Selling with Confidence: How to Keep Revenue and Prices Up

By Dr. Reed Holden

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Selling with confidence gives sales professionals the skills and support they need to resist growing pressure to discount prices.  Such confidence is more critical than ever because the pressure to discount comes from two sources.  First—no surprise—it comes from customers.  In today’s world, when demand is slowing and globalization introduces low-cost competitors, existing and new customers are more insistent than ever that sales people discount and then discount some more.  The battle to maintain profits by resisting discounting pressures from customers is tough enough without more pressure coming from yet a second source:  the sales person’s sales managers and corporate executives. 

The selling company’s managers and executives are often desperate to meet revenue numbers.  Sometimes sales people ask managers and executives for the authority to discount.  But in too many cases, especially in the final days of a sales period, managers and executives encourage salespeople to lower prices in an attempt to make revenue goals.  Customers know this and use this fact against the company, undermining sales professionals in the bargain.  In the face of these combined pressures, a tough selling job just gets tougher. 

 There is an antidote to the virus of discounting.  It’s called Selling with Confidence.  In the context of pricing, selling with confidence mean that salespeople understand the value of their offering to the customer and know that the price is fair, since it does reflect that value.  The second element of the antidote is rock solid knowledge that management will support them in their efforts to convince customers of that value.  Both elements—an understanding of value and a reliance on one’s management—are necessary to fight the discounting habit. 

Rocket Plan
By Mark Burton and Steve Haggett

Holden Advisors "Pricing Innovations" article is published in the AMA’s October Marketing Management. Companies can fuel success with a rigorous pricing approach – one that measures customer value, the innovations nature, and the product category life cycle stage.

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Financial Services Brief: Success for the Sell-Side in an Unbundled World

By Mark Burton and Nelson Hyde

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In spite of a recent string of record earnings, there are storm clouds on the horizon for full-service investment banks. A key element of their business model is coming under attack – the bundling of trading and services such as research. If institutions are forced to unbundle – either by regulators or clients – they will face myriad challenges.

• Service lines such as research will have to succeed or fail in the marketplace based on their own merits. The bundle will no longer protect them.

• Revenues will be threatened as clients face mixing and matching services from different providers – and playing providers off against each other.

• Sales teams will be forced to switch from a traditional relationship-based approach to one that is focused on proving real value to their clients. Failure here will result in increased negotiation of fees and client defections.

Divide and Conquer:
Product and Price Strategies for Data Service Companies

By Michael Lawson and Rachel Jacobsen

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Each day, data service providers face increased commoditization. Entry barriers are low, competitors are willing to take very low margins, and customers are demanding lower prices, sharing passwords, and accessing data for free through trials. In today’s Google Age, everybody wants real-time information free. To compete in this price-pressured environment, data providers must break out of the commodity trap and find better ways to capture revenue aligned with the value they deliver.

Providing data looks like a model for an unprofitable industry, with established players lining up at the exits. Yet the information industry grew to $285 billion in 2005, according to Outsell, the leading research and advisory firm for information services. Paid content on the Internet – the land of the free – is a solid $50 billion market. Clearly there are some companies thriving in this cauldron and some lessons to be learned.

Controlling Your Gray Markets

By Nelson Hyde and Rachel Jacobsen

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The sale of products on the sly through unauthorized distributors or channels – “gray marketing” – is the elephant in the room that many businesses would rather not talk about. That’s because it can be a tough elephant to tame: some of your largest customers could be the biggest offenders, and some of your own policies may be contributing to it. For some businesses, it is easier to look the other way. Many do.

Yet minimizing gray markets can have a huge ROI for manufacturers and distributors. Controlling it properly will slow price erosion, rein in “backdoor” discounting, and increase margins. It will preserve your channel structure and brand and better protect your end-users. This paper describes strategies and techniques for controlling gray markets – what causes them and what you can do to prevent them.

