The Winner’s Curse: Sometimes It’s Better to Lose a Sale

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The happiest event in a salesperson’s life is winning a major sale against an archrival competitor. The second happiest is losing a sale to your competitor—and learning that the prospect became your competitor’s worst support nightmare. We call it the Winner’s Curse.

I know. I’ve been on both sides.

Having a customer engagement you’d have been better off without is more demoralizing than losing a coveted opportunity. For the also-ran sales teams, buyer remorse over a rival’s product can provide a windfall boost to sales—without investing penny in marketing, product development or additional sales expenses. And no one can ever accuse a salesperson of mudslinging when he or she shares a bona fide negative reference about a competitor.

A company I worked for many years ago was a premier systems provider to manufacturers and distributors but had little presence in the healthcare market. My employer wanted a beachhead account in this important and growing market. I won a substantial contract to supply a records management solution to the radiology department of a large, multi-site healthcare client I’ll call Mega Health Services or MHS.

MHS wanted its new system to record an admission, print a barcode label, scan the label and track an X-ray jacket. Every admission. On demand. Thousands of times per day. We placed the order, and the barcode equipment was delivered and set up in every MHS radiology center.

That’s when things started to go wrong. The printers started to jam. Many times. In many locations. Calls from upset radiology technicians and nurses poured into my cell phone. “My printer is jammed! It needs to be fixed! Now!” In a face-to-face meeting I can’t describe as cordial, the corporate radiology manager spelled out her expectations to me: “Delivering the highest level of service to our patients is paramount to our organization. We expect our vendors to enable that. Period.”

No one’s fault

My local service manager offered no relief. “There’s not much I can do,” he told me. “Next time one of the printers jams, have them bring it in (to the service center).”

“You don’t understand,” I said. “They can’t do that.”

The service manager had fulfilled his forensic obligations—at least according to his job description. The situation worsened. More printers failed, and the phone calls I received became shriller.

Eventually, a manager in my company’s consumables division told me the jamming problem might be related to a series of quality incidents at our manufacturing plant. He said that the thousands of labels I sold to MHS were wound too tightly onto the paper cores. That problem cascaded. The over-tightened labels had small amounts of oozing adhesive. At MHS, that adhesive adhered to the print heads as the labels passed through the machines. The labels peeled inside the printers and got stuck. To free the stuck labels, harried employees used whatever they could find—including metal implements, which caused the electrically-conductive print heads to short out. My company’s warranty didn’t cover that problem.

“Fiasco” doesn’t come close to describing the outcome. The concomitant problems took months to sort out, and MHS eventually replaced my company’s equipment with a competitor’s. The label revenue? Gone, too. Worst of all, a new competitor had the opportunity to become a hero, without incurring prospecting expenses, engineering costs and proof-of-concept costs. I had underwritten all of that, as part of the initial system sale.

What cauldron of issues created this Winner’s Curse?

  1. The general ledger account silos. When it came to revenue and expense accounting, my company didn’t share anything between departments. In this Winner’s Curse scenario, only one department received revenue credit for equipment: sales. The service manager’s revenue came from service contracts, and he believed that warranty support was an expense to be controlled and minimized. And because support expenses weren’t costed to sales, I had little incentive to reduce the risks. The Consumables division? It didn’t receive credit for hardware sales or service contracts, even though its revenue was dependent. What kind of experiences do these accounting silos create? Just ask MHS’s corporate radiology manager.
  2. Prospect qualification. This focused on getting the sale, instead of gaining a valuable customer. My investigation traded off asking other valuable questions, including “will this prospect become a valuable customer for our organization?” or: “Can this prospect implement our solution?”
  3. Poor customer expectation management. In client meetings during the sales process, we didn’t discuss risks and minimized MHS’ obligations. Many Winner’s Curses begin when a vendor over-promises and under-delivers—instead of the other way around.
  4. Lack of coordination and performance measurement. Quality control problems at the label plant. Equipment failures. Viscerally unhappy customers. Was anyone watching these not-so-disparate events and preparing a coordinated response? Each department had a separate set of performance measurements, none of which mitigated the risk that the customer might be completely dissatisfied.

By any analysis, this Winner’s Curse was my company’s self-inflicted debacle. But in many situations, customers are complicit because they fail to see beyond their own self interest. They don’t recognize that a valuable business relationship provides mutual benefits. Customers benefit from what a product provides—and vendors must make a meaningful profit providing it.

Some sales engagements aren’t worth winning. How can you know? There are two keys. First, have a clear picture of what a Winner’s Curse looks like and what it means for your organization. Second, ask the right questions to expose the risks. Those questions must be asked not only at the beginning but also throughout the customer relationship.

2 COMMENTS

  1. [img_assist|nid=202358|title=Alan Piesse|desc=Pinnacle Stone Limited|link=none|align=left|width=82|height=100]I worked for a motor breakdown service company in the mid 90s. We could identify fairly easily customers whose cars broke down or were likely to. We did a piece of work that suggested that we could actually “pay” these customers to move to one of our competitors and we would be substantially better off. Politically a no go but a great insight.

    I’m now in the retention field as a specialist advising businesses how to retain customers. It usually starts with proactive work to get customers to stay followed by changes in the business to engender loyalty (CRM) and long term value. However what usually shocks my clients is the statement that they need to recruit the right customers in the first place!

    There is a certain amount of tongue in cheek in this but if you recruit customers who pay by cash with poorly maintained old cars they will not only cost you to service but then at the first opportunity switch to the markets cheapest deal irrespective of quality. However asking a sales force not to recruit the easiest to sign up is tantamount to heresy.

  2. Alan: thanks for your comment. It sounds like knowing the prospects you want to avoid can be just as valuable as knowing the prospects you seek. One thing is certain, if an opportunity is sufficiently valuable, an entrepreneur will figure out how to make money on the prospects that other companies–or industries–cast off.

    The challenge you described, asking a sales force not to recruit the easiest customers to sign up, often means a fundamental re-thinking of how companies regard the value they create for customers and require in return. Ultimately, the evidence of that returned value goes beyond revenue and profits.

    How companies reward salespeople for identifying and capturing that value is of great interest to those who are responsible for creating the strategies to compensate salespeople.

    In the case of the VP of Sales for my employer cited in the article, his rallying cry “Sell! Sell! Sell!”, was as memorable as it was simple. Not surprisingly, sales commissions were based on a percentage of revenue.

    But in this situation–and many others like it, I’m not sure if “sell, sell, sell!” served my company’s customers or shareholders.

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