Impact of Digitalization on Sales: “Focus Negotiations on Quality of Service, Not Price”

March 14, 2018

GPSS Sales

The role of sales is changing fundamentally, as digitalization finds ever more applications. Where should sales teams focus their energies now and what strategies should they employ? How can companies use digitalization to drive growth? Dirk Schmidt-Gallas, Senior Partner at Simon-Kucher & Partners, explains.
(This interview was originally published in German on vertriebsmanager.de)

The Global Pricing and Sales Study 2017 confirmed that many companies are already investing in digitalization but this only generates revenue growth in a handful of industries. Which industries are these?

At first glance, it is somewhat surprising that chemicals and oil & gas are leading the way on digitalization, ahead of media, software, and tourism. However, looking more closely at these two industries, it quickly becomes clear why. Both industries have always been deeply involved in their customers’ value chains.

What opportunities does digitalization offer?

The Internet of Things is an important factor. Networking your customer’s machines with your server has many more applications than simply optimizing order volumes. For example, companies can support their customer’s production processes by providing early warnings before a technical fault occurs. In the chemical sector, digital sensors can detect contaminants in the paint destined for car chassis. For any process optimization service they provide, companies can charge their customers a fee.

What other revenue growth levers are there?

Another way to drive growth is to transform existing business models. Amazon did just this when it launched Amazon Prime. Instead of only selling movies, the company moved up a notch in the value chain, producing numerous series for itself.

How is sales affected by the Internet of Things and these new business models?

We believe personal sales will not disappear entirely, but its role will change. In some industries, such as insurance and telecommunications, sales always acted as the company’s mouthpiece. Although this will no longer be the case in the insurance sector, it will still be necessary to create demand and provide product advice. Customer relationships will continue to be important, even in B2B, as people still need to talk to other people.

One of the topics of the study was data-based price optimization. What are the implications of this technology for sales?

From our experience, we know that for roughly 60 to 70 percent of the time, conversations with customers revolve around price. Since so many factors influence pricing calculations, it is simply not possible for sales reps to explain to customers exactly how prices are determined. Using data-driven approaches to calculate prices makes the process even more difficult to understand. Therefore, negotiations shouldn’t focus on price. Instead, they should highlight the better quality of the service they provide compared to the competition.

Most of the companies that participated in the study reported that they only invest in digital initiatives as a way to reduce costs. They are missing out on important revenue opportunities. Why is this?

I see three main reasons: First, companies tend to take the simplest route. If an analyst says, “Don’t worry, we’ll cut costs,” everybody agrees. But if an analyst says, “We should transform our business model to increase future sales,” it is much more difficult to gain traction. This approach takes longer to explain, leaving more room for interpretation. Second, managers lack creativity. Cost-cutting is already an established tool that managers in almost every industry like to use. This brings me to my final point: the era of pure cost-cutting is over. When digitization first arrived, its only purpose was as an instrument to reduce costs. Now companies have to take the next step and redesign their business models.