You Never Bring Me Donuts Anymore: Changing the Sales Model in Oilfield Services
By Peter Purcell/
September 27, 2012

How do oilfield services companies change the habits of a stagnant sales force that follows the timeworn model of delivering donuts and running up big expense tabs as their primary sales technique? It may be easier than the pundits would believe. The sales force should think less about selling individual products and transaction services and more about how to work with their customers to design and support critical exploration and production projects.

Several years ago, I had the privilege of meeting with a seasoned oilfield services (OFS) executive who had successfully started, grown and sold three services companies over a 40-year period. The conversation quickly focused on what he did to beat the competition in the oil patch.  “In the early days,” he said, “it was easy.” His sales teams found out which bars company men frequented after a hard day at the rig. They would run up a large bar tab, buying round after round for their thirsty companions. By the end of the night, sales team members were best friends with the company men and left with a contract for services (the hand shake).

I asked the executive how he felt things have changed over the years. He lamented that centralized purchasing and the use of supplier analysis for selecting services has trumped watering hole relationships. As a result, the old ways of selling OFS no longer apply. His sales force needs to spend less time on the golf course and more time understanding prospects’ procurement processes and determining creative ways to win work. If he were starting a company today, he would have his sales force do things differently. He would have his sales force prioritize customers, provide a little lagniappe (he was from Baton Rouge) along with the sale and understand their real problems a little better.

He reiterated that service companies who cannot figure out how to partner with customers will never be market leaders and grow.

Since then, we have watched numerous OFS companies over the years successfully adapt to their customers and partner with them to solve their most difficult challenges. These service companies followed my old friend’s suggestions of prioritizing customers, differentiating services (lagniappe) and earning the right to partner with their customers.

Prioritize Customers

First, focusing on the right customers is all about setting the right strategy. There is a general feeling that all good OFS sales people are self-motivated, aggressive, freelance mavericks who chase and close every opportunity. Any imposition of structure around the sales process will result in a mass exodus of these valuable and irreplaceable individuals. Most OFS companies would consider the scenario of losing key sales people frightening and paralyzing. The fears may be unfounded.

One of our clients was losing market share and could not understand why. They had a very aggressive sales force that delivered a lot of donuts and seemed to close a lot of deals. However, margins were not meeting forecast, cash collection was low and major customers were moving to the competition. We performed a quick analysis and determined that the sales people were pursuing small companies that were eager to sign contracts for services. Larger prospects were ignored. Meanwhile, the competition had stopped doing business with these smaller companies because they were cash-strapped and not paying bills. Larger prospects required hard work to close the business.

We worked with the SVP of Marketing and Sales to develop an account management strategy for the company. The team visited with the top customers to understand why our client was losing business. We quickly found that the sales force was focused on selling to project managers and not spending time with people managing the sourcing selection process.

The sourcing programs were doing business with oilfield service companies that

Our client quickly created ten account teams that consisted of sales people, engineers and operations personnel. These teams were assigned to the top ten customers and given a clear mandate. The sales people would spend their days at assigned accounts and not call on anyone else. The sales people would work hard to understand the procurement process and be ready to respond quickly to requests for services. The team would work together to identify cost effective solutions for customers.  Senior management was nervous because the account focus was a different model and there was concern the sales people would leave because they were no longer involved in maverick sales activities. The selected sales reps were now responsible for a more thorough approach as part of a team.

Within six months it became clear the account team approach was working. Sales within the top ten customer base rose more than the decline in the transaction sales loss. Margins on services were high and post-project audits found customer satisfaction was excellent. Over the next year, billing disputes and contract leakage dropped dramatically. Our client decided to revisit the rest of the customer base to determine which should be treated with the same level of focus and which should be treated as transactions. Although there was some voluntary turnover, our client found this to be a blessing in disguise.

Differentiate Services (Lagniappe)

Providing a little more service with the sale can make the products OFS companies offer less of a commodity. Drilling mud is drilling mud, right? Not always. Mud mixes change based on the porosity, salinity, bottom-hole pressure and a variety of other formation characteristics. Branded additives are often included in the mud mix to address drilling lubrication needs. However, these branded additives are not what drives the customer’s decision—price and availability usually do.

A drilling fluids company developed a laptop-based application to help their mud engineers more quickly determine the appropriate mud mix. The application was integrated with the order entry system to ensure availability of the appropriate components when a mix was approved by their customer. Substitutions would be suggested when certain components were out of stock. Used correctly, the system would help prevent rig downtime if the mud components were missing or the mix was wrong.

The drilling fluids deployed the system along with new laptops to all mud engineers. During the deployment process, a number of customers heard about the system and their company men requested the software and training. The initial group of trained customer company men used the software to double check the competition’s mud mixes. When errors were found, the company men told their peers and recommended using the application to other customers. The drilling fluids company’s customers started sole-sourcing to them. We asked the company men why.

The answer was simple. There is a high level of value in the tool, which translates to a high level of confidence in our client’s ability to deliver. Heavy discounting is no longer necessary and margins are well above prior years’ margins. In the future, there are plans to allow the company man to order mud directly through the application.

The drilling fluids company would not have achieved the sole-source status by pursuing a traditional sales strategy. Other OFS companies can use a comparable differentiation approach to get similar benefits.

Partnership

Finally, fully understanding the customer’s real problems can only be achieved by partnering with them. Most of our OFS clients never question the content of the requests for proposal (RFP). At times, cost is the primary focus and responses are developed without questioning critical technical components.

A cost-focus approach can lead to a variety of challenges at the drill site if the well construction design is not adequate or specified equipment was undersized. Improper scoping inevitably adds unnecessary costs and may create other safety and environmental issues. In some cases, RFPs are drafted by new engineers and procurement personnel who have never been in the field. The more seasoned personnel with  field experience reviewing the RFPs are often overworked and may miss critical items.

We were engaged by a mid-sized drilling company to review their bid-to-bill process because they had recently lost several significant opportunities. Their equipment was relatively new and their day rates were reasonably competitive. We analyzed the RFP responses and interviewed project managers and engineers from the prospects. The responses were eye opening. The competition had reviewed the RFPs and had suggested ideas for the well construction design and other equipment. This was provided in addition to the RFP response. Our client typically provided a few recommended changes to the project, but not at the level provided by the competition.

We led a series of workshops with a number of account teams to identify ways to combat the competition. The teams suggested assigning engineers to each project, from RFP response through well completion. The engineers took ownership for the entire project and were available for the customer during the sales, deployment and drilling processes. There was initial push back from the customer prospects but now the engineers are welcomed as a partner in the process.

Two years later, these engineers are in high demand by repeat customers. Marketing and sales costs have dropped and margins are increasing. These engineers are considered as partners by customers and are often invited to review well construction designs before RFPs are issued.

Summary

Selling services to oil and gas companies is no longer a simple task and the methods of the past are no longer effective. Success in the market is based on the ability to understand who should be customers, providing more service with the sale and becoming a partner.