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HA405 : The Class : Customer Management : Motivation : Lesson

Competitive Advantage by Creating "Value" within the Customer's Buying Process

P2, S4, T1




By: Richard G. McNeill

October 14, 1999


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Introduction



Customers buy the greatest value offered when deciding among competing product/service offerings. The salesperson's skills and ability to be a "consultative salesperson" can add value to the product/service offering by adapting their "selling process" to fit the customer's "buying process." Since the customer buys the greatest value and a well-conceived selling process adds value to the customer, it can be concluded that seller's can achieve competitive advantage through an effective "consultative selling" process. This paper argues that "transactional selling" (non-complex products) generally does not add-value as perceived by the customer. On the other hand, "consultative selling" (complex products/services) almost always has the potential to add value and thus, can be an effective weapon for competitive advantage.


Discussion

Different Forms of Selling

 

Transactional Selling

The methods and focus of selling must be rethought. In the past, the focus of selling was on the "selling process" as viewed through the eyes of the selling organization. In this model, sellers believed that sophisticated techniques (For example, saying the right words or using "sales formulas" during presentations) were the key to successful sales. This approach can still be effective in non-complex selling situations, yet is under pressure from increasingly sophisticated consumers who have the ability to bypass the salesperson (for example, to buy directly from the internet). These non-complex selling situations are called "transactional sales."

In transactional sales, the customer obtains "value" primarily through obtaining a lower price, thus, the salesperson really is not needed since there is no room to create much added value anywhere within the "buying process." Transactional selling is invariably based on "price-competition." So, if salespeople are an unnecessary and high expense, product/service costs can be reduced by eliminating or downgrading the role of salespeople.

 


Consultative Selling

The new focus of selling is on creating value in the "buying process." Here the seller understands value as viewed by the customer. This view is accompanied by a "win/win" philosophy; the seller recognizes that he or she will win only if the customer wins. Winning for the customer is achieved when the needs of the customer are fulfilled by the value created by the seller. Winning for the seller is achieved when the customer chooses the sellers offering over competitive offerings. If the seller creates more value than competitors, then the customer will usually select the seller's offering.

Consultative selling is appropriate when dealing with complex products/services. In these situations, the product/service is usually customized for each client. Value is created during this customization process and added-value can create product/service "differentiation" and thus, competitive advantage. Consultative selling is based on creating value for the customer and value can be added within the buying process.
Successful salesforces of the future will create and capture customer value because this is a strategy to achieve competitive advantage.

The above argument will be detailed in the following article. First, how buyers make decisions will be discussed. Second, buyer value will be discussed. Third, the "buying process" will be modeled. Finally, the "consultative selling process" will be explained and demonstrated as to how it can effectively parallel and add value for the customer.


 

Why Buyers Buy

 

How Buyers Make Buying Decisions

People are influenced by internal (the individual psychological and physiological) and external (social) forces that cause people to have many needs, desires, and wants. In other words, forces acting on the individual cause them to perceive that they need or want something. Internal forces are those that arise primarily due to the individual person responding to their own personal perceptions of conditions affecting them; for example the forces of psychological through self-esteem theorized by Abraham Maslow. External forces are those that arise from society. These include culture, social class, reference groups, roles, and general social influences.

Needs having been initially shaped by influencing forces can remain dormant until they are aroused or activated by motives. After needs are stimulated, they are exhibited as behavior. The resulting behavior is intended to satisfy that aroused need.

 


How Customer Needs are Formed - Perception

Perception can be defined as the process that people use to receive information (stimuli) through the five senses and then assign meaning to this information. Perception is shaped by internal psychological and physiological conditions within us and external social influences. What is seen and felt and the meaning that we assign to what is seen and felt is filtered through our perception, thus different people may see and feel differently about the seemingly same object or occurrence. Selective perception is the term that defines this reality.

Buyers may screen out or modify information presented by a salesperson if it conflicts with their previously learned attitudes or beliefs. Salespeople need to learn as much background information (especially potential perceptions) about the buyer as possible before the selling presentation. Additionally, during the first and subsequent meetings with the customer, the salesperson should try to build a strong relationship so that there will be open dialogue and free discussion about personal perceptions. Sales people should also review their own perceptions about various customer types (segments) to ensure that they are accurate.
In summary, buyer's needs are initially shaped and formed by both internal and external influencing forces. They remain dormant until they are activated by motives.

 


Buying Motives - How Customer Needs are Activated

A buying motive can be seen as an aroused need, drive, or desire. The buying motive acts as a force that stimulates behavior. This behavior (buying decision) is intended to satisfy that aroused need Salespeople need to understand buying motives to understand the reasons why customers buy; initiate behavior in the form of a buying decision.

