Boosting profits through value-based selling
Bob Harper -- Casual Living, May 1, 2010
A customer enters your store with a problem. You know the best solution may be a higher-priced product or piece of equipment, but you also know you can easily recommend a lower cost option, such as a commodity product that will address the symptoms of the problem but not the cause.
Do you recommend the cheaper products, assuming the customer won't want to pay higher prices for the right treatment? Or do you recommend the better fix, which can save money and increase satisfaction for your customer in the long run?
Recommending the right product or service doesn't have to be difficult — if you use the principles of value-based selling.
As the name implies, value-based selling involves uncovering the unspoken desires of customers, and then communicating the benefits of a higher-priced product or service that addresses those desires, so customers can make an informed decision. And their choice may surprise you.
Value-based selling is different from value-added selling, so it's important to know how they differ. Value-added selling means differentiating two very similar products, when one of the products has an additional feature that provides a clear benefit. For example, in the pool industry many retailers sell heavy bags of commodity salt for salt water pools. Everything about two brands of salt may be similar, yet one brand may have special handles on the bag for easier lifting and therefore a slightly higher price.
In contrast, value-based selling goes much farther than merely highlighting features. It typically contributes a measurable benefit for retailers and/or their customers in one or more of five areas:
Growing gross sales and earnings
Reducing or eliminating costs
Improving market share
Enhancing customer satisfaction
Creating competitive advantage
Here's another example from the pool industry: The Pristiva system for salt water pools is considered a premium product. Selling the product can benefit both retailers and their customers because it contributes to several of these value-based categories:
It allows pool owners to reduce or eliminate costs associated with maintaining their pool, like premature replacement of the electrolytic chlorine generator
It enhances customer satisfaction by addressing many of the common challenges of salt water pools, including staining and scale
It increases retailers' gross sales and margin compared with commodity pool products
It allows specialty pool retailers to improve market share and create competitive advantage by differentiating themselves from mass merchants.
While this example is specific to the pool industry, the principles apply to all premium products, in all industries. The key point is that sales of the product deliver quantifiable benefits to each of these categories.
So, what does value-based selling involve? It's a broad topic, but here are some of the key principles:
Partner with your vendors to build your understanding of the product.
If you're going to carry premium products that need to be sold based on the measurable value they create, you'll need to know those products inside and out. You'll also need to know your competitor's products well. One great way to get this knowledge is by partnering with vendors and suppliers that offer support, including training programs, educational and point of sale materials.
Uncover your customer's needs through appropriate probing.
In many industries, retailers can fall into the rut of being order takers. They assume that most customers know what they need when they walk in the door, and they focus on just meeting those needs. Or worse yet, they assume they know how much a customer is willing or unwilling to pay for a product or service. If everyone shopped solely on price, there wouldn't even be a category called "specialty retail." Consumers value expertise and will pay for it.
Appropriate probing involves asking the right questions to uncover customer's needs and wants, which can then be addressed more effectively. Open-ended questions are best at drawing out customers and lead to an opportunity to sell a premium product.
Differentiate needs and wants.
The customer needs to keep his pool sanitized, but he wants to spend less time on pool maintenance and get away from using chlorine tabs. Basic needs can be addressed with a variety of commodity products, but "wants" are often better addressed by premium products, through value-based selling principles.
More often than not, customers are willing to pay higher prices to achieve their "wants" along with their "needs," and these value-based selling principles can help retailers identify those situations. Value-based selling results in better satisfied customers as well as more profitability for retailers through higher margins, repeat sales, differentiation from mass merchants and, ultimately, customer loyalty.