Total Cost of Ownership – A BIGGER deal than you might think

All sales professionals need to be deeply versed in the concept of Total Cost of Ownership.  Unless of course what you’re selling is a commodity with no differentiation, and your company provides nothing beyond the bare essentials of customer service and support.

If that describes you, then by all means stay laser-beam focused on your low, low price.

But it doesn’t describe you.  Those sorts of sales reps have already been fired and those sorts of B2B companies are already out of business.

It can be a challenge though, to get your customer – particularly those hard-nosed, old-school purchasing types – to think in terms of TCO.  Thanks to Harry Moser, Founder & President of the Reshoring Initiative, I’m able to share three tools you can use to help get the message through.

One:  Listen to the brief audio clip above.  Get your price-focused customers to listen.  If 10% more US manufacturers used TCO-based instead of low-price decision criteria, they’d create at least one million new jobs.  If 20% more US manufacturers used TCO-based instead of low-price decision criteria, they’d create at least two million new jobs.

Two:  Listen to Harry’s entire Manufacturing Revival Radio interview.  He’s talking about manufacturing management, but wow what a professional selling lesson!

Three:  Study and use the Reshoring Initiative’s TCO Tool.  Better yet, use it as the basis for building a TCO tool that tells your unique story.

Like I always say, they don’t care about you.  They don’t care about your company.  They don’t care about your products and services.  They’re all in the money-making business.  They care about TCO!

The BIG (& only) three elements of a strong Value Proposition

I almost agree with the following statement:

“In B2B marketing, your value proposition can be about two things. Only two. Dos. Deux.

  1. Time
  2. Money”

From Barry Feldman in The Most Valuable Lesson a B2B Marketer Will Ever Learn

Actually I more than almost agree, I think the whole blog post is right on the money and I strongly recommend you read and heed it.  There’s just one thing that’s missing – RISK.

Risk is a big deal in the B2B world.  It’s a big deal because some projects do not meet expectations.  Some don’t succeed.  Some fail spectacularly.

Let’s say I’m a plant manager and I’m making an investment decision.  I have three options.  One option from Vendor A and two options from Vendor B.

  • Vendor A’s proposal says that its Solution X will generate a daily savings of $1,000.
  • Vendor B’s proposal says that its:
    • Solution Y has an 80% chance of generating a daily savings of $1,000 and,
    • Solution Z has a 99% chance of generating a daily savings of $808

All three options have the same cost.  Solution Y from Vendor B is virtually identical to Solution X from Vendor A.  You know like and trust the sales reps from both competitors equally.  What do you do?

You eliminate Vendor A and noodle on which of Vendor B’s options is better.  That’s what you do!

And here’s why you do that.  In a perfect world, Solutions X & Y both yield the 1,000 bucks.  BUT, as Vendor B points out, I should really only count on saving $800 due to the risk involved.  Solution Z, however, is lower risk.  It’s max up-side is only $808, but it’s pretty much a lock I’ll get that.  So bottom line, X most likely gives me $800, Y most likely gives me $800 and Z most likely gives me $800.  That SOB from Vendor A, though, never even pointed out the risk of failure.  I think I’ll buy lunch for the rep from Vendor B, ask her what she’d decide and seek out her advice more often.

The sales rep who considers risk not only wins the current deal, but also builds long-term loyalty.

So Barry, I’m in violent agreement with you!  …almost.  You’re right, but it’s not “Only two. Dos. Deux.”  It’s “Only three. Tres. Troi.”

You’re wrong again, my friend

As my friend and business associate knows, the snarky title of this post is said with a smile…  He IS, however, a little off on his reasoning in a recent post of his own.  He begins by saying,

“Engaged in friendly, spirited banter with a business associate the other day. We had just returned from a trade show radio gig, and had 50 radio interviews with CEOs to edit. Naturally, we split the batch in half.

And naturally, we each named and organized our respective batch of files differently.

My associate? Named the files according to the company name. Me? I did it based on the name of the person interviewed.”

