This is a summary of the March 2004 Harvard Business Review article about Mercer's partnership with Hill-Rom to use a segmentation approach to help the sales force and the company prosper.
In early 2001, Hill-Rom, an international healthcare equipment and services company, faced problems that are common to many firms: increasing competition, slowing revenue growth, and customers who were considering lower-end, lower-priced products. In response, Hill-Rom decided to increase its R&D spending to speed product innovation – but to survive and prosper, it needed a more effective sales force.
A customer-focused approach
Mercer Human Resource Consulting was hired by Hill-Rom to redesign its approach to sales compensation. The objectives were clear: reduce costs, maintain morale, and increase sales. Mercer HR's Mike Pekkarinen, who directed the project, says "We quickly realized that before we could design sales incentives, Hill-Rom needed a clearer picture of the customers it should target and behaviors it wanted to encourage. So we introduced Mercer Management Consulting which is expert in helping clients select the most profitable customers."
Mercer MC studied Hill-Rom's customers and identified ways to segment customers by their needs. "Hill-Rom offers some of the most high-end products available, with real benefits for patients, care givers and hospitals, but not every hospital was interested in purchasing these products. Some customers simply need to get basic equipment replaced or repaired quickly, and we found that these customers were dissatisfied with Hill-Rom's service," says Chris Bernene, head of the Mercer MC team.
Redesigning the sales force
Based on this analysis, Mercer MC and Mercer HR jointly recommended that Hill-Rom segment its sales strategy to address two different customer bases:
1) "Key Customers" who value and can afford the latest technology, and
2) "Prime Customers" who want fast response times for everyday equipment needs but can't afford or don't want to be on the cutting edge of technology.
According to Pekkarinen, "A fact previously unknown to Hill-Rom was that 90 percent of the income was coming from 20 percent of the hospitals – the ones we called Key Customers.
We assigned all the account managers to the Key Customers and reduced their average client load from 75 to 25. This allowed them to focus on creating demand among the hospitals that were prepared to invest in new technology. We also gave each account manager responsibility for the full-range of Hill-Rom's products, as opposed to using separate sales forces as before. This gave customers a single point of contact with Hill-Rom."
Sales to Prime Customers were handled entirely differently – with all customer orders flowing through a call center that could dispatch replacements and technicians immediately. This gave these customers the immediate response they were seeking.
The next step in the process was to establish a structure for setting sales goals and compensation. All roles needed measurable goals linked to individual and team objectives. For the new roles, entirely new incentive plan designs were developed, modeled and institutionalized – and, of course, the new approach had to be affordable, while compensating the sales organization competitively.
The proof is in the results
Within a year, Hill-Rom saw results: its revenue growth rate doubled, sales costs dropped by 2 percentage points, gross margins improved by 1.3 percentage points, and customer satisfaction improved by 6 percentage points.
