Value Merchants Feb08

2008 Annual Winter Meeting
Value Merchants
The 14th Annual ISBM Winter Meeting summary
Value Merchants:
Demonstrating and Documenting
p
Superior Value
in Business Markets
February 26 - 27, 2008
Tampa, FL
Presentations summarized:
James C. Anderson, Kellogg School of ManagementNorthwestern University, Value
Merchants: Demonstrating and Documenting Superior Value in Business Markets
Markets
Todd Snelgrove, SKF, What is Your Value? How Do You Demonstrate It So Customers
Appreciate and Are Willing to Pay for It?
Eric Berggren, Axios Partners, Customer Value Innovation: From Customer Satisfaction
to Non
Non-Customer
Customer Dissatisfaction
Dissatisfaction
TM (list continued)
1
2008, ISBM - Penn State
2008 Annual Winter Meeting
Value Merchants
Presentations (continued):
Steven Verdel, Kennametal, Creating Mutual Value Through Sales Processes
William Blankemeier, PeopleFlow Manufacturing, Managing Value: PeopleFlos Customer
Partner Process
Joe Razum, (formerly) Baldor Electlric Co., Sell, Source & Innovate with Dynamic Value
Measurement Tools
Bert Willemsen and Peter Pollemans, Orange Orca, Customer Value Expert: Demonstrating
and Documenting Superior Value
Value
Debra Oler, W.W. Grainger, Inc., Roadmap to Impacting Value Delivery
Leon Garoufalis, Composites One, Rewarding Value Selling: Margin Builder Awards
Arthur
A th J J. H
Helmstetter,
l t tt Quaker
Q k Chemical
Ch i l C Corp., Using
U i M Multiple
lti l Channels
Ch l tto S
Sellll
Value Propositions
Value Merchant panel discussion: Conference presenters tackle audience questions.
TM
2
2008 Annual Winter Meeting Key insights from James C. Anderson
Value Merchants
Keynote Address:
Value Merchants:
Demonstrating
D t ti and d Documenting
D ti
Superior Value
i Business
in B i Markets
M k t
James C. Anderson
William L. Ford Distinguished Professor of Marketing
and Wholesale Distribution
Kellogg School of Management
Northwestern University
jc-anderson@kellogg.northwestern.edu
Co-author of, most recently:
James C
C. Anderson
Anderson, Nirmalya Kumar and James A A. Narus
Narus, Value Merchants: Demonstrating and
Documenting Superior Value in Business Markets (Harvard Business School Press, 2007)
TM
3
Value Merchants
Why be a Value Merchant?
Value Merchants recognize that what being market-oriented means in business markets is changing: Suppliers S
must translate the features and benefits of an offering into what the offering is worth in the customers business.
Value plays to the customers need for cost-cutting specifics, as it pressures suppliers to keep cutting costs.
A reduction in numbers of procurement people puts them under more pressure in more fields where their
expertise is limited.
Suppliers
S li mustt ddo a b
better
tt jjob
bhhelping
l i customers
t see and d gett credit
dit ffor th
the ttotal
t l value
l off an offering
ff i tto th
their
i
organizations (gray money) vs. procurement costs (green money purchasing agents are told to provide) alone.
What is value in business markets?

Value in business markets is the worth in monetary terms of the technical, economic, service, and social
b
benefits
fit a customer
t firm
fi receives
i iin exchange
h ffor th
the price
i it pays ffor a market
k t offering.
ff i
Cutting price is not providing value. Price is what we exchange for value; price cuts are not value but are
an incentive to buy a given amount of value.
The fundamental value equation compares the suppliers offering (f) to the buyers next best alternative (a):
(Valuef Pricef ) > (Valuea Pricea )
There
Th always
l is
i an alternative
lt ti for
f theth buyer:
b nott necessarilyil the
th same technology;
t h l perhaps
h it
its a make
k or b
buy.
Customers dont care about the absolute value of our offering or of the next best alternative. They care about
the difference in value and how that compares to the difference in price.
(Valuef Valuea ) > (Pricef Pricea )
If we cannot express a value difference in monetary terms, how can we expect the customer to do so?
Because time and resources are limitedlimited, Value Merchants focus on the differences that matter the mostmost.
Valuef,a > (Pricef Pricea )
The essence of customer value management:
Deliver superior value to targeted market segments and customer firms. We cannot deliver superior
value to everyone; we need to know where we can.
Get a fair return on the value delivered
delivered. How much of the value in the transaction does the
supplier keep when negotiating price?
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4
Value Merchants
Customer Value Management
Increasingly,
Increasingly to get an equitable return
return, suppliers must be able to persuasively demonstrate before the sale
and document, after the sale and use of the offering, the superior value delivered. The better the supplier does
this, the more its prices appear fair.
Documenting value delivered puts the suppliers accomplishment on the written record, and contributes
to an offerings case history database. (For example, General Electrics water process technology business has
more than 1 1,000
000 case histories doc
documenting
menting $1.3
$1 3 billion in savings.)
sa ings ) It allows
allo s you
o to calibrate where
here
you achieve your greatest savings.
Conceptualizing value vs. next best alternative
Seek agreement with customers on points of parity and points of difference.
Points of contention arise when supplier and customer disagree on a comparison
comparison, having differing perceptions
about an objective reality. The supplier can suggest that actual data be collected to resolve the contention.
The buying decision will focus on points of difference and contention. Points of parity dont matter. You can
focus on fewer critical issues and collect actual data.
Construct a value word equation for each point of difference and point of contention. Use simple words and
arithmetic expressions to show how you define and calculate cost savings and/or incremental revenue/profit.
Get customer agreement with the value word equations before you collect the data.
TM
5
Value Merchants
Value Word Equation example

Rockwell Automation (subscript r) used this value word equation to illustrate the calculation of power usage
cost savings a customer would experience using Rockwells pump rather than the next best alternative (a):
$ savings = [kW spent x # annual operating hrs x $ per kW/hr x # yrs in operation]r
- [kW spent x # annual operating hrs x $ per kW/hr x # yrs in operation]a
The factor kW spent represents the amount of electrical power consumed according to an industry-standard
formula. Although the meaning of a value word equation may seem obscure to outsiders, the equation relies on
terminology for precise communication well understood to buyers and sellers in the market.
Example adapted from James C. Anderson, Nirmalya Kumar and James A. Narus, Value Merchants:
D
Demonstrating
t ti and dD
Documenting
ti S Superior
i V Value
l iin B
Business
i M
Markets
k t (Harvard
(H dBBusiness
i S
School
h l
Press, 2007), pp. 54-55.
Formulate and substantiate value propositions

Rather than formulating customer value propositions as all benefits or all favorable points-of-difference, Value
M h t formulate
Merchants f l t resonating
ti ffocus value
l propositions,
iti concentrating
t ti on what h t really
ll matters
tt tto the
th customer.
t
Value Merchants substantiate their resonating focus value propositions with value case histories or value
calculators. They dont rely on vague we can save you money fairy tales.
Value Merchants tailor their market offerings to varying customer requirements and preferences, putting
together core-offering naked solutions with options for each market segment.
Value Merchant salespeople