Better Tactics for the Fog of Business

By Dr. Reed Holden and Michael Lawson

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During war, things happen fast and in unexpected ways, making it difficult to follow pre-determined strategies. Military commanders use the term “fog of war” to describe this chaos and it is why the US Military is so successful in battle. Quick, life-or-death decisions are made by well-trained “field” managers who understand the objective and the resources available to them to accomplish their mission. It is an ugly and dangerous process. Commanders know that all the best advanced planning, training, and rehearsals can do is prepare field leaders to adapt and succeed when the unexpected happens. Sure, the US Military follows doctrine when training and fighting, but field commanders are expected to make decisions on the front line that will complete the mission. In a real sense, they understand and prepare and train for the chaos that occurs during the “fog of war.”

Unfortunately, the same thing happens in business. Things move quickly, often too fast for effective involvement from senior managers. It is difficult to understand what is happening real-time in markets when sales results are tallied monthly and often only by product. To make matters worse, line managers typically have objectives that may conflict with other functional areas, and they may not even know the real objectives and strategies that drive the organization. It could be argued that most businesses suffer from their own “fog of battle,” but unlike the military, they have yet to implement the systems, planning, and structure to effectively do battle in today’s marketplace.

The way to do this is to focus more on a transformation in the organization that allows people on the front lines to make decisions based on the needs of customers. We advocate this as part of our Value DisciplineSM model where Transformation (the light blue gear in the process above) is a key set of processes and systems to becoming an “outside-in” focused organization.

Pricing Outsourced Services

By Mark Burton

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The market for outsourced services - everything from short-term staffing to complete IT outsourcing programs - is in a state of upheaval. With strong, low-cost competitors and increasingly sophisticated customers who play off one vendor against another, there is enormous pressure on service providers to rethink every element of their cost positions and bid response processes. Knowing how best to respond starts with a clear understanding of what clients need in performance and relationships from their outsourcers.

To address the needs for differing client relationships, outsourcers should consider analyzing and correcting deficiencies in three key areas: offering definition, pricing, and sales approach.

In developing offerings many outsourcers still rely heavily on customizing most of their services. But this makes it difficult for customers to understand (and salespeople to explain) what they are getting. It also increases variation, and with it, the cost to deliver and the cost of quality.

On the pricing front, outsourcers have been slow to move away from traditional time and materials (T&M) pricing. T&M emphasizes cost to deliver (inputs) rather than the value of the results achieved (outputs). This invites constant client scrutiny on efficiency and work efforts - especially when low-cost competitors almost always look better on paper. It also puts the outsourcer and client at cross-purposes, undermining trust.

As with any period of market turbulence there are significant opportunities for firms that are proactive about challenges they face. To begin this path outsourcers need to:

• Recognize that some clients want full-blown collaborative relationships, but some will buy on the basis of minimum specifications and lowest price while still others want to maximize their ROI.

• Develop very specific offerings for these different requirements.

• Deploy a range of pricing models that can avoid price-based comparisons by connecting to very clear measures of client value.

Get Out of the Commodity Trap

By Dr. Reed Holden

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In the eyes of many business clients, all service firms look alike. These services are viewed by increasingly sophisticated buyers as a series of well-defined commodities that are available from a plethora of companies. Because many service vendors have not updated their offering to meet the evolving needs of their business customers or communicated their unique value to each client, business customers have focused primarily on price in their acquisition process.

To avoid this commodity trap, companies must become adept at diagnosing their customers’ business problems, developing targeted solutions, and communicating this value to the client in terms relevant to their business. Simply stated, the sales manager must become a trusted advisor to the customer, partnering with the customer to deliver greater and greater value to their business operations. Absent this relationship, customers will view low-cost as the only value delivered by their commodity provider and will be happy to let multiple vendors duke it out with low prices.

Research and years of working with clients tells us that the most productive answer is moving up the customer value chain with solutions based on effective value propositions. In our experience, most customers would like their vendors to offer additional services and solution packages, and are quite willing to pay for this added value. To accomplish this, services firms must:

• Recognize that while some customers will pay for this added value, others will not and still others will attempt to “play poker” in the hopes of negotiating value at a lower price

• Understand the needs of their specific customers, and then develop solutions and value propositions that address these needs

• Pass the “acid test” of value by demonstrating value to customers in economic terms.

