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The Limits of Value Propositions

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In sales, especially B2B sales, having a clearly developed and clearly stated value proposition is unquestionably important. This is especially true for large, complex, or intangible offerings.

In fact, some experts go so far as to suggest a value proposition is the key component of successful sales. And most would say that a value proposition is at least a necessary condition for success, if not a sufficient one.

But this is certainly to overstate the value of value propositions. Not only are they not sufficient – sometimes they’re not even necessary. They are frequently less important than classic issues of needs and wants. And discussing value propositions without overtly addressing client confidence in the capability of the seller is not useful.

Value propositions are unquestionably powerful. But if you think nailing down a clear value proposition is going to solve your sales issues, you need to think again.

Thinking about Value

First, let’s set some definitions. I’m using “value” in a simple, narrow way to mean economic value. For example, I might offer a client a value proposition that says, “By using a distinctive approach to account development, I can improve top-line revenue by 10% within six months at virtually no cost to margins.” The “value” in that example is “10% of full-margin top-line revenue,” and the total statement includes reference to how I’m going to achieve it and in what realm of the client’s business.

But usually that’s not how clients start out thinking. In my experience, clients go rather quickly from “we’ve got a revenue problem” to “the biggest reason for our revenue problem is sales force turnover,” from whence it’s a quick hop to “we need a salesforce recruiting solution.” In which case, my highly articulated value proposition about the account development process, even if it’s correct and relevant, doesn’t even get invited to the party.

Their problem (“10% top-line revenue gap”) may rhyme with your value offering (10% top-line revenue growth”), but if the buyer is fixated on sales force turnover, game over. You could argue you need to present your value proposition earlier in the buying cycle, but that’s a problem outside the value proposition per se. Call that the “misaligned diagnosis” problem.

Another problem is relative lack of urgency. A 10% increase in top-line growth, while it sounds great, may produce yawns in organizations that are transfixed by products going off patent, or by R&D rejuvenation, or by M&A activity, or by the urgency of a cost-cutting drive.

A value proposition can work its magic only if the client (a) agrees on the issue at hand, (b) feels a need to address the issue, and (c) wants to use the particular value proposition to address the need.

That is not a radical statement. (The value of a glass of water in the desert is greater than when lakeside.) And yet it is violated all the time. Salespeople keen on articulating value propositions to clients risk making the world look like a nail to match their value proposition hammer. We know better than to sell product vs. solution, but it’s so tempting when the “product” is disguised as a total value proposition.

Note: this can work in sellers’ favor. Over half my clients already see what they want in my offerings by the time they contact me. They articulate my value proposition for themselves. And unless they’ve gotten it quite wrong (not very common), there’s little point in forcing them to tweak it. At that point, the imperative to add value as the opportunity presents itself becomes the key task.

Selling Value and Buying Value

Suppose you haven’t productized the value proposition. You’re engaged in a constructive dialogue with an interested client. You’ve articulated your value proposition, they comprehend it, and it meets their needs. However, the same can be said for two competitors, each of whom is also talking to your potential client about increasing top-line revenue by changing the account development process.

Several issues then arise, such as the level of detail. (Just how does your approach to changing the account development process differ from theirs?) You could call this a deeper level of value proposition, but below some level it starts to look like just product variations.

But the biggest issue for buyers at this point is often not the value proposition at all, but the confidence or trust the buyer has in the seller. Confidence and trust can not only overcompensate for lower stated value, but they can overturn the value proposition entirely.

Expected Value

Consider two firms competing for a bid, with general agreement on the value proposition that the client is looking for. Let’s say the economic value calculated by each firm is about net $5 million. Sophisticated decision analytics might reveal the client has 90% confidence that firm A will deliver fully on the expected value, but only a 75% level of confidence that Firm B will do so.

That’s 15 percentage points variation in expected value—the same as if one firm had quoted a value of $750,000 more than the other! It’s also a discrepancy often sufficient to entirely wipe out the fees difference between the two sellers. Even greater discrepancies emerge when the issues turn to, “what if things go wrong? What will they be like to work with then?”

Yet this discrepancy virtually never gets talked about—at least not in a direct and quantitative way. The discussions are more along the lines of, “I don’t know. I just don’t feel like when push comes to shove they’re going to be able to get with our program.”

