Sales & Marketing Management - May/June 2008 - (Page 21)

sales value merchant A plan for prospering in modern-day markets Let’s begin with a brief story: A supplier of integrated circuits (ICs) for correcting power input was competing for the business of an electronic device manufacturer, which was projecting a demand of five million units for incorporation into its next-generation device. In the course of the negotiation, the supplier’s salesperson learned that he was competing against another firm whose price for the integrated circuits was 10 cents lower per IC—45 cents versus 35 cents. The customer asked the salesperson from each firm what the source of the superior value for his offering was relative to the competing offering. This salesperson replied that it was his personal and dedicated servicing of the account. Unbeknownst to him, the customer had built a customer value model, in which it had found that his offering, though 10 cents per IC higher in price, was actually worth 15.9 cents more per IC than the alternative supplier. Further, the electronics engineer who was leading the development project had recommended to the purchasing manager supporting the project that he purchased those ICs, even at the higher price. The salesperson’s personal and dedicated servicing as a favorable point of difference was indeed worth something in the model: .2 cents! Unfortunately, the salesperson overlooked the two value elements providing the greatest differential value, apparently unaware of the magnitude of the differences and what those differences were worth to that customer. As expected, when push came to shove in the negotiations with purchasing, perhaps suspecting that his superior service was not worth the 10-cent difference in price, the salesperson gave a 10-cent price concession to match the competitor’s price and “win” the business. The result? The firm just lost $500,000— five million units at 10 cents each—of potential profit on a single transaction! Purchasing 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. To enhance their negotiating power, purchasing managers attempt to convince suppliers that their offerings are the same as their competitors, so that they could be easily replaced. In the face of such pressure, as the IC example illustrates, suppliers cave in and match competitor prices. By James C. Anderson, Nirmalya Kumar and James A. Narus www.salesandmarketingmanagement.com MAY/JUNE 2008 © Images.com/Corbis/Christopher Zacharow SALES &MARKETING MANAGEMENT 21 http://www.salesandmarketingmanagement.com

Table of Contents Feed for the Digital Edition of Sales & Marketing Management - May/June 2008

Sales & Marketing Management - May/June 2008 Contents Editor's Letter Brian Tracy University Smart Sales Sales Strategy Smart Marketing Marketing Strategy Smart Management Management Strategy The Minister of Culture Become a Value Merchant Incentives/Motivation Streamlining Business Travel Book Excerpt The Way I See It

Sales & Marketing Management - May/June 2008

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