Over the last year I have been heavily involved in helping to apply Lean ideas in different service sectors including health benefits administration, medical labs, and most recently, in the marketing and sales arena. Although there are elements of Lean, Six Sigma, Theory of Constraints and other operations excellence methodologies involved in each case, I continue to find that Lean ideas get the most traction quickly in getting meaningful change underway.
Time and again the common theme from businesses in the service sector is: “how can we apply Lean ideas in our situation?” In the new APICS Communities of practice, I have introduced how 5S can make a powerful difference in service businesses. We will not discuss it here, but it should be noted that 99% of the time 5S is a great place to start if it is not already ingrained in the culture. In all service industries, there is proven value in using Value Stream Mapping, Kaizen, teamwork and empowerment, establishing flow and implementing pull systems – as I have detailed in other installments of Lean Culture.
Something new: using Lean ideas in Sales and Marketing. In nearly all cases in service industries, they tend to share a common pain: effectively marketing and selling in a competitive marketplace. Service industries don’t enjoy some of the benefits of having a tangible product that can be easily benchmarked for its “value utility” – the quality, value and delight it brings to customers. Since it is hard to differentiate services, it makes the efforts of the marketing and sales organization even more important; and can often be the only real differentiator that makes or breaks the services business.
Marketing and Sales Needs a Lean Approach
If you are scratching your head thinking “Lean and Marketing?” it’s OK – as far as I know no one has really done much in this space – until now. Lean gurus talk a lot about “the voice of the customer” and “only doing things customers want to pay for.” In fact, the latest “Lean waste” that I have heard about, that is credited to Toyota, is knowledge disconnection. My understanding is that the nature of this waste is not knowing exactly what our customers need from us – and consequently wasting resources on things they don’t care about while under-delivering on the things they do care about.
Real intimacy with customer needs is a key – and lean thinking has a role. Getting back to the line of thought on customer intimacy – the Lean gurus talk about it a lot, but they really don’t tell you how. I suspect this may be one of the last great hidden secrets that we Westerners have yet to discover from our Japanese friends. Here is why I make this statement: Being the fastest source at a fair price with benchmarked, leading quality is not enough to secure success (we call this having a great inside reality). Many companies, in fact, have a great inside reality (IR), but fail miserably in maximizing it in terms of getting the levels of profitable business they deserve. In fact, some actually go out of business!
Why would I make such audacious statements? It’s simple: most business fail to understand and align their outside perception with their inside reality. What is outside perception (OP)? Let me explain. OP is all the things that your customers and prospective customers believe to be true about your company. These perceptions are built over time and based on your written and verbal communications with your prospects, and other interactions with you and with your competitors. This can work for or against you. For example, traditional car dealerships have earned a reputation for gamesmanship and “slick dealing” that puts buyers on the defensive. Many people dread going to a dealership for this reason – they fear being taken advantage of. On the other hand, if your dealership is offering a true innovation such as a single, easy and fair “no haggling” price, this provides the opportunity to appeal of prospective buyers in a new way – differentiating the firm from competitors.
One of the concepts I help companies understand is that success depends on alignment of what we are able to do (or IR) with what our customers and potential customers perceive about us (the OP). Misalignment is deadly – as illustrated by the auto dealership example – if we look no different from all others, then the only basis for buying is price and quality. This tired drum is not the solution to fixing the problem.
So, how do you fix this? For those with a background in Lean and Six Sigma, think about the approach as being like a Kaizen in structure, but taking a Six Sigma approach to identifying all the key variables and collecting enough data to validate actions to improve the effectiveness of the sales and marketing function.
The First Step: Understand Your “John Smith” and Where He is On the Educational Continuum
Before effective marketing and sales efforts can start, it is first necessary to be able to answer this question: “Why does John Smith buy what John Smith buys?” The answer is: “You can only know why John Smith buys, if you see the world through John Smith’s eyes.” The team must first identify each customer constituency, and through a rigorous data collection effort be able to quantify and prioritize all the factors that will satisfy our “John Smith.” This includes surveys, competitive analysis, and in some cases, a full-blown designed experiment (Six Sigma) to get a handle on the factors that count.
Secondly, we must understand where each of our “John Smiths” are on the educational continuum. Educational continuum? Think of it this way. Imagine a population of prospects spread-out on a line, or continuum, going from your left to your right. At the far left are prospective John Smiths who do not have a perceived need or want for what we have to sell. Any marketing or sales efforts expended on them is a complete and total WASTE of time and money unless you have the ability to present the benefits of ownership of what you sell in a compelling way.