Value Merchants recognize the suppliers own costs and the market offerings value to the customer and work
to obtain a fair return for both the supplier firm and the customer firm.
Value Spendthrifts, in contrast, squander the superior value of the suppliers market offerings, getting little
in return: routinely trading more business for lower prices; saying that customers are interested only in price
price.
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Value Merchants
Can we expect salespeople to be Value Merchants if the company culture is not?
Compensation based on profitability of accounts is necessary,
necessary but not enough
enough.
Put a value-selling process and value-based sales tools in place
Ensure initial and ongoing value-selling experiences with customers
Instill and invigorate a value merchant culture
Prosper in business markets
Profit
P fit from
f value
l provided
id d with
ith price
i premiums,
i more profitable
fit bl mixes
i off b
business,
i greater
t shares
h off customers
t
business, and plugging value drains (suppliers uncompensated give-aways) and value leaks (customer errors
reducing the value realized).
Customer value management is a methodical approach for gaining insights into changes in market offerings
that target customers would value.
Customer value management enables suppliers to gain a better return on superior value through
demonstrating and documenting the superior value that the market offerings do deliver.
It is not a panacea: It is an enabler, not a substitute, for technical prowess; it is an enabler,
not a substitute, for implementation prowess.
Q&A
Q: How do you account for undocumented, non-economic values, such as emotion and risk?
A: In business markets, people prefer to talk about social rather than emotional values--all be they poorly
defined issues such as brand, relationship, and reputation--suppliers should talk about objective elements such
as saving
saving time
time and other fundamentals the customer clearly understands and can measure.
measure For subjective
judgments, we try to get the customer to agree to a reference point, such as, Its worth about $12 to avoid
the hassle.
Q: Why do some companies adopt these ideas and others dont?

A: The top reason is management support and commitment
commitment. That
Thatss not just a clich
clich.
TM
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2008 Annual Winter Meeting Key insights from Todd Snelgrove
Value Merchants
What is Your Value?

How Do You Demonstrate It So Customers
Appreciate
pp and Are Willing
g to Pay
y for It?
Todd Snelgrove
Global Manager, Customer Value
SKF
todd.c.snelgrove@skf.com
TM
8
Value Merchants
SKF and its Documented Solutions Program
With 40,000 employees,
p y $4.4 billion annual sales, and 80 p production facilities in 22 countries, we p
produce
seals, bearings and units, lubrication systems, mechatronics, and services.
We really believe in our value proposition. Because our prices are higher, we must quantify our value.
We must explain to distributors and customers that price does not equal cost.
Engineers usually understand the distinction between price and cost; purchasing people often dont.
All of our value needs to have formulas that can be run to determine the customer expected value that is
being created. If a number doesnt have a dollar sign in front of it, finance people dont care about it.
Challenge commonplace thinking about the importance of your product features, because value that is
not provable and quantifiable is very tough to argue, and get paid for.
Translating technical benefits to customer benefits: We can quantify the ROI, and cash flow payback versus
other market options using our Documented Solutions Program, covering 248 parameters at present.
Documenting
D i value
l can b be usedd iin the
h two main i b
business-to-business
i b i sales
l scenarios:
i
Key account management to either gain business or defend business as we are the most expensive
in the marketplace.
Part of the sales process is to justify the investment in a solution.
We model what weve done for the customer, and what we expect we can do. We dont wait until its time
t sign
to i a contract
t t to
t model
d l the
th value
l and dbbuild
ild th
the b
business
i case.
We stress that reduced total cost of operation, not reduced unit cost, is the way to guarantee making money.
Weve collected lots of articles to support our position, and best-in-class data on key performance
indicators by industry. The Documented Solutions Program calculates savings based on the customers
input. That earns customer management attention; they see you as a consultant, not a peddler.
We replicate good ideas from other industries to apply to the customers industry
industry.
We look for ways to help the customer save money with processes improvements.
We sort product selling opportunities by customer benefits; e.g. list all products that can reduce energy use.
SKF Reliability Systems - Services offer our trademarked Proactive Reliability Maintenance.
Our value proposition for OEMs helps them improve their value propositions for their customers.
We can sort our nearly 1313,000-solution
000 solution case histories database by industry
industry, application
application, process improvement
improvement,
customer benefit or solution product.
TM
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Value Merchants
Developing and Implementing a Value Merchant strategy
Keep asking yourself soso what?
what? Take all features > determine benefits > model the value in monetary terms
terms.
Train and pay people on selling value (profitability vs. sales) and proving the value your products / services
create for customers.
Develop knowledge database of successes so that these ROI wins can be leveraged to similar or different
industries or applications.
Think application,
application think industry,
industry think customer benefit.
benefit Develop marketing collateral that discusses
MONEY created for customers. Be specific.
Get PROOF as to how and why your solutions have a benefit.
Develop shared value agreements (TCO vs. discount) be willing to stand behind your value propositions.
Put a champion in place that has management access becoming a value merchant is tough but the
rewards are worth it.
Position your brand around a different financial number than initial costs.
Q&A
Q: How long did it take to develop your solution database?
A: We
Weve
ve been developing our program for a long time
time, but starting the year before last our division president
mandated 5,000 new cases per year. Salespeople, about 4,000 of them talking to customers, are getting
used to it as they find they can use it. We also developed a survey system called Client Needs Analysis asking
40-50 industry questions we can use for benchmarking.
Q: How do yyou respond
p to online, reverse auction invitations?
A: We do not respond. You have to get to customers early on, so they dont perceive you as a commodity.
Q: Why do you succeed at this when others dont?
A: Timing is important. If you wait for the RFQ to come out, its too late to talk about value. By then, finance
people might be in charge of the decision. I also see more and more companies incentivizing procurement
people to think in terms of TCO reduction
reduction.
TM
10
2008 Annual Winter Meeting Key insights from Eric Berggren
Value Merchants
Customer Value Innovation:

