B2B Value Capture: Are Your Salespeople Aligned?

Build Value Perception, then Harness It

In B2B, the interaction with salespeople should feel like a consultation because the sales folks should not only be familiar with their products (goods and/or services), but have intimate understanding of their customer's (think client's) business as well. The sales folks need to build up the customer's understanding of how their products deliver value and then capture as much of that value in negotiations as possible.

Salespeople As Customer Advocates?

What I've been hearing from executives is that they feel their salespeople all too often say they need to give price cuts instead of holding their ground and keep fighting for an equitable return on the value provided. Here's a list of behaviors to watch out for:

1. Sales folks sell by comparing prices with competitors
2. Throw-in services to close the deal
3. Say "Our prices are too high!" when they lose a deal
4. Close deals by lowering prices
5. Lower prices to get more business
6. Focus on revenue when making a sale

Optimal Sales Behavior

In order to make a sale, sales folks will have to look at how they are delivering customer value (product value minus price) as compared to the competition; but they also need to understand the businesses costs to ensure an equitable return for the sale (price - product cost). The following behaviors can help do this:

1. Sell by comparing cost-of-ownership with competitor products
2. Use supplementary services to generate additional revenue
3. Say "Our method of communicating value needs work!" when they lose a deal
4. If prices are lowered to close the deal, pieces of the product are taken out to lower cost
5. Consider profitability when making a sale

Ideas to Incentivize B2B Value Capture

In an ideal world, the salespeople will see that using value calculators should make the sales cycle easier. Selling as a value consultant is a different way to close deals for sure. So how do you transform your sales folks into value consultants? The answer of course is to make changes to their compensation plans...., which may not be easy. The weighting on profitability needs to be increased relative to volume and revenue. This can be difficult for management to accept because they might fear that this will affect market share. But ultimately, isn't it better for a business to have market share AND profitability?

Involve salespeople early in the development of value calculators to help them get comfortable with this methods of sale. Pilot the value calculators throughout a couple of sales cycles with "friendly" clients. After a few small wins, document the process and have new salespeople join the newly developed value consultants in the field to observe the process and continue the training by doing some role-playing. The business can also develop a small group of specialists who understand the value consulting model and who are trained to be able to find additional value that could be captured. The end goal.... a value capture culture.

Further Reading

"Value Merchants" by Anderson, Kumar and Narus

Quantifying Value in B2B Transactions

Value, Value, Value
Value is a word that can have many meanings based on the conversation at hand. To clarify, I offer the following graphic representation of the different types of value from the supplier's perspective that are important in B2B transactions:

The way you capture value in B2B transactions is by calculating the value the customer puts on your product (good and/or service)--calculating the product value. When we create B2B value calculators through Economic Value Analysis, we systematically quantify the value drivers for a particular customer. This is the major difference between Value Driven Management in a B2B market versus a B2C market where a product value metric is calculated and used to represent the worth an entire market gives to a particular product.

As the chart shows, if you know product value and product cost, its easier to understand what price is equitable for both the supplier and customer. Ultimately, product value and price don't change much. Price is therefore changed to give more or less incentive to the customer to go forward with a purchase. This difference between Product Value and Price is called Customer Value and in B2B transactions Customer Value usually translates directly into economic value (profit) for the customer.

What to Expect

As you work with your customers to create the value calculation, each Critical-to-Value Attribute will fall into one of the following categories (see Value Merchants below):

1. Attribute of Parity
2. Attributes of Difference
3. Attributes of Contention

An attribute of parity is an attribute that performs essentially the same as a competing alternative. An attribute of difference is an attribute that performs either better or worse than a competing alternative. Alternatively, an attribute of contention is an attribute where it is not clear whether a the competing alternative is better or worse, so more data is required.

Value Propositions from Value Calculations

Value propositions might actually vary from customer to customer due to different product use situations. Nevertheless, value propositions become clear as the value consultant and customer develop a shared mental model of how value is delivered. The attributes that perform better than the competition form the basis for the value proposition and the two or three attributes that deliver the most value become the focus. These high value earners WILL likely be what sets the supplier's products apart from the competition and ultimately become the foundation for brand building.


Additional Reading:
"Value Merchants: Demonstrating and Documenting Superior Value in Business Markets"

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.

Book Review: "Value Merchants" by Anderson, Kumar and Narus

4 Stars (Out of 5)

The following is a book review of "Value Merchants: Demonstrating and Documenting Superior Value in Business Markets" by James C. Anderson, Nirmalya Kumar and James A. Narus. The book was published in 2007 by Harvard Business School Press.

This book serves as a "how-to" for value based pricing in a B2B context. "Value Merchants" is written for the business leader or sales manager that sells products to businesses (B2B) who wants to get a better return on their products by quantifying (in terms of dollars) the benefits and savings for their customers to eliminate the need to provide price concessions in order to make a sale. The book could be read over a short flight as it is clearly written and has good flow.

The book makes the case for the use of and demonstrates how to create "value calculators" to document cost savings and incremental profit gains delivered to customers by purchasing the suppliers products and services, which they call "Customer Value Management Process". The authors show going through the process can help make stronger value propositions, quantify value claims, construct business cases for change, tailor market offerings, and transform the sales force into "value merchants" as opposed to "value spendthrifts".

There are only two criticisms that I have of this book. First, the "Customer Value Management Process" should actually be called the "Value Merchant Process" or the "Customer Value Based Marketing & Sales Process", as Customer Value Management is a much broader domain of thought comprising many tools that include the "Value Merchant Process". The second criticism is that the bibliography and references to scholarly works is very limited, where nearly half of the references point to author's own journal publications.

In summary, this book provides an introduction and a "how-to" for value based pricing in a B2B context and how are interested in learning about one of the many tools that make up Value Based Management.