A new era of Value Selling

1.1.3 The linear funnel model – outdated?

The marketing funnel is a visualization for understanding the process of turning leads into customers, as understood from a marketing perspective. As consumers are using different researching techniques today (e.g. social media advertising) and get various inputs throughout the process, the linear sales funnel (see figure 1) in B2B or B2C is somewhat of an obsolete model. One alternative to the marketing funnel is McKinsey’s consumer decision journey, which employs a circular model (see figure 2) to show how the buying process fuels itself and to highlight pivots or touch points. In the traditional funnel metaphor, consumers start with a set of potential brands and methodically reduce that number to make a purchase.

Figure 1: Linear Funnel model

Source: McKinsey, 2009

Figure 2: The customer journey today

Source: McKinsey, 2009

1.1.4 The future of B2B sales

AT Kearney described in their publication “Beyond Limits: The future of B2B Sales” (ATKearney, 2015) that technology is equipping companies to set new records in the B2B sales race, but they must

act sooner rather than later to profit from these new opportunities. While the B2B sales innovation is on, people will implement the new ways and processes and it will be more important than ever to hire inspired, motivated and engaged sales staff into B2B sales organizations to drive the change.

Companies say they are already struggling to deal with challenges such as:

 More complex products and services to meet clients’ demands

 New entrants with alternative offerings, unconventional business models, and lower prices

 Accelerated commoditization and substitution

 Greater market transparency and growing customer procurement capabilities

 Shifting control of the buying process toward customers

Cloud providers such as Amazon Web Services, Google or Microsoft Azure are taking the market share in pay-as-you-go infrastructure (IaaS) and disrupt the model of buying infrastructure from hardware vendors such as IBM, HP or Dell. With Software as a Service (SaaS), companies do not even need to buy large license-agreements but just select the Oracle or SAP Solution and the Anti-Virus protection from the Amazon marketplace and pay on an hourly, monthly or yearly base to streamline costs, use the scalability and avoid expensive hardware or software upgrades of the IT landscape. On top of this, offers provide up to 60% lower prices to their customers, which is a thread to existing compute and storage suppliers.

The innovation has begun and technology-fueled sales practices with advanced analytics in real-time involve replacing salespeople with technology solutions. More importantly, productivity and revenue are higher than average and customers receive information much faster compared to calling their account manager and waiting hours for a reply.

The following emerging practices are being implemented and a fast growing number of tools and technologies like tech-enabled consultative selling improve the selection and use of products and services in client organizations:

 - Bundles, pricing and value capture are combined in a new way with self-parametrization offers

 - Co-creation with customers meets collaborative selling with other business units or ecosystem partners to maximize the value for the customer

 - Education of customers about value-creation opportunities

 - Orchestrating partners and internal functions to raise efficiencies and reduce the amount of customer touch points

 - Scientific models like big data-enabled customer analytics redefine customer value as sales management is using predictive models or experiments to understand the true potential

 - Virtual experience like augmented or virtual reality in a gamified, multimedia and multisensory environment triggers the human need for experiential adventures during the buying process

 - Marketing generates must-have situations and influences the buyer to create customer pull rather than pushing products through sales

 - B2B offerings and services concepts are providing 24/7 accessibility through all channels- primarily the digital ones

 - Sales reps use tablets with an online store app and guide the buyer through the online purchasing process to educate them about future purchasing options

 - Personal B2B buying portals allow seller companies to analyze data from customers using the digital connected experience and have the ability to anticipate and adapt customer needs with data-driven activities

For example, Amazon has introduced customer interactions where they are presented with preconfigured value propositions geared toward their specific needs based on their historic search behavior. MyIBM provides personalized support and services to B2B customers based on interest and purchase history. Other suppliers increased their sales efficiency substantially by implementing a configurator that lets customers quickly put together a customized product solution and quote.

Thus, B2B sales organizations are learning to point out desires of their clients they did not even know they had. Oftentimes that means not just educating the customer, but also orchestrating the different parties and functions within the customer organization to discover and recognize the need. New players in the all-different sectors from banking to logistics use algorithms (machine learning) to intelligently track the data points their clients leave in various digital platforms such as Amazon, eBay, or Facebook.

Another example for how B2B sales can add value to companies is, once more, online retailer Amazon, who provides a mindset of “selling everything inside the company.” Amazon has taken an almost religious 360-degree B2B sales perspective on its operations, looking at every part of the company as potentially salable products and services. No matter if B2B or B2C, Amazon examines its entire value chain with a B2B sales eye. With these new large revenue and profit streams, Amazon’s B2B sales force is a powerful contributor to the bottom line and as a B2B-centered customer-focused company the B2B sales force can become the “superwomen and supermen of the future”.

