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In with the New Products, and the Old Ones Too

Matt Palmquist

Matt Palmquist is a freelance business journalist based in Oakland, Calif.

 

Bottom LineBy 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.

Managers must carefully consider 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

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In with the New Products, and the Old Ones Too