Buying decisions (behavior) are often influenced by more than one buying motive. Within several buying motives, there is usually one dominant buying motive (DBM). The DBM will have the greatest influence on the buying decision. Successful salespeople attempt to discover the buying motives which influence the customer's buying decision. There are three major types of buying motives: (a) Emotional Buying Motives, (b) Rational Buying Motives, and (c) Hybrid Buying Motives. Buyers simultaneously base their buying decisions on both types. One or the other may be dominant or they may be operating in balance.

Emotional Buying Motive. This is a motive that prompts the prospect to act because of an appeal to some sentiment or passion. However, the most powerful of emotional motives can be associated to humans' most basic drivers: Fear or Gain. Emotional motives can generally be seen as those of the heart as opposed to the head and made to satisfy a wish for pleasure, comfort, or social approval. However, when associated with fear or greed, some elements of rationality come into play. For example: (a) Fear-decision to buy a life insurance policy out of fear that spouse and children will be without support or (b) Gain - decision to buy a stock or bond because it has potential (real or imagined) that it will increase in value.

Emotional motives are very powerful and often are the underlying basis of the DMB, dominant buying motive. Successful salespeople ask "feel-finding" questions during the "Recognition of Needs" phase of the buying process to uncover these powerful motives.

Rational Buying Motive. This is a motive which usually appeals to the customer's reason or logical judgment. A buying decision based on rational buying motives is generally the result of an objective review of available information. Some examples include: (a) profit potential or enhancement, (b) quality of service, and (c) availability of technical assistance.

Successful salespeople ask "fact-finding" questions during the "Recognition of Needs" phase of the buying process to uncover rational buying motives.

Hybrid Buying Motives. There are two types of motives which combine both the Emotional and the Rational: (a) Patronage Buying Motives and (b) Product/Service Buying Motives. Both of these are "learned" motives vs. motives that spring forth from the individual from social influences or individual psychological or physiological needs. They are learned from prior experience with the selling company and/or reputation.

A Patronage Buying Motives motive is one that causes the customer to buy products and services from one particular business (customer loyalty). The customer's prior experience with the company has been judged beneficial, thus the customer wishes to repeat the experience (repeat business). If a competitive product is more or less the same, then these motives can be very powerful in the buying decision. In a world of commodity-like products/services these motives can be the extra competitive advantage.

Some examples of patronage buying motives include: (a) Competence of the salesperson and development of relationship with customer, (b) superior service to that of competition is added-value which builds loyalty, and (c) selection which offers the customer choice and variety.

A Product/Service Buying Motive is one that influences the customer to make a buying decision to purchase one product/service over a competitor's product/service. In a way, this is an emotional decision since the customer may not directly compare the competitive products/services; they have an intuitive feeling that one product is better than the other. Of course, these feelings may be actual or perceived. These motives can be triggered by marketing stimuli that create a product/service position.

Some examples of product/service buying motives are: (a) brand preference, (b) quality preference, (c) price preference, and (d) design or engineering preference.

In summary, buyers of low-priced and non-complex consumer products generally tend to rely heavily on emotional buying motives while buyers of higher priced and complex industrial products/services tend to rely on rational buying motives. However, always remember that both sets of motives, emotional and rational, are being considered by all buyers even if in different proportions. Thus, one might say that all buying motives are "Hybrids."


 

How Buyers Distinguish Which Product/Service to Buy

 

Customer-Delivered Value Formula

Formula. Customer-Delivered Value (CDV) = 's Total Customer Value (TCV) minus Total Customer Costs (TCC). Customers buy from the firm that they believe offers the highest CDV.

TCV is derived from four distinct levels of product/service: (a) Core Product, (b) Expected Product, (c) Value-Added Product, and (d) Potential Product (uniquely customized for customer). The core product and the expected product are not reasons that motivate a customer to buy or select one product as opposed to a competitor's product. If the product simple does its job (core) and simply satisfies the expectations of the customer (expected product), then having these means that the customer is not demotivated, but they are not motivated either.

To motivate a customer to recognize superior value and, thus, to make a buying decision of choosing one product over the other depends on level three, value-added product and/or level four, potential product.

TCC come from the costs of money, time, energy, and physic factors (worry for example). Customer's also perceive and judge costs.

CDV in effect is seen as "profit" by the customer. It is the excess of gain in value over costs to the customer. Based on judgments of value and costs, the customer makes a decision as to whether or not they will obtain a profit. If a profit is determined, they will buy.

In Transactional Selling, the goal is to create value by reducing TCC. Since salespeople are expensive and in transactional selling do not have much potential to create added value (see discussion in introduction), then the logical thing to do is to reduce costs in order to increase CDV. As a result salepeople in transactional selling situations are being downsized.

