Category: Customer buy-side perspective

Understanding strategic sales through the eyes of the customer

Customer buy-side perspective

From Your Buyer, with Love: “Dear Supplier, Please Reduce Your Price by 10%!” Or: Five Steps You can Take NOW to Counter Price Reduction Requests

By Jens Hentschel, Founder, THE FIVIS PARTNERSHIP

Many sales teams are being asked by their B2B customers to reduce prices to support them during these difficult economic times, a pattern that is all too familiar for many sales teams. This article proposes an approach on how suppliers can respond to this procurement tactic and how sales organizations can move the dialogue back to a value-adding conversation with the customer and their professional buying team. 

“Never let a good crisis go to waste.” The quip Winston Churchill formulated in the ‘40s has become a business management mantra. Any economic downturn is used as an excuse to optimize company cost structures and to improve inefficiencies. The COVID-19 health crisis turned economic crisis is no exception.

The resulting actions by many companies and their respective procurement functions will make many B2B suppliers feel like they’re living through “Groundhog Day,” receiving yet another request to support their customer during these unprecedented and extremely difficult times.

If you are in B2B sales, you either have been – or soon will be – contacted by your customer’s procurement team asking for help or – to put it more bluntly – for money.

Why your customer asks for money

Let me be clear: This time around, we are indeed in an extreme situation with end-consumer demand tumbling fast, corporate investments on hold and world trade under extreme scrutiny. Value chains and supply chains are disrupted, and “cash is king” more than ever before. In these circumstances reducing costs fast is for some businesses a matter of life or death. Every stone needs to be overturned to see how the cash burn rate can be contained and how cost can be reduced fast.

Such price reduction requests from your buyers will follow a standard trajectory, namely:

(1) Savings and cash-flow targets will be defined by your customer’s CFO and passed onto his or her procurement function for execution.

(2) The existing supply base will be grouped into categories depending on their contractual value to the business.

(3) Suppliers will then be approached and asked to lower prices immediately by a certain percentage and/or to increase payment terms by X number of days.

The size of these requests will be based on the classification category the supplier falls into and will often be accompanied by direct or indirect threats to reduce contracted volumes or contract lengths, as well as suggestions to restrict access to future business opportunities in case the supplier does not swiftly support the customer demands. 

While aggressive tactics like these might be merited under certain circumstances, they more often risk causing serious harm to customer-supplier relationships by destroying trust that’s been carefully developed over the course of years. This can endanger supplier collaboration on new product development, on supporting future market expansion plans or mitigating tight supply situations, leaving the buyer’s business at a competitive disadvantage and resulting in lost sales and lost market share in a worst-case scenario.

Despite these significant risks, the approach has become a regular occurrence of many procurement organizations, who apply these tactics on a regular cadence – crisis or not.

How you should respond to the requests to cut prices.

So how should your sales team react to these cost-cutting requests by your customers and their buying teams? These aren’t easy conversations to have, but there are ways to manage these exchanges that can actually allow you to benefit from this buying tactic.

First and foremost, maintain an open dialogue with your customer – even if they have decided to engage in these rough cost-cutting tactics. Your instinct will be to respond tactically. Resist this temptation in favor of maintaining an open and consultative posture vis-à-vis your customer.

Equally important: Before you respond to your customer’s request for “help,” map out how you will structure your response. In these situations, it is crucial that your communications be clear and concise. The following five steps are designed to help engage your customer in discussions that divert their attention away from pricing and toward discussions about how and where you can offer meaningful help to your customer in these difficult times.

Step 1: Care about your customer.

This may sound straightforward, but it is the most commonly neglected area by many sales teams, especially in high pressure and extreme situations. Caring means building a thorough understanding of your customer’s end-to-end value chain, starting with your own supply base all the way up to your customer’s customer and the end consumer. 

Ask yourself: Where in the supply chain is value added or lost? What combined or independent actions by you, your co-suppliers or even your competitors could lead to improved efficiencies for the customer? How can you help realize these efficiencies? What savings could be derived by optimizing your supply chain, e.g. through adapting the minimum-order quantities, by elaborating improved forecasting mechanisms or other creative ideas? What are your customer’s total-cost-in-use elements that you could work on without decreasing your per-unit prices? 

Do not expect your buyer to know the ins and outs of the value chain! For any efficiencies you identify, estimate their value and determine what support you would need to implement them.

The Value Chain in B2B Relationships
Figure 1: A basic value chain map

Step 2: Compete for your business and understand your level of competitiveness.

Many suppliers believe firmly that they are strategic to their customers. Sorry to break it to you, but in many cases this is not the case. In reality, your buyer has specific expectations of you depending on the spend category they’ve put you in, and nothing is more counterproductive than misalignment between you and your customer on this front.

That is why it is of paramount importance that you clearly identify how and where you fit into your customer’s supply chain. A good approach is to self-apply the tools your buyer is using to categorize you – like the Kraljic matrix. .