He goes on to make a case for keeping a laser-beam focus on the individual person you’re selling to vs. that person’s employer.  Yes, I agree that establishing and nurturing one-to-one relationships is vital.  Focusing only on the individual, though, is a recipe for repetitious disaster. The whole notion of “decision-maker” is pretty much dead.  The days of clearly drawn corporate silos and individual fiefdoms are over. 

As sales professionals, we must sell to the “decision network,” the whole company.

For example, assume you’re selling widget washers.  You go to Norman, the VP of Maintenance at [COMPANY], and demonstrate how with your washers, the job gets done in half the time.  Knocks $1,000 a month off maintenance expenses, has a payback period of 6 months and an ROI of 112%.  Done deal!  Congratulations!  Your widget washers are installed and you and Norman enjoy a few adult beverages to celebrate.  Ain’t it great to make your customer look good?

Two months later Harvey, the VP Manufacturing at [COMPANY], notes that widget production is off by almost 8%.  Widget demand – as always – is high.  If Allison, the VP of Sales at [COMPANY], had that 8% more widgets to sell, she could deliver an additional $10,000 per month in profit.

Jill, the CEO of [COMPANY] finds out and goes ballistic.  Who’s the moron who changed the widget washing equipment?  Didn’t that knucklehead realize that shutting down the production line to wait for the washer fluid to evaporate would drastically reduce output?  “You mean he actually changed the widget washers (that I personally designed ten years ago) to shave a few measly bucks off the maintenance budget?” she roars.

As you help Norman update his resume, you might want to consider how vital it is to relentlessly maintain a holistic view of your customer’s entire company.  An individual perspective simply doesn’t cut the mustard.

You Are Too Narrow-Minded (…yes, YOU!!!)

Know your customer!  Great advice.  It’s essential for success.  But…  Even though it’s necessary, it’s no longer sufficient.

Let’s say the arrow to the left represents all of your customer’s people, processes and resources.  “Stuff” goes in the left side of the arrow, gets processed and then products and/or services come out the right.  (See Michael Porter’s classic Competitive Advantage for a detailed discussion of the Value Chain.)

Your job (as a journeyman sales rep) is to understand how the stuff in your own company’s value chain can integrate and collaborate with the stuff in the customer’s value chain to generate more productivity, performance and profit for the cusotmer.  (Note:  Only two connections between you and the customer are shown here.  Obviously, there will typically be more.  In fact, the more connections, the more compelling your value proposition.)

Let’s take it a step further.  Is it conceivable you could provide something (or somethings) to your customer that would provide value to your customer’s customer?  It’s no great mental leap to make that next set of connections.  To reinforce the obvious point, helping your customer help your customer’s customer makes you that much more valuable; makes your value proposition that much more compelling.

This next extension of the thought process requires no significant mental stress either.  Why would you not have conversations with customer executives about innovations – that you will help implement – that will have a positive impact on many of the customer’s customers.  (Of course, you realize only five customer’s customers are shown for the sake of saving space.)

Beware!  It’s oh so easy to understand why it’s smart to be able to articulate the value of your stuff to your customer’s customers.  It ain’t so easy to actually do it.  Remember all that research you did to grasp the nuances of your customer’s business?  Well now you need to repeat that process for CC1, CC2, etc.  Makes sense to start with learning about the primary industry that buys your customers’ stuff.

The effort pays off in spades, however.  Think about how cool it will be to have your customer coming to you for advice, counsel and assistance for serving their customers better.

One last addition to the diagram; and, sorry for the possible insult.  (The journeymen among you will object!)  Let’s also figure out how the customer can better integrate the products and services of other vendors with your products and services to better serve the customer’s customers.

Think what you will of Microsoft Windows, the sales strategy behind it is pure genius.  Microsoft is in the software business.  So what did and does Microsoft do?  They did and do everything they can think of to help software vendors (including competitors!!!) sell their stuff.  Thousands of garage-based programmers loved and love it.  Help from Goliath!  All they need to do is write code that runs on the Windows platform.  Got that?

The Windows sales rep has the help and assistance of virtually 100% of the software providers on the planet.

You owe it to yourself to think long and hard on this “serve your competitors” thing. It’s counter-intuitive.  It’s challenging.  It’ll hurt your brain.  But if/when you figure it out, you’ll have struck gold.