Machine-learning enables recommendation engines to boost cross-selling revenues and generate new sales based on the user’s buying and search patterns. Churn prediction is another concept used to predict the risk of customers moving away and help maintain them before they switch providers, e.g. to avoid the unnoticed switch of electricity providers after a move.

1.1.5 Value through Digitization

New chances emerge in digitization for companies in the B2B and B2C areas in order to approach customers and decision-makers and present them with new offers. Nowadays, customers use apps on their mobile phones to read the news, make purchases, monitor their fitness activities or control their homes. In the business area, apps are being used to grant access to information anywhere, edit approval processes from anywhere and at any time, as well as observe the business development in real-time, to be able to react to altering trends.

Many services of companies do not offer a sufficient way of distinguishing between competitors in the area of 'low involvement' products and are thus being categorized by price. Digitization provides opportunities through new technology that improves the customer's experience, makes the offer come alive (e.g. through virtual reality) and presents need-based solutions (e.g. individual online consulting). Modern cloud-services - the online provision of IT-resources and applications on-demand for usage-based prices - allow for the acceleration of the time-to-market and the development of new applications and thus enroll new digital offers worldwide within minutes. Due to the usage-based availability of IT-resources such as the infrastructure (server, memory), as well as platform offers, services can be developed and innovations advanced in cost-efficient ways. Usually these are the strengths of start-ups that are available to large companies via cloud-services. This agility, which is typically known from software development, is not only a method, but also a disposition and a culture in which adjustable, interdisciplinary teams complement the hierarchically coined structures and focus their development on the customer (see also: customer-centered focus of a company). Real-time processes and agility are crucial when it comes to modern supply chains that are influenced by the paradigm shift in the trade between companies (B2B).

The commercial success of businesses is going to depend on their ability to know and understand the individual needs of customers and decision-makers in order to be able to develop and sell recoverable services for them. Agile product development focuses on the customer benefit and sets manageable goals. Development teams concentrate on products and solutions that create a surplus value for the customer. To achieve this, the customers are incorporated into the development as early as possible, so that their feedback can be considered in the next steps.

Product functionalities that the customer is not interested in will then be modified or left out accordingly. At the same time, through big data analytics, the customer journey will be analyzed along touchpoints with a product, brand or company all the way to the desired target action. Common target actions are purchases, orders, interactions with the company and product, as well as requests. Despite 'big data', the success rate of innovation has been shockingly low for decades because marketing managers and product developers focus too much on customer profiles and meaningless correlations of records instead of figuring out what it is that decision-makers look to attain in certain situations.

It is less about the features of a customer that determine his desires but more about the tasks that they want accomplished in a B2B and B2C surrounding. The customer is not aware of these sometimes complex tasks, so they need to be detected by the company. For example, consumers do not only take cough medicine when they are sick, but also if they just need a good night's rest. Des Traynor, founder of the IT-business Intercom, points out four tasks that his company's customers really wanted solved:

1 Show me the people that use my product and what they use it for

2 Help me approach these customers

3 Help me broaden my knowledge with the help of comprehensive feedback from users

4 Help me help my customers and solve their problems

This resulted in a software that assists companies with staying in contact with their customers through their website, mobile apps, e-mail and messengers.

As an example, the energy revolution forces suppliers to face enormous challenges: Because the production of energy has become almost free and consumers feed in electricity into the network, electricity and gas may be offered in unlimited plans in the future. Therefore, energy suppliers will be required to differentiate and offer their customers additions, such as a secure data access, entertainment without commercials, smart-home applications and other convenient and technological extras that consumers can pick freely according to their needs. A personal app could show when the e-car should be charged according to the hourly energy price or which saving opportunities for electricity there are for a certain time depending on the weather forecast. Individual ratings and usage-based billing can help energy suppliers with the development of new offers and the promotion of customer loyalty. The offering of a customer portal can provide consumption data in real-time in order to avoid surprises in the following bill. This creates trust as a central surplus value.

A radical customer orientation means to initially show interest in the customer, because decision-makers nowadays are able to obtain full transparency about their suppliers and change over to a different one if they are discontent with their appearance, quality and service. The keyword, as well as the most important requirement when it comes to the selection or deselection of offers, is relevance. Correctness as another criterion means to emerge ethically and price-competitively on the market. Security in the digital world will be a crucial benefit argument, as people carry the basic fear of losing personal information to other people or institutions without their consent. The basic demand in the age of digitization is therefore to put all data into a secure system and store it without any danger (e.g. by hackers).