If you lose a bid and are lucky enough to get some post-bid debriefing, you’re not likely to hear, “Well, we just didn’t feel like when the chips were down you’d be able to get with our program.” That would be the corporate version of politically incorrect speech.

Instead, you will hear, “The other guys had a more compelling set of resumes on their team, ” or “We just felt like we had to go with their longer track record in this area.” In other words, the language of value proposition gets cited as post hoc justification even though it was not the basis for the actual decision. More prosaically, people buy with their heart and rationalize it with their brains.

Trust Can Even Overturn a Value Proposition

I’ve been on both ends of this one. I won a job by telling the client they flatly didn’t need to do a significant part of the job they were requesting. I didn’t win because I came up with a better value proposition; I won because I showed I could figure out the right thing to do. And the proof of it was they didn’t bother to solicit other bids around the new value proposition.

Sadly for me, I’ve lost this way, too. It’s not about picking the right game, it’s about picking the person who knows how to pick the right game.

The Role of the Value Proposition

Too often it’s assumed that the purpose of the value proposition is so obvious it doesn’t need stating. Doh! We assume clients buy value, clearly expressed, and tightly calculated. After all, that’s what they say they do.

There are seriously valuable roles for a value proposition, of course. They are:

  • To force the seller to have a Point of View: my client may or may not buy what I’m selling, but my statement of it marks a beginning point of discussion, a coherent account—one that suggests other ideas, proves I’ve thought things through, and shows I am worthy of valuable time.
  • To give the buyer “air cover” in justifying a decision internally: a B2B buyer wants to be able to tell anyone who asks, but especially his superiors, that they bought a proven product with a 35% ROI that will provide a 15% CAGR by an experienced-based approach to account management. They do not want to tell everyone they chose vendor A because, gee, they really felt good about them—even if that’s the truth.
  • To undergo a required, universal protocol: like meeting ISO standards, following tax rules, or complying with traffic laws, the tight definitions that come from rigorous thinking about value propositions are an assurance of quality. They may be a little pro forma, they may be subject to some tweaking, and they may not be a guarantee. But if everyone must do them, they form a common denominator by which to compare something of importance—value.

Value propositions are powerful, useful, and often necessary. Typically, however, they are not sufficient. Don’t go to into the sale armed with a value proposition alone.

 

This post originally appeared on RainToday.com

The Limits of Value Propositions

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In B2B sales, having a clearly developed and clearly stated value proposition is unquestionably important. This is especially true for large, complex, or intangible offerings.

In fact, some experts go so far as to suggest a value proposition is the key component of successful sales. And most would say that a value proposition is at least a necessary condition for success, if not a sufficient one.

But this is certainly to overstate the value of value propositions. Not only are they not sufficient – sometimes they’re not even necessary. They are frequently less important than classic issues of needs and wants. And discussing value propositions without overtly addressing client confidence in the capability of the seller is not useful.

Value propositions are unquestionably powerful. But if you think nailing down a clear value proposition is going to solve your sales issues, you need to think again.

Thinking about Value

First, some definitions. I’m using “value” in a simple, narrow way to mean economic value. For example, I might offer a client a value proposition that says, “By using a distinctive approach to account development, I can improve top-line revenue by 10% within six months at virtually no cost to margins.” The “value” in that example is “10% of full-margin top-line revenue,” and the total statement includes reference to how I’m going to achieve it and in what realm of the client’s business.

But usually that’s not how clients start out thinking. In my experience, clients go rather quickly from “we’ve got a revenue problem” to “the biggest reason for our revenue problem is sales force turnover,” from whence it’s a quick hop to “we need a salesforce recruiting solution.” In which case, my highly articulated value proposition about the account development process, even if it’s correct and relevant, doesn’t even get invited to the party.

Their problem (“10% top-line revenue gap”) may rhyme with your value offering (10% top-line revenue growth”), but if the buyer is fixated on sales force turnover, game over. You could argue you need to present your value proposition earlier in the buying cycle, but that’s a problem outside the value proposition per se. Call that the “misaligned diagnosis” problem.

