Tuesday, September 21, 2010

Capturing Value in B2B Transactions

What is B2B Value Capture?

Sales guys often fall victim to price concessions because they can't communicate and/or quantify how their products and services will bring value to their client. In a business-to-business (B2B) transaction, "value" means economic value--dollars and cents. The goal of B2B Value Capture is to get an equitable return on the economic value products and services provide to clients.

The tools and methods used to quantify B2B value fall under a practice called Economic Value Analysis (EVA). EVA can be used in both a B2B context (widget A saves $X/yr. or with increase sales by $Y) and in a business-to-customer (B2C) context (car A will save the customer $X/yr. in fuel costs over car B).

Documenting Your Value Proposition

The result of an EVA exercise is a value calculator. Usually in spreadsheet form, these tools support a consultative type of sale, where the value consultant (salesperson) sits down with the potential client to quantify the savings and/or increased sales that could result from the use of products/services from the supplier. This exercise leads to four major benefits:

  1. Increases the credibility of the sales pitch
  2. Clients can quantify the value created and will be in a better position to convince upper management and those that have to sign of on the Capital Allocation Request that the purchase makes sense
  3. Suppliers can show veritable cost savings and incremental sales to future potential clients
  4. Suppliers can compare actual savings to forecasted savings and refine their value calculators

B2B Value Capture Works

Value Capture works because it helps the value consultants and clients conceptualize and verbalize value. By doing so, they create a common language and mental model, which is far more than most salespeople do for their clients. Most salespeople claim they provide superior value with a "trust us" for support.

B2B Value Capture Process

Step 1: Create list of Critical-to-Value Attributes (CVAs)
Step 2: Understand how CVAs provide value as their performance changes
Step 3: Translate value changes into value propositions
Step 4: Benchmark competitive offerings and compare to value propositions
Step 5: Transform salespeople into value consultants
Step 6: Profit from capturing value

In future blogs, I'll take you through these steps and find case studies in the news to demonstrate how it works.

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