December 9, 2024 • 55 mins
In this episode of ValuePros Show, Todd Snelgrove and guest Mike Wilkinson dive deep into strategic account management and the importance of value quantification in sales processes. Learn actionable insights to enhance your sales techniques and improve customer relationships.
- Differentiate between cost, price, and total value to drive strategic account engagement.
- Use decoy pricing and the compromise effect to influence consumer choices effectively.
- Avoid offering products for free to enhance perceived value and profitability.
- Implement structured value quantification tools to ensure consistency and credibility.
Align engagement with customers' buying stages for more impactful sales interactions.
00:00 Driving strategic value through customer education.
06:21 Collaboration across departments ensures organizational success.
09:18 Focus on profit, not just total costs.
11:13 Accelerating time to market is crucial.
14:06 Business requirements assessment includes detailed financial considerations.
19:22 Focus on long-term cost, not initial price.
20:25 Companies struggle quantifying value; Excel errors persist.
23:32 ROI is crucial; accuracy and research matter.
27:03 Follow up on customer satisfaction and improvements.
31:04 Quantify your value to capture our attention.
35:25 Majority of buyer journey is independent research.
37:59 Belief and passion significantly impact business success.
41:03 Profitable companies prioritize holistic and strategic value.
42:25 Discounting doesn't increase overall product usage.
48:06 Charge vs. free: Bundling services in industries.
51:03 Value must be central to product development.
52:35 Process ensures effective value delivery and implementation.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:01):
Welcome to the value pro show where value pros get value
ready.
In this episode of the value pro show, we feature Todd
Snelgrove exploring the critical skill of gaining commitment
from your strategic account. A vital aspect of excelling
as a value professional in sales. Todd discusses the importance
(00:24):
of building trust, showcasing value over time, and the
strategic approaches you can take to secure deeper relationships with
your key accounts. Todd breaks down actionable insights
on aligning with client priorities, communicating long term
value, and using a tailored approach to foster commitment.
So whether you're managing key accounts or just looking to elevate your
(00:47):
sales game, this episode is packed with practical advice to help
you drive commitment and grow your strategic relationships.
This is the takeaways from this piece of research that was done with
2 professors. 1 from Harvard, Marco Bertini, that I've known for
20 years, and Oded Konigsberg from London
Business School. And the discussion started with the 3 of
(01:10):
us was we always talked about value quantification. It
is critical. It is key. It's a have to.
But there's other things that need to happen to structure it so the customer's
willing to pay for it. So we talked to numerous companies. I'll give you some
examples. But the first thing is to motivate customers to want to
even have a value discussion. And when I think back of
(01:32):
my time at SKF, I probably spent 20% of my
time trying to get customers to rethink
how they should buy industrial parts. Because if you're a
huge company, you're like, I got bigger things to worry about. I'm integrating this. I'm
buying this big software. I'm, you know, I've got a global this.
You know, how and where I buy x isn't that big of a deal.
(01:54):
So I do a lot of thought leadership, it's called. So white papers,
conferences, procurement events saying, hey, you need to rethink
that this is a strategic purchase. And I always joke, you
know, people on the call, you have your strategic accounts, you have
your list. But if you were to ask them, are you strategic to them?
And, you know, sometimes we need to get them to rethink, wait a minute.
(02:18):
Maybe that is a strategic area they need to spend more time
on. So we need to motivate customers to wanna have that value discussion.
We then need to educate them on, how can I impact your bottom
line? And I'll show you the model that I use because it's not
just about cost savings, but how do I make you more profitable, mister customer?
One of the examples in here, it happens to be a client that I do
(02:39):
some work with, is Scott Forge, a big industrial company that make forgings.
We won't get into what that all that is, but go to customers and say,
here are and I can't remember the exact number. A 128
areas of impact. Less downtime, less energy, less
inventory. I can't remember them all, but these are the areas I can
impact you. This is how I do it, and this is the
(03:01):
impact of that, how much. Then we can have a
discussion, which ones of these drive your business. The
example I use, energy savings in a steel mill or a pulp and paper
mill is a significant number. Energy to a law office
is probably not that big of a deal. I'm making an assumption, but we need
to agree on what areas are we gonna focus on, and how we
(03:23):
are going to do it. Then, of course, we need to quantify that value.
I wholeheartedly suggest you have a structured tool, not
have every salesperson using an Excel sheet. I will explain
why in a few slides because over the last 15
years, I'm amazed to see what happens when people
use one off Excel sheets, the mistakes. So I'm gonna go through some of
(03:46):
them. Some of them are funny. Some of them are not. But when I started
this 25 years ago, there wasn't software. Now there's 4 or 5 players in
the marketplace. Please reach out to me. I can make some introductions. But the point
is you shouldn't be spending your time on trying to figure out how to quantify.
You should be figuring out where you can impact your clients. The next
point translate. I think the gentleman from,
(04:08):
Borealis, a chemicals company said the best business case
is a story. Because when you hand that business case to
your key person, you're talking to, maybe the person that's
getting that value. They have to take that business case and sell it within their
organization. They have to go to procurement. They have to go to their boss. They
have to re articulate what you've said. So it needs to be
(04:30):
visual. There needs to be a story. I used to think numbers are numbers.
You know, I'm asking you to invest again, a 100,000.
Here's the return on investment. Here's where it's gonna impact your business. These are the
7 driver. I mean, the business case should be enough. It turns out
the story, the believability, the case references, all that needs to
go around it as that case gets passed around the client.
(04:53):
And then finally, reward. And the the case
example that was used is Michelin, the big tire company in their
mining business. They've converted it from buying a tire. Those are
expensive tires, those big tires, but how does the mine make money? By
moving tons of material. How will you pay me in
tons of minerals moved? I'll own the tires.
(05:15):
I'll refurbish the tires. I'll inflate the tires. I'll install the tires.
You pay me a number for every ton of dirt you move.
And they've got it structured, so there's very little risk, but it aligns
their value proposition to the customer's revenue stream. A lot of times in key
accounts, I would just say, I'm not gonna discount. In lieu
of discounting, I'm gonna guarantee value. I'm going to come in and do these
(05:38):
things. We're gonna have a target of what that value should be. X percentage of
what you buy. We have to agree on what that value is. Do you care
about downtime? Do you care about energy? We have to agree on how we're gonna
quantify it. And then we have to agree on the formulas to use for it.
And if I don't hit it, I'll write you a check. I was very
lucky. A 187 of those agreements, we never wrote a check.
(06:00):
We always exceeded the target. And I have to explain to the customer how a
10% value is better than a 10% price cut. We don't
have time to go through the math, but reach out to me. I can explain
it. And then finally, an overarching theme within the
article is you have to have a structure to deliver all
this. It's not marketing. It's not sales. It's not key
(06:21):
accounts. There's gotta be somebody that has responsibility
for pulling all this together. So somebody might be the engineer that creates
the value marketing might help you present it. There might be somebody
that's an expert on financial quantification, but somebody needs to
own this within your organization and work across all the
different departments to pull it together. Everywhere where we saw
(06:44):
it's only a sales function, it didn't work. When it was only a marketing function,
it didn't work. When it was only in key accounts, it didn't work. It's gotta
go across all of that. I start back to
the education and motivation aspect
is making sure customers understand the right term.
And I started most of my customer involvement presentations
(07:06):
for 20 something here saying, price does not equal cost,
does not equal value. There you are, all 5 letter
words. They've been completely different things. Yes. Price is
what you pay for something, $100 Cost is
price plus all those things. Yes. The shipping, the receiving, but how much
ink does it use? How long will it last? How easy is it to install?
(07:29):
And what some customers do is they transpose. And
they think that if I get a lower price, my costs will be lower. That
is an assumption. The only way to be more profitable
is to have lower cost and more value. I'll explain
what I call this term total profit added. But I
hope every person on the call is confident, not arrogant,
(07:51):
there's a difference, and comfortable enough if a customer says, and
procurement people will tell me these stories also, that your price is too
high, but I have a lower cost. It's not the
same thing. Now you need to demonstrate how you are and how you can make
that happen for the customer. So I used to say, I can be the
highest price widget, but I'm delivering the lowest cost.
(08:14):
Well, that's what I meant. No, you said the word price you want lowest
cost. And also you want more revenue, more profit.
So whenever you see those words, stop and think, and make sure you're
using the right one and be comfortable with how to answer the
question. You know, your price is too high. Why are we talking about price? Prices
are relevant and I'll give you some statistics as we move forward.
(08:38):
The price Berg, a colleague created this years ago for me. And the beautiful
part of it is it helps people visualize.
Okay? I want a smaller price per yes, mister
customer, you can see the price. It's visual. It's above the waterline. Okay?
But it's all those things which are different for every supplier
(08:58):
company on here of how you impact your customer.
What most procurement people tell me is you sales teams
don't do a good job of articulating what those are and their ranges of
impact and how they're gonna affect it. I can see price. It's right
there. You use vague words, but you don't get into the details of all
those other things. You don't give me the data points to help make a decision.
(09:22):
So years ago, I would be trying to
explain my model or explaining how we could help customers
become more profitable. And I would say it's total
cost of ownership. The term has been around for a long time, but it's
much more than cost. And I would say, you
know, I was sitting with a professor and he said, Todd, you can't keep saying
(09:44):
it's total cost of ownership, but it's different because people think total cost
and they have an assumption of what that means. And then about
2 weeks later, I was in Oxford, in England, doing a session,
a global session with the procurement association, Center For Advanced Procurement
Studies. And I said, when you're making a buying decision, you
should buy the solution, product or service that makes your business
(10:07):
more profitable. Profit comes from 2 ways, cost
reductions, yes, but also profit drivers like revenue. I'll give
you some examples as we go through this. When I went through this slide,
and again, standing in front of all these people, and professor
Tom Choi from center for advanced procurement study said, Todd, you're saying, and
I agree with you. If we measure all these things, we will be more
(10:29):
profitable. And he said, yes. And he goes, I would call it instead of total
cost of ownership, total profit added. Not say it's the best term,
but again, it allows me to engage people to have them think differently. Do you
wanna be more profitable? We can talk about cost, but let's talk about the other
side of the equation. So I'm gonna walk you through the model
because there's companies here from all different industries. Let's just stay with,
(10:51):
somebody that makes a car. Okay. Because we've all know a little bit about cars.
So you have people that make cars. Okay. Gear
boxes, fans, blowers, whatever. Those engineers, design
people are sitting in a room and they could make that car last
forever. They would make it in titanium or diamonds
or something, but they're being told, this is what the market will pay. Here's what
(11:13):
the competitors are. Here's what customers want. So they're making design
trade offs of how robust the machine they're gonna build is. Can
they actually manufacture what they've designed? What tolerances are
needed within what they're building? What are the
costs? But what if you, as a supplier, help that company that's making
this car, get help them get to the
(11:35):
market earlier, speed up. Let's say you are a drug company and you have a
patent on a drug, then you go to produce it and the machinery's not
running, or you need new machinery and it's not available, or the person that's gonna
make the packaging doesn't do something. Time to market in
some industries is extremely important. If you have a 10 year
patent, I think it's 10 years, and you waste 6 months getting the production
(11:57):
stuff ready, that's 6 months of that big revenue gone. If
you're in the electronics industry and you've got an advantage, you've got
a new phone, we'll just say, every week that you have that on the market
before your competitor responds is worth a lot of money. So
time to market could be huge. That's not a cost reduction. It's a revenue
improvement. What if you could help that customer add value to their
(12:19):
machine? Make it lighter, make it last
longer, make it predict when it's going to fail. Maybe they could
take that advantage and sell it into their customers for other more
sales or at a higher margin. That's not a cost
reduction, but it will make them more profitable. So somebody
makes something then somebody buys something, the acquisition
(12:41):
phase. Quick story. 20 something years
ago, I was lucky. You look back now in retrospect, it's
always interesting. I was in South Africa at a big convention
and my CEO was there and he had to sit in the
audience for 90 minutes and listen to me talk about value, how we
could quantify it, all the drivers, all the stuff we're going through.
