Promontory, Inc.

One late Friday afternoon in March, 2016, Brett Ricard, the co-founder, CEO, and president of Promontory, Inc., stood at his office window and pondered his firm's future. Turning toward the shelves of imprinted giveaways that lined his office wallsranging from simple hats to sophisticated wireless speakersRicard felt proud of how far his company had come. Promontory, based in Denver, Colorado, sourced, customized, and sold a variety of promotional products. Ricard had started the company with his co-founder, Sam Burns, Promontory's head of Sales, in December 2013. Thanks to accounts Ricard had closed himself and loyal customers who had followed Burns from his prior employer, Promontory's prospects seemed stable for the moment.

Promontory's longer-term prospects were less clear. Revenues had increased 19% from 2014 to 2015, but growth appeared to be leveling off. See Exhibit 1 for Promontory's income statement. Further, although Ricard had invested substantially in customization equipment to differentiate Promontory from both regional and online competitors, revenue growth had fallen below expectations in the prestige segment of the market, which was willing to pay more for higher-end items that typically offered higher profit margins. A few existing customers had increased their purchases, but none of Promontory's four full-time salespeople had closed new accounts in the prestige segment, composed primarily of technology, finance, and luxury hotel/resort businesses. Ricard was unsure how to improve Promontory's sales approach and what alternative strategies Promontory might pursue.

Industry Background

Distributors of promotional products designed and imprinted clients' names and logos, or used other customization techniques, to convey marketing messages on items ranging widely in cost and quality. Studies showed that promotional products helped boost customer relationships more than advertising alone; nearly 25% of end users were more likely to do business with advertisers whose names appeared on promotional items they received.¹ Wearables, such as shirts, caps, and jackets, accounted for about a third of sales, followed by writing instruments, bags, drinkware, and other lines. From 2013 to 2015, sales of tech items like mobile accessories and USB drives jumped from 6.0% to 8.9% of total sales.²

Distributors purchased customizable products, known as "blanks," from industry manufacturers and suppliers (many located in China and other countries), typically at significant volume discounts. Most distributors outsourced the customization function to suppliers, though a few offered select customizing and/or decorating services in-house.

Sales of promotional products slowed during the 2008-2009 recession amidst general cutbacks in marketing expenditures, but rebounded quickly as corporate promotion budgets were restored. The industry had also benefited from the growing number of U.S. businesses, particularly small start-ups without the resources to mount advertising campaigns in legacy media.

Companies bought customized promotional products both to boost brand awareness and for other marketing purposes. For instance, firms used gifts to reward and retain customers; giveaways to generate traffic at trade shows; and incentives to boost employee and/or dealer morale and productivity.³ Some clients wished to integrate promotional products into existing advertising campaigns; others saw imprinted giveaways as a freestanding, but critical element of the marketing mix.

This diversity of buyers and end uses posed a selling challenge to distributors. For example, one buyer might want expensive golf bags to reward key accounts, while another was interested in lowcost trade show giveaways like magnets to boost brand awareness. Further, there were often different buyers at the same company depending on the context or relevant event (e.g., internal sales meetings, external sales calls, awards ceremonies, trade items, etc.). In addition, worldwide sourcing was leading to a growing, changing array of products, while advances in customization processes meant clients could be offered more sophisticated services such as 3-D printing or laser etching.

In 2015, revenues in the U.S. promotional products industry were $22 billion, an increase of 3.4% from 2014 and 19% since 2011.⁴ There were approximately 25,000 enterprises in the sector in 2016.⁵ Despite some recent consolidations, most of these firms were small, privately-owned enterprises.

Firms with over $2.5 million in sales accounted for most revenue growth in the industry,⁶ partly because of their advantages in building and maintaining the reliable supply chains necessary to keep customers satisfied. Profit margins had trended downward, but distributors of top-quality and namebrand items believed they had avoided commoditization and pure price competition relatively better than their lower-priced counterparts had.⁷

Online sales had grown to 18% of industry revenues by 2014 and appeared to be on an upward trajectory. This growth had, however, been inconsistent. For instance, online sales dipped significantly between 2012 and 2013, but had rebounded somewhat since then. While the largest online distributors had significantly expanded their service capabilities, many Web-focused distributors competed entirely on price, minimizing the role of personal selling. This approach made them especially vulnerable not only to general economic trends, but also to competition from cheap, overseas manufacturers willing to sell generic goods like shirts or pens directly to the distributors' prospective customers.⁸

In Promontory's home market of Colorado, the 10% increase in industry revenues between 2014 and 2015 had been bolstered by a boom in the technology and finance sectors.⁹ Some new companies in Colorado were regional campuses of firms with headquarters elsewhere, like Google, but many were homegrown ventures like Zayo (network infrastructure) and Webroot (Internet security). Dozens of promotional products distributors in the region were vying for sales in these sectors.