From Customer Satisfaction to
Non-Customer
Non Customer Dissatisfaction
E i Berggren
Eric B
Managing Director
Axios Partners, Inc.
eberggren@axiospartnersinc com
eberggren@axiospartnersinc.com
TM
11
Value Merchants
New ways of thinking about Customer Value
Traditional
T di i l sources off customer iinformation--anecdotal
f i d ld data, research,
h and
d i
internall iinspiration--limit
i i li i iinnovation i
They dont analyze the right customers
Miss non-customers, who might provide new insights about dissatisfaction
Focus on the primary point of contacttoo often purchasing
They take a narrow perspective: Focus on existing offer and only current purchase & usage
They rely too heavily on customer opinion for the answer, and not enough on objective observation
They accept superficial understanding of the customer experience in the pursuit of statistical significance.
What you can do to innovate your Customer Value
Go where you are likely to get new insights
Further down the chain to the real customer
Include
I l d non-customerseven
t non-users
Broaden your perspective
Bring a cross-functional team
Analyze experiences across customer functions
Include the entire customer lifecycle
Dont
D t relyl on th
the customer
t ffor th
the answer. C
Combine
bi on-siteit observation
b ti with ith more iinsightful
i htf l d
day iin th
the lif
life
of a customer (DLC) questions
Be specific & measurable; move beyond feel good statements
Just who is the customer?
Increasingly complex markets involve value delivery networks rather than linear chains.
Convention
C ti obscures
b fi
finding
di ththe reall customer--immediate
t i di t customer,
t customers
t customer,
t or endd user. It
Its a
cop out to say all are equally important.
The question is whether your product delivers value that drives the customers decision. Finding the real
customer can reveal new profit opportunities, e.g. meeting unique needs of resellers vs. concentrating on end-
user needs.
To get the breakthrough insights about the real customer ahead of competitors
competitors, don
dontt rely solely on listening to
what customers say, but probe until you fully understand the customers experience.
TM
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Value Merchants
Understanding the customers experience
Get specific
p about the experience.
p
General: Timely service (Striving for easy consensus produces vague statements.)
Specific: 80% of servicing will be completed within 3 days
Consequences are identified when we can no longer ask, so what?
Feature: On-site technical service
So what?: Faster response to downtime (DT) incidents
So what?: Minimize labor spent on repair + prevent lost revenue
To understand worth, write a Value Word Equation.
Price is not part of the experience. Its what the customer pays to get everything else.
Day in the Life of a Customer analysis (DLC)
Cross
Cross-functional
functional teams study,
study typically for a full day on site,
site specific events the customer experienced
experienced, e
e.g.
g last
stock-out, last line shut-down, last customer complaint, etc.
Focusing on specific purchase, use, and life cycle events reveals significant details about what happened, the
consequences, and what its worth---information that doesnt surface if you simply ask whats important in
general.
Identify the customer
customerss ideal scenario, to generate a discussion of new opportunities.
Immediately de-brief each visit, to understand: Who was there? What happened? What were their goals and
were they successful in achieving them? What elements of this event were less then ideal? How often does
this happen? When it does, what are the consequences? Why cant they solve the problem?
Analyze each customer as an individual target segment, to build segments defined by successful strategies.
If we could helpp create a new,, significantly
g y improved
p Day
y in the Life for that customer,, what
would that day look like?
Then (and only then) ask . . . What products and/or services could we make to enable this customer to
have this experience?
Consider how close the competition can get.
Define the individual customers winning g value p proposition
p and its delivery
y requirements.
q
As we analyze more customers, common behaviors identify different multi-customer segments.
TM
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Value Merchants
The DLC process takes about three months, depending on customer availability.
Companies that get the most value from the process are those who do it on a continuous basis
basis, constantly
seeking new value opportunities.
In one case, a marketer found its DLC uncovering 20% of customer benefits that previously
were unknown, and 60% of benefits that had been undervalued. Prior to the DLC, the company had
identified only 20% of benefits.
K
Keys tto successful
f l DLC analysis
l i
Start one customer at a time and complete the analysis. The information will be more specific and realistic.
Dont just listen to, but rather become the customer.
Focus on actual behavior. Help the customer articulate problems previously unexpressed or unknown.
Use metaphors and analogous situations.
Analyze
A l th
the entire
ti range off th
the customers
t currentt experiences
i tto id
identify
tif iimperfections
f ti th
thatt you and
d your
partners could address.
Quantify the value of resolving each imperfection. Use Andersons value word equations.
Ladder up to higher value imperfections and solutions.
Q&A
Q/A: Set the customers expectations in advance to win cooperation for a DLC analysis. Commit to open
brainstorming with the customer and studying each idea, but acknowledge that you probably wont be able to
follow up every one of them. Commit to an ongoing dialogue.
Q/A: To build segments from a database of individual DLC analyses,
analyses instead of asking about their needs
needs,
build based on common behaviors of how customers manage their businesses, to determine how relevant your
winning value proposition is to them. In business marketing, the question often is not how many customers
comprise a segment, but how well a segment can be served in return for a given amount of sales volume.
Q/A: Though senior management isnt on the DLC project team, senior management must be behind it. A
senior executive might make an appearance at a customer visit
visit. Four to five people
people, in functional areas that
have an impact on the customer, is about the right team size.
TM
14
2008 Annual Winter Meeting Key insights from Steven Verdel
Value Merchants
Creating Mutual Value

Through Sales Processes
Steven Verdel
Director, Global Strategic Sales Planning & Development
Kennametal
steven.verdel@kennametal.com
@
TM
15
Value Merchants
About Kennametal
Leading
L di global l b l supplier
li off cutting
i tools,
l engineered
i d components and d complexl metallurgical
ll i l materials
i l
consumed in all aspects of manufacturing production processes. Leader in every target market.
13,500 employees in 60 countries. Sales >$2.4 bb annually, 25,000 customers globally, #2 global producer.
Our selling mindset: Refuse to lose--!00% market share where we choose.
My challenge: creating 1,100 salesperson Value Merchants and getting away from the tooling engineer
peddlers
ddl off th
the past.
t
Our cutting tools constitute only about 3% of the cost of a machined part like an engine block, but how those
tools are used affects as much as 30% of the cost. Where do our salespeople concentrate their effort, on the
3% or the 30%? We tell customers, You can spend your money, or you can invest your money.
S l Process
Sales P
Our Value Merchant sales process trains people to be Value Merchants around the world, as most of our
customers today move to China, India, and Mexico.
Sales process benefits: increases customer focus; maximizes

Graphic: 2008
productivity; facilitates coaching (dont let customers train your

salespeople!); enhances communication; serves as a strategic
planning tool; and helps with continuous improvement and
professional development
Not every prospect is a Kennametal customer
customer.
8 Kennametal
Some will focus on that 3% no matter what.

Those are the prospects whom we want to do business
with the competition.
We target the right customers.
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16
Value Merchants
Graphic: 20
008 Kennametal
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17
Value Merchants
Customer Acquisition Process (CAP)
The
Th table
bl (previous
( i slide)
lid ) shows:
h
Target Customers phase: Well decide where we go, and where our competitors go.
Discover Needs phase: the result of the targeting phase
Develop Customer Specific Value Proposition: the phase most salespeople will skip or spend little time
on because they think they know their customers so well. Devoting little attention here means serving
only
l customers
t iimmediate
di t needs.
d Y Youre
nott b
becoming
i ab business
i partner
t or a V
Value
l M Merchant.
h t Y You
need to know the true needs behind the surface needs such as reducing cost You really need to know
where, how and why.
At this stage we determine to go or not go after a prospect. If were to lose, we want to lose early
and not after weve invested a lot of time on the account.
We plan our competitive approach
approach. What is the competitions value proposition? What
documentation are they providing? You must know what competitors are doing before you can
plan your value proposition for a customer.
Be sure everything you do aligns with the audience. Use the language of purchasing when
speaking with procurement. Think like a VP when speaking with management. Find out who really
cares about the value you deliver
Build Detailed Sales Plan: We dont expect all salespeople, we call them process engineers, to be
technical experts, but we do expect them to commit to the customer, and document and deliver value. Plan
who in our sales pursuit team of marketing, engineering and sales will do what?
Execute Relentlessly: Do what you say youll do; document what you said youd deliver, showing the
return on investment.
investment Let customers know what their role is in the relationship
relationship. If were
we re going to deliver
value, we want to be paid for it. We cant deliver the best value at the lowest price and stay in business.
Listen and Modify: As good as we are, we cant always get it right the first time. Commit to corrective
actions needed to deliver the value. Tie your value proposition to the customers improved value proposition
for his customers. Unfortunately, most salespeople are tellers and not detectives.
TM
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Value Merchants
Bringing the Process Alive, Day In and Day Out
First
Fi you need daS Sales
l P Process MMap, hhow to get to point
i B ffrom pointi A
Then develop selling skills, how to listeners and identify customer needs.
Give salespeople the right tools to make sure theyre staying on track.
Give them the right coaching. I want every sales manager in the car on a call with our salespeople 80%
of the time. I dont want office jockeys moving paper around.
I wantt them
th to
t say to
t a salesperson
l if necessary, You
Y missed
i d this
thi probing
bi question.
ti Did you think
thi k about
b t
this? You sound like a peddler, not a Value Merchant.
A pet peeve of mine is when salespeople claim they need negotiation skills. They need sales process
skills because, if they follow the process and present a value proposition to which the customer cannot
say no, whats to negotiate?If youve done all your homework, there really is no negotiation. You either
have the right proposition to help that customer compete in the marketplace
marketplace, or you dont
dont. If you just want
to run and gun without studying a customers specific needs, sell for the competition.
Your front line managers have to own the Value Merchant concept, drive it and communicate it.
Kennametal salespeople must have 10% of their volume delivered, documented and signed
off by the customer to keep their jobs. Their participation in this sales process is non-negotiable.
CAP Gap Events review all commitments to customers
customers. If we fall behind that expectation
expectation, the whole
organization deploys to help the salesperson deliver the value promised.
Results
Record sales over last 5 years; record earnings for last 14 quarters
99.5% of sales professionals said concepts are very valuable.
Lessons Learned
Make it a process, a way of life, not an event
Implement from the top down
Emphasize coaching
Embrace the process as part of the culture of the organization (Part of your DNA)
Execute relentlessly
Maintain focus and leader support
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19
Value Merchants
Q & A:
Q: So much sales training never sticks. How do you make the mindset persist with your salespeople?
A: We build discipline in sales managers. They have a checklist to review in the car with the salesperson after
a call, for 20 minutes after every call.
Q/A: When we made the change, we experienced a huge impact on the sales force, about 10% (10 times
normal) turnover with the change. People had to adopt CAP to keep their jobs. We double the sales
commission, to 2%, for every sale documenting value for the customer.
Q/A Confronting
Q/A: C f ti a major j sales
l opportunity
t it or a currentt customer
t with
ith low
l volume
l b
butt hi
high
h potential,
t ti l our
CAP office Pursuit Teams work together to create the value proposition. The marketing department does a
lot of research.
Q: Most sales managers are abysmal coaches because they are not trained or incented to do it. How do you
train sales managers to coach and what
hat incenti
incentives
es do you
o pro
provide?
ide?
A: Ive seen that most star performer salespeople make poor coaches. Theyre mavericks. So we invest a huge
amount of time and energy in training our coaches. We have a consultant who gives confidential advice to help
managers feel comfortable in a coaching environment, where they might have confrontational discussions.
Again,
g , its a skill set of asking,
g, not telling.
g
Q: Are your pursuit teams ad hoc or pre-designated teams on standby?