(13:04):
And afterwards he grabbed my boss, who was the president of 1 division, said, I
need that guy to do some work for me. Value is
applicable to the whole company, not just that division. So a few
hours later, the introduction's made and his name's Tom. And he says,
Hey, I also want you next time you're in the head office to meet
our chief procurement officer. This gentleman's name is
(13:26):
Boinge Stenson. Great guy. But you could imagine, I
send this Swedish gentleman an email saying, Hey, I'm now working
in this position. We have this methodology of how we go to our
customers, how we measure total value, all these
412 drivers that we can quantify.
He wants us to talk about how we buy. Because he
(13:48):
says, we keep buying on total cost of ownership, but he goes, my costs
don't seem to go down. I don't think we have near as structured as a
methodology as we have on our sales side. So, this
gentleman didn't wanna see me. And I said, look it, spend an hour, show me
what we measure, then we can at least tell him we talk. Okay?
I meet him and he goes, in general, we have the requirement
(14:11):
of the business, what they want. They need a machine that does whatever,
and we'll measure what's the minimum order quantity, what are the terms and
conditions of payment, is there finance charges, Is shipping included
or not? Can I return extra ones? What's the number of
days of supply? Do I get a cash discount if I pay
faster? How close are they to my location than I wanna use it? Because
(14:34):
there's shipping costs, risk, currency, and of course,
price. And I looked at them and I said,
Bawinga, that's awesome. That's landed cost.
And we will see as I give you some more data, it's one component.
And it actually is usually a small component. Somebody
builds it, procurement's bought it, not usually for them to use, but for the
(14:57):
business to use. Now that asset gets
installed, operated, and maintained. And this will be different for
everybody on here. But the, when the product or
service is being used in my world, how much energy, how much water, how
much lubricant, how much ink does it use? How long will
it last? Because I'm going to amortize those costs. When it breaks, can
(15:19):
I fix it? Does it break nicely? Are there
parts available to fix it? There are some companies that will sell their
machinery as an example, very low price, but make up
all the money in the parts that go along with it. They're captive. Think
the razor blade razor example. What if your
solution can help that customer increase production?
(15:42):
It's a faster machine, for example, or the less downtime. I mean, how you do
it? That's your job, but that's a revenue improvement. It's not a
cost reduction. And that's I hate to use the term free revenue,
the marginal revenue, take away the variable cost. The
rest of that money drops to the bottom line. What if you could increase the
quality of what they produce? That they could sell at a higher
(16:04):
price. Again, we can't get through all of these. So somebody builds it, somebody
buys it, somebody uses it and maintains it. And most of the
research years ago, never looked at disposal. They looked at it from a
sustainability perspective, but sometimes there's huge
costs with disposal. They've gotta break it down. They've gotta ship it
somewhere. They've gotta pay to have it taken away,
(16:26):
or there could be money left in it. Back to the car
example, I've been told, so, hearsay,
but Mercedes and BMW make more profit per car on
the refurbished cars. So the
car gets to its end of life. They take it, they refurbish it. The margin
they make in those cars are worth more. Maybe a
(16:48):
motor, gearbox, fan, pump. I don't know. Maybe it can be rebuilt. Maybe it could
have a second life. So maybe when you take that, look at it.
It's actually cheaper. So is the $100,000
car better than the $80,000 car? I don't
know. But what I want to look at is what's the projected disposal
resale value of that car in 5 years, because maybe the $100,000
(17:10):
car is worth 50,000 in 5 years and the $80,000 car is
only worth 25,000. The first one, even though it was higher prices,
actually cost you less over the period of time. Take the model, walk
through it. You're gonna probably have different drivers, but it's a clear way
to walk through with customers. These are all the areas I can impact.
The black ones are cost reductions, but the green ones
(17:33):
are revenue improvement drivers. And you can see price is only one
dimension of all those. So the question is, where's the big
numbers? You can see that's my graph, but I believe in
most parts of the world and industries, the opex
cost is the big numbers. And beautiful thing is you
can do some research. You can go get a
(17:56):
kid, a summer intern, get online, start doing some analysis. It's
amazing what you can find with all the white papers out there.
Now, this is from Accenture. The purpose of this research was to get
companies to focus on the aftermarket. Accenture was saying,
don't sell the plane, sell the plane, but get the aftermarket. That's where the
money is. So there's 4 different industries here.
(18:19):
Aircraft, so think Boeing or Airbus, class 8 trucks or
18 wheelers, freightliner, international
truck, industrial equipment, fan, gearboxes, pumps, motors,
light duty pickup trucks for work aspect, and the red
bar is the initial purchase price, acquisition, land, and
cost in the driveway. That yellowy orange
(18:41):
color is the opex cost. How much fuel, parts,
maintenance? You can see all the examples up here. So
we don't, why are we focusing on that 12%? So
working with this chief procurement officer at the company I used to be with, we
were doing a bid for some sort of machinery. And I was
actually involved in the presentations and we're doing the matrix
(19:03):
calculation afterwards. And he said, Todd, what do you think? I said,
I want to buy, we'll say it was option a. And he goes, yeah, of
course. You want the best one, don't you? Sales guys just spend money all the
time. You want the best one. I mean, you know, it's 10%
more expensive. And I said, yeah, but it's, it's 2% less
operating costs. And he smiles and he goes, I don't know
(19:25):
what math they teach you in Canada, but why would you ever spend 10%
more to spend 2% less?
And I smiled and I said, the denominator,
think 10% of 12 is 1.2.
2% of a bigger number 88 is 1.76.
(19:45):
A 2% reduction of the bigger number is actually approximately 40%
more impactful than a 10% reduction on the
initial purchase price. Because we just assume the OpEx costs
are all the same. It's the same with the printer. I got a
printer sitting right back over my right shoulder here. Is it the price of the
printer? No, it's the price of the ink. Or is it
(20:07):
price per page that I should be looking at?
I would argue price per page is the best calculation, which includes the price of
the printer, the number of years I think it is going to last, the average
number of pages I produce, and then the ink, and how many pages do I
get? Again, price is not what I should be focused
on. You can get this research.
(20:29):
I put this slide in because I know most companies in today's world are
being asked, pushed, or know how they need to quantify
value, but I'm amazed at how many companies either have a tool that
people don't use, or the tool's been creatively
built, and they end up in Excel tools. I'm gonna try to quickly go through
all the problems I've seen, and I'm talking some Fortune 100
(20:50):
companies with sales teams, value experts
running around with them sell spreadsheets. So one, you get formula
mistakes. You just get fat fingers or you forget to do what's
one minus, whatever. Probably more often, I
see incorrect formulas.
And the one that I see the most of it is people taking cash flow
(21:13):
and calling it cash, especially in the software industry.
If I can help you pay somebody later or
get paid earlier, Also for people on here, when customers try to get, you know,
delay their payments to you, it does not have near the impact they think it
does. If I owe Comcast, if I owe my mortgage payment, and
I decide to pay it in 45 days instead of 30 days, I did not
(21:35):
eliminate the payment. I have that money for 15 days
more at 10%, whatever cost of capital. So
the formulas, they get very creative. So a lot of companies
are say thinking that cash flow is free cash. Todd, if you pay a $100
a month for Comcast and you stretch it to 45 days, you save
$50. No, you didn't. You have a $100 in the bank for
(21:58):
15 more days or whatever, 8%. It's not that big
of a deal. I actually have procurement papers saying the same thing.
The other thing which I learned in my early days is you can't take
revenue as a 100%. So I'd be at customers and I'd say,
look, we think, and they would agree, you can help us increase our revenue.
I'm gonna make up a number by 100,000. And And then I would say, well,
(22:20):
the solution is a 150,000. So it's got this ROI.
They go, no, it doesn't. I can't pay do you want me to pay you
in tons of paper or tons of steel or tons of whatever?
Like, no. And then they would say, well, what? We're netting 10%.
We're publicly traded 10% net income.
(22:40):
I think, and I got 187 customers to agree with me, it's
contribution margin. So, it's revenue minus the
variable cost. If your company is budgeted, I'm making up numbers, to run at
93%, if you could help them increase production,
I mean, all the assets are fixed costs. The CEO salary is a fixed
cost, the variable cost. Yes. You might have energy. You might have the cost weighing
(23:02):
in to create this, but it's a big number. 60%, 70%.
You can count. So you count count cannot count a 100%, but
you should count more than 10% or 15%. Have
some ranges of impact. We've done this before.
In general, our studies show when we created this product, I'm making
this up, that 2% less energy, 5% longer life,
(23:26):
3% lighter weight, whatever the number is. Some companies, they just
walk around with what if statements. And the idea which
I was told was, you know, a 1% of the huge numbers, a big thing.
Doesn't mean you can do it though, company. What if
statements are our closing strategy? I only need to be this much right
for this to work, but what if my house wasn't in Michigan and it was
(23:48):
in downtown New York, it would be worth this. It's not a
probability. So if you've only got, if it was a
1% improvement, it would be worth that, do some research.
When people don't have tools, the output ends up looking
disastrous. And some of it's wrong, Spelling
or currency or the units or disclaimers, this is not a guarantee or a
(24:11):
projection and blah, blah, blah. One of my favorites
is ROI. So this is a big,
huge company. I had been doing a consulting thing and they were
very proud to show me the Excel spreadsheet that they had.
And the example that they showed me had that I'm gonna make up a number
ROI 80%. And they were very proud. Look,
(24:34):
return on investment for this customer was 80%. Well, I
got a return on investment for 10%. Mine's better than yours. They
go, what do you mean 80% is better than 10%? Like, no, it's not.
What do you mean, Todd? You need timeframe. An
80% return on investment in 30 years is not near as good
as a 10% return on investment in 6 weeks. So,
(24:57):
ROI needs to have timeframe. We meant yearly because it was software.
They meant yearly. You didn't say that. And these numbers then can get
transposed. I used to have my colleagues call me, you know, the customer needs break
even within 1 year. Okay? I wanna meet the customer.
This thing breaks even in 14 months and is gonna generate free
cash flow for you for the next 18 years. I'll finance it for you if
(25:18):
I have to. So again, make sure you've got the right
calculations. Links to the justification and explanations.
Where do you come up with this 1% or 2%? So links to outside
studies, links to your own case studies, links to something. I like
outs, outside third party stuff. We can reduce the number
of purchase orders. That's worth a $100 a purchase order says who?
(25:42):
There's a study done just FYI. I think it was American express. Does a study
every year of the average cost per purchase order by different industries, by
different sizes. So I would link to that. If anybody remembers sales
training 20, 30 years ago, you would ask customers, how much is that?
What keeps you up in late? What are your problems? The new research says, put
a number out there. We think it's $80 as per this study, we
(26:04):
use $60 time. Okay, fine. But you have to put a number out there
for the customer to move from it. Open ended or light
little squares to put numbers in don't work. Something that I
learned that the visual output back to the example
that needs to tell a story, it's a big deal. The cash flow
graphs, the bar charts, the waterfall charts, all that stuff. It needs to be
(26:27):
visual. That business case is gonna get passed around your customer, emailed around.
People like visual stuff. It's amazing. Any tool should
have different stages. These terminologies are probably not the best,
but it's what I used. Test. I'm just checking the
calculation. I wanna make sure I understand what it's doing, because if I'm in front
of the customer and they start changing numbers, I wanna know why everything's changing.