Company Background

Both Ricard and Burns had spent many years in and around the industry. Brett's father, Carl Ricard, was one of the first distributors of promotional products in the Rockies; he was known as "Crazy Carl"

because of the convoluted deals he often struck with customers. Carl Ricard had built his business on a high-volume, low-quality model. He focused primarily on supplying local mining and construction companies cheaply but quickly with simple items like imprinted pencils, combs, and note pads his customers could give away at sales calls and trade shows.

Ricard had worked part-time for his father while he was in high school and as an undergraduate at the University of Colorado at Boulder. After earning an MBA at Stanford, he started and then sold a successful branding agency, with the goal of returning to the family firm and gradually transforming it into a consultative marketing partner to its clients. After his father and he had a falling out over their clashing business strategies and personal matters, however, Ricard launched Promontory in December 2013. He then recruited Burns, his father's best salesperson for 25 years, to join the new venture.

Ricard was confident Promontory could fill a gap in the regional market by offering creative solutions to branding problems, not just customized trinkets. He felt the biggest long-term profit opportunitiesand the strongest position vis--vis online firmsresided in consultative selling of high-end, prestige goods to tech, finance, luxury hotels/resorts, and other businesses focused on building a strong quality image. During the firm's first year in business, he had parlayed his contacts and reputation as a branding guru into $1.4 million worth of high-margin orders from software and ecommerce firms.

Ricard was especially enthusiastic about selling tech items like mobile power banks, wireless speakers, virtual reality goggles, and silicone cellphone wallets. Customized versions of such products had recently yielded higher margins, and enabled Promontory to showcase its creativity in achieving diverse customer objectives: the advanced screen printing equipment he had purchased was well suited to customizing items of this type. For example, to build brand awareness for a new e-commerce agency that promised "We listen to you," Promontory put imprinted Bluetooth speakers in a box designed to look like the client's headquarters and imprinted with giant ears. Recognizing that today's cutting-edge products could become tomorrow's commodities, Ricard also looked constantly for new items.

Ricard wrote the following description of Promontory for the company website:

In addition to providing the highest quality products and personal service, we will develop and execute unique creative concepts that will help you build great brands.

Customization

Promontory's 10,000-square-foot combination customization facility and warehouse was in an industrial park in a Denver suburb. By 2016, the firm employed 20 people. While regional competitors either outsourced all customization or provided only the most basic types of imprinting and/or embroidery, Ricard had enhanced his in-house capabilities by purchasing advanced screen printing equipment with special effects options like gold foil printing. This gave the firm an edge in speed and creativity. In addition, Promontory had agreements with suppliers that could quickly and reliably provide other cutting-edge decorating techniques, including:

Debossing, a process that pushes an image down into the product being decorated; Laser artwork etching;

Pad printing, which transfers a 2-D image onto a 3-D object; Embroidery, with both traditional and 3-D options.

A customization supervisor was responsible for quality control during each imprinting process. Ricard was also vigilant about maintaining high standards of product safety and performance, and had cut ties with vendors whose blanks fell short.

At Promontory, the selling process involved Burns and three other outside field sales representatives who won the accounts, two inside "sales support specialists" (SSS) who coordinated with vendors, and two inside "customer advocates" who facilitated customer communication and paperwork. Promontoryalso employed a creative/graphic artist as needed. The respective responsibilities of these employees during each step of a typical sales encounter are differentiated below:

1.Field sales rep determined client needs/specifications and confirmed client's interest in a formal proposal from Promontory.

2.Field sales rep requested preparation of design recommendations from creative/graphic artist. Upon client's request, these recommendations could include design and production of virtual or physical prototypes, prepared either in-house or by specialized vendors.

3.SSS was assigned to the account.

4.SSS recorded client specifications and developed a cost and time estimate for every design recommendation and prototype.

5.Field sales rep reviewed estimate, decided price quotation, and presented proposal to client.

6.Upon client approval, SSS finalized timeline and facilitated proofing and sign-off process.

7.Customer advocate was assigned to the account, who routed incoming client calls/emails, maintained records of daily account activity, and resolved minor client complaints.

