The Multi-Step Sales Process
by Bob Hacker
How a product's price and complexity impact which strategy will work
in multi-step selling, there are three key drivers many people ignore when they plan their campaigns.
1. The real price of the product.
2. The prospective buyer's perception of product complexity/utility and price.
3. The number of steps in the selling system required to close the sale.
Part 1: Basic Strategy
In the first part of this article, I will prove why failure to understand how these three drivers can affect program strategy can ensure failure.
A client came to us with a selling strategy to sell a product for $135 per unit with no add-on sales opportunity. Gross margin is 50 percent or $67.50 with a target cost-per-sale of 40 percent of the gross margin or $27. The sale will be made via a four-step process:
Step #1: Generate a lead; the package cost was about 65 cents each.
Step #2: Trap the lead at a cost of $2 per call or BRC to trap the data.
Step #3: Fulfill the lead at $2 per fulfilled lead.
Step #4: Call back to close at $4 per call and a 35-percent close rate.
We told them not to do it! We didn't think anybody could hit a 44.8-percent response rate! "44.8 percent," exclaimed the client! "No way! This is a great product, so good it will almost sell itself."
Still no, we said, and here's the proof! (See Break-Even Analysis, below.)
This example clearly falls into Strategy Segment (SS) A or B noted in the chart at right. There just isn't enough gross margin to support a complicated direct selling strategy. (We recommended a sales promotion strategy to drive sales through the retail channel, thereby shifting cost to the retailer and away from our client.)
Let's spend some time with this model to understand how price and the perception of product complexity and utility can be used to build a plan. It looks something like this.
SS-A and SS-B are typically sold through the retail channel and supported with advertising and sales promotion. There isn't enough margin to support direct marketing, as you can see in our first example.
Products in SS-C would be a relatively simple product or perhaps a product that used to be considered complex but is now well understood by the consumer. A great example of a product in this category which has undergone this transition is office productivity software (e.g., spreadsheets, word processing and presentations). It used to be sold like high-technology software; now it's sold like a consumer good.
Products in SS-E are similar to products in SS-C but are more expensive. Typically, more expensive products need a more complicated and costly selling system because price affects the selling process in three ways:
1. Higher price creates more anxiety.
2. Anxiety creates more questions and the need to handle more objections.
3. Information transfer and objective handling add more steps and "touches" to the sale.
The key questions is: "Do you have enough margin pay for the customer's information needs objections handling? Some clients have found they have to raise price and margins in order to take care of the customer's information needs!
The cost of information delivery is what makes SS-D an unattractive segment for multi-step selling. With a complicated, hard to understand product, there may not be enough margins to sell it through direct channels. Again, go back to our office productivity software example. It started in segment SS-D, and was sold through retail with product demonstration. As it matured, it moved into the SS-C group and became a "shrink wrap" consumer product. It is sometimes sold through catalog but seldom sold as a stand-alone product except as an upgrade.
SS-E and SS-F are the two segments that rely most on multi-step selling. But even here, attributes of product complexity/utility and price can drive very different strategies.
Part 2: Telemarketing, Fulfillment and Sales Strategy
The major difference between segments SS-E and SS-F is in the mind of the customer.
SS-E—the customer "gets it." They understand the product and how it works. They understand the utility of the product and what it does for them. The product is often mature, and the customer has purchased it before. The customers almost always understand their place in the buying process—they know if they are a buyer, influencer or have no role. If they have no role, they probably know who you should talk to.
SS-F—Customers don't understand the product and, in fact, may not even heard of it. They don't understand what the product can do for them. The products are often new, at least to them, and often arcane. Customers may not know their role in the buying process—they may not know whether they are a buyer, influencer or have no role at all. They may not even be able to refer the seller to the right buyer.