So are you too narrow minded?  I am.  I struggle daily trying to maintain my “ecosystem perspective.”  It’s the right perspective though.  It’s the path to sustainable competitive advantage.

 

 

The Stupendous Worth Of A Compelling Value Proposition

It’s an old habit.  When I read on airplanes and come across an intriguing passage or concept, I jot down notes on whatever scrap of paper I can find.  While cleaning out my briefcase last night, I came across these two gems.  (My apologies to the author – don’t recall the book or article these came from.)

  • “The Sunday New York Times contains more factual information in one edition than in all the written material available to a reader in the fifteenth century.”
  • “In 1900, a well educated person could still grasp the existing knowledge in almost every field of science and the arts (in fact, this was what a college education was supposed to provide).”

A Value Proposition cuts through!So what do those two factual tidbits tell you?

I can’t say I’ve ever read an entire edition of the New York Times, but I do read a lot more than that amount every month.  And as far as grasping all the existing knowledge in any single field – science, arts or otherwise – well… forget about it.  No living person can make that claim.

To me, those tidbits above reinforce the vital importance of a particular sales best practice:  Begin every conversation with a compelling value proposition.

Stupendous!  In the case of this blog post, I hope the word “stupendous” in the headline cuts through the flood of content coming at you today.  (Although it’s not a common term, everyone knows what it means, plus it’s fun to say!)

Generate an 8 to12% annual, incremental increase in effective sales capacity.  In the case of Sales Process Engineering, I hope the notion of methodical, relentless continuous improvement cuts through the flood of content.

It’s a kick-butt sales call every time.  In the case of a sales rep’s own business talk radio show, I hope the near-guarantee of call effectiveness cuts through the flood of content.

How am I doing on my value propositions?  How are you doing on yours?

Solving The “Prospecting Problem”

CEO of The YPS Group and Dreamland Interactive co-founder Todd Youngblood shares his perspectives on solving the prospecting problem. It’s about establishing relationships with executives, of course, but more.  It’s also about creating a body of valuable knowledge the search engines love.

When all is said and done, however, one item really stands out.  We all know that every stage of our sales process should provide value to the customer.  That’s very tough to do in the very early stages.  Watch and gain perspective on how a radio show enables a sales pro to provide value right out of the chute.

Customer focus must be ignored at all cost!

“Full Service!”  “Total Solution!”  “We handle everything!”  “We are a customer focused company!”  Virtually always, statements like these are a load of hooey.

I’ll start with the moral of the story.  Don’t claim to be customer focused or full service unless you are absolutely certain you fully and completely understand all the details of the customer’s requirements and expectations and can fulfill each one.  Otherwise you’re setting yourself up to look like a hype-spewing, unreliable huckster.

The case in point involves a cancer patient and a caregiver.  The patient is about to be discharged from the hospital and will require some home care.  There’s some natural apprehension on the part of the caregiver regarding the associated procedures and equipment.  Not to worry!  “A care specialist from the home healthcare provider will be here shortly to address all those issues.”

In strides the poised, articulate care specialist.  The opening questions and statements are all absolutely appropriate, compassionate and to the point.  The caregiver (CG) breaths a sigh of relief.  The care specialist (CS) says, “We’ll take care of everything; we’re a full service provider.” Now begins the interesting (and sad) part.

CG:  “That’s really wonderful.  The first thing I’d like to handle is getting a hospital bed delivered to the house.”

CS:  “Oh, we don’t do that.”

CG:  “I see.  How about a bedside commode?”

CS:  “We don’t do that either.”

CG:  “How about a walker?”

CS:  “We don’t do that either.”

CG:  “OK, sounds like ‘everything’ doesn’t include equipment.  How will monitoring for the need of various medications be handled and how will the drugs be administered?”

CS:  “That’s not part of our role.”

Anyone else out there feel like punching CS in the nose?

