SELLING AND GETTING PAID FOR BETTER SERVICE

 

            Many customers have become aggressive shoppers out of economic necessity. They don't want to hear about our products; they want cost reductions. Too often core customers are shopping and then giving us “last look” to meet the competitions' better prices and terms or risk losing the business.

 

            As the entrenched supplier, we should have had the opportunities to both solve customers' problems and fine-tune service levels for them. Shouldn't these extra service values that grow with the relationship warrant “last look” plus extra margin consideration? If so, how do we increase our courage and skills for justifying that premium?

 

A DREAM SCENARIO

            Imagine that a customer offers us last look and that our front-line hero on the spot - stands firm, does not blink, perhaps gets a bit indignant and states the following:

           

“Mr./Ms. Customer, I appreciate that times are tough and that you need and deserve the lowest total cost possible. With your current buying process, we are already the best total cost solution even though our price might be higher than what a prospective supplier might offer. We deserve a last-look at the low market rate plus a premium for at least two distinct value-added reasons.

 

First, I'm unique, you can't get me from any other supplier and I want to remind you of some things that I have done for you in the past out of my own value-added initiative which have all saved you costs. For example,...(review them). For being a top-flight sales rep, I deserve last look and something more just for me.

 

Second, there is my company's extra value-added. As our firms have worked together, we have unconsciously built trustworthy relations and efficient routines that save time, costs and anxieties. Our inventory levels, for example, now reflect our past usage, so your fill-rates are consistently higher than when we first started doing business.

 

If you switch suppliers, there will be switching costs until you re-create what we already have together. Plus, there are risks. A new supplier's final service performance may fall short of ours, and they may try to raise prices back to our current level or higher to make a fair profit after buying their way in at a loss. For being a proven supplier and to avoid switching costs and risks, my firm also deserves last look and something more.

 

If you want significant cost reductions, then we should consider entering into a cooperative, sole-supplier relationship. If we rethink our buying and selling methods together, then we can reduce all elements of total procurement cost including price. Otherwise, what we are already doing together is the best total economic value.”

 

REALIZING THE DREAM

            The script above including a happy ending for us could only happen if we meet at least three conditions: 1) such a customer must be a “value buyer”; 2) our sales rep and company would have been creating and delivering distinctive service values all along; and 3) we would have been continuously selling the value of our services instead of waiting for a last-look confrontation.

 

            The first condition is likely, because roughly 80% of U.S. adults want “best value”, 5-10% of Americans are pure-price buyers who will trade bigger, hidden costs for smaller, measurable price savings. And, 5-15% are psychological or carriage trade types. This doesn't mean that the value buyers can specifically define what “value” is. They do listen, though, to total economic value solutions.

 

            Most large value buyers will not tell a supplier that they are the best value source. They would prefer to get both the best service value and the lowest market price. This can only happen when either the best supplier caves in on “last-looks”, or two firms work cooperatively within a sole-supplier relationship.

 

            The other prerequisite conditions mentioned above are less likely to be in place. In surveys, big buyers claim that about 10% of the sales reps are worth seeing. These top reps should have a history of memorable value-added efforts for which they could justify “last look plus.” The other 90% might have undistinguished value-added records and would be happy to get last look and meet the new, low market rate.

 

            The entrenched supply firm should have been also working steadily to fine-tune the value-added services and to create multiple, personal, chemical bonds with each core account before last-look day. Because many firms have under-invested in these activities, they might also be glad to meet a price. Now that tough times are converting more customers into instant value migrants, more suppliers might shift resources into customer retention and value re-invention measures.

 

            Most entrenched suppliers should still have, though, an unconsciously created, higher level of service value. While many buyers and sellers may now under-appreciate this value, it isn't too late for suppliers to start to identify, measure, sell and get paid for it. Most firms and their salespeople are good at selling their tangible goods, but few have any formal education or practiced ability for selling service economics. We need to address this shortfall quickly to help stem further margin erosion.

 

ACTION STEPS TO CONSIDER

            1) Salespeople need to survey customers regularly on what they have liked about the best sales reps they have ever dealt with and what they disliked about the worst reps. With this steady feedback, reps must continuously re-invent their personal value-added efforts to become top 10 percentile performers worthy of last look plus.

 

            2) A sales team should generate a list of every special effort that they can recall for each core account. Put these lists in a “can you help me” format and review them with the customer. Ask them if these efforts were worthwhile and if the list sparks ideas for new service improvements. This is a disguised and disarming way of selling hidden relationship value before last-look day arrives.

 

            3) Management must start participating in an annual schedule of team-selling. While on calls, they should be asking about customer frustrations with suppliers and new procurement objectives. We must keep looking for compelling, unmet needs that we can fill at a cost that is less than what the customer agrees to pay for it.

 

            4) Sales training must re-focus on the how-to's of selling service economics. Does everyone know: all variations for effectively cutting the price; the eleven elements of “total procurement cost” fluently; the steps for selling, installing, measuring and creating service value ideas so switching costs are obvious to the customer; how to smoke out value buyers masquerading as pure price buyers; etc.

 

            5) Have case discussion sessions at which successful salespeople share how they have sold and gotten paid for service in the face of last-look pressure. These meetings will give recognition to the best and courage, technique and fluency to the rest.

 

            6) Longer term, each company must continue to improve its basic service excellence to distinctive levels to both keep and penetrate accounts at a greater rate than the competition. Distinctive service will win last look and support a margin rate that on average is 5 to 10% greater than the mediocre competitor's margin percent. And, a service edge is more effective for wedging into new accounts than price.

 

            A global-glut of equally excellent commodities will keep customers shopping and competition chopping for years to come. The competitive edge will come through service value-added, but we must continually re-invent and re-sell this set of intangible values to succeed and prosper. An excellent Pacific-Northwest distributor is planning to have his sales force ready to get last look plus 2% more on the price. Their new year's slogan will be “Two for me in this new year”; more of us should join them in selling value.

 

 

ÓMerrifield Consulting Group, Inc. Article # 3.8