Get To Know Your Customers’ Problems

Selling value is profit improvement selling. It is selling to high-level customer decision-makers who are concerned with profit, who are responsible for it, measured by it, evaluated by it, and accountable for it. It is selling at high margins so that the profits you improve for your customer can be shared with you. High margins to high-level decision-makers: this is the essence of

Selling High Value.

The high margins that accrue from selling value are your reward for knowing more about your customer - and how you can improve them - than your competitors. Margins are merited by mastery of how a customer runs the business functions that are your sales targets. The more you know about them and the better you are at performing them more cost effectively, the greater your value will be. The increase in your value translates into higher value pricing.

Selling High Value is industry dedicated, and within each industry it is function-specific. Business functions in customer companies are your end users, your true markets. According to the way they operate, they create the costs that you can reduce or do away with entirely. They can add new sales revenues or productivity, if you can show them how. Your customer's business functions are the sources of the problems you will have to solve and the showcases where the value of your solutions will give testimony to your capabilities. Scoping their ways of operating should therefore be your constant preoccupation.

Remember, if you are going to sell in a consultative manner, customer business functions will be the subject matter of your consultation. The only alternative is to talk about your own processes and the products or services they produce. In that case, you will be talking to the purchasing tier, selling on a basis of competitive performance and price. Your opportunity for high margins will have vanished.

In order to know customer functions from an operating perspective and from the point of view of their financial structure, you will have to get inside their businesses. Generic knowledge of a function based on industry-wide generalizations is important and useful, but insufficient. Norms and averages can be extremely helpful, especially if used to learn the specifics of individual customer operations, but by themselves are inadequate. The only business function profiles customers will recognize are their own. These are also the profiles customers’ guard most zealously. There is good reason for this. Little perceived value comes from releasing functional operating or cost information. There are many people and organizations that can use it detrimentally, and few, if any, who might use it helpfully. If you want to qualify as a helpful source, you must first pay your dues – do your homework on customer businesses. Then, on the basis of what you have learned and how well you can apply it, you may be invited to propose improvements.

The ability to profile a customer business function is essential to selling at the top-tier. In customer functions, you will find the problems you will propose to solve. Unless you know the nature of these problems, their importance, their financial values, and the language in which customer top management discusses them, you will be talking to yourself when you get to the top-tier.

Developing A Business Function Profile

There are three ways to profile a business function that correspond with top-tier management’s own ways of auditing it. One is to examine its financial role within the customer’s company. The second is to evaluate its operations. The third is to analyze its principal areas of intensiveness, the cost areas it depends on the most for its operations. There is a fourth way, too: Study and understand a function’s decision-makers.

A Function’s Financial Role

Every customer operating function is a miniature business. The research and development function is a miniature science laboratory. The product engineering function is a craft workshop. The manufacturing function is a machine shop and assembly line. The sales function is a distribution organization. Top management tolerates each function because it has decided that it is more cost-effective to own capabilities than to buy them from the outside. They all operate at a cost. In some companies, manufacturing is expected to produce a gross margin, and sometimes the information-processing function will market portions of its database and bring in revenues. Because most business functions are a cost center, each has the potential to run up intolerable expenses that significantly erode profits. To prevent this from happening, cost control becomes a paramount consideration. Management thinks of this mission as controlling a function’s contribution to cost. This is the financial context in which customer business functions exist. You must know how these functions contribute to cost or sales, that is, how many dollars they generate, inside your customer business as if they were your own. From a Selling High Value point of view, they are your markets to improve.

Evaluating A Function’s Operations

Business functions are processes. All processes have a flow - they have a beginning, middle, and an end. Manufacturing begins with raw materials and ends with finished goods in inventory. Data processing begins with raw information and ends with reports. There are costs at both ends; in between, there is nothing but costs.

Every financial process has its critical few "crunch points" - the places, times and activities where major contributions to value are made and major costs are incurred. Unless they work in the most cost-effective manner, the output from the entire process may be unacceptable and uncompetitive.

Value sellers should be able to chart the flow of the key customer processes they affect. They should be able to assign appropriate costs to the most critical points that control the process - the 20 percent that contribute the 80 percent - and be able to prescribe the optimal remedy to reduce these costs or rule them out entirely. Some of these remedies will be therapeutic: That is, they will lower an existing cost. Other remedies will be curative: They will alter a process, combine it with another, or eliminate it from the flow. In still other cases, the remedy will be to change the architecture of a process so that a completely new set of cost centers will result.

