Three ways to sell value in B2B Markets published in MITSloan Management Review. Authors Joona Keranen, Harri Terho and Anita Saurama.
Do you want to boost your margins and competitiveness? Of course, you do. The authors claim that value-based selling (VBS) can deliver that boost but you need to move beyond the one size fits all approach commonly used today.
In today’s business environment where customers are seeking to reduce costs, competitors are digitally enhancing or servitizing their products, VBS has become critical in B2B markets. Traditional VBS leads to confusion about the actual value salespeople are supposed to sell.
Research shows vendors should adopt either a product-centric, customer process centric or performance-centric approach to VBS. Today we will look at characteristics, requirements challenges of each and help you choose the one that is right for you.
Value based selling is based on focusing on the customer, showing the value of the product or service being offered, the benefits the customer receives in return for the price to be paid. This is a powerful argument because B2B customers buy to reduce their costs or boost their revenues.
Traditional VBS faces challenges as the vendor has to a) Understand the customer’s business model to identify the drivers of profitability for the customer, b) Vendors must deliver a value proposition that is compelling compared with the customers best alternative, c) this must be clearly communicated and d) vendors need to prove the value has been delivered. Just deciding to use VBS is not enough to effectively implement the methodology.
A more granular approach is needed to choose a strategy that focuses on the product, customer process or performance.
The product centric approach is the often the easiest way for companies to start VBS. This builds on your greatest and best understood asset – your product. But the sales pitch is modified away from features to benefits. Using their knowledge of the customers need and expertise in their own product vendors can see ways to improve their offerings that unlock cost reduction or revenue generating opportunities for their customers. By being able to show that the benefits from the product outweigh the costs the vendor is able to move into premium pricing territory. A product that enables a retail store to open faster, or a product the demonstrably has a longer life and lower service requirement are examples.
Switching costs must be considered, the new product should not require major changes in the customer’s processes. It requires that the customer can consider the total cost of ownership. This maybe a challenge if the procurement team are focused on price. Getting other stake holders with a broader prospective involved is often needed.
Customer Process Centric VBS. Focuses on facilitating improvements in your customer’s business that are valuable and produce measurable financial benefits. Seeks to educate customers on how to apply your solutions more effectively to their value creation processes. This is a joint effort as vendors need input from the customers about their business and value drivers. To be able to deliver customer process centric VBS requires that you have strong process expertise and a consultative sales force that know how to apply that expertise to the customer’s business. As this model relies on joint application of expertise there is good potential for sustained competitive advantage. As well as continually improving the service the seller should find a way to keep some of the expertise in house. Sharing everything may lead to the customer deciding to go it alone. Examples of this approach are Caterpillar’s fleet analysis and management programs, or Kemppi’s diagnostic tools for welding processes, their tag line, We are committed to boosting the quality and productivity of welding.