Originally Published: Appita Magazine, April – June 2019
B2C (Business to Consumer) companies such as McDonalds seem to master the art of Value Proposition expression quickly, whilst B2B (Business to Business) companies such as paper manufacturers often struggle to truly articulate their worth. I’ll use the takeaway food giant to explain why.
Rather than limit the customer experience to a predesignated set of menu options, the customer at a McDonald’s store has a plethora of choices available to them. Each comes with a price that is clearly displayed and rarely challenged.
The menu options are plentiful. If it’s a genuine low-cost meal that you’re after, a limited range of set “loose change” items are available, and you can cobble together your own meal combo for as little as $6.
Dial it up and request a large-size “meal deal” and you can have the signature burger, fries and large fizzy drink all for under $12. If something more gourmet is desired, then you have the option of designing your own tailored burger, chips and drink package for anything up to $23.
Those are three very distinct examples of value propositions, and, as we all know, there are many more that lie within each store.
At the very least, it’s a “good, better and best” model. At its most constructive, you generally don’t leave an outlet without being offered an up-sell purchase to heighten your dining experience, thereby increasing the per customer average spend. The choice is always up to the customer, but the more you tailor your order, the more net margin you will be contributing to the franchise.
THE B2B CHALLENGE
B2B suppliers traditionally struggle to separate the value of what is and what isn’t included in their offer to their customers. In the process of negotiating, there are often many “menu” variables put on the table yet how often does the customer-specific “menu” get accurately reflected in the contract?
How often, subsequently, do the negotiated variables and the contract terms get clearly passed on to all who participate in the delivery of the overall service to the customer? Who knows, beyond those who sat at the negotiating table, if a customer, despite their size, has opted to purchase the bargain-priced supply offering? How well do paper merchants and printers do this?
In fast-food terms, suppliers struggle to maintain “meal deals” that have been priced to optimise value. Nor do they “up-sell” very well.
“We had intended to categorise our customers into three separate segments and provide varying levels of priority and service to each yet deferred doing so due to concern that customers may have felt aggrieved at being ‘classified.’ In hindsight, there was probably an opportunity to ask our customers to choose a level of service that came with corresponding pricing, and no doubt there are always opportunities to apply a surcharge when a customer’s need suddenly becomes urgent. But you need to make these things clear up front.”
You see, unlike the fast-food staff who ask, “Do you want fries with that?” and charge the customer for any “extras,” supplier staff often aren’t even aware that their business is offering a selection of “good, better and best” service packages. Cross-functional responsibilities are often blurred and interest in detail can be low.
Functional staff just tend to get on with the job at hand and “do whatever it takes” to satisfy the customer, as they have always done. I’ve witnessed, on multiple occasions, supplier staff in paper manufacturing “just make it work” with their counterparts on the customer side.
If they send out extra stock or deliver a day early, they don’t say, “We did all this extra work, now please, customer, pay this surcharge.” They’re more likely to say to their peers and managers, “We’re just doing our job, aren’t we?”
But, if you’re not charging more for the extra value you’re providing, you’re losing both incremental revenue and the resulting net margin entitlement.
CHOICE OR CATEGORISATION?
The menu is a powerful device which is readily understood. Its application by food-providing, consumer-facing businesses has become routine.
B2B suppliers clearly have yet to catch on.
Whilst relationships between customer and supplier are genuinely considered to run deeper in the B2B sectors, this shouldn’t negate the need for customer classification. The shift in thinking needs to be that customers are given the choice of matching service levels with corresponding prices.
Like airlines and fast food outlets, the right to change your preferences or tailor a single order should always be available, but it must come with a clearly understood surcharge. It’s good to give customers what they want, but on the supplier’s terms.
CONSULT YOUR ELDERS
Part of the problem in establishing tiered value propositions in larger-sized organisations harkens back to the topic of shared cross-functional customer responsibility.
When commencing negotiations with a customer, how often do those negotiating, most likely salespeople, consult widely and deeply with their cross-functional counterparts to determine just what type of value proposition can be fashioned to best suit the customer?
Most businesses have a number of long-term employees, the “elders” if you like, who hold an exceptional amount of customer knowledge and insight. They know where the “bones are buried” and what it will take to keep a customer satisfied.
Invite their opinion. Listen to their wise words and consult with them throughout the negotiation process. Their input can produce genuine “gourmet creations” that can be priced and served accordingly.
THE VALUE OF RESPECT
Suppliers accept changes from their large customers repeatedly and readily. They regularly go above and beyond what was contracted without charging for the additional value provided.
If a customer calls from the factory floor and asks his counterpart at your company to deliver their order a little early, maybe on Saturday night instead of early Monday morning, should the supplier just comply with the request?
Their order is ready, and there’s room on the truck. Your staff, unaware of the true value of the rescheduling to your customer, agrees to do it. But in reality, your customer was about to be fined a fortune by one of their end users for being out-of-stock.
CASE STUDY: THE UNDERVALUED COMMODITY
The supplier had a large team that both supplied and serviced its customers. The service side came through its quality engineers who would routinely visit customer operation sites to assist in line performance and general efficiency improvements.
With one particular customer, the same engineer had been visiting for over 15 years and had become a trusted partner of the customer site team—so much so that he assisted monthly with the collation of continuous improvement reports.
All this was unknown to the supplier’s commercial team who were in the midst of a supply negotiation with the customer’s head office procurement team. During the process, the customer sought justification for the 10% price premium that our local supplier wanted to maintain over the import alternatives. The customer argued that both the local and overseas offerings were “commodities” and therefore of the same value.
Fortuitously, the engineer heard of this customer’s challenge and was affronted by their commodity argument. He provided his commercial colleagues with evidence of the efficiency gains and value that he had been able to supply
The procurement team was given the choice of maintaining the price premium and services of the engineer OR a lower price and the removal of the engineer’s support.
Pleasingly, the said engineer is still visiting the customer today.
- B2B suppliers can gain much from considering how fast food chains provide choice and value, on their terms, not their customers’.
- Suppliers accept changes from big customers repeatedly. They regularly act above and beyond what was contracted, without charging for the additional value provided.
- If you allow a customer to take your company and your staff for granted, the customer generally will, even more so. What started out as a one-time, generous offer by staff to change an order can turn into an ongoing customer expectation.
- Allowing customers to choose from a menu with clearly defined prices has been proven to work.
Paul Allen, Managing Director, Margin Partners AustraliaPaul Allen is the Managing Director of Margin Partners & Australia’s Leading Authority on Supplier Margin. For over 25 years, he has been immersed in business-to-business categories, from beer to pies and paper to glass, helping organisations to unlock value with their contracted business partners.
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