You May Not Be Special, But You Can Still Make Money

Edition: December 2001 - Vol 9 Number 12
Article#: 1133
Author: Repertoire

CHICAGO--This won't be easy at first, but after awhile, you might actually get to like it. Here goes.

Stand in front of a mirror and repeat several times, ''I sell a commodity product/service. I sell a commodity product/service. I sell a commodity product/service.'' Etc.

Feels weird, doesn't it? After all, most of us believe that our customers love us because we have a close relationship with them. Because we're special. But according to Sam Bowers of Service Sales Institute, the only one who really believed we were special were our moms, who'd tug at our cheeks and tell us so.

Most of us still long to hear these lovely words from our customers: ''You're special.'' And maybe some of us still do. But as we keep moving forward into the electronic age, chances are we're going to hear less and less of it.

''We're moving from an age of things being sold to things being bought,'' said Bowers, speaking at the Fall Conference of the Healthcare Manufacturers Marketing Council. Bowers is CEO of Service Sales Institute, Charlotte, NC, a firm dedicated to helping companies make the transition to today's network- and e-commerce-driven economy.

Consumers - especially young people - go online to research products they want to buy, everything from CDs to computers to cars. They compare features, benefits and prices on the screen before ever talking to a salesperson. This under-30 age group is used to such things as instant messaging, where they can ''talk'' to a group of their friends online any time of day or night.

''These are your future customers,'' said Bowers. ''How are they going to react to a salesman who says to them, 'I'll come over and we'll talk.'''? They'll look at him like he is an alien and silently ask themselves, ''Why in the world would I want him to do that?'' said Bowers.

The Folly of Value-Added

Sales is moving from the top line to the bottom line, said Bowers. Quality is the price of getting into the dance. After that, it's price. In this environment, salespeople attract new business, then turn the account over to trained negotiators, who work out with the potential customer exactly what he/she wants and what he/she is willing to pay for. ''Our customers think we're a commodity,'' said Bowers. The question then becomes, ''How can we be a very profitable commodity company?''

Forget about piling on the value-adds, he said. ''So much of what I did as a salesman was to justify why I could increase my costs,'' he confessed.

''But added-value is a failed concept if you look at it as an attempt to forestall lowering your prices,'' said Bowers. It's a break-even proposition at best, because the vendor has to keep raising its prices just to afford the value-adds. Most likely, the vendor raises prices to its older, established customers as well as the new ones, even though the value-adds are primarily created to attract new business. But customers are starting to say, ''No more,'' said Bowers. They're telling vendors to go ahead and charge their newer customers for all the frills and added sales costs they want, but to stay away from their prices.

This is not to say that value-adds are passe. ''I believe in value-added if the customer demands it, but only if they pay for it,'' he said.

The Cost of Innovation

Manufacturers continue to innovate, and they always will. But the most successful innovations are those that actually reduce costs, not raise them, said Bowers. Look at the car. Henry Ford made it affordable to the people building them, not just the upper crust. Same thing with computers. ''What's the worst computer you ever had?'' Bowers asked the audience. Answer: Your first one. ''What's the most expensive computer you ever had?'' he asked. Answer: Your first one.

The point is, vendors are kidding themselves if they think they can keep raising prices whenever they introduce a new technology, he said. Intel maintains its market share lead by constantly making its computer chips more powerful than its competitors, and cheaper too. But Intel isn't running itself into the ground. It's merely competing where it has to, said Bowers. And it's making money.

None of this applies to companies that make faddish products or products that appeal to a cult-like following, like Harley Davidson, the Wisconsin-based motorcycle manufacturer. But not everybody can attract such a following, least of all companies that make surgical instruments, protective wear, imaging equipment and other medical products.

Strings Attached

What's a medical products company to do? How can it jump into this price-driven fray and still make money? By detaching all the ''strings'' that it has attached to its products or services, said Bowers.

Strings, or value-added offerings, are all those things that companies have built into the price of their products, but that can be pulled out if necessary. Some examples:

- Warranties
- Loaner equipment
- Technical support
- Inservicing
- Terms
- Sales support

Every one of these things costs the vendor - and hence, the customer - money. If customers want low prices, vendors have to be willing to take away some of these strings. If they don't, their competitors will. ''But you can't do this without admitting you're a commodity,'' Bowers reminded the audience.

How much is the potential customer willing to pay for, say, a warranty? How much can the vendor cut the price by taking the warranty off the table? Same for loaners, technical support, etc.

What the vendor is doing is transforming what had been fixed costs into variable ones, then charging the customer only for those things he/she is willing to pay for.

Figuring out these things with the customer calls for skilled negotiating more than selling. Traditionally, salespeople have thrown things in to get the sale. Negotiators, on the other hand, must be willing to take things out in order to give the customer the price he/she wants, while maintaining profitability for the vendor.

Such negotiations will probably initially take place face-to-face, added Bowers. But as new, young buyers flood the market, they'll go online.

''How many of you still use the phrase 'consultative selling?''' Bower asked the audience. IBM was the first company to use it, and the last to discard it right before it almost went bankrupt, he added. There's a lesson there.