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The Brains Behind the Brawn
November 27, 2007
ISBM Executive Director Ralph Oliva turns B2B sales and marketing research into bottom-line riches
By Mike McCue
As legendary General Electric CEO Jack Welch once said, "We know where most of the creativity, the innovation and the stuff that drives productivity lies—in the minds of those closest to the work."
The problem is that those "closest to the work" aren't always classically trained salespeople and marketers; they often have backgrounds in fields such as engineering, IT, manufacturing and science. Yet their knowledge and understanding of their companies' products and services is so great that they often find themselves thrust into critical sales and marketing leadership positions that they really haven't been prepared for. That is especially true on the business-to-business side, where a strong understanding of a specific industry usually trumps experience in sales and marketing.
A lot of those people end up scratching their heads, wondering how their advanced degree in electrical engineering landed them a leadership role in the marketing department. Fortunately for those people, there is a vibrant community of sales and marketing experts who understand the specific challenges B2B salespeople and marketers face, and why consumer-oriented tools and techniques just don't work for them.
One such community can be found on the Penn State University campus, in the Smeal College of Business, nestled in the mountains of central Pennsylvania. Founded in 1983, the Institute for the Study of Business Markets was created not only to expand academic research on the B2B marketplace, but to translate that research into the real world for its member companies, according to Ralph Oliva, executive director of ISBM. Prior to his current role, he spent 23 years with Texas Instruments, most recently as global vice president of market communications and design. The Institute is the hub of a network of researchers in universities around the world, all focused on B2B.
"People usually come to us when they decide that they want to add B2B sales and marketing to their set of core competencies and realize they need specific help in doing that," Oliva says. "It's easy to get sales and marketing data in the consumer world, but companies that sell to other businesses might be working with a three-year sales cycle that involves salespeople making scores of phone calls. It's a completely different space and needs a completely different approach. As much as anything else, we're coaches."
Improvement for All
While most major universities have sales and marketing research departments on campus, Oliva's organization is different because it is outward-facing and seeks to help member companies improve their B2B sales and marketing practices. Its annual fee for corporations is $15,000, while individuals can join for $1,500. ISBM currently has about 70 members, ranging from corporate giants (DuPont, Xerox, AT&T, General Electric and Sherwin Williams) to one-man consultancies.
"Companies often tell us, 'You probably don't understand our situation because we make a technical product and most of our marketing people have science and engineering backgrounds.' When I hear that, I just pull out my Doctorate in solid state physics and say, 'I feel your pain.'
"I know exactly how they feel. I was managing what I consider one of the world's great brands at Texas Instruments, and I realized that I wasn't very well equipped to do that at first. Right off the bat, I sought out help from people who knew how to make this work."
However, Oliva adamantly insists that ISBM is not an academic-only think tank that focuses on theory to the detriment of real-world results. Most ISBM fellows didn't just get their credentials in a university; they earned them while walking the beat as sales and marketing executives.
One example is Jim Anderson, professor of behavioral science in management at Northwestern University's Kellogg School of Management. In addition to being an ISBM Research Fellow and Board Member, he is author of the upcoming book Value Merchants: Demonstrating and Documenting Value in Business Markets. "All academic journals recognize his work as superior academic research," Oliva says. "But when he talks to ISBM members, it sounds as though he'd just unpacked his suitcase after a long road trip of selling chemicals to a paper mill.
"And the reason he sounds that way is because he often did just get back from a sales trip with a company he was advising. We want to create new knowledge, but we want that knowledge to provide real-world results so our member companies can put it into practice and improve their businesses."
While ISBM member companies sometimes hit it off with each other and decide to do business together—"commerce happens," as Oliva says—they are forbidden from active selling to one another at ISBM meetings. An advertising agency could join to learn about being more effective as an organization, for example, but couldn't use ISBM events to troll for clients.
The focus is on improving business practices for everyone. As Oliva puts it, each member company is like a boat, and ISBM seeks to raise the water level so everyone's performance improves collectively.
"Across-the-board improvement is ultimately in everyone's best interest," he says. "You can't defend yourself from a truly dumb competitor. For example, a dumb competitor might drop its prices to a ridiculously low level, and there's nothing you could do to protect yourself from that. That foolish decision might eventually kill the company, but it's going to hurt you as well."
Ultimately, companies customize their experiences to find their own way to success. Some take what they learn and adopt the theories into planning, while others take the things they learn and implement those exact methods and tactics into their operational processes. "Although we work to teach new skills and approaches to our members, sometimes they're the ones leading the way by setting a stellar example for our entire practice," Oliva reports.
One example is ISBM member Parker Hannifin, whose CEO, Donald Washkewicz, adopted the concept of value-based pricing. He analyzed which of his company's products were appreciably better than the competition's and charged more for them based on the value they provided, not on what they cost to produce.
"He implemented value-based pricing from the top down, by order of blood and guts," Oliva says. "It brought his company a reported $200 million in additional operating income since 2002.
"To me, Parker Hannifin's success is proof that execution is the key to sales and marketing success, not the tools themselves. I could go out and buy the exact same set of clubs that Tiger Woods uses, but he wouldn't need to lose any sleep over me challenging his position in the game of golf."
