The Hindu Business Line : ‘Adopt customer value management’

A hostile domestic currency, uncertain business turf (especially the US), and growing competition pose challenges to business, including the tech sector. But the expert suggests a way out: customer value management.

In an e-mail interaction with eWorld, Nirmalya Kumar, co-author of Value Merchants ( www.tatamcgrawhill.com) and a London Business School professor of marketing, talks about the value proposition, reiterates the importance of quality vis-À-vis cost, and claims that customer value management has to be expressed in monetary terms. Kumar does add a caveat: “We have to make sure that the value proposition for a segment only includes those elements that the segment values.”

Excerpts from the interview.

How should ‘value proposition’ be put forth, according to you?

In a business world where customer managers are taking on greater responsibility and are increasingly pressed for time, to be successful, suppliers must deliver customer value propositions that are simple, yet powerfully captivating.

They do this by making their offerings superior on the few elements whose functionality or performance matter most to target customers, by demonstrating and documenting the value of this superior performance, and by communicating it to customer managers in a way that conveys that the supplier understands the customers’ business concerns and priorities.

The resonating-focus customer value proposition consists of the one or two points of difference, and perhaps a point of parity, that deliver the greatest value to target customers.

What pitfalls do you see in the current practices?

Unfortunately, most suppliers simply list all the potential benefits they believe that their offering might deliver to targeted customers. The more they can think of, the better.

Yet simply listing all the benefits has the potential pitfall of benefit assertion: claiming distinctions for the offering that actually have no benefit to target customers.

Another pitfall of the all-benefits proposition is that many, if not most, of the benefits may be points of parity with the next-best alternative, diminishing the effect of the few actual points of difference.

Are today’s Indian businessmen really looking for value or just profits?

It is not an either or situation. Unless you provide value to customers as a supplier in business markets, you will be unable to generate sustained profitability.

In business markets, one has to keep going back to the same customers and the latter tend to remember suppliers who did not deliver value.

Your association with some of the bigwigs in the Indian industry would have enabled you to establish an opinion about how they work…

The message of demonstrating and documenting value in monetary terms using data has been well received by Indian firms that deal with global business markets. Our book has a detailed example from Tata Steel who adopts our customer value management approach.

Essel Propack is another firm that believes in the customer value management approach when selling to global customers such as P&G and Unilever. The IT industry is — with the appreciation of the rupee, higher staff costs, and more sophisticated IT buyers — finding competing on price challenging and is ripe to adopt our customer value management.

Can superior value ensure superior business performance?

Unless one can demonstrate the additional value that one delivers in business markets compared to the next best alternative, it is virtually impossible to sell on anything other than price. (Naturally) it’s logical that those suppliers who can be rewarded for the added value, versus those who (simply) give it away for free, receive higher returns.

The bigwigs of the Indian IT industry, who essentially started with outsourcing, are now increasingly looking to don the role of consultants. How easy is for manufacturing counterparts to repeat the same?

Becoming a consultant requires a set of competences and a sustaining culture that have to be developed over time. (Chapter six of our book discusses how to do this and cites examples of companies that have achieved it.)

My rule of thumb is that it is a minimum five-year change process and unlikely to be sustained without strong top down leadership.

The West has been pretty proactive about delivering value through technical service etc. So, the businesses from emerging markets should do the same?

More of some benefit is not value for all customers. In a segmented world, some customers value technical service or social benefits and some don’t. We have to make sure that the value proposition for a segment only includes those elements that the segment values.

You have talked about collecting data to support ‘claims’ of value creation. If the salesmen present the data, wouldn’t there be a clash of interests?

We have not experienced any problem with salespeople presenting the data in the 100+ companies we have done this. This is because our approach argues that only objective and verifiable data be collected. Whenever possible, we stay away from perceptions or recycling opinions. Who collects the data and presents it should therefore not make a difference in our approach.

Due to the nature of globalisation, someone in China is being told to offer goods that he does at a very cheap cost. How can one demand quality and thereafter ensure it for their customers, when they are themselves obsessed with leveraging the ‘low-cost advantage’?

