65% of executive say they are not able to charge the price they deserve according to Simon-Kucher and Partners. Is it the economy or is it that B2B companies are not effectively differentiating their product offerings to their customers?
This is the dilemma that makes the Global Partners' webinar, Selling and Negotiating an Optimal Value Price, so timely and relevant.
Did you know that The Profit Calculator Tool shows how even a 3% reduction in price can result in a 10% decrease in profit? But, if you need more reasons why Value Pricing and The Profit Calculator Tool are so important to your company's bottom line, especially now, here are 15.
- A 1% improvement on price causes profits to increase by 10.4%
- A 1% improvement on cost of goods sold causes profits to increase by 9.2%
- A 1% improvement on volume causes profits to increase by only 1.7%
- A 1% improvement on administration causes profits to increase by a mere 0.3%
- These stats prove the higher the pricing power; the higher the profits
- Companies that don't charge the prices they think they deserve, generally accept 25% lower profits (Source: Simon-Kucher and Partners)
- 35% of companies say they have sufficient pricing power to achieve the right price for their products (Source: Simon-Kucher and Partners)
- Untapped pricing power often keeps you from getting the price and the profit you deserve
- Threat of inflation is often underestimated
- Customers rate many other factors before price as most important according to a recent poll of users of an industrial machine product by the Five Twelve Group. The poll showed:
- 83% rate "products that last longer" as most important
- 79% rate "products that are easier to use" as most important
- 78% rate "customer service" as most important
- 76% rate "products that move faster" as most important
- By comparison, only 60% rate "price" as most important
All of these reasons show how if you're not achieving differentiation on the attributes that matter most in your category to your customer segments, they are going to be differentiating you on price.
image credit: Jason L. Parks
Written by: Jay Gronlund
In this series of articles on what B2B marketers can learn from B2C, another subtle yet crucial lesson involves adding emotion to a company's marketing and sales approach. My other articles in this series suggested various ways of enhancing the perceived value of B2B offers, but how to incorporate a relevant emotional dynamic may be the most challenging for many traditional B2B marketers.
There are many noteworthy differences between B2B and B2C marketing that help explain why the B2B approach is traditionally more rational - longer sales cycles, more complex, fewer buyers, price variations for different buyers or situations, prospects conducting more research, more people involved in the decision process, personal interactions being more important, and greater influence by third parties. The typical B2B process starts with an explanation of what the product or service offers, then how it works and finally why it makes sense for the prospect and his/her company. It is the classic what-how-why approach, with the hope that ultimately this process will engender a sense of trust with the buyer. The emphasis is always on a rational, formulaic evaluation, with little or no emotion included, even though building one-to-one personal relationships is more common and pronounced in B2B.
Meanwhile the intense competitive nature and the sophistication of branding in the B2C world has elevated marketing beyond the rational to depend more on emotional involvement. Brand marketing is all about building a trustful relationship with a customer. Much of B2C advertising is impulse or experience oriented, frequently designed to convince customers to "want" something, rather than pandering to a "need" for a product which is more likely in B2B. Apple is a great example. No one "needed" an iPad or iPhone until Apple created a contagious, passionate desire for these new products, based primarily on the customer's ubiquitous emotional love for Apple cultivated over time.
Emotions and Human Behavior
Studies by neuroscientists have shed new light on the causes of behavior, especially how purchase decisions are made. For example, John Caine, a famous neurologist, concluded in 2000 that "the essential difference between emotion and reason is that emotion leads to action while reason leads to conclusions". Also professor Demasio stated in 1999 that "over 80% of the thought, emotions and learning occur in the unconscious mind".
Paul MacLean studied in the 1960's how the human brain has evolved. His "triune brain model" has become the paradigm for most psychologists and neuroscientists, which suggests that we actually have three brains layered on top of each other:
- The Old Brain - known as the "reptilian" brain, unconsciously controls instincts and survival (e.g. breathing, heart beats, digestion, etc.).
- The Mid Brain - the limbic system is the seat of emotions, memories and attention, and while also unconscious, is incredibly efficient - estimates indicate that our 5 senses absorb 11 million pieces of information every second.
- The New Brain - or the neocortex, is the logical part of the brain that involves rational thinking, language and speech processing (this processes only 40 pieces of information each second).
This unconscious part of our brain (limbic), where all emotions are stored, controls human decision making. Whether it involves B2B or B2C situations, adding emotions will strengthen the "why" part of the marketing or selling process, especially when you are explaining what you believe in, which will breed a sense of trust and confidence in the buyer.
How To Add Emotions to B2B Marketing
The opportunity to make the "why" argument so much more convincing with relevant emotions is compelling. In B2B, human relationships are more personally interactive and important, and so emotions like trust, confidence, fear avoidance, and faith are powerful ingredients for cultivating a stronger relationship. For example, Lee Waite from Billington Cartmell cites Salesforce.com as an example of a B2B brand that complemented its rational benefit of efficiency with a successful emotional message on a YouTube video clip showing how using its products equaled more time on the golf course.
