"No Decisions" - Why They Happen and What You Can Do About Them

The quest to understand how people make buying decisions has probably consumed more brainpower than any other topic in marketing and sales. In B2B, we've also devoted a lot of time and energy to diagnosing why some potential customers fail to make any purchase after conducting a thorough buying process.

Such outcomes are usually called no decisions, and several studies have shown that B2B companies lose more sales to no decisions than to competitors. In the research for their 2022 book, The JOLT Effect, Matthew Dixon and Ted McKenna found that between 40% and 60% of prospective sales result in no decisions.

Rational vs. Non-Rational No Decisions

Some no decisions are entirely rational. For example, a potential customer may decide not to buy because their current solution is superior or equivalent to the proposed alternatives. In such cases, the alternatives don't provide enough additional value to justify a change.

However, many no decisions can't be explained on a rational basis. These are situations where the potential customer has recognized the existence of an issue or challenge that needs to be addressed, the fit and business case for the proposed solution are strong, and the price of the proposed solution is affordable. But despite these circumstances, the potential customer decides not to buy.

Such "non-rational" no decisions point to the role of human emotion and psychology in B2B buying. An impressive body of research has shown that many B2B buying decisions are driven more by emotional and psychological factors than by logic.

So, how do emotions and psychological factors drive no decisions? To answer this question, the starting point is understanding the power and prevalence of fear in B2B buying.

How Fear Drives No Decisions

More than a decade ago, Enquiro conducted a landmark study of the B2B buying process. The research used several methods to gather data from almost 4,000 individuals involved in B2B buying. A core finding of the study was that B2B buying is not a rational process, but rather an "emotional, heuristic process" in which fear plays a leading role.

Gord Hotchkiss, the CEO of Enquiro, discussed the results of the study in The Buyersphere Project, where he described the role of fear in B2B buying in unequivocal terms. He wrote:

"B2B buying decisions are usually driven by one emotion - fear. Specifically, B2B buying is all about minimizing fear by eliminating risk. And in that, there are two distinct types of risk. There is organizational risk, typically formalized and dealt with in various procurement processes and then there is personal risk, which is unstated but remains a huge influencing factor in organizational buying."

The personal risk that is present at some level in every B2B buying situation is the risk that the decision-maker will be blamed if the purchase doesn't deliver the promised benefits. So, fear of blame is a hidden force in every B2B buying situation.

Personal risk often causes business buyers to practice what psychologist Gerd Gigerenzer has called defensive decision-making.*

Defensive decision-making occurs when a business buyer doesn't choose the option that would probably produce the most benefits for his or her company, but instead chooses the option that will protect him or her in case something goes wrong.

Defensive decision-making can easily lead business buyers to view their status quo as the safest option, and that results in a no decision.

A Strong Brand Reduces No Decisions

You will never completely eliminate no decisions. As I noted earlier, some no decisions are completely rational. Sometimes, your offering won't be significantly better than what your prospect is already using or doing. Your objective should be to identify these situations early in the sales process so that you don't waste time pursuing a deal you are unlikely to win.

Reducing the number of non-rational no decisions is challenging because, by definition, you are dealing with emotional and psychological factors that are difficult to identify and usually differ for every buyer.

In The JOLT Effect, Dixon and McKenna lay out a four-pronged approach that sales reps can use to reduce no decisions. The authors argue that high-performing reps look for ways to "take risk off the table" (the "T" in JOLT). Examples of these tactics include free trials, opt-out clauses in contracts, and performance guarantees.

One of the most effective ways to reduce non-rational no decisions is to build and sustain a strong brand presence in the relevant market. A strong brand reduces the level of personal risk associated with choosing your company.

If your company/brand is well-known by the decision-maker's superiors and colleagues, the perceived risk is even lower. This explains the rationale of the quote:  "Nobody ever got fired for buying IBM."

In a recent paper published by The B2B Institute, Rory Sutherland, Vice Chairman of Ogilvy UK and author of Alchemy, described the power of a strong brand to reduce risks:

"A decision to appoint a respected brand is much less reputationally risky than the appointment of an unknown. If you appoint a well-known company to a task and things go wrong, your colleagues are likely to blame the supplier. If you appoint someone obscure, they may blame you."

Advocates of brand marketing often assert that building a strong brand will improve the performance of demand generation programs, make buyers more willing to pay a premium price, and increase customer loyalty. Unfortunately, it's not usually clear why a strong brand delivers these benefits. One likely reason is that buyers are apt to view a strong brand as the safest choice.

