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1

Internalizing Your Competitive Position

Sales training programs do a decent, if not an excellent, job of covering product and service knowledge, selling skills, sales technology platforms, and company policies. However, at the end of formal training, most sales professionals still lack the confidence and ability they need to hit the ground running because they haven’t developed a strong sense of how to position the value of buying from their company rather than from the competition.

The Six-Factor SWOT Analysis

Fortunately, many frameworks used in strategic planning are invaluable for understanding both a company’s competitive positioning and its operating environment. The ubiquitous SWOT analysis, short for strengths, weaknesses, opportunities, and threats, is foremost among these frameworks. While there are exceptions, strengths and weaknesses generally relate to factors internal to the company, and opportunities and threats focus on factors external to the company.

Although a salesperson could review a SWOT analysis assembled by company leadership, we maintain that going through the process of building a SWOT analysis is valuable in much the same way as role playing is helpful. Analyzing a situation with others, especially with tenured peers, allows a salesperson to ask meaningful questions and gain deeper understanding. In addition, by going through this process, the sales professional “owns the output.” It’s this understanding and ownership that make for a strong foundation of confidence.

Most tutorials on conducting a SWOT analysis progress as you would expect. First, strengths are considered, next weaknesses, and so on. While this approach seems logical, it leads to massive blind spots. For instance, brainstorming without sufficient structure allows a number of cognitive biases to rear their ugly heads. A good example is how the availability bias causes people to recall and assign more importance to SWOT factors that are either more recent or more emotionally charged. In addition, groupthink rapidly limits the range of factors that are considered. Finally, mental fatigue begins to kick in by the time the process gets to reviewing threats.

Therefore, instead of starting with each SWOT category and then trying to think of factors, we recommend flipping the process and starting with an exhaustive set of factors affecting a company’s position and then considering the strengths, weaknesses, opportunities, and threats for each factor. As shown in Figure 1-1, the factors we consider fall into six groups, including the 4 Ps, reputation, internal resources, external forces, trends, and VUCA (volatile, uncertain, complex, and ambiguous) factors. Let’s start with an example from a familiar company, Salesforce.com, to illustrate the approach.

  FIGURE 1-1   Six-Factor SWOT Analysis

The 4 Ps: Product, Price, Promotion, and Place

In his book Basic Marketing: A Managerial Approach, Michigan State University Professor Edmund Jerome McCarthy introduced the 4 Ps marketing mix framework encapsulating the set of strategic decisions a company can make to serve its target market. Published in 1960, the 4 Ps framework has stood the test of time and remains the centerpiece of marketing theory. Conveniently, the 4 Ps also serve as the logical starting point for a SWOT analysis.

Product

The first P includes anything customers can purchase, inclusive of services, whether sold one-off or on a recurring basis. Currently, Salesforce.com has products that include the Sales Cloud for customer relationship management (CRM), the Marketing Cloud for digital marketing automation, and the Service Cloud for help desk support, as well as a number of add-ons and complementary offerings. For the sake of brevity, we will concentrate our SWOT analysis on their CRM product, although a thorough analysis should consider every product offered by the company (or at least every product a given sales professional is empowered to sell).

Strengths: According to Gartner,¹ Salesforce.com is the number one CRM software vendor, with 18.4 percent of the $23 billion worldwide market. Moreover, the company gained market share while formidable competitors such as SAP and Oracle lost ground. From a capability perspective, “References express strong satisfaction with [Salesforce.com’s] account, lead, opportunity, product, collaboration, and pipeline management capabilities.”² Additionally, Salesforce.com has an enviable partner ecosystem in its AppExchange.

Weaknesses: Despite Salesforce.com’s increasing market dominance in CRM, users routinely express frustration with the user experience as well as with its underwhelming integration of Microsoft Outlook.

Opportunities: The most obvious opportunities for Salesforce.com are overcoming its weaknesses in the user experience and Outlook integration. Thinking more outside the box, buyers cite³ functionality as the most important reason for selecting a CRM system. Scanning the competitive landscape as well as customer needs, Salesforce.com has the opportunity to enhance its Sales Cloud with predictive analytics from the acquisition of RelateIQ, customer engagement indicators, and enhanced mobile capabilities.