Both SS-E and SS-F can sometimes describe the same product! Remember, segmentation is based on the perceptions of the customer, so in a mature market the product may be an SS-E; in a new market, it's an SS-F. And, as you'll see, you may have to support each market with different selling systems. Robert's Complexity Rule drives the strategies discussed in the following section. The rule states:
The more complicated the perception of a product's complexity/utility and the higher the price, the more steps are required to successfully close a sale.
Here's how that rule drives very different strategies.
• Information needs are well defined; customers have product knowledge.
• Buyers almost always know who they are, thus qualifying is easy.
• Fulfillment materials can discuss features, advantages and benefits properly since we and they know what they know and what information they need to make a decision.
• Customers understand price-value relationships and can make decisions quickly. Often price is introduced very early in the selling process.
• Since customers have the information and the price, the sales representatives can move toward the close more quickly.
• Therefore, the number of steps required to close a sale are relatively few.
• Buyers may not know who they are. This makes qualifying much more difficult. Often much or all of the product presentation must be made before prospective buyers know whether or not they are qualified to make the decision.
• The fulfillment materials may not be able to discuss features, advantages and benefits properly since we do not know what information the customers need to make a decision. So the fulfillment system is often multi-step, using a Reveal Strategy to give them the right information at the right time. The system is often modular, so specific objections can be handled without telling them too much and creating additional objections.
• The customer doesn't understand the price-value relationships. Often the fulfillment and telemarketing systems must spend a great deal of time and money training the client to understand the product's promise. This often delays revealing price until very late in the selling process since clients cannot make a price-value relationship in your favor until they understand what the product can do for them.
• The customer's lack of knowledge and ability to make a positive price-value judgement often creates very long selling cycles.
• Therefore the number of steps required to close a sale can be many and costly.
Let me give you an SS-E vs. SS-F example for the same product: real estate.
SS-E—In a Southwest desert community, the "typical" building lot goes for $50,000 to $100,000 in a nice neighborhood. The selling system is simple. The sales representative drives you around until you see one you like, you yell "stop," jump out and look. If you like it, the representative takes the order. They have lots of inventory, the price is "at market" and the product complexity/utility is easy to understand, so the selling system is simple.
SS-F—We have a client who sells waterfront property in a gated community in the same market. The amenity package is very high-end with golf, trout fishing, boating, a clubhouse, you name it. The price is high—you can spend over $1,000,000 just for a lot! And there are expensive memberships and dues, too. You can't understand it all with just one visit.
The client uses a programmed 16-step selling system. It starts with media, direct mail and referral lead generation, then goes through 16 programmed steps to get to the close. The client is convinced that if even one of the 16 steps is left out, the sale cannot happen.
Are they right? I think so.
Let's assume you are selling waterfront property in Las Vegas. In a market with very nice properties selling for $50,000 to $100,000, would you tip a $1,000,000 price when the customer walks in the door? Wouldn't you hold back price information until the customer fully understand the selling proposition and what it's like to live there?
They do. They typically tip the $1,000,000 price in step 14 or 15 (and after four or five visits to the property) in their 16-step selling process.
This is an example of how to use a Reveal Strategy to build your telemarketing and fulfillment systems. The two key questions that drive any Reveal Strategy are:
• What do they need to know?
• When do they need to know it?
When you answer these two questions properly, your "back end" strategy is nearly defined for you. Who knows this information? It's not the customer. They will always tell you, "just give me the facts, we'll make the right decision." And that's not usually true.
The best person to tell you how to build a good Reveal Strategy is the sales force. They know what information is required—and when it's required—to close the sale.
Once your "back end" strategy is locked down, you can start to build your lead generation strategy.
Part 3: Lead Generation Strategy
Now we'll show you how to build a high-performance lead generation program to support the selling system.
The Role of Lead Generation
The role of a lead generation package is to build a bridge between the mind of the consumers and the selling system. That's why it's the last—not the first—thing you do when creating a multi-step selling system.
Lead Generation Objective #1
The objective of a lead generation package is not to sell the product, the goal is to generate a lead!
