by Peyton Marshall –
Businesses need to add value. To acquire and keep our shareholders, we need to add shareholder value. To acquire and keep our customers, we need to add customer value.
Yet how often do we, as product managers, think directly about customer value? Designing products, improving product quality, ensuring product delivery, setting product prices, drafting product information, and communicating product differentiation should all contribute to customer value, but the language we use in solving our day-to-day problems is invariably product-centric, not customer-centric.
When we do think about customer value, we see a noble objective before us, but our vision is often clouded. Clarifying that vision improves our effectiveness. Articulating customer value highlights our differentiation. Quantifying customer value focuses us on the business decisions a customer will make. Dollarizing customer value helps us to price, to communicate and to sell.
The best B2B enterprises frame their decision-making and base their execution on customer value. The more specific we are in quantifying and dollarizing customer value, the sharper our insights and the more effective our communication. Our understanding of customer value will never be perfect, but continually improving its quality will enhance our performance.
Customer Value Improves Decision-Making.
Understanding customer value improves product planning and decision-making in at least four ways:
- Product Development. An early understanding of customer value in the product development process refocuses our innovation on customer outcomes instead of technological possibilities. If our potential differentiated features create significant added value, relative to the alternatives that customers will consider, then we have a case to invest in developing those features. If the added value created by our innovation provides defensible support for a price premium, then we have more confidence in our business plan, both in our revenue projections and in our prices. Customer value provides a foundation for better development decisions.
- Product Launch and Pricing. Refining our understanding of customer value improves our go-to-market strategies for new products. Dollarized differentiation value supports us in value-based pricing. Quantified value helps us identify value-based customer segments. In turn, these segments help us design offerings that enhance the profitability of serving diverse customers. Value tools are then useful in helping our sales teams recognize which segment a specific customer fits best. Segmentation and offer design strategies, coupled with value based pricing, accelerate product uptake at launch and improve product returns.
- Existing Product Management. Updating our estimates of differentiated value on a regular basis improves product management for existing products. Reassessing value regularly forces us to recognize new competitors and to identify elements of differentiation that we had not recognized before. Customer value provides a diagnostic approach that helps us identify a need or opportunity to change product pricing. Market learnings regarding value help us refine our product positioning based on meaningful customer feedback about what our product has done for our customers.
- Product Messaging. Designing marketing collateral to focus on value improves its relevance to new and existing customers. A sharpened understanding of value based on market feedback shines a spotlight on the outcomes we deliver for our customer. This makes our material more relevant to the customer, improving the quality of our collateral and helping to reduce our content quantity to the essentials.
Customer value, as a focal point for our internal discussions, improves product management, product strategy and pricing decisions. The evidence shows that implementing a value based-pricing strategy improves EBITDA by an average of 8% (Footnote 1) and that the ROI of investing in value based strategies ranges from 130% to 900% (Footnote 2).
Customer Value Improves Execution.
Value selling improves sales execution. Sales training in the effective utilization of strong value propositions provides a solid foundation for increasing qualified opportunities, improving closing rates and increasing realized price outcomes. Sales teams need both the skills and the value proposition tools to deliver these results, but the impact can be meaningful:
- Qualify & Differentiate. Value propositions are useful early in the sales cycle. By highlighting what we deliver qualitatively and quantitatively in an initial customer conversation, a sales rep can understand a prospect’s priorities, organizational influence and business circumstances, helping to qualify the prospect and to steer subsequent meetings. Value Propositions, especially when presented as flexible case studies, highlight how we improve customers’ business outcomes and draw attention to our differentiation early, improving our odds of winning in competition and of moving customers successfully through their buying process.
- Prove & Customize. Value propositions are useful during a buyer evaluation in the middle of the sales cycle. They help sales teams concentrate on business problems and potential results for a prospect in call preparation. Good value propositions provide presales professionals with opportunities to demonstrate the specific value of our solution to a customer team. With more specific understanding of customer value, solution consultants and customer-facing product managers are better able to design and configure solutions to fit customer priorities and business specifics.
- Negotiate & Close. Value propositions improve outcomes when it comes time to negotiate. By making customer value central to the evaluation phase, our sales team begins to collaborate with a buying sponsor as they structure a shared business case to buy. The business case addresses internal buyer questions of why buy and why pay a price premium. It also sets expectations, pushing a buying process through its final stages.
- Implement, Assess, Renew & Upgrade. As a basis for setting expectations, value propositions provide a framework for reviewing implementation outcomes and tracking buyer and seller accountability. Post-sale, value propositions serve as an ongoing basis for reviewing customer success, supporting revenue recurrence and growth from renewals and upgrades.
Forrester Research, surveying buyers, found that, “the first vendor to succeed in communicating a vision to executives wins the business 74% of the time.” The key to that win rate, according to Forrester, is that the winning vendor works with the buyer to turn the vision into “a clear path to value.” CRM data from organizations adopting value selling show that opportunities where a Value proposition is used (1) have 5-15% higher win rates and (2) 5-25% higher price outcomes. Value selling improves sales performance.
Deliver Value. In sum, customer value increases shareholder value. An obsessive focus on customer value keeps our internal product discussions customer-centric, customer-relevant and delivery-centric. The results are improved decision-making and enhanced sales execution.
Footnote 1 – See John Hogan, “Building a World-Class Pricing Capability: Where Does Your Company Stack Up?” Monitor Group Perspectives, 2008.
Footnote 2 – See Stephan Liozu and Andreas Hinterhuber, eds., The RoI of Pricing, Measuring the Impact and Making the Business Case (Routledge, 2014), especially the chapter by Stephan Liozu, “RoI and the impact of pricing: the state of the profession.”
Peyton Marshall is CEO and Chairman of the Board of LeveragePoint. For 15 years he served in senior management roles in healthcare products and IT companies, having been CFO and Acting CEO of Panacos Pharmaceuticals, Inc., CFO of EPIX Pharmaceuticals, Inc. and CFO of The Medicines Company through their initial public offering and the commercial launch of Angiomax®. Before that, he was an investment banker for 12 years in London at Union Bank of Switzerland, and at Goldman Sachs where he was head of European product development. He has served on the faculty of the Economics Department at Vanderbilt University. Dr. Marshall holds an AB in Economics from Davidson College and a PhD in Economics from the Massachusetts Institute of Technology.