Value-Based Selling or Price Based Selling: Which is Best for Your Business?
Your business is sales and as you well know, the sales landscape has changed over the last three decades or so. For many years, the job of a salesperson was to extoll the various benefits and features of their latest product. In the current market, sales consultants spend time trying to understand authentically how their customers define value. The latter approach is value-based selling.
In the Business to Business sales world, value-based sales people take the time to gain a level of sophisticated business and financial knowledge. This knowledge helps them thoroughly understand their customers business models. In addition to understanding customer's business models, salespeople put themselves into the customer's shoes until they truly understand their needs.
Equipped with this understanding of customer’s needs, their business savvy, and a healthy dose of confidence in their methods, salespeople can develop a unique solution to match every customer's needs. Armed with their business savvy they can also communicate the proven value of what they offer as compared to their competitors. Lots of evidence exists that suggests business-to-business buyers value a sales person’s relevant business knowledge significantly more than their ability to explain product features, functions and benefits.
In contrast to value-based selling you might consider price-based selling. Price-based selling involves companies calculating their sales price based on cost. The seller considers production cost and several other factors. The seller adds a profitable markup and comes to the and that is price-based selling. Many companies who compete on price alone still use price-based selling, but in the current economy and with the current level of customer sophistication, the price is rarely a consumer’s only or even main concern.
Much of the current thinking about price-based selling versus value-based selling is clearly trending in support of the value-based approach. So how do you know which selling approach is best for your business? Let’s consider what often happens in the software market during the sales process. Most companies in current software markets focus on price. The common sale starts with sellers quoting a price that has very profitable margins; however by the end of the sales process sellers find they have to offer a very deep discount to get the sale. The discount ravages their margins along with their profit.
In a manner reminiscent of car sales, buyers hold out until the end of the quarter or even the end of the year before making their purchase. Waiting will result in the lowest prices. As sellers creep closer to their predetermined deadlines, they reduce prices more and more just to add volume to the sales numbers. The precedent gets noticed, advantage buyers. Now let’s look at the same type of situation using value-based selling techniques.
The typical value-based sale starts with sellers learning everything they can about their potential buyer and his or her business. The seller develops a keen understanding of the buyer’s needs and how the buyer defines value. The focus is on filling the buyers need, or solving a problem if necessary, and not making the sales. Price is never mentioned until much later after trust has developed between buyer and seller. The seller at this point offers a solution that adds value to the buyers organisation and benefits both parties in the form of a long-term business relationship. Which scenario sounds better for your organisation?