There is one truth to manufacturing. Your product has value. But ensuring that your prospective customers understand what value you bring to the table can be difficult.
This is called Value-Based Selling, or VBS. The challenges in VBS comes from your sales staff having a clear picture of what value you bring to the table over similar or lower costed products from competitors. In markets that are starting to grow stale with same-ness, this is a challenge that must be overcome for VBS to increase your profits and competitiveness.
Between globalization and technological advances, you can no longer make a product “one-size-fits-all” and hope the market lets you ride that wave to success. It is now more important than ever to pay closer attention to your prospects to understand their needs so that you can meet those needs based on clients’ capabilities and market.
VBS is a selling strategy that is focused on showing the benefits a saleable product or service provides in economic, technical, and social terms for a customer and at what cost. By clearly delineating the costs and benefits provided by the saleable item, this strategy is very effective and cutting to the core business of your marketed prospects.
Excelling at VBS requires the following:
While the above 4 points are likely things you are already doing, the issue arises when applying these items to different customers. Your previous plan, based in a one-size-fits-all mentality, is leaving gaps in your sales approach that sees potential customers slipping through to the competition. To combat this, recent research suggests that VBS can be used with 3 different approaches based on the prospect requirements: product, customer process, or performance.
To put it simply, this approach bases the sales pitch of your product on the value they bring to your prospects. This usually channels your greatest assets: your product, your firm, and the industry expertise of your sales staff.
By having an informed sales team, a general idea of your capabilities, and that of your product, you can distinguish yourself from your competitors with better product offerings that can cut costs for your client while increasing their own sales. By showing the positive impact of your product over the competition regardless of your higher price point, you can become the premium product that helps the client generate more revenue.
In this approach, you provide the goods that lead to value creation with your prospect still responsible for creating their own value. To do this, your customer may require that you add some minor modifications to your product in a way that improves their processes.
Often, the hardest selling point for Product VBS is sticker shock. That is, the customer must be made to understand that the total cost of ownership for their firm is lower even though the short-term costs are higher due to the product price. This can be offset by targeting decision-makers at the prospective client that can see past the short-term gains and prioritize the total cost of ownership, or TCO.
An issue with Product VBS is that since you are likely to just slightly alter your product, your new offerings can still be easily imitated. Keeping competition at bay means continuous investments in R&D and customer insights that allow you to keep enhancing your product.
Product VBS succeeds when you can show your deeper understanding of your prospects which allows you to provide innovative products that increase the customer bottom line regardless of the added short-term costs. Your new product alterations can be easily copied, meaning a continuous investment in your back-end systems is required.
This approach is not so different from price-based selling, which makes it easy to implement as a starting point for VBS at your organization.
As the name implies, this approach looks at the product you offer and how using it can improve the customers’ business processes, thus increasing productivity and profits. Again, maintaining knowledgeable staff is the edge, with consultants that can teach customers a better way to use their resources to create value from your product.
Sales and consultant teams demonstrate how their expertise leads to savings and cutting waste, which allow you to charge a premium price for your product and their skills. The goal with this approach is to increase efficiency and performance while reducing costs, thus improving client profits.
In this approach, you create a dynamic relationship with your customer to create value. This is done by the customer providing data and staff to coordinate with you on creating value with products and process modifications.
Here, the customers must understand that the total cost of ownership goes beyond products and have a willingness to collaborate with you in ways that impact their business processes.
An issue with Customer Process VBS is the reliance on proficient staff instead of product innovation. While this can mean a sustained competitive advantage, a challenge can arise when the customer learns to improve it themselves or you have high staff turnover. This can lead to ever increasing difficulty in improving the offerings before the contract is up for renewal.
Customer Process VBS succeeds when you can show your staff expertise with consulting and implementing process implementation in tandem with your product in a way that improves the customer’s business. A dependence on knowledge can become an issue once the customer learns everything you can teach or if key staff leave your firm.
With this approach, your sales team works with the customer to ensure positive performance outcomes based on the net realizable value (NRV is a valuation method that looks at the total profit an asset might make) created by having you as a vendor.
Good research and experienced staff work together to determine the value-based pricing of your product by considering the customer-based improvements (to productivity and availability) and decreased costs (to ownership and per unit) that are generated by having you as a vendor.
Performance VBS works best by highlighting and aligning both your and your clients’ end-goals in a dynamic and symbiotic relationship. This can be achieved with cooperative agreements where ups-and-downs are shared across both firms along with incentives or penalties that help balance the load.
Here, customers must be willing to outsource parts of their process and your firm must be able to achieve targets while mitigating potential risk. This level of cross-firm interoperability requires joint agreements on governance and clearly defined responsibilities between you and your client with regards to value creation, downstream opportunity creation, and emergent risks. Most successful Performance VBS approaches start with smaller engagements which lead to wider coverage and increased pricing.
An issue with Performance VBS is the open and active communication and variable control between firms. Breakdowns in this communication can lead to uneven risk balancing and unachievable targets that are outside your control. This great challenge makes Performance VBS difficult to master, and as such, impossible to copy. Successful interoperability loans itself to complete trust and long-term contracts (due to high barriers of entry for others) with better returns for both your firm and your client.
Performance VBS succeeds when communication is clear and has the potential to generate the highest value with wider profits for both you and your customer. A co-dependent relationship is the biggest barrier to entry, which also creates a benefit in that it biggest almost impossible to replicate by competitors.
OnRamp is a single point database ERP system that was designed from the ground up to touch all your business units and improve their processes and communication with each other, your vendors, and your customers.
Our best-in-class ERP includes modules to help you with engineering, training, warehouse management, sales, pricing, and customer relations. This means no added IT systems, no other vendors, no messy 3rd party plug-ins, and no added costs. All your data instantly shared with all your business units. And to help you get started quickly and with your best foot forward, OnRamp’s consulting team has decades of combined experience in manufacturing and implementing proven management methodologies that will improve your bottom line.
Improve your customer delivered value with improved reporting and communications that will set you apart from your competition.
Click here for information on Choosing the Right VBS Approach in Four Easy Steps – Onramp (onramp-solutions.com)
Joona Keränen, Harri Terho, and Antti Saurama, (September 01, 2021) Three Ways to Sell Value in B2B Markets
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