by Rick Gregory, R.C. Gregory & Co.
In good economic times and bad, smart companies seek to deliver “value-added” to their customers. But far too few of those companies are adequately rewarded for providing that value. Your company deserves to share in the customer value it creates, but how can this be accomplished?
The price premium and market share advantage a value-creating business can command enables the company to invest in continued innovation and service levels, and to commit resources to generate additional customer value. These strategies drive short- and long-term growth and profitability. Companies that invest in value-added but don’t leverage those advantages in the marketplace are throwing away a critical opportunity.
In sales and marketing, the word “value” takes the form of “value-added” (or more succinctly, value-add), “value chain” and “value proposition.” In concept alone, these are all legitimate business ideas, but these words lack precision and measurability.
In addition, so many companies are using these terms that the buzzwords have become meaningless noise. A simple disconnect is the root of this problem. That disconnect is one of language. When communicating with customers, sales and marketing people tend to speak in words, not numbers. The adjectives and superlatives they toss at customers may be impressive, but do they equip the customer to judge the return on the money they are being asked to invest?
The solution is an approach to sales and marketing that goes beyond articulating features and benefits, but in fact calculates the economic value a customer receives from a product or service, and therefore enables the seller to price the product or service as a true reflection of that value.
This approach is called Dollarization. Every time a company sells something, they must at some point present their price to the customer. Before any transaction, the price is known clearly in dollars and cents. But when it comes to presenting what the customer receives in return for that price, the same seller hurls a list of features, benefits and promises. The seller claims superlatives such as best, fastest, strongest, more robust, more reliable, most experienced and so on. The customer is left to make a financial decision: “What price is worth paying?” by assessing non-financial arguments.
Most salespeople stop short of translating their story into numbers. Instead of helping a customer understand that the $4 price will produce $7 in net savings, or that the $1 million investment will yield a total return of $4 million, they use words that are simply inadequate. To use a baseball analogy, this is akin to a sports page reporting that the “Red Sox scored 4 runs and the Yankees played really well” (without telling the reader if the Yankees scored 2 runs or 8)!
The specific Dollarization approach employed will differ based on the unique conditions of a business, but a basic four-step process can be used:
- Identify your advantages: What are the things that differentiate you from your competition? What unique benefits do you offer customers?
- Know your customer: Based on what you know about your company and its differentiators, ask yourself “why should the customer care?” Answer this as if you were the customer’s CFO. If the customer can’t count it, it doesn’t count!
- Develop the math: Once you have identified the routes by which you deliver value to customers, develop the arithmetic equations you would use to calculate the actual value of each item. For example, if you improve fuel efficiency to a fleet, the math might be [Improvement in MPG x Miles Driven per Year x Trucks in Fleet x Cost per Gallon = Fuel Savings]. The numbers will change from one customer to the next, but the underlying math will be fairly consistent.
- Determine your execution approach: For some companies, front-line salespeople will need to work hand-in-hand with customers to communicate their value. Others will rely on advertising and other media. Some may conclude their pricing strategy needs rework.
It is important to remember that businesses do not “buy,” they “invest.” Every investment they make should deliver a return that improves the company’s business position. Therefore, it is incumbent on sellers to help their customers Dollarize the return generated by the business relationship.
Rick Gregory is president of R.C. Gregory & Co., a marketing consulting firm in Farmington, Conn. He is the co-author of “The Dollarization Discipline,” a Soundview Top 30 Business Book for 2005. For more information, visit www.rcgregory.com.
