Reviewers
Luciano Thomé e Castro, Founding Partner at Markestrat Group
Article
‘It’s almost like taking the sales out of selling’—Towards a conceptualization of value-based selling in business markets by Harri Terho, Alexander Haas, Andreas Eggert, Wolfgang Ulaga
Source
Industrial Marketing Management, Volume 41, Issue 1, January 2012, Pages 174-185
Summary
This classic article conceptualizes value-based sales as a distinct approach for companies to implement their value strategy across various levels. This unique construct influences how salespeople work in business-to-business industries. The authors identified three fundamental pillars in well-executed vale-based sales. The first involves understanding the customer’s business model, followed by crafting a value proposition, and third, effectively communicating the created value to the customer.
Now, let us better understand value-based selling. Subsequently, we will explore the opportunities for implementing this sales approach in agribusiness and why the approach, despite not being new, is of growing importance in today’s reality.
In the first pillar, the importance of understanding the customer’s business model is related to the authors’ assertion that value emerges from the “customer’s engine,” where staff and other customers’ resources interact with products or services provided by suppliers. Understanding, therefore, the “customer’s value generation machine,” is crucial for the supplier to position the solution where value will be created. Some components of the customer business model contribute to a clearer understanding of its nature and importance. The customer’s profit formula is one such component. Understanding how the customer makes money (main cost components and revenues) what drives the value creation gives clues as to where value may be created. For instance, there might be opportunities to increase the price of customers’ output and still be highly regarded by the customers’ customers. How does a supplier, with its value proposition, make that possible?
The second component is crafting the value proposition. Simply defined, a value proposition is the reason why a customer should choose a supplier over the second-best alternative. First and foremost, a good value proposition from a value-based strategy’s perspective must involve the customer’s reality somehow. It may be with the use of customer data or direct customer engagement in a co-creation exercise. Chances are, if a value proposition disregards the customer’s reality and does not have customer data somehow built-in from start, it is more of a product-centric sales approach. Also, the value created must be relevant and impactful for the customer, as well as visible. Importantly, the value proposition should include tangible numbers that make clear the financial benefits potentially generated for the customer by the offer. More than precise numbers, the exercise of how a value proposition may create additional revenues or help the company cut down on costs will allow the customer to build its own scenarios and assess how much that offer is indeed valuable.
Finally, communicating the value created is what will sell the offer. Translating all these potential benefits to different stakeholders, recognizing that different stakeholders have different ways to read benefits, is a great starting point. To establish credibility, it is fundamental to help the customer evaluate alternatives paths. This involves transparently and sincerely comparing competitors’ offers and recognizing their advantages and disadvantages against those of the suppliers. A good recommendation is to enhance the credibility of the offer through risk-sharing, especially when the offer involves an important and potentially risky change for the customer.
What does this mean for food and agricultural business?
The value-based sales strategy is recommended for companies approaching high-value or high-potential customers with offers that require them to change from one solution to another. Typically, these changes are not easy decisions to be made, and they involve some level of uncertainty and risk for the buyer. At the same time, there is a potential gain if implemented successfully. As an example, many decisions farmers fall into this category. Whether it’s changing seed varieties, adopting a relevant conservation practice, or even changing “the color” of a farm fleet, these decisions might involve some level of risk to the farm’s results. Those decisions are the ones that may be well supported by a value-based approach.
Salespeople, once aware of a particular farmer’s business model, will craft customized value propositions and will communicate them to the farmer customer following the steps mentioned above and walking the customer on the decision process.
One element that highlights the opportunity of using the value-based strategy is that data has become more and more readily available for agribusinesses. From awareness to trial and ultimately to the commercial adoption of a particular solution, numerous software tools are now available, facilitating data collection and supporting decision making. On the other side, farmers and agribusinesses have become more analytical in their decision-making, showing a keen interest in supporting their process with educated quantitative analysis. Clearly, the value-based sales strategy aligns well with an analytical customer that will search for data, scenarios and simulations before making a relevant decision. Conversely, suppliers that want to sell high-value offers are the ones who embrace the value-based sales approach. This is because they need to build a compelling case demonstrating how their value can benefit customers, dissuading them from simply taking the cheaper alternative on the table.
In terms of conveying potential value creation, the outcome-based models used by some input manufacturers collaborating with ag retailers to sell input packages to farmers is an interesting example of risk-sharing among supplier and customers. It is an attempt to build credibility. Moreover, the educational potential behind a risk-sharing approach is powerful. Customers become mindful of the results of the offer and gain insights into the effects of investing in a certain solution. As such, trials and pilots are also opportunities to educate customers on the potential gains a solution may bring, provided that all the data generated by these efforts are properly managed by suppliers.
