B2B selling is likewise undergoing a major change. (See Fig. 3: “The New Rules of Selling in B2B,” which summarizes current versus future best practices in industrial selling.)
Selling today is, we learn, about communicating unique selling points (USPs) to customers. Sellers promise results to customers. The primary contact of B2B sellers is the procurement function. Sellers follow the mantra of cutting-edge marketing textbooks that present a dichotomous choice for profitable marketing strategies (Kotler and Keller 2011): skimming (high price, low volume) or penetration (low price, high volume). Discounts are the key selling tool. Sales force compensation is linked to profit or revenue targets. The main implicit assumption is that differentiation is difficult in an environment shaped by aggressive purchasing managers who are increasingly selecting suppliers based on price. In order to mitigate the impact of price-sensitive customers, today the best-performing sales organizations concentrate on forging relationships with their customers.
This is, we think, the world of selling as we know it. As the experiences of the best practice companies in our research suggest, selling is being radically transformed. In the future, selling is not at all about selling USPs—who says, after all, that they actually improve customer profitability? Selling is all about creating, quantifying, and documenting value to customers. Paula Gildert, then VP Global Head Strategic Sourcing at Novartis Pharma, has the following advice for any sales manager knocking on the company’s doors: “Suppliers often don’t come to us with a business case. But it’s what we want. Sell your value in our numbers to get our attention. But if you can’t quantify your value, don’t be surprised at the failure of procurement to do so” (Snelgrove 2018, p. 252).
Witness SKF’s Documented Solutions Program, which guarantees performance outcomes to customers and allows SKF to achieve premium prices vis-à-vis customers. This means results are not promised—results are guaranteed (Hinterhuber and Snelgrove 2020).
As the introductory example illustrates, in this case SKF and its customers both win. Metso, a technology supplier to the mining industry that evolved into Metso Outotec, is another pertinent example. “Expect results” was the company’s tagline as a stand-alone company. Perttu Louhiluoto, President of the Mineral Services business area, notes that “suppliers need to be able to demonstrate and quantify the economic value of their offering beyond cash cost” (Louhiluoto 2017:10). Consequently, the company’s CEO stresses the importance of “value quantification to the customer” noting that a solid understanding of customers’ business enables the company “to quantify the business impact for the customer” (Kähkönen 2012:21). The increased importance of value quantification as a new capability of sales managers is reflected also in changes in the company’s service offering: traditionally, Metso – but many other companies as well – offered “break-fix support”, now the company is offering consulting contracts that optimize total cost of ownership and performance-based contracts that optimize customer operations (Silvennoinen 2014:20). Simplifying a bit, in these cases the service offering evolves from “done to” to “done with” to, finally, “done for” the customer. In the latter two cases, value quantification capabilities are of course of central importance. This approach to selling also allows a company to overcome the false dichotomy between high price and high market share: SKF, like Apple, is a market share leader and premium price producer at the same time. A focus on value enables high market share and premium prices to coexist.
Sales force compensation is linked not only to profit or revenue goals—these are, after all, internal indicators—but it is increasingly linked to outcomes that matter to customers, such as customer profit improvements or customer satisfaction. Implicitly, these companies feel very strongly that commodities do not exist. There is no product that cannot be differentiated. Shell, for example, illustrates that even a tradable commodity like gasoline can be differentiated, as in the highly successful introduction of V-Power (Hinterhuber 2016). The end result is that selling is about forging business partnerships with customers.
International logistics company DHL is a superb example. Pascal Kemps, sector head for passenger vehicles, frequently observes that the shipping operations of large customers—e.g., global car manufacturers—are not optimized: When customers ask DHL and its competitors to submit a quotation, competitors will submit a proposal for, for example, 80 containers, as specified in the bidding documents. DHL, by contrast, typically will suggest freight optimization first, which means DHL ends up selling less (Hinterhuber and Kemps 2017). DHL quotes a price for 70 containers, for example, and highlights the steps to implement route optimization. This reduces revenues short term: “You need to make an investment to service a customer in order to achieve a longer-term sustainable success” Hinterhuber and Kemps 2017, p. 173). This sacrifice, Kemps suggests, builds invaluable trust with customers.
Forging partnerships requires, as the experience of DHL suggests, a cultural change. In Japan there is a beautiful expression: ‘You have to be prepared to sit on a rock for three years,’ observes Kemps, “which means that sometimes you have to be in a difficult, painful situation before you get results. I know that’s difficult for many of my colleagues, but fortunately I’m in an organization where it’s understood that things may take time and it’s accepted that sometimes you need to make an investment to service a customer in order to achieve a longer-term sustainable success. I’m well aware that that’s not the case in all organizations.” (Hinterhuber and Kemps 2017, p. 173). Accordingly, DHL links sales force compensation to customer-related outcomes, such as profit improvements or customer satisfaction, and not only to company-related outcomes, such as sales or margin budgets.
The dual focus on value in both purchasing and selling allows SKF and other companies to thrive in a very competitive environment. In a stagnating environment, SKF, for example, has grown substantially vis-s-vis competitors. The procurement and supply chain functions have taken a proactive stance, moving from knowledge and compliance toward commitment and contribution as good corporate citizens. The performance has been honored as best in class by the Dow Jones Sustainability Index.
More broadly, several independent, quantitative studies with hundreds of respondents in B2B conclude that companies that sell on value are substantially more profitable than companies that sell on costs (Hinterhuber 2017; Hogan 2008; Liozu and Hinterhuber 2013; Nagle and Müller 2018) and that companies buying on total cost of ownership are again substantially more profitable than companies buying on price (Manufacturers Alliance for Productivity and Innovation 2012).
Buying and selling in B2B is not a zero-sum game: Customers, suppliers, and the society at large benefit from a joint focus on value and innovation occurring at the extreme ends of the organization—in buying and selling. Putting value ahead of price transforms a traditionally adversarial relationship into a collaborative partnership that unleashes profits and innovation.