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October 19, 2006

New Perspectives

Unlocking Customer Value

by Larry Chonko and Buddy LaForge


Larry: Buddy, it’s great to talk with you again this month. I hope some folks are reading our column, but I know we are having fun writing it.

Buddy: Maybe someone will e-mail us at professors@directsellingnews.com and let us know what they think about the Academic Forum.

Larry: It would be great if we received some e-mails. In any case, what are we talking about today?

 

Buddy: We had planned to talk about sales leadership with Tom Ingram from Colorado State University. Tom is with us today, but we decided to switch the topic to focus on customer value. Is that OK with you?

 

Larry: That will be fine. Tom, we’re delighted to have you join us today.

 

Tom: Thanks, Larry. I’ve been looking forward to our conversation today. Buddy and I and our other co-authors have created a new sales process model that emphasizes customer value throughout. We are including it in the next edition of our personal selling textbook, and we have tested it in our classes. Because customer value is especially relevant to direct sellers, we thought it would be a perfect topic for the Academic Forum column.

 

Larry: I agree. Why did you develop this new sales process model?

Buddy: In our August 2006 Academic Forum column, we presented the new definition of marketing adopted by the American Marketing Association. This definition highlights “creating, communicating and delivering value to customers” as the core focus of marketing in today’s business environment. Many sales process models do not even mention customer value at all. We organize the steps in the sales process into three categories based on activities related to Understanding Customer Value, Creating and Communicating Customer Value and Delivering and Increasing Customer Value. We also use the customer value terminology to define many of the activities within each of these categories.

Tom: Our new sales process model clearly directs salespeople to focus on customer value in all of their selling activities. This changes the entire perspective of the sales process from just selling products to customer value. The basic idea is for salespeople to continuously look for ways to “create, communicate and deliver value” throughout every stage of the sales process.

Larry: That sounds like an interesting new thoughtware, but could you give us some examples?

Buddy: Sure. First of all, we need to define customer value. Although there are many definitions, the one we use is that customer value is giving customers more of what they want for less of what they have to give. One of the key phrases in this definition is “more of what they want.” Customer value is defined by the customer. Sometimes salespeople think they know what a customer values, but oftentimes the salesperson’s perception of value is not the same as that of the customer. And it is the customer’s perception of value that really matters. Salespeople need to learn how the customer perceives value.

Tom: Another important aspect of this definition is “for less of what they have to give.” The obvious “what they have to give” is money, and customers receive value when they get the same product at a lower price. However, we do not normally recommend, and most direct selling companies prefer not competing on price. So the key is to look at other aspects that customers “have to give” in a purchasing situation. Time and effort in purchasing are typically important factors. If salespeople can reduce the time and effort of customers’ “have to give” in deciding on the right product, ordering it, receiving it, making sure it works properly and handling any problems along the way, they can often create value for customers.

Larry: You are really talking about the customer’s complete experience throughout the entire sales process. There are many opportunities for salespeople to improve this experience, and customers often receive more value from these experiences than from just the product itself. If the customer experience is exceptional, customers are willing to pay more for a product, because they receive value from the experience.

Buddy: That’s the basic idea. The Forum Corporation recently did a study of customer loyalty and asked about the importance of different factors in making the customer experience excellent. The most important factor was the actions the seller took in response to a problem or request.

Tom: This is not surprising to me and provides strong support for the importance of after-the-sale service. We emphasize this in the Delivering and Increasing Customer Value section of our model. I have seen studies indicating that 55 percent to 70 percent of customers will buy again from a company if a complaint is resolved satisfactorily. And this number rises to 90 to 95 percent if the complaint is resolved very quickly. Even better is the fact that these customers tell an average of five other people about their good customer experience. I think this type of positive word-of-mouth would be especially beneficial to direct selling companies.

Larry: I agree. I believe that too few companies act like they understand the positive results that can come from almost “shocking” customers with prompt and accurate complaint resolution. What were the other important findings in the Forum Corporation study?

Buddy: Interestingly, the next most important factors were related to the salesperson who served the customer, the delivery of the product and the convenience of doing business with the seller. Factors of less importance were the features of the product, the price (including rebates and discounts) and the company’s policies and procedures. Obviously, the product and its price are important, but customers perceive value from how they are treated and served throughout the customer experience.

Tom: I think many direct selling companies do a pretty good job in providing customers with a good experience, but any improvements throughout the entire experience can have a positive impact.

Larry: That’s a good point, Tom. I recently read a description of how Toyota uses direct selling in Japan to “create, communicate and deliver” the type of customer value you are talking about. The salespeople have complete files on each of their customers and, except for occasional courtesy notes, leave their customers alone until it is time for them to purchase a new car. Then, they make an appointment, drive a car to the customer’s home, go over all options, handle the inspection, insurance and registration, and deliver the car directly to the customer.