In most customer operations, workflow is cost-ineffective. It incurs unnecessary cost or it processes work ineffectively. If you can optimize it, you can improve its contribution to profit. Every dollar of cost you take out can drop to the customer’s bottom line. Every improvement you make in productivity can also lower operating costs and raise the output from each dollar invested in labor, energy and materials.

Analyzing A Function’s Intensiveness

All customer business functions are intensive in their use of one or more resources. The sales function is labor-intensive in their use of one or more resources. Research and development is technology-intensive, as well as labor-intensive, at an extremely costly and highly educated level of labor. Manufacturing may be energy-intensive. Plant construction and equipment modernizations are capital intensive.

The areas in which a function is intensive, define the type and volume of its cost configuration. They set the targets for value selling. If a process you affect is labor-intensive, you will want to focus your consultation on reducing the amount of labor required; improving training so that lower-cost, lower-skilled labor may be substituted; replacing labor with technology; substituting external contract labor for internal workforces; or improving productivity so that each worker can increase the contribution to profit for each dollar of wages. In dealing with technology intensiveness, newer forms of science, such as electronic controls, may contribute more cost-effectiveness than electro-mechanical controls. On the other hand, increasing the intensiveness of labor may be more cost-effective than upgrading a technology.

Your consultative expertise will necessarily fall within the intensive areas of your key customer business functions. You must be an assembly process expert for labor-intensive customers and a distribution process expert for sales-intensive customers. In everything you do, however, you must be expert in either reducing investment or increasing its ability to generate returns.

Evaluating A Function’s Decision-Makers

Decision-makers preside over every business function, usually as function managers. Primary players directly affect a function. Outside their circle are the secondary players who are affected by their decisions. These may be primary players in other functions. Taken together, they represent the deciding voices in the acceptance or rejection of your proposals.

You cannot claim to know a customer’s business unless you know the decision-makers and where they set their minimum thresholds for making affirmative buying recommendations. How much improved profit meets each decider’s minimum criteria? How quickly must it start flowing in order to be regarded as soon enough? How certain must it be? How much proof is required to be convincing? What kinds of proof are most meaningful? Only when you know these things about key customer decision-makers can you work with them in a consultative manner. Only then can you deal with them on a businesslike basis, as opposed to simply a buyer-seller relationship. Knowing decision-makers means knowing what is decisive for them when it comes time to invest their funds with you.

Scoping The Options

When you make your initial penetration of targeted customer operations, you already know a good deal about the business functions into which you sell. Even if you have only been vending, you have learned about at least three major subjects. First, in terms of products and services, you probably understand what already has been done by customers to make their functions more cost-effective. You know what they have purchased, from whom, for how much, and with what results. Second, you also probably know what other companies in your customer’s industry have done to solve similar problems. Some of them may be your customers too; others may be prospects. From whom have they bought? For what performance benefits? Third, you undoubtedly know something about upcoming new products and services that might create a difference in customer operations. Just by being in business, you know most of these things. But as a value seller, you must know more. From the outset, you must know the options available for improved customer profit. You will have to study customer business functions so that you can prescribe the optimal mix of cost-reducing options and revenue-adding options for each of their main problems.

·         Cost-reducing options

 When you screen a business function, you must be able to learn its costs on a before-and-after basis. What are its costs today? You must then be able to prescribe the best mix of available options that can accomplish some or all of the following objectives: They must leave a customer with fewer dollars in costs; they must take a shorter time to reduce costs than other options; and they must be highly certain to perform. 

·         Revenue-adding options

At the same time that you screen a customer’s business for its costs, you should profile the options for adding new dollar values. How can revenue-generating operations be strengthened? By how much? How can productivity be magnified? By how much, and what dollar value? Here again, you must be able to prescribe the best available mix of options that can accomplish these improvements. They must bring a customer more money. They must bring it in more quickly than other improvements and they must be highly certain to perform. There is no such thing as the universal solution. No one option will fit all customers, even if the function being penetrated is the same throughout an industry. The closest you can come to broad-scale generalizations are these:

·         If you can combine more value at less cost, you have the ideal solution

·         If you can provide more value even at more cost, you may also have an ideal solution, as long added-value sufficiently exceeds the added-cost.

Either of these options represents a value-based strategy. You should have them in mind as you approach a customer business with the objective of learning its costs or its ability to generate revenues. By knowing what your options are, you will be better able to select the most relevant profit improvement recommendations.

