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Thursday, February 29, 2024

The Impact of Economic Uncertainty on Decision-Making

This blog was written by Brian McMahon, Consultant at Anova.

In a year marked by positive economic indicators, including steady stock market gains, a low unemployment rate, and a drop in inflation, one would expect optimism to permeate boardrooms and executive offices. However, a surprising trend emerges: despite these positive signs, a notable pessimism persists among consumers, businesses, and executives regarding the economic outlook. This skepticism is underscored by the findings of the “Measure of CEO Confidence” study, conducted by the Conference Board in late 2023, revealing that 47% of CEOs anticipate a decline in economic conditions over the next six months—a notable increase from 39% in the previous quarter. Moreover, a staggering 72% of CEOs are preparing for a potential U.S. recession within the next 12-18 months.

The Impact of Economic Uncertainty on Decision-Making:

This prevailing economic uncertainty has a profound impact on decision-makers, rendering them more hesitant than ever to make significant purchase decisions. The reluctance to commit is further exacerbated by a fear of purchasing, rooted in what is known as the omission bias—the customer’s desire to avoid taking action that may lead to a loss.

Last year, Matthew Dixon and Ted McKenna of DCM Insights wrote a compelling piece entitled: Stop Losing Sales to Customer Indecision. I would highly recommend it to anyone who is looking to more deeply understand what is driving purchasing decisions (or the lack thereof) nowadays. Anyway, in their research they highlight that customer indecision is responsible for the loss of 40-60% of deals today.

What We’re Seeing Here at Anova:

Anova Consulting Group, having observed these trends across various industries, notes a parallel shift in buyer behavior. To delve deeper into this trend, I took a deeper dive into Anova’s recent work in the retirements and benefits space. What makes the benefits industry an interesting test subject for evaluating indecision is the existence of an already existing solution / provider, combined with the fact that the situations that we examine in this space are those where the sponsor / decision maker made the conscious decision to take this business out to market.

Anova traffics in competitive won and lost situations. So, the deals for which we interview generally entail sales presentations, or long, ongoing, repeated sales conversations. As such, when a plan is brought out to bid, and this process is undergone, most prospects end up moving their plan. However, in 2023, the proportion of plans that are staying with their incumbent provider or putting off / declining to make a decision has seen a sharp increase. In 2021, roughly 20% of losses for our retirement clients made no change in their plan provider, and in 2023, that number YTD is ~37%, almost doubling.

For many of our benefits clients, we ask interviewees how likely they were at the outset of the evaluation to change providers. Generally, when interviewing clients from wins, a considerable portion reflected that they had only been “somewhat likely” to switch at the outset of their evaluation. In other words, they entered somewhat uncertain, but ended up making the decision anyway. We are seeing fewer and fewer of these cases wins that started uncertain but made the decision to switch anyway. In 2021, almost 40% of retirement wins fell into this category and were “somewhat likely” to switch at the outset. In 2023 that number has dropped in half to ~20%, indicating that it is becoming harder and harder to convince executives to make a decision, if their mind was not already made up at the outset.

How to Combat Indecision:

To navigate this environment of heightened buyer indecision, Matthew and Ted prescribed the JOLT method as the strategic approach. The four elements of the JOLT method are:

1. Judging the Level of Customer Indecision – Understanding the depth of customer indecision is crucial. Sales reps need to assess the degree to which prospects are reluctant to make decisions and the factors contributing to this hesitancy.
2. Offering a Recommendation – Providing a strong and personalized recommendation tailored to the customer’s unique needs is pivotal. This not only demonstrates a deep understanding of the customer’s challenges but also guides them toward a solution.
3. Limiting Exploration – Recognizing the need to streamline the decision-making process, limiting exploration involves narrowing down options and focusing on solutions that directly address the customer’s pain points. This helps in mitigating the overwhelming nature of choices.
4. Taking the Risk Off the Table – Buyers often fear the potential risks associated with a decision. Sales reps need to proactively address and alleviate these concerns, showcasing the reliability and effectiveness of the proposed solution.

For us at Anova, the JOLT method, particularly steps 2 and 3, aligns very closely with the recommendations we make to our own clients on how to maximize sales performance. Granted, every sales team is different and will each have different areas of need. However, we have found that a good barometer for identifying a high performing sales team is in how well it succeeds at understanding the unique needs of the customer and proposing a distinct, tailored solution that aligns with those needs. When this is done correctly, the sales team is far more likely to differentiate their offering, sell the value proposition, and win the business.

In 2023, with the heightening indecision that is endemic in the marketplace, demonstrating these skills has become more important than ever.

In their own recent research, Matthew and Ted cited substantial improvements to win rates when sales teams successfully utilized these strategies. They found that when sales teams were able to combine a strong diagnosis of needs with a tailored recommendation that aligns with those needs, win rates rose from 14% to 36%.

Anova’s research is uncovering similar results. Thus far in 2023, we have seen that understanding a client’s unique needs and taking a consultative and prescriptive approach to meeting those needs is vital to winning business. Over the last eight aggregate reports Anova has done across all industries, an average of 93% of respondents in wins rated themselves as “satisfied”* with the ability of the winning sales team to understand their unique needs. For consultative approach, the percentage of satisfied respondents was 89%.

And when you delve specifically into benefits providers, these findings become even clearer. Over the past four reports examining win / loss data for benefits providers, average satisfaction with needs assessment and consultative approach in wins was 96% and 94%, respectively. Furthermore, 41% of respondents in these programs cited the consultative approach taken by their sales team as a key strength, unprompted. For reference, the average percentage of respondents who cited this as a strength across all Anova programs in 2022 was just 23%.

The importance and value of needs assessment and consultative approach is not new. High performing sales teams have always been better in these areas, and proficiency with them has always been correlated to winning. However, due to widespread and increasing buyer indecision, these skills are transforming from “nice-to-haves” to table stakes necessary to win business.

Conclusion:

Executives and buyers are pessimistic about our short-term economic outlook, and it is showing in how they are approaching purchase decisions. Buyer indecision and fear of purchasing is becoming more and more prevalent, and sellers need to revise their approach to combat this. In addition to gauging buyer indecision at the start of the process, sales teams need to accurately assess and display an in-depth understanding of each client’s unique needs during the sale. As economic uncertainty and doubt reign, showcasing that understanding and proposing a distinct and customized solution that takes the burden of choice off the buyer has become vital in overcoming indecision and winning business.

*Note: In Anova methodology, satisfaction is calculated as the percentage of quantitative responses scored 6 or 7 on Anova’s 7-point scale.