CS, serving the role of sales rep, right out of the chute assures CG, the customer, that, “We’ll take care of everything,” and proceeds to fail on the first four, absurdly straightforward requests.  Let’s add a little more context to CG’s perception.  Here are the medical service providers involved in this case:

  • A Full Service hospital
  • A Full Service home healthcare company
  • A Full Service discharge planning service
  • A Full Service home healthcare equipment delivery company
  • A Full Service oncology practice
  • A Full Service chemotherapy clinic
  • A Full Service vascular medicine practice
  • A Full Service gynecology practice
  • A Full Service gastro-intestinal medical practice
  • A Full Service endocrinology medical practice
  • A Full Service palliative care medical practice

Count ‘em up.  Eleven Full Service” organizations providing “Full Service” to a single patient.  The only way to characterize any of them as full-service-total-solution-we-handle-everything is to define the requirements in an entirely internally focused, product/service-centric manner. Customer focus must be ignored at all cost!

Think about it sales rep.  You really think you’re any different?  You think you don’t sometimes appear to be as clueless to your customer executives as the eleven organizations noted above?

Consultative Selling. 70’s hype or the path to differentiation?

Guest Post by Ray Charland of Lead Dog Selling.

The term “Consultative Selling” and it’s underlying concepts were first introduced in the book by the same name published in 1973 and authored by Mack Hanan, James Cribbin and Herman Heiser. Although amended and modified countless times since then and in countless industries and by countless sales organizations, the basics remain true to this day. Perhaps they are even more relevant today and are an underlying foundation for Lead Dog Selling.

In this recession driven age of cost control Lead Dogs don’t succeed by confronting cost constraints but rather by enabling customers to do business with them at zero cost. Even better, customers can make money on their transactions by the ability of consultative sellers to improve customer profits.

Consultative Selling confers pricing power to the customer. The only strategy that provides proven sustainable command of value-based margins even for undifferentiated commodity products or services sold against me-too competition in mature markets. Consultative sellers make money or save money for customers, not cost money. If there are start-up costs, it’s just a short-term loan.

Let’s take a brief step further back in time. The Book of Five Rings is a text written by the samurai warrior Miyamoto Musashi circa 1645. It is considered a classic treatise on military strategy. Many business leaders find its discussion of conflict and taking the advantage to be relevant to their corporate strategy development. Many business schools still teach it’s core techniques and philosophy.

Musashi repeatedly remarks that technical flourishes are excessive, and contrasts worrying about such things with the principle that all technique is simply a method of cutting down one’s opponent. He also continually makes the point that the understandings expressed in the book are important for combat on any scale, whether one-on-one or a massive battle. Descriptions of principles are often followed by admonitions to “investigate this thoroughly through practice, rather than try to learn by merely reading.” The same is true of Consultative Selling.

Even if you don’t read this book remember the above admonition “investigate this thoroughly through practice, rather than try to learn by merely reading.”

A man in his  sixties wearing sunglasses and a black T-shirt bearing the sequined  words "LOVE" and "PEACE". Only his torso is visible,  but his left hand appears to be on his hip. His right hand forms a  V-shaped peace symbol.

One more piece of sage advice from Ringo Starr and the Beatles. “It Don’t Come Easy.” Believe me, It don’t. But then again if was easy everyone would practice it and they don’t. You can!

The simplest and perhaps the most profound definition that I’ve heard for Consultative Selling is “a shift in focus from the product being sold to the problem being solved.” Clearly, you must know your product and know it well but all of your competitors, well most, do that and it’s no way for you to differentiate yourself.

If you have a strong Marketing department and can go in on an applications basis even better. This affords you the luxury of being a specialist, an expert with reference accounts. It also saves you time. Note that I did not say a strong Product Development department.

Each of the other nine inaugural articles to be included here over the next several days are building blocks designed to equip you to become a Consultative sales person. You will be your firm’s sustainable competitive advantage. This is one window that will never close.

Think about it in the context of your career.

What You Get Paid For Is NOT What You Sell

Had a lunch meeting with a sales exec this past Friday, a prospective client.  A colleague brought us together and it was the first time I’d had contact with the man.  Ever leave a meeting and have this feeling that the other person was somehow different/unique/better in some way, but couldn’t quite put your finger on why?  That’s the feeling I’ve had all weekend and it finally hit me why I felt that way.

