A new era of Value Selling

2.2 Value of Goods and Relationships

In their research (2005), Lindgren and Wynstra investigated value in business markets from the perspective of business marketing, purchasing and supply management in respect to two aspects: the value of goods and services, as well as the value of buyer-supplier relationships. The research stream of value of goods and services found different definitions for value such as: Value is the quality a person gets for price or value is what one gets for what they give. Competitive advantage is the capability to attract customers with offers that the buyer perceives as providing superior value against competitors’ offers and customers will buy from those competitors that they assume offer the best value. The product’s perceived value is defined by Dodds & Monroe as: Vendor's product minus product price minus costs of owning/using it. These offerings must consider value not only in non-monetary terms but also also primarily in monetary terms.

Other researchers examined the concept of relationship value regarding the economic value of customers, since buyer and supplier companies do not only do business because of value from goods and services, but because of a firm's reputation, innovation capacity, expertise or market leadership. Not only relationship-marketing literature has focused on trust and commitment in supplier-customer relationships and dialogues. Naude & Buttle (2000) argue that the quality of relationships should be of considerable corporate interest because it comes with commercial pay-offs from satisfaction, customer retention, loyalty, reoccurring purchases or increased amounts of purchases.

Ulaga & Eggert (2006) identified that relationship benefits display even stronger potential for difference than costs, i.e. service support and personal interaction as core differentiators followed by a supplier’s expertise and their ability to improve a customer's time-to-market. Because of product commoditization in many markets, product and price become less important differentiators and suppliers of routinely purchased products search for new ways to differentiate themselves from competition through improved customer interactions.

They state that from an academic point of view, differentiation in business relationships, i.e. buyer-seller relationship, can be researched from a value-added perspective. This adds relationship value as a key differentiator in VBS besides providing tangible cost-impacting benefits. Their research revealed that customers consolidate their supply base and implement preferred supplier programs so that suppliers need to gain a key supplier status or will be pushed towards a backup supplier status. A thorough investigation of how value is created in a supplier relationship is necessary and suppliers must be aware that gaining a greater market share of a customer's business helps very little if it comes at the cost of reduced profitability. In their study, main suppliers secured 73,3% of customers’ order volumes while backup suppliers only captured 19,5%. In consequence, VBS should help to ensure profitability because key suppliers are heavily dependent on their key customers and they need to maintain this status.

Ulaga & Eggert measured relationship value with two formative value dimensions: Relationship benefits (e.g. cost benefits, sourcing benefits and operative benefits) and relationship costs with three dimensions: Direct product costs, acquisition- and operation costs. While buyers face increased dependence and higher risks of supply disruption and supplier opportunism when relying on key suppliers based on the above measures, key suppliers are often required to provide internal cost data and are pressured to invest into the relationship (e.g. relationship costs model). Table 3 shows the value drivers in key supplier relationships.

Table 3: Value Drivers in Key Supplier Relationships

Source: Ulaga & Eggert, 2006, p. 122

Because the results of their study revealed that relationship costs account for only 20% of the variance while relationship benefits account for nearly four times as much, VBS must include parts in a VSTP to build the skills needed. Furthermore, the findings suggest that throughout the exploration of value creation in ongoing relationships, cost factors only serve as key criteria to get a supplier on the short list but, ultimately, the relationship's benefits dominate when deciding which supplier to name. This is a noteworthy finding as cost competitiveness emerges as necessary but not sufficient condition to gain a key supplier status and offering superior benefits and value to customers is essential for winning a substantial share of their business.

In conclusion, VSTP needs to educate about the value concept and the relevance of relationship value, which should increase the effectiveness of VSTP once the learning is applied in practice. Because value is an increasingly relevant concept, companies and their salesforces must be able to define value and make it measurable when selling it to their customers. Sales people should be able to effectively explain how value is produced and delivered in a sustainable way to ensure long-lasting financial benefits from a loyal customer.

