The leaves are starting to fall and sales performance data for the year are starting to form. For most sales teams, the fourth quarter is when we take stock of sales performance analysis of the current year and plan or budget performance for the next year. It’s also a time when the painful reality of underperforming customer agreements becomes apparent. A leading cause of underperforming customer agreements is cherry-picking.
The data we’ve collected at SPARXiQ show that more than 70 percent of a typical company’s customer-specific pricing agreements, contracts, and rebate programs (collectively CSPs) are underperforming from a revenue perspective (vs. expectations or usual correlation patterns). Over half of those CSPs have demonstrable cherry-picking behaviors behind them.
How do we identify and address cherry-picking problems among our contracts? When your sales team has the right analytics, applies product knowledge and strategically manages accounts, you can readily and consistently resolve the costly cherry-picking problem.
A leading cause of underperforming customer agreements is cherry-picking.
What is Contract Cherry-Picking?
I’d like to laser in on the issue of cherry-picking by first talking about what it means first. It’s simply selecting the best or most desirable offerings or terms from a broader list of options. Cherry-picking in contracts, broadly speaking, is when a customer (end customer or channel customer) buys certain products you have formally proposed (at special prices) from you, but also opportunistically buys other products (which you have also formally proposed) from your competitors. From a customer’s perspective, this is multi-sourcing. Along with optimistic forecasting by sales teams, cherry-picking is one of the leading causes of CSPs underperforming their revenue and profitability goals.
Why Does Cherry-Picking Happen?
We need to understand from a given customer’s transactional data – and from data of similar, peer customers – what the expected purchase patterns are. For example, customers who buy hammers commonly buy nails. For a given customer who has bought hammers and nails, we can determine at what frequency they buy nails (or replace hammers). We can tell from peer-group transactional data if they are missing hammers or nails, or even related products such as staple guns. The key is, we need the clean transactional data, we need the prescriptive analytical insights to surface the purchasing relationships, and we need workflow tools to surface these insights and prescriptive remediation paths to our sales teams – on a timely basis and in their daily workflow tools (not spreadsheets or emails).
Looking across the broad CSP landscape, cherry-picking gaps may reveal valuable patterns. Some customers may focus on just our commodity or low-margin products and buy higher-margin convenience products from our competitor. Or, they may prefer a competitor for commodities, while cherry-picking us for just the hard-to-find convenience products (which are often costlier to serve and may or may not have appropriate compensating price premiums to offset higher costs). In either scenario, the CSP is not performing as planned. Only a data-driven, rigorous review process can close the sales gaps, adjust the pricing, or both.
Timing matters! The sooner we catch these cherry-picking behaviors, the sooner we can prompt a seller (account manager, outside sales, inside sales, channel-partner resources or combinations thereof) to engage the customer to prompt a conversation around their cherry-picking behavior – and nip it in the bud. Determine the ‘whys’ of the situation: if we specified the wrong product, if the price is wrong or perhaps availability is poor – any of these may prompt the cherry-picking behavior. We need to drive timely sales conversations to prompt remediation of the issue, serve the customer and drive the expected sales outcomes. If we don’t review CSP performance until the last quarter of the year, the revenue ship has likely already sailed.
Timely, intelligent, prescriptive sales analytics are critical at the diagnostic stage as well as pairing the right conversations with the right sellers or specialists. Sales process, training and teamwork are the key to successful engagement.
Close the Knowledge Gap with Strategic Account Management
In order to have the right conversations surrounding prescriptive sales analytics, sales reps need to have a strong foundation in strategic account management. This is the data-driven process of systematically reviewing current performance, establishing desired future state, identifying the root causes of the gaps, and planning the actions needed to close the gap.
Many sales organizations have not mastered this process or only execute it inconsistently or haphazardly. With the right data, the right cadence, and the right skill set, reps can identify cherry-picking issues and engage their customers to close the gaps. As stated above, there is commonly 20 percent or more untapped revenue in CSPs. Even cutting cherry-picking by 50 percent can meaningfully accelerate sales growth. Imagine the compounding effect over time of 10 percent additional annual growth Over seven years, the resulting revenues (to say nothing of profitability) would double the revenues of those agreements that adhere to timely, rigorous, data-driven strategic account management.
Another root cause of cherry-picking is a sales rep knowledge gap about vendors, products or applications. We’ve observed dramatic variability among reps in driving sales of certain vendors and product categories across customers/applications. If sales reps have not mastered the technical or value dimensions of key vendor/product offerings, the pattern will often emerge in their cherry-picking statistics. Additionally, certain reps may not even be proposing such products in contracts that should include them – in which case typical spreadsheet-based analytics will understate the cherry-picking issue.
A lack of product/application knowledge, a lack of intent, a lack of communication – any of these sales-side gaps can exacerbate customers’ own cherry-picking behaviors.
Three Steps to Combat Cherry-Picking
To set your team up to be successful, plug the cherry picking leak to drive profitable growth from your CSPs and enable your sales teams to master each of the three components explored below.
Prescriptive Sales Analytics
Make sure your sales team has the guidance they need to know whom to talk to about what, and when. Each CSP for every rep should have a timely, quick view of the performance gaps versus expected outcomes. Reps shouldn’t have to go to email and spreadsheets or behave like a librarian to do so. The analytics need to be integrated in daily workflow – which could be found in CRM, daily email alerts or even text messages.
Product and Application Knowledge
Your sales analytics above should provide a blueprint for identifying each sales rep’s product/application knowledge gaps requiring resolution for the rep to successfully engage in the customer conversations that convert the opportunities. A rep can’t be expected to close cherry-picking gaps if they can’t serve the customer with relevant expertise or application insights. Every sales rep should have a data-driven, personalized learning plan that connects learning with revenue.
Strategic Account Management
Your sales team needs a systematic, proactive, data-driven approach to account management. Sales reps will need to dedicate the time to identify the remediation path (and customer engagement/conversations) to close the gap (plugging the leaks) between each CSP’s current state and desired future state. Management will need to define the process and cadence, and train the sales team on how to perform proper account management reviews. Identifying and resolving the restraining forces and positive forces that lead to the current state will ensure that the account management process is impactful – and that future outcomes improve.
Use prescriptive sales analytics, and sales teams' knowledge of customers' purchasing patterns. Then implement processes to combat cherry-picking behavior.
Explore Solutions for CSP Management
Cherry-picking happens because a customer’s expected purchasing patterns aren’t understood or closely monitored. A lack of data, knowledge and processes contribute to cherry-picking behavior, which brings profit leakage.
Cherry-picking can be a fact of life in complex, industrial B2B manufacturing and distribution businesses. Modern sales teams will benefit from a robust approach to remedying the problem with the right sales analytics, knowledge building and data-driven account management.
Explore our contract management solution and, if you’d like to learn how we help companies master account management and CSPs, we’d be happy to chat.
ContractGPS™
Take control of your customer-specific pricing.
ContractGPS™ gives manufacturers and distributors the visibility and control required to maintain and optimize contract pricing. Capture margin opportunities within your contracts.