(26:50):
But then I would go into a customer and I say, I propose that this
will be the value you receive. If you buy this tool and it
helps you align these assets, it should reduce energy by this much,
and it should do this. Yeah. That's a proposal. But the company
wanted to see how many companies, customers were buying things from us because of
these proposals. So once a customer bought into the logic
(27:12):
and they bought the solution, we changed the case to accepted. They've
accepted the logic, was the thought. And then,
most of you probably have a CRM system. How about we follow-up? How
about in 6 months, we go back and see what's actually happened? The
purpose of this is twofold. 1, you can make a case study out of it.
2, if they're not getting the projected value, there's a good chance it's
(27:34):
a minor fix. Like a minor, minor fix. I mean, they didn't
install it properly. They didn't train their people. They didn't turn it on. I don't
know. But always have, when you give a value case, come back and
check-in on it. It's a great and customers appreciate it too.
If you have a tool over time, you will start to get a dataset that
is extremely robust. I was able to go in
(27:57):
and say, by this industry, by this segment within this
industry, we've done this solution. I'm making numbers up 380
times around the world. The minimum improvement was x. The
maximum improvement was y. The average was this. And customers would
just go, holy crap, the standard deviation was decided and everything.
I mean, you can start getting very prescriptive, predictive with
(28:19):
customers. Make sure whatever you use is
clear. When people create Excel spreadsheets, some of the ones that I've
seen, they've got 47 tabs. You would never understand how it all comes
together. They're designed to confuse the customer. And then the
comment was, well, customers never challenged us. They don't know what's happening. They don't
wanna look like a fool, so they just back off.
(28:41):
Clarity is better than confusion. It needs to be
repeatable. One client I went to see once
recently will say, had 6 people from the same software
vendor come into them. 6 people. 6 people did a value
analysis on the same solution for the same customer, 6 of them
look completely different. The numbers were completely different. The value
(29:04):
drivers were completely different. The customer said to me, I will never buy
something from them. It's obvious this is just a marketing
strategy. I mean, it needs to be repeatable no matter where
you are in the world. And customers are different, but the formula will just stay
for energy savings is the same everywhere in the world. Do you care about it?
Is different. Is it 10¢ or 8¢? That might be different,
(29:26):
but kilowatts times amps, whatever the formula is, is the same.
Everybody shouldn't be creating their old formula for this type of stuff.
So procurements. That's great. We wanna sell value. Everybody loves
value. That's great. But will procurement pay for value? Kind of
important. So you'll see at the top of the slide here, let's make sure we're
using the right term when we're going through these slides here. There's the buyer, the
(29:48):
person that writes the PO. Love them. We like purchase
orders, but they are in charge of the strategy of how that customer
buys. Okay. I'm not minimizing them, but if you're trying to have a
strategic discussion about guaranteed value agreements and all this type
of stuff, they're gonna follow the process. Purchasing might be the person
in charge of purchasing for that segment or bucket within
(30:11):
that area. Procurement, the vice president
person, this is how we're buying. These are the scorecards we're
using. We measure total cost. What is your measurement of total
cost? Again, back to the idea of having that list, we
buy in total cost. What do you measure? If they don't tell you, I can
affect a 147 things. My guess is they'd measure 10.
(30:32):
Now you've got a discussion. What 147 things could you
impact? So procurement. This lady is one of my
favorites of all time. I was doing a conference in, London.
With Huthwait International Spin Selling. If that
rings a bell and she's now head of chartered Institute
of Procurement and Supply. We could all read it. But for those of
(30:56):
you saying we can't quantify our value, listen to what Paula
said. Suppliers don't come to us with a business case. It's what we want.
Sell your value in our numbers to get our attention. My
favorite part looks like they cut the sentence off my train, but if you can't
quantify your value, don't be surprised at the failure of procurement to do
so. She stood on stage and said, do you have any
(31:18):
idea how much I buy? I buy people,
I buy company cars, I buy companies, I buy this, this, this,
this. All you do is sell whatever you sell.
If you can't be the expert on that and put some numbers there and make
me rethink, I'm not doing your job. I don't have the time or
the knowledge. So you can, we don't have time for it
(31:41):
today, but you can almost quantify anything. Again, different to
question and answer time, we can get into that. Again, one of my
favorite slides, this comes from a procurement gentleman that I've known for a long time.
He wrote a chapter in the book value, first. His name's Rob
McGuire, and he's a procurement expert. He's actually a practitioner,
but we were somewhere one day, and he drew this for me. He goes,
(32:03):
I am sick of you salespeople with your sales funnels. How you think you
should move me through your CRM system? How about you think about how I
buy and where I am in my buying process, and then you engage me
based on that? And I just looked at him like, oh, jeez. Kinda good
point. And he goes he went up to a whiteboard and drew this slide.
So we're gonna go back to the example because I think everybody understands it about
(32:26):
buying a car. When we're finished at stopping to think for a
second, is this similar to your industry? Okay? But I'm pretty sure it
is. So a need gets identified. I need a new car. The
lease expired, broke up the other one, the other one's old, the kids got
old. A need has been identified. I need a car. K?
Now I'm sitting here in Michigan, and I will sit at home,
(32:48):
we're at the office, and establish my specification. I'm
not saying what I'm gonna say is rational, but it's my assumption of
what I think I want. I want a 4 door car, because
ABC, I don't want a gas car because XYZ.
Okay. Not saying it's rational, but this is what I think I want. Then I
go to the market and say, who could deliver that type of car
(33:11):
to me? So not a shot at Tesla, but Tesla only makes electric cars.
I decided I want a gas car. I'm not gonna go see Tesla. I don't
wanna talk to anybody about electric cars or diesel cars. So that's
gonna narrow down the people I'm gonna talk to, past
experience, name brand recognition, etcetera, etcetera. That's
gonna narrow it down. I always say to 3 suppliers. Seems I was always in
(33:34):
a bidding war with 3 different suppliers. So they said, okay, there's 3 different people.
Now I'm gonna negotiate. I'm gonna ask for the RFQ, RFI,
RFP. We're gonna do a lot of back and forth negotiation. They're gonna
send proposals. We'll talk back and forth. I'm gonna negotiate
terms, conditions, price. I will then choose one
person to buy the car from. I will then buy it.
(33:56):
Okay? Hopefully, I then check, did the car perform as I
expected? His point was your ability to get
me to think of what I'm buying, how I'm buying it, what I'm
going to measure dramatically changes over time. The
time to have a discussion about buy best value, it's not just
costs, what we've been talking about, is much earlier. Maybe before
(34:18):
they even ready to buy what you sell. You have to frame it
then. Because if you go in at the RFQ stage and say, yes, but
we deliver all this value and it's worth more than our price difference, and
I've already decided what I want. Back to the car example, That
salesperson's gotta be very good to say, mister Snobov, you're wrong.
An electric car is better for you. But I've already, you're telling me I'm
(34:40):
wrong. I've already decided I want this. He's gonna have to do a lot of
education. He's gonna have to make me rethink. He's gonna have to challenge me a
lot more. So, it's not just marketing's job to do this. Again,
it's the thought leadership pieces. It's the white paper saying, Hey, when you buy this,
you need to think of all these dimensions. I've matched
Rob's buying cycle with some research from
(35:01):
Gartner, 750 business to business buyers they interviewed and
said, where do you spend your time in the buying process? And I
thought this was hilarious. 27% of the buying journey is
done independently online. People that
make x, that's people that make that, local people that supply y,
whatever that Google search is. Maybe there's sites that are
(35:23):
specific to this. They meet with the people that are going to
use it. Hopefully, it's a good representation, but what do you really need?
What are your trade offs? Who's been good to you? Who's been bad to you?
Whatever. We meet with a group of the people that are gonna use whatever we're
selling. 80% is researching
offline independently, calling trade associations just like your
(35:45):
members of SAM, or they could be members of a procurement association, an IT
association, a maintenance reliability. Who's the best? What
have you had good experience with? You know, they've got that networking
group. 16% is doing other. Don't know what
that is. Only 17% of the buyer's
journey is spent with you and your 2 competitors.
(36:07):
That's not much time to get them to rethink everything they've already come up
with. You've gotta do it early. You've gotta do it to the right people. You've
gotta get them to rethink. So, don't get me wrong. I got brought in a
lot at the RFQ stage. We're in trouble. They're buying on
price, get in the plane, get here, help them rethink. And I'm not
saying I'm great. It worked, but, God, we should have had them set up.
(36:29):
Mister supplier, I want the best supplier that can deliver the most value. We measure
value in these dimensions. We wanna process I mean,
we needed to educate them to be coming to us with that frame of
mind. This goes back to that research, but
it's counterintuitive to me because I thought the best
sales argument was based on logic. I've got a
(36:51):
business case that shows that if you do this, it should deliver
this. Here's my proof points. Here's my reasoning. You know,
how is this not a smart decision? That is cornerstone,
but it turns out there's 2 more aspects to a compelling
story. And I look back on my experiences with specific customers,
and one was early, early, early on. It was my second value
(37:13):
agreement. It was with a big steel aluminum company. There's
actually a business case written about it. But I went in and
was young and doing the corporate presentation and trying to get to the
value discussion. And the customer, I mean, he was a chief procurement
officer, just was not interested. And my colleague said, can we
take a break? And we went out and I was smoking. So this
(37:35):
is 20 years ago, I bet, or 18 years ago, whatever. And he goes, where's
your passion? I've never seen you this quiet.
They said, okay, that's you and me talking about this stuff. He goes, no, we
got nothing to lose here. He's going to a reverse auction and we will not
play. So we will not win. And it went back
and I was drawing on the board, you know, that all these different charts and
(37:57):
examples and stuff, and we got the order. And again, it's just in a
takeaway is why I'm telling the story. The gentleman said, as he shook our hands,
he goes, you really believe this? You really believe this is the best
way to do business. I am buying your belief in this. And the reason why
I put this up there is a lot of people have done sales training and
they might get some marketing messaging and they go to customers and they try to
(38:19):
do this. Have your own stories, have your own examples. Believe
it because it comes across in front of the customer. Anybody
can throw a PowerPoint slide up that shows an ROI, but again, to have the
passion, to have the answers, to have the ability to discuss it
has a huge impact. And then the final part is
the vividness of the story. We don't have time today, but I've
(38:41):
got a 1,000 stories talking about risks, talking about downtime,
talking about impact, talking about all these things. But just a piece
of paper with numbers on it isn't the same as it being visual and a
story, because it's the story that hopefully when you leave here today,
you'll remember a story. Hey, I saw this guy at the SAMA thing, and
you'll tell a story. That's what gets passed around companies.
(39:04):
Value. My title's value, my consulting business's value,
I was a chief value. Great. Be careful. Whenever I say
the word value, I mean, I stop and I say, what I mean in
value is my job is to make you more profitable long term. That's what I
mean by value. Value is not lowest price. That's what I mean by
value. Value is not lowest price. And the reason
(39:25):
why is in North America, you see all these examples that use the
word value. Value can be transposed to be lowest priced.
I was doing a consulting engagement in Illinois on the border between
Wisconsin. And I actually pulled the car over and took a picture. Hopefully this
gentleman never sees me use it as example, but the title of his
business was value discount flooring. He straight out saying I'm
(39:48):
the lowest price flooring person. Not the best,
not the quickest, not the highest quality, not the most selection.