Threats: We will consider competitive offerings and evolving customer needs as distinct factors later in this SWOT analysis. Here, we force ourselves to think about internal threats to the product. While we cannot get inside Salesforce.com’s confidential operations, we can conjecture that the company faces threats from reliability, scalability, and security of its software-as-a-service platform.

Price

This second P is the amount of money given in exchange for goods and services.

Strengths: Though the company has shifted its tagline to “The Customer Success Platform,” Salesforce.com is best known for its “No Software” slogan. The original slogan conveys the superior total cost of ownership differentiation for a software-as-a-service model as compared to an on-premises solution requiring software licensing, server infrastructure, and operations personnel.

Weaknesses: With a large installed base, Salesforce.com is extremely limited in its ability to lower prices despite having “the highest-priced cloud SFA [sales force automation] service.”⁴ Of course, in highly competitive situations and for very large deals, they have granted significant discounts.

Opportunities: Opportunities come with both price increases and price decreases. By adding and subtracting CRM features and functionality, Salesforce.com offers solutions ranging from $25 to $250 per month per user. In addition, the company has the opportunity to expand its customer share-of-wallet by providing and capturing additional value with bundled products and services such as prospect data, customer service solutions, and marketing solutions.

Threats: When the company was founded and during its early existence, its cloud-based delivery model allowed pricing at an attractive per-user discount relative to what it would cost a buyer to install and maintain on-premises solutions from the then-dominant vendors Oracle and SAP. However, with a glut of cloud computing and networking capacity available from the likes of Amazon.com, Google, and IBM, not to mention Oracle’s and SAP’s own cloud-based CRM solutions, Salesforce.com must now compete on a more even playing field. This is very likely the reason the company is migrating away from its “No Software” pricing message.

Promotion

This third P includes all forms of traditional advertising and digital marketing.

Strengths: In the company’s most recent fiscal year,⁵ Salesforce.com spent half of its $5.4 billion in total revenue on sales and marketing. While it does not and could not possibly separate the two, it is safe to assume that the company spends 10 to 20 percent of sales, or $500 million to $1 billion, on marketing. Relative to the competition, this is a massive amount, allowing the company to fund a range of activities including, but not limited to, analyst relations, events such as Dreamforce, content marketing via social media and other channels, the company’s website, and traditional print and television advertising. In addition to their outbound marketing activity, the company’s large installed base of customers is a significant marketing asset.

Weaknesses: Often one’s greatest strength is simultaneously one’s greatest weakness. The company’s very name does not lend itself well to extending into new segments such as customer service and marketing automation. In addition, Salesforce.com, as we mentioned earlier, has wisely decided to shift from its “No Software” slogan to more positive, customer-centric positioning rather than technology-centric messaging.

Opportunities: Marketing messages and channels are constantly evolving. This fact means that Salesforce.com has the opportunity to optimize its existing programs to earn a higher return on investment as measured by increases in brand equity or qualified lead generation. In addition, the company could also explore new marketing tactics, especially in the digital domain.

Threats: Due to changing consumer preferences and an ever-shifting digital landscape, marketing threats are more prevalent than ever. For instance, Google’s evolving search algorithms mean Salesforce.com needs to remain hypervigilant with search engine optimization (SEO) to prevent slipping in search engine results page (SERP) rank for valuable, unbranded terms such as “CRM” and “SFA.” Turning to consumer preferences, the value of large and small in-person events is declining with the proliferation of information and social media alternatives because of increasingly busy schedules that make getting away from the office harder and harder.

Place

This last P is inclusive of all distribution channels, but it differs in meaning depending on the type of company. For a business-to-consumer (B2C) food and beverage retailer like Starbucks, place includes its ubiquitous stores, tightly controlled partner network operations in hotels and airports, and distribution through wholesalers into grocery stores. For a business-to-business service provider like an advertising agency, place is a combination of the company’s direct sales team and its website.

