For our June Webinar, Todd Snelgrove, Founding Partner at Experts in Value, shared the keys to implementing a successful Value Management program, drawing from over 20 years of global value selling and commercial excellence experience. After the session, he answered some audience questions that we weren’t able to get to during the session. In this blog, we share the rest of his answers.
What stages in the value management lifecycle do you see companies struggling with? Does it vary by industry?
Well, I think they all approach it differently. When I see it in the software world, they have teams that are very focused on the value quantification component of it, but maybe less with the other eight areas that we talked about during the presentation. They talk about negotiation and repositioning within the mindset of the customer and all of these other areas, but the real focus always is in building the business case. I think there’s a little reticence within customers (having been presented with business cases), and companies have trouble standing out from the crowd when they’re missing those other elements.
Which pricing models do you see becoming more prevalent over the next decade? How does that impact the way we approach value selling?
I think we’re at a tipping point. Truly we’re getting into more value payment models and I think there’s two aspects of it. You either end up as commodity, where you’re going to fight on the lowest price that meets the minimum criteria – not a fun place for anybody to be in. Anybody that’s in sales, marketing and pricing might as well hang it up because the internet can do that.
Or you have value that’s better and more important than the price difference. And then within value, the companies that build the business case that the cause the customer to nod and say, “okay, I see the logic. I see the probability. I see that the investment is X, but the ROI is between A and B, and that’s so much better. So that will be kind of foundational if you don’t want to be in the lowest price discussion, and (that means) moving towards more fee at risk, performance-based and outcome based (pricing). And that’s a whole different discussion.
I think years ago, people got excited about this outcome-based philosophy – 100% reward base – and people were attracted to it. However, the tools, the systems, the data didn’t exist. Also, the variability – what happens if this scenario happens? What happens if a pandemic hits? These types of things were too much. People thought it was interesting, but there was too much uncertainty there.
More data exists today – more companies are doing it more research around it. So it’s happening. But I think kind of a mid-step that seems to be easier for customers to buy into and selling companies to do is put a fee at risk. If I know I’m a higher price than my competitor (I’m making up numbers of course), let’s put 10% or 20% fee at risk. If we have KPIs that deliver profit to you, then we get X. If we exceed this, we get Y. If we don’t, we write you a check.
The companies that are willing to put some fee at risk and agree on how they will measure value, I think really stand out in the crowd. Put yourself in your customer’s position. There’s four people that have been invited to the RFP or RFQ. They all have pretty PowerPoint slides and the case studies and one company says, “I’m willing to put part of my fee at risk to make sure you realize the value that I’m presenting.” That’s the company I’m going to take.
What is your view about the importance of having a deep understanding of VOC (Voice of Customer) in the Value Management Process?
Very important. But I think the one thing that I’ve seen companies do incorrectly in the voice of customer is that they would ask, “do you care about these attributes?” So they would sit back in product development and ask the customer, “do you think our product should do this or that? Would it be neat if we did this? As a customer, I’ll take anything for free.
The question of should be “would you be willing to pay 20% more for it to be 10% lighter?” That’s a different discussion because I’ll take a 10% lighter for zero more. I’ll take a quieter product for zero more. There’s no willingness to pay type discussion.
And that starts with what is the value for them? It’s nice for it to be quieter, but are they willing to pay for that? I’ve seen plenty of products that had a lot of VOC research get to the market and fail miserably because the customer said, “I’ll take it, but I’m not willing to pay for it.” So VOC is extremely important, but asking, “what you care about?” then doing the modeling and saying, “we think this would be worth $X to you. What would you be willing to pay for it?” Because if the value is zero and it costs you money to develop it, the odds of somebody paying you for it are very low.