*Gerd Gigerenzer is director emeritus at the Max Planck Institute for Human Development in Berlin, and director of the Harding Center for Risk Literacy at the University of Potsdam. For a more in-depth discussion of defensive decision-making, see his book, Risk Savvy:  How to Make Good Decisions.

Image courtesy of Dan Moyle via Flickr (CC).

[Research Round-Up] New Insights on B2B Marketing and the World's Most Valuable Brands

 (This month's Research Round-Up features an overview of the latest "State of B2B Pipeline Growth" survey by Pipeline360 and Demand Metric and a discussion of Interbrand's 2024 ranking of the world's most valuable brands.)

H2 2024 State of B2B Pipeline Growth by Pipeline360 and Demand Metric

Source:  Pipeline360/Demand Metric

• Based on an online survey of 424 marketers with B2B (47%) and B2B/B2C (53%) companies in the United States (56%) and the United Kingdom (44%)
• 73% of the respondents were at the manager or director level, and 21% described their role as "CMO/head of marketing"
• 63% of the U.S. respondents were with companies having annual revenue of less than $250 million; 69% of the UK respondents were with companies having annual revenue of 200 million or less (British Pounds)
• The survey was conducted in July 2024

The objective of this study was to examine "the latest challenges, opportunities, and areas of interest that marketers are facing, including:  channel usage, sales and marketing alignment, generative AI usage, sales cycle length, and data privacy, all from a B2B perspective."

Here are some of the key findings from the survey.

Top challenges - The top three challenges identified by survey respondents were:

• Budget/headcount/resource cuts (48%)
• Economic slowdown (46%)
• Sales and marketing alignment (44%)

Marketing budget - 52% of the respondents said their 2024 marketing budget was slightly or significantly higher compared to 2023.

Marketing success - Over half (53%) of the respondents said they were meeting their goals for this year to a great or very great extent.

Sales/marketing alignment - 75% of the respondents said their sales and marketing teams were mostly or completely aligned, and 62% said the KPIs and/or objectives used by their sales and marketing teams significantly or completely overlap. Almost three-quarters (73%) of the respondents who reported complete sales and marketing alignment also said they were meeting their goals so far this year.

Generative AI - 85% of the survey respondents said they were using generative AI in one or more ways. The four uses most frequently identified by respondents were:

• To develop content (51%)
• To brainstorm new topics (45%)
• To personalize content (41%)
• To summarize meetings (41%)

This survey produced numerous other interesting findings, and I recommend you take a look at the full report.

Best Global Brands by Interbrand

Source:  Interbrand

Earlier this month, Interbrand, the global brand consultancy, published its 2024 ranking of the 100 most valuable global brands. Interbrand has been analyzing the value of large global brands for 25 years.

Interbrand's valuation methodology includes three key components.

• Financial Analysis - This component measures the economic profit of the brand. Economic profit is defined as the after-tax operating profit of the brand less a charge for the capital required to produce the brand's revenue and margin.

• Role of Brand - This component measures the portion of the purchase decision attributable to the brand as opposed to factors such as convenience, price, or product features.

• Brand Strength - This component measures the ability of the brand to earn customer loyalty and, therefore, create sustainable demand and profit in the future.

The five most valuable global brands in the 2024 Interbrand ranking were:

• Apple ($488.9 billion)
• Microsoft ($352.5 billion)
• Amazon ($298.1 billion)
• Google ($291.3 billion)
• Samsung ($100.8 billion)

In addition to the brand rankings, Interbrand's report includes several thought-provoking ideas regarding the role of brand as a driver of business growth. Interbrand noted that its research has shown that excessive reliance on short-term performance marketing tactics is detrimental to business growth. The report states:

"Utilizing our Best Global Brands data, we see that an increased focus on operational efficiency and short-term performance tactics over mid-term and long-term brand potential has cost the world's most valuable brands $3.5 trillion USD in cumulative brand value since we started our study. This equates to approximately $200 billion of lost revenue opportunity over the past 12 months."

Interbrand also argued that today's most successful companies take a fundamentally different approach to driving growth. Rather than finding customers for their products or services, they develop a deep understanding of customer needs and desires, and then build competencies to fulfill those needs and desires. Again, from the report:

"Now and next, the world's most successful companies start not with product, but with brand as their critical growth asset and engine. They use the utility and equity in their brand to drive exponential growth in new spaces, while continuing to capitalize on existing incremental sector gains."

Some of Interbrand's ideas are unconventional, and you may or may not agree with them or see their relevance for your business. Whatever the case, the Interbrand report will be a worthwhile read.

