For our June Webinar, Todd Snelgrove, Founding Partner at Experts in Value, explored ways to create new pricing models and embed them within your B2B manufacturing commercial team so that buyers, from procurement, finance, and decision makers are able and willing to pay for your solution’s value. After the session, he answered questions from the webinar audience. In this blog, we share his live answers.
How is the shift towards smart factories and other forms industrial automation impacting the pricing and sales strategies of leading B2B manufacturers?
I think it allows people to go to this Product-as-a-Service or Outcome-as-a-Service model because I can measure stuff. Now, I’ve got the sensors everywhere and I can tell the customer, that’s going to fail, go do A, B, or C so it doesn’t fail,” and that’s worth $X. Also, I can see if the customer did what I told them to do, because in the old days, I would have to control the whole process because I can tell you that the machine’s going to fail because it’s running hot, but if you don’t do what I told you to do to fix it, then it won’t last longer.
Now I can not only advise you what to do, but also see if you get it. Or I can do it remotely. It’s amazing what companies can do remotely. I mean, they can slow it down so it gives you time. They can order the parts and have them sent. You can track everything – instead of measuring one or two KPIs you can get some really interesting data points.
In what ways are manufacturers changing their strategies compared to 2-3 years ago when inflation and interest rates were lower?
I think you just need to be aware of it when you’re asking for capital. I’m going to make up numbers, but go back to the example Mark Stiving shared in his latest webinar – is the decision one where they need it? Or a “which one” choice? Remember, we’re always selling the price difference between two things. Let’s say they have to buy a bearing. They don’t have to buy my bearing. So I need to sell the value of the price difference. If I was selling capital equipment, which maybe some people on here are, I would’ve a financing option.
You build the customer for life. This is just off the cuff example, but think about “pump as a service.” Guarantee me a new pump that works. Give me an interest rate built into that. I don’t care if it’s this year’s pump or last year’s pump. The pump works, the pump’s on the inventory shelf and you refurbish it, you own it, you bring it, I pay you as it goes out the door. So as interest rates go up, I think it helps move even more discussion around some of these interesting business models.
We have a mix of differentiated solutions and commoditized products. Should I develop value propositions for my entire portfolio or focus on more strategic offerings?
My first comment is that that nobody on here sells a commodity, because their commodities are traded on the commodities exchange. That is the raw material – we add value to that. For example, take the bearing – something low price, not critical. But a lot of the products and services around that that can make the difference. I can give you a hundred examples like that – it’s not critical, but people find a way to bundle things around it.
There is some neat research. I don’t have the slide, but it was from Jim Anderson at Kellogg, but the companies will pay 4-6% – I think was the number – for low level things where they don’t have the time or interest to think through it (I hate to use the term commodity). You know it’s not that big, it’s not critical, who cares? But if you could add value differentiators, such as a return policy, a store swap out program – I think the example he used was just taking old walkie-talkies and refurbishing them. Just anything – give them a value justifier for them not to buy the lowest price. And it doesn’t need to be some huge math equation, but when I go to the boss and say, “I didn’t buy the lowest price one, I have to have an anchor to say why. “I like the person – he bought me lunch” is not a good answer. Give them something that they could hang their hat on – something creative.
On the other hand, there’s one company that built a business on the good, better and good enough (on the low end), and they found that they commoditized themselves faster. They had a process to make their stuff commoditized. It became a self-fulfilling prophecy. The customer said, “there’s something else,” and they put it into the commodity bucket in their heads. The whole company went downhill because it gave salespeople a commodity mindset.
