Using the Words ‘Price’, ‘Cost’ and ‘Value’ Interchangeably is a Serious Mistake
An article, Selling Solutions Isn’t Enough, from a recent MIT Sloan Management Review caught my attention. The article is a compelling description of why we must always do the hard work of understanding what our customers--existing or potential--REALLY values from any transaction or interaction.
The MIT article authors suggest businesses selling to other businesses (B2B) often forget that it’s not WHAT wewhat the customer buys and considers value is never a product…. It is always utility offer that matters, it’s what those on the OTHER SIDE of the transaction value. Not us.
Using the words ‘price’, ‘cost’ or ‘value’ interchangeably is a serious mistake. The SELLER needs to know cost, and will set the price; the BUYER defines the value.
I remember several years ago reading a project report a wrap-up report from a final year university student in which the total staff, student and faculty time and the associated costs were tallied and presented as the ‘value’ of the project to the client. Not true. In this case, the client was looking at whether the project achieved the intended outcomes (in this case, technical results and market data). In some ways the project did achieve some outcomes. In other ways, not so much! Because the price the client was charged was lower than the cost, the report writer implied that the project had been highly favourable to the client in financial terms. But this analysis is flawed.
The buyer (client) defined value differently than the seller (personnel working on the project). Consider Peter Drucker’s oft-quoted statement: ‘what the customer buys and considers value is never a product…. It is always utility. That is, what a product or service does for him. (Source: Drucker, Management: Tasks, Responsibilities, Practices, 1998)
Some might say “that’s not good news Kathy! Every customer might define value differently. Yes indeed they might! That means their expected ‘utility’ outcomes might vary from person to person. Yes indeed they might! Some customers will define value (utility outcomes) in financial terms, customer satisfaction terms, operational terms… or in a hundred other ways (See the Examples to the Right).
Ways Customers Might Define Value
• Increased Revenue
• Better Profit Margins
• Higher Levels of Customer Satisfaction
• Greater Capacity Utilization
• Improved Employee Retention
• Faster, Better Decision Making
• Less Bad Debt/Losses
• Fewer Stockout/Unfulfilled Orders
• Reduced Returns
• Fewer Defects or Mistakes
• Higher Visibility in a Chosen Market
• Better Cashflow
What do your customers or clients need your product or service to do for them? How do your customers or clients define value or utility? What outcomes are they expecting if they buy your product or service?
In large measure, your organization’s sales success TODAY is dependent on your knowledge of the answers to these questions. This is a bottom line issue!
One of the points the MIT article makes is that a customer’s desired outcomes “represent leading indicators of that customer’s future business performance.” In other words, understanding the customer’s desired outcomes tells you where that client’s organization wants to go, and how today’s decisions might influence the future state of that organization.
Think about that for a minute…. If clients’ definitions of value or utility for a product or service they want to buy TODAY helps to determine where they go IN THE FUTURE, wouldn’t it make even MORE sense for us to pay attention to what our customers are telling us is MOST IMPORTANT to them? Anyone interested in repeat business? Preferred supplier status? Expanded presence in a particular industry? Those of us who want help clients succeed need to pay a LOT of attention to their definition of value (or utility). It’s rarely just our price!
If we take this insight to heart, we’ll realize how important good question-asking skills and good listening skills are for everyone in our organizations --- from front-line employees interacting with clients or customer service reps taking calls, to our sales teams, marketing staff, service technicians, and so on. All of these people can be useful sources of ‘business intelligence’, enabling your organization to package the right combination of products or services to truly meet your customers needs.
How do you know what your customers value most about the products or services they buy from you (or the ones they WOULD buy from you if they could get the value or utility outcomes they are looking for but not finding among your competitors?)
If you think that price is all that matters, think again. Price only matters in relation to value as defined by your customer. Miss that and you may be leaving a lot of potential business on the table.