[Book Review] A Pragmatic "How-To" Manual for Revenue Operations

Source:  Kogan Page Limited

The 2023 LinkedIn Jobs on the Rise list identified Head of Revenue Operations (a/k/a Chief Revenue Officer) as the fastest growing job title in the United States. 

In a 2024 survey of operations professionals by Openprise, 35% of the respondents said their company had a formal revenue operations (RevOps) department, and another 32.5% said their company had a functional RevOps team (but not a formal department).

These data points demonstrate that revenue operations has become an important management technique for many B2B companies.

Interest in revenue operations has been increasing because astute business leaders have recognized that the activities of their customer-facing functions (marketing, sales, customer service/customer success, etc.) should be coordinated and managed as components of a larger revenue generation process.

A new book by Sean Lane and Laura Adint - The Revenue Operations Manual:  How to build a high-growth, predictable and scalable business (Kogan Page, 2024) - seeks to provide a blueprint and instruction manual for building a high-performing revenue operations function.

Sean Lane and Laura Adint are well-qualified to write about revenue operations. Lane is a founding partner of BeaconGTM, a consulting firm that works with CEOs and revenue leaders to improve go-to-market execution. He previously spent over five years building the operations teams at Drift.

Laura Adint has 25 years of experience with technology companies and consulting with a specialty in operations. She was the Vice President of Field Operations at Drift, and she also served as the Vice President of Sales and Services Operations and Adaptive Insights.

What's In the Book

The Revenue Operations Manual contains an Introduction and 25 chapters organized in four major parts. Each chapter discusses a vital component of a world-class revenue operations function or an activity or skill that will enable an individual to become a successful revenue operations leader or an effective RevOps team member.

In the Introduction, Lane and Adint define "revenue operations" in terms of the business outcomes they contend the function should be designed to achieve. They write, "Revenue operations transforms siloed, unpredictable businesses into high-achieving, predictable, and scalable revenue machines."

The authors also use the Introduction to roll out what they call "The Revenue Operations Mindset." This mindset consists of six principles that reflect how individuals involved in revenue operations ("Operators") should view their work and role in the business. The six elements of The Revenue Operations Mindset are:

• "Operators are strategic partners, not a support function."
• "Operators focus on outcomes, not inputs."
• "Operators are the perfect blend of strategic and tactical."
• "Operators are lifelong learners and not afraid to be proven wrong."
• "Operators champion their work and are proud of the impact they create."
• "Operators believe in constant, incremental improvements and a 'better, better, never done' approach."

Part One (Chapters 1-3) of the book discusses when it's time for a company to invest in revenue operations and explains what Operators need to know about their company's business and how they can gain that knowledge.

In Part Two (Chapters 4-13), Lane and Adint discuss several key building blocks of a high-performing revenue operations function.

The authors use Part Three (Chapters 14-18) of the book to explain why the revenue operations team must form strong partnerships with the customer-facing functions of the business. They also offer several strategies and tactics the RevOps team can use to build such partnerships.

In Part Four (Chapters 19-25), the authors focus on the revenue operations team itself. They discuss alternative ways to structure the RevOps function in a company and describe the traits and behaviors that good RevOps leaders and team members exhibit and practice.

My Take

The Revenue Operations Manual will be valuable for anyone involved in revenue operations, and it should be required reading for anyone new to the RevOps field. The book is well organized and well written, and the authors' writing style makes the book easy to read, even though it contains an extensive amount of information.

This book was written by practitioners for practitioners. Sean Lane and Laura Adint cover issues that everyone involved in revenue operations will likely confront at some point in their career, and they provide practical advice based on their combined three-plus decades of experience working in several operations leadership roles.

While Lane and Adint stress that revenue operations is "inherently cross-functional" and should encompass the whole customer journey, The Revenue Operations Manual tends to emphasize issues and topics that relate primarily to sales. For example, the authors specifically discuss and provide advice about territory planning and incentive compensation design.

In contrast, the authors give much less attention to marketing-related issues and topics. For example, they don't provide specific advice on improving the productivity of content operations. If you want your revenue operations function to cover the entire revenue generation process, the RevOps team will need to be as involved in marketing operations as they are in sales operations.

One final thought. Regular readers of this blog may remember that I reviewed Revenue Operations by Stephen G. Diorio and Chris H. Hummel a couple of months ago. Diorio and Hummel's approach to the topic of revenue operations differs significantly from the approach embodied in The Revenue Operations Manual.

Both books are excellent, but I found Revenue Operations to be a challenging book to read. I recommend both books, but I suggest you read The Revenue Operations Manual first.