Strengths: Salesforce.com has three strong channels of distribution. Self-service customers can purchase quickly and easily on the company’s website. In addition, the company has a large sales organization that includes a field sales team serving larger enterprises and an inside sales team serving small to medium-sized businesses. Complementing their internal efforts, Salesforce.com manages a partner network consisting of thousands of value-added resellers.

Weaknesses: A rapidly growing company like Salesforce.com will inevitably run into bottlenecks adding qualified sales capacity and maintaining sales productivity.

Opportunities: Like most companies, Salesforce.com organizes its sales professionals by geography. However, the company could capitalize by joining the growing trend toward customer-centric organizational structures, and, in particular, organizing by industry segment.

Threats: There are real threats to each of the three distribution channels at Salesforce.com. First, any service disruption to its website would have a negative impact on sales. Second, especially with an expanding number of salespeople, it will naturally face challenges in training and retaining new hires. Third, the company’s very large partner ecosystem carries risk if partners are not tightly managed and are allowed to start preferentially recommending competitive solutions or fail to deliver successful implementations.

Table 1-1 provides a condensed representation of the 4 Ps SWOT analysis for Salesforce.com. When conducting a SWOT analysis using the 4 Ps inclusive of the factors we will cover, the goal of a salesperson is not perfection but rather internalization of enough information to be able to convey the company’s value proposition and to handle most objections.

  TABLE 1-1   4 Ps SWOT Analysis of Salesforce.com

Reputation Factors

As with the 4 Ps, reputation factors involving customers and partners tend to be more internal and will, therefore, generate more strengths and weaknesses than opportunities and threats.

When Professor McCarthy developed the 4 Ps model, he put customers at the center of the framework. In the 1960s, companies had a greater degree of control over customer relationships. Back then, mass advertising ruled, and it was extremely difficult for word-of-mouth, good or bad, to spread, unless a business was operating in a very small town. Conversely, in today’s hyperconnected world, reputation is viral, persistent, and volatile. Businesses must defend their reputations at all costs. In particular, one irate customer can do enormous damage—just ask United Airlines, which suffered when Dave Carroll posted his song “United Breaks Guitars” on YouTube and garnered more than 15 million views as well as massive press coverage.⁶

One of the best ways to assess reputation is by using the Net Promoter Score (NPS)⁷ developed by Fred Reichheld while he was a consultant at Bain & Company. NPS measures customer loyalty by asking, on a scale of 0 to 10, “How likely is it that you would recommend [company X] to a friend or colleague?” To calculate the NPS, which can range from −100 to +100, the percentage of detractors (ratings of 0 to 6) is subtracted from the percentage of promoters (ratings of 9 or 10). The percentage of passives (ratings of 7 or 8) is ignored. Average Net Promoter Scores vary wildly by industry, ranging from the high 40s for auto dealers (yes, really) to low single digits for television service providers (no surprise there).⁸ With an NPS routinely in the low 80s, USAA, a financial services provider for the military community and their families, sits at the pinnacle of customer loyalty year after year.

Customer Reputation

Now, let’s return to our detailed exploration of Salesforce.com by considering its customer reputation.

Strengths: While the company no longer routinely discloses its customer renewal rate, it has historically stood in the mid-80s, considered excellent for a B2B service provider. (B2B service renewal rates of above 80 percent are excellent, 70 to 80 percent are good, and below 70 percent are poor.) While one could argue that Salesforce.com’s customers are locked in, the combination of market share growth and fairly steady retention rates is a good sign that most customers are satisfied with the company. Additionally, the company has a strong reputation for corporate social responsibility as demonstrated by its 1-1-1 model: employees are given 1 percent of their time (6 days per employee per year) to devote to volunteer work, and the company donates or discounts 1 percent of products to nonprofits and allocates 1 percent of equity to nonprofits.

