Helping Manufacturers And Distributors
Improve Sales Performance And Profitability
Published by the Industrial
Performance Group, Inc.
No. 29

Value-Based Selling

Today the Customer, Not the Marketing Department, Defines Value

The past thirty years have transformed the business landscape for manufacturers and distributors alike. Where sales forces were once occupied with communicating features and benefits, today they must work with each customer to create value as the customer defines it.

Times have changed, but many manufacturers and distributors have not kept pace. Unfortunately, the majority of today’s sales forces are out of sync with the realities of the marketplace.

This is a major source of conflict between manufacturers and distributors, as both struggle to compete in this new environment using sales strategies and tactics from the past. To understand how this happened, it is helpful to see how the marketplace evolved in recent decades.

1970s: “Talking Brochures” and “Make and Sell” Marketing

If we could go back to the 1970s, we would see a landscape in most industries that is very different from what we experience today. Thirty years ago, competitive advantage was gained primarily by acquiring and managing tangible assets, such as plants, capital equipment and raw materials. The value proposition — product attributes, configuration, availability, pricing — was defined by the manufacturer’s marketing department. Marketing identified the needs of the many based on the input of a few prospective customers gathered in focus groups.

Once marketing had defined the value proposition, they would then develop the messages used to communicate this value
proposition to prospective customers. These messages contained the standard smattering of features and benefits, along with a number of “soft differentiators,” such as brand image and other non-specific claims of quality and performance.
These were the final glory days of the “make and sell” approach to marketing.
The role of sales was to identify prospective customers and then communicate these highly crafted messages to them. The assumption was that if you communicated the right marketing message to enough people, you would generate the sales volume needed to support the product. In essence, the sales force became the talking version of the marketing department’s brochure.

The customers’ role during this period was to listen to the various value proposition messages communicated by salespeople, then select the one that best fit their needs. With no Internet to turn to, customers relied on the salesperson as their primary source for decision-making information — mainly because there were no other sources for this information.

The fundamentals of this sales model — communicating the right message to a large number of prospective customers, which would hopefully result in an acceptable level of sales — became known as the sales funnel, often referred to as “churn.”

1980s: Wider Markets, Lower Costs, Greater Customer Choice

During the 1980s, deregulation of a number of key industries changed the dynamics of the marketplace. Deregulation of the trucking industry gave rise to the interstate parcel pick-up and delivery industry, which in turn fueled the rapid growth of catalog sales. Today, catalog sales is a $90 billion a year industry, representing four percent of all U.S. consumer purchases.

Deregulation of another key industry — telecommunications —
increased the availability of low-cost wide-area telephone service (WATS), more commonly known as 800 numbers. This greatly increased the ability of distributors and retailers to cover a wider market area for lower costs.

These changes resulted in new business models that provided
customers with access to better information, more product choices, and price advantages ranging from 10% to 20%. The balance of power was beginning to swing toward the customers.

While the sales model was beginning to change, most sales force managers continued to spend millions of dollars on features/benefits-based sales training. Such training was designed to help sales people better communicate the marketing department’s value proposition to prospective customers.

1990s to Present: Globalization, the Internet and
Customer-Defined Value

As we moved into the 1990s, major changes began to occur at a faster rate. Asia and Latin America emerged as producers of high-quality, low-cost products. This contributed to the globalization of markets and the commoditization of many products.

The Internet, once the domain of researchers and academics, became an information superhighway readily accessible to everyone. Customers gained access to high-quality decision-making information and numerous sources of supply. The balance of powe
r shifted completely to the customers, who now defined their own individual value propositions.

Customer access to high quality decision-making information, commoditization of products, and numerous sources of supply
have combined to empower customers. Today customers are no longer willing to listen to the salesperson’s description of how the marketing department defines value.

With “make and sell” marketing obsolete, successful sales and marketing now relies on learning and responding to customer needs. The role of sales has evolved from communicating a predefined value proposition to working with the customer to create their own unique value proposition.

Yet most sales forces have not made this transition. To survive and prosper in this new environment, sales force management and personnel must recognize and accept that the customer — not the marketing department — defines the value proposition. Sales is no longer about doing a good job of communicating features and benefits. It’s about working with each customer to create value as the customer defines it.

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