8.SSS collaborated with customization supervisors to track progression of customization process and ensured timelines and ship dates were met.

9.In the event of an error or unresolved complaint, SSS investigated issues and prepared the salesperson's response/resolution.

Several competitors hired part-time estimators or required salespeople to handle some of the facilitation and tracking tasks performed by SSSs at Promontory. Ricard and Burns paid higher-thanaverage salaries to SSSs and believed these inside staff contributed to Promontory's competitive advantage.

Customer Segmentation

Ricard had compiled a list of customer groups that he believed would spend $100,000+ per year on imprinted items. Exhibit 2 shows Ricard's lists of target and existing accounts by industry. Exhibit 3 shows Promontory's current revenues by industry segment and salesperson.

Burns' original six accounts from the construction and mining industries, along with a few retail and real-estate accounts, constituted 27% of Promontory's revenue in 2015. Burns was excited by Ricard's vision, but was less willing to pull back from low-price, high-volume accounts, which had evolved into his most reliable source of repeat, albeit low-margin, business. Also, many of his loyal customers among these accounts had become personal friends.

Reflecting on how Promontory had fared thus far, Ricard observed,

We got off to a great start, and have a reputation for quality, service, and solutions to marketing problems that are distinctive, memorable, and fun. Our new customization equipment can produce an added three to four million in revenue without our needing to hire more production staff, so I'm more concerned about profit than I am about capacity. We need to make more sales, but the low-price, high-volume accounts like the ones my father services aren't dependable anymore. Customers can always get some rock-bottom deal from an online competitor in China or India.

The way to build this business is to sell ideas that add lasting value to our clients' brands. And we need salespeople who can do that. I'd love to attract a rep with established accounts from another firm. The ideal would be someone who's been around the tech industry, finance, or other high-profit markets, preferably in sales, but maybe in some other capacity.

Promotional products distributors typically relied on personal selling and trade shows. However, price-oriented sellers made heavy use of vehicles like paid search ads and "boost" features on social media platforms.^[1] A growing number of firms also subscribed to services and databases for matching buyers and sellers, or outsourced their business development efforts to business-to-business (B2B) advertising consultants.

Promontory did not use Internet advertising. Its online interface enabled basic tasks like customer search in all promotional product categories and suppliers; real-time tracking of order status; and past purchase tracking and analysis. Some competitors offered full-featured websites with inventory management, reordering, and restocking, and direct coordination with shippers. Thus far, however, Ricard and Burns had decided to prioritize personal selling over such e-commerce investments.

Sales Organization and Management

Not counting three software and e-commerce customers whom Ricard had brought in personally and continued to handle directly, Burns (the sales manager) and three full-time field sales reps managed all accounts. Ricard and Burns had hired salespeople as quickly as they could, and spent little time to screen applicants. Both echoed Carl Ricard's belief that almost anyone with the right personality could learn to sell and then strive to maximize sales commission. Promontory had no formal training or evaluation program. Sales reps selected and prioritized customers who seemed the best fit for their personal style.

Promontory's salespeople were compensated purely via commission, receiving 8% of the revenue to a given customer. However, the company provided an advance, or "draw," against sales to a rep in the first few months of the rep's tenure with Promontory, or for up to six months if that rep's sales temporarily slowed. If a salesperson negotiated a discount to close a sale, commission was reduced proportionately. All salespeople also had an expense account.

Exhibit 4 summarizes each rep's background. All but one (Lou Emmon) had significant prior experience in the promotional products industry, although not necessarily in sales. Emmon was dismissed after a year of disappointing results. Burns commented on the dismissal:

Lou had been a top real-estate salesman, and I thought he could bring us construction accounts. But he spent so much time with mom-and-pop home builders and real-estate agents that he could not cultivate the big players. He did more harm than good by promising Promontory would cut prices to get volume accounts. I've spent months disavowing that message.

As Sales Manager, Burns did not plan regular meetings. Instead, he believed it was more important to be available as necessary to troubleshoot and/or brainstorm. For example, when Jim Borden solicited his help in upselling^[1] a client who was interested only in glassware, Burns suggested offering the client name-brand items like Bozko or Inky instead of generic products. It worked: "Jim learned customers are more willing to accept high prices on things they see in retail stores, because the store price becomes their reference point instead of whatever deal' they find on a competitor's website." He also approved proposed price discounts, advances on commissions, and vacation requests. On occasion, he stepped in to help resolve serious or escalating customer complaints.

