Sales & Marketing Management - March/April 2008 - (Page 42)

book excerpt EXCERPT FROM VALUE MERCHANTS } P Plugging drains, sealing leaks STOP CAVING TO CUSTOMER PRICE PRESSURE EXCERPTED FROM: Value Merchants Demonstrating and Documenting Superior Value in Business Markets By James C. Anderson, Nirmalya Kumar and James A. Narus urchasing managers in business markets are becoming increasingly sophisticated in their strategies and tactics. Increasingly held accountable for reducing costs, purchasing and other customer managers don’t have the luxury of simply believing suppliers’ claims of cost savings. A relatively easy and quick way to obtain savings is for purchasing managers to focus on price and obtain price concessions from suppliers. In Value Merchants, James C. Anderson, Nirmalya Kumar and James A. Narus put forth the argument that, rather than simply conceding price concessions, suppliers in business markets are better served by identifying value drains and value leaks when faced with customer price pressure. To learn more, read on: Seeking value drains and leaks, not price cuts Rather than trying to find ways to cut price, value merchants try to make the business with customers more profitable by finding value drains and value leaks. Value drains are services, programs and systems that cost the supplier more to provide than they are worth to customers receiving them and have no strategic significance. Value leaks are activities and practices a customer does that increase the cost of doing business for it and/or the supplier and yield no offsetting greater cost savings or value to either. Identifying and eliminating value drains and value leaks represent a promising means for businesses acting as value merchants to improve their own as well as their customers’ profitability. These changes in how the supplier and customer do business can provide cost savings to each, or one may incur incremental cost while the other gains greater offsetting cost savings. In this latter case, most suppliers and customers are willing to share the net cost savings as an incentive to change, so that each firm is better off. Success at identifying and eliminating value drains and leaks promotes greater cooperation between a supplier and customer, with the intent of doing still better. Customer value assessment, along with activitybased costing analysis, provide the “Aha!” tools to detect value drains and leaks. Case study #1: Eastman Chemical Eastman Chemical—a leading producer of chemicals, plastics and fibers—provides a notable example of identifying and eliminating a value drain. It was supplying an organic chemical intermediate to a leading pigment producer and was having difficulty getting to a price where the customer would be happy to do business. The Eastman salesperson, who had been trained in selling value and doing customerprocess mapping, proposed studying the customer’s production process to discover potential cost savings. This investigation indeed revealed a value drain. Eastman, in the final step of its production process, was eliminating moisture www.salesandmarketingmanagement.com Reprinted with permission from Harvard Business School Press. Excerpted from Value Merchants: Demonstrating and Documenting Superior Value in Business Markets by James C. Anderson, Nirmalya Kumar and James A. Narus. Copyright © 2007 James C. Anderson, Nirmalya Kumar and James A. Narus. All rights reserved. 42 SALES&MARKETING MANAGEMENT MARCH/APRIL 2008 http://www.salesandmarketingmanagement.com

Table of Contents Feed for the Digital Edition of Sales & Marketing Management - March/April 2008

Sales & Marketing Management - March/April 2008 Contents Editor's Letter Brian Tracy University Sales Marketing Management Cover Story: Lessons From the Master Maximum Mobility Training Technology Incentives/Motivation Travel/Meetings Book Excerpt - Value Merchants The Way I See It - End the Discounting Habit

Sales & Marketing Management - March/April 2008

For optimal viewing of this digital publication, please enable JavaScript and then refresh the page. If you would like to try to load the digital publication without using Flash Player detection, please click here.