Companies that take a value approach are 24% more profitable than their industry peers. On the other hand, companies that buy based on best value are 36% more profitable than companies that do not. In both cases your sales team needs to be comfortable not only with the technical conversation, but with the commercial negotiation of why you’re worth more than the alternatives.
In his April webinar, Todd Snelgrove, former Global Vice President of Value at SKF, provided an executive overview of his and Prof. Andreas Hinterhuber’s bestselling new book, Value First Then Price. Todd’s webinar focused on best-in-class examples of how to develop commercial engagements with the Economic Buyer to offer payment models based on value, and communicate why your value is more impactful than price concessions. Webinar attendees also learned:
- How to quantify new product value
- How to engage procurement on value
- Performance-based contracting
- Best practices in value realization by successful enterprises
Here are Todd’s answers during Profit from Demonstrating Quantified Value’s live Q&A session:
Why don’t all companies [demonstrate quantified value]?
That’s a question I get a lot. I think companies are trying to understand what their value is, but they don’t invest in putting a group together that says, “how are we gonna look at this and really make sure it happens?” They’re looking at each little aspect all the time, not holistically. So, they might have the case studies. They might have the corporate presentation. They might have a CRM. They might have a white paper. But there’s nobody tying it all together and saying, “Okay, this is how we’re really going to get the financial difference in the marketplace.”
In successful organizations, who usually quantifies the value?
Good question. Beginning with building the tool – to build that case study in there – I’m going to say it’s the product expert, the product manager. They know the product or the industry of where that’s going to be applied. They can really say, “This is the value” better than the third party person. This was part of my job to challenge them: “What do you mean by more reliable? What’s that worth?” But I need the experts to help build the case in the tool/system. But to put into the system on a regular basis, it’s the people in the field – the salesforce in the field. As I’ve always said, I don’t create value. I’m a head office person. I’ve never gone in and turned a wrench and changed something to make a machine run better – that’s what the people do that are smart. So they’re the people making the improvements, they’re the ones that need to go into the system and calculate that value. That doesn’t mean they shouldn’t have access to an expert to help them, but in general, the whole field organization (product, service, field experts, etc.) should be the ones using the system on a day-to-day basis.
Marketing should be extracting insights as well – what are the key insights we’re learning from this? Maybe they were seeing a big impact in this industry, maybe we can replicate that. It’s a great place to pull and generate some great insights.
With a lot of companies that look at this exercise skeptically how do you get the value conversation started?
I guess there’s two ways to look at it – the customer skepticism and the internal skepticism. So I’m not sure which way the person’s asking the question. Let me start with internally. You know, I got lucky. It started as a side project, like most things do, but then we got some successes and it built from there. But you know, if I’m working with an organization on the internal side trying to transform them to it, I can tell you the markets moving this way, the power of procurement is rising, the power the economic buyers is rising, and they want a business case.
So if you’re looking at long term customers you’ve had where you’ve created value, and you’re losing them – discussions are on discounts or you’re losing business – it’s because we’re not doing this. You need to be getting the mindset that this is the way the world’s going, these value models are the way the world’s going, and they need to quantify in the way the world is going. That’s internally really getting that step change. I’m going to go see a client in a few months but I’ve got their whole executive team for two days, and to get the C level in a room for two days is a lot. But they realize they need to commit to this, because all the one-off projects aren’t getting the value. They need to all buy into it and all make an overall company-wide initiative. You might start in a division, you might start in a geography, you might start in a product like I did; but eventually it needs to become a company-wide initiative.
For the client buying perspective, Google “Kraljic Matrix”. It’s a very famous piece of research that was done in the early eighties by Harvard Business Review. It said when procurement people are thinking of supply chain, where do they put their different buckets of goods? Should they spend the time doing the research to figure out the value, buying on value? Or should it be a leveraged three bids and a buy? I use that to try to get marketplaces to stop and think, because they’ve made a lot of assumptions. When they say, “It’s transactional. It’s substitutable. It’s not high risk.” – those are all assumptions. If I was in that business, I would have to change the payment model and try to say there’s a different profit impact here – we can have that discussion. So we need to get those insights to get them to the client in different ways – again, the white papers, the conferences, etc. – different ways to get it out there. So they can say, “Wait. I haven’t thought of it that way, that’s interesting, okay now let’s have a discussion of how that applies to me.” Don’t wait for the RFP to come in to get them looking in a different direction. It’s tougher to get someone to change once they’ve made a decision. You’re a salesperson – you’re getting me to look at some point differently.
Just a quick example, from when I was Vice President of Value at procurement conferences, people brought me in and said, “How do I think differently about how I buy stuff?” Spend time internally and externally, and I think different tools and techniques need to be used. Hopefully some of the slides, again you’re getting a very short version, help show you what it’s worth to do it on the sell side, but also customers – let’s think differently. What’s it worth to engage me differently to create value? It’s worth a lot more.
How do you guarantee value if your key value proposition is not cost-saving?
Okay so whether it’s risk reduction or speed of response, etc., a lot of times you can quantify things you just have to do it differently.
And sometimes, I didn’t have the example in here, it’s an assumption. “A reframe” as they call it. But again, I’m not just talking about cost savings, I’m talking about revenue improvement. So for an example, in the high-tech industry speed-to-market is everything. If you’re launching a new phone, getting in that back-to-school buying cycle – at least in North America they talk about it all the time – if you could help that person be earlier to the market or something that’s worth everything.
If you’re in the pharmaceutical industry, then you’ve only got protection for I think it’s 10 years, I don’t know. But I mean every month ahead of that you can do, “this is worth between this and this.” So sometimes it could be worth X or Y. This is that prescriptive value selling ahead of time saying, “you know we don’t know the exact number but we know that the value far exceeds the cost.” And I love when I’ve had clients come back to me and say, “well your number’s wrong. The value is more or the value is less.” Hey, the value far exceeds the investment – it’s a go.