Profiling Target Function

To vend, you need to know your own costs, to sell in a consultative manner, you need to know customer costs. To vend, you need to know your own sales opportunities, to sell as a consultant, you need to know customer sales opportunities. Realizing that you must come up with a cost-reducing or revenue-adding option, or both, how can you get a fix on the customer’s unachieved sales potential or cost reduction opportunities? In profiling customer functions, how can you quantify, with reasonable accuracy, the problems and opportunities that will form the base of your penetration plans?

You will need to develop three databases that will become the basic resources for top-tier selling to key accounts:

·         An industry database on each of the industries in which you serve key customers.

·         A customer database on each key account customer you serve in an industry.

·         A customer’s customer database.

From your industry database, you will learn average costs, average profits on sales, average inventories and receivables, and other industry norms. The information in each of your key customer databases will allow you to compare customer performance against industry averages. In categories in which a customer falls below the norm, you may find sales opportunity.

Your individual customer databases will teach you the concentration and distribution of customer costs. Where do they bunch up? Are these the same places for the industry as a whole? How heavy are they? What are their trends? Are they rising or are they coming under control? Your customer databases will provide you with knowledge of where potential new sales opportunities for a customer may be found. How can your customers sell more? How can they sell at higher prices? How can they extend sales into closely adjacent markets? How can they invade new markets that offer superior profit opportunity?

In order for you to know your customers’ business, you must know more than the performance and cost characteristics of the internal business functions that you can affect. You also must know the markets to which your customers sell. Their needs cause many customer business functions to operate the way they do, to manufacture the kinds of products they make, to advertise and sell the way they do, and to communicate inside and outside their businesses with the telecommunications and data processing technologies they use. Only when you know your customers’ customers can you understand the complete spectrum of the consultative relationship that will be available to you, the full range of costs that can be reduced and sales opportunities that can be enlarged.

The essential elements of information you will need to know about your customers’ customers are exactly the same as the data you must develop on your customers themselves. You will have to learn the major cost areas your customers affect in their own key account businesses and the main sales opportunities they help them achieve.

The joint development of information is one of the strongest bonds for partnering. Shared discovery is an alliance of adventures, each adding new value to the other. Joint research can also be cost sharing, another partnering act. At best, your key customers will realize that they will have to expand their knowledge of their own customers if they are going to be able to help them improve profits. They will, of course, also be able to use customer knowledge to sell consultatively themselves. At worst, you may have to suggest a cooperative starter survey to demonstrate the value of market knowledge.

Learning From Industry Sources

Getting into the cost structure of an industry and its customers is a three-stage effort. Setting up your databases is a front-end loaded undertaking. After that, it is simple and inexpensive to keep them up to date. The first stage is to learn as much as you can from the multiple sources that are always available without going to your customers themselves. Then, when you take on the second and third stages that deal specifically with your accounts, you will have two advantages: You already will know a great amount, so you will have less to ask of customers, and you will have a meaningful framework on which to hang the information they share with you.

In addition to the ubiquitous publications and knowledgeable career professionals of the United States government - especially the Department of Commerce - seven additional sources can help you learn the costs and revenue potentials of customers in key industry.

1.             The people and information resources inside CleanAir are the first and most obvious source. Some of our people may even have worked for key customers. Others may have done studies that produced information relevant to your consultative needs.

2.             Trade associations in your customer industries are staffed by people who usually devote their lifetimes to their trade. They know many generalities and often specific information about individual companies. They know the main leaders in the industry and can introduce you. Their associations also maintain libraries and computerized databases.

3.             Securities analysts are professional researchers employed by brokerage houses to follow specific industries. They publish updated industry analyses that evaluate growth potential, highlight the major factors that determine profits and costs, and define trends that can forecast opportunities. Many analysts will provide personal counsel on a quid pro quo basis.

4.             Industry experts and consultants can be retained on a one shot or periodic basis to lay down a foundation for understanding an industry’s processes and cost structure. They also can be helpful in estimating the impact of your technology on customer costs and productivity, keeping in touch with competitive technologies, and exchanging information on industry-wide business function problems and the solutions currently being implemented

5.             Other suppliers who sell non-competitive products and services to the same decision-makers at your key accounts may be willing to share their acquired knowledge of customer process costs and sales opportunities. They probably will approach the knowledge you seek from the bias of their own interest, making their information peripheral to your needs, but nonetheless valuable.

6.             Non-customer companies or non-key accounts in the same industry are sometimes easier to approach for general information than your own customers. They operate the same business functions. Their costs tend to cluster at the same critical few points. The potential sales opportunities affect their marketing strategies in the same way.