A: They are both, but we only deploy a team where we have low market share and high potential, where we
can grab share. The typical team has 12 people: 3 sales people including one sales coach, 3 application
engineers 3 specialists and 3 program project managers
engineers, managers.
TM
20
2008 Annual Winter Meeting Key insights from William Blankemeier
Value Merchants
Managing Value:
PeopleFlos Customer
Partner Process
Willi
William Blankemeier
Bl k i
Founder & President
PeopleFlo Manufacturing
wblankemeier@peopleflo.com
bl k i @ l fl
TM
21
Value Merchants
The Company
Founded
F d d iin 2003
2003, P
PeopleFlo,
l Fl iin F
Franklin
kli P
Park,
k IL
IL, manufactures
f t E
EnviroGear
i G b
branddhhermetically
ti ll sealed
l d pumps
(no rotating shafts that can leak) for viscous applications in, for example, the chemical, food and
petrochemical industries.
Our Customer Partner Process is very important to our company. It provides a foundation, the framework and
the atmosphere for communicating, delivering and creating value.
We
W solve l two
t customer
t problems:
bl high
hi h maintenance
i t costs
t and d environmental
i t l costs,
t ththe lleading
di cause off which
hi h
is rotating shaft seal leakage. Viscous products are particularly difficult to pump and seal.
Our value proposition is simple, designed to provide a resonating focus: To enable customers to reduce
maintenance costs by at least 50% and eliminate environmental costs for an affordable up-front investment.
Our business model started with a clean slate, able to provide extraordinary value from scratch. We got the
right people (hence the PeopleFlo name)
name), and built every core business process into one interdependent
manufacturing system based on The PeopleFlo Way, modeled after the famed Toyota Way, a lean
manufacturing system that when done right, is closely tied to customer value management. Everything is
focused on the goal of developing strong partnerships with our customers.
Process examples
Product Development Process: We teamed with consultant Optiprise, a leader in eliminating waste in
manufacturing value streams and creating speed in lean enterprises. With their help we made some significant
gains in value for the customer.
We used the Value Stream Mapping process to reduce our cost premium of 100% over standard pumps.
We achieved 40% cost reduction and cut the number of parts by 50%
50%.
Production Process: With the help of a Japanese consulting firm, we cut the lead time for custom-made
pumps to 10 days, compared to the several weeks it takes competitors.
Customer Partner Process: We connect directly with customers. No distributors or outsourcing sales to major
customers. Jim Anderson helped us conceptualize the program.
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22
Value Merchants
Customer Partner Process phases
Trial Phase
Customer Partner gets:
Unconditional pump performance guarantee for select trials
Direct business relationship
Technical Support
Direct
Di t 24/7 hhott liline tto P
PeopleFlo
l Fl engineering
i i
Trial price discount
Customer Partner provides:
Trial Program opportunities
Cooperation and assistance developing ROI value assessments
Payment terms: 10 days. (Fast pay is a waste reduction process; about 40% of customers have
paid in 10 days).
Proven Phase (when we get a repeat order)
Customer partner also gets:
Significantly lower maintenance costs (goal is 50% reduction) by eliminating leakage problem
Eliminate pump-related environmental costs
Delivery lead time
5 to 10 day pump shipment
20 day pump baseplate system delivery
24 hr parts shipment
Proven price discount
Customer Partner also provides:
Assistance understanding the customers organization and targeting best-fit facilities and
applications. In effect we ask customers to be part of our business development team.
Participation developing value testimonials
Information regarding pump replacement potential for our database.
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23
Value Merchants
Preferred Phase
Customer partner also gets:
Internet access to Interconnect tech support system: Instantaneous pump selection, configuration,
performance curves, dimensional drawings, specifications, pricing and quotation.
Technical consulting assistance for capital projects
Preferred price discount
Customer Partner also provides:
Preferred
P f d supplier
li status
t t
Assistance communicating PeopleFlo technology and services to world-wide corporate and plant
contacts.
Information regarding pump replacement potential and capital spending
Critical considerations
Market
M k segmentation: i ffocus on those
h that
h provide
id the
h bbest value;
l an iinterest iin continuous
i iimprovement iis a
key criterion. Rank plant sites of prospects, and then rank the companies
Customer value managers--our salespeople:
Understand our customers businesses
Substantiate our value claims---use ROI calculator tool
Document
D t value
l d delivered---use
li d ROI calculator
l l t ttooll
Make customer value management a central partnership skill, for the entire company as well.
Our CRM Tool rates the potential of every prospect and customer, by site and company. We strive to get
letters of understanding from companies before proceeding with the process.
Lessons learned
Focus
F is
i iimportant:
t t the
th right
i ht message on ththe right
i ht customer.
t Were
W learning
l i di
discipline,
i li narrowing
i ththe customer
t
partner group. Independent distributors will handle some small customers.
Individual plant sites are the best starting point; get them to introduce you to corporate levels. It might take
years to prove yourself first, especially if youre new. Its worthy investment with long-haul customers.
Ask for extraordinary value, and ask for help communicating our message to other sites.
Lean
L philosophy
hil h and d ttools
l lleverage th
the process; th
theyre
closely
l l titiedd tto value
l management. t
A systems approach is vital. Understanding value is the first step in developing a truly lean system.
TM
24
2008 Annual Winter Meeting Key insights from Joe Razum
Value Merchants
Sell, Source & Innovate

