In with the New Products, and the Old Ones Too
Bottom
Line: By
selling a mix of novel and existing products, retailers can optimize
their profits; to do so, however, managers must use their
salespeople in the right way.
Retail
managers face an inherent dilemma: How can they push their newest
products while also ensuring that established products continue to
sell? The answer weighs heavily on their supply chain partners;
after all, manufacturers and marketers want to see their new
products gain a foothold, and they often incentivize retailers to
boost sales of their latest models. Customers are also willing to
pay higher prices for products right when they come out, providing
retail managers with a strong temptation to devote more attention to
new merchandise.
On
the other hand, salespeople might have a natural tendency to promote
proven sellers over novel, uncertain propositions. And retail
managers can’t just let their inventory pile up: Their profit
margins will decline, their storage costs will rise, and the value
of older merchandise will dip sharply even as it takes up valuable
shelf space. For example, a 2011 report found that the prices of
some digital cameras—even during the height of their
popularity—fell almost 60 percent between their launch and their
discontinuation a year later.
Clearly,
retailers have to strike a delicate balance. The obvious solution
would be to adopt an “ambidextrous selling” orientation, wherein
managers urge their sales force to advocate for both types of
products. But according to a new study—the
first to empirically examine this particular retail
catch-22—adopting a dual-outlook approach doesn’t completely
solve the problem. Managers must also provide the right blend of
autonomy and performance feedback to their employees, and carefully
consider their sales members’ age and experience as they craft
their strategy.
The
authors analyzed data from a large European consumer electronics
retailer, which has posted significant sales growth in recent years.
Each of the company’s sales reps handles a wide portfolio of
products and operates individually, providing an ideal setting in
which to explore how salespeople’s selling patterns affect a
firm’s bottom line. The authors focused on three high-selling
categories: mobile phones, headphones, and laptops. They defined new
products as those that had been introduced within the past six
months, and existing products as those that had been launched more
than a year before.
The
authors surveyed employees for information on managers’ selling
orientations (whether they championed new products, existing stock,
or both), the level of autonomy afforded to sales reps, and the type
of feedback salespeople received from supervisors. They also used
company records to obtain data on each sales rep’s age and
education level, and calculated how much net profit they brought in
across the three product categories for six months after the survey.
First,
the analysis revealed that managers who gauge sales reps’
performance strictly on the number of products they move form only a
partial—and potentially inaccurate—appraisal of their input to
the bottom line. Salespeople might shine in their peddling of
well-established products, but they could actually be dragging down
the bottom line if too many of the items sell for lower prices and
distract customers from purchasing newer, more expensive goods.
Indeed, managers who predominantly advocated the sale of existing
products posted low or even negative profits, the authors found.
Second,
the study found that managers can improve the bottom line by using
the ambidextrous strategy, but only if they pay close attention to
their interactions with frontline salespeople. If they don’t, the
focus on selling both new and existing products can actually
backfire because employees are unsure about their true priorities.
To succeed with the dual-pronged approach, managers should encourage
their employees to sell existing items by providing them with high
levels of performance feedback, carefully defining their roles and
goals using the products’ sales history.
When
it comes to newer items, however, managers who give their
salespeople too much advice appear to hold them back and thwart
their attempts to craft a successful sales pitch. Indeed, the
autonomy afforded to salespeople is particularly important when
they’re undertaking unique or challenging tasks—such as selling
novel products—because they can improve their sales strategy by
incorporating new information they’ve gleaned from their
interactions with consumers.
This
is especially true for older employees, the authors found, who make
up an increasingly large proportion of the sales force. When they
have little freedom to do their job, and can’t bring their wealth
of experience and insights to the decision-making process, older
workers may feel slighted by their supervisors and less driven to
make the sale. Any benefits they’ve gained from interacting freely
with customers is negated by having to fall in line with company
policy. For this reason, managers pursuing an ambidextrous model
should hold back from criticizing or directing older employees, and
give them the ability to trade off between their peddling of new and
existing products.
Younger
workers, on the other hand, seem naturally compelled to push newer
products but they need close supervision to do the bet job, the
authors found. This means managers should aim for a setup that
focuses younger salespeople on selling new merchandise and provides
them with plenty of feedback on their performance, at an early stage
in their professional development when they’re more receptive to
training sessions and new ideas.
Source: Do
Retailers Really Profit from Ambidextrous Managers? The Impact of
Frontline Mechanisms on New and Existing Product Selling
Performance,
by Michel van der Borgh and Jeroen J.L. Schepers (both from
Eindhoven University of Technology), Journal
of Product Innovation Management,
Jul. 2014, vol. 31, no. 4
Matt
Palmquist is a freelance business journalist based in Oakland, Calif.
http://www.strategy-business.com/blog/In-with-the-New-and-the-Old-Too?gko=0c7af&bt_alias=eyJ1c2VySWQiOiIyODc4MzM4NiJ9
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