In fact, the goal of each step in a selling system is to get prospective buyer to the next step in the process. When you try to leap-frog or cut out steps, the buyer often opts out of the selling system!
Let me give you an example. I recently received a letter from a local golf club. The opening line was, "you'll be glad to know that a limited number of memberships are available for only $35,000 each."
You can't sell me a $35,000 membership in a club I've never even visited with a one-step letter! Invite me up to play a round or two! Take me on a tour of the facility! Get a friend to bring me to a tournament! Take me to lunch! Come to my office! Anything! As long as you bring me along slowly and give me the information I need to make a decision.
There are somewhere between 12 and 16 formal steps required to sell this membership (see previous example on p. 110). By leaving them out, the chance of making a sale is virtually nil.
SS-E—In the SS-E world, products are well understood and product information, per se, often has low perceived value. Value-added offers and premiums are often used.
SS-F—When the product is perceived as "new," "exciting" or "leading edge," the offer of free information about the product can work well.
You may not need value-added offers to make the program work.
We do a lot of work for technology clients. When we use "free product information" offers for SS-F products, we often generate response rates 200 percent to 400 percent higher than we do for SS-E products with the same "for more information" offer. For SS-E products, we often have to use value-added offers such as videos, demo disks and white papers to hit an acceptable response rate.
SS-E—You can often use price-oriented offers such as "save 50%" since the price-value relationship is well understood.
SS-F—Price-oriented offers don't usually work. A "save 50%" offer has value only if customers understand the relative value of the product at full price.
SS-E—For products in this category, we find that the package must focus on offers and benefits in order to drive acceptable response. Often, a high degree of emotion and promised salvation is required to make these programs perform. Rule of thumb:
The more boring the product, the more exciting your copy promise has to be!
SS-F—Emotional copy will still drive higher response with SS-F products, too, but often you won't need it since the promise of an exciting product story may be good enough to generate acceptable response. Use of converters gifts or premiums may actually generate a response rate that's too hot, and therefore hard to close.
How aggressive can you get?
The skills and training of your telemarketing and/or sales staff determines how aggressive the offers can be. If your sales staff can close hard, almost any offer structure will work well. Let's look at the timeshare industry as an example. The prospect is given an aggressive incentive offer with no product information. After a 90-minute sales presentation, a good sales representative can close about 20 percent.
If a sales force does a consultative sale, they can usually handle relatively cool "more information" or product related offers well. But they may not be able to handle an offer with "free information plus a free gifts."
If the sales force is comprised of "order-takers," make the gift or converter conditional upon sale and focus more on price-off or "buy one, get one free" type offers.
Sales Rule #1
If your sales reps tell you the lead is too hot and they can't close it, they can't. Find another offer that they can close.
SS-E—These are the easiest people to qualify, they know the product, they understand price/value relationships and they know whether or not they are part of the buying process. The qualifying system can be quite simple and straight forward.
SS-F—These are the hardest folks to qualify. They often need to hear the entire product story before they know whether or not they are qualified to make a decision. You often have to go slower and invest more "back end" resources with this group. That investment often demands higher price and margin to support the selling system. And finally…
The Don't Be Stupid Rule
In all cases, use some judgement. Recently, I sent in a BRC, requesting information. My title, president & CEO, was clearly marked on the BRC. I got a follow up call. The first thing the TSR asked me was, "are you qualified to make a $5,000 decision?"
I hung up. Two weeks later I spent $15,000 with a competitor.
Generally, the higher you target in any organization, the more sophisticated your qualifying, telemarketing and fulfillment systems must be.
Bob Hacker started The Hacker Group, Ltd, in 1986. Since then, it has become one of the largest full-service direct marketing agencies on the West Coast, currently serving over 100 clients, both in the U.S. and abroad. The company's client base is concentrated in high technology, telecommunications, financial services, travel, real estate and general advertising agencies. A graduate of The Harvard Business School and the University of Washington, Hacker can be reached at (425) 454-8556 or firstname.lastname@example.org.