Here are some specific steps that can enhance the value of a B2B proposition:
- Customer Research - more diligent research on the client and his/her main purchase drivers, including emotional motivations, will provide insights on new ways to connect and nurture more trust (see my article on building customer loyalty).
- Company Brand - in B2B, the individual product or service brands are not nearly as important as the corporate brand equity, so this must contain relevant, emotional promises. While practical purchase criteria usually drive product selection (e.g. performance, capabilities, price), the ultimate value of the parent brand perceived by buyers will complete the purchase decision - can I believe in this company?, can I trust them?, will they deliver on their promises?.
- Storytelling - perhaps the most powerful tool for building confidence and a loyal relationship is to tell a personal story that reiterates key values and emotional benefits which are also an integral part of the corporate brand (e.g. to be used in websites, advertising, promotional material, sales pitches, etc.), ideally reflecting insights identified in customer research to ensure they are relevant to the buyer as well.
- Social Media - peer feedback and recommendations with these new interactive media options are having a greater impact on purchase decisions today. It also offers an ideal way for vendors to build their one-to-one customer relationships, assuming the emotional promises are aligned with the corporate brand.
What role do you believe emotions play in the sales-related behaviors for your business? We would be happy to discuss new ways to incorporate such powerful emotions into your value proposition and marketing/sales practices. For further insights and ideas, see the ebook I wrote last year on "5 Essential Steps for a Successful Ideation" and our "Marketing Effectiveness" programs.
image credits: Will Lion, emma.kate, and Zillafag
Written by: Jay Gronlund
As we all know, innovation is the lifeblood for any industry, B2B or B2C. And creativity is the primary talent for generating new ideas. The significant market and structural changes in both the B2B and B2C worlds demand more creativity today. Most often high levels of creativity have been associated with B2C initiatives of all types, while in B2B circles this has been focused mainly on product development. A central issue for all is whether creativity is a talent that is simply instinctive or could be developed, and how.
Continuing our series of articles on what B2B marketers can learn from B2C, this article addresses this question on how to cultivate and then leverage creativity, consistent with previous articles on Value Pricing, Customer Loyalty, Value Propositions and Aligning Marketing and Sales Silos. While creativity is relative and varies by type or orientation, a corporate culture that encourages creativity is essential for success in both B2C and B2B industries.
In 2010, IBM conducted a global survey among over 1,500 CEO's, asking what will be needed to "navigate an increasingly complex world". The most important attribute cited was "creativity (60%). What is disconcerting about this growing need for creativity however, is the problem cited in Newsweek's report on "The Creativity Crisis". This summarized the results of nearly 300,000 creativity tests among children and adults over several decades, and concluded that American creativity has been declining since 1990.
Is Creativity Inherited or Learned?
For centuries, conventional wisdom told us that creativity was a magical trait, a product of our genes or family history, a rare genius, and that only a select few are born "creative". In Maichael Michaiko's article on "The Seven Deadly Sins that Prevent Creative Thinking", his first sin is "we do not believe we are creative" and the second one is "we believe the myths about creativity". Included in this type of traditional thinking is the assumption that the right brain is the source of all creativity, even though no one really has a split brain as the halves of our brain are connected by an immense structure called the corpus callosum.
In his recent book, "Imagine: How Creativity Works", Jonah Lehrer says these assumptions are "foolish and unproductive". Jonah's book argues that "innovation cannot only be studied and measured, but also nurtured and encouraged". As an example, he cites 3M which is known for innovation. In his visits to its corporate headquarters, Jonah found employees involved in all kinds of frivolous activities, such as playing pinball or simply wandering around during their regular breaks. He observed that taking time away from a problem can help spark an insight since relaxing activities let the mind turn inward where it can subconsciously puzzle over subtle meanings and connections in the brain. Related to this, the psychologist Joydeep Bhattacharya from the University of London, observed how the brain is incredibly busy when daydreaming, which is why so many creative insights happen during warm showers.
Another example of a company culture and practice that breeds active creativity is encouraging employees to take risks, venture beyond their area of expertise, and to pursue speculative ideas. This approach has been initiated by progressive companies like Google. In particular young people tend to be the most innovative thinkers in any field, since the "ignorance of youth comes with creative advantages", according to Mr. Lehrer.
Why Innovation Is So Difficult, Yet So Vital
Aaron Shapiro highlighted the risks of complacency in his article, "Stop Blabbing About Innovation and Start Actually Doing It", where he argues that most companies can't innovate because everyone is paid to maintain the status quo. "Companies strive to do one thing very well, and as efficiently as possible. Success is defined by doing the same thing you've always done, only better, which will lead to more sales and/or lower costs." The result is that creativity and change are discouraged by time constraints, too many approval levels, and a culture that assigns a pink slip for any failure.