I am the lowest price. So whenever you say value,
just say what I mean by value is, and then have your own example of
what you can articulate. But if you don't, people might think it's a low
price discussion. I will not go through all the slide, you will
(40:10):
get these. This is the slide I use at the end of my procurement
section with clients all the time. You see a bunch of quotes in the
middle, they're from procurement people. So, Professor Hanfield,
you see his title, a school, said, we need to look at this differently,
win win. Professor Choi is from Arizona State University, where
there's Advanced Procurement Studies is. This ID of TPA,
(40:33):
Tim Cummings, World Contracting Association. On the
left, top left, Manufacturers Alliance, top
800, I think it is, manufacturing companies. They
did a survey a long time ago, but that slide that had the 4
stages, we had it listed. And we asked these procurement
c level people at a conference I was doing for them, you
(40:56):
know, do you buy on best value? Yes or no? If
so, please tick off which of these dimensions do you buy.
Then we knew what the name of the company was. We just checked the company's
profitability, publicly traded companies, companies that looked
holistically at all these things, energy, downtime,
life of the assets, repair costs, had a more
(41:17):
in-depth procurement were 35% more profitable. I'm not saying it's
just because of that, but wow. You can see that Sam did a
study, Dave, maybe we should do it again, but they asked you, strategic account
managers said, and I say this to procurement people, strategic
account managers say they deliver 40% more value to customers
that buy based on value. And I say, if every order
(41:40):
is 3 bids in a buy, I can't bring my best people here, my newest
idea, my best resources. I'm a you know, believe it or not, these
are limited. They're gonna go to the people that value what I do. And
funny enough, suppliers reported that sorry, 49%, my
fault, you know, 40% said they received more value.
Supplier said they delivered 49% more value. Who cares? They're both big
(42:02):
numbers. Great closing slide for that.
Little bit on pricing. This comes from b to c
pricing. Please don't hang up. But I was at,
a school once, and the professor started talking about B2C pricing, and
I just started doing some emails. And I think he got to a second example,
and I went, oh my word, we do everything wrong. Our
(42:25):
pricing strategy actually confuses our value strategy.
So some of the things I see big companies doing that comes from B2C, I've
got B2B examples, we've got in timing, we can't even know them.
But the first thing is, what happens to the usage of
what you sell if it's discounted? Let's say
whatever you sell. You sell chains, sprockets, motors, bearings, I don't
(42:48):
care. You sell a product or a service, And you
decide I'm gonna reduce it by 10%. How much more
usage will happen in the US this year if you do a price
drop? My argument is none. You
might steal some of your competitors' volume, then they will react and
drop their price and steal some of your volume. The total usage
(43:10):
of toilet paper in the US this year will not
change if somebody puts their toilet paper on sale. Think about
it. I might buy a different brand. I might
buy some in inventory it, but I'm not gonna use more of it.
Think about, a motor motor goes on sale 10%. I might buy
your motor versus their motor. Then they're gonna react, but
(43:32):
I'm not gonna throw away a good motor because there's a new one that's on
sale. I mean, all you do is
change the buying pattern, but you don't change the total consumption.
I see a lot of salespeople or companies
structuring this way, giving customers lots of choice. I
hate to say it's an American mindset. I'll let the customer buy what they want.
(43:54):
This is called the jam study. So think of the way the study was set
up. You go into Whole Foods, There's all these jams,
pear, peach, strawberry, different sizes, and all this. It
turns out that people are very drawn to be given lots of choices,
but they don't buy. They get confused.
Buyer's remorse sets it. What if I chose the wrong one? I'm
(44:16):
gonna go somewhere else. I'm gonna make a, a choice that's simpler. So
the JAM study says, give choice. Don't give too much choice.
Again, hopefully you're the smart person here saying, here are the options.
Now, a lot of companies I see say, well, you wanna know what? I'm
gonna give this many choices. I'm gonna give 2
choices. Never give 2 choices. And I'll show
(44:39):
you why. Let's say you're going to the, movie
theater this weekend with the family. We'll assume the $3 and the $7 are
linearly priced, price versus size.
Whatever people are giving 2 choices, depends which study
you read, but in general, 80% of people will choose the lower price
version, the good enough. They will justify, kids, we're going for
(45:01):
dinner afterwards. You didn't eat your lunch. We never or whatever that justification
is. In decoy pricing, you create a third option.
Sorry. Oops. In this case, the
medium. Now what people do is they anchor on the 6.50.
Nobody buys the 6.50. Everybody now buys the $7 one. I think it becomes
80% of people buy the $7. Finance people might
(45:24):
want you to sell the 6.50 because the margin's huge, but it's there to make
the $7 one look better. If you create 2 options, 80%
will choose the low price good enough. I'll use the really good stuff on that
key and that key and that key, but good enough for everything else.
Create a middle one. Another example is called
compromise effect. It's again, 3 options. You're gonna
(45:46):
go for dinner on the weekend. There's 2 steaks. There's 2 bottles of wine.
Dollars $10.30. Do we really need the $30? Is it 3 times
this? This one, I create a more expensive version. When you go into the
restaurant, you see the chateau brioche, you see the Wagyu beef, or you see
the whatever expensive champagne is. Well, the
(46:06):
$30 we'll you wanna know what? We'll just go with the $30 one today. That's
the more reasonable work. And again, the industrial world
companies do this all the time. The $50 one is parts are included,
installations included, 1800 numbers
included. People look at it and think, let's agree. Jeez, $1,000
for that? You wanna know what the $500 one's good enough? But
(46:28):
if you only gave them the $500 one and the $200 one, they'll choose the
$200 one 80% of the time. Choice, give
choice, free choices, compromise, or decoy.
Don't give free stuff. It confuses people. And
think back to anybody that's ever gone to the trade shows when those people walk
by with their big duffle bags and they grab everything for free. Free
(46:51):
this, free this, free this. And then you walk into the convention center, it's all
in the garbage can. People don't know what to do when they're given something
for free. So this study, you walk into
a grocery store, we'll say, and you have a choice. You can get a free
Hershey's kiss. They're approximately worth 5 or 6¢.
Okay? Just so you know what the per price is. You can get that
(47:13):
free, or you can get a Lindell chocolate, and you have to pay
13¢, and they're worth about 55¢ each.
Most people took the free version. 56% people chose the
chocolate. Most of them chose the free version.
Now they did the exact same study and they said, okay, we're gonna charge
(47:33):
1¢ for the Hershey's 14¢ for the Lindor.
The Delta's still 13¢. They're both a deal
compared to what the value is of them. But now once you put a price
there, people stop and think. I'm paying 1¢, but it's I could buy it
for 6¢. So I'm getting 5¢ for free value
utility. 13¢, but they're normally, or sorry,
(47:55):
14¢, but they're normally 55¢. I get 40¢ of
value for free, but just putting a penny on something,
people change their behavior. So, for our
world, great article, some great books from
Professor Ruhlaga, who's at INSEAD, and Kristin
Kolkowsky, he's a Swedish gentleman, but OEMs that have
(48:17):
industrial equipment saying, look it, really take all the services
you do and bundle them into a structure that you can
charge for. So the argument or the arguing,
at MIT Sloan was, should we get rid of it or should we bill for
it? And the company I worked for, we built a services business.
And the argument sitting in a meeting room somewhere is
(48:41):
what should be free? Okay. Is training free?
So the people that sold services wanted to charge to answer the phone. They wanted
to charge for an engineering review. They wanted to charge for training.
The product people say, Hey, we give that stuff for free to justify our
price premium. We're X percent higher in the market, but we give all this value
added. There was a fight. And then the question
(49:03):
came the takeaway from this was, don't say
trainee. Okay. A 1 hour training with Todd going
over new features and functionalities of this product with pizza
at lunch, that's free. A 3 day training where we bring in experts, there's
a test, it's hands on, blah, blah, blah. That's 4 feet.
Free engineering review. Yes. This will work. 7 day
(49:25):
turnaround time. Yes. Will work. One day turnaround
time, and you want idea improvement ideas or risks
to consider, that's for a fee. You could take every service and create a free
version and a 4 fee, for a fee version.
Think of the apps, you know, the free weather app and the paid for weather
app. You just have to differentiate them enough and you will be amazed at how
(49:47):
many people will pay for the upgraded version.
So final thoughts. I'm not gonna go through all these, but out
of all the years, people that do this are more profitable.
24% more profitable than the industry average, 36% more
profitable than people take the load, the factory, the volume, the market
(50:07):
share. Case. I'm getting to the lower ones here, because it came
from this new article, acing value based sales. This is the article from
MIT Sloan. One company in there talked about a double digit in
improvement in profitability. One consulting company said
that their customers gave them a 20% higher net promoter
score. Here's the expected value of using our
(50:29):
services. Then we came back and said, you know, how do we do? Just
having that conversation make customers happier. They felt that they were getting
more value for what they were spending. 1 company had a 80%
higher win rate, and one's average deal size was
25% larger. Again, there's more meat on
each one of those, but we can't get to it. And as we get towards
(50:51):
the end here, this is in the book, you will get this chapter. It's from
Value First in Price, But I was sitting with professor,
Anderson years ago. He said, most companies want to do this value
thing, Todd. The CEO's telling me this. Why isn't it working? And
we started talking. He just started drawing this. And then the next day he presented
this to me and I was like, look, no wonder you're the professor. He
(51:13):
goes, value needs to be part of your new market,
new product conceptualization. If we build
this, not they will come, but if we build it, what value will it bring?
How much does that value? Is that value exceed the price that we would need
to charge to make this a good business decision? I know a lot of companies
that launch products and afterwards try to figure out what the value is. Is it
(51:34):
part of your selling process? Think back. You know, is it that last phone
call? Does somebody say, help, we need to articulate our value, or is it early
and often? Do you have a tool? Do you have a structured
tool to use? They're very inexpensive, and they make it so much
better and faster. Has your team been trained on what those
numbers mean? What is ROI? What is cash flow? What is probability?
(51:58):
Are your coaches, sales managers constantly driving it? Is
your sales compensation around volume or
profit? I had sales people I used to work with said, Todd,
I can cut a price by 5%, no problems. They probably don't even
reduce my sales by 5% as it goes through channel partners.
Fighting for 5% non discount takes a lot of work.
(52:20):
Publicly traded company, 10% net profit. 5% is
half. There's not a new paper bill opening up around the
corner next year. We better find a way to get paid. Giving your customers
value options and really driving that customer culture.
And finally, I just wanted to put this out there because I used to sign
value agreements with customers, and then we'd almost
(52:41):
argue, how do we implement? So I have a 2 page
process. These are the tools and processes where we're
going to use to discover where value can be delivered. Walk the factory,
interviews. These are the things that we're gonna define where the value
is. Then we're going to prioritize that value on risk, reward,
probability, biggest bang for the buck. And then we're gonna make sure
(53:04):
it gets implemented. You and me and management sitting in a room saying, we're gonna
provide you value is one thing. Having a process to make it happen really puts
us into practice. You're gonna get these slides.
Great free assessment. I do some work with these guys, value pros.
They believe, I believe that there's 10 dimensions around value. Take
this, put your divisions, put your people, put your key account people, and
(53:27):
put them through these 10 things. There's explanations of what they are and
what good looks like, but having the great justification and be able to
demonstrate it, it's great. But if you can't discover it, if you can't engage the
buyer, if you don't have the narrative, it doesn't work. So what
I've talked about has been supported by all these organizations around the
world, academia, procurement people, and
(53:48):
some associations. So it's not just me coming up with this. And
I've got 2 focuses. I help small and midsize businesses really build
their whole sales team from start to finish. For
companies like their SAMA members or in Bahir, I just really
focus on helping them understand what value is, having a tool,
quantifying it, selling, training, marketing it, and pricing around it. You'll
(54:10):
get the slides. My email's on there. If something pops in your ad, send me
a note. Follow me on LinkedIn. I try to post some value stuff through once
in a while. And, I stole that quote from, Sammy Agar.