Every company today has to be obsessed by having low cost advantage, but this does not mean low quality.

What is great about China is that they are demonstrating that excellent quality can be done much cheaper than what we are used to.

Similarly, in the past, Japanese manufacturers demonstrated that quality cars could be made much cheaper. Quality and low costs do not have to be opposing ideas. With customer value management, we build only the quality that adds value to customers and eliminate value drains (features that add costs but do not add value).

Can value be really documented?

Central to customer value management is expressing in monetary terms the worth of the technical, economic, service, and social benefits that a customer firm receives from a supplier’s offering. Doing this in practice is not easy and takes time, money, persistence, and some creativity. Yet businesses must tackle this challenging task if they wish to become value merchants. Consider the following:

An economic benefit such as providing consolidated monthly invoices instead of invoicing the customer after each purchase must be translated into processing costs savings over the year for the customer.

A technical advantage such as greater gloss from a diamond like coating applied to plastic injection moulds that results in fewer machine jams and faster operations must be translated into additional revenue and profit that the customer would generate from greater uptime and faster cycle time.

A unique service such as a chemical supplier collecting used drums from the customer’s site must be translated into the customer’s cost savings from not having to dispose of used containers in an environmentally safe way.

A social benefit such as Caterpillar’s strong brand name must be translated into the higher resale or trade-in prices that Caterpillar equipment receives versus Komatsu, reducing its life cycle cost to customers.

Any formula that drives home the ‘value’ message?

Unfortunately, most firms in business markets feel more comfortable presenting features and benefits to customers, rather than the worth of those benefits to the customer in monetary terms.

And, in any case, they are unsure about how to translate the differential benefits that their firm’s offering has over the next-best alternative into monetary terms.

dmurali@thehindu.co.in

‘Value word equation’ is a tool that enables a supplier to demonstrate and document points of difference and points of contention for its offering relative to the next-best alternative so that customer managers can easily grasp them, understand precisely how the supplier is assessing them, and be persuaded by the results. Value word equations provide a methodical way of convincingly demonstrating and documenting superior value in monetary terms.

A value word equation expresses precisely in words and simple mathematical operators (e.g. +, - etc.) how to assess the differences in functionality or performance between a supplier’s offering and the next-best alternative on a value element and how to convert those differences into monetary terms. One is constructed for each point of difference (and point of contention).

The value element, expressed as either cost savings or incremental profit, is on the left side of the equal sign, and the components defining the differences in functionality or performance and what they are worth are on the right side.

Time slices for sales pitches are gradually turning shorter. Wouldn’t value creation concepts need more time to explain to the customer? How easy would it be to inculcate new concepts in the mind of salesmen/managers?

Buying firms are interested in sales pitches that are going to make them more competitive. As I mentioned, the value element has to be expressed in cost savings or incremental profits. For this you can always get customer time; and, you need to back your pitch with objective data. Most traditional sales pitches are useless from the customer’s perspective.

Nirmalya Kumar is Professor of Marketing, Faculty Director for Executive Education, Director of Centre for Marketing, and Co-Director of Aditya Birla India Centre at London Business School. He serves on the school’s Board of Governors as the elected faculty representative and as the program director for two open enrolment executive programs: Market Driving Strategies and Accelerating Sales Force Performance.

Born in India, and now a US citizen, Kumar received his B.Com. from Calcutta University (graduating first in a class of more than 5,000 students), his MBA from the University of Illinois at Chicago (scoring a perfect 5.0 grade point average), and his Ph.D in marketing from Kellogg Graduate School of Management (winning the Marketing Science Institute’s Alden G. Clayton Award for his PhD dissertation).

Kumar has also: Taught at Harvard Business School, IMD (Switzerland), and Northwestern University; worked with more than 50 Fortune 500 companies in 50 different countries as coach, seminar leader and speaker on strategy, marketing, branding, retailing and distribution; and served on the board of directors of Bata India, and is currently on boards of ACC, BP Ergo, Gujarat Ambuja Cements Limited, and Zensar Technologies.

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