with
Dynamic Value Measurement
Tools
Joe Razum
(formerly) Program Manager
Baldor Electric Co
Co.
joseph.razum@ge.com
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25
Value Merchants
Total Cost of Ownership (TCO) measurement program
Recognized
R i d as a b best practice
i iin value
l proposition
ii ddevelopment,
l the
h TCO program originated
i i d at R
Rockwell
k ll
Automation (now Baldor Electric) developed the commercial TCO Toolbox and TCO Completeservice--
vendor-neutral dynamic measurements of the total cost of ownership of any product, system, or service--
providing a structured approach to buy, or sell, based on value.
You cant manage what you cant measure.
Enables
E bl value l segmentation.
t ti
Enables performance-based contracts.
Applies to services as well as products--making the intangible tangible.
Dynamic Value = mapping value on the fly
Customers like information in their terms.
Use customer activities,
activities activity names
names, to ensure good communication
communication.
Leverage the creativity of sales, marketing and engineering.
Use templates to capture and distribute typical TCOs.
Many commercial TCO tools lock you in the database of value options.
Framework: Industrial TCO

It takes passion and fortitude, top level support & mid-level
champions--for culture change.
Recommended reading on culture of change: John P. Kotter,
Leading Change (Harvard Business School Press, 1996)
Graphic: Copyright 2007 Baldor Dodge Reliance, Inc. All rights reserved.
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26
Value Merchants
We use this g graph

p to describe
to customers what we will do.
We focus on one area of TCO
at a time, where the greatest
savings reside.
Over time, weve added a value
element, showing revenue
increases from using our product.
This approach isnt for everyone;
we choose which prospects are
worth talking to about value.
We first map what we will show
them, and then provide the
proposed TCO Solution.
Account specialists enter the
application-specific, customer-
di
driven d
data
t iin customer
t tterms.
We dont try to eat the whole
elephant at once.
Graphic: Copyright 2007 Baldor Dodge Reliance, Inc. All rights reserved.
Well combine several TCO
The Database of Value appraisals as needed to paint the
The TCO Appraisal Database has over 1200 case studies. i t
picture.
Snowball Effect--Use the database to provide templates to tactically Demo current version 2.2
get more orders, based on business value. available at tcotoolbox.com.
Use the TCO Database to define strategic TCO Products. Case histories cited in
Power users and your most influential sales engineers can populate Anderson, et.al., Value Merchants
(Harvard Business School Press Press,
the database; then regular salespeople can turn right to a template.
2007)
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27
Value Merchants
TCO payback components
Strategic
S i customer retention
i
Internal/external process improvement
Segment customers and offerings based on value
Enable performance based contracts
Customer-perceived value based on expertise
Monday morning action items

Read the Book - Value Merchants
Recruit the core team mid level champions with passion
To spark interest, use the HBR Article: Business Marketing: Understand What Customers Value,
b A
by Anderson
d &NNarus, 1998
1998.
Map all of your value drivers.
Begin selling senior management.
This is culture change. Forward a copy of the book.
Target a few days of consulting.
Kick
Ki k starts th process, 3rd party
t t the t credibility,
dibilit co-ordinates
di t activity
ti it
See ISBM.org for recommended resources.
Talk to your sourcing & operations team.
Inform them on this conferences value-focused set of suppliers.
Reduce your own total cost of ownership and increase company value.
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28
2008 Annual Winter Meeting Key insights from B. Willemsen & P. Pollemans
Value Merchants
Customer Value Expert:

Demonstrating
D t ti and d Documenting
D ti
Superior Value
Bert Willemsen
Managing Director
bw@orangeorca com
bw@orangeorca.com
Peter Pollemans
Managing Consultant
pp@orangeorca.com
Orange Orca B.V.
TM
29
Value Merchants
Orange Orca?
The killer whale,
whale Orca,
Orca is trained through positive feedback
feedback, just as in Value Merchant training
training.
The Netherlands royal family is the House of Orange, our favorite color.
Its all about demonstrating and documenting superior value.
Our supply chain consulting activities-- marketing/sales and purchasing:
Improve sales and marketing
Business marketing -- customer value management
Organization development -- key account management
Improve procurement
Strategic procurement
cost modeling
sourcing innovation: overcoming dysfunctional practices; establishing incubators
supplier / contract management
Organization development
Superior value demonstrated/documented

Grraphics 2008, Orrange Orca B.V.
Transplast brand packaging plastic from European

Petrochemical Co.
The value word equation:
TM
30
Value Merchants
Customer Value Expert toolset -- launched today at this conference!
Internet based
based, at www
www.customervalueexpert.com
customervalueexpert com (Orange Orca site is www
www.orangeorca.com)
orangeorca com)
Data entered into Value Calculator spreadsheet, which calculates the cost savings.
Restricted access for security.
Data do not reside on a salespersons laptop, another security feature.
Customer and supplier can work on the data and engineer the value together. Fully transparent
analyses; no mysterious black
black box
box.
Five-phase approach parallels how Dr. James Anderson, a project partner, teaches value management:
1. Project data import
2. CVM Workshop: defining value word equations, definitions, etc.
3, Value Research
4. Business Case for Change
5. Value Realization to customer and to supplier; scoring offering and next-best alternative (NBA).
Graphics 2008, Orange Orca B.V.

