Customers are buying professionally - use it to your advantage!

22 June, 2017

Companies must be able to compete to stay ahead of competitors and survive. Keeping control of costs is therefore imperative. Purchasing became a senior management role in the 1960´s and first recognized as a strategically important function during the 1980´s – when the number of suppliers rapidly expanded.

By the late 1990’s the use of computers and the introduction of the Internet saw the beginning of purchasing’s transition into strategic sourcing. Today, purchasing professionals are instrumental to the success of organizations.

The professionalization of sourcing has become a big challenge for sales organizations, as it requires more than just old fashioned “wining and dining” to secure a deal. Instead, a sales organization needs be professional in its way to engage customers. Successfully embedding a professional approach in sales provides a strong competitive advantage to stay ahead of competitors.

So how should sales organizations approach professional sourcing functions?

At first it is important to understand how your customers categorize and source products or services (A)
…then use the categorization to leverage the offering and develop a competitive advantage (B).

A. How do companies use categorization when sourcing products or services?

Customers separate suppliers by strategic importance and risks related to supply

Professional and well-evolved sourcing functions separate their approach to procuring products and services in different categories. The categorization of suppliers to products or services depends upon:

Strategic importance – how does the service enable or support the company’s strategy?
Lack of availability or risks in supply – what is the availability and what risks may be involved in the supply of the product or service?

For each category, customers have different procedures and approaches to sourcing. The sales organization needs to design and address its sales approach accordingly.

The ‘cost focused’ category includes buying criteria linked not only to cost, but also efficiency and ‘total cost of ownership’. Sourcing is predominantly transactional in nature, with the exception of a potential selection procedure and/or size of investment.

Then there’s 'the partnership category' – customers apply a very selective procedure with a long-term focus. Both supplier and customer invest in this kind of relationship to achieve benefits for both sides. This requires a potentially complex sales approach as it involves many stakeholders and long duration of the purchasing and evaluation procedure.

Be aware that, products and services are categorized differently across sectors and industries; buying cleaning services may have a different strategic importance to a storage facility, than to a hospital or a science lab.

The objective is not to become a strategic partner for all customers, but instead understand customer needs and behavior linked to the offer and find the preferred approach and solution. Remember, it may differ between companies even though they are in the same industry or sector.

B. How to use the categorization to position and leverage your offer?

The short answer is a sales organization´s ability to understand the customer, then enable its strategy in a unique way.

Embed the ability to identify customers´ need and buying behaviour

To successfully prioritize and engage an opportunity or a potential new customer, the sales organization needs to be able to answer two key questions:

What value (solution to need) is the customer willing to pay for?
How does the customer want to source?

Customers value products and services that enable strategic plans and goals, and are therefore willing to pay extra to get the desired value or effect. The challenge for sales (and marketing) is to identify what the customer’s specific needs are and then demonstrate that their offer meets these needs in a better way than the competitors.

Once the needs of the customer are uncovered, the sales and marketing organization needs to understand how to engage the deal – preferably in a way that’s based upon how the customer’s themselves source. If the opportunity is approached in this way, sales organizations can optimize resources and maximize profit margins.

Successful sales organizations establish a Segmentation Model, if applied appropriately, enables the sales organization to identify, prioritize and engage customers/opportunities in an effective and efficient way. Done successfully it will increase profit margins.

Be relevant and add value to avoid losing out to cheaper competitors

To avoid losing out on price “because a competitor was cheaper”, sales organizations (together with marketing) require the ability to demonstrate value and be relevant. A successful sales organizations´ ability to enable a customer´s strategy (whether it is lowering cost or improving the customer’s service or product) earns them the right to the upper level of “sourcing categories”. This ability is crucial for any high-end product or service to avoid being outperformed by the lowest bidder.

Success will be based upon the sales teams´ ability to:

Translate customer´s strategic direction into requirements
To design and demonstrate how a company´s offerings fulfil the same requirements.

How can this be achieved?

A product supplier can provide technical integration of the supply chain to differentiate from other offers, or set up a nearby distribution hub, lowering lead times between order and delivery.
A service provider (e.g. an IT solution provider) needs to demonstrate how its solution is tailored to the customer´s industry and needs, thereby differentiating themselves from more “generic” solution providers.

Be unique to avoid comparison with other competitors

A standardized offering always faces the risk of being compared to other competitors, therefore hampering price levels and profit margins. To avoid too much exposure, sales need to be able to demonstrate the uniqueness of their offering in the way the service and/or product(s) are supplied. Either way, a differentiation of any kind that adds value to the customer, can eliminate competitors and create a “lock-in effect” with the reward of higher price levels and profit margins.

Success will be based upon the sales teams´ ability to:

Position its offering ahead of its competitors for the requirements and needs perceived as critical or important for the customer.

How can this be achieved?

A product supplier may add logistical services to lower risk and cost for a customer, thereby increasing the strategic importance of the offer.
A service provider (e.g. IT solutions) needs to demonstrate how that service enables strategic goals and plans, either by lowering cost for the customer, or improving value to the customer´s customer.

In summary - get to know your customer, then enable your customers’ strategy in a unique way

Knowing your customer´s strategy and how to add value can give you a great advantage. Based upon what category your product and service belongs to; tailor your offerings and sales tactics to demonstrate how it enables the customer´s strategy, along with a unique perception of your offering, to keep your competitors away. If successfully applied, this may create a lock-in effect that generates loyal customers, solid revenue streams and good profit margins.

Why Ascend?

Ascend knows Sales Excellence and how to drive change and transformation. Our consultants have successfully been coaching sales leaders and teams to achieve complex sales transformations across several industries. We know it takes the right combination of industrial knowledge, project management skills, value realization capabilities, innovation & creativity as well as people and change management skills, to successfully help our clients prepare themselves for the challenging market of today and tomorrow. Learn more here

Don’t hesitate to reach out to us to discuss ideas for how to make your change journey a bit less challenging than it already is.

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