Even at half the price, it could be twice the cost. That's
actually one of their songs. So all the best in getting it out there and
creating value, but finding ways to get paid for it. Thanks for
(54:31):
tuning in to the ValuePro Show. If you found this episode on gaining
commitment from your strategic accounts helpful, be sure to check
out our other episodes covering all aspects of becoming a value
professional. You can find us on your favorite podcast app or
tune into our YouTube channel. And don't forget to visit
value pros dot I o to take our free value ready assessment
(54:54):
and access more resources to level up your value selling
skills. This is Bruce Shearer, and until next time, keep striving
to become value ready.
Welcome to the value pro show where value pros get value
ready.
In this episode of the value pro show, we feature Todd
Snelgrove exploring the critical skill of gaining commitment
from your strategic account. A vital aspect of excelling
as a value professional in sales. Todd discusses the importance
(00:24):
of building trust, showcasing value over time, and the
strategic approaches you can take to secure deeper relationships with
your key accounts. Todd breaks down actionable insights
on aligning with client priorities, communicating long term
value, and using a tailored approach to foster commitment.
So whether you're managing key accounts or just looking to elevate your
(00:47):
sales game, this episode is packed with practical advice to help
you drive commitment and grow your strategic relationships.
This is the takeaways from this piece of research that was done with
2 professors. 1 from Harvard, Marco Bertini, that I've known for
20 years, and Oded Konigsberg from London
Business School. And the discussion started with the 3 of
(01:10):
us was we always talked about value quantification. It
is critical. It is key. It's a have to.
But there's other things that need to happen to structure it so the customer's
willing to pay for it. So we talked to numerous companies. I'll give you some
examples. But the first thing is to motivate customers to want to
even have a value discussion. And when I think back of
(01:32):
my time at SKF, I probably spent 20% of my
time trying to get customers to rethink
how they should buy industrial parts. Because if you're a
huge company, you're like, I got bigger things to worry about. I'm integrating this. I'm
buying this big software. I'm, you know, I've got a global this.
You know, how and where I buy x isn't that big of a deal.
(01:54):
So I do a lot of thought leadership, it's called. So white papers,
conferences, procurement events saying, hey, you need to rethink
that this is a strategic purchase. And I always joke, you
know, people on the call, you have your strategic accounts, you have
your list. But if you were to ask them, are you strategic to them?
And, you know, sometimes we need to get them to rethink, wait a minute.
(02:18):
Maybe that is a strategic area they need to spend more time
on. So we need to motivate customers to wanna have that value discussion.
We then need to educate them on, how can I impact your bottom
line? And I'll show you the model that I use because it's not
just about cost savings, but how do I make you more profitable, mister customer?
One of the examples in here, it happens to be a client that I do
(02:39):
some work with, is Scott Forge, a big industrial company that make forgings.
We won't get into what that all that is, but go to customers and say,
here are and I can't remember the exact number. A 128
areas of impact. Less downtime, less energy, less
inventory. I can't remember them all, but these are the areas I can
impact you. This is how I do it, and this is the
(03:01):
impact of that, how much. Then we can have a
discussion, which ones of these drive your business. The
example I use, energy savings in a steel mill or a pulp and paper
mill is a significant number. Energy to a law office
is probably not that big of a deal. I'm making an assumption, but we need
to agree on what areas are we gonna focus on, and how we
(03:23):
are going to do it. Then, of course, we need to quantify that value.
I wholeheartedly suggest you have a structured tool, not
have every salesperson using an Excel sheet. I will explain
why in a few slides because over the last 15
years, I'm amazed to see what happens when people
use one off Excel sheets, the mistakes. So I'm gonna go through some of
(03:46):
them. Some of them are funny. Some of them are not. But when I started
this 25 years ago, there wasn't software. Now there's 4 or 5 players in
the marketplace. Please reach out to me. I can make some introductions. But the point
is you shouldn't be spending your time on trying to figure out how to quantify.
You should be figuring out where you can impact your clients. The next
point translate. I think the gentleman from,
(04:08):
Borealis, a chemicals company said the best business case
is a story. Because when you hand that business case to
your key person, you're talking to, maybe the person that's
getting that value. They have to take that business case and sell it within their
organization. They have to go to procurement. They have to go to their boss. They
have to re articulate what you've said. So it needs to be
(04:30):
visual. There needs to be a story. I used to think numbers are numbers.
You know, I'm asking you to invest again, a 100,000.
Here's the return on investment. Here's where it's gonna impact your business. These are the
7 driver. I mean, the business case should be enough. It turns out
the story, the believability, the case references, all that needs to
go around it as that case gets passed around the client.
(04:53):
And then finally, reward. And the the case
example that was used is Michelin, the big tire company in their
mining business. They've converted it from buying a tire. Those are
expensive tires, those big tires, but how does the mine make money? By
moving tons of material. How will you pay me in
tons of minerals moved? I'll own the tires.
(05:15):
I'll refurbish the tires. I'll inflate the tires. I'll install the tires.
You pay me a number for every ton of dirt you move.
And they've got it structured, so there's very little risk, but it aligns
their value proposition to the customer's revenue stream. A lot of times in key
accounts, I would just say, I'm not gonna discount. In lieu
of discounting, I'm gonna guarantee value. I'm going to come in and do these
(05:38):
things. We're gonna have a target of what that value should be. X percentage of
what you buy. We have to agree on what that value is. Do you care
about downtime? Do you care about energy? We have to agree on how we're gonna
quantify it. And then we have to agree on the formulas to use for it.
And if I don't hit it, I'll write you a check. I was very
lucky. A 187 of those agreements, we never wrote a check.
(06:00):
We always exceeded the target. And I have to explain to the customer how a
10% value is better than a 10% price cut. We don't
have time to go through the math, but reach out to me. I can explain
it. And then finally, an overarching theme within the
article is you have to have a structure to deliver all
this. It's not marketing. It's not sales. It's not key
(06:21):
accounts. There's gotta be somebody that has responsibility
for pulling all this together. So somebody might be the engineer that creates
the value marketing might help you present it. There might be somebody
that's an expert on financial quantification, but somebody needs to
own this within your organization and work across all the
different departments to pull it together. Everywhere where we saw
(06:44):
it's only a sales function, it didn't work. When it was only a marketing function,
it didn't work. When it was only in key accounts, it didn't work. It's gotta
go across all of that. I start back to
the education and motivation aspect
is making sure customers understand the right term.
And I started most of my customer involvement presentations
(07:06):
for 20 something here saying, price does not equal cost,
does not equal value. There you are, all 5 letter
words. They've been completely different things. Yes. Price is
what you pay for something, $100 Cost is
price plus all those things. Yes. The shipping, the receiving, but how much
ink does it use? How long will it last? How easy is it to install?
(07:29):
And what some customers do is they transpose. And
they think that if I get a lower price, my costs will be lower. That
is an assumption. The only way to be more profitable
is to have lower cost and more value. I'll explain
what I call this term total profit added. But I
hope every person on the call is confident, not arrogant,
(07:51):
there's a difference, and comfortable enough if a customer says, and
procurement people will tell me these stories also, that your price is too
high, but I have a lower cost. It's not the
same thing. Now you need to demonstrate how you are and how you can make
that happen for the customer. So I used to say, I can be the
highest price widget, but I'm delivering the lowest cost.
(08:14):
Well, that's what I meant. No, you said the word price you want lowest
cost. And also you want more revenue, more profit.
So whenever you see those words, stop and think, and make sure you're
using the right one and be comfortable with how to answer the
question. You know, your price is too high. Why are we talking about price? Prices
are relevant and I'll give you some statistics as we move forward.
(08:38):
The price Berg, a colleague created this years ago for me. And the beautiful
part of it is it helps people visualize.
Okay? I want a smaller price per yes, mister
customer, you can see the price. It's visual. It's above the waterline. Okay?
But it's all those things which are different for every supplier
(08:58):
company on here of how you impact your customer.
What most procurement people tell me is you sales teams
don't do a good job of articulating what those are and their ranges of
impact and how they're gonna affect it. I can see price. It's right
there. You use vague words, but you don't get into the details of all
those other things. You don't give me the data points to help make a decision.
(09:22):
So years ago, I would be trying to
explain my model or explaining how we could help customers
become more profitable. And I would say it's total
cost of ownership. The term has been around for a long time, but it's
much more than cost. And I would say, you
know, I was sitting with a professor and he said, Todd, you can't keep saying
(09:44):
it's total cost of ownership, but it's different because people think total cost
and they have an assumption of what that means. And then about
2 weeks later, I was in Oxford, in England, doing a session,
a global session with the procurement association, Center For Advanced Procurement
Studies. And I said, when you're making a buying decision, you
should buy the solution, product or service that makes your business
(10:07):
more profitable. Profit comes from 2 ways, cost
reductions, yes, but also profit drivers like revenue. I'll give
you some examples as we go through this. When I went through this slide,
and again, standing in front of all these people, and professor
Tom Choi from center for advanced procurement study said, Todd, you're saying, and
I agree with you. If we measure all these things, we will be more
(10:29):
profitable. And he said, yes. And he goes, I would call it instead of total
cost of ownership, total profit added. Not say it's the best term,
but again, it allows me to engage people to have them think differently. Do you
wanna be more profitable? We can talk about cost, but let's talk about the other
side of the equation. So I'm gonna walk you through the model
because there's companies here from all different industries. Let's just stay with,
(10:51):
somebody that makes a car. Okay. Because we've all know a little bit about cars.
So you have people that make cars. Okay. Gear
boxes, fans, blowers, whatever. Those engineers, design
people are sitting in a room and they could make that car last
forever. They would make it in titanium or diamonds
or something, but they're being told, this is what the market will pay. Here's what
(11:13):
the competitors are. Here's what customers want. So they're making design
trade offs of how robust the machine they're gonna build is. Can
they actually manufacture what they've designed? What tolerances are
needed within what they're building? What are the
costs? But what if you, as a supplier, help that company that's making
this car, get help them get to the
(11:35):
market earlier, speed up. Let's say you are a drug company and you have a
patent on a drug, then you go to produce it and the machinery's not
running, or you need new machinery and it's not available, or the person that's gonna
make the packaging doesn't do something. Time to market in
some industries is extremely important. If you have a 10 year
patent, I think it's 10 years, and you waste 6 months getting the production
(11:57):
stuff ready, that's 6 months of that big revenue gone. If
you're in the electronics industry and you've got an advantage, you've got
a new phone, we'll just say, every week that you have that on the market
before your competitor responds is worth a lot of money. So
time to market could be huge. That's not a cost reduction. It's a revenue
improvement. What if you could help that customer add value to their
(12:19):
machine? Make it lighter, make it last
longer, make it predict when it's going to fail. Maybe they could
take that advantage and sell it into their customers for other more
sales or at a higher margin. That's not a cost
reduction, but it will make them more profitable. So somebody
makes something then somebody buys something, the acquisition
(12:41):
phase. Quick story. 20 something years
ago, I was lucky. You look back now in retrospect, it's
always interesting. I was in South Africa at a big convention
and my CEO was there and he had to sit in the
audience for 90 minutes and listen to me talk about value, how we
could quantify it, all the drivers, all the stuff we're going through.
(13:04):
And afterwards he grabbed my boss, who was the president of 1 division, said, I
need that guy to do some work for me. Value is
applicable to the whole company, not just that division. So a few
hours later, the introduction's made and his name's Tom. And he says,
Hey, I also want you next time you're in the head office to meet
our chief procurement officer. This gentleman's name is
(13:26):
Boinge Stenson. Great guy. But you could imagine, I
send this Swedish gentleman an email saying, Hey, I'm now working
in this position. We have this methodology of how we go to our
customers, how we measure total value, all these
412 drivers that we can quantify.