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31
2008 Annual Winter Meeting Key insights from Debra Oler
Value Merchants
Roadmap to Impacting
Value Delivery
Debra Oler
Vice President
President, Sales
W.W. Grainger, Inc.
debra_oler@grainger.com
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32
Value Merchants
Transforming customer perceptions
For
F theh last
l ffour years weve changed
h d our organization,
i i the
h lleading
di di
distributor
ib off MRO products,
d ffrom b
being
i
product sellers to Value Merchants.
As companies try to drive down operating costs with the help of suppliers, their purchasing decisions often
go well beyond just product and services to the total value a partner provides.
At the start of our transformation, our positioning as a broad-line distributor was not any different than that of
competitors.
tit We
W couldnt
ld t d
definitively
fi iti l diff
differentiate
ti t ourselves
l ffrom competitors.
tit
Sales growth was not to our satisfaction.
We had a value proposition, but not a way to get salespeople to tell that story.
What were customers big issues, whether or not they perceived us as a solution source? Often, they
did not see us a partner for solving a big problem. How did they perceive the value Grainger created?
Three major components of change
Business and customer needs assessment.
Fully integrated go-to-market plan.
Developing the solution: Helping customers reduce MRO inventory costs, across many systems.
Messaging
Sales rep accreditation success required more than a traditional training program.
Metrics to monitor progress; learning and evolution from what is working
The value of adoption: changing behaviors. How do you drive adoption in a sales force and make it stick?
Large
g magnitude
g of change
g
We knew that even a relatively small change to a sellers daily activity such as how they process orders,
could take a year to accomplish in a 2,000-person sales force.
But we had much greater ambitions: How do we relate to our customers? Who do we talk to and should we
talk to? How do we assess their business issues, and document their cost savings?
Such major change could take 4 to 5 years. Its important to build enough time into becoming Value
Merchants. If we had only given it 12 months, we would have judged it a failure.
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33
Value Merchants
Our 4-year strategic plan for sales force adoption
Year 1: Transition from only
only product sales
sales to total
total value messaging
messaging -- training,
training customer value proposition
proposition,
introduction to trend analysis for customer purchases. Would our training plans work?
Year 2: Financial analysis, concepts & tools -- customer diagnostics, situational awareness,
proposing the right customer solution. Developing the ability to talk to CFOs.
Year 3: Sales leadership reinforcement & ongoing coaching -- coaching, planning, and team assessments.
Year 4: (Where we are at today) In-depth
In depth customer analysis -- needs based segmentation
segmentation, enhanced
tools & messaging, certified savings specialists incentive program.
Year 1: Piloting the program
Would the training for salespeople and sales managers work?
Pilot-trained 65 sellers and their managers
g in Minneapolis,
p a key
y market. Would it change
g customer behavior?
Customers did respond, and did take action differently.
We learned a lot, and made important adjustments.
Year 1: Training and certification
Leadership education: Front-line managers have to own the program, rather than have it handed down from
th h
the home office.
ffi
Tools for training
Formal classroom training -- boot camps to build Value Merchants, changing how people think.
Continuous message reinforcement after the program; peer success stories distributed.
Manager coaching programs
Sharing of best demonstrated practices
Reward & recognition
Certification: We needed assurance that salespeople knew what they were doing and could effectively engage
with customers.
Serious effort, close to 20% of sellers did not pass the test (including simulated tough sales
calls) the first time
time.
Certification impressed the whole organization about the seriousness of transition and culture change.
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34
Value Merchants
Training outside the sales organization: Every department at Grainer received training, to differentiate our
go-to-market
t k t approachh from
f that
th t off competitors.
tit We
W even trained
t i d some off our key
k suppliers.
li
Metrics: We needed to track results.
Year 1: Changing our culture
If you dont address culture change, you slow everything down and risk falling short of your goals.
A simple contest picked the seller best at delivering a value proposition
proposition.
District & regional competition, then four finalists presented at our annual sales & services meeting,
competing in front of 3,400 peers and team members.
Each contestant had to role play a simulated sales call with a leadership team member asking tough
questions and posing real world stumpers.
Then a surprise stress moment as Graingers
Grainger s CEO walked onstage playing the role of the buyers
buyer s boss,
boss
joining in the conversation, his presence impressing the audience with the importance of the program.
Year 2: Financial analysis, concepts and tools
In the second year of boot camp, reinforced value proposition and leadership training. Appropriate changes to
program
p g made,, g
given experiences
p in yyear 1.
Financial acumen needed improvement, especially as sellers called more often on customer financial managers
Understanding financial reports
Customer diagnostic tools
Cost savings applications
Procurement tendencies analytics
Metrics, as always, tracking progress.
Year 3: Leadership reinforcement and coaching
Coaching the front-line sales management team. Sellers had changed so much, we needed to adjust coaching.
Planning
Team assessments
Building a leadership coalition to win leadership team buy-in.
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35
Value Merchants
Year 4: Certified Savings Specialist

Fully accredited certification through an independent agency
Top 10% of sales organization will probably get it.
Experts in customer needs analysis & documented cost savings
National accreditation status
Financial & p
professional recognition
g
Metrics & tracking
On average, when customers agree to the program, sales go up about 16% over the baseline in the
first three months.
We get about 2 times as many product categories sold into such customers.
If we presentt tto financial
fi i l people,
l we iincrease th
the lik
likelihood
lih d off th
the customer
t consolidating
lid ti b business
i att G
Grainger
i
by 35%.
The sellers convincing the most customers to consolidate with Grainger are the best at performing at or above
their sales plans.
Today at our four-year mark
Today,
Achieved practical level of full adoption -- 80% of our sellers live our value message everyday.
Ongoing development opportunities
Financial acumen and ability to translate business impact to the customer
Ascertain customers business issues and how Grainger can help
Better customer penetration & share of wallet achieved.
achieved
2007 our best sales year ever in the history of our company.
TM
36
Value Merchants
What weve learned
Develop a solid adoption plan; you cant
can t spend too much time on it
it. Its
It s not just about training
training, its also about
culture, communication, rewards and recognition, reinforcement.
Understanding the time commitment. Have patience. Its taken us four years to get here.
20% of sellers got to some level of adoption within six months.
It took four years to get to the 80% level.
Limit initiative overload
overload. This is big change
change. Dont
Don t give people excuses to wiggle out of this oneone.
Gain sponsorship from senior leaders; make it visible, as did our CEO walking onstage at the sales contest.
Invest in your leaders ability to coach.
Learning & evolution.
Be relentless. Dont let up. If for a moment people think youre the flavor of the month, youre done.
At the start to get going, ask the tough questions about your value to customers, define your value proposition
and understand and commit to a comprehensive adoption plan.
TM
37
2008 Annual Winter Meeting Key insights from Leon Garoufalis
Value Merchants
Rewarding Value Selling:

Margin Builder Awards
Leon Garoufalis
President & Chief Operating Officer
Composites One
leon@compositesone.com
TM
38
Value Merchants
Composites One LLC
Our
O rewards d program recognizesi and
d rewardsd our people l ffor selling
lli value
l and d growing
i margins.
i
We are the largest composite materials (thermoplastics, Kevlar, fiberglass, polyester resins, etc.) distributor in
North America with 10,000 customers with many applications.
Sales of $700 million; 522 employees.
More than 450 suppliers; 30,000 SKUs.
Full
F ll service
i wholesale
h l l di
distributor
t ib t full
f ll product
d t liline di
distributor
t ib t serving i th
the entire
ti composites
it market.
k t With 36
locations (plus one in China where the composites business is growing >20%).
We believe distribution is a very local thing; high touch, high feel relationships with customers is a big part of
the value we provide.
Margin and Value
Our customers can buy the products we sell from many other places.
All we have to sell is service and value; thats our product.
The more customers value the products and services we deliver, the more margin we get for our products,
Nine years ago when Composite One was formed by merging distributors, one was volume oriented,
the other more margin oriented
oriented. We asked then
then, which model would we choose?
Every industry has a spectrum of distributors, ranging from high volume sellers of undifferentiated products
to high margin, high service specialty distributors. Those stuck in the middle struggle, fighting distributors at
each end. We decided, as the biggest distributor in our market, to try and play at both ends.
But to do so, we needed high value support services, not just high value products.
We were learning that Change
Change is constant, Growth is optional.
optional.
Change for salespeople
Our salespeople are seasoned composites industry reps. Its easy to get them to sell on price, but how do
we get them to sell value?
We had to change the mindset of how we think, talk, evaluate, to keep the focus on margin generation.
TM
39
Value Merchants
Margin Builders concept
Our salespeople are paid for margin growth.
Sales and operations participate.
We create positive internal competition a desire for win-win between sales and operations.
Regular reminders about program status -- via a monthly newsletter recognizing high performing reps and
distribution centers.
Recognize both margin % and margin $ growth.
Simple and fair scoring: 50% margin %, 50% margin $.
$100 GPM$ increases to $110 = 110%.
10% GPM% increases to 11% = 110%.
Margin Builder Score = 220.
We promote the results heavily, particularly annual winners.
Top three sellers (overall winner and two runners up)
Become members of the Presidents Club
Top seller receives a plaque, trip, watch, blue blazer
Others receive plaques, certificates, watch , blue blazer
Awards
A d ceremony att HQ
HQ, di
dinner with
ith CEO
CEO, president,
id t spouses
They always go back to the field talking about the great time they had and how special they felt.
One overall distribution center winner and three regional winners.
Top DC receives plaque, certificates, gift, lunch twice per month for the year
Other DCs receive plaques, gifts, lunch twice per month for the year
Visit to DCs by the President and other managers in January to award plaques at a celebratory
lunch or dinner with the DC team
TM
40
Value Merchants
Results -- margin % growth

