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Think About It… the e-book version » Value Proposition

Archive for the ‘Value Proposition’ Category.

It’s The Experience, Stupid!

by Todd Youngblood

Take a few minutes and read through all the statements of value on your web site and in your recent proposals. Think about the value propositions you have articulated during customer calls over the last few months. Do they strike you as static statements? Or do they communicate a sense of a living, dynamic, ongoing, integrated, valuable experience?

In articulating value, many of us are hobbled by a limited perception regarding possible sources of value, and focused on me, my product and my company. Even those with a well-developed customer focus usually ignore a wide array of differentiating firepower that is readily available.

It’s high time we started to use a more robust, three dimensional, “living” perspective.

As an example, let’s start with a guy that owns a grove of spruce trees. He needs to make some money, so he goes into the firewood business. Cut down a tree, sell the commodity, compete mainly on price, differentiate based on BTUs produced by burning spruce vs. maple or whatever. Tough, low margin business.

Differentiating wood-for-fuel “A” from wood-for-fuel “B” – or in terms of the diagram below – moving up and to the right is really, really tough. So how about moving in front and/or in back of the page? Partnering with a coal vendor and a kerosene vendor (other commodity providers) enables our entrepreneur to add value by offering a broader line to a wider set of customers.

He can take things a step further when he learns that spruce is the perfect wood for making violins. Suddenly, he can get into the product selling business by adding a boat-load of differentiation to spruce – turning it into a violin – which provides higher margins.

He can repeat the in-front/in-back strategy by partnering with fife and drum makers. AND… He can also partner with new and different commodity vendors. How about a cardboard box maker to protect the instruments during shipping?

Jumping up yet another level, the guy can perform the service of renting an auditorium, promoting a concert and selling tickets. That entails partnering with other service providers, from musicians to clean-up crews; other product suppliers, from providers of additional instruments to providers of commemorative T-shirts; and other commodity vendors, from parking lots to rest room facilities.

Then we have the “Experience” economy. The industrial revolution in the late 18th century launched us beyond the “Commodity” to the product “Manufacturing” economy. The explosion of productivity starting in the 1970s propelled us into the “Service” economy. I’m convinced that a lot of sales professionals still don’t “get” the implications of services and cannot articulate their value. That leaves a lot of wide open space for those who can make the next leap to the experience economy.

Back to our guy, who by the way, gets it… During one of his performances, he realizes that his concert management services are only part of the picture. What he’s really selling is a concert experience. That includes not just the music, but also what each audience member does and senses (i.e., experiences) before, during and after. He decides to partner with a restaurateur who provides fine dining experiences so they can jointly provide a richer, higher margin “gastronomic/musical” experience. That opens the door to more partnerships with cooking and music lesson services, products like songbooks and commodities like foodstuffs.

So, how can a sales rep actually use the “Dynamics of Value” model on a daily basis?

  • Establish where you are now – Commodity, Product, Service or Experience
  • Establish where your customer is now – Commodity, Product, Service or Experience
  • From there, explore front/back, up/down, left/right with your customer and start connecting the dots and realizing the value available by aggressively enabling the packaging of unique experiences in all three dimensions
  • Recognize that competition (yours and your customer’s) is relentlessly pushing you both down and left
  • Commit – jointly commit - to continuous improvement, to providing ever-better experiences for your mutual customers

Value is created by organizing and making sense out of complexity. Use this model to help your customers navigate through the ever-changing possibilities to discover the combination of factors that produces the most valuable experience today. Then come back and do it again tomorrow… next week …next month…

Think about it…

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How sticky are your ideas?

by Todd Youngblood

Every now and then I come across a book that really nails its topic. Made To Stick by brothers Chip and Dan Heath is one of them. Their insights into consistently creating memorable messages is must reading for anyone in sales.

Have you seen that video floating around the internet where the guy pops popcorn  (external link)with three cell phones? Have you heard about the business traveler who was having a drink at his hotel, and then suddenly wakes up in bathtub filled with ice next to a cell phone instructing him to call 911 who informs him that he’s the most recent victim of a kidney theft  (external link)ring? Do you remember or have you read about JFK’s “landing a man on the moon (external link) and returning him safely to the earth” speech?

