Have I got a deal for you!

Which industry are we really suspicious about, and is the butt of jokes around the world? How about the car salesman?

So why do you think we are so suspicious?

Here’s what we might experience:

A rather smooth operator who appears to ask you about what you want but, surprise surprise, “has exactly what you are after”…which, funnily enough, happens to be what he’s got in stock!
A personal business card handed over, encouraging you to give him a call whenever you want…but use his direct number: “remember me, my name’s Jim”;
Some desperate moves from Jim as you attempt to leave his car yard, saying things like “I can only offer you this fabulous deal today”;
…but when you have left the yard, multiple calls from Jim asking how you are getting on and saying that things have changed for the better…so come on by so that we can discuss “…and remember to ask for Jim”;
…and if you ring back for Jim but he isn’t available, his ‘colleague’ Bob gladly (yet slyly) takes over the deal, perhaps saying “nah, no need to tell Jim, I can handle it from here!”;
Strong attempts to ‘sell you some extras’ like finance, warranty, a tow bar and so on…even when you’ve made clear that you really don’t want them;
Assurances that “yes, don’t worry about it – everything works…and if, in the unlikely event you have a problem, just bring it back in and we’ll sort it”;
…and if you end up making a purchase, some strange ‘paperwork’ going on to make the deal look a certain way:
- perhaps trying to bring it forward or put it back (end of the week/ month/ year);
- perhaps trying to play around with how the figures look

….you might be able to add a whole heap more experiences to the above!

Actually, car salesmen are nothing compared to big financial services business. Let’s move across to the UK Financial sector and have a look at the carnage of the last few decades:

the 1988 – 1994 Personal Pension miss-selling scandal in which salespeople on commission persuaded vast numbers of people to trade in generous and safe(r) company pensions for riskier and costlier alternatives. The resultant compensation scheme forced on the industry involved the review of 1.7 million consumers, over 1 million compensation payouts and a total cost to the financial companies involved of £12 billion; (Source of figures here)

the 1990s and 2000’s Payment Protection Insurance (PPI) miss-selling scandal in which banks and other financial institutions offered sales incentives to increase the take up of payment protection insurance…which led to a range of miss-selling practises including: putting pressure on customers to buy it in order to secure a loan; failing to make it clear that it was optional; selling to people who were actually ineligible; and even adding it to a loan without the customers consent or knowledge. The resultant compensation scheme forced on the industry (spot the pattern?!) saw the ombudsman receiving “5,000 complaints a week” and payouts being made of more than £15 billion. (Source of figures here)

…and on and on (the Endowment Mortgage miss-selling scandal, the Credit Card Protection insurance miss-selling scandal….)

They all shared the same ‘miss-selling’ credentials

aggressive, ignorant or incompetent sales tactics,
a failure to appropriately advise customers, and
deliberate strategies to sell financial services that customers do not need;

So, what’s the common ingredient?

Well, that would be the offering of sales incentives (contingent rewards).

The point is that, if you offer sales incentives, you can virtually guarantee that you will cause dysfunctional behaviour that goes against your (stated) ‘customer’ purpose.

Remember that a valid purpose statement should say something about “helping people…” It does not say “sell what you can to them”. We need to remind ourselves about a system and that ‘sales’ is but one component of it.

If you offer sales incentives, you can expect the system to ‘bite back’ in the form of undesirable discounts and terms given, failure demands from customers contacting you again, cancellations, complaints, debt collection costs, returns and after service costs… all of which will be un-measurable back to your brilliant sales incentive scheme.

You can of course try to put in place ‘compliance’ controls to monitor all these ‘side effects’ but a) you won’t catch the majority of them and b) this is just an additional (and expensive) layer of costs, and waste.

The sobering thing about the UK financial service miss-selling scandals is that the eventual costs dwarfed the original supposed sales benefits! What a huge waste.

If you offer sales incentives, you can expect:

people to try to sell what they have in front of them, rather than what the customer wants, or actually needs;
a strong desire to ‘get the sale’ and ‘move on’ to the next ‘lead’ meaning that less care is taken explaining the product and what it is and isn’t;
‘dodgy sales’ made, which should never have occurred (i.e. were inappropriate and/or were not desired)

If these incentives are to individuals, you can expect reduced co-operation between ‘colleagues’, who are now in competition for those elusive sales…even leading to sabotage.

Such competition will actually harm, and prevent those many sales that would have occurred because of co-operation between colleagues.

If these incentives are for particular products, you can expect other products to be ignored, and even denigrated in favour of chasing the reward…even if the non-incentivised product was what the customer actually needed.

If you add targets to achieve these incentives, you can expect games to be played:

if I am near my target in a given period, I’ll do some creative things to creep over the threshold (perhaps offering discounts and giving things away for free that I shouldn’t be);
if I have achieved this period’s target, I might try to defer a sale to my next period, which, again, may not be what the customer wants and clearly distorts information about demand.

And, given that the customer isn’t daft, they ‘feel’ the sales process as opposed to experiencing someone that actually cares about them…providing an awful experience and a massive (yet missed) hit in reputation.

There’s nothing ‘rocket science’ about the above. We all know and recognise it (it happens to us as customers and we hate it!)…yet many of us still work in management systems that think that sales incentives are a good idea.

An important clarification:

If you think that the bad practices described above are only carried out by a handful of ‘bad people’ then you don’t understand human psychology. In fact, the majority of people are having to play a ‘game of survival’ within their incentivised ‘meet target’ management regime and feeling pretty bad about it too…it certainly doesn’t meet their much talked about personal purposes. You’d have to be a pretty strong person to go against the system…and you might not last long in such an organisation if you do!

It’s not a case of ‘bad people’…it’s a case of ‘good people’ having to work in a ‘bad system’….which brings to mind Deming’s quote:

“A bad system will beat a good person every time.”

To close: Going back to our car salesmen opening, most dealers assume that they won’t shift cars without sales incentives. John Seddon, in his latest book ‘The Whitehall Effect’, refers to a Canadian auto dealership client that:

studied their system;
revealed the tricks used by the salespeople to make sales and gain the incentives; and then
understood the resultant negative impacts on the customer.

They removed sales incentives, set out a customer brochure describing all the industry sales tricks and promised that none applied here. Salespeople now co-operate with each other, customer trust improved, sales went up and long term customer relationships were forged.