Sales Tactics: Selling Fear, Uncertainty and Doubt

Don't Fall for it!
Fear, Uncertainty, and Doubt (FUD) is a tactic of rhetoric and fallacy used in sales, marketing, public relations, politics and propaganda.

FUD is generally a strategic attempt to spin or influence public perception by disseminating negative information designed to undermine the credibility of their beliefs.

The term originated to describe disinformation tactics in the computer hardware industry and has since been used more broadly. FUD is a manifestation of the appeal to fear.

An individual, may use FUD to;

• invite unfavourable opinions and speculation about a competitor or their product and services
• increase the general estimation of switching costs among current customers
• maintain leverage over a current business partner who could potentially become a rival or
• other misc reasons

FUD techniques are crude and simple in most instances but occasionally they can be very subtle, employing an indirect approach.

Doing Less With Less leads to less

Where do you stand in today's market? and who's standing there with you?

Now that your company has fashionably reduced its staffing levels and you have survived the axe, are you being asked to do more with less, in the wake of these layoffs?

Yes you say, but are you actually doing more? I'm sorry but the real answer is; probably not. According to a US survey conducted in December by Leadership IQ.

When the US research and training firm polled 4,172 workers at 318 companies that had recently laid off employees, 74% of the people who responded said their own productivity has declined. Other findings:

• 87% of surviving workers said they are less likely to recommend their organisations as good places to work. (Quelle surpris! This is a sign of a badly handled layoff)
  
• 64% of surviving workers said the productivity of their colleagues has also declined. (The bad layoff was indicative of poor management motivational skills in the company)
  
• 81% of surviving workers said the quality of service that customers receive has declined. (This should have alarm bells ringing! This way, monsters lie!)7
• 77% of surviving workers said they see more errors and mistakes being made. (Realistically, they may be looking closer, with a more critical and negative attitude or have access to more info through expanded roles)
• 61% of surviving workers said they believe their companies' future prospects are worse.
  

This summary is probably correct, if their customers are sensing negative vibes and are experiencing reduced service, in today's buyer's market. Staff and management should be made aware that they have a vital role to play in convincing customers that there is value to be had by maintaining their loyalty.

Loyal customers and repeat business should be cherished, protected and sustained through innovation and strong management.

If the company has implemented reduced staffing levels without refreshing the management team, its motivation and its attitudes, then the only changes they will need to manage are the shrinkages of its customer base, the obsolescense of its products and services, with the subsequent failure of the whole lame duck enterprise.

Do not mistake Movement for Action

Measured Action for Tough Times

IT Consultants and solution providers are, like everyone else, vulnerable to the recession. However, a recent Market survey shows that IT Consultants and solution providers are preparing to weather the economic storm forecast for 2009. With a lot of good fortune and luck allied to smart planning and insight, they could be positioning themselves for growth in 2010.

US Dollars, GBP and Euros
The dawn of the Obama era in the USA and the infusion of hundreds of billions of dollars, pounds and Euros in stimulus funds are not enough to clear the economic storm clouds gathered over North America, UK and Europe.

Since the beginning of the New Year, the U.S. economy alone has shed nearly 600,000 jobs. Gross domestic product fell by 3.8 percent. And the forecast for the remainder of 2009 calls for sluggish or negative growth.

Consultants poised for 2009
The technology sector, with its IT Consultants and the solution provider community poised to withstand the recessionary pressures of the general economy. The 2009 Market survey of 200 North America IT Consultants and solution providers, reveals that solution providers are very cautiously optimistic about their business prospects in 2009. They fully expect a reduction of enquiries, sales, revenues and profitability. They’re cautious optimism means they are preparing for the worst while hoping for the best.

Weathering the storm
IT Consultants and solution providers are not taking the sluggish economy in their stride. While there is a natural inclination to retreat to a safe place and ride out the downturn, the Market survey report shows many consultants and solution providers are preparing to implement, aggressive business development, sales and market plans. In an effort to not only weather the recession but to power through it and position themselves for growth in 2010 and beyond.

