to prospective customers the value they, too, might obtain from the supplier’s offering. Finally, by comparing the value actually delivered with the value claimed in the demonstration and regressing these differences on customer descriptors, documenting enables suppliers to further refine their understanding of how their offerings deliver the greatest value. This sharpens subsequent efforts to target customers. We term the tools that suppliers use to document the value of their offerings value documenters.
For a moment, put yourself in the role of a commercial grower. Two suppliers are offering you mulch film, which is a thin plastic sheet that commercial growers place on the ground to hold in moisture, prevent weed growth, and allow vegetables and melons to be planted closer together. One supplier comes to you with this proposition: “Trust us. Our mulch film will lower your cost.” The other supplier, Sonoco, comes to you with this proposition: “Sonoco just lowered the cost of your mulch film by $16.83 per acre.” And Sonoco offers to show you exactly how it determined that figure. Which supplier’s value proposition is more persuasive?
How Customer Value Management Leads to Success
Before pursuing a proposed approach that changes the way of doing business, senior management wants to know why it’s more likely to succeed than others After all, achieving any enduring change in a business is very difficult. So what are the unique strengths in an approach that make it worth pursuing? Customer value management has three unique strengths: superior conceptualization of value, a progressive approach to assessing value in practice, and proven concepts and tools for translating knowledge of customer value into superior business performance.
Superior conceptualization of customer value. To achieve success, senior managers need a conceptualization of customer value that they and their managers, salespeople, and business customers can readily grasp and find reasonable. Despite all the writing and talk about customer value in business markets, we contend that there has not been a reasoned, understandable conceptualization. As a result, there is substantial variation in what is meant by “customer value” in business markets, which has hindered implementing assessments of it.
We provide a comprehensive, well-reasoned conceptualization of customer value in chapter 2. It expresses customer value in the same metric as we ask customers to make purchase decisions (monetary terms, not importance ratings). It specifies what is and what is not value (e.g., price). Finally, our expression of the fundamental value equation especially lends itself to assessment in practice and reflects how customers decide between competing offerings.
Progressive approach to assessing value in practice. Approaches to assessing customer value that are cumbersome in practice or that require statistics experts will be met with resistance, especially from the sales force and customers. Total cost of ownership, for example, is hard to argue with as a concept. The problem is that it proves to be unworkable in practice. Customers have limited patience in cooperating with suppliers because customer managers have greater responsibility and increasing demands on their time. Where once a manager at a particular level might have had responsibility for $10 million in business, he may now have responsibility for $50 million. Customers also have a limited willingness to share their data with suppliers. Each of these facts works against the meticulous, time-consuming process of gathering data to estimate the total cost or, better still, total value of ownership in practice. As a result, efforts devolve into compromising shortcuts—such as filling out forms, guessing, and recycling opinions—in place of actually gathering data.1
In contrast, each aspect of our approach to assessing customer value has been developed and refined in working with suppliers across a diverse array of industries. Our approach to customer value assessment focuses the supplier’s and customers’ limited resources on the value elements—that is, the specific ways the offerings reduce customer costs or enable the customer to earn additional revenue and profit—that matter most and assessing them in the way that matters most. As we detail in chapters 2 and 3, we take a measurement approach that precisely defines the value elements, stating the data needed to estimate each one. We emphasize data gathering and minimize the role perception plays. The guiding principle is to generate new knowledge, not recycle opinion. Thus, a litmus test for our approach is this: are the supplier and the customers that participate in the research more knowledgeable about how the supplier’s offering adds value or reduces cost in the customer’s business than what they were before the research? Our approach enables marketing and sales to significantly contribute to competing on analytics and evidence-based management.2
Proven concepts and tools for achieving superior business performance. Our work with many clients and more than ten years of management practice research have enabled us to discover, devise, and refine concepts and tools that, when implemented with integrity, lead to superior business performance—like devising customer value propositions that resonate with target customers; constructing and deploying value-based sales tools that the sales force is able to use and wants to use; and pursuing new knowledge with the intent of better understanding what will lead to superior business performance. We want to make it clear that there is no trickery, deception, or sleight of hand in customer value management. Rather, it is fundamental thinking proven in practice to significantly improve business performance. Throughout this book, and especially in chapter 8, we provide proof points of how suppliers practicing what we advocate have achieved superior business performance. We begin with the experience of Sonoco in the next section.
Enhancing Business Performance with Customer Value Management
Ultimately, there are three basic sales approaches prevalent in business markets. First is selling on price. Most firms are, however, not set up to sell on price because it requires relentless cost cutting, moving production overseas to low-cost locations, and trading low margins for (hopefully) higher volume. In this type of commodity business, purchasing managers tend to dominate customer interactions, and suppliers have little pricing flexibility. Suppliers can attempt to compete on price, but how many suppliers in a given market can have the lowest price? Just one. Not willing to accept this basic fact, suppliers pursue business through price cutting, often orchestrated by adroit purchasing managers.
To escape this exclusive focus on price, most suppliers pursue a second approach: they claim that they provide superior value—and deserve to be compensated appropriately. Unfortunately for the suppliers, most often this translates into “Trust us, our offerings are worth more.” The claims of superior value are just that—claims! These value assertions are not substantiated by any in-depth analysis on the part of the supplier and therefore cannot be demonstrated nor documented to customers. The result is that suppliers have little choice but to end up competing on price when pressed by purchasing managers. As shown in the IC case, this does not mean that the supplier is not providing superior value; it’s just that the supplier lacks the ability to prove its claims. Even if the supplier and the customer agree that the supplier’s offering delivers greater value than the competitor’s offering, they may have substantially different opinions of what this greater value is worth in monetary terms to the customer.
This brings us to the third approach, which we recommend and develop in this book. Customer value management is a datadriven approach to demonstrating and documenting in monetary terms the superior value that a supplier’s offerings deliver to customers. Competing on price may work if the company has the lowest cost in the industry and chooses to pass it along to customers instead of using this advantage to build differences that are valuable to target customers. But, for most companies, customer value management is a more viable way to enhance business performance. Surprisingly, though, only a few progressive companies follow this approach. Let’s consider the experience of Sonoco.
Sonoco: Achieving Superior Business Performance
The CEO of Sonoco, Harris DeLoach Jr., and his executive committee have set an ambitious growth goal for the