He wants us to talk about how we buy. Because he
(13:48):
says, we keep buying on total cost of ownership, but he goes, my costs
don't seem to go down. I don't think we have near as structured as a
methodology as we have on our sales side. So, this
gentleman didn't wanna see me. And I said, look it, spend an hour, show me
what we measure, then we can at least tell him we talk. Okay?
I meet him and he goes, in general, we have the requirement
(14:11):
of the business, what they want. They need a machine that does whatever,
and we'll measure what's the minimum order quantity, what are the terms and
conditions of payment, is there finance charges, Is shipping included
or not? Can I return extra ones? What's the number of
days of supply? Do I get a cash discount if I pay
faster? How close are they to my location than I wanna use it? Because
(14:34):
there's shipping costs, risk, currency, and of course,
price. And I looked at them and I said,
Bawinga, that's awesome. That's landed cost.
And we will see as I give you some more data, it's one component.
And it actually is usually a small component. Somebody
builds it, procurement's bought it, not usually for them to use, but for the
(14:57):
business to use. Now that asset gets
installed, operated, and maintained. And this will be different for
everybody on here. But the, when the product or
service is being used in my world, how much energy, how much water, how
much lubricant, how much ink does it use? How long will
it last? Because I'm going to amortize those costs. When it breaks, can
(15:19):
I fix it? Does it break nicely? Are there
parts available to fix it? There are some companies that will sell their
machinery as an example, very low price, but make up
all the money in the parts that go along with it. They're captive. Think
the razor blade razor example. What if your
solution can help that customer increase production?
(15:42):
It's a faster machine, for example, or the less downtime. I mean, how you do
it? That's your job, but that's a revenue improvement. It's not a
cost reduction. And that's I hate to use the term free revenue,
the marginal revenue, take away the variable cost. The
rest of that money drops to the bottom line. What if you could increase the
quality of what they produce? That they could sell at a higher
(16:04):
price. Again, we can't get through all of these. So somebody builds it, somebody
buys it, somebody uses it and maintains it. And most of the
research years ago, never looked at disposal. They looked at it from a
sustainability perspective, but sometimes there's huge
costs with disposal. They've gotta break it down. They've gotta ship it
somewhere. They've gotta pay to have it taken away,
(16:26):
or there could be money left in it. Back to the car
example, I've been told, so, hearsay,
but Mercedes and BMW make more profit per car on
the refurbished cars. So the
car gets to its end of life. They take it, they refurbish it. The margin
they make in those cars are worth more. Maybe a
(16:48):
motor, gearbox, fan, pump. I don't know. Maybe it can be rebuilt. Maybe it could
have a second life. So maybe when you take that, look at it.
It's actually cheaper. So is the $100,000
car better than the $80,000 car? I don't
know. But what I want to look at is what's the projected disposal
resale value of that car in 5 years, because maybe the $100,000
(17:10):
car is worth 50,000 in 5 years and the $80,000 car is
only worth 25,000. The first one, even though it was higher prices,
actually cost you less over the period of time. Take the model, walk
through it. You're gonna probably have different drivers, but it's a clear way
to walk through with customers. These are all the areas I can impact.
The black ones are cost reductions, but the green ones
(17:33):
are revenue improvement drivers. And you can see price is only one
dimension of all those. So the question is, where's the big
numbers? You can see that's my graph, but I believe in
most parts of the world and industries, the opex
cost is the big numbers. And beautiful thing is you
can do some research. You can go get a
(17:56):
kid, a summer intern, get online, start doing some analysis. It's
amazing what you can find with all the white papers out there.
Now, this is from Accenture. The purpose of this research was to get
companies to focus on the aftermarket. Accenture was saying,
don't sell the plane, sell the plane, but get the aftermarket. That's where the
money is. So there's 4 different industries here.
(18:19):
Aircraft, so think Boeing or Airbus, class 8 trucks or
18 wheelers, freightliner, international
truck, industrial equipment, fan, gearboxes, pumps, motors,
light duty pickup trucks for work aspect, and the red
bar is the initial purchase price, acquisition, land, and
cost in the driveway. That yellowy orange
(18:41):
color is the opex cost. How much fuel, parts,
maintenance? You can see all the examples up here. So
we don't, why are we focusing on that 12%? So
working with this chief procurement officer at the company I used to be with, we
were doing a bid for some sort of machinery. And I was
actually involved in the presentations and we're doing the matrix
(19:03):
calculation afterwards. And he said, Todd, what do you think? I said,
I want to buy, we'll say it was option a. And he goes, yeah, of
course. You want the best one, don't you? Sales guys just spend money all the
time. You want the best one. I mean, you know, it's 10%
more expensive. And I said, yeah, but it's, it's 2% less
operating costs. And he smiles and he goes, I don't know
(19:25):
what math they teach you in Canada, but why would you ever spend 10%
more to spend 2% less?
And I smiled and I said, the denominator,
think 10% of 12 is 1.2.
2% of a bigger number 88 is 1.76.
(19:45):
A 2% reduction of the bigger number is actually approximately 40%
more impactful than a 10% reduction on the
initial purchase price. Because we just assume the OpEx costs
are all the same. It's the same with the printer. I got a
printer sitting right back over my right shoulder here. Is it the price of the
printer? No, it's the price of the ink. Or is it
(20:07):
price per page that I should be looking at?
I would argue price per page is the best calculation, which includes the price of
the printer, the number of years I think it is going to last, the average
number of pages I produce, and then the ink, and how many pages do I
get? Again, price is not what I should be focused
on. You can get this research.
(20:29):
I put this slide in because I know most companies in today's world are
being asked, pushed, or know how they need to quantify
value, but I'm amazed at how many companies either have a tool that
people don't use, or the tool's been creatively
built, and they end up in Excel tools. I'm gonna try to quickly go through
all the problems I've seen, and I'm talking some Fortune 100
(20:50):
companies with sales teams, value experts
running around with them sell spreadsheets. So one, you get formula
mistakes. You just get fat fingers or you forget to do what's
one minus, whatever. Probably more often, I
see incorrect formulas.
And the one that I see the most of it is people taking cash flow
(21:13):
and calling it cash, especially in the software industry.
If I can help you pay somebody later or
get paid earlier, Also for people on here, when customers try to get, you know,
delay their payments to you, it does not have near the impact they think it
does. If I owe Comcast, if I owe my mortgage payment, and
I decide to pay it in 45 days instead of 30 days, I did not
(21:35):
eliminate the payment. I have that money for 15 days
more at 10%, whatever cost of capital. So
the formulas, they get very creative. So a lot of companies
are say thinking that cash flow is free cash. Todd, if you pay a $100
a month for Comcast and you stretch it to 45 days, you save
$50. No, you didn't. You have a $100 in the bank for
(21:58):
15 more days or whatever, 8%. It's not that big
of a deal. I actually have procurement papers saying the same thing.
The other thing which I learned in my early days is you can't take
revenue as a 100%. So I'd be at customers and I'd say,
look, we think, and they would agree, you can help us increase our revenue.
I'm gonna make up a number by 100,000. And And then I would say, well,
(22:20):
the solution is a 150,000. So it's got this ROI.
They go, no, it doesn't. I can't pay do you want me to pay you
in tons of paper or tons of steel or tons of whatever?
Like, no. And then they would say, well, what? We're netting 10%.
We're publicly traded 10% net income.
(22:40):
I think, and I got 187 customers to agree with me, it's
contribution margin. So, it's revenue minus the
variable cost. If your company is budgeted, I'm making up numbers, to run at
93%, if you could help them increase production,
I mean, all the assets are fixed costs. The CEO salary is a fixed
cost, the variable cost. Yes. You might have energy. You might have the cost weighing
(23:02):
in to create this, but it's a big number. 60%, 70%.
You can count. So you count count cannot count a 100%, but
you should count more than 10% or 15%. Have
some ranges of impact. We've done this before.
In general, our studies show when we created this product, I'm making
this up, that 2% less energy, 5% longer life,
(23:26):
3% lighter weight, whatever the number is. Some companies, they just
walk around with what if statements. And the idea which
I was told was, you know, a 1% of the huge numbers, a big thing.
Doesn't mean you can do it though, company. What if
statements are our closing strategy? I only need to be this much right
for this to work, but what if my house wasn't in Michigan and it was
(23:48):
in downtown New York, it would be worth this. It's not a
probability. So if you've only got, if it was a
1% improvement, it would be worth that, do some research.
When people don't have tools, the output ends up looking
disastrous. And some of it's wrong, Spelling
or currency or the units or disclaimers, this is not a guarantee or a
(24:11):
projection and blah, blah, blah. One of my favorites
is ROI. So this is a big,
huge company. I had been doing a consulting thing and they were
very proud to show me the Excel spreadsheet that they had.
And the example that they showed me had that I'm gonna make up a number
ROI 80%. And they were very proud. Look,
(24:34):
return on investment for this customer was 80%. Well, I
got a return on investment for 10%. Mine's better than yours. They
go, what do you mean 80% is better than 10%? Like, no, it's not.
What do you mean, Todd? You need timeframe. An
80% return on investment in 30 years is not near as good
as a 10% return on investment in 6 weeks. So,
(24:57):
ROI needs to have timeframe. We meant yearly because it was software.
They meant yearly. You didn't say that. And these numbers then can get
transposed. I used to have my colleagues call me, you know, the customer needs break
even within 1 year. Okay? I wanna meet the customer.
This thing breaks even in 14 months and is gonna generate free
cash flow for you for the next 18 years. I'll finance it for you if
(25:18):
I have to. So again, make sure you've got the right
calculations. Links to the justification and explanations.
Where do you come up with this 1% or 2%? So links to outside
studies, links to your own case studies, links to something. I like
outs, outside third party stuff. We can reduce the number
of purchase orders. That's worth a $100 a purchase order says who?
(25:42):
There's a study done just FYI. I think it was American express. Does a study
every year of the average cost per purchase order by different industries, by
different sizes. So I would link to that. If anybody remembers sales
training 20, 30 years ago, you would ask customers, how much is that?
What keeps you up in late? What are your problems? The new research says, put
a number out there. We think it's $80 as per this study, we
(26:04):
use $60 time. Okay, fine. But you have to put a number out there
for the customer to move from it. Open ended or light
little squares to put numbers in don't work. Something that I
learned that the visual output back to the example
that needs to tell a story, it's a big deal. The cash flow
graphs, the bar charts, the waterfall charts, all that stuff. It needs to be
(26:27):
visual. That business case is gonna get passed around your customer, emailed around.
People like visual stuff. It's amazing. Any tool should
have different stages. These terminologies are probably not the best,
but it's what I used. Test. I'm just checking the
calculation. I wanna make sure I understand what it's doing, because if I'm in front
of the customer and they start changing numbers, I wanna know why everything's changing.
(26:50):
But then I would go into a customer and I say, I propose that this
will be the value you receive. If you buy this tool and it
helps you align these assets, it should reduce energy by this much,
and it should do this. Yeah. That's a proposal. But the company
wanted to see how many companies, customers were buying things from us because of
these proposals. So once a customer bought into the logic
(27:12):
and they bought the solution, we changed the case to accepted. They've
accepted the logic, was the thought. And then,
most of you probably have a CRM system. How about we follow-up? How
about in 6 months, we go back and see what's actually happened? The
purpose of this is twofold. 1, you can make a case study out of it.