Weve tailed off the last few years but are
still ahead of where we started.
$ margin growth continued through 2006
at a rapid rate.
These results arent all due to the Margin Builder
program,but they are the result of a mindset
to make sure we sell value every day.
Q&A
Q: What do you want your customers to think of you? With this program, will they think of you as striving for
bigger margins at their expense? Is margin builders the wrong positioning?
A: Some customers see us as the price leaders, as not as willing to cut price. Were not seen as the low-cost
supplier, but we stress to them the value they get from us. The question is, are we making the customer more
profitable?
Q: How did you develop the mindset and skills of your people to sell on value?
A: We communicate value a lot, and have used an outside training program, Integrity Selling, which
emphasizes value selling follow-up work. Importantly, you have to start with people who are open to the
process.
TM
41
2008 Annual Winter Meeting Key insights from Arthur J. Helmstetter
Value Merchants
Using Multiple Channels

to Sell Value Propositions
Arthur J. Helmstetter
Director of Marketing and Planning
Quaker Chemical Corporation
helmstea@quakerchem.com
TM
42
Value Merchants
Basic value selling principles
Value
V l selling
lli iis allll about
b partnering
i with
i h the
h customer. IIts
a two-way relationship
l i hi iinvolving
l i trust, openness,
data exchange. Partnering skill is a strategic competency.
Culture in both companies is critical; the customer has to be receptive. Value selling involves changing the
customer culture enough so customer personnel can understand it.
You dont have to jump in with both feet; start incrementally with a pilot. However, we did it all at once
b
because one off our major j customers
t made
d us ddo it
it.
Quaker Chemicals basic business
Providing specialty metalworking process chemicals to manufacturing companies globally.
Historically, sales process had a heavy technical support element to solve problems.
Although cost of chemical is a small part of total costs
costs, production disruptions or quality issues are expensive.
expensive
Customers want to reduce non-core functions; therefore they outsource selected activities.
Cost of direct sales is high versus transaction value.
Actual green dollar cost of product is about 20% of TCO gray dollars. Like an iceberg, the costs you cant
readily see are the ones that can sink you. Even more dramatic is the cost of risk elimination. For example, 5
worth of chemical obviates $24 of cost when a bearing fails
fails.
We segment the market by buyer behavior. While smaller accounts buy through resellers,
Quakers biggest customers receive Chemical Management services for a fee.
Quaker has > 200 people working full time at customer plants to reduce costs and improve performance.
This service is guaranteed to add no net cost to the customers operations. (see next slide)
This model is successfully being applied in North and South America
America, Europe and AsiaAsia.
Product revenue is growing, yet service revenues are growing even faster. Deepening partnerships are
sustainable models: We can reduce chemical sales volume as we make more from managing chemical use
for customers.
TM
43
Value Merchants
TM
44
Value Merchants
Value-added resellers deal more with midsize customers locally, and provide some services.
Generally
G ll selling
lli value
l added
dd d llubricants
bi t
Provided with 10% rebate for having trained Metalworking Fluid Specialist on staff
Technical and sales training by Quaker
Consistent value focused selling materials by Quaker
Access to Quaker intranet of case studies and integrated into Quaker web site
Partnering with Safety-Kleen Services
Apply Quakers total cost of ownership model for metalworking fluids to Safety-Kleens customer base of
very small companies.
Use Safety-Kleens comprehensive service offer to maximize sales volume per customer.
Parts cleaning machines; waste oil recycling; fluid waste management; absorbent clean up materials;
environmental compliance services; cleaners and cleaning equipment.
Metalworking Fluid management.
Leverage Safety-Kleens infrastructure to reduce the marginal cost to serve.
Unique combined service offer to mid-size customers.
Value proposition training
In-house classroom step-by-step simulation training for value selling.
Face to face simulation with customers. often the salespersons boss boss.
Interview three customer representatives: purchasing, operations.
Assessment of data acquisition
q effectiveness: Effectiveness is often p
poor early
y in the training
g
Provide complete data for analysis. (We give them data for analysis if necessary early in the training)
Data analysis (We improve their analysis if necessary early in the training so they can prepare presentations)
Presentation to customer representatives
Assessment of data analysis and presentation: concise and clear, compelling, creative
Award of business to the winningg team.
TM
45
Value Merchants
Channels in value proposition selling
Value
V l propositioni i principles
i i l apply
l to channels
h l
Identify where the key values are
Communicate values to customers
Use channels to leverage existing capabilities to reduce cost to serve
Modify systems to address skill/scale differences of channel partners
Respond
R d quickly
i kl tto changing
h i customer
t needs
d and d market
k t conditions
diti
Dwindling number of customers buying on price alone; they get no services and pay as they go.
Critical fast response enabled by relationships: knowing of a need or pending RFQ before the
competition does.
TM
46
2008 Annual Winter Meeting Key insights from the speakers panel
Value Merchants
Value Merchant Panel Discussion

Conference Presenters Answer Audience Questions
(Edited summary)
Q: Once you achieved sales force transformation, what are you doing to sustain motivation and
financial targets?
g
Oler: We dont think were done; transformation is ongoing. The more weve learned about our customers,
they more weve learned about how we can support them. Were doing needs-based segmentation, giving
us new opportunities; sales rep account quantification models help them develop more effectively targeted
presentations. And as a distributor, were getting better employing our supplier partners in solutions.
Helmstetter: You keep driving growth, finding new segments, refining ones approach as markets change.
Knowing they have a lot more support now, salespeople are more aggressive being Value Merchants.
Snelgrove: Success breeds success and leverages attitudes in the marketplace.
Garoufalis: Being
g more sophisticated
p in selling
g value opens
p up
p additional markets that we couldnt approach
pp
before.
Q: When our R&D creates new value with a new product, what percentage of that new value should we
capture in our price?
Snelgrove: Value delivered depends on the customer. So get a ballpark idea of the value delivered to the
average customer, being reasonable to work around that. There is no magic number. In our standard pay for
performance agreements, we try to keep 20% of the cost saving achieved, the customer 80%.
Blankemeier: Its important to maximize capture of that value margin, as long as its consistent with the growth
strategy of the business.
business If innovation and high returns on assets are key to the strategy
strategy, capturing a large part
of the value margin can fuel more continuing innovation, creating a win-win for supplier and customer alike.
TM
47
Value Merchants
Anderson: With ISBM support, were doing a new study of value-based pricing for new products: how
customers respond and how suppliers can tweak margins as they innovate. Companies interested in
participating should contact us.
Q: How do we document value when part of what we provide to customers then goes into consumer markets?
Anderson: In g general, the more the supplier
pp is distant from the p
point of value realization, the tougher
g the
chance to capture that value. With consumer markets, we have to have research to understand how
consumers evaluate the end product, shift their preference share and how that translates into sales and profit
variation for the manufacturer--our customer--further up the value chain. Analyzing consumer markets takes
us business marketers outside of our comfort zones, so we try to work with our customers consumer marketers
to understand how factors such as brand preference and willingness to pay can shift.
Garoufalis: Weve gone to dealers selling our customers product to the public to determine market response
to the components going into the product. In our case, its the quality of fiberglass in a boat.
Q: When selling through distributors, how do you get their reps to sell the value you provide?
Helmstetter: Its pretty much the same training issue as with your own people. The principles are the same. You
create tools then train people to use them. We put incentives for distributor salespeople into the equation.
Oler: In this distributors view, its hard for a manufacturer to get enough attention from the distributor rep--ours
carry almost 400,000 different products--for the rep to use the manufacturer's value model. The challenge for
manufacturer
f t andd distributor
di t ib t alike
lik iis h
how th
the di
distributor
t ib t can ttap th
the manufacturers
f t expertise
ti when
h needed.d d WWe
want to educate our salespeople to look out for customer problems, then know which products can provide a
solution. We cant train our reps to sell everyones value model.
Verdel: The manufacturer is supposed to create value and demand in the marketplace while the distributor
keeps the pipeline full. As the distributor sees the manufacturer create demand, the distributor will learn how
to create that demand themselves, in my opinion.
TM
48
Value Merchants
Snelgrove: Our job is to advise distributors about our value proposition, but they need to see a tangible
diff
difference, nott just
j t vague promises,
i between
b t different
diff t manufacturers
f t offerings.
ff i Let
L t them
th know
k about
b t reall
differences in your value proposition and work with them on a key account basis when you can. The distributor
is the source of value for the customer, so its the distributors job to find the prospects, bring in the resources
from the manufacturer and then build-in their own value proposition.
Garoufalis: There is that element of trust
trust. The distributor has to know it can rely on the manufacturer when it
needs assistance, and that the manufacturer wont go around him to the customer, at either the field or
management levels. That trust is a big positive.
Q: What role did marketing play in Graingers sales force transformation?

