Putting a Price on Value
January 2010, TruckingInfo.com - Feature
Twenty-eight bucks for a windshield wiper? I was driving through Maine on one of those oppressive gray days when moisture permeated the air.
You get product into your customers' hands faster than your competitors. Is that what the customer really wants? For some, that will add value. For others, it won't. (Photo by Jim Park)
Not quite rain, but too wet to leave the wipers off and not wet enough to flush the crud from the glass - which was streaking unrepentantly. Concluding there was no time like the present to replace my year-old wipers, I stopped into a down-at-the-heels auto parts shop in Skowhegan.
The guidebook at the wiper display was missing, and not knowing what size wiper I needed, I approached the counter and asked the parts guy if he had a pair of wipers for an '04 Jetta. He punched something into his computer, waited, and then said, "I have a Bosch wiper ... it's $28."
I had paid $12 per for my current set. "No, thanks," I said. "Don't need 'em that badly." Truth is, I did need new wipers. I had cash in my pocket and I was ready to buy, but I wasn't expecting premium pricing from a little joint like that.
The shop owner, who was probably out back working on someone's transmission when I entered the store, missed a terrific opportunity that day to sell me a set of wipers - I mean, help me make a buying decision - by explaining the advantages of his $28 wipers.
Later that afternoon, I did buy some new wipers. They were cheaper - and not just less expensive. The temperature had dropped and the mist had turned to wet snow, and my cold, wet, fingers were bleeding as I finally snapped the second one into place. I cursed the wretch who designed the clips that hold wiper blades to the arms, and at that point would have gladly paid 50 bucks for Bosch's cool little quick-connect mechanism - had I known about it.Defining Value
"This is a complaint I hear all the time," says Tom Marx, president and CEO of the Marx Group, a business strategy and marketing communications firm focused on the automotive aftermarket, and based in San Rafael, Calif. "Many counter people get little or no sales training. They might know parts numbers, but that's not enough anymore."
According to Marx, the counter guy should have said something like, "I have these two brands, one's $14, the other is $28. This brand has a three-month guarantee; this one has a two-year guarantee. This one does a better job of cleaning the windows, it won't fall apart when it snows, and it has a clever quick-connect mechanism."
"Had he told you all that, I'd bet you would have taken the $28 wipers," Marx says. "Instead, you were probably thinking, 'he's ripping me off.' This is what the whole discussion of value is about."
That little scenario plays out every day all over the country in every industry imaginable. A potential buyer comes away generally unsatisfied because all the options weren't explained to him. He wants something at a price he's comfortable with, but the terms of the deal aren't set in stone.
Most customers will pay to get something they want, especially if they see value in the transaction. Sometimes you have to spell out the value proposition, because not all buyers know exactly what they are looking for, or what they really want.
Defining value and creating the value proposition are key responsibilities of the sales staff, be they counter sales people or national account managers. Are you doing all you can to bring value to every sales opportunity?Where's the Value?
Pennies can make people stupid. For better or worse, our system revolves around price rather than value. Dollars and cents drive bonus schemes, purchasing departments live or die on percentage-of-savings, and on top of that, notes freelance fleet maintenance executive Darry Stuart, "We're all very short-term thinkers."
Stuart is a fleet maintenance expert who calls himself a "limited-time executive." Based in Wrentham, Mass., he works with fleets of all sizes to optimize cost and efficiency under the business name DWS Fleet Management.
"It's very difficult to find the 'value added' today," Stuart says. "It's still there, but it's microscopic, and in most cases, it's measured by emotion. If the customer is focused on cost, you'll have a very difficult time convincing him quality is worth paying for."
Price is always a concern, Marx concurs, but when you drill down it's actually fourth, fifth, or sixth on the list.
"My sense is, price becomes an issue when the other value propositions are weak," he points out. "If they can't deliver a product on time because they don't have it, the price becomes a sensitive issue. If product quality is suspect, then price is certainly an issue. But if a distributor is delivering all sides of the value proposition - reliable delivery, reliable billing, good customer service, good warranty service when it's necessary, and perhaps offering training - then price becomes less significant. In other words, price is often a smokescreen - an easy out for the customer when something else isn't right."
Yet even if you're delivering on all of the above, you may still be beat before you start. Often, in the heavy-duty aftermarket, you're up against two buyers on the same transaction with competing interests. The technician or fleet maintenance manager wants a quality, long-lasting part to keep maintenance costs down, while purchasing measures the deal in pennies saved.
Yet pennies saved up front can turn into big dollars downstream. If you can help your front-end customers make that case, you'll have a friend - and solid customer - for life.Why Pay More?
If there's real benefit to the higher-priced part, you can provide your customers with the tools they need to make decisions. If you can help the maintenance supervisor make a case to accounting for the higher-cost part, for example, you'll be helping yourself in the long run, points out Tom Udell of Essential Action Design Group, market researchers and business design consultants based in Charlotte, N.C.
"You've got to sell the value in the premium product: It lasts longer, trucks come in half as often, it saves shop and downtime time, etc. Do that, and you've just solved a customer's problem for him," Udell suggests.
Stuart recalls a situation a few years back when the purchasing department of a large less-than-truckload fleet forced its fleet supervisor to buy a certain brand of truck with a certain brand of engine.
"Those trucks spent more time in the shop than on the street, but he couldn't convince the purchasing department of that," Stuart says. "The decision was driven by acquisition cost, not lifecycle cost. It was a big LTL carrier, so nobody cared if 50 of the 1,000 trucks were in the shop. There was always another one available. The fleet supervisor finally convinced management of the true cost of the cheaper truck by adding $60 a day to the cost equation for every day the truck was down. He created a value-added scenario to illustrate the high cost of a low acquisition price. When he added fuel and oil costs, he had purchasing over a barrel."
In the case of a complex piece of equipment like a truck or a reefer unit, it's easy to find ways of bringing value to the table. There's warranty, after-sales service, parts and service pricing, etc. But how can one illustrate the value proposition with brake drums, engine oil, or oil filters?Brand Loyalty
"When was the last time you heard about an engine failure related directly to inferior quality lubes?" asks Stuart (who also sold heavy-duty parts at one time). "There's not a lot of real difference in the quality of brand-name parts today. They're all good. In fact, it's hard to differentiate just on quality and features alone. You have to know your customer and your product to sell the value today."
Many customers are loyal to a specific brand. But that can be a red herring too. Stuart says he would once stand and salute a certain brand of oil, until he was forced to change brands because of a supply contract bid for several thousand trucks