Another problem is relative lack of urgency. A 10% increase in top-line growth, while it sounds great, may produce yawns in organizations that are transfixed by products going off patent, or by R&D rejuvenation, or by M&A activity, or by the urgency of a cost-cutting drive.

A value proposition can work its magic only if the client a) agrees on the issue at hand, b) feels a need to address the issue, and c) wants to use the particular value proposition to address the need.

That is not a radical statement. (The value of a glass of water in the desert is greater than when lakeside.) And yet it is violated all the time. Salespeople keen on articulating value propositions to clients risk making the world look like a nail to match their value proposition hammer. We know better than to sell product vs. solution, but it’s so tempting when the “product” is disguised as a total value proposition.

Note: this can work in sellers’ favor. Over half my clients already see what they want in my offerings by the time they contact me. They articulate my value proposition for themselves. And unless they’ve gotten it quite wrong (not very common), there’s little point in forcing them to tweak it. At that point, the imperative to add value as the opportunity presents itself becomes the key task.

Selling Value and Buying Value

Suppose you haven’t productized the value proposition. You’re engaged in a constructive dialogue with an interested client. You’ve articulated your value proposition, they comprehend it, and it meets their needs. However, the same can be said for two competitors, each of whom is also talking to your potential client about increasing top-line revenue by changing the account development process.

Several issues then arise, such as the level of detail. (Just how does your approach to changing the account development process differ from theirs?) You could call this a deeper level of value proposition, but below some level it starts to look like just product variations.

But the biggest issue for buyers at this point is often not the value proposition at all, but the confidence or trust the buyer has in the seller. Confidence and trust can not only overcompensate for lower stated value, but they can overturn the value proposition entirely.

Expected Value

Consider two firms competing for a bid, with general agreement on the value proposition that the client is looking for. Let’s say the economic value calculated by each firm is about net $5 million. Sophisticated decision analytics might reveal the client has 90% confidence that firm A will deliver fully on the expected value, but only a 75% level of confidence that Firm B will do so.

That’s 15 percentage points variation in expected value—the same as if one firm had quoted a value of $750,000 more than the other! It’s also a discrepancy often sufficient to entirely wipe out the fees difference between the two sellers. Even greater discrepancies emerge when the issues turn to, “what if things go wrong? What will they be like to work with then?”

Yet this discrepancy virtually never gets talked about—at least not in a direct and quantitative way. The discussions are more along the lines of, “I don’t know. I just don’t feel like when push comes to shove they’re going to be able to get with our program.”

If you lose a bid and are lucky enough to get some post-bid debriefing, you’re not likely to hear, “Well, we just didn’t feel like when the chips were down you’d be able to get with our program.” That would be the corporate version of politically incorrect speech.

Instead, you will hear, “The other guys had a more compelling set of resumes on their team, ” or “We just felt like we had to go with their longer track record in this area.” In other words, the language of value proposition gets cited as post hoc justification even though it was not the basis for the actual decision. More prosaically, people buy with their heart and rationalize it with their brains.

Trust Can Even Overturn a Value Proposition

I’ve been on both ends of this one. I won a job by telling the client they flatly didn’t need to do a significant part of the job they were requesting. I didn’t win because I came up with a better value proposition; I won because I showed I could figure out the right thing to do. And the proof of it was they didn’t bother to solicit other bids around the new value proposition.

Sadly for me, I’ve lost this way, too. It’s not about picking the right game, it’s about picking the person who knows how to pick the right game.

The Role of the Value Proposition

Too often it’s assumed that the purpose of the value proposition is so obvious it doesn’t need stating. Doh! We assume clients buy value, clearly expressed, and tightly calculated. After all, that’s what they say they do.

There are seriously valuable roles for a value proposition, of course. They are:

  • To force the seller to have a Point of View: my client may or may not buy what I’m selling, but my statement of it marks a beginning point of discussion, a coherent account—one that suggests other ideas, proves I’ve thought things through, and shows I am worthy of valuable time.
  • To give the buyer “air cover” in justifying a decision internally: a B2B buyer wants to be able to tell anyone who asks, but especially his superiors, that they bought a proven product with a 35% ROI that will provide a 15% CAGR by an experienced-based approach to account management. They do not want to tell everyone they chose vendor A because, gee, they really felt good about them—even if that’s the truth.
  • To undergo a required, universal protocol: like meeting ISO standards, following tax rules, or complying with traffic laws, the tight definitions that come from rigorous thinking about value propositions are an assurance of quality. They may be a little pro forma, they may be subject to some tweaking, and they may not be a guarantee. But if everyone must do them, they form a common denominator by which to compare something of importance—value.