Are Your Revenue Generation Programs Targeting the Right Customers?

 

Source:  Shutterstock

(This post is an edited/updated version of a post I published early last year. With the fourth quarter of 2024 now underway, many B2B marketing and sales leaders will have started developing revenue generation plans for next year. Measuring customer profitability accurately is critical for developing an effective revenue generation strategy. So, this post is particularly relevant now that "planning season" is upon us.)

Key Takeaways

• A growing number of companies are adopting revenue generation programs that treat customers differently based on their perceived value to the company.

• Most companies determine the value of customers based on current revenue and future growth potential, but most don't track customer profitability or use it to judge the value of individual customers.

• The lack of accurate customer profitability information creates a dangerous blind spot. Without it, companies can end up winning business from unprofitable customers.

The Rise of "Account-Based Everything"

The widespread adoption of account-based marketing is one of the landmark developments in B2B marketing of the past two decades. The use of ABM has been growing rapidly since it was introduced by ITSMA in 2003. While the early adopters of ABM were primarily large B2B technology and business services firms, it's now used by a wide variety of B2B companies.

A  few years ago, marketing industry analysts, consultants, and technology vendors began to argue that companies should adopt an account-based approach in other customer-facing business functions, including sales, sales development, and customer success/customer service.

This broader application of account-centered techniques was soon called "account-based everything." ABE (or sometimes ABX) is usually defined as "the coordination of personalized marketing, sales development, sales, and customer success efforts to drive engagement with, and conversion of, a targeted set of accounts." (Gartner)

The most rigorous and thorough discussion of this broader use of account-centric strategies and tactics can be found in Account-Based Growth:  Unlocking Sustainable Value Through Extraordinary Customer Focus by Bev Burgess and Tim Shercliff. In this book, the authors explain how B2B companies can use account-focused strategies and programs to drive profitable revenue growth.

The premise underlying account-based methodologies is that all customers are not created equal. In most B2B companies, a small percentage of customers account for a disproportionate share of the company's total revenue and profit.

The essence of the strategy described in Account-Based Growth is to identify those "vital few" customers, and then design and implement coordinated marketing, sales, customer success/customer service, and executive engagement programs specifically tailored for those high-value customers.

Burgess and Shercliff explain how to identify and prioritize high-value customers, develop effective account business plans, leverage data and technology to gain deep customer insights, and bring about the leadership and cultural changes necessary to succeed with an account-based growth strategy.

Perhaps most importantly, Burgess and Shercliff emphasize that many companies will need to "radically" reallocate marketing, sales, and customer success resources to effectively support an account-based growth strategy. When you adopt this kind of strategy, you are placing a large bet on the growth potential of a relatively small group of customers and prospects.

In the balance of this article, I'll adopt the Burgess/Shercliff terminology and use the term "account-based growth strategy" to refer to a go-to-market approach that involves identifying high-value customers and prospects and designing coordinated marketing, sales, and customer success/customer service programs to manage relationships with those high-value customers and prospects.

Customer Profitability Is "Missing in Action"

Companies that implement an account-based growth strategy segment their customers into multiple "tiers" based on the perceived attractiveness of each customer. Then, they use different marketing, sales, customer success/customer service, and executive engagement techniques for customers in each tier.

In general, companies will invest more time, energy, and financial resources to develop and execute high-touch and highly customized engagement programs for customers in the "top" tier, compared to those in "lower" tiers. This means, of course, that company leaders must determine which customers to place in each tier.

As part of the research for Account-Based Growth, Burgess and Shercliff surveyed 65 B2B companies. Ninety-two percent of the survey respondents reported having some kind of "top account" program.

When the authors asked survey participants what criteria they use to select accounts for their top account program, 87% of the respondents said the future growth potential of the account, and 76% said the current revenue from the account. These were the two most frequently used criteria by a wide margin.

Customer profitability wasn't among the top five selection criteria identified by the survey respondents. In fact, only 45% of the respondents said their company tracks gross profit at the account level, and only 20% reported tracking net profit by account.

This absence of customer profitability information results in an account selection/prioritization process with a major blind spot. As Burgess and Shercliff put it:  "Without this information, decisions about how much to invest in these top accounts and where to allocate resources are being made in the dark."

To make matters worse, many companies that track some form of profit at the account level still aren't getting an accurate picture of customer profitability because the methodology they use to measure customer profitability is flawed.

When you implement an account-based growth strategy, you invest substantially more in some customers than others. It's impossible to make such investment decisions on a sound basis without an accurate view of customer profitability. You can easily find yourself in the unenviable position of successfully winning business from unprofitable customers.

