Sunday, March 30, 2008
Sunday, March 16, 2008
Not All Customers Are Created Equal
Not All Customers Are Created Equal
Not all customers are created equal. When it comes to profits and customers relationships, some customers are much more valuable to you than others are and vice versa, you are more valuable to some customers that you are to others. In order to break out of the commodity price trap, you have to be able to create more value for your customer. But you cannot create value unless you have access to your customer and you won’t get access to your customer unless you have a strong relationship.
The more access you have to your customer, the more information about your customer that you have access to. The more information that you have access to, the better able you will be at crafting a value creating proposal. That’s the good news. The bad news is that some customers are easier to bond with than others. Your ability to pinpoint which customers are willing to develop a relationship with you and which ones are not is your key to higher profitability.
You’ve heard of the 80/20 rule before. The 80/20 rule applies to many situations. For instance, on average, the top twenty percent of the salespeople in this country make about eighty percent of the sales. Another example is that twenty percent of your customers account for eighty percent of your profits. Using the 80/20 rule as a guide can help you decide which accounts to focus your resources of time, energy and effort.
Company culture is your window into your customers thought processes, their purchasing processes and also their relationship processes. Company culture, for those unfamiliar with the term, is the overall psychological profile that a company has manifested through its employees by virtue of the management profile of the company leadership. In other words, whatever characteristics the leadership of the company emphasizes to its employees will be the same profile exhibited by those employees to its vendors. If top leadership emphasizes and rewards an open and accessible leadership style, then those traits tend to be inherited by the employees that work under them. If the top leadership emphasizes closed thinking and protective politics, then the company culture will generally follow suit. Sometimes by design, but mostly by accident, a company passes down their culture to their employees, simply by rewarding specific behaviors or sometimes by failure to reward other behaviors.
It can sometimes be easy to spot a company culture that isn’t very open to forging relationships. The typical signs are low employee morale, lots of office politics and a self-centered psychology focused on individual goals rather than on corporate goals. This type of company culture results into low profitability, low quality output and a commodity pricing mentality for their own produc offerings. It should go without saying that if a company has a commodity pricing mentality for their products and services, then their purchasing processes will also focus on commodity pricing mentality as well. By recognizing your customers company culture, you can make better decisions on how much you want to allocate your time, energy and efforts. The quicker you learn to recognize the culture of a commodity pricing mentality, the quicker you can decide to get out of the selling process before you’ve invested too many resources on a little or no profit account. This frees you up to better focus your resources on the twenty percent of clients that understand that you have more value to offer then other than just the lowest price.
This is not to say that you shouldn’t ever go after any business with companies that are focused on commodity pricing. This is just a way of helping you identify what type of purchasing thought processes that you are dealing with so that you can make the appropriate selling strategy. Remember, according to the 20/80 rule, you will always have some portion of your clients that are transactional focused, meaning that they are only interested in price. But by thinking about company cultures and how they affect your access into their business, you begin to recognize your ability to provide value creation solutions and you can re-allocate your time appropriately. Ideally, you will probably want to spend eighty percent of your time with twenty percent of your customers.
Not all customers are created equal. When it comes to profits and customers relationships, some customers are much more valuable to you than others are and vice versa, you are more valuable to some customers that you are to others. In order to break out of the commodity price trap, you have to be able to create more value for your customer. But you cannot create value unless you have access to your customer and you won’t get access to your customer unless you have a strong relationship.
The more access you have to your customer, the more information about your customer that you have access to. The more information that you have access to, the better able you will be at crafting a value creating proposal. That’s the good news. The bad news is that some customers are easier to bond with than others. Your ability to pinpoint which customers are willing to develop a relationship with you and which ones are not is your key to higher profitability.
You’ve heard of the 80/20 rule before. The 80/20 rule applies to many situations. For instance, on average, the top twenty percent of the salespeople in this country make about eighty percent of the sales. Another example is that twenty percent of your customers account for eighty percent of your profits. Using the 80/20 rule as a guide can help you decide which accounts to focus your resources of time, energy and effort.