2, if they're not getting the projected value, there's a good chance it's
(27:34):
a minor fix. Like a minor, minor fix. I mean, they didn't
install it properly. They didn't train their people. They didn't turn it on. I don't
know. But always have, when you give a value case, come back and
check-in on it. It's a great and customers appreciate it too.
If you have a tool over time, you will start to get a dataset that
is extremely robust. I was able to go in
(27:57):
and say, by this industry, by this segment within this
industry, we've done this solution. I'm making numbers up 380
times around the world. The minimum improvement was x. The
maximum improvement was y. The average was this. And customers would
just go, holy crap, the standard deviation was decided and everything.
I mean, you can start getting very prescriptive, predictive with
(28:19):
customers. Make sure whatever you use is
clear. When people create Excel spreadsheets, some of the ones that I've
seen, they've got 47 tabs. You would never understand how it all comes
together. They're designed to confuse the customer. And then the
comment was, well, customers never challenged us. They don't know what's happening. They don't
wanna look like a fool, so they just back off.
(28:41):
Clarity is better than confusion. It needs to be
repeatable. One client I went to see once
recently will say, had 6 people from the same software
vendor come into them. 6 people. 6 people did a value
analysis on the same solution for the same customer, 6 of them
look completely different. The numbers were completely different. The value
(29:04):
drivers were completely different. The customer said to me, I will never buy
something from them. It's obvious this is just a marketing
strategy. I mean, it needs to be repeatable no matter where
you are in the world. And customers are different, but the formula will just stay
for energy savings is the same everywhere in the world. Do you care about it?
Is different. Is it 10¢ or 8¢? That might be different,
(29:26):
but kilowatts times amps, whatever the formula is, is the same.
Everybody shouldn't be creating their old formula for this type of stuff.
So procurements. That's great. We wanna sell value. Everybody loves
value. That's great. But will procurement pay for value? Kind of
important. So you'll see at the top of the slide here, let's make sure we're
using the right term when we're going through these slides here. There's the buyer, the
(29:48):
person that writes the PO. Love them. We like purchase
orders, but they are in charge of the strategy of how that customer
buys. Okay. I'm not minimizing them, but if you're trying to have a
strategic discussion about guaranteed value agreements and all this type
of stuff, they're gonna follow the process. Purchasing might be the person
in charge of purchasing for that segment or bucket within
(30:11):
that area. Procurement, the vice president
person, this is how we're buying. These are the scorecards we're
using. We measure total cost. What is your measurement of total
cost? Again, back to the idea of having that list, we
buy in total cost. What do you measure? If they don't tell you, I can
affect a 147 things. My guess is they'd measure 10.
(30:32):
Now you've got a discussion. What 147 things could you
impact? So procurement. This lady is one of my
favorites of all time. I was doing a conference in, London.
With Huthwait International Spin Selling. If that
rings a bell and she's now head of chartered Institute
of Procurement and Supply. We could all read it. But for those of
(30:56):
you saying we can't quantify our value, listen to what Paula
said. Suppliers don't come to us with a business case. It's what we want.
Sell your value in our numbers to get our attention. My
favorite part looks like they cut the sentence off my train, but if you can't
quantify your value, don't be surprised at the failure of procurement to do
so. She stood on stage and said, do you have any
(31:18):
idea how much I buy? I buy people,
I buy company cars, I buy companies, I buy this, this, this,
this. All you do is sell whatever you sell.
If you can't be the expert on that and put some numbers there and make
me rethink, I'm not doing your job. I don't have the time or
the knowledge. So you can, we don't have time for it
(31:41):
today, but you can almost quantify anything. Again, different to
question and answer time, we can get into that. Again, one of my
favorite slides, this comes from a procurement gentleman that I've known for a long time.
He wrote a chapter in the book value, first. His name's Rob
McGuire, and he's a procurement expert. He's actually a practitioner,
but we were somewhere one day, and he drew this for me. He goes,
(32:03):
I am sick of you salespeople with your sales funnels. How you think you
should move me through your CRM system? How about you think about how I
buy and where I am in my buying process, and then you engage me
based on that? And I just looked at him like, oh, jeez. Kinda good
point. And he goes he went up to a whiteboard and drew this slide.
So we're gonna go back to the example because I think everybody understands it about
(32:26):
buying a car. When we're finished at stopping to think for a
second, is this similar to your industry? Okay? But I'm pretty sure it
is. So a need gets identified. I need a new car. The
lease expired, broke up the other one, the other one's old, the kids got
old. A need has been identified. I need a car. K?
Now I'm sitting here in Michigan, and I will sit at home,
(32:48):
we're at the office, and establish my specification. I'm
not saying what I'm gonna say is rational, but it's my assumption of
what I think I want. I want a 4 door car, because
ABC, I don't want a gas car because XYZ.
Okay. Not saying it's rational, but this is what I think I want. Then I
go to the market and say, who could deliver that type of car
(33:11):
to me? So not a shot at Tesla, but Tesla only makes electric cars.
I decided I want a gas car. I'm not gonna go see Tesla. I don't
wanna talk to anybody about electric cars or diesel cars. So that's
gonna narrow down the people I'm gonna talk to, past
experience, name brand recognition, etcetera, etcetera. That's
gonna narrow it down. I always say to 3 suppliers. Seems I was always in
(33:34):
a bidding war with 3 different suppliers. So they said, okay, there's 3 different people.
Now I'm gonna negotiate. I'm gonna ask for the RFQ, RFI,
RFP. We're gonna do a lot of back and forth negotiation. They're gonna
send proposals. We'll talk back and forth. I'm gonna negotiate
terms, conditions, price. I will then choose one
person to buy the car from. I will then buy it.
(33:56):
Okay? Hopefully, I then check, did the car perform as I
expected? His point was your ability to get
me to think of what I'm buying, how I'm buying it, what I'm
going to measure dramatically changes over time. The
time to have a discussion about buy best value, it's not just
costs, what we've been talking about, is much earlier. Maybe before
(34:18):
they even ready to buy what you sell. You have to frame it
then. Because if you go in at the RFQ stage and say, yes, but
we deliver all this value and it's worth more than our price difference, and
I've already decided what I want. Back to the car example, That
salesperson's gotta be very good to say, mister Snobov, you're wrong.
An electric car is better for you. But I've already, you're telling me I'm
(34:40):
wrong. I've already decided I want this. He's gonna have to do a lot of
education. He's gonna have to make me rethink. He's gonna have to challenge me a
lot more. So, it's not just marketing's job to do this. Again,
it's the thought leadership pieces. It's the white paper saying, Hey, when you buy this,
you need to think of all these dimensions. I've matched
Rob's buying cycle with some research from
(35:01):
Gartner, 750 business to business buyers they interviewed and
said, where do you spend your time in the buying process? And I
thought this was hilarious. 27% of the buying journey is
done independently online. People that
make x, that's people that make that, local people that supply y,
whatever that Google search is. Maybe there's sites that are
(35:23):
specific to this. They meet with the people that are going to
use it. Hopefully, it's a good representation, but what do you really need?
What are your trade offs? Who's been good to you? Who's been bad to you?
Whatever. We meet with a group of the people that are gonna use whatever we're
selling. 80% is researching
offline independently, calling trade associations just like your
(35:45):
members of SAM, or they could be members of a procurement association, an IT
association, a maintenance reliability. Who's the best? What
have you had good experience with? You know, they've got that networking
group. 16% is doing other. Don't know what
that is. Only 17% of the buyer's
journey is spent with you and your 2 competitors.
(36:07):
That's not much time to get them to rethink everything they've already come up
with. You've gotta do it early. You've gotta do it to the right people. You've
gotta get them to rethink. So, don't get me wrong. I got brought in a
lot at the RFQ stage. We're in trouble. They're buying on
price, get in the plane, get here, help them rethink. And I'm not
saying I'm great. It worked, but, God, we should have had them set up.
(36:29):
Mister supplier, I want the best supplier that can deliver the most value. We measure
value in these dimensions. We wanna process I mean,
we needed to educate them to be coming to us with that frame of
mind. This goes back to that research, but
it's counterintuitive to me because I thought the best
sales argument was based on logic. I've got a
(36:51):
business case that shows that if you do this, it should deliver
this. Here's my proof points. Here's my reasoning. You know,
how is this not a smart decision? That is cornerstone,
but it turns out there's 2 more aspects to a compelling
story. And I look back on my experiences with specific customers,
and one was early, early, early on. It was my second value
(37:13):
agreement. It was with a big steel aluminum company. There's
actually a business case written about it. But I went in and
was young and doing the corporate presentation and trying to get to the
value discussion. And the customer, I mean, he was a chief procurement
officer, just was not interested. And my colleague said, can we
take a break? And we went out and I was smoking. So this
(37:35):
is 20 years ago, I bet, or 18 years ago, whatever. And he goes, where's
your passion? I've never seen you this quiet.
They said, okay, that's you and me talking about this stuff. He goes, no, we
got nothing to lose here. He's going to a reverse auction and we will not
play. So we will not win. And it went back
and I was drawing on the board, you know, that all these different charts and
(37:57):
examples and stuff, and we got the order. And again, it's just in a
takeaway is why I'm telling the story. The gentleman said, as he shook our hands,
he goes, you really believe this? You really believe this is the best
way to do business. I am buying your belief in this. And the reason why
I put this up there is a lot of people have done sales training and
they might get some marketing messaging and they go to customers and they try to
(38:19):
do this. Have your own stories, have your own examples. Believe
it because it comes across in front of the customer. Anybody
can throw a PowerPoint slide up that shows an ROI, but again, to have the
passion, to have the answers, to have the ability to discuss it
has a huge impact. And then the final part is
the vividness of the story. We don't have time today, but I've
(38:41):
got a 1,000 stories talking about risks, talking about downtime,
talking about impact, talking about all these things. But just a piece
of paper with numbers on it isn't the same as it being visual and a
story, because it's the story that hopefully when you leave here today,
you'll remember a story. Hey, I saw this guy at the SAMA thing, and
you'll tell a story. That's what gets passed around companies.
(39:04):
Value. My title's value, my consulting business's value,
I was a chief value. Great. Be careful. Whenever I say
the word value, I mean, I stop and I say, what I mean in
value is my job is to make you more profitable long term. That's what I
mean by value. Value is not lowest price. That's what I mean by
value. Value is not lowest price. And the reason
(39:25):
why is in North America, you see all these examples that use the
word value. Value can be transposed to be lowest priced.
I was doing a consulting engagement in Illinois on the border between
Wisconsin. And I actually pulled the car over and took a picture. Hopefully this
gentleman never sees me use it as example, but the title of his
business was value discount flooring. He straight out saying I'm
(39:48):
the lowest price flooring person. Not the best,
not the quickest, not the highest quality, not the most selection.
I am the lowest price. So whenever you say value,
just say what I mean by value is, and then have your own example of
what you can articulate. But if you don't, people might think it's a low
price discussion. I will not go through all the slide, you will
(40:10):
get these. This is the slide I use at the end of my procurement
section with clients all the time. You see a bunch of quotes in the
middle, they're from procurement people. So, Professor Hanfield,
you see his title, a school, said, we need to look at this differently,
win win. Professor Choi is from Arizona State University, where
there's Advanced Procurement Studies is. This ID of TPA,
(40:33):
Tim Cummings, World Contracting Association. On the
left, top left, Manufacturers Alliance, top
800, I think it is, manufacturing companies. They
did a survey a long time ago, but that slide that had the 4
stages, we had it listed. And we asked these procurement
c level people at a conference I was doing for them, you
(40:56):
know, do you buy on best value? Yes or no? If
so, please tick off which of these dimensions do you buy.