So far, nobody knows what the models for a world of digital providers look like, but energy providers need to start thinking about this transformation, as well as which new business models and products will help secure their profit. Additionally, the desires of customers in the digital age are not only about functionality, but also about emotions, which you have read about already. Furthermore, managers find the best customer benefits of their offers via benefit elements that fulfill functional and emotional needs, the need for recognition, as well as the desire for life changes. The combination of these elements strengthens the customer relationship and the desired growth in sales through product development, pricing and customer segmentation.

2 Creating and defining customer value

You will find many versions and definitions of value. The most relevant one is your prospect´s definition. This will always be an individual one and, thus, you need to understand the value perceptions from your conversational partners and the value derived from companys’ KPIs and strategic objectives. Therefore, value creation should be led by the perceived value-add of the buyer. In general, internationalization, differentiation, cost leadership or diversification can achieve a company’s competitive advantage. Keep this in mind when you want to link your solution’s value to the client’s strategic objectives.

According to Webster’s Dictionary, value is: “The monetary worth of something marketable; relative worth, a quantitative determination of usefulness …” Others define value as “the added competitive advantage you bring to your customer” (Hanan and Karp, 1991). Consequently, the selling company who delivers the highest value, not the highest quality product, will win the race. Mittal and Sheth (2001) concluded that value, not money, is the basic currency of all human interaction. This can be emotional or rational value. Lindgreen and Wynstra (2005) stated that “the supplier-perceived value is the sum of the direct functions of a customer relationship i.e. profit function, volume function, safeguard function and the indirect functions of a customer relationship i.e. innovation function, market function, scout function, access function”.

Customers and stakeholders of a buying center weigh benefits differently. As an example, economic, relationship, quality or safeguard value are not equally the same for individuals involved in the buying process because of different personality styles e.g. dominant, initiative, relationship of rational behavioral styles. Also, different objectives as defined by their roles and responsibilities and even disadvantages need to be handled proactively as complex or delaying decisions, risk assessments, scenario calculation of business cases, vendor lock-in or loss of control should be weighted and addressed to the client.

It is important to mention that relationship benefits have a stronger potential for differentiation than cost considerations do. Ulaga and Eggert (2006) found in their research that price accounts for approx. 20% of the variance and relationship benefits account for four times as much. In more detail, service support and personal interaction have been reported in their studies as core differentiators followed by the knowledge of the selling company e.g. the account manager or pre-sales engineer and finally the ability to improve the time-to-market (speed). On the other side, product quality and delivery performance, along with acquisition costs and operational costs only showed moderate potential to get and maintain a preferred supplier status. The price shows the weakest potential for differentiation.

Customer benefits

In this chapter we will see different models of customer benefit and value and how these can be measured, i.e. by the value quotient (VQ). In general, benefits such as image, relationship, safety, quality, innovation rate, time, agility, flexibility, control or economic advantages have different objectives to convince the customer and require diverse management techniques to establish and improve them, e.g. branding management, communications, innovation management, quality and cost management. Since a couple of years ago, social responsibility and sustainability have become important values for the buyer and the society. Sustainability will be influenced by image, communication, innovation, economic feasibility and environmental safety. Sustainability needs to be part of the sales conversation and enables the seller to position brands, products and services in the market with a unique selling proposition (USP). The positive image of sustainability could be a door opener to raise a prospect´s interests. Beside this, cost savings still have the highest value for buyers, especially in times where industries like the utility and energy sector have announced significant billion $ saving programs. Belz et. al. (2016) reported from a study of 278 companies that customer value is a key in the sales process and value selling drives the focus to a value-orientated approach.

Three benefits were found in their research: Relationship, economic feasibility and image.

Relationship as the highest ranked perceived benefit implies the interconnectedness between the seller and the buyer, as well as personal relationships, credibility and reliability. 91% of the interviewees defined relationship as very important to win customers and maintain them. Something that is hard to be substituted by chat robots.

Economic feasibility means the seller´s contribution to improve the client´s profitability to allow higher competitive advantage by lowering their costs, optimize total cost of ownership, revenue growth and profit improvements, e.g. EBITDA, margin. 82% reported this as important. Image refers to the brand image, positioning and leadership, e.g. market, quality or innovation leader.

2.1 Concept of Customer Value

The total customer value and customer's perception is affected by four factors, namely: functionality, solution, experience and meaning, as Horovitz articulated (Horovitz, 2000). He defines functionality as the outcome that the customer obtains from basic product features whereas a solution obtained by extending the offering is to include support services such as installation and maintenance. Experience includes the rational experience as well as emotional elements derived by the total experience. Meaning, as the fourth factor, takes the experience to the next level of self-actualization (Khalifa, 2004).

