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White Papers
The Case ROITM Method: A Versatile Sales Tool for Defending Price By Mark Burton and Alex Beram
The Case ROITM is a proven method for quantifying the financial value a customer gains by using a company’s products and services versus the competition. This method yields numerous benefits for both buyer and seller:
Selling to Procurement: The New Normal By Dr. Reed Holden
Commoditization is accelerating at an alarming rate and increasingly with differentiated high-value products and services. Commoditization means that while these offerings may be more valuable than competitive offerings, there is a strong tendency for suppliers to compete on price. Recent work in medical devices, insurance, financial services, IT services, and professional services has shown that most suppliers in these industries struggle with increasing price competition. In many cases, discounting, combined with the high costs of R&D, supply, service, and support, leaves little left over for the most important indicator of business success: profits.
One of the biggest contributors to profit decline is negotiations with the customer’s procurement arm. Most managers still haven’t faced or even plan to address this very real change in the customer’s business practices. It involves procurement review and negotiations for goods and services. At the same time, procurement processes and goals have matured into professional cost-cutting forces. Importantly, as a supplier, the firm must adapt its approach to accommodate procurement’s involvement in the buying of the product or service. The greatest opportunity for managing price in procurement negotiations is to train and prepare salespeople and executives for the “procurement pricing buzz saw.”
By Dr. Reed Holden
Price discounting has become the crack cocaine of business. A brief high is followed by devastating effects on both revenue and profits. The addiction starts when managers decide to use price discounts to hit revenue targets. They assume it is only temporary, that price discounting is a quick fix to a small problem. Soon that quick fix becomes a major element of business strategy. Eventually discounting becomes the tool of first resort to fight the effects of a market downturn, intense competition, and increased sophistication of buyers.
The real problem is that over time, the quick fix of discounting becomes so ingrained that managers are incapable of kicking the habit. They believe that discounting is a necessary evil–that theirs is a unique and tough business where price discounting is the real test of the abilities of seasoned managers. This is when discounting causes managers to lose sight of what’s really at stake: how customers value a firm’s products and services.
Selling with Confidence: How to Keep Revenue and Prices Up By Dr. Reed Holden
Selling with confidence gives sales professionals the skills and support they need to resist growing pressure to discount prices. Such confidence is more critical than ever because the pressure to discount comes from two sources. First—no surprise—it comes from customers. In today’s world, when demand is slowing and globalization introduces low-cost competitors, existing and new customers are more insistent than ever that sales people discount and then discount some more. The battle to maintain profits by resisting discounting pressures from customers is tough enough without more pressure coming from yet a second source: the sales person’s sales managers and corporate executives.
Control Your Pricing through Revenue Planning By Mark Burton and Jason DePue
How many times have we heard the edict “we WILL hit the top line revenue number” coming from executives? The urgency behind these statements only gets stronger as firms near the end of the quarter and CEO’s do everything in their power to live up to their targets. Let’s face it, the pressure to meet Wall Street guidance is enormous. The pricing fire drill that occurs at the end of the quarter to make the revenue forecast destroys profits over the short-term and value over the long-term and becomes habit forming. Customers expecting end-of-quarter desperation begin to hold orders, waiting for the discounts that they know are coming.
The good news is that a number of firms have broken out of this death spiral by taking a systematic, data-driven approach to balancing financial, operational, and pricing objectives against the realities of supply and demand in their markets. The approach they use is called Revenue Planning.
Rocket Plan
Holden Advisors "Pricing Innovations" article is published in the AMA’s October Marketing Management. Companies can fuel success with a rigorous pricing approach – one that measures customer value, the innovations nature, and the product category life cycle stage.
By Mark Burton
The market for outsourced services - everything from short-term staffing to complete IT outsourcing programs - is in a state of upheaval. With strong, low-cost competitors and increasingly sophisticated customers who play off one vendor against another, there is enormous pressure on service providers to rethink every element of their cost positions and bid response processes. Knowing how best to respond starts with a clear understanding of what clients need in performance and relationships from their outsourcers.
To address the needs for differing client relationships, outsourcers should consider analyzing and correcting deficiencies in three key areas: offering definition, pricing, and sales approach.
In developing offerings many outsourcers still rely heavily on customizing most of their services. But this makes it difficult for customers to understand (and salespeople to explain) what they are getting. It also increases variation, and with it, the cost to deliver and the cost of quality.
On the pricing front, outsourcers have been slow to move away from traditional time and materials (T&M) pricing. T&M emphasizes cost to deliver (inputs) rather than the value of the results achieved (outputs). This invites constant client scrutiny on efficiency and work efforts - especially when low-cost competitors almost always look better on paper. It also puts the outsourcer and client at cross-purposes, undermining trust.
As with any period of market turbulence there are significant opportunities for firms that are proactive about challenges they face. To begin this path outsourcers need to:
Financial Services Brief: Success for the Sell-Side in an Unbundled World By Mark Burton and Nelson Hyde
In spite of a recent string of record earnings, there are storm clouds on the horizon for full-service investment banks. A key element of their business model is coming under attack – the bundling of trading and services such as research. If institutions are forced to unbundle – either by regulators or clients – they will face myriad challenges.
Divide and Conquer: By Michael Lawson and Rachel Jacobsen
Each day, data service providers face increased commoditization. Entry barriers are low, competitors are willing to take very low margins, and customers are demanding lower prices, sharing passwords, and accessing data for free through trials. In today’s Google Age, everybody wants real-time information free. To compete in this price-pressured environment, data providers must break out of the commodity trap and find better ways to capture revenue aligned with the value they deliver.