Value selling enables the sales person to identify these perceived benefits in the business partnership and to fulfill them during the sales process, e.g. communication of proposal before finally delivering the results to the value proposed. Thus, value selling is not just a technique but, even more so, part of the overall marketing strategy, which includes the personal sales approach. The goal of value selling is to sell a company’s portfolio by its relevance to the customer’s perceived value and ultimately increasing the value experience of your client. While performance and price have always been in the center of sales, value creation and experience need to play important roles to grow the relationship with the buyer.

Value selling at its excellence focuses on the early stages during the buying process and differentiates itself from transactional selling where it is always the price negotiation along the late stages of the process. The customer relationship is getting far more complex as research showed and includes personal relationships, product performance, information value-add and money. A value-seller should sell for the relationship value instead of a short-term commission. Long-term thinking should be the main focus to create value over years for the prospects. Only then, value-selling will result in enhanced customer relationships and decision makers will become a confederate partner and start selling your services internally to other decision makers and influencers, including executive management.

Rackham (1999) developed three stages from transactional selling to enterprise selling. While the investment by a supplier and customer is low on transactional selling, it becomes more important in consultative selling when new value creation is in the focus rather than stripping costs. At the top, enterprise selling creates extraordinary value with high involvement of the selling and buying company. Outcome-based account management delivers tools to implement enterprise selling based on a value-oriented approach. Sales people - and especially key account managers - need to think and act entrepreneurial: they need to inject new and innovative ideas to let the customer think about new business models e.g. digital products and models by using your products and services. At the same time, they need to start evaluating the risk together with their customers, deliver a feasibility study and build a financial business case.

Creating value assessments for customers is one option to identify new business models. This can be realized in five steps:

1 Value potential identification

2 Baseline assessment

3 Performance evaluation

4 Long-term value realization

5 Structured data management

Customer value assessment is not just a one-off event that can be conducted by sending the client a satisfaction survey after the project has been installed. Instead, it is an ongoing process, which begins before and continues long after delivery, often until the end of a solution offering’s lifecycle. Alternatively, account managers can start opportunity recognition by detecting a misallocation of resources, defining an associated customer problem and developing a solution that generates value for the customer and profit for the selling company –known as solution selling effectiveness and efficiency.

2.3 Decision-Making During Sales

The existing literature on sales provides scientific models, such as marketing strategies and key-account-management-models on the one hand, and numerous guidebooks with practical examples on the other. However, the subject of ‘buying behavior is neither presented in a thorough, nor a structured way. This chapter displays decision-making processes based on the most recent findings of brain research, the role of trust in deciding, how decision-makers act and how we, as marketing and sales representatives, can influence these conditions. It is beneficial to understand how people decide on a purchase on an emotional and rational level. Only then are we able to follow advice from guidebooks. In most cases, our first attempt at persuading a customer needs to be successful. In this context, the topics decision-making based on trust, inclination to risk, internal assessment of operational alternatives, the principle of reciprocity and the maximization of value in case of uncertainty in association with expectations are relevant for the prosperous salesperson and negotiator.

2.3.1 The Phenomenon of Unreasonable Decisions

“The fundamental ideas of economy and the belief in a profound rationality have taken such deep roots in our view of the social world that people of all professions appear to regard them as fundamental laws of nature.” Dan Ariely (2008)

The behavioral economy better displays reality in business-to-consumer (B2C)- and business-to-business (B2B)-capital goods markets. It considers human weaknesses and the influence of emotions on economic decisions. If all of us systematically blunder in our decisions, then why should we not develop new strategies in marketing and sales that assist the customer in making better decisions in the future?

The economic model implies that supply and demand regulate the market, where we always act rationally, as well as making reasonable decisions. In this book, we will not strike a blow for the emotional sales process, but closely examine the – rational or emotional – decision-making behavior in the fields of B2C and B2B. Too often B2C and B2B cold calling techniques, presentation skills and closing methods are being confounded in sales trainings. The way we see it, a more precise distinction makes more sense.

