Solution Selling Essentials: The Value Cycle
Almost half (45%) of sales managers believe that their teams need improvement in their ability to sell the value of their solutions to customers, according to the latest survey conducted by CSO Insights.
Sales Teams’ Ability to Sell Value and Avoid Discounting
(Copyright 2009, CSO Insights, used with permission.)
Why do so many salespeople struggle with selling value and instead, focus on price or product? Let’s illustrate some of the typical problems of many sales professionals with a hypothetical situation – we sometimes receive calls from clients that sound like this:
Sales Executive: Our sellers discount too much! They make too many concessions and our margins are going down. We need to be tougher negotiators. Do you have a negotiation skill development program?
SPI: Yes, we do. It’s called Collaborative Sales Negotiations, and it uses very effective Solution Selling principles to help sellers to negotiate and close more profitable business. That might be of some help to your team, but do you mind if I ask you a couple questions first?
Sales Executive: Sure. What do you want to know?
SPI: First, why do you think your sales team is discounting so much?
Sales Executive: We’re under a lot of pressure to deliver some big numbers. We need to win every piece of business out there. Almost everyone is behind on their quota. When customers push back on price, I think we are caving in too quickly, just for the sake of getting the deal closed and on the books.
SPI: I understand. You have some challenging sales goals, and that’s encouraging people to push for an early close by conceding on price. What else do you think might be contributing to the problem?
Sales Executive: Well, I know that our compensation plan doesn’t exactly help the situation. It’s based on achievement of volume goals, not margins, so there’s not enough incentive to keep the price high. If our reps think that they can close the deal faster with a discount, they’ll go there every time. We’re trying to manage that by reviewing every discount request before approving any of them. The problem is that I have to review discounts for every single deal! It seems like it’s the first thing our sellers think of when they get near a potential win.
SPI: I see. That must consume a lot of your time. I notice that you haven’t mentioned selling value to customers. Is that a factor?
Sales Executive: We, of course, try to sell the value of our products to customers. We’ll even provide a return on investment analysis, if the customer requests one. Not many do though.
SPI: That’s interesting. Why do you think your customers aren’t asking for an ROI analysis?
Sales Executive: They are suspicious about our ROI calculations. They only view it as a way for us to justify a higher price. And, we don’t like to do them, actually – they take time and are complicated. If a client asks for an ROI, that tells me they are just delaying the decision and aren’t really interested in buying.
SPI: I see. So, when you conduct an ROI analysis for a customer, you do it near the end of the sales cycle?
Sales Executive: “If we do one, yes, usually. But, I think you’re missing the point. What we really need are some strong negotiation tactics. If we can get our people motivated to negotiate tougher and give them some tips and techniques for doing it, I think that’ll cut down on these discounts. When can we schedule a workshop?”
SPI: (on mute) *sigh*
As this not-so-fanciful example illustrates, many factors can contribute to excessive discounting, including quota attainment pressure, compensation incentives, and management practices. But, the most common factor, by far, is a general misunderstanding about what “selling value” really means. Focusing on development of negotiating skills to solve a discounting problem is like treating only one symptom, while ignoring the disease.
Negotiation skills are important, to be sure. That’s why we include essential negotiation planning tools in Solution Selling and why we also offer an advanced negotiation skills program. But, negotiating is only one of the skills required to maximize margins and reduce needless concessions and discounts. Top performing salespeople also master the ability to position value effectively. The need for hard-nosed negotiation can be reduced greatly if the total value of your solution is understood by your customer.
What is “selling value?”
Value is defined simply as the perceived benefits to be less than the expected investment. Too many salespeople wait too long to convince buyers that their solutions provide value. As a result, they usually end up making too many concessions, resulting in lower revenues and profits. A better way is to make value an integral part of the entire sales process. You should lead with value, verify the value you can deliver, justify the value to help close the sale, and measure the value received by the customer.
The Value Cycle
Lead with value
Selling value begins before you make the very first call, when you conduct research on your target prospect so that you can develop a value proposition to stimulate their interest. This is accomplished by extrapolating the value that an existing client is receiving, and helping your prospective buyer to estimate the value they might obtain if they were able to achieve the same or similar results. We described the structure of a useful value proposition earlier in this blog.
With increasing frequency, we are now seeing sales professionals conducting far more detailed value analysis before their first call with target prospects, especially for high-value B2B solutions. The reason: in this period of economic uncertainty, prospective buyers perceive an extremely high level of risk in purchase decisions, and therefore, need an extraordinarily compelling reason to even consider any new project or initiative that requires investment.
In other words, leading with value is not only wise, it is probably now a requirement for achieving your sales goals.
Verify your value
In yet another post on this blog, we described how to use the 9-Block Vision Processing Model to diagnose a buyer’s pain. Proper diagnosis of your customer’s business problem allows you to ask quantifying “drill down” questions that help you verify or refine initial assumptions made when delivering your initial value proposition. During this verification stage, the initial proposition can be expanded as pains of other individuals in the buying organization are uncovered, and thus, increase and expand the potential value that your solution could bring to that customer.
Justify your value
If salespeople conduct a value analysis for their customer, it’s usually during the proof of concept or later stages of the sales cycle. This is far too late, for this simple reason: the buyer’s motivation to share information declines after they develop a vision of the potential solution.
At the beginning of a purchase process, when the prospect has a pressing business need, they are more likely to share information about their problem and the impact it is having on their organization. This is why you should lead with a strong value proposition, and then validate it with diagnostic conversations. Once you have established a vision of a potential solution, however, your prospective buyer is more reluctant to share data which can then be used to justify a higher price to them! So, by leading with value, you are in a much better position to get a complete picture of the potential value your solution could bring to that buyer.
In addition, if salespeople do conduct a “return on investment” analysis, it usually isn’t a value justification (Value = Benefits – Investment). More likely than not, it is a cost justification (Price < Benefits). This is a subtle but important distinction – a value justification focuses on the worth of the solution to the customer, while a cost justification tries to rationalize the price being charged.
This is what a typical value justification should look like, with assumptions and sources documented:
Measure your value
Woefully, far too many salespeople fail to confirm the value that customers receive from the solutions they bought. Sales professionals that don’t capture measurements of success of their solutions miss the opportunity to get credit for the value that they have delivered, which can result in additional sales to that customer. Furthermore, by reconnecting with customers and measuring the value they received, you can also generate new reference stories that can be used to stimulate the interest of additional customers and generate new opportunities.
In summary, selling value means thinking about and capturing the potential benefits and improvements that you can provide to a customer at every step of the sales process – from before the very first call to well after the sale is closed. Selling value should be embedded in every aspect of your sales activities, in a very practical sense.
If you are struggling with excessive discounts or with positioning value consistently throughout the entire sales cycle, you might want to consider mastering the Value Cycle as part of your Solution Selling methodology.
Good luck and good selling!