B2Bridge

Suppose you are looking for the sales arguments for a new technological innovation. Maybe you want to organize a brainstorm session with a couple of commercial people from within your company, and let creativity boost. Even without having a customer attend the brainstorm, you can find a lot of arguments that trigger the attention of customers. On condition, that is, you ask the right question to begin with.

The 3C pricing model suggests that defining the right price is a difficult balancing exercice that uses three main references.

• Cost - cost shows the minimal price, i.e. if you want to be profitable. Cost can be a tough one to calculate though, since cost can depend on scale of production, effiiciency of production, etc.
• Customer - the value perceived in the eyes of the customer. The more value one adds to the customer, the higher one could price its offering. Value-based pricing aims at this reference, and is seen as both difficult to calculate and difficult to sell/obtain.
• Competition - the price the customer could obtain from the competitor sets a reference framework in the industry. This reference framework obliges a higher price to correspond to a higher value. Lower price is always easier to sell, but then there is value given away.

According to Everett M. Rogers research on the diffusion of innovations, "the complexity of an innovation, as perceived by members of a social system, is negatively related to its rate of adoption". In my words, presenting a new offering in clear terms, increases the interest of the potential clients in your offering. Or, when potential clients understand what you are offering them, they are more willing to buy. At least that means we should nominate "clarity" as an important enabler of the sales process. But, does this mean the customer perceives clarity as part of the offering's value?

If you need to write a business speech and you want to sound intelligent and trendy, yet want to keep your speech vague enough to leave all options open in the end, do use the word 'innovation' a couple of times. And add the adjective 'durable', for even more applause. In his opening speech to the Flemish Government in september, Minister President Peeters used the word innovation at least at seven distinct occasions. That fact was even mentioned in the television news the same evening. Technology innovators and many technical R&D people must have been listening with passion to these words, since they provide them with the perfect excuse for asking more budget for technology innovation.

Interesting story in yesterday's newspaper: Lemnis Lighting launched an revolutionary LED light for households. It consumes only 10% of the energy a normal light bulb needs, and has a life span of 35 years. Only problem is the cost: 30 euro each. Even Al Gore won’t easily convince the average family to renew their lighting...

But Lemnis Lighting found a solution: they contracted an energy supplier for the free distribution of the lamps. Consumers that ‘buy’ a lamp don’t invest a cent, but they hand over half of the energy savings they realized the first 4 years to the energy provider. Lemnis in fact sold value to the energy supplier: the latter sells less energy, but gains customer loyality...

According to Everett Rogers, compatibility increases the speed of adoption of an innovation. In other words, compatibility adds substantial value to an innovation in the eyes of the client -- and incompatibility deducts value from that offering. You might wonder what this statement has to do with passion. Read on ...

It's a given that prices in competitive markets are not necessarily cost-reflective. But premium performance should justify a price premium.

Unfortunately, it rarely works this way for a variety of reasons:

• Premium performance becomes only evident well after the contract has been negotiated. Provided that the customer will even share this information with you, which they rarely will in full, you are at least bound for the contract term.
• In practice, suppliers and buyers know very well that premium performance is not always consistent over time. In a manufacturing process where supplier and customer engineers work for continuous improvement, it may change quarterly, or monthly.
• In the buyer's mindset, and in his organisational context, it is difficult to accept higher prices for the same product, even when there are good reasons.

What usually does work though is a strategy of positioning yourself as one of the quality suppliers. Many industries suffer from some form of counterfeiting from substandard competitors. Quality manufacturers as a group can position themselves and protect them against manufacturing operations working to lower safety, quality and environmental standards.

With the term 'top-line value' I refer to the additional turn-over or margin a customer could obtain by purchasing a certain product or service. In quite a lot of cases, the top-line advantage of an offering can be substantially higher than the bottom-line advantage, i.e. the cost-reduction advantage to the bottom-line of a company. In those cases, one would expect the top-line advantage to determine the price and the offering with the best top-line advantages to win the competition. That is far from reality, though.

Earlier this week, I attended a very interesting conference about sales and purchasing, organised by ISAM (Rotterdam). I learned from the reactions of purchasing managers that they are able to accept a more expensive offering, if that offering leads to clear cost reductions in their organization. TCO is indeed a concept that many purchasing managers are willing to listen to. However ...

One of the aspects that increases the perceived value of an offering is the reduction of time and effort the offering provides to the customer. If your product or service saves the customer a lot of time, those savings are regarded as value in the eyes of the customer. If offering A saves more time than offering B, offering A is worth more than offering B in the eyes of the customer. So, as a supplier, you can ask a higher price for offering A -- or give the extra value away to the customer and obtain a more competitive market proposition.