Woodruff differentiated other categories of product value: functional, social, emotional, epistemic and conditional value, which might be intrinsic or extrinsic. In his classification of customer value concepts, he suggests that customers also consider value at different times, such as the time of making the purchase decision, experiencing its performance, or after use (Woodruff, 1997). He defines purchasing as ‘choosing’, which requires customers to distinguish between product offer alternatives and evaluate preferred product needs.

Woodruff provides a definition of customer value, which adopts a customer perspective derived from empirical research:

Customer value is a customer's perceived preference for and evaluation of those product attributes, attribute performances, and consequences arising from use that facilitate or block achieving the customer's goals and purposes in use situations (Woodruff, 1997).

Woodruff also elaborates on how to close the gap in an organization to deliver value to their customers, i.e. a customer learning process, where managers can understand what the customer really values versus what they think they may value. Woodruff suggests a customer value determination process as a tool to bring the voice of the customer into a selling company by identifying target customers; identifying their key buying criteria and analyzing the broader, complex range of desired value dimensions (see figure 3). A continuous learning cycle, which consists of learning, creating the value delivery strategy, translation, implementation and performance tracking supports the success to increase the effectiveness of value creation and learning within the value-selling concept.

Figure 3: Translating Customer Value Learning into Action

Source: Woodruff, 1997

Woodruff presents a customer value hierarchy model (see Table 2 below) to capture the essence of customer value which suggests that customers conceive of desired value in means-end way.

Table 2: Customer Value Determination Process

Source: Woodruff, 1997

Starting at the lower level of the hierarchy, customers learn to think about products as bundles of specific attributes before they use goals and purposes to attach importance and consequences.

He draws more attention to the process of understanding value dimensions rather than identifying a customer's preferred or desired attributes as used by customer satisfaction management, which is advocated by quality management, an internally focused initiative. The process provides value to the effectiveness of VSTP if the execution is secured and monitored and should be part of the training program as a self-assessment to understand the areas for improvements on a skills and process level.

Furthermore, Woodruff argues that managers need to translate that learning into actions (see figure 4) leading to competitive advantage, which requires skills in order to shape a manager's mental model of their customers, and how they actually perceive desired and received value (Senge, 1990). Thus, the training (e.g. VSTP) of managers and salesforce on how to apply interview techniques and analyze the industry of the customer for finding out what customers desire (e.g. innovation, products, process improvement, service) can be part of the translation process to create a customer value delivery strategy. However, the amount of input on how to effectively implement this for the selling company to ensure a ROI from the translation-process is limited. Woodruff mentions managerial learning barriers to acquire these new skills, but new methods and tools will be needed as well to deal with the customer value learning process (e.g. predicting future customer value change).

As buyers can be consumers and/or professional purchasing managers, they can be seen as a person who makes buying decisions depending on their role in the buying process i.e. economic buyer, technical buyer or purchasing manager within a business-to-business scenario (B2B). A customer’s needs extend from pure utility needs to pure psychic needs and correspondingly, Khalifa states, customer benefits range from tangible to intangible benefits or a combination of them (Khalifa, 2004). Porter defines value as “what buyers are willing to pay” and identifies value only with the value that the selling company has managed to obtain for itself. In contrast, Khalifa suggested that there would also be value created for the customer e.g. consumer surplus (Khalifa, 2004). The model of customer value build-up is complementary to the value exchange model, which is a benefits-cost model (see figure 4) and used in strategy literature.

Figure 4: Customer Value in Exchange

Source: Khalifa, 2004

Khalifa states that customers are willing to sacrifice a certain amount of time, effort and money, and even take risks in exchange for receiving total benefits that outweigh their investments. Net customer value as the difference between total benefits and total sacrifice results in net customer value, which triggers a purchasing decision only if it is zero or above. Similar to the customer value build-up model, psychic and utility values are incorporated. The customer value exchange model also includes total customer ownership (TCO) and is set in a wider context of customer value. TCO consists of financial and non-financial customer costs, i.e. pre-use, at-use and post-use costs (Khalifa, 2004). Considering the TCO of an offering is different than looking purely at the purchase price of a product plus its attached maintenance contract costs. Therefore, the TCO needs to be analyzed for the customer during the value selling process.

The role of marketing to create value for its customers is the key to delivering superior products and, as Rust et. al among others declare, this can deliver superior value to firms’ shareholders in consequence (Rust et al., 2000) and, more importantly, create satisfied and loyal customers, who want to place future purchases with the seller (Rust & Zahorik, 1993).