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

Book Review: "Designing and Delivering Superior Customer Value" by Weinstein and Johnson

5 Stars (Out of 5)

The following is a book review of "Designing and Delivering Superior Customer Value: Concepts, Cases, and Applications" by Art Weinstein and William Johnson. The book was first published in 1999 by CRC Press.

"Designing and Delivering Superior Customer Value" was written to serve as a text for MBA students on the concepts and theories of customer value, but would serve as an excellent read for general managers who are striving to make step changes in products and services. The book goes a step further than many other books on customer value as it not only proposes a framework and supporting logic (where most books on the subject stop), but backs up the propositions with real world data and several case studies (half the book is applications and case studies). The book is clearly written, has an excellent bibliography, and uses real-world examples to illustrate main points.

One of the major contributions of this book is that it suggests a relationship between customer value and Total Quality Management (TQM), which was a continuous improvement initiative the proceeded Six Sigma. Indeed, one of the major criticisms of traditional Six Sigma is that it focuses largely on cost savings and forgets to consider improvements in customer value. The authors state it clearly: The losers in the quality battle will be those who attempt to do things right, while the winners will be the organizations that learn to do the right things.

The book serves well as a foundational piece as the methods and tools are largely qualitative, but those interested in the latest analytical techniques that include quantifying and forecasting value metrics may want to seek another book on the subject. Another consideration is that even though the words "Designing and Delivering" show up in the title, the book is largely focused on delivering, i.e. the processes that make up the "service" side of the business and how they contribute to customer value.

In summary, "Designing and Delivering Superior Customer Value" is an excellent contribution to the area of Value Driven Management and is highly recommended for marketing and general managers. This book would also be a good addition to the library of quality managers because of the attention given to the link between customer value and quality.