Solution Selling Essentials: The Value Cycle

Almost half (45%) of sales managers believe that their teams need improvement in their ability to sell the value of their solutions to customers, according to the latest survey conducted by CSO Insights. 

Sales Teams’ Ability to Sell Value and Avoid Discounting
(Copyright 2009, CSO Insights, used with permission.)

Why do so many salespeople struggle with selling value, and instead focus on price or product? Let’s illustrate some of the typical problems of many sales professionals with a hypothetical situation - we sometimes receive calls from clients that sound like this:

Sales Executive: “Our sellers discount too much!  They make too many concessions, and our margins are going down.  We need to be tougher negotiators.  Do you have a negotiation skill development program?”

SPI: “Yes, we do - it’s called Collaborative Sales Negotiations, and it uses very effective Solution Selling principles to help sellers to negotiate and close more profitable business.  That might be of some help to your team.  But do you mind if I ask you a couple questions first?”

Sales Executive: “Sure - what do you want to know?”

SPI: “First, why do you think your sales team is discounting so much?”

Sales Executive: “We’re under a lot of pressure to deliver some big numbers.  We need to win every piece of business out there.  Almost everyone is behind on their quota.  When customers push back on price, I think we are caving in too quickly, just to get the deal closed and on the books.”

SPI: “I understand - you have some challenging sales goals, and that’s encouraging people to push for an early close by conceding on price.  What else do you think might be contributing to the problem?”

Sales Executive: “Well, I know that our compensation plan doesn’t exactly help the situation.  It’s based on acheivement of volume goals, not margins, so there’s not enough incentive to keep the price high. If our reps think they can close the deal faster with a discount, they’ll go there every time.  We’re trying to manage that by reviewing every discount request before approving any of them.  The problem is, I’m having to review discounts for every single deal!  It seems like it’s the first thing our sellers think of when they get near a potential win.”

SPI: “I see - that must consume a lot of your time.  I notice that you haven’t mentioned selling value to customers - is that a factor?”

Sales Executive: “Of course, we try to sell the value of our products to customers.  We’ll even provide a return on investment analysis, if the customer requests one.  Not many do, though.”

SPI: “That’s intereresting - why do you think your customers aren’t asking for an ROI analysis?”

Sales Executive: “They are suspicious about our ROI calculations.  They see it only as a way for us to justify a higher price.  And we don’t like to do them, actually - they take time and are complicated.  If a client asks for an ROI, that tells me they are just delaying the decision and aren’t really interested in buying.”

SPI: “I see.  So, when you conduct an ROI analysis for a customer, you do it near the end of the sales cycle?”

Sales Executive: “If we do one, yes, usually.  But I think you’re missing the point.  What we really need are some strong negotiation tactics.  If we can get our people motivated to negotiate tougher, and give them some tips and techniques for doing it, I think that’ll cut down on these discounts. When can we schedule a workshop?”

SPI: (on mute) *sigh*

As this not-so-fanciful example illustrates, many factors can contribute to excessive discounting, including quota attainment pressure, compensation incentives and management practices.  But the most common factor, by far, is a general misunderstanding about what “selling value” really means.  Focusing on development of negotiating skills to solve a discounting problem is like treating only one symptom while ignoring the disease.

Negotiation skills are important, to be sure - that’s why we include essential negotiation planning tools in Solution Selling, and also why we offer an advanced negotiation skills program - but negotiating is but one of the skills required to maximize margins and reduce needless concessions and discounts. Top performing salespeople also master the ability to postition value effectively. The need for hard-nosed negotiation can be reduced greatly if the total value of your solution is understood by your customer.

What is “selling value”?

Value is defined simply as the perceived benefits less the expected investment. Too many salespeople wait too long to convince buyers that their solutions provide value. As a result, they usually end up making too many concessions, resulting in lower revenues and profits. A better way is to make value an integral part of the entire sales process. You should lead with value, verify the value you can deliver, justify the value to help close the sale, and measure the value received by the customer.

