How Does Quality Relate to Value?

I’ve worked with many clients to help them craft value propositions. One mistake they often make is to mistake quality for value.

When it comes to communicating your value, quality doesn’t really mean anything to your customer. That’s because quality is highly subjective. It may well be that a Toyota is a high-quality car because you never have to take it to a mechanic to be repaired. But it may also be that a BMW is a high-quality car because it is, as they say, “the ultimate driving machine.” In each case, the customer gets to define what quality means.

Say you’re selling a measurement device. You could say it’s the highest quality device on the market because it’s so reliable. In fact, it will last 100 years and require no repairs. But to a customer who only needs a device to last three years, longevity beyond 3 years means nothing. On the other hand, the fact that the device lasts 100 years would be important to a customer who wants to use it in a satellite that will operate for the next 30 years. That’s a clear case that you’re providing value.

Similarly, you could say the device is the highest quality because it measures to .001 percent accuracy. But to a customer who only needs 1 percent accuracy, .001 percent doesn’t represent additional value over a device that delivers their needed 1 percent accuracy.

This is where sales and marketing teams often get stuck, because the definition of value is not always based upon how your offering will impact the customer’s business. The definition of value is what it’s worth, in quantifiable terms, to solve a problem for the customer. Quality is too generic and cannot be measured that way.

There’s a concept in Six Sigma called the five “whys” that’s relevant here. If someone says, “This is the highest quality product on the market,” you have to assume the customer will go down the line of “why” questions. They might include:

Why would I want to buy your device? (Answer: Because the device will last 100 years.)

Why do I care that the device will last 100 years? (Answer: Because you’ll have fewer failures downstream.)

Why do I care that I’ll have fewer failures? (Answer: Because eventually you’ll have to pay maintenance and service costs, and our device will save you those costs.)

The concept here is that you need to continue to ask “why” until you get to an answer that finds the root of the customer’s need. That’s where value lies.

How do you define your value in your market? Share your thoughts in the comments section. 

What is More Important in B2B: Value or Branding?

Recently I wrote a blog post, “Why Branding Doesn’t Work on B2B Customers,” that ended up generating a lot of spirited debate across several venues, but especially in one particular LinkedIn group (B2B Technology and Marketing Community).

First, the discussion helped crystallize the difference between the meaning of “brand” and “branding,” at least in my mind:

  • Brand (a noun), as one comment articulated, is “the sum total of a prospect’s impressions and experiences with a company.”
  • Branding (a verb), is the act of attempting to create or define the perspective that a target audience (customer or prospect) has of the company or of its products.

My belief is that B2B branding — whether in the form of positioning, messaging, colors, slogan, logo, advertising, brand strategy, or any other form of promotion — will only be effective in the long run if it supports a company’s true value proposition. It’s not hard to find examples of B2B companies with successful brands supported by strong branding campaigns (the example of “no-one every has ever been fired for buying from IBM” was referenced multiple times), but in the end these companies already had a truly strong value proposition. In other words, it wasn’t the branding that created the success. The success stemmed first from the value the company delivered to customers in the market and then was accelerated by the branding.

I would add that even if you have a very strong value proposition, any attempt to promote it with a “branding campaign” is actually cost prohibitive for all but the largest or best-funded companies. That is not to say that consistent branding can’t help support and grow your brand awareness, but successful brand campaigns are expensive.

Several folks also mentioned that people (not companies) buy, and that people make decisions based on emotion. I agree in theory, especially when it comes to smaller purchases and potentially even within smaller companies. But companies have worked hard to prevent large decisions being made by individuals, based on emotion, and without business justification. Why else would CFOs be so heavily involved with significant buying decisions? (Have you ever tried to sell to a CFO using emotion? That isn’t how they make buying decisions. You’d probably have better odds trying to bribe a CFO then sell to them based upon emotion, but I wouldn’t recommend that either!)

Many B2B companies have a strong product and/or service without a clear brand strategy and without any advertising — yet the company is still successful. The converse is not true though. There are few, if any, examples of successful companies that have poor products and lack a strong value proposition. In that case, a strong brand strategy and lots of promotion won’t save them. (In fact, aggressive branding and promotion will do little more than accelerate the demise of the company.)

Therefore in B2B, it is much more important to have a strong set of offerings that fulfill a specific set of needs in the market and thus create value for a segment of customers than it is to have a strong branding and/or promotion strategy.

However, provided the company has a strong value proposition, I do agree that a good brand strategy and effective promotion can help to accelerate and amplify success. But a brand strategy is not sufficient, nor is it necessary, to be successful in a B2B space.

What’s your take on value versus branding? Share your thoughts in the comments section. 

Social Media and B2B: Where’s the Value?

Social media has obviously generated a lot of interest among B2B sellers and marketers as a tool to find prospects and close deals. The sheer number of people on social networks is impressive (LinkedIn: 225 million users, Twitter: 200+ million active users, Facebook: 1.1 billion users), and the numbers continue to grow. With all that activity, you’ve got to figure that at least some percent of those users are B2B buyers. And if you’re in sales or marketing, you want to be where the buyers are.

