Rapid growth in the last few years and supply constraints since COVID-19 have created a boom time for sellers across many industries. Businesses hungry for growth have placed low hurdles on sellers to prove value, resulting in increased sales despite stagnant pricing that hasn’t been seen since the 1970s. But the situation is changing rapidly.
We are moving from an economy of limitless demand, with cheap money available for anyone who wants it, into a new era where money is expensive and buyers will look for much stronger return on investment (ROI) before making new purchases. Demand is plateauing and as supply comes back online we are seeing the early signs of an overall flight to value. Budgets are constrained or cut, layoffs are becoming more common, and projects or purchases will require much clearer returns on investment.
The following are signs that companies are shifting focus:
A food company has expanded rapidly and aggressively in a period of value chain scarcity by keeping on hand a basic supply of ingredients and meeting reasonable delivery expectations. But demand is slowing, and the company needs to show customers that it can help reduce overall costs (of products, inventory, and labor) as well as grow the top line.
A software company that grew rapidly during COVID-19 by offering point solutions that had the potential to accelerate digital transformation is now being challenged much more directly by customers to prove ROI with hard data.
Customer Economics and Value
Now is the right time for sales organizations to get serious about value selling and value pricing. But value selling is not easy. How do you win in the new environment? We recommend four actions to position your company for sales success
Building a scalable and replicable pricing process is often a daunting challenge for executive teams because of many barriers, real or perceived. A key part of the secret to building such a process is to understand and anticipate these barriers.
Lack of information: Estimating the value to the customer is complex, and customers typically have little incentive to disclose operational information that would help reveal the full value of your product or service.
Proving it: Even when testing provides ample evidence, customers often need to see the benefits themselves before they believe them. New customers are a tougher sell than repeat buyers.
Buyers versus users: The person making the buying decision may not be the same person who uses the product and may have different objectives, such as minimizing costs rather than maximizing net value for the company.
Psychology: Customers often have a hard time accepting a significantly higher price for a product, even when they believe that it offers greater value. This is known as “sticker shock,” and it can be particularly true for new products or unexpected price increases.
Companies must anticipate points of resistance to value selling and address them with appropriate questions. The more often you engage in this process, the more skilled you become at quantifying value, and the higher prices you can justify.
To scale this approach, companies must gain alignment around value-selling management mandate across sales, marketing and customer success organizations. This affects organizational design and selection of processes and technologies.
