Is Rolodex Marketing the Right Answer?

by Tim Smith, PhD, April 3, 2002

<back| |next>

It seems to be a dominant philosophy among many managers that the mark of a great sales person is the size of their Rolodex. I call this "Rolodex Marketing." The logic flows along the lines of: (1) Salespeople create and manage customer relationships to drive profitable transactions. (2) The more relationships salespeople already have, the fewer they have to create. (3) Hiring a walking Rolodex salesperson will enable the firm to communicate their sales message to their Rolodex market. Thus, (4) salespeople with thick Rolodexes will transact more business. While in some instances this correlation between firm level profitable transactions and individual level Rolodex bulk may prove correct, there are some significant reasons why this logic is not always the correct strategy.

Criteria for success:
There are two significant criteria for this marketing strategy to work. 1. The set of contacts within the sales person's Rolodex must significantly overlap the universe of prospects constituting the target market of the company. The value of purchasing the services of a well connected salesperson diminishes as the intersect set decreases. 2. Those contacts must have a need to purchase the goods and services of the firm. The sales person must not simply know someone, she also has to have something of value to sell that person.

There are some successful models of Rolodex Marketing, mostly in consulting and also in some product categories.

McKinsey & Company practices this form of marketing at the level of art. They hire the brightest young doctorates and MBAs, employ them for 60+ hours a week, then practice an up-or-out rule after three years. This keeps the management pyramid scheme in order and more importantly puts McKinsey alums in corporations at levels where their managerial expertise can be put to use. Over the course of their careers, McKinsey keeps in contact with their alums and tracks their progress. As the McKinsey alums increase in stature with their new employer, McKinsey then takes the opportunity to sell them their managerial consulting services. These services are sold by one of the few McKinsey employees that managed to move up rather than out, garnering the collective Rolodex of contacts of all past McKinsey employees. For McKinsey, this is an excellent strategy even though it takes nearly a half a career to fully reap the rewards of investing in collecting a good Rolodex. This case study hints at the difficulty inherent in the second criteria above: Often the contacts in a Rolodex are not in a position to purchase the services of a firm.

Countering the problem inherent in the latter criteria, full service consulting firms, such as Arthur Anderson or KPMG, make sure they have something to sell to their Rolodex of prospects regardless of timing. (Even after the departure of Accenture from Anderson, Anderson quickly moved to recreate its general consultancy line of business.) While maintaining a cadre of strong account executives, full service consultancies are able to sell auditing, management consulting, IT consulting, tax and legal advice, and other services. With a strong brand name (supported by advertising and other marketing communication methods), their sales people are able to call upon their Rolodex of contacts and almost always offer a service in demand by the firm.

In the product area, markets that are well confined to small numbers of players can also take advantage of Rolodex Marketing. Examples of firms fitting this category would have a product to market to the set of US auto makers, US airlines, US steel manufacturers. Firms selling to these markets often have expensive goods or contracts for multiple goods that create high value single sales opportunities. Importantly, these markets are sufficiently small for the possible fulfillment of the expectation that a salesperson with a Rolodex of decision makers in the selected industry would actually know the universe of prospects of the firm. SmartSignal with the airline industry or Arryx with the pharmaceuticals industry somewhat fits this criteria. Yet even firms with products to be marketed to industries with small numbers of potential buyers may do well to practice other forms of marketing.

Successful Alternatives:
Managers often seek thick Rolodexes as their solution to marketing. However, (1) there are other means of collecting contacts and (2) contacting decision makers isn't the entire solution to increasing revenue.

Far cheaper than hiring $250K walking Rolodexes to contact the universe of potential clients is the option of purchasing lists of decision makers. Moreover, having experienced salespeople go through their Rolodex of contacts for sales is often a misuse of their talent (Geoffrey Moore, Crossing the Chasm). InfoUSA (www.infousa.com) or The Business Advantage (www.thebizadvantage.com) will allow anyone to purchase the names, numbers, addresses, and titles of decision makers at firms along a number of selection criteria. If, for example, a firm needs to contact all the operational people at utilities, simply go to the web site, define your search criteria, and purchase 6000 names fitting your criteria. The cost should be less than $0.50 per name and will be far more complete than even the best Rolodex. From this list of purchased names, firms can then use direct mail, follow up calls, and other means to actually talk to their real market, not just the set of friends that someone happens to know.

Far more efficient than hiring people to pressure their friends into buying is making sure the firm has a value offering in the first place and that the salesperson can communicate it credibly. Firms, even general IT consulting firms, must create a unique value offering. For consulting firms, this could be an expertise in an industry vertical such as government welfare or financial services or it could fit along the lines of a technology specialty such as Java, BroadVision, or GoldMine. For product firms, it is the ability to translate a unique technology into a real product. Before managers have salespeople contact the market, they should first determine what they have of value for the market and train the salespeople so that they can communicate this value proposition. Without these steps, salespeople are reduced to time wasters, using a few accounts to bankroll a failed business. Even if they can make a sale periodically, people are not so stupid as to buy this kind of sleaze continually. Value statements usually trump pressure tactics. Moreover, value based selling turns negotiation away from moving a price between two starting points and into a question of asking which part of the value offering is the customer not purchasing. Even better, value based business turns a customer base into referencable accounts that will be champions for the business.

Is Rolodex Marketing right for you? Notice that even the firms that search for salespeople using their personal contact list as a hiring criteria use other marketing tools as well and have clear value offerings to support the activity of dialing for dollars. Moreover, all the examples above indicate that sales talent cannot be measured by Rolodex bulk alone, but importantly should include the ability to qualify an opportunity, craft a marketing message and value proposition to that client, close the deal, and turn the prospect into a champion for the firm. Transacting business requires a lot more than 1000 names and numbers of decision makers. Clearly, Rolodex marketing isn't a silver bullet solution.

---
Tim Smith, PhD is a principal at Wiglaf, a Market Research and Sales and Marketing Strategy consultancy serving tech-driven businesses operating in business markets. Small and medium sized businesses select Wiglaf for our quantitative and fact driven approach. www.wiglaf.biz.

----

The May Report, TECH BUSINESS BRIEFS, April 3, 2002

<back| |next>