Growth Tip #5 – Take A Detailed Look at Markets to Spot Growth Opportunities
In Growth Tip #4 – Rejecting the Myth of the Superhuman V.P. of Sales – we stressed the importance of acknowledging that sales leaders cannot do it all and that they must free themselves from the tactical to focus on the strategic. We highlighted that Sales Strategy is underemphasized by many companies despite its potential to create significant value and that high performing sales organizations demonstrate the discipline to apply strategic analysis and data-driven decision making to find valuable pockets of opportunity. Now, let’s assume that these arguments resonated and that your organization is better leveraging both its front-line sales managers and its Sales Operations function to free you, as a sales leader, to focus on strategy development. Where do you start? In this two-part Growth Tip, we will introduce two analytical frameworks – OREO Analysis and Win, Grow, and Own (WGO) Analyses – that are helpful in identifying opportunities to improve sales growth. In our experience, applying these frameworks lends structure to strategic deliberations and helps identify important insights that can then flow into the strategy design process.
Part 1 of 2: OREO Analysis
It is always important to begin with objective, unvarnished assessments of your company’s market position for each relevant market segment. These assessments not only allow for the recognition of strengths and help Sales Leaders identify new growth themes, but they also help prevent sales organizations from “breathing their own fumes” and believing their market position is stronger than it actually is. When facilitating conversations with our clients, we often follow a structured four-question process we call OREO analysis to identify leverage points. In essence, OREO analysis dissects the components of market share to better understand what is required to achieve greater market penetration. It is based on four fundamental questions:
- Do you have the right Offer?
- Are you Reaching the customer?
- Do you present a compelling Economic reason to buy?
- Are you achieving the right Outcome?
Let’s take a look at each question and its relevance in a bit more detail.
Do you have the right Offer?
This question is meant to focus analysis on whether your product or service has the attributes necessary to meet market demand. Even within tightly defined market segments, end users have different requirements and preferences and it is important to discern how your product or service aligns against these demand factors. For example, let’s assume that your company has an innovative industrial fan system with a great customer value proposition. You are targeting the billions of square feet available in industrial warehousing and believe future sales growth will come from expanding your dealer sales network in the Northeast. Your product currently can support 277 and 480 input voltages and this has never been a limiting factor to your sales efforts in the Western U.S. However, the Northeast has a relatively large percentage of older buildings that operate 120V and your product cannot operate at 120V. Your Offer only aligns with a sub-set of the Northeastern market and the implication is that the true addressable market in this geography is smaller than anticipated. If you fail to make this adjustment, you risk over allocating sales and marketing resources to the Northeast and may define unattainable goals and objectives for your team.
Are you Reaching the customer?
Many of the companies we work with have unrealistic assessments of how often their products or services are considered in purchasing decisions. When thinking through the Reach of your product or service, it is important to weigh three factors. The first factor to consider is market coverage – do you have sales resources (either direct or indirect) in place in the important geographies in which purchase decisions are being made. For instance, if you manufacture solar panels, do you have sales resources and integrators representing your product in New Jersey, a hot solar market? The second factor to consider is whether you have sufficient, motivated sales resources in place. You may have several dealers working New Jersey but if they are in front of only 20 percent of the deals that are going down, you have opportunity for improvement. The final factor is one that is often overlooked – what is your “mindshare” within the channel? You may have dealers in the right markets, they may be in front of the majority of deals taking place, BUT they may be leading with products and solutions other than yours! We have conducted channel audits for customers and, more often than not, our client’s “mindshare” is not what they believed it to be. The good news is that these audits uncover opportunities for improving existing channel programs that enhance “mindshare” and product sell-through.
Do you present the right Economics?
For many of us, the concept of price elasticity of demand brings us back to our economics studies in college or business school. We may recall that “elastic” products are those for which changes in price have a measurable impact on demand. In contrast, “inelastic” products are those for which changes in price have little relative impact on demand. Unfortunately, many of us are competing in industries where demand is “elastic” and price matters. Given this, and the fact that pricing is increasingly dynamic, it is essential to always gauge where your product pricing stands relative to the competition. Similar to your product’s features, functionality and performance specs, your pricing impacts the size of your addressable market. Interestingly, lowering price is not always the answer for furthering market penetration. It is important to look beyond the immediate price of your product and also consider the end user’s cost of deploying the total solution. In many industries, software is one example, the installation services cost of deploying new products can be a larger determinant of deal competitiveness that the product price. Thus, if your product is not installer friendly, you may ultimately be priced out of the market despite having a product price that is on par with your competitors. We also find that payment structures and payment terms impact competitiveness and are often overlooked. For instance, if you are selling into a capital constrained end market and your competitors offer leasing or financing options but you do not, you are clearly at a competitive disadvantage. Your available market most likely is limited to the subset of customers who have readily available capital expenditure dollars to deploy.
Are you achieving the right Outcome?
Although, you may have the right Offer, Reach the customer with the right channels, and present compelling Economics, this does not guarantee you’ll reach the desired Outcome – winning the deal! There is nothing more frustrating than nailing the sales strategy and executing the sales process only to end up empty handed. While mastering the Offer, Reach, and Economics confers substantial advantages to sales force, achieving the right Outcome requires alignment across one’s strategy, organization structure, sales processes, and support systems. In our second installment of Growth Tip #5, we’ll review WGO analysis and describe how it, when combined with OREO, can enable a sales force to identify growth themes and build a formidable sales model that delivers predictable growth.
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Building on the above concepts, here is a hypothetical exercise to highlight how OREO analysis can help focus strategic decision-making.
The table below highlights the type of results that typically emerge from a facilitated strategic planning session. As you can see, areas deserving further focus and attention begin to crystallize. For instance, the company has relatively strong geographic market coverage, having sales resources in 75% of relevant markets. However, it quickly becomes apparent that these sales resources are spread thin, and that they miss 60% of the relevant opportunities. Moreover, these resources are not working on behalf of the company in the majority of instances, leading with the company’s products only 40% of the time. Clearly, Reach is an area requiring improvement.
Now, let’s presume the company decides to zero-in on expanding its dealer network and improving its channel programs as strategic initiatives. What might be possible? If the company expands market coverage by an incremental 30% by adding new partners, it has the opportunity to gain 1.3 share points, all else being equal. If it improves “mindshare” by 10% with a new channel program, it gains an incremental 0.4 share improvement. However, taken together, both measures can increase market share by 2.1 points. If the company is competing in a market with $100 million in annual turn-over, these strategic initiatives could add in excess of $2 million to the top-line.
In sum, the value of OREO analysis is to focus and structure strategic conversations and to identify leverage points for deeper analysis. The framework is broad and simplistic and should always be accompanied by rigorous analytical support. However, in those moments when everybody has an opinion on what the company “should do”, OREO analysis quickly cuts to the chase and helps teams focus on what really matters.
Next week we will publish the second installment of Growth Tip #5 and discuss how WGO analysis can complement OREO analysis (yes, we are fond of the mnemonic utility of acronyms) by dissecting the provenance of revenue dollars to identify growth themes and patterns of success which can be leveraged to drive sustained predictable growth. Stay tuned!
For more insight on developing and implementing growth strategies, please visit us online at www.evergreengrowthadvisors.com or contact Tom Knight and Erik Birkerts at 866-549-3191 or via email at info@evergreengrowthadvisors.com