Burns believed the diversity of Promontory's salesforce was a competitive strength. Dawn Heller's production background made her fluent about the technical aspects of various customization processes.

[1] Upselling is a sales technique in which a seller persuades the customer to purchase the more expensive versions of the product, or to buy upgrades and add-ons with the product.

Jim Borden offered graphic design talent. Paula Mackie's MBA, social media experience, and youthful presence helped her connect with younger, hipper prospects. Burns was concerned, however, that specialized industry knowledge might be important for breaking into certain markets like highend hotels and resorts, into which Promontory had made limited inroads.

Perspectives on the Job

Promontory's field sales reps had different perspectives on their jobs.

Sam Burns

We sell quality products and have great follow-through, but so do many competitors. The way we set ourselves apart, and as consultants like Brett always talks about, is to create human connections with the people who call the shots.

Before I try to sell a prospect, I figure out exactly who makes the decisions. I then invite that person to a great restaurant for lunch or dinner, where I listen carefully to his or her business problems and needs. To make sure we hit it off, I spend just as much time asking about personal interests. From then on, I'm always on the lookout for gifts the buyer might like and events the buyer might enjoy as my guest. I make it a point to include spouses, and even kids, in my invitations.

Once we have a rapport, I can say "Trust me on this." I do a lot of handholding, reassuring my customers that it's smart to buy from Promontory. I'm good at upselling and cross-selling^[1] because they know I have their backswhen they win, I win.

I especially enjoy the challenge of convincing a prospect to switch to Promontory from a competitor. I'm well acquainted with all the other regional distributors and can talk about our strengths compared to theirs. I stress my twenty-five years of experience solving a wide range of problems for my clients and point out the number of customers I've kept for decades. If I can get a prospect to give me one trial order, even a small one, I have a great track record of cultivating and expanding the relationship.

Dawn Heller

I spent five years in production, and I'm good at explaining it. That's important because how we customize productsbetter and faster than anyone elseis a big part of why we can charge more than the competition does. My approach works best at selling product managers in businesses emphasizing the value of cutting-edge processes in their own operations. For example, oil and gas companies are coming up with all kinds of new drilling technologies. I also have solid accounts in other sectors.

I find new prospects by reading trade magazines that report on innovators in regional industries. The initial approach I take is to call them with a compliment or observation about what I've read. I suggest a meeting to discuss how Promontory can help them publicize their activities or show their own customers the value of their innovations. I closed an account with a ski manufacturer after calling him cold to congratulate his company on winning an award for aerodynamic design. The guy had never even considered promotional products as part of his media mix, but I convinced him we could take his abstract brand promise ("Our skis create a unique mountain experience") and make it concrete. Brett and I proposed the idea of imprinting audio drop-in systems that fit into ski helmets and enhanced the skiing experiencesomething no ad or promotional device could do.

I have trouble selling to some industries, like financial services, because I can't talk their language, or to businesses like tourism that I don't know the first thing about. I got lucky with one resort buyer, but I think she gave me the order only because our spouses went to college together.

Jim Borden

I look at buyers' LinkedIn profiles and Facebook pages to find the ones with some background in creative businesses like advertising. Then I make a lot of cold calls. I belong to the Denver Chamber of Commerce, and I volunteer to help run promotional campaigns for charities and arts organizations. These groups are great sources of contacts and recommendations. I usually strike out with purchasing agents who are interested only in getting the lowest price. My best prospects are creative or art directors who get the value of integrated marketing communications.

Sometimes, I'll also recommend logo or packaging ideas since I'm trained in graphic design. If they like my suggestion, they might be able to avoid paying a fee to an ad agency or artist. Even if they don't like it, they might give me an order because I've tried harder than other reps to help them out.

Paula Mackie

I worked for my Uncle Carl part-time during high school. I had a good experience, but I wanted to try other things before committing to this industry. So, after I finished my undergraduate degree, I did sales for a social media marketing agency for about a year, and then got an MBA. When Brett told me about his plans for Promontory, it seemed a good fit for me.

As the youngest rep, I relate better than the others to Denver's under-30 tech crowd. We meet socially as well as in business circles. I connect with my customers and often find new prospects on Twitter: my handle is @PMPromo. A couple times a week, I use Facebook and other social media platforms to post excerpts from articles and studies about the marketing effectiveness of promotional products.

Once I make an initial online contact, I follow up by offering lunch at a trendy downtown caf.I've been especially successful opening doors where women are in charge.