7.The Internet is emerging as a major source of industry and company information.

Learning From Customer Sources

No information source on a customer’s business can equal the customer’s employees. They speak with authority, for two reasons: They have the inside track on customer operations; indeed, they originate much of the information themselves. Second, they believe the information is gospel. Right or wrong, their "facts" are the only real facts. Their numbers are the only hard numbers. Their costs are the costs you will have to work with. Their unfulfilled opportunities are the opportunities you will have to help them seize.

In an ideal world, customer facts and figures would be open for your asking. Every now and then it happens in exactly this way. A vendor supplier sits down once in a lifetime before the top-tier managers of a key account and presents generalized benefits of working together in two-tier manner. For the work they will do at the top-tier, the supplier proposes a partnership based on value-added strategies. The supplier reveals minimal customer knowledge and asks to be provided with the rest. The customer senses the value of the benefits, and agrees.

The other approach is called value selling, because it is the strategy that almost always must be used. It also is known as the hard way. It is the cookbook strategy, because customers do not give internal operating information and its financial implication to vendors, especially to vendor sales representatives. As a result, a vicious circle is set up. A vendor needs inside customer information to switch from vending to top-tier consultation. Yet customers do not release inside information to vendors. Without the information, a vendor will forever remain a vendor. How can the circle be broken?

Experience has shown that the only workable way is for vendors first to learn as much as possible from industry and public customer sources about customer cost problems and sales opportunities. Then they can adopt a halfway step between vending and consulting, taking on a quasi-consultative role: They share the data they have, offer tentative proposals based on their implications, and thereby motivate their customers to share the rest of what they need to know in order to achieve the proposed profits. In this twilight zone between vending and consulting, vendors are not asking customers to give them information. They are inviting customers to trade information with them the way consultants do with their customers. Trading is acceptable to a customer, where giving is not, because trading is rewarded on the spot with a return of equal or greater value.

To make the quasi-consultative approach work on initial customer profiling, several requirements must be rigidly adhered to:

·         You must bring something to the party; you cannot come empty-handed. Your knowledge of a customer’s industry and business must show evidence of diligence and intelligence. Your tentative suggestions for proposals to improve customer profits should demonstrate an appreciation of the customer’s priorities. What is his rank order of problems? Where will the greatest rewards come from? The quickest rewards? The most certain? The difference between the vendor’s "Let me show you our new product" and the profit improver’s "Let me show you your new profits" - is the difference between the euphemistically named "professional selling skills" and value selling. Vendors speak in comparatives against their competitors. The offerings they bring to the party are said to be faster, stronger, lighter and, of course, cheaper. Consultants also speak in comparatives. But they compare a customer’s costs or sales on a before-and-after basis: Before they have applied the profit improvement strategies they offer, and after, as a result of applying them. The vendor’s problem is how to sell a product. To solve it, vendors bring product samples. The consultant’s problem is how to improve customer profits. To learn how, consultants always bring samples of profit improvement from their databases. "Let’s take a look at your product line A," the consultant says. "We’ll see that it is being subsidized by your profits from lines B and C. All three lines are suffering. If you could increase A’s contribution by as little as one percentage point, it would break even this year and begin to carry its own weight. What if we were to reduce its manufacturing burden by $100,000? That would bring you to break-even within the year." "Let’s take a look at this market segment of yours over here. These customers have been buying less and less from you every year. That’s because their own markets have been stagnant. What if we could help them improve penetration by as little as 3 to 5 percent over the next 12 months - a profit improvement for you of at least $500,000?" 

·         You must be careful not to bend generalizations to fit an individual customer’s situation. Industry averages are useful as points of comparison with a customer’s performance, but they never should be used as if they represent the customer’s performance. 

·         You must be upfront and honest about what you have not been able to learn and therefore do not know about a customer’s business. When you construct a tentative proposal, you can leave these areas blank or insert admittedly assumed cost figures. If you use assumptions, you should start with your best estimate of what a true figure would be. Then you should deliberately over-estimate each customer cost item and deliberately under-estimate the value of your solutions. 

·         You must be able to show dollar benefits that meet the customer’s threshold of what is significant. Unless you can do this, customers will have no incentive to trade information with you. Partnering must promise a clear reward. The customer must believe it to be achievable by working together, and must also be able to visualize continuing to receive ongoing value after the first success. 