Two of the stories are total baloney, but all three sure are “sticky.” Wouldn’t it be great if our sales messages and value propositions had that much punch and staying power? Well, the brothers Heath have, in my opinion, done some terrific research and put together one heck of a set of guidelines. A quick summary of their “Six Principles of Sticky Ideas” follows:

  • Simplicity – Simple, but not simplistic. Ruthlessly cut the details and fluff down to the core. Think about the Golden Rule. It’s simultaneously simple and profound.
  • Unexpectedness – This is more about creating curiosity than surprise. Create gaps in knowledge. Gee, I have drinks in airports & hotels all the time – how do I make sure nobody’s slipping me a mickey so they can swipe a kidney?
  • Concreteness – Think in terms of action and sensory information. Land on the moon and safely return; razor blades in Halloween apples. (Sorry, maybe that last one is too concrete!)
  • Credibility – Proof with hard data can be a big help here as long as it’s simple. Strong references and endorsements too.
  • Emotions – First pick the right emotion to tap. Example: Want a teenager to quit smoking? Tap into fear of bad health two or three decades from now? Or tap into resentment against how Big Tobacco exploits the public with misleading info and outright lies just to preserve their profits?
  • Stories – Think about what is consistently rated as the best, most useful portion of a sales meeting or conference. It’s always the interaction with other attendees. That’s when all the stories get swapped!

That gives you a flavor for what’s in book. It’s also loaded with examples, hints and tips. Here’s a thought; buy a copy, read it, implement some of its ideas and regularly…

Think about it…

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There’s Value, Value, Value & Value!

by Todd Youngblood

None of us can ever invest enough time in increasing the punching power of our Value Propositions. Ever think in terms of their ubiquity and staying power?

First off, a reminder regarding three critical facts about all of your customers:

  • They don’t care about you
  • They don’t care about your company
  • They don’t care about your products or services

OK, actually five reminders…

  • Regardless of their SIC or NAICS code, 100% of your customers are in the money-making business
  • It’s therefore critical to always strive to state the value you deliver in terms of $$$Dollars and ¢¢¢Cents because that’s all they really care about

Another aspect of your value depends on how many people and functions in the customer’s business are improved by your products and services and how long that improvement lasts. Think in terms of the diagram below. At the bottom of the vertical axis, value is delivered to an individual; at the top, value is delivered across the entire customer organization. At the left value is delivered once; toward the right the value hangs in there for a while.

Now consider the four quadrants. A one-time shot of value to one person could be considered Personal Value. It’s great, but not as good as a one-time shot that delivers Pervasive Value across many customer business functions and/or geographic locations. Even if your value is perceived by only one individual, it has much more power if it’s a gift that keeps on giving. (Remember, give a man a fish and feed him for a day, teach a man to fish and feed him for a lifetime???) That’s Permanent Value.

The best among us, though, live in the Persistent Value quadrant. Wouldn’t any customer prefer to receive value personally as well as being enabled to persistently share with lots and lots of others? And who wouldn’t prefer value today that persists into the future – into tomorrow, next month and next year?

Take a look at what you’ve sold so far this year. How many deals fall into each quadrant? What dollar amount of sales falls into each quadrant? For the rest of the year how many deals and what dollar amount should fall into each quadrant? How will you change your selling approach to make that happen?

Allowing customer value to just fall out of your proposals is nuts! Drive it up and drive it to the right!

Think about it…

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Force The Evolution of Your Value Propositions

by Todd Youngblood

Your value propositions are not good enough. They will never be good enough. Regardless of how many times you re-visit them, you’ll be able to spot flaws and make them better. If you don’t re-visit them over and over and over, your competition will …only they’ll apply the logic to their (allegedly) superior products and services.

The good news is that I see more and more sales teams recognizing the need to include a compelling value proposition with every proposal. The continuing bad news is that the effort to make them ever more compelling is sporadic at best. How can this be?

Simply put, writing a “punch-in-the-nose-powerful” value proposition is hard. Since we sales types crave easy, instant answers for everything, we flat don’t invest enough energy often enough. OK, I understand. I’m in the same boat with way more things to do than time to do them. But, this is too important. How about trying an approach using baby steps and recycling?

  • Baby Step 1: Include a value proposition in every one of your quotes and proposals.
  • Baby Step 2: At the end of the month, every month, go through all of the proposals you have submitted over the past 30 days. Pick the best value proposition of the bunch and throw it into a Word document, wiki or whatever along with the best from every other rep.
  • Baby Step 3: Vote on the best of the best and publicly recognize the author at the monthly sales meeting.

Recycle Cycle #1: Swipe, steal, revise, rewrite and reuse all the collected value propositions from the entire sales team in next month’s proposals, then repeat Baby Steps #1 through #3.

  • Baby Step 4: At the end of the quarter, every quarter, go through all of the proposals you have submitted over the past 90 days. Pick the best proposal with the best value proposition of the bunch and throw it into a Word document, wiki or whatever along with the best from every other rep.
  • Baby Step 5: Vote on the best of the best and publicly recognize the author at the monthly sales meeting.

Recycle Cycle #2: Swipe, steal, revise, rewrite and reuse all the collected proposals from the entire sales team in next month’s proposals, then repeat Baby Steps #1 through #5.

