Customer interaction directly affects profitability, research reveals

It also shows that outright challenges to customers’ thinking may not be a profitable exercise for organisations chasing sales growth.

The research conducted by Huthwaite International across 30 countries in five continents also found that when it comes to writing value propositions – those all-important descriptions of what a company and its products and services bring to the customer – there is a right way and a wrong way to do it.

Those that scored highest on the Huthwaite scale of excellence invariably (86% of the time) came from companies who showed increased profit, whereas the majority of those that scored lowest did not report increased profits.

The study ran from mid-2012 to mid-2013, and surveyed 903 respondents. Some 62% of the respondents came from sales, marketing and customer services roles and the types of sales relationships studied ranged from the transactional to the consultative ends of the spectrum.  The report includes companies of all sizes, from those of fewer than nine employees to enterprises of more than 1,000.

Lessons from value propositions

Before the five main stages of value development throughout a relationship between selling/supplier organisations and prospect/customer organisations are reached, a key part of winning or increasing business is a successful strategy for 'articulating value', whether in informal conversation, a marketing document, a formal proposal, a video clip or a sales presentation.

The success model used in the research for high scoring value propositions includes specific statements of benefits and payoffs (at a market level or customer level); describes how that outcome will be achieved; illustrates competitive differentiation; and has an element of credible quantification. Yet 93% of the propositions examined in the research failed to include these elements in what were often generic, feature-led descriptions of basic capability. The companies whose value propositions fell into that category were those with the lowest tendency to increased profits.

Furthermore, in both consultative and transactional sales situations, tailored value propositions and customised solutions were more common among profit-making organisations than among loss-making ones.

The manufacturing sector was by far the most effective at producing high scoring value propositions, followed by the IT industry. The government sector and, perhaps surprisingly, the creative industries, scored lowest. It would appear that the more tangible your offer is, the easier it is to create a high scoring value proposition.

The phases of value capture

Beyond the value proposition itself, here are five distinct stages of the relationship covered by the report: Planning for Value, Building Value, Demonstrating Value, Retaining Value, and Delivering Value. These are examined in detail in today’s report.

Among the key findings were:

• Profitable organisations approach opportunities to sell and develop business with a high degree of industry and customer knowledge, and proactively hunt for the problems currently uppermost in the customer’s mind.
• Joint-problem solving is a most effective strategy in both consultative and transactional relationships, being the most common approach shown by profitable organisations
• Disruptive innovation, where organisations develop new products to target lower-spending niches of the market and so gain market entry, is an effective strategy, especially amongst smaller organisations of less than 100 people.
• The close co-operation of key customer facing functions in a supplier organisation – particularly sales and service – can be an important differentiator, especially in larger organisations of more than 1,000 people. 
• In the negotiation phase, respondents were aware of the need to maximise value for both sides; however they were less focused on the strategies that would actually help them achieve this.
• When the results are examined nationally and regionally, the Greek respondents were clearly more financially-focused than anyone else, driven possibly by their current economic crisis; Arabic-speaking countries in the Gulf and North Africa appeared to place more importance on negotiating behaviours than elsewhere; and the Northern Europeans favour a consultative selling approach, although the customer base seems to contain a mixture of consultative and transactional buyers.

As the research has developed, its findings have been aired at a variety of industry conferences, notably the UK ISMM* (who facilitated the UK section of the research), the Dutch SMA*, the Greek Institute of Sales and the UK APMP*.

Dr Janet Curran, Huthwaite International’s head of thought leadership said: “We set out to obtain a wide ranging and up-to-date view of what makes a good sales and account development approach, how to establish customer relationships based on value, and the best means to express those things persuasively at the sales and marketing level. I hope that as well as providing interest and insight, it will also help organisations focus on the important skills they need to develop in creating and capturing value for their clients.”