By Todd Snelgrove, founding partner, Experts in Value
For every individual SAM and SAM team, one of the most important goals is to be able to deliver value to the customer AND make sure you get paid for it. Once upon a time, “all” you had to do was convince the end user of your offering’s superiority to other options — and then let them do the internal selling for you. Today, you’re dealing with a highly educated Procurement function with a great deal of sway over what gets bought from whom.
Don’t despair: All hope is not lost. To thrive in today’s world, you just need to learn to think like – and sell to – both the economic buyer (i.e., Procurement) AND the technical/business/end user. In this post, I focus on eight areas your value program needs to master to get all your customer stakeholders the information they need to pull the trigger on your offering. These will be covered in much greater detail in a one-day workshop I will be delivering at SAMA Academy in San Diego on Tuesday, Oct. 16.
First things first, let’s look at a couple terms from the title of this blog, so we make sure we’re speaking in a common language.
Ability to pay (ATP). Simply put, this term refers to whether or not your customer has the money to pay for your offering. We’ve all had customers tell us our product is too expensive, that another, cheaper option is “just as good,” or that the supplier isn’t budgeted to spend what we’re asking. In my book, this is just evidence that our offering just isn’t resonating with the buyer — that it doesn’t sufficiently address our customer’s needs and strategic drivers. But I also think about what my former CEO used to tell me: “Todd, budgets can be changed. If you put a newer and better option in front of me that creates real economic value, it will get funded.”
Willingness to Pay (WTP). This refers more specifically to whether your customer is actually willing to pay for your option over its next best alternative, whether that means buying from a competitor or sticking to the status quo. It is critical to understand that WTP fluctuates as a company’s needs change. And so it’s critical for you to understand that Procurement’s needs differ from the end user’s needs, so they are going to value certain qualities — and hence their willingness to pay for them — less. While your end user may be willing to pay a premium for decreased downtime or better systems integration, Procurement won’t be unless you can quantify and document the value in business terms.
So how do you build your organization’s ability to succeed at selling value? Based on the work of myself and others, many companies have begun creating ROI/value quantification tools, but often these value initiatives aren’t leading to bottom-line results. Research shows that, all too often, suppliers focus only on helping marketing and sales sell value but not creating a simultaneous culture change that actually incentivizes and encourages them to *WANT* to sell value. Recent research from SAMA shows that, while pretty much every company in the world knows it needs to quantify customer value, only 30 percent actually have a disciplined process for doing so. And in my experience, of those 30 percent most could stand to do it much better.
Below, you can see a handy chart I created with James Anderson, the distinguished professor at Northwestern’s Kellogg School of Management (or, as I like to call him, The Value Guru), which shows the factors that influence a salesforce’s ability AND desire to sell value.
Let’s tackle these concepts one by one…
Value conceptualization. During your new product/service development process, are you thinking ahead about how much this new offering would be worth to your strategic customers? Are you building the formulas and test case examples in advance, so when you’re ready to launch you already have sample ROI calculations to share with customers?
Value-selling process. Do you have a process that pushes Sales and Marketing to interact earlier in the buying cycle so you can frame your customer conversations around value from the start, rather than reacting to an existing demand via RFP and trying to push value when it may already be too late?
Customized ROI tools. Have you created a tool for Sales to create customized ROI analyses for all your solutions, and is it easy to use, intuitive for the customer? Does it save and track cases as you build them, and can it track actual realized value for customers who have begun to adopt your solution?
SAM/sales team training on value selling. Have you given your teams the training they need to be able and comfortable selling on value? A one-off seminar isn’t enough. Training needs to be robust, ongoing and challenging, with exercises, role-playing and tests. Selling is a skill, and like any skill it requires training and ongoing fine-tuning.
Rewarding the right behavior. To give just one example, many companies still measure their SAMs/sales staff on sales versus target. But if I’m a SAM who is only being measured on the top line, what incentive do I have to push my customer to pay a price premium, even if I know the value is there to justify it? I’m much more likely to cave and offer a five percent discount and move on. But that five percent comes off the bottom line, and for most companies that’s 50 percent of net profit. One tell-tale sign you’re not rewarding the right behavior is that your SAMs and field sales are either continually pushing for discounts or complaining that you’re not priced competitively. This is a sure sign they don’t have the tools, knowledge and, most importantly, incentives to have the right kinds of conversations with your customers.
Value-based contracts. Have you created contracts that allow the customer to pay based on the actual, mutually agreed-upon and delivered value? If not, it’s a lot to ask of a Procurement expert to just “take your word for it.” Words and PowerPoint slides will not get you the traction you need to sell on value. While many companies have built processes around offering discounts, very few have ones that guarantee delivery of value.
Business Culture. What does your company stand for? Does your CEO talk about customer value? Is it part of your company’s annual report? Does it get discussed at your investor day? For true business culture change around value, you need a person working full time to drive the concept of value and its adoption at every level of the organization.
Customer Culture. Are you engaging customers earlier and, most importantly, differently? Are you discussing early in the sales process that, when they buy your offerings, that they need to consider value and not simply buy at the lowest that meets the minimum requirement? It takes a different sales and marketing approach to be seen as a thought leader in your industry and to drive a change in how your customers value value.
Tools to help quantify and demonstrate value are critical, but underlying those tools your company has to have a holistic value mindset that runs across and through the entire organization. For much more detail, see my book (co-authored and -edited by Andreas Hinterhuber), “Value First Then Price: Quantifying Value in Business-to-Business Markets” (Routledge, 2016). And of course, remember to register for my SAMA Academy workshop in San Diego on Oct. 16, 2018.
Todd C. Snelgrove is the former Global Vice President of Value at SKF, where he drove the creation, tools, processes and results of a 20-year value journey at the company.