  • Not-So-Baby Step #6: At the end of the year, every year, go through all of the proposals you have submitted that year, pick the best one and develop it into a case study that can be used as a sales tool to demonstrate your organization’s capability to prospects and customers.

Recycle Cycle #3: Swipe, steal, revise, rewrite and reuse all the collected case studies in the next year’s value propositions and proposals. Repeat Baby Steps #1 through #6.

Finally, Recycle the Recycle Cycles. By the time you’ve done this for a full year, the habit of crafting more robust, powerful and compelling value propositions will be second nature. How many of your competitors will bother to make that kind of effort? I can’t answer that question, but unless you have nothing but lazy, dumb competitors, I’d get busy with the baby-stepping and recycling.

Think about it…

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What does a price concession really mean?

by Todd Youngblood

A strong value statement is critical. A weak one is a loud, clear signal for the buyer to press hard for a lower price. (They teach that at purchasing agent school.)

Scenario 1:

Sales Rep: “With a 3% price cut, they’ll buy. Without it we lose. It’s a $100,000 deal and we cannot risk losing it for a paltry $3,000 of the company’s take. We must give them the price decrease they want.”

Sales Manager: “No.”

Sales Rep: (after leaving the manager’s office) “That @%#&* idiot! How can he possibly be so dumb. I’m going back in there tomorrow to straighten him out.”

Scenario 2:

Sales Manager: “We’re going to cut your commission rate by 10%. It might sound like a negative thing at first, but you’ll easily be able to more than make it up on volume.”

Sales Rep: (after leaving the manager’s office) “That @%#&* idiot! How can he possibly be so dumb. I’m going back in there tomorrow to straighten him out.”

Scenario 3:

Sales Manager: “We’re going to increase your sales quota by just a bit more than 11%. It might sound like a negative thing at first, but you’ll easily be able to more than make it up on volume.”

Sales Rep: (after leaving the manager’s office) “That %#&* idiot! How can he possibly be so dumb. I’m going back in there tomorrow to straighten him out.”

The rep’s response is not the only thing that’s identical about the three scenarios.

Avoid thinking through the following math at your own peril! It doesn’t matter if you’re a rep or a manager. You’ll need to adjust the assumptions according to your own situation, but that won’t affect the fundamental message. Here are the assumptions for example above:

  • The rep’s sales quota is $2,000,000
  • The average gross profit margin is 30%
  • Commission is 20% of gross margin

Here’s the math for a 3% price decrease vs. a 10% commission cut:

  • $2,000,000 sales minus $1,400,000 cost = $600,000 gross profit (a 30% margin)
  • $600,000 gross profit X 20% = $120,000 in commission
  • $1,940,000 sales minus $1,400,000 cost = $540,000 gross profit (a 3% price cut)
  • $540,000 gross profit X 20% = $108,000 in commission
  • ($120K – $108K) / $120K = 10% commission cut (or, another way to look at it, 90% of a 20% commission on the original $600K gross profit is $108K)

The 3% price cut that the rep demands is exactly equal to a 10% commission rate cut that the rep decries.

Here’s the math for a price decrease vs. a sales quota increase:

  • $2,000,000 X 30% gross margin X 20% commission = $120,000 in rep earnings
  • $2,222,222 X 27% gross margin X 20% commission = $120,000 in rep earnings
  • ($2,222,222 – $2,000,000) / $2,000,000 = 11.1% quota increase

The 3% price cut that the rep demands is exactly the same as an 11.1% sales quota increase that the rep decries.

If you’re a rep, beware of what you ask for! If you’re a sales manager, beware of doing “favors” for your reps. If a price cut is a smart thing today, it’s a smart thing tomorrow, …but then a 10% commission rate cut is just as smart; …and so is an 11.1% quota increase. What is it that you want? What is it that you need?

Is a price cut the right tactic? Or is it just an easy way to avoid the hard work of crafting a compelling value statement? When is a price concession a good idea? When is it a bad idea? I’m just asking you to…

Think about it…

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It seems so obvious and it sounds so easy…

by Todd Youngblood

“A laser-beam focus on developing compelling value statements enabled one company to reduce their average sell-cycle by two days. The time saved produced over $241,000 worth of additional selling capacity per rep per year.”

Is a value statement needed to get a prospects attention? To quote my teenager, “well, duh…” Before you dismiss this month’s newsletter as too elementary, ask the best rep in your company to quickly jot down the value statement for each of his or her top three opportunities. Can either of you take pride in the results?

How hard can it be to write down a clear, concise statement of the tangible results of applying your product or service? I’ll even make it easier. Instead of plowing through all the possible ways value could be derived, just give me one way a single, specific customer decision maker could realize value.

Don’t just sit there reading this. Think of your current most significant opportunity and write out your value statement.

