Value Selling: A Key Element of the Sales Process

“Selling Customers what they Want, Need, and are Willing to pay for is the First Step of Value Selling!”

?“Alignment of the quantified value with the customer vs alternative solutions Win’s the Business!”

?A Buyer’s Story

A customer has decided that they are going to purchase a new fleet of Electric Vehicles (EV) for their sales team. A Request for Quote (RFQ) is sent out to four (4) companies specifying that they want to purchase 100 new EVs at the best price.

The sellers from four (4) companies submit the following EV proposals:

The purchasing agent reviews the proposals and tells the BMW, Tesla, and Porsche sales reps that their bids are too high. They need to match a $32K competitive price proposal.

The BMW, Tesla, and Porsche sales reps can’t believe it. Their EVs offer the highest value for luxury, speed, miles/kilowatt-hour, comfort, performance, brand, etc…

The purchasing agent says “All the EVs are the same. They have 4 wheels and a battery. Sharpen your pencils and give me the best price.”

?This scenario is a little exaggerated for a price vs value case study. ?However, I wanted to make the easy-to-understand point that each car does offer a different value and thus is priced differently. Think of the cars as the recommended solutions to meet the customer’s needs.

Have you ever been in a situation, where your competitor offers a lower-priced solution, and you know that it doesn’t have the same level of value as your product or service? Additionally, despite everything you presented, the customer was only focused on the lowest price. What did you do?

• Match the price and give away value?
• Try to sell the features and benefits of your product or service to justify the higher price?
• Work with the customer to develop a solution to meet their needs?

Unfortunately, many sellers get themselves into this same type of real-life situation if they don’t do the upfront work of fully understanding the customer’s needs before offering a solution.

Purchasing professionals often take the tactical approach that everything is a commodity, and their job is to get the best price. It is the sales professional’s job to understand the customer’s needs and then jointly develop a solution that provides the highest value versus alternative options.

This article is going to look at Value Selling, which makes up a big part of steps two (2) and three (3) of the “Traditional Sales Process”. It’s important to remember that; “Following the steps in order will lead to the development of better solutions for the customer’s needs and winning more new business.”

Value Selling’s 2 main elements are:

1.????Understanding Business Needs & Problems.

2.????Developing the Solution and Quantified $Value with the Customer.

Understanding Business Needs & Problems

The first objective is to understand and define what the customer really wants, needs, and is willing to pay for. They may want a top-of-the-line Porsche Tycan Turbo S ($190K) but need a mid-sized sedan and have an initial target budget of <$40K. It’s critical to understand the customer’s needs upfront to be able to align on what solution will best meet their overall requirements.

As we saw in the “buyer’s story example”, recommending a solution before fully understanding needs and aligning on requirements (specifications), results in wasted effort. It also encourages the purchasing professional to focus on a price negotiation vs a value solution.

As always, I recommend utilizing a “SPIN Selling” questioning methodology to understand the customer’s needs in the first part of value selling. (https://www.huthwaiteinternational.com/blog/complete-guide-to-spin-selling )

The seller will start the process by preparing written questions, before sitting down with the customer to define the overall requirements. These will be organized into the following categories.

1. Situation – Current status of customer’s organization?
2. Problems – What problems are they having?
3. Impact – How are these affecting the customer?
4. Needs Benefit – What needs to be done to fix problems and the financial value to the customer?

The sales professional will then work with the customer to go through the questions to clearly define the situation, problems, impact on the customer’s business, and benefits to the customer by solving their problem.

Understanding these elements of the customer’s business will allow you to develop the best competitive solution.?The next step is developing the solution and quantifying the value of your solution with the customer.

Developing the Solution and Quantified $Value with the Customer

Does a customer care more about the price of your solution (product/service) or the overall value it brings to them??

From a business perspective, it’s really about the bottom line. How can the customer maximize their Return on Investment (ROI) and profits for their shareholders?

For example: If a product or raw material costs more than the current supplier, but it allows the customer to make a lot more profit; “Is that valuable?”

“Yes, it is!”

The trick to winning the business is to be able to quantify this value with the customer, so they understand and align on the benefits to their business. This requires a high level of trust and understanding of the customer’s business, which are the first two (2) steps of the sales process.

Step three (3) is developing and quantifying the value solution. This is done by working closely with the customer’s entire team of decision-makers and influencers to develop a solution that meets everyone’s needs. (Operations, Engineering, Supply Chain, Procurement, Finance, Quality, EHS, Sales & Marketing) In addition to developing the solution, you need to be able to quantify the benefits that the customer will realize in a financial model to justify the recommendation.

When you jointly develop a financial model with the customer, they become part of the process and will buy in when the analysis shows a strong ROI. (Return on Investment) It also provides a tool to help them sell the solution internally to their leadership team.

