'THE drive-by shooting’ has been a commonly used phrase
to describe the sales process. Fit as many customers as you can in a day, make the
sale at all cost and move on to the next account. To perpetuate this, sales
targets have traditionally been in the form of key performance metrics such as revenue and margin
optimization. That was then... this is now.
In the past, optimizing revenue and gross margin were
easy metrics to track salesperson performance, but they lacked other very
important characteristics to quantify success.
They failed to answer questions like: Did a sale contribute to overall profitability? Did the sale optimize
price for the products and services provided? What soft-dollars, discounts and
incentives were required to obtain the sale? What is the true cost to serve
this customer? What is the total cost
of ownership of the account? Most importantly; How does the customer derive benefit and/or value from the products and
services purchases?
What these methods don't take into consideration is that
salespeople are in a unique position to adjust sales accordingly, making them
individual little companies with their own profit/loss statements. Changing
performance metrics around value-based pricing methodologies would drive a
shift in purchasing behavior. However, the mistake companies often make, is
that they train their salespeople to talk about what they are selling rather
than asking salespeople to ask customers what they are actually buying.
Many companies often get hung up on what they produce, ignoring
what customers buy. Companies are set up to sell
products, not value as perceived by their customers. They have product managers
- not customer value managers. They design price sheets - not value sheets.
Finance looks at Gross margin of specific product categories - not the overall
gross margin of what customers are purchasing (or not purchasing). If the
process to track value does not exist internally, it’s near impossible to
expect a sales force to sell on value, externally. To counter this, companies
must have a process in place to create, capture and communicate value into the
marketplace.
Some companies create value by producing quality products
while additionally providing great service. A smaller majority of companies
capture value by internally and externally qualifying and quantifying the
utility of each product/service characteristic and price accordingly. However,
the vast majority of companies inadequately communicate their value proposition
to customers and in the absence of a value message, the customer learns to
focus on price, regardless of their value needs. As a result salespeople stop
negotiating with value and systems are developed to formalize the weak selling
process.
The real problem shared amongst many companies is their
products and services become a commodity mindset resulting in excessive
discounting encouraged by price-oriented customers. Price is not deflected in
favor of a ‘value’ discussion.
The name of the game is VALUE. Salespeople must be
provided with tools to understand the values family before they can even begin
to discuss price.
Salespeople must
understand the following four components that make up the values family;
Understanding how the
customer responds to each of the value-family components will provide the
salesperson or team with the necessary ammunition to discuss price or more
importantly,
how
a customer derives benefit from one’s goods and services.
To survive and thrive,
companies and their respective sales reps must adopt the new customer-centric
pricing strategies and tools that have been enabled by technological advances
in software delivery. Understanding the customer and focusing on execution and
service delivery as perceived by the customer will drive price now and in the
future. It’s imperative that today’s companies both conduct an internal review
of customer past purchasing behavior to identify peer customers and segment
accordingly to identify opportunities for revenue optimization. Then it is
imperative to further conduct external research utilizing many of the
aforementioned pricing tools to understand how customers trade price for value
and their respective price elasticity of demand of various products and
services.
The information is only as good
as the tools provided to Sales Reps.
Without adequate software tools and relevant information to match price/discounts/
incentives to customer decision selection criteria, and the knowledge of how
customers derive benefit, corporate objectives are likely to fail or fall short
of expectations.