Weaknesses: Average Net Promoter Scores for enterprise software vendors are typically around 30. According to the Temkin Group, an independent customer experience research firm, the NPS for Salesforce.com was stable in the 63rd percentile among firms measured in 2012⁹ and 2013.¹⁰ However, the company’s NPS dropped to the 29th percentile in 2014.¹¹ (Note: The percentiles given are not Net Promoter Scores. Companies that maintain Net Promoter Scores above the 50th percentile for the long term are expected to gain market share. The only publicly available NPS for Salesforce.com from the Temkin Group is a score of 34 in 2012, which was slightly above average among major technology vendors.)

Opportunities: While Salesforce.com gets high marks from sales leadership because the solution provides visibility into pipeline and performance, frontline salespeople are less enamored. Their main complaint is that Salesforce.com is exactly like every CRM tool—an onerous data entry and activity tracking system that only slows them down. Salesforce.com’s dated user experience does not help. To that end, the company’s biggest opportunity to enhance its customer reputation lies with overhauling its user interface, and the company is actively working on that, beginning with its winter 2015 release of the “Lightning” experience.

Threats: Customer reputation is under constant attack. Salesforce.com faces reputation threats from service outages, botched implementations (even if caused by third parties), and radical changes to the user interface.

A final note on customer considerations before we transition from customer reputation to partner considerations: it’s important to understand that while we took a 1,000-foot view of Salesforce.com’s customer reputation, the context in which an individual salesperson operates is what matters. By context, we mean the breadth of a salesperson’s product portfolio and the scope—industry, geography, job role, job level, company size, and so on—of his or her territory.

Partner Reputation

When discussing product strengths, we touched upon the importance of partner reputation for Salesforce.com.

Strengths: Again, with its dominant partner ecosystem of thousands of application developers and value-added resellers, the company devotes significant resources of training, certification, tools, online communities, support, and events to enable these partners.

Weaknesses: Salesforce.com risks alienating its third-party application developers as it integrates greater functionality into its core platform. Similarly, as the company expands the capacity of its sales team, it will likely encroach upon the products and services of its value-added reseller (VAR) partners.

Opportunities: The AppExchange ecosystem offers a virtuous circle: the more partners, the more customers there are; the more customers, the more partners there are. The company should make every effort to grow its partner network, particularly by supporting application developers.

Threats: The dark side of growth is dilution. Salesforce.com must avoid the temptation to increase margin by underinvesting in its partner network as its business expands.

Table 1-2 provides a condensed reputation factor SWOT analysis of Salesforce.com.

  TABLE 1-2   Reputation Factor SWOT Analysis of Salesforce.com

Internal Resource Factors

A thorough SWOT analysis evaluates four pools of internal resources:

The first pool, financial resources, includes cash on hand as well as access to capital.

The second pool, intellectual property, includes patents as well as trade secrets in the form of internal processes and tools. In addition, data has become an increasingly valuable component of intellectual capital.

The third pool, human capital, includes employee knowledge and skills as well as culture and leadership capability. In our ultratransparent world, employer reputation has become a key human capital asset or liability.

The fourth and final pool, physical assets, includes facilities, equipment, and natural resources. For brevity, we will touch on only a few of the most important factors for Salesforce.com’s SWOT analysis.

Strengths: As measured by Glassdoor, Salesforce.com gets high marks (4.0 out of 5.0) for providing good work-life balance and the opportunity to work with smart people. In addition, 78 percent of reviewers would recommend a job at Salesforce.com to a friend. What’s more, CEO Marc Benioff has an impressive 94 percent approval rating.

Weaknesses: The $1 billion in cash held by Salesforce.com pales in comparison to the war chests of many large technology vendors who may use their financial muscle to compete with or acquire the company.

Opportunities: As data center capacity becomes more of a commodity, Salesforce.com has the opportunity to improve performance and lower costs by partnering with a third-party vendor such as Amazon.com, IBM, or Google.

Threats: Salesforce.com is likely to face more frequent intellectual property (IP) challenges as it expands its business into new areas beyond sales force automation despite having more than 1,000 patents and access to 40,000 more via its agreement with Intellectual Vendors.¹²

Table 1-3 provides a condensed resource factor SWOT analysis of Salesforce.com.

