Source: Provided courtesy of SKF USA Inc. Used with permission.
By embracing customer value management, readers can employ it in their own firms to drive superior business performance, just as the best-practice firms mentioned throughout this book have. We sketch the processes composing our customer value management approach in figure 1-2. The figure places the processes in sequence, which also serves as an overview of our book. We devote a chapter to detailing each of these constituent parts of customer value management.
Chapter 2 focuses on how to conceptualize value, which is the fundamental building block of customer value management, and addresses questions like these: What do we mean specifically by “value” in business markets? How does one define points of difference, points of parity, and points of contention vis-à-vis the next-best alternative? What are the three types of value propositions suppliers use in business markets, and why is a value proposition with a resonating focus preferred over the other two?
Customer value management processes
Chapter 3 describes a process for firms to formulate their value propositions. It begins with analyzing what potential changes in the market offering customers would value most vis-à-vis the next-best alternative. This is used to develop a value proposition to aspire to. Then qualitative research is conducted to refine the value proposition. Finally, value word equations are developed to capture the points of difference in terms that customers can readily understand.
Chapter 4 provides a methodology for persuasively substantiating value propositions to customers. The value word equations are brought to life with data that is gathered in a customer value assessment. They are then used to construct value calculators that demonstrate the value to customers. Finally, value case histories and value documenters help prove to customers that they did indeed receive the value that the supplier promised them.
Chapter 5 demonstrates how a deep understanding of customer value can be used to tailor market offerings. Instead of the usual vanilla approach that provides the same bundle of products and services to all customer firms, a supplier can offer flexible market offerings. This allows more refined targeting through various levels of service and enables suppliers to capitalize on differences between customers.
Chapter 6 challenges suppliers to transform their sales forces from selling on price to becoming value merchants. While getting sales compensation aligned with selling on value and profit is critical, it is not enough. Businesses must foster value merchants and put a value-selling process and value-based sales tools in place. They must ensure initial and ongoing value-selling experiences with customers and instill and invigorate a value merchant culture.
Chapter 7 is all about how companies can profit from the superior value they provide customers. Although it is natural to think first of price premiums, there are also three other means of obtaining a fair return from customers for value provided in business markets. However, getting a fair return requires the supplier to manage pricing as if profitability depended on it! To accomplish this, we provide a value-based approach to pricing at the strategic, tactical, and transactional levels.
In chapter 8, we take up the challenge of prospering in business markets. We discuss what customer value management can and cannot do to help businesses prosper. We provide further evidence of the contribution it can make to superior business performance and consider how businesses can get started in implementing customer value management and becoming value merchants. Finally, we discuss how businesses that are value merchants can continue to provide superior value and profit from it.
The customer value management approach we present in this book provides state-of-the-art thinking, supported throughout by best practice from a variety of businesses, industries, and countries. And it has the benefit of having been tested in a number of companies over the years. Implemented with integrity, it can provide that rare commodity that suppliers seek: superior business performance through demonstrating and documenting superior value.
TWO
Conceptualize Value
Focusing on What Matters
IN RECENT YEARS, the terms value and value proposition have become two of the most widely used terms in business markets. While these terms are fundamental to our customer value management approach, our research reveals that despite their growing use, there is little specificity or agreement about (1) what is value, (2) what constitutes a customer value proposition, and (3) what makes a value proposition persuasive.
Moreover, we find that most value propositions that suppliers construct and deliver in business markets do not actually convey the superior value their offerings may provide to customers. Lacking the knowledge to persuasively substantiate the superior value of their offerings relative to those offered by competitors, suppliers find that their value propositions are discounted by customer managers who, increasingly pressed for time and demonstrable results, focus simply on reducing price.
What is customer value in business markets? Offerings in business markets can have many value elements. How can identifying the points of difference, parity, and contention with the next-best alternative help firms focus on the relative handful that matter the most? What are the three alternative kinds of value propositions in practice, and which is best for suppliers to pursue? We answer each of these questions in turn—a solid grasp of these concepts is vital for moving business customers beyond price to demonstrated and documented superior value.
Defining Customer Value in Business Markets
What is meant, specifically, by “customer value in business markets”? We first consider how customer value has been defined by others and then focus on a superior definition. Next, we introduce the fundamental value equation to precisely express the relationship between customer value and price. We finish by discussing the customer’s knowledge of value.
Conceptualizing Customer Value in Business Markets
Various definitions of customer value have been offered by different authors. Considering them suggests the varying conceptualizations underlying this concept and the differences in what it means. The definitions also suggest some of the difficulties in actually assessing customer value.1
According to Bradley Gale, “Customer value is market-perceived quality adjusted for the relative price of your product.” Perhaps reflecting their interest in pricing, Robert Dolan and Hermann Simon state that “perceived value is the maximum price the customer will pay.” Gerald Smith contends that “Value = the benefits the customer receives relative to the price paid.” Finally, Thomas Nagle and Reed Holden state, “In common usage, the term value refers to the total savings or satisfaction that the customer receives from the product.”2
So, what is customer value? Adjusted market-perceived quality, maximum price, benefits relative to price, totals savings, or, even, satisfaction received? Each of these constituent components takes