In Consultative Selling, salespeople can create "added value" (level three). They have an opportunity to do this within the customer's buying process. The remaining discussion details how to obtain Competitive Advantage By Creating "Value" Within The Customer's Buying Process (the title of this paper).


 

Sellers Can HaveTwo Perspectives of The Buying Process

In perceiving the way buyers buy (the buying process), sellers can focus on either: (a) The Product (in Transactional Selling) and accompanying selling techniques that persuade or manipulate the buyer to buy or (b) The Customer (in Consultative Selling) and selling responses that appropriately address the customer's need to receive value.

Neither perception is good or bad within itself. What's important is the nature of the selling situation. Does the seller find him or herself in a Transactional selling or a Consultative selling situation? Depending on the type of selling situation, the salesperson operates on different theories of buying decision making. Using a different theory of buying decision making will cause the seller to act differently when he or she is selling to a potential buyer. Lets look a the two types of selling situations and the buying theory used and the corresponding different salesperson actions.

 

Transactional Selling - Focus on the Product and Selling Techniques

Buying Theory Used - Buyer Action Theory. This is a tradtional theory of why buyers buy. The theory states that there are five mental steps that lead to a buying decision: (a) Attention, (b) Interest, (c) Desire, (d) Conviction, and (e) Action. The salespersons role is seen a controlling or guiding the potential through each of these five steps.

1. Attention - A salesperson must first get the potential customer's attention or there is no hope of selling a product. This is the equivalent of an attention getting headline in an advertisement. Thus, either to first obtain a face-to-face interview with the potential customer or to cause him or her to focus on what is about to be presented once the salesperson is sitting in front of the customer, attention is the first step in moving a customer through the Buyer Action Theory of buying process.

2. Interest - The next step after getting the potential customer's attention is to develop interest in the product. In some cases a demonstration will do this. In others the salesperson might ask some provocative questions such as, "would you be interested in reducing costs by 10%?" or other such questions.

3. Desire - This step moves people to want to possess something or experience something that is perceived as enjoyable or satisfying. The idea is to heighten the interest level stimulated in the previous step.

4. Conviction - At this step the potential customer has decided that the product/service is of genuine value and that the price asked is justified by the features offered. Also, competing product/services have been ruled out. The salesperson has removed doubt from the buyer's mind. At this step, the potential customer can rationalize the purchase to him or herself.

5. Action - Once the potential customer has been guided or controlled (by the salesperson) through the first four steps, the stage has been set to close the sale. The set stage can result in an easy and painless close. Often, however, potential customers resist taking this last action step, thus, the salesperson must use techniques that meet this resistance or (another name for it) overcome objections. If the potential customer (prospect) takes action, they are now redefined as a customer.

 

NOTE:

The use of this theory by salespeople is most common and appropriate in a Transactional Selling situation where:

1. Product/Service features and benefits are not complex and easily understood

2. Product/Service is not expensive

3. Product/Service does not require multiple decision-makers

Consumer products such as household products, jewelry, personal life insurance, autos, etc. are usually sold with the salesperson perceiving the buying process through the Buyer Action Theory.

The use of this theory by salespeople is NOT common and appropriate in a Consultative Selling situation where:

1. Product/Services are complex and expensive

2. Product/Service requires multiple decision-makers

 

What are Typical Salesperson's Actions in theTransactional Selling Situation? The following is not representative of all actions in this type of selling but offers common distinctions from the actions that exemplify the Consultative Selling situation:

1. Needs of the potential customer are of less importance. Here the salesperson focuses on his or her product/service and the selling techniques that will control the potential customer through the Buyer Action Theory of the buying process.

2. Product/Service features are emphasized during the sales presentation. Features are stressed and not as readily translated to benefits. It is difficult to translate to benefits if the seller is not aware of customer needs or focused on them. Therefore, salespeople simply list features in a shotgun approach that may or may not be important to the customer. The idea is to control the customer through the buying process.

3. Repeat business is not given a high priority. Transactional selling usually is competing based on price and not differentiation. Certainly sellers here hope to get some repeat business and even referrals, however, this is not a priority. If a saleperson is selling a low priced product/service in the consumer markets, they usually hope for success by relying on the law of large numbers (make presentations to a large number of prospects and know that a certain percentage will buy). Thus, the salesperson is focused on making presentations to the largest number of people as possible; they don't have time to work on long-term relationships.


