Companies that sell products and services to other businesses (B2B) operate in an extremely competitive environment. Purchasing managers are increasingly held accountable for reducing costs, so they don’t have the luxury of simply believing suppliers’ claims of cost savings. A relatively easy and quick way for these managers to obtain savings is to focus on price and obtain price concessions from suppliers. Consequently, to enhance negotiating power, purchasing managers attempt to convince suppliers that their offerings are the same as their competitors’ – that they could be easily replaced.
Given this atmosphere, many business marketers believe they can sell their products only by deeply discounting them; however, this is not true. Suppliers can use three approaches to sell their products and services in the business marketplace.
The first approach is to sell on the basis of price. The only way to sustain this strategy is to slash costs to the bone and to try to trade higher volume (if attainable) for lower margins. This often becomes a dangerous balancing act that most firms cannot sustain.
The second approach is to claim exceptional value to realize higher prices. Unfortunately, salespeople often cannot substantiate these claims in any meaningful way. Therefore, this approach seldom works. Purchasing managers are too sophisticated to fall for a “trust us, we have additional value” appeal.
The third option is a customer value management approach. We think this is the best approach. It calls for using verifiable data to demonstrate and document the firm’s product or service value in monetary terms.
For a moment, put yourself in the role of a commercial grower. Two suppliers are offering you mulch film, a thin plastic sheet placed on the ground to hold in moisture, prevent weed growth and allow vegetables to be planted closer together. Supplier A comes to you with this proposition: “Trust us. Our mulch film will lower your costs.” Supplier B comes to you with this proposition: “We just lowered the cost of your mulch film by $16.83 per acre.” Supplier B also offers to show you exactly how it determined that figure. Which supplier’s value proposition is more persuasive?
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