5 Reasons Companies don't Quantify their Value
“The value of an item must not be based on its price, but rather on the utility it yields.”
Todd Snelgrove now Founding Partner at Experts in Value, was previously the Global Vice President of Value for SKF. During his 20 plus years in the industry, he has identified five reasons why companies do not take the time and effort to quantify their value and equip their sales teams or account managers with the tools and techniques they need to discuss value with customers.
This extract is taken from The Creative Negotiator by Stephen Kozicki.
Why can’t you quantify and prove value?
1. You don’t look beyond your products and services
Too many companies believe that they create no incremental product value compared with their competitors, today because everything is so similar. However, look beyond the widget you produce. Much of the value can be in the packaging, distribution channels, support and breadth of the offering. It is more about how you can help your top customers be successful, a simple change to your manufacturing can help your best customer get to market quicker.
Follow the product through the supply chain and see how it is touched and used to find where you can create value. For instance, can you add or make the packaging easier to receive and warehouse?
SKF’s Power Transmission Division realised that value could be created not just though a better product but also through its packaging. SKF found that in most instances, sprockets, pulleys, chains, and bushings have no part numbers at all on the goods themselves, nor do they come in boxes or packaging. SKF realised the value for all customers in the value chain, and now boxes and labels its products, making these items easy to stock, and easily identifiable from the shelf without having to handle them. Customers save time receiving, reduces duplicates, increases inventory turns, speeds up the obtaining of correct parts, and brings many other quantifiable benefits.
2. You don’t provide the appropriate training
The sales force or account team are not trained or motivated to deal with the new sales process based on value. They are comfortable talking about features of a product, relying on past relationships, or just hoping they will get the order. When calculating compensation on volume, that is what they will do, and finding creative ways to discount becomes the easiest way forward. Then “we will make it up in volume” reasoning gets thrown around as the excuse.
As you all know, every dollar of discount comes off your earning per share line, so as a CEO asked me long ago, “If I have processes to deviate on price, why do I not have a person and a process to guarantee value created?”
3. You don’t prove the dollars saved
Does your marketing material talk about hard dollars saved, or does it merely list technical specifications and features and hope the customer can determine the benefits in value your solution delivers? As a quick check, review at random a piece of your marketing material. If you see quantifiable terms used such as: more, less, longer, better, faster, easier, stronger, harder, etc. without supporting percentages or ranges and a sample of the resulting dollars saved for a customer, then you know where you stand. It is time to enter the next stage: you must quantify the values of the benefits to your customers.
4. You don’t guarantee the customer value you create
Do you have methodologies, programs and pricing options that allow you to guarantee customer value created? Of course, this cannot be done for every customer, but for your large ones, can you say you will be paid based on the value created? SKF offers a few different options to customers according to the amount of risk, and once they deliver value, they receive a reward. If you won’t do this for some customers, do you believe you’re better than your competition?
5. You don’t have executive sponsorship
Who is driving this for your organisation? As with any change management project, until it gets executive level support, it won’t happen. What does that mean? An executive and value expert is what best-practice companies say helps drive the desired results. If you have access to product, industry, or application specialists, then you can have a strategy expert. Pricing has numerous tactical facets to deal with, whereas value has numerous strategic questions. Look at how much discounting you do, and you can easily fund these initiatives.
Your customers will be happier when they see the value they realise by choosing your offering. However, you must prove it, in measurable terms.
Companies that buy on value, as measured by total cost of ownership (TCO) according to a Manufacturers and Productivity Industry (MAPI) survey were 35% more profitable than companies that did not have a process for buying on value. Companies that sell this way earn 36% more than those in the same industry that take a market share approach – according to 2010 pricing survey by Monitor Pricing Group, now part of Deloitte.
Proving it is possible for a buyer and seller to both earn a larger profit by focusing on taking the right costs out, increasing the value of the relationship for both, and rewarding and measuring value.
There are many more resources on quantifying value at https://www.gordianbusiness.com.au/ and https://expertsinvalue.com/