Why Customer Profitability Matters

If all your customers were equally valuable, there would be no reason to implement an account-based growth strategy, and measuring the profitability of individual customers wouldn't be very important. But the reality is that some customers are far more financially valuable to your business than others. There are three main reasons for this value disparity.

The Pervasive Pareto Principle

The 80:20 rule (a/k/a the Pareto Principle) states that 80% of effects come from 20% of causes. One business application of the rule states that, in most companies, 80% of total revenue comes from 20% of the company's customers.

In Account-Based Growth, Burgess and Shercliff argued that the 80:20 rule is nearly ubiquitous, and my experience supports their argument. During my career, I've analyzed sales data from dozens of B2B companies operating in many industries. In most of those companies, I found that the largest 20% of customers accounted for about 80% of total company revenue.

The 80:20 rule has important implications because it is fractal, or at least "fractal-like." By this, I mean that the 80:20 distribution pattern repeats itself as the breadth of data analyzed narrows, like a set of Russian Matryoshka nesting dolls.

To illustrate, the rule states that 80% of a company's revenue comes from 20% of the company's customers, but it further states that 64% of total company revenue (80% of the 80%) comes from only 4% of customers (20% of the 20%).

The implications of this aspect of the rule are profound. Suppose your company has $100 million of annual revenue and 1,000 customers. The 80:20 rule indicates that only 40 of your customers are likely producing about $64 million of your revenue.

When it comes to company profitability, the 80:20 rule doesn't go far enough because the distribution of profit is even more skewed than the distribution of revenue. Companies that accurately measure customer profitability frequently find that all their annual profit comes from a small percentage of their customers. (More about this later.)

The bottom line:  In most companies, a small number of customers have an outsized impact on financial performance.

Customer Profitability Varies Greatly

The second reason for the value disparity is that customer profitability varies greatly. When company leaders measure customer profitability accurately, they frequently find that they're earning a lot of profit on their most profitable customers and sustaining significant losses on their most unprofitable customers.

The following diagram depicts the customer profitability distribution found in many B2B companies. In this diagram, the horizontal axis depicts the percentage of total customers, with customers arranged (left to right) by profitability. The vertical axis represents customer profitability. The horizontal line across the middle of the diagram is the profit breakeven point (in other words, $0 profit). The red curved line in the diagram depicts the typical distribution of individual customer profitability.

This diagram illustrates that, in many B2B companies, a relatively small percentage of customers produce attractive profit levels, and a small percentage generate significant losses.

The most sobering point is that customer profitability isn't always correlated with sales volume. In other words, when company leaders measure customer profitability accurately, they often find large customers at both ends of the profitability spectrum. This explains why basing an account-based growth strategy solely on customer revenue is risky.

Customer Profitability Impacts Company Profitability

The third reason for the value disparity is that customer profitability has a major impact on overall company profitability.

The following diagram illustrates how the dynamics of customer profitability affect overall company profit. Once again, the horizontal axis in this diagram shows the percentage of total customers, and again, customers are arranged (left to right) from the most profitable to the least profitable. The vertical axis depicts the percentage of total company profit. The red horizontal line across the diagram is the actual annual profit earned by the company.

When companies measure customer profitability accurately, many find that their most profitable 20% to 40% of customers actually produce between 150% and 300% of total reported company profit. Customers in the middle of the profitability spectrum more or less break even, and the least profitable 20% to 40% of customers consume between 50% and 200% of profit, leaving the company with its actual reported profit.

So, all the profit above the red horizontal line in the diagram is unrealized profit. This is the profit the company earned and then gave away. For obvious reasons, this diagram is often called "The Whale Curve of Customer Profitability," and it dramatically illustrates why customer profitability is so critical to your company's financial performance.

A Final Word

As I noted earlier, companies using an account-based growth strategy segment their customers into multiple tiers based on each customer's perceived value. Then they develop and use more high-touch and highly customized engagement programs for customers in higher tiers than for those in lower tiers. 

One primary goal of measuring the profitability of individual customers is to provide business leaders with information that will help them make better decisions about where to place each customer in the value hierarchy.

In Account-Based Growth, Burgess and Shercliff recommended that companies prioritize their accounts based on two factors:

1. The "attractiveness" of each account; and
2. The competitive strength of their company in/with each account.

The research by Burgess and Shercliff clearly showed that an overwhelming majority of companies use current revenue and growth potential to determine the attractiveness of each of their accounts.

This article demonstrates that business leaders should also consider customer profitability when evaluating account attractiveness.