The Situation in 2016

Ricard had financed the recent equipment upgrade with debt. If orders dropped off significantly or if new import tariffs or a trade war with China arosehe knew he might lose reliable, high-quality suppliers. Wanting to boost sales and profitability, Ricard had defined various options and wanted more clarity and decisions in several facets of sales management:

Hiring, Deployment, and Training

Ricard assumed his best recruitment strategy was to hire field sales reps away from competitors, but was willing to promote a Promontory employee out of production, graphic arts, or customer service. On the latter option, he commented: "We could assign a newbie to service existing accounts. That would give our proven reps more time to call on high-potential prospects."

Ricard also considered recruiting from the MBA program at the University of Colorado. He believed such a candidate would want the opportunity to get in on the ground floor of an innovative enterprise, and might also have good contacts (via alumni networks and other students) in the regional business community. He was especially intrigued by the resumes of two MBA students who were scheduled to receive their degrees that year. One candidate had worked in sales for several years, most recently for a low-end, web-focused competitor of Promontory. Another came highly recommended by a friend in the e-commerce industry who had supervised the student during a market-planning internship.

Ideally, Ricard wanted to choose a new salesperson "who's been around" high-potential markets. But Burns believed that, if a hire lacked sales experience, "There's a tradeoff between training time and selling time, and right now we can't afford to support reps sitting in a classroom."

Metrics: Activities vs Outcomes

Burns had not emphasized the relative profitability of different product lines and customization processes with his sales reps, but now felt it might be time to formally tie higher commissions rates to higher-margin orders. Instead of the standard 8% Promontory had always paid, he was considering incentivizing upsales by paying up to 10% on the most profitable items, with bonuses linked to use of in-house customization equipment, and decreasing commissions to 5% for low-margin items. He was also thinking about requiring every rep to call on a certain number of accounts each week, and/or allocate a set amount of time to customers based on order size, margins, and/or type of product (e.g. tech vs. traditional products). He had even proposed creating territories so that everyone got an equal shot at high-potential accounts and exposure to a wide range of buyers. However, Ricard worried reps might resent being unable to maximize the effectiveness of their personal contacts and industry preferences.

Role of Marketing Vehicles

Ricard wondered if Promontory should use a broader range of alternative marketing vehicles, like online advertising, paid "boosting" on various platforms, buyer-seller matching databases and services, and/or an enhanced web portal, such as a fully-functional e-commerce site. Based on reports he had read from the Advertising Specialty Institute, he knew firms with an active web presence saw the number of clicks generated on their websites increase by about 35% when they advertised and used search-engine optimization to improve their placement in search rankings. For B2B services in general, click-through rates on paid ads averaged 2.5%. Advertising costs per click were about $1.60, and the conversion rate was 2.5%, leading to a cost per customer acquisition of around $64. Burns noted these numbers were averages; they did not account for the range in costs Promontory would incur for selling different items via the web. Also, Ricard knew the most popular promotional products available online were low-margin items such as pens and mugs.

Although web-focused firms were selling branded goods like Thermos bottles and Moleskine notebooks, many customized promotional products continued to be sold largely through personal selling. Ricard suspected customers shopped online when they already knew what they wanted imprinted notebooks to support a back-to-school promotion, for instancebut sought help from distributors when they wanted to integrate promotional products into their marketing mix.

Another possibility was to have Promontory's inside sales support specialists do lead generation via phone and email for the salesforce. Ricard believed his SSSs were some of the best around, but was concerned lead generation would require skills they did not have. He also wondered how the company would change its compensation model for lead generation, and whether this would divert SSSs from the work they did so well.

Ricard knew that Promontory needed to live within its means regardless of which alternatives it pursued. An active web presence might increase the company's overall visibility, but would reduce the funds available for personal selling, as well as his own ability to pay down the debt he had taken on to buy Promontory's new equipment. Ricard had once overheard his father tell a family friend he had never planned to become "Crazy Carl," but that was just how the business had gone. Would pursuing web sales, Ricard wondered, reposition Promontory away from the prestige image he had been cultivating the last two years, only to become more like his father's company? Did he need a different approach to personal sellingor different salespeopleto build Promontory into the branding consultancy he dreamed of?

QUESTIONS:

1.What is the nature of the product Promontory sells to its customers compared to what online competition offer? How does Promontory provide and add value to the product and what are the implication for:

a.Market selection?

b.The focus of selling efforts?

c.The range of personal selling styles illustrated in the case?

2.What should Richard do bout recruitment, deployment, and training options he is considering? Beyond marketing and sales are there other issues that Richard should address?