Kraljic 2x2 Matrix
Figure 2: Example of a Kraljic 2×2 matrix with its four supplier categories and respective buyer assessments and actions

Once you have determined the supplier category you’re in, you will be in a much better position to understand your customer’s needs and expectations – and, as a result, how you can help them with their current predicament. Take your findings and start over at step 1, readjusting your proposal(s) to reflect your competitiveness and strategic position.

Step 3: Continuously improve

It may seem like an obvious point, but it’s an area I found most sales teams underperforming during my procurement career. Simply put: Do not wait for your buyer to request price cuts. Rather, proactively suggest interventions and efficiencies in your supply chain that can anticipate and even mitigate your buyer’s problems. If you regularly showcase an understanding and support for your customer’s business challenges, you will be much less likely to fall under the scope of a tactical cost cutting program in the first place. 

In case you have been lagging behind in this area, take this opportunity to announce (or reiterate) your commitment to continuous improvement in this regard and try to lay out a multiyear plan to contribute to your customer’s competitiveness moving forward. Keep the focus on the measurable value you bring to the partnership. Every crisis will come to an end eventually, and your customer wants to make sure they’re doing business with suppliers who contribute end-to-end value.

Step 4: Communicate clearly, proactively and regularly

Understand your individual buyers’ challenges and how you can contribute to keeping their internal stakeholders happy. During a price-cutting exercise, your customer’s CFO and CEO might be your procurement counterpart’s most important stakeholders. Manage your communication approach with an eye to supporting your buyer’s efforts to communicate internally, e.g. by providing your buyer with valuable market information on your input price developments in a format that their CFO can understand. This will help your buyer to better position opportunities and risks with regards to these cost-cutting efforts.

Map out which stakeholders your buyer and your organization need to influence, and create an action plan that showcases your commitment to helping your customer’s organization. Who is important? Who is influential? Figure 3 shows a simple stakeholder assessment tool that can help clarify your communication approach.

No alt text provided for this image
Figure 3: A simple stakeholder assessment tool

Step 5: Define your goals

This may feel like an obvious point, but in my experience it’s another area suppliers tend to overlook, namely: What do you want to get out of this customer relationship? What does success look like to you? In the absence of clarity, your buyer will just assure you care only about increasing their margins – which, to them, will offer the perfect justification for demanding price concessions. To avoid this, provide them with your short- and long-term vision and seek to get them excited about the future value you plan to co-create together.

In my many years as a procurement professional I did, unfortunately, have to engage in many cost-cutting exercises. And one thing I noticed is that those suppliers that followed these five steps tended to come through these programs much better than the ones that either fell in line and reduced their prices or those that took a more confrontational approach.

Jens Hentschel is founder of THE FIVIS PARTNERSHIP. Before that he served in a variety of senior, buy-side leadership and director roles at companies including Procter & Gamble and KFC. This article originally appeared on LinkedIn on August 17, 2020. Learn more about FIVIS at https://www.fivis.io/ Contact Jens Hentschel at https://www.linkedin.com/in/jenshentschel/

Customer buy-side perspective

Sense making in sales starts with making sense of Procurement: My view on Gartner’s most recent research on the “Sense Making Seller”

By Jens Hentschel, Founder & CEO, THE FIVIS PARTNERSHIP

Gartner, a global research and advisory firm, has just redefined what makes a high-performing seller — at least according to them and their new research. It is what they call a “sense maker,” which they define as:

• An individual who rescues the drowning B2B customer from the flood of high-quality and sometimes conflicting information.

• A trusted advisor to the customer that not only shares but also explains and contextualizes information, assisting the decision-making process through guidance, providing perspective and support in evaluating data and tradeoffs

• A seller who doesn’t “tell customers what to believe, but rather helps them to develop a mental framework to make their own decisions.”

In its study Gartner defines the buyer as the internal requisitioner of a service or product within an organization — the marketing leader, IT director, operations executive or R&D researcher — who reaches out into the market, encounters overwhelming and conflicting information and desperately awaits a white knight in the form of the “sense making seller” who arrives to help make sense of it all.

I am not disputing the increased availability and abundance of information at our fingertips, or the sometimes confusing nature of this information. What I do frown upon is the fact that the buying process described by Gartner leaves out one very critical element (arguably the most critical element of all) — namely, the role of the professional procurement function in this. The concept of procurement assisting the internal requisitioner, and ultimately leading the interaction with the seller, is not addressed at all.

The word procurement is not mentioned once in Gartner’s report. That does not make any “sense” to me.

The B2B buyer journey

Based on my experience as a professional B2B buyer at Procter & Gamble and elsewhere, let’s take a look into what actually happens when the aforementioned requisitioner requires a service or product. He or she will not approach this task in the same way they would book a holiday or purchase a mobile phone — by consulting search engines and social media, as highlighted by Gartner. This would undoubtedly lead to this overwhelming onslaught of information that one might struggle to make sense of.