These are very basic, business model problems for a company. One option is to establish a start-up business that is kept separate from the traditional company culture and its inherent deterrents to creativity. Here are some critical requirements for this approach:
- Setting Goals - these should be specific and realistic, usually seeking a solution reflecting a detailed, relevant problem statement.
- Separation - must be free of all bureaucracy and office politics, with a location away from corporate headquarters, and a different management allowed to make quick decisions, reporting to a senior level manager.
- Staffing and Ample Time - consistent with Mr. Lehrer's suggestions, the team should be comprised of people with diverse ages, expertise and familiarity with the company's core business, and importantly work in a very open, spontaneous office environment.
- Freedom to Fail - the innovation team must be inspired to try new things without the risk of failure hurting their career (as Thomas Edison said, "I have not failed. I've just found ten thousand ways that won't work").
- Performance evaluations - these should be based on the volume and quality of new ideas, not whether they ultimately succeed.
Another useful approach is to conduct a customized ideation session, normally facilitated by an outside professional. For details on how this practice could generate a host of new relevant ideas, see the ebook I published last year, "5 Essential Steps for a Successful Ideation". If you have any questions on how your company can become more creative, please see our "Marketing Team Effectiveness" programs, which also includes additional articles on innovation.
image credit: Sean MacEntee and ganatronic
Our series of articles on what B2B Marketers can learn from B2C (click here for past articles) addresses several challenges, but one of the most sensitive issues is the emerging phenomenon of marketing and sales silos in B2B. This requires senior management to be assertive to rectify this problem, as this new article explains.
Written by: Jay Gronlund
The phenomenon of silo mentality has become a major problem today. In many companies it causes a dangerous disconnect between marketing and sales, especially in B2B where the sales role has traditionally predominated (marketing is more pronounced in B2C companies so the problem is usually not as severe). The result is lost opportunities and lost revenues, with both Sales and Marketing pointing blameful fingers at each other. Silos may exist in other functional departments too (e.g. PR, HR, IT, etc.), but this lack of integration or alignment between Sales and Marketing is a major issue that is haunting many CEO's today.
One of the problems leading to this silo mentality is that the roles of marketing and sales have become blurred in many B2B companies. An executive at GE Healthcare recently told me that most marketing services there are outsourced now, including traditional strategic initiatives like brand positioning, business plan development, all public relations, creative for packaging and advertising, competitive analyses, and most promotional initiatives. At the same time, sales has expanded its functions to control almost every aspect of traditional marketing and customer servicing.
There are several drivers behind this emergence of silo behavior. One of the most important causes is the recent recession and the pressures on achieving key business results. Tightening one's belt has forced marketing to become more careful about budgeting and justifying all initiatives, including measuring the outcome, which has created intense pressure for procuring enough funds and defending their actions. On the other hand, declining demand has made it very difficult for sales to find new buyers, so their focus is more on controlling customer interaction.
Another key factor is the explosion of digital access and social media platforms. This offers marketing new low cost opportunities to interact directly with customers and track their success, even converting identified leads to customers (generally a sales function). Meanwhile, sales is using these digital vehicles to gain more insights on the customer's buying behavior and a better understanding of the influencer network (i.e. usually the domain of marketing).
These merging roles beg the question of what should be the responsibilities and expectations for both the marketing and sales roles today. Traditionally the role of marketing has been more strategic, while sales is more tactical - marketing generates the demand and leads, and sales closes the deal. This blurring of functions today is part of the problem, as companies must do a better job of clearly defining these roles and encouraging a more realistic, practical alignment.
How to Dissolve These Silos
The first task for senior management is to recognize this phenomenon and the causes behind it, especially how the roles of each have merged. Then here are some specific steps that would help integrate the marketing and sales functions to minimize overlap and more effectively grow a business:
- Make it a Top Priority - with Bite - senior management should re-structure these roles with new job descriptions, special bonuses for achieving a more productive alignment, and create an ongoing mechanism for more open, frequent discussions between marketing and sales.
- Create a Special "Integration Team" - Assign one key person from marketing and sales (plus other disciplines, as necessary - HR, IT, etc.) to establish common business goals, break down the silos, and with meetings at least every other week to discuss upcoming activities and review the dashboard that everyone reports in to, and also frequently report the progress to senior leadership.
- Initiate "Change Management" - The process of generating and converting leads is crucial and it must be clearly spelled out who does what between marketing and sales. This may require extreme measures to ensure the follow-up details are well coordinated and monitored by senior management. The CEO must create a new environment where common goals are understood and achieved as a team.
Eliminating this silo mentality will require a concerted, ongoing effort as it will involve some fundamental cultural changes. People must no longer treat marketing and sales as departments but as groups of individuals, motivating each person with high potential to contribute toward a common goal of creating added value for the customer. Ideally marketing should make selling easier, more efficient and more effective, a role more prevalent in the B2C world.
Click here to find out more about our "Marketing Team Effectiveness" programs that address such "silo" issues.
image credit: KEXINO and dsearls