Oler: At first, marketing didnt see any value in our program, until new marketing leadership at the company
got behind it and helped to provide research and information. Now marketing is a key partner. We would have
preferred to have marketing as a partner at the start. But we had no choice; we had to make changes.
Anderson: We try to stress marketing accountability. Marketers have to ask whether theyre contributing
things that don
dontt relatively add that much
much, like sales support and marketing communications
communications, or contributing
to demonstrating and documenting the value the company brings to market. Marketings role is to be the
catalyst, to have the right kinds of information, to be data oriented.
We see in company after company, the role of marketing is being marginalized, In many organizations,
marketing is regarded as too fluffy to really do much of anything. Sure, if they need snappy trade show
signage or a nice brochure thatthatss what they turn to marketing for.
for Those are important
important, but marketing
should also be providing this type of data-driven approach to what customers value, then demonstrating
and documenting that value.
Oler: Weve had tremendous results when marketing has gotten engaged in identifying key segments and
solutions for them, and helping to drive them into the field to customers. Now, people want more help, asking
for their marketing partners to be alongside them.
TM
49
Value Merchants
Helmstetter: Marketing doesnt own value marketing. Sales takes ownership because it has a profit and loss
responsibility.
ibilit Marketing
M k ti is i the
th catalyst,
t l t the
th facilitator,
f ilit t butb t if marketing
k ti tries
t i to
t drive
d i it,
it youre
pushing
hi th
the rope.
It cant be a marketing project; it has to be a P&L project, a sales project. Or else it wont get funded, supported
and get the persistence that it needs.
Anderson: Value marketing is a program for all functions, not marketing alone, despite the marketing title.
Not only the sales force
force, but the entire business
business, has to think of itself as a Value Merchant
Merchant.
Q: Who should lead the process of becoming a Value Merchant to achieve maximum impact in the company?
Verdel: The CEO has to drive it from the top.
Garoufalis: I agree 100%
100%. Everyone has to understand that this is important and this is how we do itit.
Snelgrove: You need the CEO to drive it, at least until the culture has changed and systems people can take
it over.
Oler: A lot of people will fight the change or sit on the sidelines in an organization. If you dont have really
senior sponsorship
sponsorship, that critical noise probably will derail itit. In time
time, many will come around
around, but there will be
some who will never come aboard. They cant be part of the organization any more.
Blankemeier: I concur that it has to be a top management role. Theres not much more important than how
we create, communicate, manage and sustain value.
Anderson: The passive resisters are the biggest problem
problem. Those vociferously against it make themselves
clear. Those only giving lip service to value management are the most difficult to deal with in the organization.
Verdel: The key is effective coaching, being in the cars with reps on calls, so there is no place for the
passive resisters to hide.
TM
50
Value Merchants
Q: If we could do one thing to begin to move the organization to being Value Merchants, what is first/most
important?
Anderson: Send copies of my new book, Value Merchants, to senior management! Its written to be manager
friendly. Chapter 8 talks about how to get started in value management, and then whats the next step. Start
small with well-chosen pilot programs to create success stories. Publicize them within the organization and
build out from that. Wed all like companies to change cultures immediately from A to Z, but sometimes its
t
toughh to
t gett just
j t to
t B.
B The
Th good d news is
i that
th t when
h you gett to
t B,
B you start
t t to
t build
b ild some positive
iti momentum.
t
Garoufalis: It starts with the core values of the organization, consistent values across the organization about
how you treat your customers and treat each other.
Verdel: In any industry the market leader is not the lowest-price provider. I cant think of one. You have to ask,
what
h td
do we wantt th
the company tto be?
b ? If you wantt to
t be
b in
i business
b i 20 years from
f now, the
th answer can only l be:
b
create value and get the customer to pay for it. If youre going to live and die on price, or live and die strictly on
technology, you will die one day. I dont know on what day, but you will.
Oler: Visit selected customers--not just your best customers--and non-customers, and ask them why they
do or dont
don t buy from you. If you dont
don t know why, the only thing you offer is price.
Helmstetter: After you go to the customer, you have to get value marketing into the strategic fabric of the
corporation. Make a multi-year commitment, which requires top management attention.
Snelgrove: Do you have a value proposition, what you believe you bring to the marketplace? At the
start, it dawned on us that if we could demonstrate and document our claims, the market would respond.
Blankemeier: There is no one thing, value management is such a fundamental concept. Its a system. Like
the lean systems we work with, its not a buffet approach. Start with a pilot. Work on the culture and have a
robust management process, requiring discipline and hard work. If there isnt enough value to document,
go back to the drawing board and create more value.
TM
51
TM
Contact the ISBM for More

Information
Institute for the Study of Business Markets
Smeal College of Business
The Pennsylvania State University
484 Business Building
University
y Park,, PA 16802
(814) 863-2782
www.isbm.org g
ISBM@psu.edu
52
2008, ISBM - Penn State 4/3/2008

Value Merchants Feb08

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2008 Annual Winter Meeting

The 14th Annual ISBM Winter Meeting summary

What is value in business markets?

Value Word Equation example

Formulate and substantiate value propositions

Value Merchant salespeople

Q: Why do some companies adopt these ideas and others dont?

What is Your Value?

Customer Value Innovation:

Creating Mutual Value

Sales process benefits: increases customer focus; maximizes

productivity; facilitates coaching (dont let customers train your

Some will focus on that 3% no matter what.

Q: Are your pursuit teams ad hoc or pre-designated teams on standby?

Sell, Source & Innovate

Framework: Industrial TCO

We use this g graph

Monday morning action items

Customer Value Expert:

Orange Orca B.V.

Superior value demonstrated/documented

Transplast brand packaging plastic from European

Graphics 2008, Orange Orca B.V.

Year 4: Certified Savings Specialist

Rewarding Value Selling:

Results -- margin % growth

Using Multiple Channels

Value Merchant Panel Discussion

Q: What role did marketing play in Graingers sales force transformation?

Contact the ISBM for More

2008, ISBM - Penn State 4/3/2008

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