A few years back, a study from CEB of more than 1,400 B2B buyers in various industries revealed that up to 57% of a typical purchasing decision has been made before talking with a salesperson. That’s how much the Internet has changed the sales cycle. It’s a powerful statistic, but it hasn’t quite dissuaded skeptics from dismissing social media and social selling as a waste of time.

If you’re a regular reader of this blog, you already know that I’m always talking about value. Sellers and marketers must clearly define their value — and, most important, quantify that value in financial terms — if they want to gain traction with prospects in a B2B space. The interesting question to me is how we can actually show the value or ROI of using social media (which I’m defining not just as participation on social networks but also inbound marketing and content marketing).

Let’s start by considering where we might see quantified benefits via social selling:

  1. Additional leads (which should lead to more closed deals)
  2. Higher close ratios (based on the idea that social engagement is highly targeted and relevant)
  3. Higher average selling price (because you’ve used social insight to figure out what buyers want and are tailoring products and services accordingly)
  4. Slight reduction in selling cost and traditional marketing (rather than producing expensive printed assets and advertising, etc., you could potentially use social engagement instead)

From a business perspective, you need to evaluate social activity based on how it impacts your income statement. Personally I believe that every company should leverage social media on some level. It’s just a question of where, and how much. That’s one of the reasons we created our B2B Social Media ROI Calculator. We want to help companies see where those opportunities are. For your company, ROI may be something you have to build slowly, over time, because not much opportunity is there yet. But it could be very helpful to senior executives to see the financial impact of a higher close ratio that is a result of your social activity.

On the other hand, if many of your B2B prospecting opportunities are already seeking information on social media, you’ll eventually suffer if you don’t get on board. In other words, it may not be a matter of increasing your close ratio — it may be that your lack of social activity is causing your close ratio to drop. (That’s where I’d say the technology markets are right now. In the tech sector, anyone who’s not on social media is virtually invisible to B2B customers and prospects.)

Over time as more people engage on social media, all companies will need to choose which channels are best to reach their target audience. If you’re curious, spend a few minutes with our social media ROI tool today and let us know what you think of your potential!

How to Communicate Value to Customers: The IQS Story

One thing that will make or break your sales is your ability to help buyers understand the value you can provide to them. In some cases, as with a client of mine, IQS, that means communicating the ways in which the prospect or customer is losing money.

Situation

IQS has a 25-year history of providing manufacturers with quality and compliance management solutions, which are components of a Manufacturing Execution System (MES). The company has a strong foundation in various target markets, including automotive. We’ve been working with them for the last 10 years and have helped them to identify some of the key ways that their solution delivers value to their customers.

Cost of the Problem

Given that IQS’ solution focuses on solving  quality issues, we had to first understand the cost of the problem.   In its study, “Closed Loop Quality Management,” Aberdeen found that 7% of production did not meet specifications for a typical manufacturer.  We then dug into how off-spec product would impact a company’s financials:

  1. Lost sales revenue
  2. Increased cost of goods sold
  3. Increased cost of selling

So, if a typical manufacturing company was seeing these profitability impacts on 7% of their production, we were confident that a quality management solution could make a significant bottom line contribution.   We then determined that the cost of poor quality impacts manufacturers in these specific ways:

  • the need to carry extra inventory,
  • higher equipment downtime,
  • greater scrap and disposal costs,
  • extra shipping and expediting costs,
  • higher warranty costs,
  • and an increase in product returns and the labor cost required to rework off-spec material.

The following diagram shows these impacts.

IQS margin impact2

Value Delivered by the Solution

We then focused on how IQS could reduce that cost of poor quality.  By reducing errors during the manufacturing process, IQS is able to reduce almost all of these factors.  Also, IQS provides traceability into what happened during the manufacture of a particular product so if a problem is identified in the future, it can be traced back to the root cause and corrected very quickly.

Stratavant worked with IQS to build a value calculator that can be used to estimate the value that their solution can deliver to a prospective customer. The calculator quantifies the value that the IQS solution delivers in the following categories:

  • Reduced Direct Material Cost
  • Reduced Scrap Material Cost
  • Reduced Production Labor Cost
  • Reduced Inspection Labor Cost
  • Reduced Non-Production Labor Cost
  • Reduced Maintenance Cost
  • Reduced Warranty, Recalls, and Returns
  • Increased Sales Revenue

This tool has helped both IQS and prospective customers estimate and understand how much financial impact the IQS Quality and Compliance Management solutions can have on their organization. This helps IQS to build the business case for their offerings.

With any customer, you always want to first identify what the cost of the problem is. It’s important to quantify the problem in terms of numbers. How much is this costing the company? That’s the basis for developing a winning value proposition.

Stratavant tools can be used to quantify the value of your solution.  How do you quantify the business case for your solution? Leave your thoughts in the comments section or email me at dfleming@stratavant.com