Gross Revenues
Gross revenues from product and services sales increased for 46 percent of solution providers, while only 24 percent saw their top lines shrink. A near equal number of solution providers (45 percent) reported increases in their 2008 profits, while 25 percent said their profits declined.

Ordinarily, healthy revenue and profit increases would be welcomed news for solution providers. But participants in the Market survey were witnessing a phenomenon caused by the recession.

Customer spending down
Consultants and solution providers reported customers spending was down and their existing budgets reduced. This is in anticipation of not getting full funding in 2009 or in anticipation of end-of-the-year budget cuts. Business-technology customers, ranging from small businesses to large enterprises, are expected to continue investments in technologies critical to business operations. This will focus on smart applications and systems that directly reduce costs or innovations that open up new revenue opportunities.

Do not be fooled, they are certainly not freely opening up their checkbooks. IT Consultants and solution providers report that their customers are already cutting back on orders, delaying project implementations and canceling projects to save money.

2009 Forecast
The stated paradox above, is part of the reason why nearly one-half of consultants and solution providers expect their revenue to increase in 2009, while only 32 percent expect a decrease. The key indicator of how tough 2009 will be for solution providers is seen in the number that expect flat year-over-year revenues;

• 30% of solution providers said their 2008 revenue was relatively the same (plus or minus 5%) over 2007,
  
• 21% expect no change in year-over-year revenue in 2009.

• The clear shift to no change or declining revenue reflects longer sales cycles and customers not committing to engagements.

The survey paints a similar picture for profitability;

• 51 % of solution providers expect no change or a decline in their year-over year profits.
  
• 64 % believe their profits will slide by 15 percent or more this year.
• 55 % of optimistic solution providers expect their profits to increase by 15 percent or more.
  
• No solution provider participating in the Market survey, expected profits to sink by 100% or more. Perhaps trying not to think the unthinkable.
  

Consultants and solution providers dependent upon conventional hardware sales expect the largest decreases in revenue and profitability. Anticipating revenue decreases this year;

• 29% of white box/custom system dealers
  
• 27% of hardware resellers and
  
• 24% of general solution providers,
  

Topping the list of specialists anticipating net revenue increases.

• 67% Software resellers
  
• 60% Software-as-a-Service (SaaS) providers and agents
• 55% Systems Integrators
  

Additionally, solution providers say that they are seeing the greatest slow down in business, from small (less than 50 employees) and midsized businesses (50 to 250 employees).

Ring fence your customers
Consultants and solution providers recognize that they must adapt to the poor economic conditions, and many are executing strategic plans to bring themselves closer to their customers. Hopefully this will allow them to preserve and protect existing revenues sources while seeking new opportunities to tap into new revenue streams. Clearly everyone is becoming more defensive of their existing clients and therefore, the new revenue opportunities will be harder to find and even harder to win, possibly with lowered margins and ROI spread over longer periods.

Nearly one-half of consultants and solution providers surveyed for the Market say that their top business goal for 2009 is improving customer satisfaction and retaining existing customers. It’s much easier and more cost effective to expand sales within an existing customer than it is to acquire a new customer and build a relationship. The risk that you put all your eggs in one big basket that could, in itself, fall.

Customer retention not detention
Of the consultants and solution providers focused on customer satisfaction and retention, most anticipate their profits will remain flat or decrease. The same can be said for consultants and survey participants focused on increasing revenue, the second most popular business goal for the year. Are you being retained or detained by your customers and service providers? Discuss!

QoS versus Market Share
Consultants and solution providers who are focused primarily on improving quality of service (QoS), will have a higher expectation of profit erosion. Conversely, consultants and solution providers focused on increasing market share or profitability have higher expectation of improving profitability in 2009. This may not be the case, when taking into consideration the cost of sales.

Revenue Growth - greater expectations?
For revenue growth, 60 percent of consultants and solution providers are squarely set on simply acquiring and developing new customers. Another 30% are expanding their relationships with existing customers. Interestingly, solution providers are not looking to their peer communities for support during the recession. Only 13 percent of survey participants said they would form an alliance with their peers i.e. consultant and solution provider partners, or partner with other consultants to reach new markets and customers.