Not All Banks Are Alike

By Dr. Reed Holden

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In the eyes of many business clients, all banks look alike. Banking services are viewed by increasingly sophisticated business clients as a series of well-defined commodities that are available from a plethora of banks and financial services companies. Because banking service vendors have not updated their offering to meet the evolving needs of their business customers or communicated their unique value to each client, business customers have focused primarily on price in their acquisition process.

To avoid this commodity trap, bank managers must become adept at diagnosing their customers’ business problems, developing targeted solutions and, communicating this value to the client in terms relevant to their business. Simply stated, the client manager must become a trusted advisor to the customer, partnering with the customer to deliver greater and greater value to their business operations. Absent this relationship, customers will view low-cost as the only value delivered by their banking services provider and will be happy to let multiple vendors duke it out with low prices for smaller and smaller pieces of their business.

Research and years of working with clients tell us that the most productive answer is moving up the customer value chain with solutions based on effective value propositions. In our experience, most customers would like their vendors to offer additional services and solution packages and, are quite willing to pay for this added value. To accomplish this, banks and suppliers of financial services must

• recognize that while some customers will pay for this added value, others will not and will others will attempt to “play poker” in the hopes of negotiating value at a lower price

• understand the needs of their specific customers and then develop services and solutions that address these needs

• pass the “acid test” of value by demonstrating value to customers in economic terms.

Who Owns Value?

By Dr. Reed Holden

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The basis of all economic activity is value exchange. Sellers produce or offer activities people value; users and intermediaries pay a price based on that value. The greater the value of the offering, the higher the price the seller can charge. This all sounds so simple, yet in practice, it is much more difficult as managers try to align organizations to this relationship in today’s highly competitive market.

Profitable companies prioritize and execute based on customer needs and do so with disciplined programs of offerings, controls, and sales approaches to make sure they insulate profits during customer negotiations.

• Who in your organization has the responsibility for assuring a logical link between the value creation and capture activities?

• Who makes the various functions come together in a way to assure a reasonable return?

• Who is responsible for identifying what customers really value in the product and services offerings of the firm?

• Who is responsible for ensuring market share goals will attempt to return a higher profit for the organization?

• Who is looking at the big value picture?

Getting Down to the Business of Value

By Dr. Reed Holden

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To become more profitable, firms must move beyond using price as a tactic to close a sale and use it instead as a tool to capture a fair portion of the value that they create for customers. Further, the ability to understand and continually create value must be integrated throughout the firm. Winning organizations do a better job delivering value to their customers and subsequently capturing it with price.

This white paper discusses sales strategies to communicate and negotiate with customers by using price to capture value rather than using it as a tool to “close” an order. In this environment, customers are forced to trade lower prices for lower value. This puts the supplier in a more powerful position to control the negotiation process and protect the profitability of higher value products. It also allows the selling organization to hold on price and averts the damage from the sales executive from riding in a white horse to close the deal by dropping price.

The Case ROI^TM

By Mark Burton

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• How do successful firms deploy ROI tools that are credible and serve to build trusting relationships with customers? They follow four simple rules.

• The tool includes competitive alternatives. A balanced approach to demonstrating value is offered with a side-by-side comparison with the competitor’s offering in a differential ROI format allows the output to stand on its own.

• The supplier provides flexible tools that let customers customize the data based on their business operations. Customers need to be able to understand how a purchase will impact their specific costs and efficiencies.

• The supplier trains salespeople to collect, interpret and present the data. With the right training, salespeople can effectively ask the right questions, and then present the value case to customers.

• ROI tools are used as part of a value-driven marketing process. ROI tools help firms understand customer value-needs and how those needs vary by customer and segment.

The Case ROI^TM enables organizations to provide credible tools to present and defend product and service value to customers. This leads to more robust product/service portfolios and improved pricing power during negotiations—it gives salespeople a firm basis for value-based selling. The biggest payoff comes from customer feedback that stimulates a system that unites strategic marketing, product development, and sales processes.