Wednesday, April 15, 2009

Demonstrating and Documenting Superior Value with Customer Value Management.

Customer Value Management
To combat price concessions and commoditization pressures, companies have to fundamentally reexamine their philosophy of doing business and how they put it into practice. Business must adopt a philosophy of doing business based on demonstrated and documented superior value and implement that philosophy using an approach we call customer value management. Customer value management is a progressive, practical approach to business markets that, in its essence, has two basic goals:
1. Deliver superior value to targeted market segments and customer firms
2. Get an equitable return on the value delivered

Customer value management relies on customer value assessment to gain an understanding of customer requirements and preferences and what fulfilling those are worth in monetary terms. Although firms may be able to accomplish the first goal without any systematic assessment of customer value, it is unlikely that they will be able to accomplish the second goal without it. Simply put, to gain an equitable or fair return on the value their offerings deliver, business must be able to persuasively demonstrate and document the superior value they provide customers relative to the next-best alternative.

Demonstrating and Documenting Superior Value
Increasingly, to get an equitable or fair return, business must be able to persuasively demonstrate and document the superior value their offerings deliver to customers. By “demonstrate,” we mean showing prospective customers convincingly beforehand what cost savings or added value they can expect from using the supplier’s offering relative to the next-best alternative. Value case histories are written accounts that document the cost savings or added value that reference customers have received from using a business’s market offering. Another way that best-practice firms, such as GE Infrastructure Water & Process Technologies and SKF, demonstrate the value of their offerings to prospective customers is through customer value assessment tools, which we term value calculators. These tools are spreadsheet software applications that salespeople or value specialists conduct on laptops as part of a consultative selling approach to demonstrate the value that customers likely would receive from their offerings.

Business also must document the cost savings and incremental profits that offerings have delivered to customers. Thus, business work with their customers to define the measures on which they will track the cost savings or incremental profit produced and then, after a suitable period of time, work with customer managers to substantiate the results.

Documenting the superior value delivered to customers provides four powerful benefits to suppliers. First, it enhances the credibility of the value demonstrations for their offerings because customer managers know that the supplier is willing to return later to document the value received. Second, documenting enables customer managers to get credit for the cost savings and incremental profit produced. Third, documenting enables business to create value case histories and other materials for use in marketing communications to persuasively convey to prospective customers the value they, too, might obtain from the supplier’s offering. Finally, by comparing the value actually delivered with the value claimed in the demonstration and regressing these differences on customer descriptors, documenting enables business to further refine their understanding of how their offerings deliver the greatest value. This sharpens subsequent efforts to target customers. We term the tools that business use to document the value of their offerings value documenters.



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