"The New Paradigm."
That’s how Philip Kotler, the 77 year-old pioneer of marketing theory, described it.Decked out in suspenders and a black cap, he was referring to the ideas in a recently published book called Value Merchants.
I took Kotler’s presence in the audience at this relatively intimate conference in Tampa as confirmation that I had invested my time wisely. And I wasn’t disappointed.
The event, put on by Penn State University’s Institute for the Study of Business Markets (ISBM), brought together a compelling group of marketing and sales leaders as well as consultants and academics to explore some of the top issues now facing companies that sell B2B.
The conference showcased the ideas in the book, which was written by James Anderson, Nirmalya Kumar and James Narus. As I’ve written in a previous post, they make the case for "customer value management" — a discipline that revolves around "demonstrating and documenting superior value." As they see it, this is the key to differentiating one’s company in today’s hyper-competitive markets while ensuring "an equitable return on the value delivered."
The alternative? Sales people that sell on price or give away the farm. They become "value spendthrifts" instead of "value merchants" — all because they have no clear idea of how to position and price the value they have to offer.
As James Anderson noted in his opening keynote, suppliers are now challenged to translate the benefits of an offering and show what it is worth to a customer. They must confront the demand for price concessions brought on by 1) a reduction in purchasing staffs; 2) an increase in their purchasing responsibility; and 3) a reduction in their time and knowledge available to make smart procurement decisions. The supplier is challenged to ensure the customer can clearly see and measure the value of making a choice that goes beyond mere price.
While at least one consultant said to me that the ideas discussed at the event have been floating around for thirty years, I am inclined to believe that the authors of Value Merchants have truly broken new ground in the elegant and accessible way they present their ideas. They’ve transcended so much of the blather I’ve come across in recent years that focuses on solution selling or consultative selling. They’ve recognized the issues are about much more than selling. They are systematic and cultural. Is "value" in your company’s DNA? If so, how do you prove that you are delivering it?
That turns out to be more difficult than it sounds. Many of the larger companies that have advanced value management capabilities have spent years and invested big sums to develop them. But now they are differentiating themselves in their industries — in markets (such as pumps and bearings and industrial chemicals) that some might consider fully mature. What these companies are demonstrating is there are no true commodities — only an absence of imagination.
The case studies at the event were truly compelling:
- SKF Group — This $4.4 billion maker and marketer of bearings, seals and lubrication systems has introduced what it calls the "documented solutions program" to sell high-value offerings. Punching up his presentation with the unforgettable "show me the money" clip
from Jerry McGuire, Todd Snelgrove, global manager, customer value,
went on to show that his company was up to this customer challenge. Sales engineers now expertly demonstrate the "total cost of ownership" associated with an SKF solution relative to the next best alternatives. As a result, the company has increased cross-selling capabilities, enabling sales people to increase close rates by 50-60%.
- Kennametal — This $2.4 billion supplier of tooling, engineered components and advanced materials has created a dynamic, value selling process that is enabling it to continuously grab new market share and increase profitability. Steven Verdel, director of global strategic sales planning and development, explains that the company has spent several years building its sales force capabilities, enabling its people to identify, analyze and demonstrate value. "We make the right people heroes," he says, referring to the company’s ability to support customers in the development of solid business cases. Interestingly, the company emphasizes sales coaching and pays an attractive sales commission based on one’s ability to document value delivered. In this way, it reinforces the behavior it seeks to encourage. It now has 1250 sales professionals and 240 managers participating in its "Customer Acquisition Process."
- Grainger — This $6.4 billion powerhouse in industrial supply underscores the case for taking the long view when trying to turn one’s people into "value merchants." Deb Oler, vice president of sales, described how her sales organization developed a four-year plan — embraced and supported by the CEO — to transform the sales force into specialists in customer value management. During that time, the organization developed a rigorous accreditation process and drove its new thinking deep into the culture. Now, the company claims to have 80% adoption — leading to far stronger customer penetration and share of wallet. Sales, meantime, are at an all time high.
- PeopleFlo — On the entrepreneurial front, Franklin Park, Ill.-based PeopleFlo has demonstrated how a young company can bring value-driven thinking deep into its DNA and apply it systematically. This was the only way this unrecognized manufacturer was ever going to break into the market for sealed pumps — a market dominated by much bigger players. By building a business model based on partnership, lean manufacturing principles and guaranteed savings, William Blankemeier, the company’s CEO, explains that it has been able to clearly differentiate itself and land profitable contracts with major manufacturers. Indeed, the firm’s "customer value managers" are expected to understand their customer’s business, substantiate their value claims and document the value with an ROI calculator.
What impressed me most about this event was the recognition — and evidence — that so-called mature industries are actually far ahead of more glamorous sectors in terms of proficiency in value management. I suspect the enterprise software and management consulting companies I’ve spent much of my time with are resting on their margins in many respects. They haven’t yet faced the wall of commoditization that many of the companies featured at this event have faced.
But they will. Better to get ahead of the curve. Better to embrace this future that revolves around documenting and demonstrating value as opposed to simply asserting it.
It’s not easy. It’s a commitment. But this is what your customers want — even if they haven’t asked for it yet. Show them the money or, eventually, they will show you the door.