Value propositions are powerful, useful, and often necessary. Typically, however, they are not sufficient. Don’t go to into the sale armed with a value proposition alone.

 

This post originally appeared on RainToday.com

Cross Selling: Part 3 of 3 – How to Get It Right

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This is part 3 of a three-part series. If your organization offers multiple service offerings, you may find this series of interest.

Part 1 – What’s at Stake

Part 2 – What Goes Wrong

Part 3 – How to Get it Right

In Part 1 I said that cross-selling was the single biggest growth opportunity for sales. In Part 2 I listed six ways cross-selling efforts go wrong. Let’s now talk about getting it right.

Good cross-selling boils down to One Core Concept: the scarce resource is not content, it’s relationship.

Most sellers view cross-selling as matching up an internal content expert with a potential buyer on the client side. This typically has bad consequences. It plays out in “the business card scenario.”

The Business Card Scenario

Picture this conversation:

Seller (Bob): Josephine, in our work with you at XYZ, we’ve noticed that there are some widget-related issues. If you like, we’ve got some people who are experts in widgetry – I’d be happy to introduce you to Bill. Here’s his business card.

Buyer (Josephine): Thanks Bob, I’ll keep that in mind. Let me think about it.

Put yourself in Josephine’s place. She is being asked to take several propositions on faith – to trust Bob. First, she’s being asked to trust that Bob (the seller) is competent to assess an issue of widgetry (and he’s probably not). Second, that Bob is competent to recommend Bill. Third, that this fellow Bill is himself competent at widgetry and would understand it in the context of Josephine’s business.

That’s a lot to ask! Unless Bob already has a superb relationship with Josephine, he has just asked her to ‘trust me’ without giving her any specific reason to do so.

Meanwhile, back at the office, Bob meets Bill, his firm’s internal expert: it sounds like this.

Seller (Bob): Bill, I gave your business card to Josephine, a buyer at our XYZ client. I think they’ve got some widget issues you could be great at.

Expert (Bill): Great, I’ll look forward to her call.

Which call, of course, frequently never comes. Funny how that works.

Now put yourself in Bill’s place. You’re being asked by Bob to trust several propositions as well. First, that Bob knows enough about widgetry to have successfully identified a widget issue. Second, that Bob has appropriately and fairly described you and your capabilities (and hasn’t underpriced you!). Third, that Josephine is competent on issues of widgetry. And fourth, that Josephine actually wants to talk to you.

In the Business Card scenario, Bob has successfully drawn down on his trust relationship with both his client and his internal expert, asking them in seven distinct ways to trust him.  And, asking people to “trust me” is a good way to actually destroy trust.

Notice the baseline assumption in the Business Card scenario. It assumes that the critical scarce resource is expertise in the area of widgetry. ‘If only we could get the widget expert in touch with the owner of the widget problem, all will be well.’ That is the operative assumption – and it is false.

Three Steps to the Real Issue

The real scarce resource in cross-selling is not matching up expertise with problems – it is ensuring the continued strength of the relationship such that it can survive the introduction of a third person. Here’s how it’s done, from the point of view of Bob, the seller.

Step 1a. Jointly refine the problem definition. Bob (the relationship owner) does not have to be an expert in widgetry; all he has to know is enough about widgets to intelligently define the business issue. The client knows Bob is not a subject matter expert and is OK with that – but wants to know that Bob “gets” the business case.

Step 1b. Re-affirm the client relationship. Bob discusses with Josephine (the client) what an outside expert like Bill might bring to the game. Bob assures Josephine that he will be at the first meeting, and continually available to ensure the hand off is being done well.

Step 2a. Ask the expert to make you just smart enough. Again, Bob does not have to be an expert in widgetry – he just needs to know enough to ask the right questions.

Step 2b. Reaffirm the internal relationship. Bob must assure Bill that he will get him whatever information or perspective he needs before meeting with Josephine, and that Bob will be at the first meeting, and continually available thereafter.