  TABLE 1-3   Resource Factor SWOT Analysis of Salesforce.com

External Forces

Harvard Business School Professor Michael Porter’s Five Forces framework—the classic approach to analyzing the attractiveness of an industry for purposes of developing competitive strategy—was developed because Professor Porter felt the SWOT analysis framework was too company specific and did not have enough rigor.¹³ Nevertheless, we feel the SWOT approach has served us well. In our opinion, it is advantageous to combine the two.

Customer Factors

Our analysis begins with Porter’s “bargaining power of buyers,” which we call “customer factors.”

Strengths: Salesforce.com’s Sales Cloud buyers are not individual salespeople but, rather, executive leaders, including heads of sales, CFOs, and CEOs. Large companies have low buyer power because they have few options other than Salesforce.com if they need to rely on a secure, reliable, cloud-based solution from a vendor with significant customer service resources and an extensive partner ecosystem. In addition, financial and monetary switching costs attached to going from one CRM platform to another, including Salesforce.com, are extremely high.

Weaknesses: Buyers employed by small and medium-sized businesses (SMBs) can have enormous market power, access to better pricing, and more advanced functionality if they are willing to compromise on certain Salesforce.com strengths, such as its partner ecosystem.

Opportunities: Salesforce.com can expand the value it creates and captures by investing in its traditional areas of strength as well as by integrating new functionality, including predictive analytics and marketing automation features.

Threats: The more information buyers can access, the greater their bargaining power. Websites like G2Crowd, Quora, TrustRadius, GetApp, and SoftwareAdvice provide a wealth of information on pricing and tactics that customers can tap when negotiating with Salesforce.com.

Competitive Factors

This label of “competitive factors” covers three of Porter’s Five Forces—“threat of new entrants,” “industry rivalry,” and “threat of substitutes.” Even though these factors have made their appearance in the Salesforce.com SWOT analysis thus far, we thought it necessary to review briefly a few items that might have gone unnoticed.

Strengths: In its market-leading position, Salesforce.com can afford to invest heavily in its product and its marketing. In addition, on the basis of its large installed base of users and its enviable developer and reseller ecosystem, the company often wins in competitive situations.

Weaknesses: Despite the company’s leading position, its competitors collectively control more than 80 percent of the market for CRM solutions. In addition to larger vendors like Oracle and SAP, Salesforce.com is under constant attack by innovative, lower-priced, reasonably well-funded newcomers such as SugarCRM, Zoho, Insightly, Nimble, Infusionsoft, and scores of others. Market leaders have very little desire or ability to lower prices and instead seek to remain competitive by increasing functionality. (Lou Gerstner’s decision to drastically lower mainframe prices when he ran IBM is one of the rare exceptions in the technology industry.) As Clayton Christensen outlines in The Innovator’s Dilemma, dominant vendors face an existential threat when newcomers first dominate a niche and then develop good-enough functionality to serve the masses.

Opportunities: To increase its strength relative to the competition, Salesforce.com should continue to pursue innovation in both pricing and functionality.

Threats: The convergence of sales force automation (SFA) and marketing automation platforms (MAPs) is perhaps the biggest threat to Salesforce.com. This convergence is happening because companies are most successful when they have a multichannel view of their customer and prospect engagement online and offline. Recognizing this threat, the company has made a number of acquisitions, most notably Pardot (for B2B) and ExactTarget (for B2C). The race is on between MAP vendors integrating SFA functionality and SFA vendors integrating MAP functionality; hence, Salesforce.com must make quick work of its own integration efforts.

Bargaining Power of Suppliers

The last of Porter’s Five Forces is the “bargaining power of suppliers.” Although this is usually a much stronger consideration for companies that manufacture physical goods, service providers also deal with powerful suppliers.

Strengths: As a cloud-based service provider, Salesforce.com builds and maintains large data centers around the world. Fortunately, the markets for servers, networking equipment, and data bandwidth are all highly competitive with low switching costs due to interoperability and with a large pool of world-class suppliers from which to choose.

