The last few years of rapid growth and post-COVID-19 supply constraints have been a boom time for sellers across many industries. Businesses hungry for growth have placed low hurdles on sellers to prove value. Even in an environment of pricing growth not seen since the 1970s, sellers have been able to generate sales because of product scarcity and availability issues.
But times are changing fast. We are moving from an economy of limitless demand and cheap money into one where money is expensive, and buyers will look for much stronger return on investment (ROI) to justify new purchases. Demand is plateauing and as supply comes back online a seller’s market is turning into a buyer’s market. With budgets constrained or cut, and layoffs real or threatened, we are seeing the early signs of an overall flight to value. New projects or purchases will require much clearer returns on investment.
The signs of this shift are visible across multiple sectors:
A food products company managed to grow rapidly, and price aggressively, during a period of value chain shortage by keeping a basic supply on hand and meeting reasonable delivery expectations. But demand is slowing and the company now needs to show customers that they can help reduce overall cost of product, inventory, and labor—and help grow the top line.
A corporate software company grew rapidly during COVID-19 by offering point solutions that had the potential to accelerate digital transformation when customers needed it the most. The company is now being challenged much more directly by customers to prove ROI with hard data.
Getting Back To Customer Economics And Value
We believe that now is the right time for sales organizations to get serious about value selling and value pricing. But value selling is not easy. How do you win in the new environment? We recommend four actions to position your company for sales success:
1. Understand your customer’s current opportunities and pain points. In this economic environment, the likelihood of securing budget will be much higher if you are able to equip your advocate to go to their boss with a clear savings or growth story. To develop this story, you won’t be able to pass “go” until you confirm that your client has real pain or a real opportunity. The good news is that it isn’t hard to confirm the level of pain or opportunity, as you can use estimates based on your client’s size (employees, revenue), industry, and current use of solutions and technologies to develop a starting point before you quantify company-specific numbers.
2. Quantify value to the customer. To determine value to the customer, you must know the reference value—the price of the customer’s next-best alternative and the differentiation value—the incremental benefit relative to the next best alternative. For example, if company a charges $300 for a product and company b charges $250, making $250 the “next best alternative,” is there any incremental value to the more expensive product to justify the price? Certainly if company a’s product is technically superior or provides better service and support, this has incremental value and helps to justify the premium. See exhibits 1 and 2 below.
The reference value plus the differentiation value equals the value to the customer. But how can you show that to a buyer?
3. Develop standard value calculators that make it easy to share the proposition. Rather than “doing the math” in a unique way for each product or customer, use a basic but dedicated value calculator that will produce a ready-made number. These value calculators can be embedded into your sales motions or as part of your customer qualification processes and incorporated into standard sales actions which live within your CRM systems.
Give the following interactive calculators a try:
Example A: Clari Revenue Leak Assessment value calculator - Clari is a leading revenue collaboration and governance platform that is using a value calculator to help sales professionals identify potential revenue leakage. Demo it here.
Example B: NetApp Cost Savings value calculator – NetApp is a leading cloud data services company that is using a value calculator to help potential customers instantly quantify potential cost savings with cloud storage consolidation. Demo it here.
4. Make the process scalable and replicable. Taking a value-based approach to pricing is often a daunting challenge for executive teams because of many barriers, real or perceived. Part of the secret to building a scalable and replicable process is to understand and anticipate these barriers:
Lack of information. Estimating the value to the customer is complex and the customer is typically disincentivized from disclosing operational information that would help reveal the full value of your product or service.
Proving it. Even with ample evidence from testing, customers often need to see the benefits themselves to believe them. New customers are a tougher sell than repeat buyers.
Buyers versus users. The customer making the buying decision is often different than the end-user of the product and may have different objectives—such as minimizing costs rather than maximizing net value for the company.
Psychology. Many customers will have a hard time going for a significantly higher priced product, even when believing the differentiation value on some level. ‘Sticker shock’ is real, particularly for a new product or for an unexpected price increase.
The more you can anticipate these points of resistance, the better the questions you can ask to develop data points for selling. The more you go through the process, the better you get at quantification, and the more success you will have. And the more you can differentiate value, the higher the prices you can justify.
To scale this approach, companies must gain alignment around value-selling management mandate across sales, marketing, and customer success. This affects organizational design and the selection of process and technology.
Build New Muscle Memory
In the current economic environment, deploying a value-based selling approach will be critical for many companies. If done well, a value-based approach can help your company in significant ways. For example, if you are part of an organization with 100-1000+ sales reps, this approach could help you meet targets for 2023 or bring in significant incremental revenue.
Value selling is a skill that many salespeople need to ramp up or didn’t use as much over the last few years of supply scarcity and high demand. It’s time to retrain and hone those skills, and make it part of each salesperson’s muscle memory. You also will likely need to adjust your incentives to reflect the focus on value pricing to drive a shift of the sales behaviors. These together can make a huge impact. By taking the four steps above, you can position yourself and your company for value selling and take advantage of current economic trends as a springboard for revenue growth in 2023.