Value Merchants. Nirmalya Kumar

4.1 percent from 2005 to 2006, for a three-year average sales growth of 10.1 percent. Perhaps more important, profitability expressed as earnings before interest and taxes (EBIT) increased 23.9 percent from 2003 to 2004, 14.6 percent from 2004 to 2005, and 17.6 percent from 2005 to 2006, for a three-year average growth in EBIT of 18.7 percent. While superior business performance depends on a number of factors, Sonoco’s experience provides strong evidence that customer value management makes a significant contribution.

      Promoting a Value-Driven philosophy to Business Markets

      The responsibility for leading a value-based market strategy in business markets lies at the top of the firm. Senior managers need to convey to the firm that it generates value through both its core offerings and its augmenting services and that it expects to receive an equitable return for those offerings and services. In larger multi-business firms, the senior management of each business unit—especially the general manager and top marketing and sales executives—has primary responsibility for customer value management. We will show that customer value management is more than a marketing and sales activity, so the general manager must ultimately own and lead its successful implementation.

      While “senior management support” may sound like a cliché, we have found through both outstanding and terrible experiences while working with firms to implement customer value management that it is no cliché—it’s absolutely essential. And such support cannot be simply talk from senior managers about how important customer value management is. More telling to everyone in the business is how senior managers choose to spend their time. Making time in their schedules to attend the launch of customer value management initiatives, serving as executive sponsors of customer value projects, monitoring the progress of initiatives, and setting aside a day to attend business cases for change and to give feedback all send a stronger message throughout the business that senior management is committed to implementing a philosophy of doing business based on demonstrated and documented value to customers.

      Sonoco’s corporate culture reinforces to each salesperson the preeminence of value in the firm’s overall market strategy. From the day they are hired, sales representatives learn that Sonoco products are typically higher priced than those of competitors. And they quickly discover that Sonoco prospers because it provides value to its customers in the form of technologically superior products and outstanding services. From these lessons, salespersons readily conclude that if they are to succeed at Sonoco, they must sell value, not price. Moreover, the Sonoco “value story” is repeatedly reinforced through such things as annual reports, brochures, company newsletters, case histories presented at sales meetings, and sales tools.

      GE Infrastructure Water & Process Technologies (W&PT), for example, stresses the importance of documenting the results its solutions have provided customers in its brand slogan: “Proof, not Promises.” What does this slogan mean? According to W&PT’s Web site, “‘Proof, not Promises’ is the GE Water Technologies commitment to measure success in terms of the savings and performance improvements achieved for our customers. ‘Proof, not Promises’ sets a standard for excellence and accountability that our customers can count on, providing documented proof that their profitability goals have been met.”

Similarly signaling its commitment to documenting the results it delivers to customers, Sweden’s SKF, a global leader in bearings, has given its SKF Documented Solutions Program this tagline: “Real world savings—and we can prove it!” Figure 1-1 illustrates SKF’s customer value approach.

      Of course, Sonoco, W&PT, SKF, and the other best-practice firms we will draw on in this book did not just stumble onto customer value management. Their journeys began years ago with small steps, learning through experience, and an unwavering, visible commitment by senior management to see the approach through. We find that despite all the talk about value in business markets these days, these leaders are in the minority. In fact, remarkably few suppliers have made any systematic or methodical effort to understand the value of their offerings to customers. They talk about value but continue to struggle against commoditization pressures and succumb repeatedly to customer demands for price concessions. However, by adopting customer value management as a philosophy for doing business, suppliers can demonstrate and document the value of their offerings, helping turn gray money into green money for both customers and themselves.

      Overview of the Book: The Path to Superior Business Profitability

      Our intent in this book is to transform businesses and, especially, their sales forces into value merchants. Doing business based on demonstrating and documenting superior value is, indeed, a rare commodity. Yet it doesn’t have to be so rare. We contend that by adopting the customer value management approach we present in this book, value merchants can prevail when they encounter challenges of the type that the IC salesperson faced. Specifically, readers of our book will learn how to:

       Assess customer value in practice

       Craft value propositions that resonate with target customers

       Achieve spirited implementation for superior profits

FIGURE 1-1 SKF Documented Solutions program advertisement

      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?

FIGURE 1-2

      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