Consultative Selling - Focus on the Customer and Helping the Customer Solve a "Buying" Problem

Buying Theory Used- The Need-Satisfaction Buying Theory is one that is ideally suited to the "Consultative Selling" style. Customers select one product over another based on the value that they perceive will satisfy their needs. Salespeople here see themselves as consultants to the customer. The role of the salesperson is not to control the customer through a series of steps (as in the Buyer Action Theory above) but to respond to customers' needs. As a consultant or a doctor would do, the salesperson must ask many questions to fully understand the customers' needs and value that they need to obtain.

From a Consultative Selling perspective, customers typically buy products/services (especially complex products/services) by satisfying a series of needs. For example in the third step of the theory, the customer has a need to resolve concerns. Consultative salespeople respond to the customer and add value throughout the following stages of the Need-Satisfaction Buying Theory of the buying process:

1. Recognition of Needs - The value that a salesperson can add at this stage is the help customers recognize and define problems and needs in a new or different way.
2. Evaluation of Options (Alternative products) - The value that a salesperson can add here is to show superior solutions, options, and approaches that customers may not have understood or considered.
3. Resolution of Concerns (Decide on one of the alternative products)-Value here is created by the salesperson in helping customers to overcome and remove obstacles to acquisition.
4. Purchase (Logistics of acquisition) - The value a salesperson can contribute here is to make the purchase painless, convenient, and hassle-free.
5. Implementation - The salesperson adds value by showing customers how to install and use the product/service.

 

NOTE:

The use of this theory by salespeople is appropriate in a Consultative Selling situation where:

1. Product/Services are complex and expensive

2. Product/Service requires multiple decision-makers

3. Value can be added by the salesperson during the buying process itself (salesperson helps solve the customers complex needs)

The use of this theory by salespeople can be appropriate in a Transactional Selling situation but NOT usually cost beneficial because:

1. Transactional buyers are primarily interested in price (since they already have information on the product alternatives).

2. Usually see the product/service as an undifferentiated commodity

3. Most importantly, in a transactional situation, the buyer is already knowledgeable of product/service alternatives and how they can solve his or her needs, thus they don't need to be taken through the buying process theory by a salesperson. If a salesperson attempts to do so, the buyer may become bored or even irritated. In transactional selling, there is not much room for the salesperson to add-value beyond giving product information (so, the buyer action theory approach is better).

 

 

What are Typical Salesperson's Actions in the Consultative Selling Situation? The following are representative and characteristic actions by consultative salespeople:

1. Systematic inquiry is made to learn and fully understand customer needs. This is the most important step in consultative selling. Everything else flows from this information. So, if this is not done, all other actions will not be possible.

2. Product/Service features are seen as vehicles that give benefits to the customer. Instead of listing features in a shotgun approach, the consultative salesperson first understands what are the important needs of the customer and then presents feature/benefits that solve the customer need. NOTE: a feature/benefit is defined as a product service feature that is translated into a benefit. For example a salesperson may say, "Ms. Customer, I understand that you need a meeting room that will accommodate 100 meeting attendees theater style (CUSTOMER NEED). We have a the Apache room which is 1000 square feet (PRODUCT FEATURE), which means to you (TRANSLATION WORDS), that your attendees will have comfortable and spacious seating arrangements (PRODUCT BENEFIT). Customers buy benefits to solve needs not the features which give benefits.

3. Repeat and referral business is given a high priority. In consultative selling, the salesperson sees his or her initial customer as a long-term relationship to be cultivated. A long-term relationship and partnership strategy is the approach in consultative selling as differentiated in a law of large numbers strategy used in transactional selling. Different types of products/services and different markets sold to (consumer versus business-to-business markets) mandate different strategies.

 

 


Summary

How the Customer's Concern for Value Related to the Selling Process.

As stated earlier, in consultative selling, the salesperson is ideally situated to create value through contact with the customer. In Transactional Selling (non-complex products) the customer is very well informed about what they need, the alternative (competitive) choices available, and very confident with their own and independent ability to make a buying decision among competing products and services. Thus, "competitive advantage" for the firm doing the selling is not found in the selling process itself, but in the ability to offer the lowest price and/or offer the easiest delivery of the product/service. What this means for "transactional selling" in the future is the lowering of costs (to obtain "competitive advantage") through the reduction or downgrading of the salesforce. Simultaneously, the selling firm in transactional selling situations will make acquiring information about and the actual acquisition of product/services easier for the customer through less expensive channels, the internet for example.

"Consultative Selling" situations are ideal for creating "value" for the customer within the buying process. Competitive advantage is gained when added-value of one seller "differentiates" the product/service offering from another competitor seller.

 

The new selling profession focuses on the buying process and how the salesperson can create value for the customer. Value is created within the buying process; this adds value above and beyond the intrinsics of the product/service.

 

Copyright 1999 by Richard G. McNeill ALL RIGHTS RESERVED


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