Buddy: Wow! This is a great example. Maybe we should send it to General Motors or Ford!

Tom: It is a terrific example. Just look at the many ways the salesperson provides value throughout the customer experience. They don’t harass the customer. They are patient, waiting until it is close to the time for the customer to make another purchase. The sales process is simple. It is convenient for the customer, with no wasted time. And things that customers dislike-inspection, registration and insurance-are taken care of by the salesperson. It is no wonder that Toyota creates customers for life.

Larry: One of the reasons I put off buying a new car as long as I can is that I dislike the buying experience. If car dealers improved the customer experience, I and others would probably buy new cars more often. Although this is an interesting example, it is really a special case of an exceptional experience. What would you recommend that direct sellers do to “create, communicate and deliver” more value to their customers?

Buddy: I think the first thing is creating a corporate culture that focuses everyone in the company on customer value. A recent winner of the Sales Professional of the Year Award stated: “The job of a salesperson is not to sell. It is to make someone’s life better.” So, direct selling companies should emphasize how they can make customers’ lives better, not just with products, but throughout the entire experience a customer has with a company. I am aware of several direct selling companies that do a good job of this, and I think it makes a big difference in their success.

Tom: Then, direct sellers should map out the specific steps in their sales process and the critical activities in each step. Once this is done, review all steps and activities to identify opportunities for providing value to customers. For example, strategic prospecting is the first activity in the Understanding Customer Value section of our sales process model. This step requires a company to look at its strengths in providing value and then identify the types of customers who are most likely to perceive value from the company’s strengths. Some companies develop an Ideal Customer Profile. Others establish several criteria related to the best customers. The basic idea is to identify and focus selling effort on prospects most likely to respond favorably to what the company and salespeople do well. If a good job is done with strategic prospecting, the rest of the sales process is much easier as salespeople are spending their time with the best prospects. Companies like Overstock.com, although outside the direct selling industry, have been very successful by improving their strategic prospecting efforts.

Larry: Pursuing the best sales opportunities can really make salespeople more productive. I see many salespeople spending a great deal of their valuable selling time with prospects who have a low likelihood of purchasing or being good customers. What do you recommend after the best prospects have been identified?

Buddy: The answer is deceptively simple: determine exactly what value means to each prospect. We know that convenience, time saving, quick delivery, quality products and other factors are typically of value to many customers. A study by Huthwaite found that many customers are willing to pay more for similar products if: 1) the salesperson helps them understand their problems and issues in different ways; 2) the salesperson helps the customers arrive at a better solution than they would by themselves; and 3) the salesperson does a good job of handling all of the customers’ interactions with a company. The key, however, is to identify the critical value drivers for each prospect. This requires the salesperson to ask effective questions and to listen actively. The objective is to understand the prospect’s situation and needs from their perspective, and define what value is for this prospect. Interestingly, many prospects perceive value from this type of interaction, because good dialogue with a salesperson helps them understand their issues better and can lead to a better solution than they would have without the salesperson’s help.

Tom: If salespeople identify the best prospects and understand how they define value, then we move to Creating and Communicating Value. The critical part of this stage is for the salesperson to zero in on what has been learned from the customer. The salesperson needs to focus on what is important to the prospect. I see many situations where a salesperson has done a good job of identifying what value means to a customer, but then talks about products and services that are not directly related to value for this customer. But if a salesperson recommends the appropriate products for the prospect and communicates an effective value proposition, the probability of getting a sale and earning a good customer is increased significantly.

Larry: The next stage is Delivering and Increasing Value to the prospect. This is critical, and we discussed its importance earlier. Since we are running out of time, maybe each of you could provide some concluding comments.

Buddy: I think the focus on customer value is really important. Students in my classes respond well to it and companies and salespeople that really emphasize customer value are seeing positive results. It is important to note that we are suggesting a customer value perspective throughout the entire sales process and not just some value-added extra. We are arguing for “creating, communicating and delivering” customer value as the driving force for a company and its salespeople.

Tom: I agree with Buddy. Some companies and salespeople talk customer value but really only give it lip service. Our approach is to view the entire sales process and customer experience from a customer value perspective. We encourage direct selling and other companies to look for customer value opportunities in all of their activities. Creative and innovative customer value approaches can be especially effective.

Larry: Well, Tom and Buddy, it has been an interesting conversation. I hope our direct selling readers find some value in it!

Buddy: Larry, were you trying to be funny?

Larry: It was a feeble attempt. Maybe we can be funny next month!

Raymond (Buddy) LaForge is the Brown-Forman Professor of Marketing at the University of Louisville. Larry Chonko is the Holloway Professor of Marketing at Baylor University. E-mail your questions and comments to professors@directsellingnews.com.