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By
Marc Abbey, Paul Grill, and Ian McGaffic of First Annapolis Consulting Editor-In-Chief’s Note: We hope that you found
a number of items in the February “Feet on the Street” GSQ
issue that were of value to you and your organization. Just in case we
left some stone unturned, we thought that our readers would find the
following article from First Annapolis Consulting a great addition to the
non-bank acquirer story. O In
this environment, how has the average acquirer responded, and what are the
sales, compensation, and management tactics they have deployed? First
Annapolis recently completed a research project which includes interviews
with over twenty bank and non-bank acquirers that account for over a third
of the industry by sales volume. A clear pattern emerged underscoring the
basic competitive situation throughout the industry. Everyone
is chasing the same prize.
The average acquirer targets, . . . well, . . . the same merchant markets
that everyone else targets. The main target market for over 90% of the
sales organizations we talked to was general, storefront retail and two
thirds of these organizations also targeted restaurants. By contrast,
niche markets had significantly less competition with, for example, fewer
than 20% of the sales organizations reporting any specialization in
petroleum retailing. Old
Faithful—direct personal selling—is the dominant tactic.
Acquirers were near universal in their reliance and emphasis on direct
selling, although over half (nearly 65%) reported branch referrals rather
than cold calling as their dominant mode. Only 45% of the acquirers
described telemarketing support as a key initiative and even fewer, about
one in five, reported using agent banks as referral sources. And
when you’re done selling . . . acquirers utilize sales staff in
servicing strategies.
There are wide-ranging opinions regarding the appropriate mix of sales and
service for the sales force, with some managers philosophically wanting
sales staff focused solely on selling and others wanting the sales force
to have a vested interest in retention. The average acquirer asks its
sales staff both to manage terminal deployment issues and to provide
relationship management for the merchant on an ongoing basis, but only by
a narrow margin. Some 65% of the acquirers opted for high touch, in-person
terminal deployment administered by the sales staff while the remainder
opted for cheap (if impersonal) drop shipment, depot approaches. Fully 53%
of the acquirers asked their sales staff to manage the merchants post
sale, with the remainder utilizing specialized, mostly phone based,
relationship management units. Clearly, both of these strategies were
correlated to the size and geographic dispersion of the acquirer with
smaller acquirers utilizing the high touch, sales-force-intensive
approaches. The
larger they come, the harder they fall.
Not surprisingly, the large sales forces are distinctly more difficult to
manage. The sales forces at acquirers with volume greater than $5 billion
annually reported four times the sales force attrition of the acquirers
with volume less than $1 billion. Certainly, these attrition rates will
have been influenced by the operational conversions, portfolio
acquisitions, bank mergers, and other disrupting events that the large
acquirers have disproportionately experienced in recent years.
Nevertheless, the large acquirers experienced these higher levels of sales
staff turnover despite average total compensation levels nearly double
those of the small acquirers, underscoring the difficulty of managing a
large, geographically dispersed sales force. A
kinder, gentler compensation strategy.
Not all that long ago, the most common sales force compensation strategy
was a highly levered (read: 100% commission) approach, which though
perhaps attractive to the veteran, made it hard to make ends meet for the
newcomer. In our research, nearly 70% of acquirers have migrated to a
mixture of salary and commission for their sales staff, and average
compensation ranging from $60,000 to $70,000 was roughly split between
salary and commission. In addition, acquirers reported a wide range of
other benefits from paid vacations to stock options, but the champion
fringe benefit was the 401(k), present at over 80% of the acquirers we
interviewed. These
market conditions have a number of strategic implications for most
acquirers. 1) Specialize. In today’s environment, asking your sales staff to
be generalists is probably putting your sales organization on a long-term
trajectory of decline. To borrow a phrase, “The time for the Renaissance
man was the Renaissance” or more clearly stated, “Specialists win.”
The storefront, general retail segment is arguably over-served. With
increased competition and mounting competitive hurdles for all but the
large players, the specialized sales force looks to have the advantage. 2) Achieve Product Parity and Re-Train.
The Tranz 330 was originally introduced in 1987. Even the T7P runs the
risk of being leap frogged by the new generation of products from VeriFone,
Hypercom, and others. With the parity in sales tactics evident in the
market, and with the prevalence of direct, personal selling, your sales
force simply cannot afford not to be current on product. If your sales
force does not understand the Omni 3200, as an example, you are sending
them into the Feet on the Street battle without all the ammunition they
will need to be productive. 3) Pick a System Consistent with Your Values and
Culture.
There is no nirvana in sales management. You can spend two years
developing a commission system and it will take a good salesperson five
minutes to spot the holes. Despite the diversity of tactics acquirers
described to us in our interviews and clear differences in certain
outcomes (such as employee turnover), it was execution that had the
biggest impact on performance. For example, even for acquirers similarly
situated with similar tactics, throughput and cost effectiveness measures
differed a great deal. What worked for one did not work for another, and
simply having rich financial incentives in place for your sales staff is
not enough to ensure appropriate outcomes. We
are fortunate to be in business during an era our successors will consider
a golden age, the largest and longest business expansion in the history of
money. Despite this luck, we operate in a tough business that is going to
get tougher before it gets easier. And all roads to success in this
business are paved with sound sales management. Paul Grill is a
Senior Consultant responsible for Internet strategy at First Annapolis.
Ian McGaffic is First Annapolis’ Senior Analyst. Marc Abbey is
responsible for the Acquiring and Business-to-Business practice areas at
First Annapolis.
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