Sales Growth. Baumgartner Thomas

that although the company had 20 percent of the overall market, it had up to 60 percent in some micro-markets, while in others, including some of the fastest-growing segments, its share was as low as 10 percent.

      Sales leaders used this insight to turn the planning process on its head. Instead of relying solely on historical data to allocate resources, they included forward-looking opportunity data at a much finer level of analysis. They adjusted how the sales force was deployed to exploit the growth opportunities and ensured that reps were equipped to win in the opportunity hot spots they had discovered.

      The sales leaders we interviewed across a range of sectors agreed that taking this sort of granular approach to growth is essential in deciding where to compete and in translating market insights into actions. The most successful sales leaders were extremely proactive in mining the growth that lay right beneath their feet in what seemed to be mature markets. Many have delivered impressive results thanks to this micro-market approach to growth, even under the strain of the recent financial crisis. At the core of this approach to find growth ahead of competition, leading sales organizations do three things:

      1. Find the pockets of growth. Using micro-market analysis, companies can identify where opportunity lies at a very granular level based on a combination of market characteristics, including competitive intensity and market attractiveness.

      2. Look beyond sales to mine growth. To maximize the benefits of micro-markets, leading organizations recognize they need to involve functions beyond sales.

      3. Keep it easy for the sales team. Micro-market strategies by their very nature are heavy on the analytics, so it’s important that sales teams on the ground don’t get bogged down by the detail and can simply harness the information in the most effective way.

      The company had 20 percent of the overall market but only 10 percent in some of the fastest-growing segments.

      Find the Pockets of Growth

      Granularity is a word traditionally used more by scientists than sales leaders, yet it cropped up time and again in our conversations. Companies that have capitalized on micro-markets have taken a geological hammer to all their market and customer data; they break larger markets down into much smaller units, where the opportunities – prospects, new customer segments, or micro-segments – can be assessed in detail.

      Portugal Telecom has wielded this hammer in several key markets, including Brazil. Former CEO Zeinal Bava explained in 2011: “To me, there’s no such thing as an effective countrywide strategy. We break the country down into customer segments and then look at different geographies. São Paulo city is very different from São Paulo state, for example… You have to walk away from the averages and map out the markets. If you are the leader in a specific market, it might be sufficient to offer customers one month [subscription] for free. If you’re number four, you might have to give them three months. When we rolled out 3G, we started in areas where the average revenue per user and spectrum availability supported the business case and service quality underlying the investment.”5

      It quickly becomes clear that a broad-brush approach will not lead to the most lucrative hot spots and could leave you wasting resources where growth is significantly below average. Leading companies are taking differentiated approaches to driving revenue growth based on this type of granular information.

      In Europe, a consumer telecommunications company reexamined its 15 sales regions and split them into approximately 500 micro-markets based on a variety of characteristics such as shopper population density and store catchment areas. Sales leaders were surprised to see that when viewed at this level of detail, these markets actually varied by a factor of four in terms of shopping activity, economic growth, and wealth. Focusing the microscope on its store penetration in each micro-market and looking at the relative share of stores compared to competitors showed similarly wide variations.

      It became apparent that there were deep pockets of opportunity in places with attractive populations and limited competition, but the company did not have the right store footprint or formats to access this untapped demand. There were also places where competition was intense but there were fewer unserved customers than the company had initially believed. It had treated many of these markets in similar ways due to the lack of granular, micro-level segmentation. The head of channels realized quickly that it was time for a much more differentiated approach if the company was to grow revenue profitably.

      The company aggregated its 500 micro-markets into four categories. In the most underserved markets with the lowest density of retail stores (both its own and those of competitors) the company focused on developing different store formats to make store economics more attractive and establish a foothold before its competitors. Ultimately, the telecommunications company saw 5 to 10 percent more in-store visits by optimizing its store footprint. It also shaved total store costs by 5 percent by eliminating, resizing, or refocusing less profitable locations.

      A broad-brush approach will not lead you to the most lucrative hot spots.

      The chemicals and services company we mentioned at the start of the chapter used a four-step approach to finding pockets of growth. First, it created an opportunity map, which is the foundation of micro-market strategy. It defined the size of the micro-markets at a district level by matching administrative counties with reps’ typical 25-mile territory radius; this typically resulted in coverage of four or five counties. Then, the company determined the growth potential based on a list of 15 drivers, using industry knowledge as well as interviews with customers and reps. Drivers included cost of input, cost of capital, local demographics, etc. The company measured the impact of each driver by analyzing how it had affected growth historically. Third, the company estimated market share in each market and what lay behind market-share differences between markets, which included drivers such as rep coverage, pricing by channel and product, and marketing spend. Finally, sales leaders prioritized the growth pockets based on opportunity for growth. It realized that 60 percent of the fastest-growing counties had inadequate rep coverage, while there were slow-growth territories that were over-resourced.

The company rapidly reallocated resources between territories and focused on those with the most growth potential (Figure 2.1). The head of sales then translated the micro-market insights into specific sales leads and the results were impressive: a tenfold increase in prospects in some micro-markets and a narrowing down of realistic prospects in others. Figure 2.2 shows the scale of the variation.6 In industries I to N, for example, the company calculated that there was an enormous missed opportunity, whereas industries A to D were already close to their full potential.

Figure 2.1 Micro-market analysis reveals pockets of growth

Figure 2.2 Micro-market lens fills the pipeline with otherwise hidden opportunities

      Look beyond Sales

      Translating detailed analysis into insights is not a novel idea in itself. Nor is it sufficient for capturing micro-market growth ahead of competition. What turns insights into sales is how the front line is managed in the micro-market. The sales executives we interviewed stressed the need for appropriate resource allocation and actionable tactics for sales teams or retail stores to fully exploit the new opportunities.

      These sales executives also work very closely with other parts of the organization to capture the most lucrative customer opportunities in micro-markets. This means realigning sales, marketing, and sometimes even noncommercial resources such as customer service or supply

5

“Interview with Zeinal Bava,” McKinsey Quarterly, April 2011.