Most employees, rather, turn to their professional procurement department to have their needs fulfilled. It’s Procurement that plays the role of providing structure to the buying process, enabling and guiding the internal requisitioner. It is Procurement that navigates the decision-making process, and it is they that help the requisitioner to make sense of the available options in the market. Procurement’s role, in other words, is to be an advisor ensuring that business needs are clearly defined, that external capabilities are identified and assessed, and that a purchasing decision is achieved in a timely fashion. 

Gartner describes today’s B2B buyer journey as a messy, complicated, unpredictable reiterative and time-consuming process. But is this a fair representation of reality? I would argue that any company that struggles to bring structure to its buying procedures should seriously ask itself what is broken in its procurement setup. If, as Gartner claims, purchasing requests are indeed being delayed or cancelled because of information overload and companies’ inability to deploy the analytical skills to make timely decisions, then I would go so far as to challenge the professionalism of these companies. At the end of the day, these are the fundamental business management skills of organizational leaders that Gartner puts into question here, namely: digesting information, making assumptions and coming to a timely decision.

The solution? Enable procurement.

By no means am I discounting Gartner’s research that customers appreciate an impartial and consultative salesperson who can make sense of the abundant information out there in the market — a salesperson who can back up his data with third-party sources and who builds credibility through advising and not just selling. Every customer appreciates this – the procurement professional, and B2B and B2C customers alike. 

Is Procurement immune to the oversupply of quality information? (Certainly not.) Are we not also struggling to weed our way through the various sources of data coming at us? (Yes, absolutely.) The difference is that we are trained to analytically digest this information and to make sense of it. This is why business leaders empower us to manage and own the buying journey for them.

In my view, today’s sales teams should not focus on the requisitioner only but instead zero in on the question of how to enable their procurement counterparts. Helping “make sense” to someone who is trained to analytically digest an abundance of data to come to a procurement decision (i.e., a procurement professional) is obviously different than assisting someone (i.e., a requisitioner) who may not be trained to manage the entire end-to-end buying process.

What I am concerned with in Gartner’s research is the fact that the procurement dimension of the buying process is totally omitted. It is absolutely crucial in my view that sales teams are not only aware of Procurement but also learning how to deal with them. A well prepared, customer-centric salesperson who understands the procurement processes, the KPIs and ways of working can complement Procurement’s work to steer the organization through the buying and decision-making processes. 

Modern sales theories — including Gartner’s, I am afraid — have completely lost touch with reality on how advanced companies are managing their companies’ expenditures — namely, through professional procurement teams. Leaving out this dimension entirely is not only a miss but a dangerous one for any salesperson who is actually being faced with the reality of needing to interact with professional buyers day in and day out. 

Making sense of procurement

So how can you be that sense-making partner for your procurement counterpart? How can you build a close relationship with your professional buyer? Involving instead of avoiding is where it all begins. Reach out to the procurement function proactively, early in the process, together with or in parallel to the requisitioner. 

Walking in the shoes of your purchaser and putting yourself into their analytical mindset will be the ultimate key to success. As a matter of fact, a professional buyer looks for five key behavioral traits in a sales person. Understanding them, incorporating them into your ways of working and living up to them will help you build that winning relationship with Procurement.

Here is what you need to do: 

  1. Care! Care about my needs. Understand my company, my stakeholders, the end consumer and the nature of the business that I am in. I don’t have time to explain over and over again what my needs and requirements are. Invest the energy up front to understand the constraints, opportunities, risks and KPIs of my organization. A salesperson who can relate, is empathetic and has built credible knowledge of my business and industry has laid the foundation for gaining my trust.  
  2. Compete! Know where you are at vis-à-vis your competition. I have spent a lot of time to assess your strengths and weaknesses, and so should you — before you come and meet me! Understand where you are strong and where you lack expertise. Ask for feedback and consider it a gift. Be upfront about your opportunity areas and where you might fall behind your competition. I do not expect you to be the best but to always try to become the best. That is the spirit I am looking for in a salesperson.
  3. Improve! The status quo is never acceptable. Continuously and proactively think about how you can make our relationship even better. Don’t wait for me to bring up what needs to change because by then it is already too late. Improving what is already good will allow you to form a trusting relationship with me.
  4. Respond! My timeline should be your timeline. And at times, sorry to say, it might not fall into your 9-to-5 framework. Understand my own and my organization’s communication requirements, communication frequency, channels and the language that should be used. Not responding or making me wait for your response can be painful. Adjust and adapt your communication strategy to my needs. Understand the stakeholders in my company, and assume the responsibility to be responsive.
  5. Win! Know what you actually want to get out of this relationship. There is nothing more deflating to me than when a salesperson does not know the answer to this question. Just making the quarter is not good enough, I am afraid. Inspire me by articulating what you want to achieve in our winning relationship in the next two, three or five years — and let me know what I can do to make you successful. Believe it or not, I am actually invested in helping YOU win because only a successful supplier can deliver value to MY organization long term and sustainably.

Make sense? 

Jens Hentschel, Founder & CEO of THE FIVIS PARTNERSHIP. The Consultancy That Gets You Your Oomph back! www.fivis.io