Businesses in the East of England have been faring better than most in the UK. A recent 2012 Q3 business confidence report for The East of England commissioned by the Chartered Accountants Institute for England and Wales (ICAEW), shows that the region is doing broadly better than the rest of the country with turnover growth at a flat 4% Year-On-Year (UK at 3%). Unlike other regions in the UK, the East of England business leaders are also forecasting continued growth for the coming 12 months by the same margin. If only profit margins were growing at the same pace, up 2.8% in the same period demonstrating that growth is coming largely from more competitive pricing.
Price versus Value
Competing solely on price, rather than value, only has a limited time-frame of success. Yes, there is a tactical justification for using price to attract new buyers in order to introduce them to your business but breaking the cycle of price induced growth is vitally important to achieve in order to have growth on the top line translated to growth on the bottom line. Commoditising your product or service only goes to erode the buyers original perceived value and make it all the more difficult to re-engage the customer to accept higher pricing in the future. Which is why discussing the value elements of the product or service with customers is so much more profitable than the price. Herein lies the issue though; what is value in the eyes of your customer and how to find it?
"Turbo" Example
Take the example of an engine parts manufacturer bidding to win the contract to supply turbo chargers on their customer’s new range of industrial engines. These engines are destined for an emergent market for the customer in Southern Africa. The business has supplied turbo chargers to the customer for 20 years and the sales team are confident of success. They've done their homework and pored over the bid proposal documents to ensure that they meet requirements. The sales manager has been in contact with buyer and had favorable feedback. He has even been told that they “exceed the technical specifications in many instances”. This new engine will not be as high volume as other engines they supply but as the business are able to use most of an existing Bill of Materials and production line for the new turbo with just a few modifications they are able to meet the cost target without any problem. Comfortable in the knowledge that this will be another win for the company the sales team submit the bid documents a week early and wait for the impending good news. A week after the deadline submission date the engine manufacturer calls the sales manager to inform him that the company was not successful in obtaining this business. They had gone with a new supplier that offered an advantage over their bid proposal. Stunned; the sales manager called the team together and gave the bad news. It turns out that the Southern African country that was to receive the imported engines had a little known tax credit scheme for locally produced automotive parts. The competitor had offered to produce the components of the assembly in the destination country thereby saving the competitor up to 25% of tax breaks that they were able to share with the engine manufacturer. Moreover, this small economic contribution to the imported engine provided relief for the local government that was coming under pressure to financially support a national engine producer with the development or more environmentally friendly and fuel efficient technology.
This sorry tale is a good example where the relationship with the customer was not deep enough in order to understand the true value on one particular bid and strategically points a question as to the potential success on future bids. The competitor on this occasion didn’t only satisfy existing needs (those on the bid documents) but worked with the engine manufacturer to sell an emergent need that was unknown at the time and provided value beyond reach of the incumbent supplier, not just on cost but also it seems on some political kudos with the government in the export destination that will no doubt help with any future expansion in that market.
If the sales and management team at the incumbent supplier had gone beyond the traditional Key Account Processes and Solution Selling models and embraced a partnership approach to their business and the use of insight selling practices, they would have been able to keep their position at their customer intact. Establishing strategic account partnerships with your most important customers are the key to sustaining business during slow economic periods as well as ensuring that during higher activity phases your business is well positioned to capitalize with maximum returns.
Push to Pull in the relationship
To modify your management model for your top accounts requires a shift in thinking within the business. From a “this is what we can do for you”, which is a system of pushing established solutions into well-known or acknowledged needs within the market or at the customer, to a “what is possible by working closer together ?” principle. The latter being a more pull system of engagement which encourages a relationship that is agile and continuous, one that requires the whole business to be tuned in to the value needs of the major accounts; ready to innovate and deliver.
Stages of Success
- Communicate the change
Leveraging existing partnerships first requires the customer to agree to working differently with the business and understanding why. The communication should be handled with care as the new relationship, for it to work effectively will probably mean that a greater degree of interaction with more people at the customer side than previously. A buyer will need to be reassured that by involving others within their organisation and therefore increasing the potential for greater value delivery will only go making their buying process easier and more successful.
- Establish The Teams
Leading from the front, the businesses MD needs to be the executive sponsor for the Strategic Partnership. This will ensure that there is clear evidence that the business is taking the new process seriously but more importantly allow the MD to have sight of issues as they occur routinely and provide the resources to the partnership to deliver value. There will need to be a strategic manager responsible the smooth running of new and current projects as well as communicating throughout the business the status of the account in terms of value delivered.
- Value Mapping
The most fruitful part of the process will be the establishment of the core values as perceived by the client. Generic value ingredients could be quality, price, delivery, access to technical support. However it’s important to be specific and understand what part of “technical support” is deriving value. For example value could be the business having a member of its own technical staff working alongside the customer’s own development team on site during the innovation process thereby shortening the lead time and therefore the cost to market. For a private hire company it could be a call back service to let a customer know when the taxi has arrived with information on the registration and drivers name.
Next the client needs prioritize and rank the business according to the agreed set of value criteria. This now provides the basis for the roadmap to success. The value ingredients will change over time and for specific bids like the turbo charger example there could be unique value additions that need to be explored. Score highly on the clients perceived value map consistently and why would your customer go anywhere else?
Value mapping can be conducted in a number of ways. If running B2C business, face to face one to one’s with a number of your most regular customers would be one way as would be B2B workshop facilitated to drive out the nuggets of value with the strategic accounts key stakeholders.
- Metrics, KPI’s and Objectives
Success needs to be defined in terms of total value to the customer and in terms of sales revenue growth to the business. These will be hard coded into the Objectives of the partnership. The business team needs to establish key metrics that will drive the new level of partnership. Such as frequency of meetings, proposal turnaround times, deadlines for meeting project milestones, response times to email or phone queries etc. Getting the regular and sometimes smaller elements of the relationship working well is the corner stone to hitting the bigger targets over the long term.
- Governance
Put in place a governance document that captures all the elements of the partnership model and circulate throughout the business and at the customer. This will include the areas above as well as team members, their roles and contact details. Escalation plans should be included for when people are off work, unobtainable or for when issues arise that are not being solved the customer knows where to turn to. This document becomes the living Mission Statement for the business and its relationship with the customer.
- Engage
Lastly, make it happen! Have the meetings, discuss the current and future states of both businesses and see the process create new opportunities for both parties.
A UK based life sciences company recently engaged the world’s largest chemical company to adopt a value partnership model. The customer wanted an effortless way to do business with the UK firm, although wanting a better price the chemicals giant was satisfied with the scientific service. The discussions illuminated the need that what the customer valued more than anything during this peak demand to meet REACH regulation deadline was the ease and speed to do business.
With an addition to the strategic account team by of a German speaker with technical skills to manage the projects and forming clear turnaround metrics on the transactional side of the relationship the company was able to grow its sales revenue by over 20% in just 12 months from 2011.
As we all know, when one finds value you don’t ever want to lose it!
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