2.3.2 ‘Complimentary’ – an Emotional Hole-in-One

In the consumer department, we often find offers such as ‘Buy three pairs of shoes on sale, get one for free’, which results in more frequent purchases by consumers. When Amazon.com launched free shipping for purchases exceeding a certain amount several years ago, different country-specific reactions followed. Have these been culturally determined? In the USA, sales went through the roof, because many bought an additional book solely in order to avert shipping fees. In France, the book orders remained static, despite the claim for only a symbolic figure. The difference to free shipping was moderate, yet severe in terms of the development of sales. When stumbling upon the words ‘complimentary’ and ‘free’, consumers can barely contain themselves. It is the origin of irrational excitement. Free does not mean price reduced. It is a different world that we, in the B2B domain, can benefit from. Free goods and services raise the overall value of solutions and justify higher prices.

2.3.3 Luxury – The consumer’s increasing Desire for the Noble

Is the price the priority of our buying decisions, is it prestige or the need for harmony? Louis Vuitton has to close their stores an hour early, because production lags behind with delivery. Germany represents part of the LVMH company’s ten biggest markets worldwide. The German luxury market is growing. It was surprisingly stable during recession. Germans steadily continue to discover the pleasures of luxuries and fashion. Brands such as Hermes, Channel and Gucci prove that Germans do not refrain from luxury and that society’s attitude towards luxury is changing. This trend also influences the purchase decision criteria. Germans love good quality. This coincides with an artisanal tradition similar to Louis Vuitton’s. These values are being represented by luxury brands as well. Many Germans refrain from a use-and-throw-away culture. Good quality signifies an important buying motive in order to be able to enjoy a product for years to come.

Are Germans led by reason when it comes to making purchases? If, for example, they buy a ‘Never full purse’ model by Louis Vuitton for about 500 € they regard their purchase as rationally economic, as the purse lasts a long time and, additionally, brings more joy than a down-market product due to its high-quality workmanship. Now, does quality or pleasure have priority? Luxury represents one of the few opportunities to set oneself apart in the consumer department. The motives prestige, strive for luxury, reputation, as well as egotism and beauty significantly influence purchase decisions, if often subconsciously or implicitly, and hence are of utmost importance for the argumentation. One simplifies the luxury-oriented customer’s purchase decision by helping him understand that the product represents his primary buying motive. Louis Vuitton seems to succeed in.

In Japan, 85% of women between the ages of 25-50 own a Louis Vuitton product. In Asia, the strive for perfection that Louis Vuitton represents can be observed constantly. In many regions, people do not refrain from radiating: I am successful in what I do. Yet there are products that are more discreet for the opposing group of consumers. Traditional micro economy developed the homo oeconomicus, whose mood improved with the increase of a commodity he owned. Scientists verified that most people care about their appeal in comparison with others – their relative rank was more important to them than their absolute rank of income (cf. Easterlin paradox). A customer does not only purchase a car because it represents a practical means of transportation, but because he strives to enhance his colleague and neighbor’s respect.

2.3.4 Added Value Project Coordination, Documents and Books Included

The trainer’s daily rate of the market leader for advanced training for executives was between 3.800 € and 5.000 €, depending on the target group’s level. However, the entire project coordination and every other service except for translations and travel expenses were included. Still it represents a significant contrast to the average trainer’s rate in Germany, which amounts to 1.800 € to 2.500 €. Surely, the image, rate of recommendation by alumni, variety of language and topics influence the line manager has or staff developer’s decision for internal advanced training measures. But does it justify a rate almost twice as high for a similar service? 25m € of annual turnovers for a subjectively perceived added value speak for themselves.