Let’s look at a Value Selling Example to show how a financial model can be used to quantify the value to the customer.

In the following example case study, our goal is to identify and define the total value to the customer beyond just price.?We are looking for every quantifiable and intangible impact on the customer’s business, which supports converting to our new product solution.

?Value Selling Case Study Example

• A customer is seeing increased demand for their product. The Sales team believes they can sell everything they can make.
• One option is to expand their operations, which will require $30MM CAPEX for the building, land, loans, and taxes; plus $1.25MM in new molds and $750K/year in higher overhead. This will take 18-24 months, during which time they will lose potential new sales and be distracted with construction.
• A new supplier has a product that will allow the customer to increase the production rate four (4x) times faster while reducing production labor by 25%, and being able to utilize the existing operations footprint. However, the raw material is twice as expensive and will require ~$100K of new application equipment.
• The new product is based upon a sustainable technology with zero emissions or VOCs (Volatile Organic Components). This is very attractive to the EHS (Environmental Health & Safety) department because it will be safer for the employees and the environment.
• The customer’s Marketing, Engineering, and Product Management teams have evaluated the new product and believe they can charge 10% more for better quality, durability, sustainability, and aesthetics.
• The seller is working with the customer’s team to determine if this solution financially benefits the customer.

?If the purchasing agent looks at it from a price perspective only, the deal is dead, because the raw material is twice as expensive.

To win this type of deal, the seller must develop a financial model, which quantifies the total benefits to the customer.?Below is the model and analysis that was developed jointly with the customer’s team to justify the conversion to the new product.

?

Financial Model Example:

Summary Analysis:

• Production will increase 400% from 1000 to 4000 units per year.
• The price per unit can increase 10% from $40K to $44K/unit.
• Annual sales revenue will increase by 440% (+$136MM).
• Able to reduce Full-Time Production Employees (FTE) from 40 to 30, realizing 25% savings = $500K/year.
• Total overhead costs will increase 50% (+$250K/year) due to the need for additional application equipment and other G&A (General & Administrative) labor to support the increased production.
• Packaging costs are the same per unit. Total packaging cost increases due to more units being produced.
• Raw material costs increase by 100% (2x), because of the higher performance from $12.5K to $25K per unit.
• The bottom-line Gross Profit increases 294% = $48MM
• All this increased profit is generated within the same manufacturing footprint. This allows the immediate realization of benefits and the flexibility to reduce production if the demand decreases.
• The customer can avoid $30MM CAPEX, $1.25MM additional molds, and $750K/year of additional overhead costs for the expansion of the operations.
• The customer also avoids 18-24 months of construction, which would cost them $204MM to $272MM in missed additional revenue and $72MM to $96MM in gross profits vs converting to the new product.
• The Zero Emissions Sustainable product offers many short-term and potential long-term benefits.?This includes creating a healthier environment for employees; supporting the company’s sustainability goals, which are also attractive to shareholders; and potential avoidance of installing scrubbers to capture emissions, which could have $100K/yr in permitting fees, +$500K CAPEX and increased annual overhead costs.

Bottom Line, the financial and other intangibles analysis shows a big ROI benefit to the customer.

Working through this process with the customer’s team got everyone excited and on board with the decision to convert to the new supplier.

Big Win for the Seller!

Being able to work with the customer’s team to develop the solution and support financial benefits makes the sales process easy. The customer doesn’t feel like you are trying to sell them something.?Instead, they appreciate that you are helping them develop a solution for their problem.?This type of selling creates strong relationships and future opportunities to expand the business.

This case study was based on a real customer to provide examples of how selling value is more than just price. Every customer's Situation, Problems, Impacts on their business and Needs benefits (SPIN) are different. Hopefully, this case study will invoke some thoughts on how sellers can develop their quantified value-based solutions to close more sales funnel opportunities.

?Summary

Selling Customers what they Want, Need, and are Willing to pay for is the First Step of Value Selling! Alignment of the quantified value with the customer vs alternative solutions Win’s the Business!

Sales is a Process, which should be followed and continually improved to win more business. Value Selling makes up a big part of steps 2 & 3 of the overall sales process.

It starts with the sales professional doing the hard upfront work to understand the customer’s business and their needs by leveraging the “SPIN Selling” methodology. Then working with the customer’s team to jointly develop the solution and a supporting financial benefits model.

Once the financial model and analysis confirm a strong ROI and the customer’s team is aligned with the recommended solution, it’s time to move to step 4 of the sales process:

• Formally recommend the solution and value to the customer.
• Overcome objections.
• Close the new business.

If you have done the upfront work and achieved alignment with all the customer’s decision-makers and influences, you have another Win!?

Congratulations. You’ve sold a Value-Based Solution and created a Win/Win for both the customer and your company.??