The Value Cycle

Lead with value: Selling value begins before you make the very first call, when you conduct research on your target prospect so that you can develop a value proposition to stimulate their interest. This is accomplished by extrapolating the value that an existing client is receiving, and helping your prospective buyer to estimate the value they might obtain if they were able to achieve the same or similar results.  We described the structure of a useful value proposition earlier in this blog. 

With increasing frequency, we are now seeing sales professionals conducting far more detailed value analysis before their first call with target prospects, especially for high-value B2B solutions.  The reason: in this period of economic uncertainty, prospective buyers perceive an extremely high level of risk in purchase decisions, and therefore, need an extraordinarily compelling reason to even consider any new project or initiative that requires investment.

In other words, leading with value is not only wise, it is probably now a requirement for achieving your sales goals.

Verify your value: In yet another post on this blog, we described how to use the 9-Block Vision Processing Model to diagnose a buyer’s pain. Proper diagnosis of your customer’s business problem allows you to ask quantifying “drill down” questions that help you verify or refine initial assumptions made when delivering your initial value proposition. During this verification stage, the initial proposition can be expanded as pains of other individuals in the buying organization are uncovered, and thus, increase and expand the potential value your solution could bring to that customer. 

Justify your value: If salespeople conduct a value analysis for their customer, it’s usually during the proof of concept or later stages of the sales cycle.  This is far too late, for this simple reason: the buyer’s motivation to share information declines after they develop a vision of the potential solution. 

At the beginning of a purchase process, when the prospect has a pressing business need, they are more likely to share information about their problem and the impact it is having on their organization.  This is why you should lead with a strong value proposition and then validate it with diagnostic conversations.  Once you have established a vision of a potential solution, however, your prospective buyer is more reluctant to share data which can then be used to justify a higher price to them! So, by leading with value, you are in a much better position to get a complete picture of the potential value your solution could bring to that buyer.

In addition, if salespeople do conduct a “return on investment” analysis, it usually isn’t a value justification (Value = Benefits - Investment) - more commonly, it is a cost justification (Price < Benefits).  This is a subtle but important distinction - a value justification focuses on the worth of of the solution to the customer, while a cost justification tries to rationalize the price being charged.

This is what a typical value justification should look like, with assumptions and sources documented:

Measure your value: Woefully, far too many salespeople fail to confirm the value that customers receive from the solutions they bought.  Sales professionals that don’t capture measurements of success of their solutions miss the opportunity to get credit for the value that they have delivered, which can result in additional sales to that customer.  Further, by reconnecting with customers and measuring the value they received, you can also generate new reference stories that can be used to stimulate the interest of additional customers, and generate new opportunities.

In summary, selling value means thinking about and capturing the potential benefits and improvements that you can provide to a customer at every step of the sales process - from before the very first call to well after the sale is closed.  Selling value should be embedded in every aspect of your sales activities, in a very practical sense.

If you are struggling with excessive discounts or with positioning value consistently throughout the entire sales cycle, you might want to consider mastering the Value Cycle, as part of your Solution Selling methodology.

Good luck and good selling!

Solution Selling Essentials: What is a good value proposition?

Parts of this post adapted from the Solution Selling Fieldbook (2005, McGraw-Hill, ISBN 978-0071456074 by Eades, Touchstone and Sullivan).

Perhaps the most overused phrase in the sales profession is “value proposition”. While most salespeople agree that selling value is good, and that being able to express that value to customers is also good, few are truly masters at being able to do so effectively.

In fact, CSO Insights recently found that 45 percent of sales executives believe that their salespeople need improvement in their ability to sell value and avoid discounting.  Only 15 percent believe that their sales teams exceed expectations in selling value.

Sales Teams’ Ability to Sell Value
(Copyright 2009, CSO Insights, used with permission.)

