Are Printers Rational?

Question:  About a year ago, Steven Schnoll had the following to say on WhatTheyThink:

(The article)"Printers are categorically extremely irrational. They have a tough time identifying good options even when presented to them on a silver platter. Many aren't very good decision makers and tend to be followers rather than leaders. While many have been in the industry for decades, they possess two common traits - fear and greed and therefore are prone to make many mistakes in business."

If he was correct in his assessment of about a year ago, will a rational numbers argument make a difference anyway?

Answer: Sorry, but I hate to say that printers are actually rational from an economic perspective. All economic decisions over time are rationally based on what printers believe to be true at that time. This is one reason why many printers are more profitable than the great bulk of industry vendors. This doesn't mean it's rational in an individual business sense, which is what Steve is talking about. But more about that below…

What most people miss in analyzing the print market is the personal pressure on shop owners and how heavily family and personal matters influence their decisions. Yes, they make suboptimal decisions very often, but they make rational decisions based on what they know at a particular point in time.

Printers are skeptical of the cold rationality of numbers presented to them by accountants and financiers. After all, they know how flexible those numbers can be and how you can make them come out any way you want. Aside from playing tax minimization games with their accountants, most of these folks have had to estimate a print job cost! And if that doesn't seem like playing with darts blindfolded some of the time, I don't know what does!!

Basically, the assumption that you have to make in examining these things is that behavior that is repeated consistently must have as its cause a decision that is rational. From the outside, it is impossible to understand all of the elements that went into making the business decision in the first place; and "rational" and "right" are not necessarily equivalent terms. What Steve is saying is that they are not making the right decisions. What I'm saying as an observer of industry structure is that "right" doesn't matter in getting the macro perspective correct. I look at market behavior, and my assumption is that the behavior is rational from an economic perspective, and that I can't know all of the aspects of the decisions that led to the creation of the behavior.

Steve's job as a consultant is to help individual clients make the right decisions that lead to meeting their goals. This implies that they will have to do something different than the rest of the marketplace is doing-and than they have done in the past themselves. It also means, like I have said for so long, that management skill DOES make a difference, and making the right decisions is what matters.

Does this mean that "rational numbers arguments" don't work? Not at all--they're just one element of any decision. I've seen many cases where numerical arguments are correct but don't fit the totality of a situation. But again, let's not confuse "right" and "rational." They can be quite different.

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Bad Salesmanship or Bad Sales Management?

Question: Re: your commentary regarding sales turnover, there was a business tenet propagated by GE that said, "Continuously replace the bottom fourth of your employees. Don't waste time training 'em. Only train the top producers for the best payoff."

My question: Would you endorse such a mode of management, particularly if price, product, ability to pay, etc. were the root cause rather than salesmanship? And who decides which?

Answer: There are many problems with sales management-in fact, so many that I can't list all of them. But here are a few of my favorite targets:

Bad Selection Process. Sales people are often viewed as a dime a dozen, and many managers believe that keeping them charged up and incented creates an environment for success. It is still all too common for managers to think people can be motivated via posters, slogans and a high commission (see my discussion above about

Lack of Training and the sense that training is an occasional event. As my friend Bill Farquharson constantly says, training is a process, not an event. I think companies often forget that sales is a profession and a vocation, and that part of that is training-not in how to convince people, but in how to detect opportunities to solve problems for customers, and as Dick Gorelick says, "create an environment that leads to sales." If I had a dime every time a printer has said to me about equipment companies, "Their sales rep just doesn't understand my business," I'd own Microsoft by now.

I remember asking a prepress supplier CEO what his sales turnover was, and he said 33%. I said "that's awful," and his response was, "It is?" Of course it is! With that level of turnover, there is no continuity in customer relationships, and with some sales cycles at 18 months, that means there is probably an interruption in virtually every sales cycle the company has going.

Remember what the printer said, "They don't understand..." Well, anytime someone does understand and then leaves, someone new has to start to understand all over again.

It bears remembering that GE is a stickler for measurement, and people knew when they were not up to snuff. That takes a lot of the arbitrariness out of the dismissal process; and GE also provided superior outplacement services for those that didn't make it. But they also made it possible for low performers to get help-AKA training-to try to get them where they needed to be before the axe fell.

And finally, Over Reliance on Commissioned Compensation. Even worse are frequent compensation plan changes. With long sales cycles, sales people invest time with customers under one set of rules, and then you pull the rug out from under them by changing the compensation plan. Also, some companies place high commissions on products that are difficult to sell. This can result in sales people doing the mental calculations and deciding these products are not worth the effort. They prefer to keep their current flow of customers and products going rather than trying something new.

To get a nontraditional look at compensation and its potential corrosive effects, Alfie Kohn's book, Punished by Rewards, will make you think. While I don't agree with everything he says, the discussion certainly will make one reconsider the effectiveness and the downside of commissions. The bottom line is: commissions tend to reward short term behavior and not nurture desired long-term strategic behavior.

There will always be turnover, and sometimes that's good, especially when people are promoted. And yes, there will be people who leave. But bad selection hampers you from the outset, lack of training removes the opportunity to improve, and setting the wrong priorities just makes it worse. All of that adds up to poor customer relationships. The industry success stories in I've seen in sales have almost always involved long-term relationship where the customer and the sales rep share knowledge about the business, and it's not simply, "Whose box am I selling today?"

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