Sunday, September 26, 2010

B2B Value Capture: Shattering the Commodity Perception

Lost Opportunity in the B2B Sale
Many suppliers make the mistake of believing they are selling only their core products in a B2B sale and use this as the basis for negotiating price. In today's world of complex products that contain multiple sub-systems, it is often the case that unknown interactions produce new performance issues or yield unintended consequences. What the supplier must do is unbundle the core product which might be interchangeable from the competition, from the supplementary services that are often given away without limit to the customer.

Value in Supplementary Services
Supplementary services are often seen as very valuable by the customer and could be used as the attributes of difference (differentiators) that could be used to capture more value in a B2B sale. The authors of "Value Merchants" (see link below) offer several examples of supplementary services that could be used to capture more value:

Services

  • Fulfillment: availability assurance, emergency delivery, installation, training, maintenance, disposal/recycling
  • Technical: specification, testing and analysis, troubleshooting, problem solving, calibration, customer productivity improvement


Programs

  • Economic: terms and conditions--deals, discounts, allowances, rebates/bonuses; guaranteed cost savings
  • Relationship: advice and consulting, design, process engineering, product and process design, analysis of cost and performance, joint marketing research, co-marketing and co-promotion.


Systems

  • Supply Chain: order management intranet, automated replenishment and vendor-managed inventory, enterprise resource planning, computerized maintenance management
  • Efficacy: information and design assistance intranet, expert systems, integrated logistics management, asset management

Think Naked Solutions and Supplementary Services

A naked solution is the basic out-of-the-box product and the supplementary services are the extra services that can be offered to make the customer's life more easy. Some customers won't need supplementary services, so don't give them and charge a lower price than the competition who still have these services bundled into their offer. Don't force customers to pay for services they don't need.

Before you can decouple supplementary services from the naked solutions, the supplier needs to unbundle the value and costs. The following table gives some direction on what to do next:


As you can see, we want to drive supplementary services to become options and let the customer decide what they value for themselves. What could be better than giving the customer what they want, for a price they're willing to pay, for a price that is profitable for the supplier?

Further Reading:

"Value Merchants" by Anderson, Kumar and Narus

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