To further confuse matters, the development of “value propositions” has often fallen to marketing professionals, who tend to think of prospects and customers as broad categories, instead of as individual buyers. As a result, value propositions developed by marketing tend to be expressions of general - and sometimes generic - capabilities of the organization’s products or services. While this may be useful in increasing awareness or arousing interest of target market segments of potential customers, it isn’t very helpful to salespeople, who must apply value propositions to specific buyers and their specific situations. A broad, general “value proposition” such as: “Buy our state-of-the-art product and you’ll get great benefits!,” is actually of no real value at all - for either the buyer or the seller.

So, what is a good Solution Selling, buyer-focused value proposition? There are three guidelines for delivering effective value propositions to prospective buyers:

1. The value proposition must not be “value-less”. Value is best defined as benefits minus cost. So real value propositions must suggest a quantifiable benefit to be gained as well as an estimate of the investment required by the prospective buyer.
2. The value proposition should be customized. To be of use to a specific customer, your value proposition should be specific and address a relevant pain of the person you are trying to help. A general value proposition that can’t be applied by the customer to their specific situation is much less useful in their evaluation process.
3. The value proposition you deliver should be one you believe in. If you don’t believe in the value that can be delivered – then why should the prospective buyer? As a result, your value proposition must be one that you can back up with proof.

In short, a good value proposition is one that is quantifiable, specific to an individual buyer, and provable.

An effective value proposition is a statement which projects the quantified value a prospect should achieve through the use of your organization’s capabilities. It is intended to stimulate interest and serve as the catalyst to begin an evaluation of your capabilities.

Value propositions can be used at any time with a prospective buyer. The most common use is when you want to stimulate interest. After interest is stimulated (with a business development prompter and reference story), the value proposition serves as the basis for further exploration with the prospect. After the buyer shows interest, the next logical step should be to verify or revise your projections based on further investigation and discussion with the prospect.

In addition, a good value proposition can enhance the credibility of yourself and your organization, by showing how you understand the buyer’s business, their specific problem (pain), and the value of helping them to solve that problem. This can help to differentiate yourself from competitive alternatives, not only by what you sell, but by how you engage with the customer.

So, what does a good value proposition look like? Here is one example:

We believe that Titan Games (prospect organization’s name) should be able to increase sales revenue (describe pain being addressed or area being improved) by 10% each year (valued at $10M potential revenue or $3.2M in profits annually) (how much % and/or $) through the ability to have customers place their own (repeat) orders allowing salespeople more business development time toward new accounts (describe primary benefit) as a result of implementing our e-commerce offering (describe primary capability or enabler of offering/s) for an approximate investment of $1.15M (prospect’s relative investment $).

Note that this value proposition is quantitative, and highly customized to a specific buyer.  But is it also provable? It is — if you document your assumptions.  If the prospect asks, “How did you determine the potential sales increase?”, you must have an answer based on your research and discussions with people in that account.  Or at the very least, you should have a similar customer situation from which you can extrapolate similar results.

Perhaps the best thing that can happen with a value proposition is when a prospect challenges it.  In this case, you can demonstrate your situational fluency by discussing your underlying assumptions.  You can work with the prospect to adjust those assumptions based on their comfort level and knowledge, and then re-work the value proposition using new data.  At that point, the value proposition is owned by the prospect, since you are using their assumptions!

We are finding that customers are expecting specific value propositions as early as possible in their buying process.  The salesperson that can generate these quickly will have a significant competitive edge.

So, the next time you are engaging with a prospect, try using this template to generate an effective value proposition:

We believe that _______________________ (prospect organization’s name) should be able to _______________________(describe the critical business issue being addressed or area being improved) by ________________ (how much % and/or $) through the ability to _______________________ (describe primary benefit) as a result of _______________________(describe the primary capability or enabler or offering/s)for an approximate investment of _______________________ (prospect’s relative investment $).

Good luck and good selling!