Value-based selling has been around for more than 30 years and is still as relevant as ever. When Mercuri Research recently surveyed the most important challenges for business leaders, customer value orientation came out on top, just as it did in our last survey 5 years ago.1
85% of business leaders today consider customer value orientation to be a critical success factor for them, but at the same time 38% say they lack the ability to sell a value-based proposition. 2 In this article, we explain why value-based selling is so important for your salespeople and your business.
What does it mean to be value-based?
There are countless definitions of value-based selling, but the common thread in them all is that you should aim to communicate the value of your offering to your customers, rather than the specific features it provides. It’s also important to remember that value is something separate from price – in simple terms, value is the difference between how the customer values the benefits of your offer and the cost of taking advantage of it. 3 Or as Warren Buffet puts it, “price is what you pay, value is what you get.” But why is it so important that your salespeople are value-based in their work? Here are four reasons:
1. Your customers think in terms of value, not product
Over the last thirty years, organizations have developed increasingly complex models for how they are governed. Beginning in the 1990s, models were introduced to manage companies based on long-term shareholder value, rather than short-term ratios.4 Those models were supplemented by attempts to capture value drivers, such as balanced scorecard 5 and intangibles such as intellectual capital. 6 Interestingly, this coincided with the launch of the first value-based selling models which, like many other sales methods, were developed at Xerox 7 Since that time companies have become much better at analyzing and monitoring how they create value in their business and it is now the rule, rather than the exception, that your salespeople must be able to show how your offering gives a return on investment (ROI) for your customers.
2. It has become easier for you and your customers to measure what creates value
Digitalization has been both an enabler and driver of our ability to measure what creates value. The functionally limitless sources of data it provides have given rise to unprecedented levels of insights into business performance. It is now possible to track, often in real time, the reasons for increased delivery precision, failed deliveries, or dissatisfied customers, and we can get a clear view of how a product contributes to costs and revenues, both in the short and long term. However, the power of digitalization is also in the hands of customers, and they are now able to require that you as a supplier demonstrate in similar detail how your solutions will benefit them.
3. It’s increasingly difficult to create value with your products alone
Purely product-based competitive advantages are eroded very quickly. 8 Traditionally, companies have been able to rely on competitive advantages that they have developed on price, quality or innovation. However, rapid technological development, combined with increased globalization, has meant that products and services are constantly becoming both cheaper and better. Massive investments by both companies and nations in research and development make it more difficult to maintain a leading position in terms of knowledge, innovation and new product development. Matters are further complicated by the emergence of international competition, and that almost any part of the world can supply excellent products. China’s shift in the last 30 years, from being the world’s number one source of low cost manufacturing to a broad industrial base that now includes cutting edge research, product development, business development and design has signalled that established businesses can no longer rely on quality and innovation to remain industry leaders. With such challenges to traditional modes of business, sellers must create unique value propositions that justify why they should make a sale or win a contract. If you are a vehicle supplier today, almost all your competitors can supply technically equivalent cars or trucks to a fleet, but not all salespeople understand how the customer uses the fleet and can contribute to their delivery efficiency, operating economy or other competitive advantages.
4. The value is no longer in your product, but in your interaction with your customers’ systems
There is increased interdependence, both between different parts of customer organizations and within customer value chains. 9 The pressure for rationalization and efficiency has led to a drive to fully integrate hardware, software, functions and people into every aspect of business processes and value chains, and customers simply can’t afford to let the different elements of their company work without some level of cross-functional integration. This increased need for internal collaboration presents both challenges and opportunities for sales professionals: Replacing a link in the chain through a purchase or investment can have consequences far beyond the individual characteristics and price of the products and services in question. What matters is the ability to create value in the system. If you are selling recruitment services, for example, the quality of your cognitive testing won’t matter unless you can also ensure that candidates are compatible with the client’s culture and vision, and will contribute to the client’s growth journey.
There are a number of reasons why your salespeople need to become better at building and communicating value in their negotiations. Customers have become both more value-driven and better at measuring value, and products are no longer seen as contributing value in their own right, but as an integrated part of customer systems. If you haven’t already done so, make sure to investigate whether your salespeople are dealing with this development and make time to get them up to speed on the best ways to deliver value to your customers. Learn more about Value Based Selling.
1 ProSales Institute (2016). Sales Agenda 2016. Stockholm: ProSales Institute Sverige AB.
2 Mercuri Research. The Future State of Sales. Stockholm: Mercuri International
3 Gejrot, B. (2017). Nya affärer: värdebaserad försäljning 4.0. [Malmö]: Roos & Tegner.
4 Copeland, T.E., Koller, T. & Murrin, J. (2000). Valuation: measuring and managing the value of companies. (3. ed.) New York: John Wiley.
5 Kaplan, R.S. & Norton, D.P. (1999). The balanced scorecard: från strategi till handling. Göteborg: ISL (Institutet för säljträning och ledarutveckling).
6 Edvinsson, L. & Malone, M.S. (1998). Det intellektuella kapitalet. (1. uppl.) Malmö: Liber ekonomi.
7 Brontén, G. (2021). A brief history of modern sales methodologies for sales leaders. Retrieved 3 September 2021, from https://www.membrain.com/blog/a-brief-history-of-modern-sales-methodologies-for-sales-leaders
8 D’Aveni, R.A. (1994), Hyperkonkurrens. Studentlitteratur, Lund.
9 Larsson-Broman, H. & Siljerud, P. (2018). Supertrenderna: fakta och insikter som framtidssäkrar din försäljning och marknadsföring. Stockholm: ProSales Institute Sverige AB.