1.Introduction
This is the first in a series of articles brought to you by Robert White - CEO of Lucidus Ltd, dealing with the subject of 'Value' in the sales process. We will discuss the extent and implications of 'hidden' customer value and the potential effect it could have on your competitiveness. We describe ways to help you reveal your total 'value capability'.
As you know, customers continue to buy mainly on price and usually without regard to the value your solutions deliver to them. It is, of course, the vicious downward spiral of commoditisation. We seek to understand why this happens and what you might consider doing about it.
What do we mean by 'Value Selling' ?
Effective solutions depend upon a clear understanding of the problem. So first we'll try to shed some light on the factors that lead inexorably to squeezed margins. It's then worth spending a minute or two to determine whether this is a relevant problem for your organisation, so we will look at some symptoms.
Given that you recognise some of the symptoms, we'll then go on to discuss what we believe to be the underlying causes to better understand the nature of the problem and then on to our view of what a practical solution might look like.
The Problem
To understand what's really going on in the world of the complex sale we need to think like a customer. If I think I need a complex solution then, by definition, I have a complex problem to solve. And this means that I'd better have a strong decision-making process that will bring me to the right solution.
So the first thing I need as a customer is a quality decision-making process. You know the kind of thing..
- Are there performance risks?
- Should we be concerned?
- What's the financial impact?
- Should we react?
- If we fix it, what do we want?
- What do we need to change?
- What's our best option?
- What risks will we face?
- And finally, is it going to be worth it?
Now, if we think about the actual customer buying process, and assume that adherence to the optimal customer decision process represents 100%, how would you rate your customer's performance?
Well, our experience suggests that they routinely achieve no more than 25%. And this mainly because the problems they try to solve are now truly complex. They are multifaceted with multiple impacts across the organisation - that are difficult to perceive, understand, value and manage. And on top of all this, someone has to create and argue the business case, which of itself can be a highly risky undertaking.
In such situations then, it's inevitable that the customer is going to be surrounded by a great deal of uncertainty - and uncertainty defeats decision-making. So, if the customer isn't doing too well in acquiring complex solutions, how's the vendor doing?
Well again if adherence to the optimal customer decision process is a 100%, how much of your average proposal is about your company, your solution and the value your customer will receive, if they buy your products and services.
Our experience shows that for most vendors, between 70 and 80% of the average proposal is about them, and only 20 to 30% is about the customer and the questions they really need answered. So the proposal is a reflection of the vendor's world and is actually a proclamation of value that the vendor believes they can deliver, rather than what the customer really wants (presupposing, of course, that the customer really knows what they want).
Not surprising then that the customer perceives this as a value assault. And because they have no real means to assess the true value, and because they have no real involvement in determining the value and no ability to clearly differentiate between competitors, the outcome is as often as not unsatisfactory for both parties. It is the inattention by both parties to the fundamentals of a quality customer decision process that leads to what we call "the value gap".
Cost of the Problem
The value gap is a very expensive place to be. According to Gartner customers can waste at least 25% of all change costs and our experience suggests that up to 60% of total benefits can be lost through incorrect sequencing of projects. In combination, this amounts to a very significant amount of money, but the negative impacts on growth and competitiveness are even greater.
For the vendor the value gap is no less painful. Recognising that every organisation is different, here's a snapshot of the potential cost of the value gap from three of our clients:
- In the first case, 150 sales execs each losing two deals per year at a sales cost of $10,000 a deal, adds up to a nugatory cost of $3m per annum.
- In the second case, heavy discounting in a highly competitive market meant annual revenue forgone of $340m.
- And in the third case, a failure to gain the planned market share of 3% in a bull market cost $15m of profit.
As I said, every company is different but when you do the math some might be surprised by the impact on profitability, growth and share price.
Next
So that's our view of the problem and its potential costs. In the next part we will symptoms and their causes.
