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THE PROBLEM
Commoditisation: The Fatal Sales Failure
Companies spend time, effort, and money working to differentiate their offerings from their many competitors. The more special their offering, the more value it creates, the greater its chances of being chosen by their clients. This differentiation also improves the margins the company earns by selling its offering and producing results.
Enter the salesperson. The deal in front of them is hot. They are competing against other firms, and they have used their company’s differentiation strategy to pull themselves out of the pack. But when all the numbers are entered into the spreadsheets, their offering isn’t the lowest price. In fact, it’s the highest of the three finalists.
Because the buyer really wants to buy from our not-so-fictional salesperson here, he calls and says that he will sign the contract and give them the business if they can lower their price. And this is the point at which the decision is made to commoditise the business.
It sounds like the decision is the buyer’s. He doesn’t value the differences in results that are created by paying more to obtain them. But it isn’t the buyer’s decision to commoditise the business; it’s the seller’s.
The Slippery Slope
The slippery slope for sales people and sales managers is allowing the business to be commoditised and, over time, they allow the margins to be destroyed. In most cases, the company’s ability to differentiate itself is predicated on having the margins necessary to produce a better result. Without the margins, the company not only loses the ability to differentiate — it often loses the ability to produce results.
Only later, after the lower price has been accepted and the work begins does the lower price start to become problematic. The results promised aren’t produced, and the client isn’t satisfied. Then, based on the evidence, he says: “See? I knew I shouldn’t have paid more. You are all the same.”
This is why sales teams should not commoditise.
Protecting Your Pricing
To protect pricing, margins, and your ability to differentiate yourself and your offering, you have to resist becoming a commodity. Instead of accepting the business at the lower price, you have to make the case for the client paying a higher price (in all likelihood, the price they need to pay to get the result they really want).
It sounds something like this:
“I understand that our price is higher than our competitors. That’s by design. I didn’t do a good job explaining how your greater investment is going to allow us to provide a far greater result and, ultimately, result in a lower cost. Can we get together and let me try to do better job explaining this and showing you how our price allows us to produce the results you need at a lower cost?”
The salesperson has the power to make a difference for both their client and their company here. They have the ability to resist being commoditised, and they have the ability to translate the price into value, shifting the decision from price to cost.
By preventing the commoditisation, they can protect the firm’s differentiation strategy and their ability to produce the results they sell.
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COMPOUNDING THIS PROBLEM
The World of B2B Sales Will Look Very Different by 2020
The world of sales is splitting into two branches: the consultative and the transactional.
There is so much pressure to perform financially that many sales organisations are themselves becoming more transactional.
These companies are focused on reducing their overall costs and automating much of what they do when it comes to sales, such as allowing their customers to learn about their offering online and to place orders there. They are also moving their sales forces from the field to inside sales roles, which pay less than field sales positions do.
Sales organisations with complex, greater value-creating solutions are focused on developing that value, spending time consulting with their ideal clients and differentiating their value propositions.
Some of these companies may be moving the transactional sales to inside salespeople, but they are increasingly hiring more – and paying more for – salespeople who can develop relationships. This creates a higher level of value and differentiates these companies and their offerings.
As the gap in the world of sales widens, you’ll have to choose which side to stand on.
Developing Level 4 elements (including your own business acumen and situational knowledge) provides you with the ability to leap from transactional to consultative sales.
The Research
In the report Death of a (B2B) Salesman, by Forrester e-business analyst, Andy Hoar projects that 1 million sales reps, or 22% of the 4.5 million B2B sales agents in the US will lose their jobs to e-commerce by 2020.
SALES JOB LOSSES
Job losses are expected in the following sales categories:
- Order Takers: 33% of jobs lost
- Explainers: 25% of jobs lost
- Navigators: 15% of jobs lost
SALES JOB GAINS
Consultants who have extensive knowledge about the buyer’s company and can help clients understand what their company needs to purchase:
- Consultants: 10% job gains
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THE SOLUTION
Elevate the Value You Offer to Overcome Commoditisation
We talk a lot about value propositions and creating value for our clients. The word ‘value’ is overused so much as to have lost a lot of its meaning. There are all kinds of things you can do to be valuable to your clients and your dream clients. But, ultimately, you serve your clients at one of four levels. And in B2B sales, to avoid commoditisation and erosion of profit margins, its Level 4 Value Creation you should aspire to.
LEVEL 1 VALUE
Providing Products & Services
You might help your client by providing them with the products and services that they need. Your customer needs something; you provide it.
This is the lowest level of value creation. It doesn’t provide enough value to be differentiated, and it doesn’t generate loyalty from your customers (usually these businesses have customers, not clients). The problem with being undifferentiated and not creating loyalty is that it is the fast track to commoditisation.
Where little value is created, there is an equally small ability to justify higher pricing. Hence, commoditisation.
You may work for a business that aspires to more for their clients but that at present only exists at this lowest rung of value creation. Moving up a level requires more.
LEVEL 2 VALUE
Providing Experiences
One rung up the ladder, and a small step above commoditisation, are businesses that create great experiences. They may offer outstanding customer service. They may have great support that helps their customers or clients use the products or services that they provide. And, they may even be able to create great relationships with their customers or clients.
This is a higher level of value creation, and for some businesses, this level is pretty good — especially for business-to-consumer sales organisations. But for business-to-business sales organisations, this is still a relatively low level of value creation and one that does little to ensure that you are valuable or that you retain your client. Moving up a level requires quite a lot more.
LEVEL 3 VALUE
Helping Solve Business Problems
Helping to solve real business problems is a giant step up from simply providing products and services or providing experiences. At this level of value creation, you help your clients and dream clients by providing solutions to their business challenges. You help them move from their current state to their desired state by helping them create real and tangible business results.
The trouble with this level of value creation for those of us in business-to-business sales is that this isn’t that uncommon. As much as you might be tempted to dismiss your competitors, a good number of them are more than competent at this level. And, for many of your clients, this level serves them well — it serves them much better than either of the two prior levels. But if you would truly be at the top of your game in the way of value creation, this level doesn’t get you there. It may not be enough to really differentiate you, and may not be enough to create the loyalty that insulates your relationship from threats, internal or external.
LEVEL 4 VALUE
Becoming a Strategic Partner
The highest level of value creation is becoming a strategic partner. This isn’t an easy level of value to create or to maintain. At this level, you provide all of the value of the prior three levels, plus you help your dream clients see and build their future. You work with them as part of their management team on the most strategic issues, like how what you do helps your client to better serve their customers, outsell their competitors, and to compete in their own space. You work proactively. You bring them ideas that help them generate new opportunities, new or greater revenues, new or greater profits, or new or more substantial cost initiatives.
At this level, you truly are a trusted advisor.
It’s more than solving the problems of the past: you are someone who your clients and dream clients turn to for help in shaping their future. Your success is tied to, and intertwined with, their success — and they feel the same way about you. As a salesperson, you are the linchpin in the level of value you that you and your company creates.
