Valuing Value

by Britton Manasco | Nov 01, 2007 | B2B Marketing

If you want to be an innovative B2B marketer, you should take a close look at companies in the most commoditized B2B industries. The prospect of a hanging, as they say, can concentrate the mind.

Well, if you sell ball bearings or cement or industrial chemicals, there's a good chance you don't have a lot of profit margin to work with. You are probably one (wrong) step from oblivion. But precarious market positions can drive impressive advances.

That's what three far-sighted academics -- James Anderson, Nirmalya Kumar and James Narus -- discovered in their research into the state of B2B.  Their new book,  Value Merchants: Demonstrating  and Documenting  Superior Value in Business Markets, is a must read for all senior leaders and customer-facing executives looking to differentiate their companies (and themselves) in today's increasingly competitive environments.

What they've discovered is that it is no longer enough to simply project business value. If we hope to survive and thrive in an era of growing skepticism, we have to prove it.

With profiles of such companies as Grainger, Rockwell Automation, SKF, Milliken, Tata Steel and Quaker Chemical, the authors convincingly demonstrate that the future is all about demonstration. Buyers, in other words, will no longer take our promises on faith. They expect us to measure and demonstrate business value over time. In many cases, our compensation may even be tied to results.

Contrast this future with a common scenario of the past in which, say, the software sales person throws code over the wall and runs for cover before the bomb explodes.

No longer. To win business in the coming years, it becomes necessary,
as Quaker Chemical has found, to document actual cost savings and
compile case stories of success. In one case the customer paid $1.2
million for a three-year contract and generated total documented
savings of $3.8 million. The key, in this case, was the customer's
confirmation of the savings. Value confirmation becomes the true
measure of success.

Even the construction of a value proposition has risen to a new level
of urgency and sophistication
. One software company that has embraced
the new paradigm, Intergraph, has constructed a value proposition that
recognizes one "point of parity" with competitors and emphasizes three
points of difference. The company's "resonating focus" -- or key
differentiators -- helped establish the company as better than the "next
best alternative." Result? Revenue rose 35% per year (vs. the industry
segment average of 10-12%) and profit margins climbed 26% (vs.
14-16% for the industry).

The mistake too many marketers make lies in spilling one's supposed
benefits all over the prospective customer without positioning the most important
ones relative to the alternatives. As the authors explain, the
"resonating focus value proposition steadfastly concentrates on the one
or two points of difference that deliver, and whose improvement will
continue to deliver, the greatest value to customers."

In a cell phone call leaving the airport in Calcutta, Kumar put things
in perspective. "The fact of the matter is that very few companies look
at value in monetary
terms," he told me. "All companies talk about value and
some even try to do some kind of quantification of value. But very few
do the analysis based on data and the next best alternative as opposed
[unproven] assumptions and perceptions."

Why so few? "It’s a lot of work," he adds. "It's easier to say, 'We
sell on price' or 'We sell on value, trust us.'" He explains that it's
not worth it to try to document value if one of those two strategies
are working. But how much longer will they continue to work? Not much.

So how will B2B markets evolve in next few
"Companies will increasingly see that [customer value management] is the only way they can
[maintain profit margins] and so they will adopt it," Kumar says.
"Like any new approach, it will be
changed and modified. Some people will adopt better than others. Some will
instrument better than others. Some will prove more disciplined and sustained in their
follow through than others."

Indeed, those who are not prepared to take this challenge seriously are bound to be disappointed. "It’s hard work and it takes time," he concludes. "It's not instant Nirvana."