The guiding principles of value-based selling
Today the vast majority of companies claim to provide solutions which add more customer value than traditional product-service offerings. As these solutions often combine a mixture of products, services, and processes, demonstrating the concrete business benefits is a common challenge. Value-based selling is a theme that has evoked an increasing amount of interest among our industrial client companies, who have expressed a need for new type of problem recognition tools and selling techniques.
We have witnessed, that companies entering the solutions business are struggling to deploy value-based sales strategies. Often the current sales methods and arguments derive from the product business, that is, promoting the excellence of only the properties of the product and service portfolio. Alternatively, the seller might have adopted a customer-centric approach, in which the preferred solution is derived from the customer’s communicated need. In both cases, the problem in the customer’s business is assumed by the seller organization, or is based on the customer’s own understanding of what the problems are that should be solved.
Researchers at Åbo Akademi University’s Laboratory of Industrial Management and PBI Research Institute consultants have been developing techniques for value-based selling. Based on the collaboration with our industry clients we have abundant evidence to suggest that in the case of well-handled value-based selling activities, the results can be seen in companies’ revenue growth and profits that far exceed the traditional product and service business offerings.
But what does it require from a company wishing to deploy value-driven selling techniques? We have recognized the following guiding principles for value-based selling that have helped to accelerate our client companies’ sales success.
Principle 1: If there is no problem – there can be no solution either
The most well-performing solution sellers are the ones who can draw their customer’s attention to such aspects of a problem that the customer may not even have been aware of. However, before the value of the solution is relevant to the customer, they must first (with the seller’s help) recognize the value of solving the problem, and acknowledge what the loss of revenue will be if they don’t invest in the seller’s specific solution. Otherwise, the risk is that the customer will choose an upfront cheaper offering from another supplier and commit to a deal that in actuality has a lower revenue potential or is more expensive in the long-run.
Principle 2: Don’t talk about your products – talk about the customer’s business potential
Often, sellers seem to be more comfortable talking about their products than discussing their customer’s business problems. However, it has been shown that a sales person’s topical business knowledge is far more valuable for reaching the desired business outcomes than their ability to demonstrate the excellence of certain product features or technical functions. The seller should look for solutions that go beyond their product and service offerings, and attempt to solve a larger scope of customer problems. More importantly, the seller should be able to translate the understanding of the customer’s problems into fact-based value demonstrations.
Principle 3: Sell with facts that clearly demonstrate the economic benefit of a solution to the customer
The key point lies in understanding the customer’s entire value creation process and how the seller can influence it. This means that focus should be put on the investment’s cash flow during its life-cycle. Merely focusing on utilization or project cost is not enough. For example, the provided solution may seem relatively expensive in terms of initial capital expenditure and/or operational costs, but it may have a significant revenue potential which outweighs the aforementioned costs. In practice, the seller has a good chance to win a deal if they can factually prove the best total investment efficiency and lifetime profitability for the customer compared to alternative or competitive investments.
Principle 4: Find the right promoters from the customer’s organisation
Large organisations often execute work in silos prohibiting integration of technical and commercial departments. In industrial business, we have seen that initial sales meetings tend to be held between technical persons that don’t necessarily possess commercial knowledge. This can often be a showstopper as the technical people in the customer’s organization aren’t able to envision nor promote the value of an investment to actual decision makers, nor do they necessarily have the interest or position to do so. These challenges are making the role of so called organizational “promoters” (also discussed in PBI’s earlier blog post by Filip Franck) highly important for value-based selling. In practice, promoters at the customer can communicate the vital fact-based sales arguments within their organisation, help push the business case upwards by using their specific intellectual capability, and transfer the needed knowledge to the decision makers.
Principle 5: Adapt the role of a value designer
In value-based selling the customer and the seller together formulate the problem and create the desired functionality of a solution. This means that the seller, as a competent value designer, leads the sales activities with their insights and facts, striving to impact the customer’s way of measuring business impact and investment feasibility. Value designers are not afraid to push customers out of their comfort zones, in order to encourage reflection and perspective. For example, uncertainty regarding the offering’s earning potential should not necessarily be seen in a negative light, but rather as a source of opportunity if managed accordingly. Although the interface of value-based selling is rather complex and uncertain, it increases the chances to gain economic benefit if both parties agree to collaborate.
By focusing on the above described guiding principles, our client companies have been able to adapt their sales strategies to meet the demands of the complex, and often uncertain solutions business.
MA. Hanna Luotola is a researcher at PBI Research Institute and she is finalizing her Doctoral thesis in industrial management at Åbo Akademi University. Her research specializes in designing industrial solutions. Her research interests are in developing industrial solutions and value-driven sales processes. Her areas of expertise combine both industrial management, creative arts and design thinking.