·         You must make it simple for a customer to agree to trade business knowledge with you. This means that you should require as little information as possible. It also means that you should not ask for any information that a customer knows is publicly available. You should not ask for major allocations of customer resources to further your work together. Your partnering requests should involve the least possible customer staff time and expense.

·         You must believe mightily in what you propose. Your conviction will be contagious. It will be tested by customer decision-makers who have never before worked with you - or with any supplier - in a consultative manner. Their comfort level in going ahead will be reinforced by the assurance you convey and the degree of support you are willing to commit.

Shortcuts Don’t Work

The quasi-consultative approach proposes a probable reward, shows the size of the up-front investment needed, and asks for a customer’s knowledge to firm up the exact dimensions of the reward. Sometimes vendors try a shortcut. They lack the unique human resources to create a consultative partnership from the start. They also lack the dedication to do sufficient homework. Their approach is to ask customers for the right to study their business on the chance that they will find ways and means of improving the customer’s profits.

There are two risks to asking for the right to make a study before proving or even suggesting a reward. One is that studies that begin from ground zero range unnecessarily wide in search of targets. This involves many people interrupting their work and increasing the chance that many of them will be inconvenienced or antagonized. Some may refuse to participant. Others may think the approach is naïve. These are frequently the same people who will have to be engaged in partnership if a consultative relationship is eventually established. It is not likely that they will readily perceive the vendor as an equal.

The second risk is that the customers’ top management tier will downgrade even good results from such studies. The most typical criticism is, "All they told us is what we told them." Since customers know they have provided all the information that goes into such a study, they regard the database that results as their possession especially if they paid for it. There is no felt need to reward the vendor by sharing what customers believe they have done for the vendor - rather than the other way around. Asking for the right to study a customer’s operations should be a last resort. It should never be a strategy of first choice. When a study is undertaken, it should be minimally disruptive and tightly managed for limited objectives, to supplement what is already known. It should be extremely short and should never exceed its allotted time.

Managing Business Function Knowledge

Your expertise in customer business functions will emerge in this type of sequence.

1.     You will know a little about one operation in one customer company in one industry.

2.     You will know a lot about that one operation in that customer company. 

3.     You will know a little about another operation in the same customer company, as you will be invited to migrate your profit improvement strategy to another aspect of the same business function or to another function.

4.     You will know a little about the same operation in a second customer company as you penetrate other key accounts in the same industry. 

5.     You will know a lot about that same operation in several customer companies.

6.     You will be storing their facts and figures in your databases. Your reputation for expertise in bringing profit improvement to the operation will spread throughout the industry. The profits you bring will become the industry standard. 

7.     You will acquire similar databases and expertise for improving the profit contribution of other operations in the same business function and in other business functions in the industry. 

8.     You will extend your knowledge and reputation to other closely related industries.

This is the capsule history of how major corporations have managed their customer knowledge, extending it from operation to operation within a business function, then to other business functions, then to other customer companies in the same industry, and then to other industries. In order to grow their key account sales at high margins, they have marketed their knowledge of customer business problems and opportunities. On the surface, they have been selling profit-profit-improving solutions. But the underlying value has been their understanding of customer problems. They appear as solution experts. At rock bottom, however, they are process-smart, operations-smart, function-smart ....that is, customer-customer-smart. Only then can they be smart suppliers.

As you learn how to manage customer knowledge resources, you will discover two truths:

·         No customer wants to be first with anything new.

·          

·         As soon as something new produces superior results, every customer and competitor wants to possess it on an exclusive basis.

These paradoxical attitudes will be encountered as you take the first steps from vending to value selling. Finding the first customer to work with, to let you get inside heretofore proprietary operations, will be more difficult than finding the second. Yet working with a second customer in the same industry may also be difficult because the first customer will want to monopolize your function-profiling skills and profit-improving strategies.

In spite of these initial constraints,

You will know that you have achieved consultant recognition in a customer industry when a remarkable event occurs. You will be invited by customers to profile their business functions - not to bid on their business - but to study its cost structure and its sales opportunity. At that point, your knowledge of industry norms will come importantly into play. Once you have captured the knowledge of their functions, your proposals for profit improvement will follow naturally. After all, who will be better equipped? What you know about customer functions will not be what you sell. But what you sell always will be based on what you know.

Now plan to use what you have just learned.

What data do you need?

Will the Xerox,“Spin Selling” technique work for these opportunities?

What questions need to be asked?  Can you ask them?

Can your CleanAir deliver what it takes?

How will you know value delivered is 10x?  How can you make certain?