Together we stand and divided,
we may fall

Getting on top - Dominate your Credit Risk

Until recently, when debt became more expensive and harder to come by, companies generally had a blasé attitude toward managing their trade-credit risk. Most corporations, big and small, don't have credit risk procedures any more sophisticated than the sub prime lenders did. In which case you are flying in dangerous territory with your defenses down.

A simple tip but one that's been largely ignored until recently: Be more wary before extending credit to new customers. Make them prove their creditworthiness. Currently, companies take more a of shy unassuming approach to trade credit by quickly granting it to every new client that comes across their threshold. Once aboard they hope for the best and follow the client's payment performance over time.

Companies too often get into the habit of not asking for any financial information from their customers in favor of speeding up a much coveted deal. Suppliers have been doling out credit based on what little information may be available on their privately held clients, despite the fact that private firms have a higher rate of bad debt. Even after a credit account has been granted, the supplying company may shy away from asking for financial data because they don't want to offend a brand-new client. Clearly the banks have a part to play in all this because they too have been willing to extend credit lines far beyond reasonable doubt.

Companies should ask for customer and bank references up front. Although, that information may be biased and unreliable because of the struggling financial institutions. Will the bank and lenders be there in the long term for their customer? Are they going to provide financing or will they make a quick exit and leave the company with a liquidity shortfall, which may or may not cause the demise of the company? Are the financial institutes responsible for the ongoing viability of their clients, i.e. the corporate companies. What support and backup can they provide a struggling company when they themselves are in difficulty. These and many more, are all questions vendors need to ask themselves when looking over a customer's bank information.

Companies should request that all customers, new and old to fill out a one-page credit profile every year. The sheet should include the company's cash position and the most up-to-date contact information. A type of credit probe which may or may not provide the correct level of information in the right format, in a timely manner. This will lead to more overhead in the accountancy dept or with the business analysts, but if addressed properly, it may provide early warning of difficulties.

If there is any good news to be had during this economic downturn, it's that everyone is in the same boat. Your customers are asking their customers for more financial information. It's now become perfectly acceptable to ask about a client's financial status because everyone is being scrutinized by every supplier. Its a big global circle of accountants, checking each others assets.

If it's impractical to demand financial information up-front, then come up with a triggering number for when your company will demand it. A simple threshold or framework will suffice. If clients cross the established and agreed amount, then they must provide their trade creditors with financial statements to validate their credit. The type and level of the threshold can vary depending on client, industry, item value, uniqueness, development costs, credit exposure, etc. Its not a numerical value, its a way of thinking about and controlling your risk exposure.

Another way to improve your credit /risk management is to conduct a detailed assessment and calculate each customer's probability of default. With such precise knowledge you can price your services accordingly, and by showing your client the calculations, you can easily justify a premium rate. Cash has always been king and currently it is even more critical to companies health and financial welfare, but many companies have no idea who they're selling to, never mind who owns the company or their cash position. Its never been more critical to know your customer.

Moreover, suppliers can no longer rely on traditionally held views that big-name companies are safe from sudden and dire financial problems even if they don't have strong cash flow. Many of these companies have lived on extended credit lines for years and are not asset rich. Other companies can have negative cash flow and positive net worth. They're sitting on land or occupy buildings that no one's willing to buy. If their credit is pulled and they end up going bankrupt, the asset value won't cover the debts.

Experts also suggest sales and credit departments improve their communications between salespeople and the collections side. Your salespeople are trying to maintain the vendor /customer relationship at the same time as maximising their commission payments. This is a tightrope, and is a very dangerous situation for the company to ignore. It must be very, very tightly controlled. Don't allow salespeople to grant extended payment terms, without justification and authorisation, before checking in with their credit counterparts. Companies should use these negotiations to get more financial information out of their privately held clients and reprice future services if possible.

Moreover, salespeople may be able to offer the credit department more insight into a customer's financial situation. Therefore it is imperative that they have the influence, motivation and the time to actually get involved in credit and collections questions. Its a team effort and everyone better be on the team or the game is over.