Most of my working life is spent with sales managers and pros in the industrial sector.  I consider myself lucky to be able to do so, by the way.  For whatever reason, I’ve always been fascinated by factories and machines and the stunningly complex interwoven processes, systems and logistics that make this industry tick.

There’s a downside though.  Because of that complexity, soooo many sales types get mired in the technical detail.  Don’t get me wrong, that stuff is critically important.  A rep is dead meat without being able to hold his or her own technically.

That’s what made this guy different.  It was crystal clear he knew all his tech specs and the relative pluses and minuses.  What he kept repeating though, was, “It’s all about kW.”  That focus on “kW” is his key to success.

Picture yourself for a minute, as the manager of a beer bottling plant.  You’re focused – duh – on beer stuff.  How many cases/barrels rolled off the line today?  What’s our quality score?  Are our suppliers delivering what we need just in time?  Have we reduced our purchasing costs?  Is everything way more sanitary than the inspectors expect?  Does the freakin’ beer taste great?  And on and on and on with making better beer faster and cheaper.

Then in walks Dean with his “kW” speech.  Who cares?  Ah-ha!  You do! Those kWs are kilowatt hours – electricity.  Not particularly beer-focused, but son-of-a-gun it takes a lot of kWs to get beer out the door.  (Seriously, check out this green beer article.)  Even more seriously, consider this…

Dean gets paid for boosting consumption of power transmission gears and drives.  He sells by reducing electricty consumption.

It’s yet another example of selling 1/4 holes instead of 1/4 inch drill bits.  It’s called a compelling value proposition.

Always remember:  What you get paid for selling is not, not, NOT what you actually sell.

How Self-Absorbed Are Your Value Propositions?

What’s in it for the customer? From day one of a sales career, the necessity of thinking in that context is crystal clear. Everybody knows it. Everybody believes it. It’s intuitively obvious!!! BUT …sometimes the obvious is not so easy to execute…

Ready for another humbling experience? Here’s your mission… Randomly choose five quotes and/or proposals that you and/or your team have submitted to key accounts over the last six months. Choose five more that were offered to prospective new accounts. Sort them into three piles.

Pile 1 is the “Mine” pile. It will contain those proposals that talk mainly about why and how your product or service is the best option for that particular customer. All of the classic quotes that do no more than state a price go here. Those that describe features and how they apply to this customer also go here. Those that go that (really tough) extra mile and describe your “value add” stay here too.

Pile 2 is the “Yours” pile. The minimum required to graduate to this level is a clear, quantified, un-self-absorbed statement of the customer’s Total Cost of Ownership or TCO. “My price is lower than their price,” doesn’t cut it. If value add is provided for free or bundled into the price of the product/service, return to pile 1.

The TCO analysis must include the “before” and “after” total cost of at least the major tasks performed by customer personnel related to this purchase. These could be things like design, acquisition, receiving, inspection, additional processing, testing, combination with other products and services, marketing, support, service and warranty claims. (You might notice that this will require an in-depth familiarity with the customer’s value chain and associated costs as well as a certain degree of comfort with financial statements and analysis.)

Pile 3 is the “Ours” pile. Many of you won’t have one. (Some might not even have a “Yours” pile.) The proposals here include an analysis of the total financial impact on both the customer and your own company. The perspective here is taking cost out of both value chains and/or adding value to both value chains. These proposals will provide incentives for you and your customer to customize and rationalize everything about the sum total of all of your interactions.

Before I ask you to think about it, recognize the magnitude of the change I’m suggesting here. How many of your reps are up to the task of thoroughly and deeply analyzing all of the myriad aspects of both internal and customer business processes as well as how they interact and affect each other? They’ll need to understand process and process engineering. They’ll need to understand financial analysis. They’ll need to get to know and establish credibility with people both up and across the customer’s organization. (including those “C-level” folks like CEO, CFO, etc.)

Bottom line, enabling the majority of your reps to build pile 2 and 3 value statements won’t be easy or quick. With the right leadership, though, it is doable. And the fact is, if you don’t, your competitors will. OK, now…

Think about it…