By Malcolm McDonald, Emeritus Professor of Marketing, Cranfield University School of Management
In part 1 of this series, we talked about the benefits of creating financially quantified value propositions, shared a self-assessment to determine your organization’s maturity in this critical realm, defined the concept of “added value” and briefly shared a six-step process for creating financially quantified value propositions. This installment spells out how to translate your strategic account analysis into a financially quantified value proposition.
At the end of the previous post, we introduced a six-step value propositions process. Here it is again, in case you missed it.
Provided you have done all the work of steps one through three (“Define target market,” “Identify buyers” and “Added value analysis”), you are now ready to financially quantify your value proposition. Now we are glad to offer you our unique proprietary summary of all the foregoing.
The following table summarizes all the analysis referred to above except Porter’s Value Chain, and it represents a major part of step four (i.e., “Financial quantification”) above.
Next, we bring you the single most important figure in this post, because it summarizes everything we have said about how to develop financially quantified value propositions for strategic accounts as a result of Porter’s Value Chain analysis. This also plays a major part of step four of the process outlined above.
The following graphic shows what a summary might look like as a result of going through the process outlined above:
The penultimate step
Before presenting your financially-quantified value proposition to your customer, there is, however, one further piece of work to be done: You will need to classify it according to the structure below. This corresponds to step five (“Categorize”) in the six-step value proposition process above.
The reason for this is that not all financially quantified value propositions have the same immediate value, and so if you are able to categorize and present them like this, you will stand a much better chance of being listened to and, more importantly, understood. All that remains now is step six (“Communication to target customers/markets”), which will be the topic of a future blog post.
The final piece
This is not the place to go into lengthy and complex explanations of return on investment (ROI), internal rate of return (IRR), net present value (NPV) and payback, but particularly for more sophisticated customers it is necessary to calculate the financial return on what are frequently substantial sums invested in purchasing goods and services
Some customers are interested only in payback over a 12-month period. Others are looking at return on investment over a longer timeframe. Each method attempts to summarize a set of cash flows from a project into a single indicator. Each has its intended purpose, and each has its strengths and weaknesses — so it is prudent to be prepared to present your case taking into account the particular interests of the customer. Incidentally, we offer tailored software to make such calculations easier.
As we said earlier, there is obviously a lot more detail involved in going through the six-step process shown in the first figure in this post, and it requires substantial effort and skills on the part of the supplier — which leads us to one final point:
Strategic account managers and senior salespeople today need business acumen to demonstrate the value they can bring to the customer and the financial literacy to support it.
To do this, they need not just product knowledge but insights gleaned from industry knowledge and from a deep understanding of the customer’s business.