Not only the word “complimentary” allures consumers and decision makers in the purchasing organizations of customers, as our decisions are more strongly influenced by emotions, experiences and comparisons, than we would like to believe as salespeople. Whether we buy a car, rent an apartment, purchase a software solution: As soon as we have more or less settled on a product, it becomes the object of comparison to alternatives. That means: We generally compare an object’s cost with arbitrary prices. When a new product emerges on the market, such as the Red Bull Energy Shot in a small plastic container, gas stations demand between 2,79 € and 4,99 €, and customers comply due to a lack of comparisons or alternative offers. The second we discover the product for a lower price somewhere else, we ask ourselves: “Why not pay less?” and in markets of comparable products (commodities) this signifies the cause for price decline. In the domain of capital goods, we also discover how important our differentiating feature is. The following questions have been frequently posed to us as sales trainers and consultants by participants: How can our company differentiate or set ourselves apart regarding customer presentation? In purchase decisions, we allow ourselves to be led by false expectations, arbitrary comparisons and emotions.

2.4 Buyer Decision Processes – The Fear of Consequences

When we talk about buying decisions – whether they are B2C or B2B – we emphasize two crucial topics:

1 Choices

2 Consequences

Choices

When we choose between two options, we disregard other tasks. Whether Peter Private is searching for a new apartment or Mike Manager is choosing between two copiers systems, both of them come to the conclusion that they require more information in order to make a final decision – even though Mike M. probably faces a predetermined deadline for his decision. However, there are always reasons to postpone decisions and extend appointments. People struggle with closing a door in order to concentrate on another. Afraid to miss out?

A hungry mule trots toward a haystack and discovers two ricks of the same appearance that are approximately 10 m apart from each other and hence cannot be evaluated in a direct visual comparison. The mule stops in the middle of them and does not know which one to decide for. Hours pass. Eventually, he does not reach a conclusion and dies of starvation.

In today’s world, we diligently try to keep our options open and to refrain from rushing a decision. This counts for a job search, two different customer requests for a sales training within the same week, relationships, car purchases, and the choice between advertising agencies and so on. Some people take a long time to decide, or cannot at all. This phenomenon is called procrastination. For example, we buy a well-equipped off-road vehicle not for the purpose of using the all-wheel drive in sand dunes, but in case we might want to do exactly that in the future. Many people do not realize that we pay a high price in order to have many options available at any time.

We purchase a super-computer for the company that is equipped with more functions than needed, or that guarantees a high availability of 99,99%, which few companies need. We add travel cancellation insurances just in case something happens. Security is an important motivator in our decision-making. Hence we spend the time we have with our kids browsing Mobile.de to compare buying options. We postpone important tasks at work, because in order to be sure we are making the right decisions, we search for two more offers we can compare. By jumping back and forth between things that might be important we lose track of what really is and succumb to a delusion maneuver. Assuming the choices were limited, would we refrain or try to leave them open as long as possible? Would we sacrifice part of a secure profit, of previously evaluated alternatives, for the privilege of having other, newer options at hand?

How often have we purchased something for a cheaper price not because we really needed it, but because we did not want to miss out on the opportunity? The instinct for bargains runs deep in most people, however, not every bargain is a bargain in the long run. Is it just perception?

When it comes to decision making, we prefer to pick the best option. What does that mean for Peter Private, Mike Manager, Carl Customer and Eric Executive? Psychology has tried numerous time to prove that a larger selection of offers does not make us happier, but that little choice is better. Would you prefer to pick a yoghurt or financial software from 24 or rather from four suppliers? The preselection is carefully made by decision makers in purchasing organizations through a process called shortlisting. Technical decision makers and operators cautiously pick criteria. In the field of consumption, for example in retail, the purchasing department either selects cheap suppliers or brand leaders. The consumer generally decides for a mid-level solution. This means neither the cheapest, or else our streets would be filled with Dacia Logan and Brilliance (a Chinese car manufacturer), nor the most expensive, otherwise our living rooms would be equipped only with Bang & Olufsen sound systems, Loewe televisions or LG’s latest OLED 88-inch 8k screens, starting at $ 55,000.