A framework for value innovation for B2B suppliers

The challenge for suppliers

Thanks to globalisation and the internet, today’s customers have access to a global market of products, services and suppliers. This, together with the accelerating pace of new technologies means that customers’ expectations are ever more demanding of the businesses that compete to supply them.

Simply put, customers expect more.

This increase in customer power creates more challenges for the businesses that supply them. Businesses can no longer take their customer loyalty for granted – they have to earn their on-going business by meeting their customers’ purchasing goals better than rivals.

And for B2B suppliers working in actively managed supply chains, there is increasing control and monitoring of their performance and evaluation of alternative suppliers. Suppliers have to continually demonstrate their competitive for being retained as a supplier.

It's not just about price

All too many B2B suppliers respond to customer demands for more value by seeking to become more competitive on price. They either do this by sacrificing profit margins or cutting their costs. But it is not possible for most businesses to be a ‘lowest cost provider’ – due to their geographical location, their fixed costs, scale and their internal business competencies.

There are other ways of differentiating value that can be more attractive to customers. What is needed is a balanced view of the options available for improving value to customers. This short article examines such an approach and how it can be used by B2B suppliers.

A framework for innovating value

‘Value’ can be a somewhat nebulous term – and many businesses do not fully exploit the range of value elements to optimize their offering to customers. Businesses can also over-focus on areas of their value offering that have been key competitive strengths in the past, at the expense of other areas of value which are now more important to their customers.

The value table framework provides a comprehensive yet simple way to review the value in a product or service from a customer perspective and identify opportunities for value innovation. The framework divides all the value provided to a customer by a product or service into 6 customer-focused elements or 'buckets':

1. Brand Promise

Brand promise is represented in the model by the ‘tablecloth’ – it’s a combination of a business’s marketing messages of the value its offerings deliver and what is perceived by existing and potential customers. Customers will often buy a product or service due to the implicit value provided by the brand – for reasons such as perceived status or security.

2. Form & Function

Form and Function are represented by the ‘surface’ of the table. Together they encompass the nature of the offering and the material value provided to customers. The Form in which the value proposition is provided can be a product, service, hybrid offering or a platform. The Function of the offering is the core element of the value proposition and it typically has to at least meet the customer’s minimum requirements to be considered as a purchase option.

3. Cost

The cost to the customer of an offering is more than just its purchase price. The customer will typically consider the ‘total lifecycle cost’ of the offering which can easily exceed the purchase price (think inkjet printers and replacement ink....). Lifecycle cost includes elements such as setup, operation and maintenance. Costs are not always quantifiable financially but can be perceived aspects in using a supplier's offering such as ‘hassle’, 'risk', ‘worry’ and ‘stress’.

4. Quality

The quality of the offering, specifically how well it meets the brand promise, the performance specification and customer expectations of build, finish and operation, is an important value element. However at the point of first purchase the customer view of quality will not be based on experience but on a mix of perception and feedback from existing users - gained increasingly from internet research and social media.

5. Time & Place

These two value elements are combined as they relate to the purchase, fulfilment or use of the offering - for example where and when it can be bought and used – rather than aspects of the product or service itself. The internet has enabled major innovation in these areas through 24/7 availability and fast delivery. More prosaically, the local ‘corner shop’ has always offered the convenience of locality and immediacy in exchange for higher prices and a reduced range.

6. Experience

The final table leg represents the experience of customers across the lifecycle of acquiring and using the offering. A manufacturing customer may choose to buy particular parts from a supplier because they have always provided a reliable service and are easy to deal with - even though some rival suppliers can provide the parts at a lower price. In such a case they effectively rate service experience ahead of purchase price in their value weighting.

Value innovation for B2B product suppliers

So how can the value table framework help B2B suppliers in improving their competitiveness? The table below shows the application of the framework to a B2B supplier of products, components or materials. It identifies the key elements of value that can be provided by a supplier working in a customer’s supply chain, split into the 6 ‘buckets’ of the value table model. Then the table shows examples of some of the value innovation opportunities in each ‘bucket’ that the supplier could apply.

Benefits of the value table 

The benefits of this approach for B2B suppliers are as follows:

• It helps suppliers think more broadly about innovation opportunities - not just purchase price.
• It is aligned with customer-focused value elements - what they want, rather than what you are offering.
• It provides defined areas within which innovation ideas can be generated.
• It can help in customer negotiations by identifying value elements to trade-off against pressure for price reduction.
• Innovation is always more effective when constraints are made – this framework provides that. So rather than answering the general question 'How can we improve value to our customers?' you are answering questions such as 'How can we innovate our customer experience?', 'How can we reduce the lifecycle cost of our offering?'

This article is based on the book ‘Thinking about value’ by Alastair Ross. It is available on Amazon in paperback or Kindle version.