Step 3. Iterate as necessary. Bob must go back and forth between Josephine and Bill to ensure that each is comfortable about the problem definition, expectations, and that Bob will continue to play the same trusted advisor role he played with each client prior to this meeting.

Thinking Right about Cross-Selling

Bob thought his job was to match a technical need. And so he abdicated the responsibility for framing and owning the problem, and for making both Bill and Josephine feel his commitment to their relationship.

We too often think of cross-selling as like a data query – trying to guess at a solution to a problem from afar. But that’s hard – like throwing darts with mittens. You’re not an expert in either the content or its application to the business.

Instead, think of cross-selling as like setting up friends on a date. The date may or may not ultimately work out, but you want to make the process as comfortable as possible for each party. You want each of them to:

  • know something about each other ahead of time
  • have a basis for conversation so they can hit the ground running
  • feel an easy, legitimate ‘out’ in case the fit isn’t right
  • know that you are committed to your pre-existing relationships with them regardless of how this particular connection works out.

If you handle cross-selling in this manner, you will not need to draw down on trust. In fact, you will increase the amount of trust that each party has in you – because you have placed the relationship ahead of the solution or the sale.

Done right, cross-selling not only works, it builds trust in the process.

Market Segmentation Does Not Equal Trust

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A piece from PharmaVoice caught my eye the other day. Titled Market Capitalization, it talks about how market segmentation can help pharma companies more precisely reach targeted audiences.

All well and good, until I saw this:

…just as personalized medicine is becoming a best practice for delivering optimal healthcare, personalized messaging to the physician audience is increasingly becoming a best practice for marketing.

Careful segmentation allows marketers to specifically target the audience with messages that speak directly to them. Segmentation helps deliver the right message to the right physician at the right time. Personalization shows physicians that they are intimately understood, which fosters trust and value.

No, it doesn’t.

Careful segmentation in messaging tells me there’s a better chance that your information will be relevant to me.

It does not tell me I’m intimately understood; it tells me you’ve got smart robots.

The difference matters.

Trust and Segmentation

Rifle-shot targeting and segmentation affects one out of four of the Trust Equation components: it speaks to your credibility. Credibility tells me you’re smart, credentialed, competent.

That’s helpful, indeed. But it doesn’t speak to the other three components: reliability, intimacy, and low self-orientation – particularly the latter two.

The casual conflation of credibility and intimacy is, I think, a hallmark of modern marketers. Most of them, I suspect, would say, “Oh come on, Charlie, that’s just a small matter of semantics.”

Not so. Our words belie our thoughts. When we easily slide from a mechanical formula to a claim of “intimate understanding,” we have lost something. And to trivialize the slide is to lose even more.

Trust and Understanding

The dynamic of personal trust is complex; part of it is rational and deductive. But much of it is psychological, interior, calling on other-than-frontal-lobe kinds of brain functions.

That sense of being connected, appreciated, and validated leads us to lower our guard, to accept deeper relationships, and be open to advice-giving, among other things.

In this sense of the word, we come to trust by way of being understood; and we come to be understood through the means of other people intentionally paying attention to us.

This business of paying attention to other people is what drives personal trust creation. Marketers using technology to develop rifle-shot segmentation schemes are doing perfectly good and useful work. But not in their wildest dreams does this make customers feel “intimately understood, which fosters trust and value.”

Please, marketing and communications people, let’s try and remember the difference.

Buying Decisions: Stepping on the Value Scale

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The phone’s not ringing.

The deal’s not closing.

What went wrong?

If you’re in a selling role for any period of time, you know the feeling of an opportunity slipping away.

We’re inclined to accept the client’s explanation at face value or write our own stories about why we’re losing the deal.

We were too high. The competition had a capability we didn’t. The timing wasn’t right.

Often times, we know in our gut that these are only part of the story. We often accept these as answers because they are concrete, tangible or quantifiable; we can package them and tie them in a bow – they are clean.

The truth is often messy, intangible and more personal; which is why the client is reluctant to share them with you.

So–what really did go wrong?

