Successful B2B enterprises know how to quantify the economic value they deliver to customers.
You can too, as long as you answer these three simple questions.
1) What are you selling?
2) Who are you selling to?
3) Who/what is the competitive alternative?
But beware, these questions are deceptively simple because if the answers are too general or vague, the process bogs down in the later steps of quantifying the economic value of products. Answer them crisply, and the process moves much more smoothly.
Here are tips to focus each question:
When answering “What are you selling?”
Frame “what are you selling” answers in terms of a total offer or end-to-end customer process. In the eyes of your customer, your offer is probably more than just a thing (product) that comes out of a box. Offers usually include services like technical support, training, fast/flexible delivery option, custom design, etc. Sometimes the box itself adds value: a pricing consultant once told me about a project where they found that superior material packaging was a key value driver for a particular customer because it reduced the customer’s material handling costs.
When answering “Who are you selling to?”
Especially for the first value model, focus the “who are you selling to” answers on a particular customer you know best. Use value modeling as a format to write a specific case study. Put yourself in that customer’s shoes. The more first-hand customer knowledge you (or your team) has, the better. This will later serve as the base model for all customers in that particular segment.
When answering “Who/what is the competitive alternative?”
When addressing the competitive alternative question, remember to select the next best competitive alternative for that customer. Sometimes the obvious alternative is not really the actual alternative. Let me use a personal example to illustrate this. Say I’m in the market for a car and you are a car salesperson who believes a brand-new Ford Focus is perfect for me. Question: what is my next best competitive alternative? Is it:
A) A brand-new Toyota Camry?
B) A pre-owned BMW?
C) Keeping my current aging vehicle on the road for another year?
Each comparison has different economics and if the wrong one is used in your value pitch to me I will probably listen politely but then later disregard it. Further, if you took the time to truly understand my preferences; you will discover that what I’m really considering is a non-vehicle transportation option of public transit, cycling, and occasional Zip Cars. The economic comparison here would be radically different than the other three scenarios.
Again, the point is to focus on the most serious competitive rival. If you are uncertain about who/what that is, then make it your priority to find out. Resist the urge to create a universal value model that will handle all your existing and future competitive situations at once – that becomes too unwieldy. Rather, in cases where there are multiple serious rivals, start with one as a base case and then later make variations to accommodate any unique threats posed by other competitors.
A clear focus on a product, its customers and competitive alternatives are essential in helping B2B enterprises accurately calculate value. To make this process more efficient initially, resist the urge to create the universal value model that will handle all your customer and competitive situations. This is especially important if you are following these steps for the first time. Later with the benefit of more experience you can develop value models by key customer segments and/or profiles.
To access the white paper How to Put a Value Tag on Your Product by Ed Arnold, click here.
About The Author
Ed Arnold is VP, Products at LeveragePoint. Previously, he held senior positions at Communispace, Diamond Management & Technology Consultants, and OmniTech Consulting Group. He directs product design and development and drives the go-to-market strategy for LeveragePoint. Mr. Arnold holds an MBA in Marketing from New York University and MA and BA degrees in Political Science from Boston University.
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