 Meeting the Industry Challenge
Oliva says that there are three primary challenges that B2B sales and marketing departments typically face: Understanding the relationship between value and pricing, ineffective marketing segmentation strategies and making decisions based on hunches rather than data. "There is concern among B2B companies that what they don't know about their market, their competitors and themselves can kill them, and they're right," Oliva says. "For example, sales managers often come to us and say, 'China just showed up in our market. What do we do?'"
There is a virtually endless list of answers to that question, depending on the product and market. But improving revenue through value-based pricing, better market segmentation and expansion into adjacent markets are all proven solutions to that challenge and many others.
As a result, ISBM focuses on teaching members to think as much as it tries to teach established methods and techniques—the proverbial "teach them to fish and they will eat for a lifetime" mentality.
He points to a case that was presented at an ISBM members meeting. It is reminiscent of approaches discussed in a book called How to Grow When Markets Don't by Adrian J. Slywotzky—a must-read for ISBM members, Oliva says.
Dow Corning sold high-end silicone products through an expert sales force into a variety of downstream markets. The skill and know-how that the sales force delivered to customers was a critical part of the offering, and the value of those extras was captured in higher prices—often premium prices—for the company.
But there were always customers who wanted Dow Corning Silicones at lower prices because they didn't need "the extras." As the case was related at the ISBM member meeting, these "customers you love to hate" put the salespeople in a quandary. Often they went to competitors for the lower-priced product ... which gave competitors an opportunity to move up the chain and gain a foothold for selling their own higher-priced offerings.
In a bold move, Dow Corning decided that they could and should sell to these customers. They created a new channel and new brand (Xiameter), which allowed customers to buy Dow Corning silicones online. This new channel had no extras or frills, which enabled them to sell at greatly reduced and highly competitive prices. They cut all the extras and created a tight set of terms and conditions, such as separate part and lot numbers, and different delivery terms and conditions.
It worked. They were able to hold their high-end customers, cost-effectively serve the low price seekers and reported that although a few customers tried to "game the system" overall, the new approach was quite successful. Salespeople benefited from being able to extend the relationship to keep customers they might otherwise have lost, as well as to up-sell to higher-end solutions when new applications came along.
Another example involved an American firm that sold turned-metal parts to air conditioning manufacturers. The company was on the verge of losing a valued customer because the aforementioned Chinese had entered the market with lower prices. So the firm set up a meeting to learn more about the air conditioning manufacturer's business challenges, one of which was that it was heavily burdened with fixed-goods inventory because it had to buy compressors in bulk to hit its cost numbers. As luck would have it, the American firm had tremendous purchasing power and realized it could buy and assemble those compressors for the same price its customer was paying.
And suddenly the company—through a discussion that had absolutely nothing to do with its own products—came up with a brilliant solution:
The customer would send its build orders directly to the parts manufacturer's computers each night, and the next morning when they opened their doors, a truck would be waiting for them, loaded with everything they needed to do that day's work. Not only did that eliminate the high expense of maintaining the inventory, the excess compressors could be sold off to provide an influx of much-needed capital. The customer not only continued to buy from the American firm, but they created a deep and lasting business partnership.
That's how creativity and a simple shift in perspective can change a problem—how do we compete with cheaper parts from China?—into a rock-solid, profitable business relationship.
"Marketers and salespeople need to understand that there's more than one way to grow the top line, just as CFOs need to understand that there's more than one way to grow the bottom line," Oliva says. "Sometimes you have to think in a fundamentally different way about how you go to market. Maybe you need to put your own product in the background and help your customer be successful before you can achieve success yourself.
"If the only way you can meet your sales numbers is by cutting prices at the end of every quarter, you really should come see us. You might be able hit your targets for a while, but you're never going to find success by cutting yourself to growth … not in today's markets," he concludes. smm
Sidebar: So how do perplexed sales and marketing managers know if their company needs help?
Apologies to Jeff Foxworthy, but you might need help if:
• You set prices based on cost, not value. If your idea of pricing products and services is to isolate costs and then add a constant margin to it, you're often making a huge mistake.
• You are stymied when it comes to creating organic growth. Many markets are only providing 2% to 3% annual growth, and expansion through mergers and acquisitions can't go on forever.
• You think that market segmentation refers to geography. The focus should be on training salespeople to go after the right customers in the most efficient way possible. Some customers just aren't worth pursuing because even if they buy, they won't produce a high enough return to justify the time and effort.
• You're trying to apply consumer sales and marketing processes to a B2B marketplace. Techniques that are great for selling toothpaste won't work for a company that sells specialty chemicals to a paper manufacturer.
• Most of the people in marketing have backgrounds in disciplines such as science, engineering or manufacturing. Their intelligence and skills are above reproach, but they aren't trained in effective B2B tools and techniques.
"For the most part, B2B companies come to us with similar sorts of problems and opportunities, even though their industries go from one end of the spectrum to the other," Oliva explains. "They need the kind of advice and guidance that isn't found in a sales and marketing field that focuses more on consumers than it does on businesses."
Sales & Marketing Management Magazine
This article is brought to you by Sales & Marketing Management, the leading authority for executives in the sales and marketing field.
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