What if we take a 30,000 foot view of a simple question: what’s the role of the seller?

a. Make a sale?
b. Provide a ROI for the client?
c. Reduce Costs?
d. Improve efficiency?
e. Meet customer needs?

Yes, yes and yes. But the common thread woven through all of these reasonable responses is … to create value.

Neil Rackham, author of Re-thinking the Sales Force and SPIN Selling summarized his years of research: “The only single ‘truth’ that seems to be holding true for all sales forces is that they have to create value for customers if they are to be successful. Just communicating the value inherent in their products isn’t enough.”

But–what is value? How do we measure it, and what is its impact on sales revenue and profitability?

Let’s remember a simple formula: Benefits – Costs =Value

We tend to think of costs synonymous with the price we charge–for example – $1,250 plus tax – while disregarding the costs of the “hassle factor." Likewise, we tend to think of benefits as things that help the customer close a needs gap–improve efficiency, reduce costs, increase customer satisfaction. We discount a critical but less apparent value, i.e. – the way we engage with the client prior to actually making the sale – the process.

The hassle factor on the cost side, and the engagement process on the benefits side can significantly tip the scale in either direction. And your perceived trustworthiness has a lot to do with the balance of the scales.

Read the full article here.

 

Review of Rules to Break and Laws to Follow by Peppers and Rogers

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Don Peppers and Martha Rogers have a new book out called Rules to Break and Laws to Follow.

Peppers and Rogers are delightful, brisk, witty and solid business thinkers. Best known for their One to One concept (OtO Future, OtO Manager, OtO Fieldbook), they deserve to be equally well known for their recent work in Return on Customer, and this book.

Don and Martha demonstrate their reliably good instincts around themes like trust, collaboration, values-driven management, and culture. They inhabit that slightly rarefied territory where new age management meets—and greets—old world success in the competitive marketplace. Left wing capitalism is the vibe it gives off, without compromising either, and I kind of like that.

Your mileage may vary, but what I find most interesting about their contribution is the stark, precise analysis it gives of just what’s wrong with short-term management, Wall Street financial analysis, and the modern-day obsession with profitability as the ultimate metric.

Their critique is not based on disempowerment, or cronyism, or the corruption of the soul. It’s how those practices manage to destroy shareholder value, pure and simple.

The (grossly) over-simplified logic is this. In a connected, small world, the supply of capital is greater than the supply of customers. Yet companies will fund programs that chew up customers to supply a higher return on capital, even while they reject programs that chew up capital to supply a higher return on customer. If customers are ultimately the scarce resource, then why over-weight return on capital? The shorter the long-run, the sooner the long-term results are going to show up on the short-term income statement.

The more corporations are willing to focus on annual and quarterly profit, the more likely they are to churn customers. Churning customers destroys loyalty, thereby raising customer acquisition and maintenance costs, thereby lowering long-term profitability.

The authors use simple math and real-life corporate examples to highlight the destructive financial results of focusing too much on the short term.

Their analysis is neither facile, nor squishy.

I remember a century or so ago studying in business school the idea of “quality of earnings.” In one case, we saw equivalent earnings (i.e., the bottom line of the income statement as a percent of revenue or of various measures of capital) from GE and from Westinghouse. But in terms of quality of earnings—basically the presence or absence of long-term, sustainable, repeatable, customer-nurturing behaviors—GE’s earnings per share were far superior. And it was reflected in share prices. (Not to mention continued existence: the saga of Westinghouse makes for interesting reading in corporate history).

This is a macro-level example of what I encounter in my seminars at an individual and micro-level: how do you do the “right” thing when all the “powers that be” around you are focused on the short-term?

The answer at the micro-level is to play your own game, live your own life, cultivate your own reputation—don’t let others do it for you. Unless you’re a year away from retirement and don’t care about your reputation, then focus on relationships, reputation, and the nurturing of customer relationships. For an individual, the best short-term results come not from short-term management, but from continuous execution of a long-term program.

The answer at the macro-level is the same. You’ll run a better company, produce better earnings, and be a better investor if you focus on the long term, and watch the short-term results take care of themselves. Warren Buffet would be a good example of this strategy, as is Apple, Starbucks, or a host of companies who know the value of values, not just the cost of capital.

Congrats to Don and Martha for a very refreshing presentation of a very solid concept.