Providing data looks like a model for an unprofitable industry, with established players lining up at the exits. Yet the information industry grew to $285 billion in 2005, according to Outsell, the leading research and advisory firm for information services. Paid content on the Internet – the land of the free – is a solid $50 billion market. Clearly there are some companies thriving in this cauldron and some lessons to be learned. By Nelson Hyde and Rachel Jacobsen
The sale of products on the sly through unauthorized distributors or channels – “gray marketing” – is the elephant in the room that many businesses would rather not talk about. That’s because it can be a tough elephant to tame: some of your largest customers could be the biggest offenders, and some of your own policies may be contributing to it. For some businesses, it is easier to look the other way. Many do.
Yet minimizing gray markets can have a huge ROI for manufacturers and distributors. Controlling it properly will slow price erosion, rein in “backdoor” discounting, and increase margins. It will preserve your channel structure and brand and better protect your end-users. This paper describes strategies and techniques for controlling gray markets – what causes them and what you can do to prevent them. Better Tactics for the Fog of Business By Dr. Reed Holden and Michael Lawson
During war, things happen fast and in unexpected ways, making it difficult to follow pre-determined strategies. Military commanders use the term “fog of war” to describe this chaos and it is why the US Military is so successful in battle. Quick, life-or-death decisions are made by well-trained “field” managers who understand the objective and the resources available to them to accomplish their mission. It is an ugly and dangerous process. Commanders know that all the best advanced planning, training, and rehearsals can do is prepare field leaders to adapt and succeed when the unexpected happens. Sure, the US Military follows doctrine when training and fighting, but field commanders are expected to make decisions on the front line that will complete the mission. In a real sense, they understand and prepare and train for the chaos that occurs during the “fog of war.”
Unfortunately, the same thing happens in business. Things move quickly, often too fast for effective involvement from senior managers. It is difficult to understand what is happening real-time in markets when sales results are tallied monthly and often only by product. To make matters worse, line managers typically have objectives that may conflict with other functional areas, and they may not even know the real objectives and strategies that drive the organization. It could be argued that most businesses suffer from their own “fog of battle,” but unlike the military, they have yet to implement the systems, planning, and structure to effectively do battle in today’s marketplace.
The way to do this is to focus more on a transformation in the organization that allows people on the front lines to make decisions based on the needs of customers. We advocate this as part of our Value DisciplineSM model where Transformation (the light blue gear in the process above) is a key set of processes and systems to becoming an “outside-in” focused organization. By Dr. Reed Holden
In the eyes of many business clients, all service firms look alike. These services are viewed by increasingly sophisticated buyers as a series of well-defined commodities that are available from a plethora of companies. Because many service vendors have not updated their offering to meet the evolving needs of their business customers or communicated their unique value to each client, business customers have focused primarily on price in their acquisition process.
To avoid this commodity trap, companies must become adept at diagnosing their customers’ business problems, developing targeted solutions, and communicating this value to the client in terms relevant to their business. Simply stated, the sales manager must become a trusted advisor to the customer, partnering with the customer to deliver greater and greater value to their business operations. Absent this relationship, customers will view low-cost as the only value delivered by their commodity provider and will be happy to let multiple vendors duke it out with low prices.
Research and years of working with clients tells us that the most productive answer is moving up the customer value chain with solutions based on effective value propositions. In our experience, most customers would like their vendors to offer additional services and solution packages, and are quite willing to pay for this added value. To accomplish this, services firms must:
By Dr. Reed Holden
In the eyes of many business clients, all banks look alike. Banking services are viewed by increasingly sophisticated business clients as a series of well-defined commodities that are available from a plethora of banks and financial services companies. Because banking service vendors have not updated their offering to meet the evolving needs of their business customers or communicated their unique value to each client, business customers have focused primarily on price in their acquisition process.
To avoid this commodity trap, bank managers must become adept at diagnosing their customers’ business problems, developing targeted solutions and, communicating this value to the client in terms relevant to their business. Simply stated, the client manager must become a trusted advisor to the customer, partnering with the customer to deliver greater and greater value to their business operations. Absent this relationship, customers will view low-cost as the only value delivered by their banking services provider and will be happy to let multiple vendors duke it out with low prices for smaller and smaller pieces of their business.
Research and years of working with clients tell us that the most productive answer is moving up the customer value chain with solutions based on effective value propositions. In our experience, most customers would like their vendors to offer additional services and solution packages and, are quite willing to pay for this added value. To accomplish this, banks and suppliers of financial services must
By Dr. Reed Holden
The basis of all economic activity is value exchange. Sellers produce or offer activities people value; users and intermediaries pay a price based on that value. The greater the value of the offering, the higher the price the seller can charge. This all sounds so simple, yet in practice, it is much more difficult as managers try to align organizations to this relationship in today’s highly competitive market.
Profitable companies prioritize and execute based on customer needs and do so with disciplined programs of offerings, controls, and sales approaches to make sure they insulate profits during customer negotiations.
Getting Down to the Business of Value By Dr. Reed Holden
To become more profitable, firms must move beyond using price as a tactic to close a sale and use it instead as a tool to capture a fair portion of the value that they create for customers. Further, the ability to understand and continually create value must be integrated throughout the firm. Winning organizations do a better job delivering value to their customers and subsequently capturing it with price.
This white paper discusses sales strategies to communicate and negotiate with customers by using price to capture value rather than using it as a tool to “close” an order. In this environment, customers are forced to trade lower prices for lower value. This puts the supplier in a more powerful position to control the negotiation process and protect the profitability of higher value products. It also allows the selling organization to hold on price and averts the damage from the sales executive from riding in a white horse to close the deal by dropping price. |
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