As we move to the right we begin finding prospects that are beginning to think about the service we offer. These are the folks that are searching for information. We must understand what it takes to get their reticular activator working. Reticular activator? Yep. A reticular activator is something that gets your attention. Most advertising efforts use something to get your attention – such as animals, pretty people or other things. This alone is NOT ENOUGH. What must next happen is to engage their minds with information – this is why we call this an educational continuum. We must interrupt, engage and offer more information in our marketing and sales efforts.
As we begin to move to the right side of our continuum we encounter the potential buyers who are actively searching for a solution – they are not ready to buy just yet. Our message to them needs to be customized to include more facts and education about what makes us different from all the others who claim to have the “best quality, speed and price” – our great IR.
Finally, our John Smiths move to the far right of the educational continuum – they are ready to make a buying decision. This is where we have a problem: everyone on the planet is already pounding on them to get the business with tailored messages and contacts to get them while they are in “buying mode.” If you have not built your business case in advance, it is too late to educate your prospect due to all the “noise” from your competitors. You will not convert them any better than your next competitor.
A Case Study in the Service Industry – the Insurance Industry
One of our clients in the service sector is one of the largest Taft-Hartley funds serving unions in health insurance and retirements benefits. This non-profit entity has taken plenty of heat in recent years (as have all funds in the nation) to maintain benefit levels and contain costs. The big shift in the last 10 years has been the fact that employers and unions have more options than ever before for their benefits provider solutions. In fact, our client is now finding they have to compete with other similar non-profit entities as well.
In the case of our subject company, virtually all customers have their insurance benefits negotiated as part of their union contract. Since this company only serves unions in a fixed geographical space, any money or effort spent marketing or selling to companies or unions not fitting this profile is wasted. This part was easy to figure out.
Now, what about all the unions and companies who just finished establishing their new three to five year contracts? Well, they are not likely to need to evaluate new insurance for some time. Do we ignore them? Hardly. Prospects in this category are definitely on the educational continuum – but the types of information they are interested in are different at this stage. Communications are periodic and informational in nature, providing “what’s happening” information that adds value to their situation now, and identifies our company as the go-to source for information and trends. The nature of our communications are primarily in newsletters and informational bulletins and such.
Most companies and unions get serious about thinking over their options 18 months to a year before the contracts expire. This is the time we need to make more direct contacts, identifying who the economic buyers will be in the upcoming contract, and providing specific information identifying some of the options and considerations in negotiating a new contract. Personal contacts are made to build relationships and assure the prospect we are ready to support them in any way needed.
In the final stages of the buying cycle our field representatives visit the employers and unions to provide customized inputs to ensure that all options and possibilities are fully explored. When the time finally comes for a proposal, it’s more a formality than a “sales pitch,” as there is full alignment already established that clearly separates us from our competitors.
In every case, the messages are carefully crafted to directly address the primary “hot buttons” of the buying constituency. This is where the rubber meets the road with our Lean team’s efforts to understand their John Smith, that we described earlier in this article. The process is a never-ending cycle of continuous communication and improvement of our message to our customers. The summary tools include:
- Foundation training to provide new skills for the marketing and sales team.
- An in-depth business evaluation of the current state and desired future state – understanding John Smith, and the psychology of buying in your markets.
- Competitive intelligence – competitors, benchmarking, understanding the macro environment and trends.
- Developing compelling messages and information that aligns the IR with the OP.
- Implementation of the marketing and sales strategy that maximizes the educational continuum state of current and future buyers.
- Rigorous measurement of results and continuous process improvement.
Is it Worth it?
If you are wondering why our subject company is doing this and what the payoff is – that is a great question. The targeted increase in top-line sales will generate between 10 and 20 million dollars a year in profits that they can re-invest to increase customer care and reduce administrative costs born by customers. The cost to implement the changes is a small fraction of this – promising an ROI of ten to one the first year and twenty or more to one thereafter.
Finding new ways to leverage Lean, Six Sigma and other best practices in business is an evolving community of practice. Learning to challenge conventional wisdom (such as traditional thinking about marketing and sales) is a learned skill that must be consciously adopted. Those companies who are willing to do this will be the leaders of the future.