Company culture is your window into your customers thought processes, their purchasing processes and also their relationship processes. Company culture, for those unfamiliar with the term, is the overall psychological profile that a company has manifested through its employees by virtue of the management profile of the company leadership. In other words, whatever characteristics the leadership of the company emphasizes to its employees will be the same profile exhibited by those employees to its vendors. If top leadership emphasizes and rewards an open and accessible leadership style, then those traits tend to be inherited by the employees that work under them. If the top leadership emphasizes closed thinking and protective politics, then the company culture will generally follow suit. Sometimes by design, but mostly by accident, a company passes down their culture to their employees, simply by rewarding specific behaviors or sometimes by failure to reward other behaviors.
It can sometimes be easy to spot a company culture that isn’t very open to forging relationships. The typical signs are low employee morale, lots of office politics and a self-centered psychology focused on individual goals rather than on corporate goals. This type of company culture results into low profitability, low quality output and a commodity pricing mentality for their own produc offerings. It should go without saying that if a company has a commodity pricing mentality for their products and services, then their purchasing processes will also focus on commodity pricing mentality as well. By recognizing your customers company culture, you can make better decisions on how much you want to allocate your time, energy and efforts. The quicker you learn to recognize the culture of a commodity pricing mentality, the quicker you can decide to get out of the selling process before you’ve invested too many resources on a little or no profit account. This frees you up to better focus your resources on the twenty percent of clients that understand that you have more value to offer then other than just the lowest price.
This is not to say that you shouldn’t ever go after any business with companies that are focused on commodity pricing. This is just a way of helping you identify what type of purchasing thought processes that you are dealing with so that you can make the appropriate selling strategy. Remember, according to the 20/80 rule, you will always have some portion of your clients that are transactional focused, meaning that they are only interested in price. But by thinking about company cultures and how they affect your access into their business, you begin to recognize your ability to provide value creation solutions and you can re-allocate your time appropriately. Ideally, you will probably want to spend eighty percent of your time with twenty percent of your customers.
Saturday, March 15, 2008
Customer Relationships and Value Propositions
Customer Relationships and Value Propositions
I’ve written a lot about customer relationships in the past. But a good relationship with a customer or a prospect doesn’t guarantee automatic or continuous success for any new business negotiations. A good relationship is only a doorway that gives you the opportunity to grant you the access that you need in order to probe for information and formulate a value proposition in order to better present your case. The better the relationship, the better the information that you will have access to, the better the feedback that you will receive in order to formulate a better value proposition, which should all lead to you being able to present a better, stronger case for your customer to select you, your firm and your offering.
So at this point, there’s no further point in discussing your relationship to your customers anymore. I hope it’s safe to assume that you understand the value of building strong customer relationships. So let’s address how you can best utilize the access that a good relationship with your customers and prospects present.
Selling is all about information. The better your information, the better the chance you have of making the sale. If your information about your customers and prospects is better than your competitor’s information, then it stands to reason that your chances of winning more sales are also better than your competitor’s chances. That is because if you are trying to make a fair profit then you need to be able to justify your price and the way that you justify your pricing is by creating value for your customers. The more that you understand your customers, your customers buying motives, your customers business, your customers markets and your customers competitors, the easier it will be for you to create a value proposition. And you cannot possibly get all of this information without first having a strong relationship with your customers.
Let’s talk briefly about a value proposition and what it means. If you are in sales and you don’t understand what the term “value proposition” means, then I suggest that you do some more research in that area. In fact, if you are involved in any facet of business, from accounting to operations, it’s imperative at some point that you understand a little bit about creating value propositions. But that is fodder for another time.
Anyway, value propositions are ways that you can build up your product and/or services in the eyes of your customers and prospects by other means besides just lowering your price. One example of a value proposition can be that your product has lower long-term maintenance costs than the offering of your competitors, which means a higher Return on Investment for your customer over the lifetime of your product. This has the effect of long-term lower costs and higher savings overall to your customer.
There are lots of other ways of creating value propositions, but that conversation is outside the scope of this discussion. Suffice it to say, that as a salesperson, your job is to provide your customers with optimum business solutions to their problems and to do it in such a way that you can make a reasonable profit for you company. Unless you want to just keep playing the pricing discount game, value propositions are your only other alternatives.
