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Driving Forces of Commoditization
How to get paid for the value you deliver.
Posted Jul 1, 2005
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Rapid commoditization of products and services is exasperating for even the most skilled professionals. Solution providers are struggling to differentiate their unique products and services, and simultaneously customers are putting the squeeze on margins and driving unique value to the lowest common denominator--price. To start to understand this dilemma we need to take a hard look at the three driving forces of commoditization--advances in technology, lack of connecting unique value to customers' business drivers, and pressure on buyers to make quality buying decisions. As technology advances, so does the difficulty buyers have in making quality business decisions. Put yourself in your customer's situation. Can your customers truly understand and differentiate the unique value of your solution and not only how it impacts their job responsibility and performance, but also others in their organization? Even more critically, can they understand the cost of their problem in absence of your solution? Seeking competitive differentiation through increasing uniqueness and complexity can be a deadly double-edged sword, especially if building that differentiation exceeds the needs and understanding of your customers. You and your competition may believe you have a high-value product or service, but if your customers can't comprehend, calculate, or measure that value, they see a sameness and will respond by ignoring the features they do not need or simply won't care. This is a high-risk situation, because in a complex selling environment customers don't necessarily fully comprehend the extent of their problem as it relates to the various solutions available. However, they do understand cost. And there goes the downward spiral to commoditization. So, if you truly have a unique and valuable solution, how can you get paid for the value you deliver? First and foremost, get your mindset straight. Understand that we are moving into a new era of selling. Be open to the fact that traditional practices that may have helped you become successful in the past, for the most part will likely not work in this evolving market. Today's market requires that organizations transform their approach from "purveyors of products" to "advisors to the customer's business situation."
Second, develop skills to communicate at a business and strategic level. The customer's desire to build tighter bonds with fewer vendors is adding complexity to the sales process. Buying decisions include more considerations and more players, who are often located at higher levels in the organization. It is your responsibility to manage the issues from multiple perspectives. You must connect your unique value offer to each individual in the context of her job responsibilities and her self-interest. Third, help customers connect value to business drivers. Customers are also asking suppliers to add value at much deeper levels than they have traditionally delivered to their organizations. Value can be defined as incremental results the customer is willing to pay for. Sales and marketing professionals know that they must be able to create value for their customers and they must be able to capture a reasonable share of that value for their company. Your customer's business is constantly evolving and it is important to continually refine your value proposition, in the specific terms of each individual involved in the decision to buy. It is then critical to test that assumption against the scope of the specific customer's situation. Determine to what degree your assumptions are correct. Then identify and quantify the impact of the absence of value. To the degree the assumptions are correct and the customer agrees, you will have the beginnings of value agreement with that customer. Fourth, become business partners with your customers. At the same time that customers are demanding commodity-based pricing, they are demanding more complex relationships with suppliers. They are drastically reducing their supply bases and asking the remaining vendors to become their business partners. When you come to an understanding of and focus on your customer's business situation and not on your own, your customers will start to recognize you as a unique and valuable partner. We tend not to see the world through our customer's eyes, but when we do, we find that they face many problems. Their business environments are more competitive than ever, technological advances are radically altering their industries and markets, and their margins for error are always shrinking. The oft-ignored reality of the complex sales environment is that our customers need help. They need help understanding the problems they face; they need help designing the optimal solutions to those problems; and they need help implementing those solutions. It is your responsibility to advise your customers, give them a process to make quality decisions and help them succeed. Your competitive advantage will rapidly erode if you don't take the critical steps to help them get there. About the Author Jeff Thull is president and CEO of Prime Resource Group. He has designed and implemented business transformation and professional development programs for companies like Shell Global Solutions, 3M, Microsoft, Citicorp, Intel, IBM, and Georgia-Pacific, as well as many fast-track startup companies. He has gained the reputation for being a thought-leader in the arena of sales and marketing strategies for companies involved in complex sales. He is the author of the best-selling book Mastering the Complex Sale--How to Compete and Win When the Stakes are High and the newly released The Prime Solution: Close the Value Gap, Increase Margins, and Win the Complex Sale. He can be reached at http://www.primeresource.com
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