients to help answer the first question. The initial reaction is to reach for a recent market survey. However, these studies focus on customer attitudes. They expose brand preferences, market segments and trends. They only hint at the customer’s buying process.
Customers place a high value on activities that move them forward in their buying process. Two discovery tools are essential to pinpoint these activities:
Unlike marketing studies, customer interviews ‘map’ the buyer’s journey. Each persona involved in the buying decision can have different motivations. Some buyers complete 57% of their decision process without help from a sales rep. When they finally engage a rep, it is a critical point. The support needed cannot be found on the seller's website. This “high value” selling activity should be the most compensated.
Mystery shopping is intended to understand how competitive the sales force is. Your competition also strives to advance the buying process. Which of their selling activities do customers most value? The answers can validate your selling tactics or sharpen them.
Q2: How Do Reps Spend Time?
In parallel with discovery about the buying process, investigate current selling time allocation. There are 3 common ways to do this:
- Sales Rep Survey
- Time Study
- DILO ride-alongs
The web-based rep survey is the weakest source of information. Reps respond with the answers they believe management wants to hear. Time studies are intrusive. They require sales reps to log their hours on a spreadsheet. This helps them recognize time drains. But the data collected can lack in completeness, accuracy and honesty.
The best choice is the DILO, which stands for Day in the Life Of. It involves spending time in the field making customer calls. This allows for direct observation of buyer and seller interactions. It reveals the moments of truth, witnessing the buyer’s decision process as it happens.
Mapping Compensation to Buying
First, understand the actions that buyers value. Next, incent the sales rep to support the buying activity. The mapping isn't always perfect. The key is to avoid rewarding internally-focused behaviors. Look for a linkage to the customer in every compensated activity. The role for Human Resources leaders is to provide objectivity. Play "devil's advocate" with sales leaders and take the customer's point of view. The payback is revenue growth, margin improvement, and successful new product launches.
Answering the two questions isn’t easy. It usually requires the help of an outside agent to uncover the truth. Done wrong, customer interviews can become sales calls. Mystery shopping fails without objectivity and confidentiality. DILOs yield enormous insight, but require anonymity to unlock candor. SBI and our methodology can help. You can access the discovery tools that we use in our practice. The image here shows the DILO Ride-Along tool. It is just one of a series that are available.
Start today by meeting with your sales leaders to assess your 2013 compensation plan. Will the incentives cause your sales people to engage in “customer-valued” activities? Make the simple changes immediately that you know your customers would endorse. Then start early in 2013 to answer the 2 questions. Engage help for the customer interviews, DILOs and mystery shopping that reveal the answers. Your business is different. A custom approach will align compensation with your customers’ needs, and drive improved results.
Posted by John Kenney