“All the vendors’ solutions are roughly the same, it now comes down to price.” For suppliers, hearing this from customers is usually a sign of trouble. In B2B markets, it could simply be a negotiation ploy. Often it is a smart procurement manager who uses a phrase like this to try to set the stage for negotiations. Alternatively, it could be the legitimate perception of the customer, often caused by suppliers confusing customers by focusing on collateral and messaging filled with features and very little value. In either case, for unprepared suppliers, it can result in eroding prices and margins.
In reality, rarely are all competitors’ solutions the same. There are usually meaningful differences in the way suppliers’ solutions impact a customer’s business. This is particularly true across segments of customers with varying needs, behaviors and operating characteristics. These differences in needs, behaviors and operating characteristics often drive a wide range of total cost of ownership (TCO) or value across various solutions.
Value selling is certainly not a new idea. As early as the 1950’s and 1960’s, marketing academics wrote about and advocated for quantifying and communicating value. Yet, surprisingly few firms in business markets can quantify and communicate their value. A recent survey of 2800 companies showed that roughly 60% need improvement in selling value. Not surprisingly, this is up considerably from before the recent recession. The recession, along with the growing importance of procurement in the buying process, has uncovered the shortcomings that many companies have in being able to quantify and communicate their value.
Why can’t companies consistently communicate value to their customers? Based on research as well as experience on both sides of the table, as a supplier and buyer, what follows are 5 key lessons for implementing value selling.
Lesson #1: Get Clear on Your Value or Total Cost of Ownership
Total cost of ownership (TCO), as the term is used in purchasing, means quantifying differences in the short and long term impact of not just the direct purchase price, but also all the costs and benefits associated with acquiring and using alternative offerings. For B2B marketers and pricing professional, this should sound very similar to value or economic or financial value.
Lesson #2: Design Simple, Honest and Accurate Selling Tools
“We’ve tried value selling tools and the sales organization wouldn’t use them.” This is not an unusual complaint. There are a number of important design criteria for creating usable and helpful value selling tools. Some of these are fairly obvious and some may seem counterintuitive. However, the ability to have the field sales organization adopt and readily use value-selling tools comes down to getting these design criteria right. Tools need to be simple, easy to use, and accurate.
Lesson #3: Develop Evidence to Support Value
Having a simple value calculator or ROI tool is necessary, but not sufficient. While some customers may not challenge the assumptions and calculations, many customers will. In this case, it is important to be prepared with evidence to support assumptions and claims of value. Obviously, the level of evidence required will vary depending on things like industry practices, the size of customer expenditure, the risk involved in the purchase decision, and how much of the value created is to be captured.
Lesson #4: Integrate With Overall Selling Process and Focus on Sales Force Buy-in
Depending on the structure of your business and the industry selling practices, there may be a variety of groups involved in communicating value to customers. These groups can range from key account executives to sales representatives to field based marketing people to reimbursement managers in the healthcare industry. In practice, within any of these groups, there are probably individuals that are doing an outstanding job of communicating value today. Often, these are the same individuals that may have already created their own “homebrew” value selling tools. An important part of the buy-in and change process will be to identify and involve these individuals in the efforts.
Lesson #5: Get Senior Executive Ownership & Commitment
Finally, and this may be the most important lesson, the senior leaders of the sales and marketing organization need to be the owners. While an effort to improve a company’s value selling capabilities may start in other parts of the organization, in the end, the owner must be the leaders of the business. In his book on transformational change, John Kotter outlines eight key elements of a successful transformational change effort. One of these is establishing a strong guiding coalition. A strong coalition of leaders from both sales and marketing will be necessary to help make the transition from selling on features to selling on value.
As the front line in defending value and prices, the sales team can be the difference between victory and defeat. As Cervantes, the famous Spanish novelist said, “…to be prepared is half the victory.” Help your sales team be prepared and give them a chance at victory. Your sales and margins will benefit.
Editor’s Note: This post originally appeared on Chris Provines’ blog. For more information on Chris, please visit his website.
About the Author:
Christopher Provines has over twenty-four years of global experience. He began his career in hospital finance and reimbursement. After graduate school, he joined Johnson & Johnson and later moved to Siemens Healthcare. His roles have included vice-president-level positions at both companies. He has extensive global experience in a variety of functions, including strategic pricing, reimbursement, health outcomes, finance, procurement, commercial excellence, key account management, and business improvement. He is a world-leading thought leader in selling, defending, and capturing value. He is an adviser to many of the world’s leading companies. Chris has written many papers, articles, book chapters, and books. He is on the board of advisers for the Professional Pricing Society and is an award-winning adjunct professor at Rutgers University, where he teaches in the Supply Chain Management and Marketing Sciences Department. His research interests include the transformation of supply chains and the implications for suppliers.