So how do you decide what your value proposition will be? That’s where your relationship comes in. Through that door, a strong customer relationship is the access that you will need in order to gather enough information to formulate a strong value proposition. Most customers won’t just come right out and tell you where their pain is. In fact, without an existing relationship, you might not even get in the door at all. But a strong relationship opens the door for an honest exchange of dialog. The dialog provides information for you to find the customers “points of pain”. Without knowing the points of pain, you cannot formulate a value proposition for your product offering and you are left to assume that only by lowering your price can you bring any value to your prospect and his firm.
Once you find their points of pain, you customize a proposition that emphasizes the value of your product offering by addressing their pains. Your relationship with your customer should also provide you with enough feedback so that you know if your solution does address the correct points of pain. If your feedback is positive, then you are on track to making the sale, if it’s not so positive, then you need to revisit your solution and address the shortcoming by tweaking it some or by scrapping it entirely and starting over. Either way, your relationship needs be strong enough or you won’t get sufficient feedback.
I’ve written a lot about customer relationships in the past. But a good relationship with a customer or a prospect doesn’t guarantee automatic or continuous success for any new business negotiations. A good relationship is only a doorway that gives you the opportunity to grant you the access that you need in order to probe for information and formulate a value proposition in order to better present your case. The better the relationship, the better the information that you will have access to, the better the feedback that you will receive in order to formulate a better value proposition, which should all lead to you being able to present a better, stronger case for your customer to select you, your firm and your offering.
So at this point, there’s no further point in discussing your relationship to your customers anymore. I hope it’s safe to assume that you understand the value of building strong customer relationships. So let’s address how you can best utilize the access that a good relationship with your customers and prospects present.
Selling is all about information. The better your information, the better the chance you have of making the sale. If your information about your customers and prospects is better than your competitor’s information, then it stands to reason that your chances of winning more sales are also better than your competitor’s chances. That is because if you are trying to make a fair profit then you need to be able to justify your price and the way that you justify your pricing is by creating value for your customers. The more that you understand your customers, your customers buying motives, your customers business, your customers markets and your customers competitors, the easier it will be for you to create a value proposition. And you cannot possibly get all of this information without first having a strong relationship with your customers.
Let’s talk briefly about a value proposition and what it means. If you are in sales and you don’t understand what the term “value proposition” means, then I suggest that you do some more research in that area. In fact, if you are involved in any facet of business, from accounting to operations, it’s imperative at some point that you understand a little bit about creating value propositions. But that is fodder for another time.
Anyway, value propositions are ways that you can build up your product and/or services in the eyes of your customers and prospects by other means besides just lowering your price. One example of a value proposition can be that your product has lower long-term maintenance costs than the offering of your competitors, which means a higher Return on Investment for your customer over the lifetime of your product. This has the effect of long-term lower costs and higher savings overall to your customer.
There are lots of other ways of creating value propositions, but that conversation is outside the scope of this discussion. Suffice it to say, that as a salesperson, your job is to provide your customers with optimum business solutions to their problems and to do it in such a way that you can make a reasonable profit for you company. Unless you want to just keep playing the pricing discount game, value propositions are your only other alternatives.
So how do you decide what your value proposition will be? That’s where your relationship comes in. Through that door, a strong customer relationship is the access that you will need in order to gather enough information to formulate a strong value proposition. Most customers won’t just come right out and tell you where their pain is. In fact, without an existing relationship, you might not even get in the door at all. But a strong relationship opens the door for an honest exchange of dialog. The dialog provides information for you to find the customers “points of pain”. Without knowing the points of pain, you cannot formulate a value proposition for your product offering and you are left to assume that only by lowering your price can you bring any value to your prospect and his firm.
Once you find their points of pain, you customize a proposition that emphasizes the value of your product offering by addressing their pains. Your relationship with your customer should also provide you with enough feedback so that you know if your solution does address the correct points of pain. If your feedback is positive, then you are on track to making the sale, if it’s not so positive, then you need to revisit your solution and address the shortcoming by tweaking it some or by scrapping it entirely and starting over. Either way, your relationship needs be strong enough or you won’t get sufficient feedback.
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