Weaknesses: The biggest supplier to Salesforce.com is its own labor force. While unionization is unlikely, demand for skilled engineers and sales professionals remains extremely high, especially in the locations where the company operates.

Opportunities: With labor as a major input, any efforts Salesforce.com makes to improve the intrinsic benefits of working for the company will pay dividends, including expanding its commitment to social responsibility and investing in its culture.

Threats: The price of energy used in the company’s data centers is increasing due to political instability and diminishing natural resources. In addition, unlike other inputs, switching energy suppliers is not easy and also poses a threat to margin as energy prices rise.

Table 1-4 provides a condensed external forces SWOT analysis of Salesforce.com.

  TABLE 1-4   External Forces SWOT Analysis of Salesforce.com

Trends

The two major trend categories are social-demographic and technology. Trends are important because they are the external (macro) factors that affect business success. Trends are different from VUCA factors, which we will delve into next, in that they are long term and are either immediately observable or reasonably certain to occur. Current social-demographic trends include longer lifespans, the rise of millennials, the freelance economy, and climate change. Current technology trends include mobile computing, social collaboration, cloud computing, and big data.

Strengths: Salesforce.com has been positioned to take advantage of all notable technology trends including social collaboration with its Chatter feature, mobile applications, big data analytics with its dashboards, and cloud computing for its operating model.

Weaknesses: No major weaknesses related to social-demographic or technology trends.

Opportunities: If the rise of the freelance economy turns out to be as real as its hype, Salesforce.com has the opportunity to offer solutions to solopreneurs if it can crack the code on a virtually zero-service-needed offering. The company’s acquisition of RelateIQ is Salesforce.com’s first action to capture this opportunity.

Threats: Climate change will negatively affect Salesforce.com’s and its customers’ operations with increasing frequency.

VUCA Factors: Volatile, Uncertain, Complex, and Ambiguous Occurrences

The frequency and timing of all VUCA factors are unpredictable by definition. However, these volatile, uncertain, complex, and ambiguous occurrences, while mostly negative and external, such as economic shocks, political instability, acts of terrorism, or natural disasters, can also be internally generated (employment litigation) and positive (economic expansion).

Strengths: We presume that Salesforce.com has business interruption insurance to provide relief from many VUCA factors. In addition, the company makes significant investments to protect itself from digital terrorism.

Weaknesses: No company, Salesforce.com included, can ensure against every negative VUCA factor, nor can any company be positioned to take advantage of every positive VUCA factor.

Opportunities: Salesforce.com should align its geographic footprint with that of its large, multinational customers to take advantage of economic expansion in emerging economies.

Threats: Most of the VUCA factors listed above are threats, and all are risks to Salesforce.com to one degree or another.

Table 1-5 provides a condensed trends and VUCA factor SWOT analysis of Salesforce.com.

  TABLE 1-5   Trends and VUCA Factor SWOT Analysis of Salesforce.com

Looking back, the SWOT analysis for Salesforce.com produced a lot, perhaps even too much, information. Sometimes, the factors even overlapped, which is all right because the next step is to simplify the analysis. We’ll do this by first going item by item and assigning each a simple score of high, medium, or low importance in competitive prospecting situations. Next, as shown in Figure 1-2, we’ll list the items ranked as high impact in a two-by-two table that fits into a single page as we did in Figure 1-1. Think harder if you have fewer than three items in one of the four boxes, and prioritize more aggressively if you have more than five.

  FIGURE 1-2   SWOT Analysis for Salesforce.com

Since companies, industries, and customers are in a constant state of change, we recommend that salespeople review and, if necessary, refresh their SWOT analysis at least once each quarter. The refresh is an ideal team activity so colleagues can share insights and experiences.

We know that we spent a disproportionate amount of time on the SWOT analysis. This was intentional because it is the precursor to the many steps leading to building the Predictable Prospecting model. In the next chapter we will show you how to develop an Ideal Account Profile (IAP).