Then we knew what the name of the company was. We just checked the company's
profitability, publicly traded companies, companies that looked
holistically at all these things, energy, downtime,
life of the assets, repair costs, had a more
(41:17):
in-depth procurement were 35% more profitable. I'm not saying it's
just because of that, but wow. You can see that Sam did a
study, Dave, maybe we should do it again, but they asked you, strategic account
managers said, and I say this to procurement people, strategic
account managers say they deliver 40% more value to customers
that buy based on value. And I say, if every order
(41:40):
is 3 bids in a buy, I can't bring my best people here, my newest
idea, my best resources. I'm a you know, believe it or not, these
are limited. They're gonna go to the people that value what I do. And
funny enough, suppliers reported that sorry, 49%, my
fault, you know, 40% said they received more value.
Supplier said they delivered 49% more value. Who cares? They're both big
(42:02):
numbers. Great closing slide for that.
Little bit on pricing. This comes from b to c
pricing. Please don't hang up. But I was at,
a school once, and the professor started talking about B2C pricing, and
I just started doing some emails. And I think he got to a second example,
and I went, oh my word, we do everything wrong. Our
(42:25):
pricing strategy actually confuses our value strategy.
So some of the things I see big companies doing that comes from B2C, I've
got B2B examples, we've got in timing, we can't even know them.
But the first thing is, what happens to the usage of
what you sell if it's discounted? Let's say
whatever you sell. You sell chains, sprockets, motors, bearings, I don't
(42:48):
care. You sell a product or a service, And you
decide I'm gonna reduce it by 10%. How much more
usage will happen in the US this year if you do a price
drop? My argument is none. You
might steal some of your competitors' volume, then they will react and
drop their price and steal some of your volume. The total usage
(43:10):
of toilet paper in the US this year will not
change if somebody puts their toilet paper on sale. Think about
it. I might buy a different brand. I might
buy some in inventory it, but I'm not gonna use more of it.
Think about, a motor motor goes on sale 10%. I might buy
your motor versus their motor. Then they're gonna react, but
(43:32):
I'm not gonna throw away a good motor because there's a new one that's on
sale. I mean, all you do is
change the buying pattern, but you don't change the total consumption.
I see a lot of salespeople or companies
structuring this way, giving customers lots of choice. I
hate to say it's an American mindset. I'll let the customer buy what they want.
(43:54):
This is called the jam study. So think of the way the study was set
up. You go into Whole Foods, There's all these jams,
pear, peach, strawberry, different sizes, and all this. It
turns out that people are very drawn to be given lots of choices,
but they don't buy. They get confused.
Buyer's remorse sets it. What if I chose the wrong one? I'm
(44:16):
gonna go somewhere else. I'm gonna make a, a choice that's simpler. So
the JAM study says, give choice. Don't give too much choice.
Again, hopefully you're the smart person here saying, here are the options.
Now, a lot of companies I see say, well, you wanna know what? I'm
gonna give this many choices. I'm gonna give 2
choices. Never give 2 choices. And I'll show
(44:39):
you why. Let's say you're going to the, movie
theater this weekend with the family. We'll assume the $3 and the $7 are
linearly priced, price versus size.
Whatever people are giving 2 choices, depends which study
you read, but in general, 80% of people will choose the lower price
version, the good enough. They will justify, kids, we're going for
(45:01):
dinner afterwards. You didn't eat your lunch. We never or whatever that justification
is. In decoy pricing, you create a third option.
Sorry. Oops. In this case, the
medium. Now what people do is they anchor on the 6.50.
Nobody buys the 6.50. Everybody now buys the $7 one. I think it becomes
80% of people buy the $7. Finance people might
(45:24):
want you to sell the 6.50 because the margin's huge, but it's there to make
the $7 one look better. If you create 2 options, 80%
will choose the low price good enough. I'll use the really good stuff on that
key and that key and that key, but good enough for everything else.
Create a middle one. Another example is called
compromise effect. It's again, 3 options. You're gonna
(45:46):
go for dinner on the weekend. There's 2 steaks. There's 2 bottles of wine.
Dollars $10.30. Do we really need the $30? Is it 3 times
this? This one, I create a more expensive version. When you go into the
restaurant, you see the chateau brioche, you see the Wagyu beef, or you see
the whatever expensive champagne is. Well, the
(46:06):
$30 we'll you wanna know what? We'll just go with the $30 one today. That's
the more reasonable work. And again, the industrial world
companies do this all the time. The $50 one is parts are included,
installations included, 1800 numbers
included. People look at it and think, let's agree. Jeez, $1,000
for that? You wanna know what the $500 one's good enough? But
(46:28):
if you only gave them the $500 one and the $200 one, they'll choose the
$200 one 80% of the time. Choice, give
choice, free choices, compromise, or decoy.
Don't give free stuff. It confuses people. And
think back to anybody that's ever gone to the trade shows when those people walk
by with their big duffle bags and they grab everything for free. Free
(46:51):
this, free this, free this. And then you walk into the convention center, it's all
in the garbage can. People don't know what to do when they're given something
for free. So this study, you walk into
a grocery store, we'll say, and you have a choice. You can get a free
Hershey's kiss. They're approximately worth 5 or 6¢.
Okay? Just so you know what the per price is. You can get that
(47:13):
free, or you can get a Lindell chocolate, and you have to pay
13¢, and they're worth about 55¢ each.
Most people took the free version. 56% people chose the
chocolate. Most of them chose the free version.
Now they did the exact same study and they said, okay, we're gonna charge
(47:33):
1¢ for the Hershey's 14¢ for the Lindor.
The Delta's still 13¢. They're both a deal
compared to what the value is of them. But now once you put a price
there, people stop and think. I'm paying 1¢, but it's I could buy it
for 6¢. So I'm getting 5¢ for free value
utility. 13¢, but they're normally, or sorry,
(47:55):
14¢, but they're normally 55¢. I get 40¢ of
value for free, but just putting a penny on something,
people change their behavior. So, for our
world, great article, some great books from
Professor Ruhlaga, who's at INSEAD, and Kristin
Kolkowsky, he's a Swedish gentleman, but OEMs that have
(48:17):
industrial equipment saying, look it, really take all the services
you do and bundle them into a structure that you can
charge for. So the argument or the arguing,
at MIT Sloan was, should we get rid of it or should we bill for
it? And the company I worked for, we built a services business.
And the argument sitting in a meeting room somewhere is
(48:41):
what should be free? Okay. Is training free?
So the people that sold services wanted to charge to answer the phone. They wanted
to charge for an engineering review. They wanted to charge for training.
The product people say, Hey, we give that stuff for free to justify our
price premium. We're X percent higher in the market, but we give all this value
added. There was a fight. And then the question
(49:03):
came the takeaway from this was, don't say
trainee. Okay. A 1 hour training with Todd going
over new features and functionalities of this product with pizza
at lunch, that's free. A 3 day training where we bring in experts, there's
a test, it's hands on, blah, blah, blah. That's 4 feet.
Free engineering review. Yes. This will work. 7 day
(49:25):
turnaround time. Yes. Will work. One day turnaround
time, and you want idea improvement ideas or risks
to consider, that's for a fee. You could take every service and create a free
version and a 4 fee, for a fee version.
Think of the apps, you know, the free weather app and the paid for weather
app. You just have to differentiate them enough and you will be amazed at how
(49:47):
many people will pay for the upgraded version.
So final thoughts. I'm not gonna go through all these, but out
of all the years, people that do this are more profitable.
24% more profitable than the industry average, 36% more
profitable than people take the load, the factory, the volume, the market
(50:07):
share. Case. I'm getting to the lower ones here, because it came
from this new article, acing value based sales. This is the article from
MIT Sloan. One company in there talked about a double digit in
improvement in profitability. One consulting company said
that their customers gave them a 20% higher net promoter
score. Here's the expected value of using our
(50:29):
services. Then we came back and said, you know, how do we do? Just
having that conversation make customers happier. They felt that they were getting
more value for what they were spending. 1 company had a 80%
higher win rate, and one's average deal size was
25% larger. Again, there's more meat on
each one of those, but we can't get to it. And as we get towards
(50:51):
the end here, this is in the book, you will get this chapter. It's from
Value First in Price, But I was sitting with professor,
Anderson years ago. He said, most companies want to do this value
thing, Todd. The CEO's telling me this. Why isn't it working? And
we started talking. He just started drawing this. And then the next day he presented
this to me and I was like, look, no wonder you're the professor. He
(51:13):
goes, value needs to be part of your new market,
new product conceptualization. If we build
this, not they will come, but if we build it, what value will it bring?
How much does that value? Is that value exceed the price that we would need
to charge to make this a good business decision? I know a lot of companies
that launch products and afterwards try to figure out what the value is. Is it
(51:34):
part of your selling process? Think back. You know, is it that last phone
call? Does somebody say, help, we need to articulate our value, or is it early
and often? Do you have a tool? Do you have a structured
tool to use? They're very inexpensive, and they make it so much
better and faster. Has your team been trained on what those
numbers mean? What is ROI? What is cash flow? What is probability?
(51:58):
Are your coaches, sales managers constantly driving it? Is
your sales compensation around volume or
profit? I had sales people I used to work with said, Todd,
I can cut a price by 5%, no problems. They probably don't even
reduce my sales by 5% as it goes through channel partners.
Fighting for 5% non discount takes a lot of work.
(52:20):
Publicly traded company, 10% net profit. 5% is
half. There's not a new paper bill opening up around the
corner next year. We better find a way to get paid. Giving your customers
value options and really driving that customer culture.
And finally, I just wanted to put this out there because I used to sign
value agreements with customers, and then we'd almost
(52:41):
argue, how do we implement? So I have a 2 page
process. These are the tools and processes where we're
going to use to discover where value can be delivered. Walk the factory,
interviews. These are the things that we're gonna define where the value
is. Then we're going to prioritize that value on risk, reward,
probability, biggest bang for the buck. And then we're gonna make sure
(53:04):
it gets implemented. You and me and management sitting in a room saying, we're gonna
provide you value is one thing. Having a process to make it happen really puts
us into practice. You're gonna get these slides.
Great free assessment. I do some work with these guys, value pros.
They believe, I believe that there's 10 dimensions around value. Take
this, put your divisions, put your people, put your key account people, and
(53:27):
put them through these 10 things. There's explanations of what they are and
what good looks like, but having the great justification and be able to
demonstrate it, it's great. But if you can't discover it, if you can't engage the
buyer, if you don't have the narrative, it doesn't work. So what
I've talked about has been supported by all these organizations around the
world, academia, procurement people, and
(53:48):
some associations. So it's not just me coming up with this. And
I've got 2 focuses. I help small and midsize businesses really build
their whole sales team from start to finish. For
companies like their SAMA members or in Bahir, I just really
focus on helping them understand what value is, having a tool,
quantifying it, selling, training, marketing it, and pricing around it. You'll
(54:10):
get the slides. My email's on there. If something pops in your ad, send me
a note. Follow me on LinkedIn. I try to post some value stuff through once
in a while. And, I stole that quote from, Sammy Agar.
Even at half the price, it could be twice the cost. That's
actually one of their songs. So all the best in getting it out there and
creating value, but finding ways to get paid for it. Thanks for
(54:31):
tuning in to the ValuePro Show. If you found this episode on gaining
commitment from your strategic accounts helpful, be sure to check
out our other episodes covering all aspects of becoming a value
professional. You can find us on your favorite podcast app or
tune into our YouTube channel. And don't forget to visit
value pros dot I o to take our free value ready assessment
(54:54):
and access more resources to level up your value selling
skills. This is Bruce Shearer, and until next time, keep striving
to become value ready.
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