Pitfall 4: Value Propositions Aren’t Valued (Lesson 5)
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 beverage customer calls from the factory floor and asks his counterpart at your company to deliver their packaging 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, so it’s no bother – right?
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 retail outlets for being out-of-stock.
You, as the supplier, get nothing for going the extra yard. You also get nothing for disruption and additional cost to your business as a result of the work changes—for example, additional transportation cost by the contractor working on a premium rate while the truck is being loaded and unloaded and travelling with extra delivery.
This shines a light on one of the biggest costs from undervaluing your value proposition—the loss of self-respect. By not paying attention to what your value proposition is and being blindly customer-centric, you allow others to treat you in a way that ultimately costs you.
The service bar gets raised, but the price doesn’t go up with it.
An Australian-based supplier competing with local wholesalers who were importing cheap alternatives enjoyed a moment that would forever differentiate their value proposition perception.
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 to the customers over the course of the past five years. This evidence was contained in the customer’s very own monthly reports and identified the value provided by the engineer would support a 15% price premium!
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.