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Tom Reilly Training Home of Value-Added Selling and Coaching for Sales Success |
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How Distributors Add Value by Tom Reilly ©Copyright 2001 Before launching into a value added business approach you may want to ask yourself, "Is this the way for us to compete?" Answering this question could save you some major headaches. There are many ways to compete in a market and the value added approach is one of these. Some companies compete successfully on price. Other companies compete fiercely because they sell a product that is so desirable that buyers will gladly stand in line and thank the seller for the opportunity of being put on their backorder list. If neither of these sounds like your company, then the value added approach might be the way for your company to compete. Know this about the value added approach. First, not all customers want it. You automatically eliminate one out of six buyers for your product or service. They are the price segment. Second, many customers will view this approach as a marketing cliché. Too many companies have tried to use this approach in the most superficial ways. Real value added is about creating definable, quantifiable, and meaningful value for the customer. Third, you must communicate effectively the direct link between your value added and their needs—their gain. Fourth, sixty-two percent of your market is so desperate for meaningful value added that they have taken the initiative with distributors by encouraging them to seek ways to add even more value than they are currently providing. Types of value There are two types of value: perceived value and performance value. Perceived value is a promise that you make. It's the sizzle on the steak. It's the gift-wrap on the package. It's everything you do to build customer anticipation and expectations for your solution. This includes packaging, brand name, expertise, reputation, knowledge, etc. These are qualitative examples of how you bring value to the customer, and they generally describe who you are. That your organization is a one-hundred-year-old company gives peace of mind to many buyers. They perceive great security in dealing with a centenarian organization. That's the essence of perceived value—it gives your buyer a warm and fuzzy feeling when they buy from you. Perceived value is sensory: how things smell, taste, look, and feel. Performance value is the proof behind the promise. It's the steak behind the sizzle. It's the profit impact you have on the customer's business. Performance value includes things like greater efficiency and effectiveness. Giving customers the opportunity to do something they have been unable to do is performance value. Performance value is what you do for the customer. When your solution helps the customer use their product more efficiently, manage their people more effectively, or chase a piece of business successfully, you are delivering quantifiable value. Perceived value may get you the business, but performance value brings the customer back. Perceived value serves a useful purpose in getting buyers excited. Performance value plays a bigger role in customer satisfaction and retention. The problem that most distributor salespeople have is that they are good at communicating the qualitative value added that their companies offer; they suffer miserably when they attempt to communicate the quantitative aspects of their solution. How to add value Having studied over three hundred distributors, we have identified twelve primary value added categories. Within each category, we have discovered 150 separate examples of how distributors add value. Planning—how a company helps buyers understand their needs, plan their purchase, and source a solution. This includes: formal needs assessment, design assistance and planning, product demonstrations, estimates, etc. Acquisition—the formal act of placing an order with a supplier may include: electronic commerce (EDI), customized catalogs, fax ordering, purchasing reports, monthly statements versus individual invoices, etc. Financing—some customers need help with payment. Examples include: flexible payment terms, variable payment schedule, financing assistance with third-party service providers, leasing, rental, customized credit plans, etc. Transition—buyers may need help in preparing their people and facilities for the new purchase. Examples include: training, cross-functional transition teams, installation assistance, facility tours, etc. Logistics—this focuses on logistical support companies offer: order tracking, just-in-time delivery, free shipping, special packaging, expediting, bar coding, etc. Usage—value added includes: performance audits, ongoing training, advertising to create pull, energy audits, inventory management, cost reduction initiatives, etc. Maintenance and service—customers need to maintain what they purchase and look for suppliers that offer: preventive maintenance, roadside assistance, reminder mailings, service vehicles, loaner equipment, warranty service, etc. Customer loyalty programs—this includes things like: white glove treatment for special customers, gift certificates, customer education programs, customer newsletters, etc. Facilities—suppliers bring value with their facilities: weekend operations, twenty-four-hour service department, number of locations, specialized repair equipment, etc. Personnel—people represent a unique dimension of value: 24-hour access to salespeople, knowledgeable staff, product specialists, "S.V.A.T." teams (specialized value added technicians), etc. Upgrade and disposal—this helps customers grow through: quick release on contracts for upgrades, consignment resale, obsolescence protection, economic replacement recommendation, etc. Company qualitative—this catchall category includes: depth of resources, number of years in business, management philosophy, strategic alliances, etc. Distributors and value added Distributors enjoy a special relationship with their customers. Current research indicates that customers are relying more on distributors today than they were five years ago. This is a positive trend, and distributors can leverage this relationship as long as they continue to add value, not just cost. Every time a distributor touches something, it adds cost to the item. Take care to add value with those fingerprints. Dealing with local sources of supply is a real advantage for customers, and manufacturers know it. History's great battles were won with superior logistics. Today's business battles are fought with the logistical support of great distribution. Our research has uncovered a number of prescriptions that customers have offered for distributors who want to be known as more than a satellite warehouse for the manufacturer. First, the quality addiction is stronger than ever. This surprised me because I thought most companies had good quality. Apparently not. My recommendation is: feed the addictive beast. Continue to seek ways to improve quality. Customers are addicted to it—you must become co-dependent. Second, speed rules. Anything you do to grease the skids and speed up the process will thrill your customers. Think FedEx. Charge UPS. Less inventory management and quicker receipt of goods pleases customers. They don't want to be in the logistics business. They view this as your job and will pay for it. Third, quit thinking about cutting the competition's prices; concentrate on cutting your customer's costs. Any monkey can sell at a cheaper price. That's about the most no-talent way to compete. How can you seriously focus on re-creating value for customers when you spend your time looking over your shoulder at the competition? The value added business philosophy is perfect for distributors that want to compete on everything they do for customers, not just price. It requires initiative, energy, creativity, and an insatiable desire to get better—every day, in every way, we continue to look for ways to re-create value for our customers. Customers may prefer the prices of dealing direct with manufacturers, but they desperately need the service that distributors provide. Tom Reilly is president of Tom Reilly Training, a St. Louis based firm specializing in training salespeople and sales managers. He is author of eleven books including: Simple Psychology, Value- Added Selling, Customer Service Is More Than a Department, Coaching for Sales Success, Crush Price Objections, How to Sell and Manage in Tough Times and Tough Markets, and Get Out of the Wagon and Help Me Pull This Thing. For more information contact: Tom Reilly Training, 171 Chesterfield Industrial Boulevard, Chesterfield, MO 63005 (636) 537-3360 www.TomReillyTraining.com |
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