Overcoming Buyer Risk in Major Purchases
Thursday, January 14, 2010 at 8:00AM 
The risk associated with making a major purchase is not a new emotion to buying and selling, however, it appears to have taken on more significance given the current economic conditions.
The first step in overcoming buyer risk is to recognize that risk is a natural emotion within a buying process. When making a purchase, most buyers go through a need analysis and budgeting phase, then a solution-evaluation phase and finally they weight the consequences and benefits of a purchase-decision. In this final phase, they experience and work through risk.
During the risk phase, buyers ask themselves questions such as: “What are the consequences of taking action?”… “What if we don’t see the results we expect?”… “What if the offering or service doesn’t work the way we expected it to?”… “What if a better alternative comes along?”
Risk is the concern that causes buyers to slow the decision down and maybe not make a decision at all. It’s in this phase that salespeople lose deals without knowing why. The salesperson may have been winning the opportunity up to that point, but because they didn’t understand the risk phase and because they weren’t looking at a potential purchase from the buyer’s perspective, they say and do the wrong things and lose the sale.
For example, the salesperson tries to mitigate the risk by saying “Don’t worry about those things, everything will work out, trust me.”… “The economy is going to rebound.”… “We need to get this signed by the end of the week or our special pricing is off the table.” Or they do things that they think will get the buyer over the risk but actually throw them into more risk – such as “drastically dropping the price” which in some cases can throw the buyer in further risk because it causes them to question the original price offered (i.e. “Why did they drop the price all of a sudden, is there something I should be worried about?”). In all these cases, the seller can seem insincere and focused on what is good for him or herself, not the customer.
The key is to recognize that risk is a positive buying signal (yes, a positive signal). It means the buyer has naturally gone through their buying process and is serious about making a purchase. They just are at the end of their process where risk naturally shows itself. The seller should smile and recognize they are close to a win. They just need to consultatively and empathetically help the buyer through the risk by doing a few simple things… recall the business issues driving the purchase, how they helped the buyer understand the scope of the issue and how they demonstrated how their solution can help address the buyer’s business issues. Then reassure the buyer that they understand the decision is a big one but that it is a good one.
Recurring Revenue within Existing Accounts vs. Acquiring New Customers
What Happens When Sales Organizations Focus Exclusively On Recurring Revenue within Existing Accounts vs. Acquiring New Customers?
Apart from having no repeatable sales process, misalignment of their marketing efforts, and ineffective pipeline management they had little to no focus on selling to new customers and spent all their time servicing the existing by pushing renewals and upgrades. In fact, the only new logo business would come via unsolicited RFP’s (Tenders). And we all know the low win rates associated with sellers who live their lives as “Column Fodder”. Of course, based on the “compensation drives behavior” theory the sellers were compensated on this approach. To drive renewals sellers would do things like discount high profit items, namely services, to get the additional licensing revenues. In my humble opinion their poor performance was preordained by their approach.
We have all heard of – and many of us follow - the supposition that selling to existing customers is easier and a more cost effective way to generate revenue and thus a great way to grow business. Based on a recent observation I would like to offer a contradictory theory to this widely held perspective.
At SPI we have recently started working with a client that is a venture capitalist. The principals of this firm worked as executives in some of the top software companies in the world so they focus on their comfort zone; acquiring and turning around failing software companies. Among all of these failing companies that get acquired I have observed a consistent theme:
I cannot and will not advocate a complete reversal of their approach but I will make the obvious recommendation that balance is the key to their salvation. Not backing the truck up to their loading dock and dumping your products and then running like hell for the next logo, but a “healthy pipeline” of net new and existing customer opportunities supported by effective and attentive customer service is the best practice.