Is what you just wrote a shining example of sales best practices in action? Does it include a specific, provable dollar savings and/or revenue increase for your customer? Did it take you more than thirty seconds?

OK, for those of you who played along so far, something different now seems obvious. Putting together a truly compelling value statement is anything but trivial. It takes real work. That’s why most reps in most situations just don’t bother. They assume, that the customer is smart enough, experienced enough, already interested enough to put two and two together and figure it out himself. (Yikes!)

Step by step, here’s a process to follow:

  • Identify your rival(s) – What are you selling against? Typically it’s a similar product or service delivered by another supplier, a customer with a “do-it-yourself” bias or inertia – a satisfaction with the status quo.
  • Define your differentiators – What specifically is it that makes your offering different from the current state and/or the competition?
  • Identify your benefits – For each differentiator, answer the question, “So what?” Why is the differentiation good for this specific customer? Why should your customer care about the differentiator?
  • Quantify your benefits – This is the hard part. Unless you are really lucky or blessed with lazy, dumb competitors, an unspecified “better, cheaper, faster” just isn’t good enough. How many? How much? How often?
  • “Dollarize” your benefits – This is the fun part. Always convert the quantified benefit into dollars and cents. For example, “Reducing your production cycle time by 12%,” is one thing. “Producing an additional $732,859 worth of end product per week,” is exactly the same thing …but a whole lot more interesting!

Without getting into your sell cycle, average opportunity and deals per rep per year metrics, I can’t really tell you how many dollars worth of additional – and free – selling capacity you can generate by following the above formula. I do know from experience, however, that most reps do not follow it and are really, really terrible at articulating compelling value statements. Maybe it’s time for some “laser-beam focus” of your own…

Think about it…

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How self-absorbed are your value statements?

by Todd Youngblood

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…

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The ability to build great customer relationships is the real key to sales success. (Right??? I mean that’s what everybody says…)

by Todd Youngblood

This whole notion of “Six Sigma for Sales” or “Sales Process Engineering” is such a load of consultant-speak. It’s nothing more than an overly complex conglomeration of ivory tower ideas. Maybe it’s worth something in other industries, but not in my business…

Well, actually, even though I make my living selling and doing Sales Process Engineering, I agree that relationships are absolutely critical. Nobody can be a successful rep in the long run without genuinely superior relationship-building skills. I also think that most sales reps (including my competitors and your competitors) are already pretty good at it. In other words, it’s the ante for getting into the game in the first place. If that’s all ya’ got… I think you’re in deep trouble. Consider this:

You and a competitor are selling the same widget. Your unit price is $100. He undercuts you by 5% and makes an offer of $95. Will your good-buddy customer who buys 1,000 widgets a year tell you about it and give you a chance to respond? Of course! But he’ll also tell you that he can’t afford to pass up the $5,000 annual savings. Will your good-buddy customer still buy from you if you can only get your price down to $95.25? Is your relationship worth 25 cents apiece? Is it worth the $250? Probably. What if you can only get your price down to $95.50? or $96? or $98?… (I wonder if that competitor takes prospects out to lunch like you do…)

What if yet another competitor comes in with a price of $200 per widget? Does she have a chance at even getting in the door at double your price? (Especially considering that you just took your customer to dinner and a football game! You two really bonded. It’s more than just business. You’ve taken the relationship to a whole new personal level! You’re also going to the Chamber of Commerce meeting together next month…)

Thing is, that other rep did some Sales Process Engineering. After six months of researching the sales best practices of competitors in several related industries, then painfully grinding through and analyzing all kinds of customer-provided and external data, building X-Bar? & R charts, and searching for correlations to Total Cost of Ownership, she discovered something interesting. By spraying the widget monthly with a special solvent and performing a really, really complex preventive maintenance program every 90 days and by inspecting the widget visually every week and immediately replacing those showing signs of wear and purchasing heavier widget-holding-brackets from a different vendor; the customer could reduce their total 3-year cost by 1%. (By the way, only her company has the knowledge and skills to do that preventive maintenance procedure…)

So… Total cost went from $5 million down to $4.5 million including the extra work the customer has to do inspecting and such. That’s $500,000 in annual savings for the customer. Total cost of widgets, though, went from $100,000 to $200,000. Net-net, your customer just saved $1.2 million by signing a three-year widget deal with that competitor’s rep.

See the point? (Or was all the math, analysis and “Sales Process Engineering” too tedious?) I don’t care if that customer has been your best buddy since the 3rd grade. You’re out. You’re out for three years. It doesn’t matter that the other rep never even bought the guy a cup of coffee or that she has absolutely nothing in common with him personally. For a million bucks, he’s got to buy from her.

Don’t worry though. Even though you just lost a $100,000 a year account… I’m sure the customer will pick up the tab the next time you play a round of golf.

Think about it…

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