Thomas Menthe

A new era of Value Selling

What customers really want
and how to respond

Imprint

A new era of Value Selling

Thomas Menthe

Copyright: © 2019 Thomas Menthe

Book set & Envelope: Erik Kinting / www.buchlektorat.net

Grafikdesign: Lennart Rohlfing

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List of figures and tables

Figure 1: Linear Funnel model

Figure 2: The customer journey today

Figure 3: Translating Customer Value Learning into Action

Figure 4: Customer Value in Exchange

Figure 5: Addressing emotional and rational needs of a customer

Figure 6: Customer value

Figure 7: How emotions influence B2B buying

Figure 8: Communication of a seller´s offering towards the customer’s needs

Figure 9: Elements of the Value Pyramid

Figure 10: Components of Customer Value

Figure 11: Suggested Process Framework for a Value Based Sales Process

Figure 12: From Product Selling to Co-makership

1 What is changing

Digitization is just one of the major influences and trends that requires companies to significantly change and adapt to improve their offerings and customer relationships. While the idea of digitization and globalization is not new, there is a new wave of transformative technologies with the potential to substantially affect the world around us. Artificial Intelligence, Big Data, Internet-of-things, Robotics, and Blockchain, to name a few, allow new areas for opportunities and differentiation for vendors and suppliers. Many of these technologies will impact the marketing function and in particular sales organizations, customer interaction and demand. Looking at the future of sales, we proclaim six assumptions:

Robots will take over commodity and, ultimately, business-to-business sales (B2B). By 2020, digital sales will be well established in B2B and chat bots will take over part of the sales function. In consequence, understanding customers creates the highest emotional value for prospects. If customers know what they want, they don’t need a sales person anymore

E-commerce includes complex solutions - the end of solution sales?

Emotional value-add differentiates a sales organization

Proactively identifying customer pain points is applied by many collaborative start-ups, which have found ways to simplify complex and frustrating customer experiences. Uber, Airbnb and Lyft have disrupted whole business sectors and created new markets

Artificial Intelligence and analytics impact not only the B2C environment with chatbots etc., but B2B markets are adapting these technologies and sales organizations need to respond. Well-designed analytics programs deliver significant top-line and margin growth by guiding sales teams to better decisions

Agility, customer obsession, trust-building and long-term thinking are the new principles for sales success

We are living in the era of subscription and have entered the shared economy. Back in the 1970s, product sales served customer needs. When customers became more demanding, they asked for services like product support, warranties, maintenance, installation or consulting. The early 1990s were driven by the introduction of electronic commerce and online sales, and companies like Amazon changed the way we buy books, which disrupted a whole economy of traditional book stores. Being customer-centric was en-vogue in the 2010s.

In many markets, service margins are up to four times higher than product margins and therefore influence revenue streams and profit results much more. It is not enough to just have high performing products and services, if the sales appearance and brand recognition from the beginning of the sales process to the end are not sufficient. Selecting the right set of supplementary services is equally as important as their quality, which is finally measured by customer satisfaction and loyalty of the customer-life-cycle. Back in the 1990s, companies like HP started selling their printers at a very low cost in order to compensate the loss of product margin with frequent future sales of printer cartridges, while optimizing utilization and quality during the production process. Customer value is not generated by products anymore, but by services, and companies need to realize that this requires a shift towards a cross-functional process to deliver that value through customer-specific solutions. Buying decisions are already made without the sales person.

Still, companies are trying to find a way to focus away from their internal processes and structures towards understanding the journey of the customer along their touchpoints in order to respond to customer needs rather than to develop new products and try to sell them through traditional marketing channels like sales organizations or push marketing. Today, we live and work in an era where the relationship is the center of buying and selling. Vendors increasingly face the alternative of either gaining a key supplier status with their customers or being pushed into the role of a backup supplier. As product and price become less important factors, suppliers of routinely purchased products search for new ways to differentiate themselves in a buyer–seller relationship. This suggests finding new avenues for differentiation through value creation in business-to-business relationships. Results from research have found that relationship benefits display a stronger potential for differentiation in key supplier relationships than cost considerations.

Speed has become a key differentiator to distinguish yourself. Consumers can expect to receive their parcel the next day or with Amazon Prime Now within 1 hour after ordering online. B2B companies can launch 1000 servers and build a whole data center within minutes and go global by using cloud technology (a network of distributed and highly-automated servers on the internet). Traditional overnight batch processes cannot satisfy the requirements of a modern company. Agility and real-time processes are needed to establish the next generation of value chains.

What happened to the Fortune 500 companies?

In the last 15 years, 52% of the fortune 500 companies (S&P 500 index) have disappeared. In 1955, the average life expectancy was 75 years. In 2015, the average life expectancy of companies was 15 years. In most organizations, decision cycles lagged behind technology cycles, which is the reason why they struggle to respond to digital disruptions.

According to Capgemini (2015), one key reason for organizations becoming complacent is management inertia - the failure to sense the need for change. For example, Kodak had most of the patents for the digital photography technology, but did not commercialize them aggressively as it feared the cannibalization of its film business. Successful responses to digital disruptions launched services that mimicked those of a disruptive competitor. They started hiring digital talents, acquired multiple startups in innovative fields, and incorporated the teams into their operations later.

What is the impact if companies do not adapt new technologies?

Because the world increasingly becomes software-driven, competitors will emerge from adjacent industries rather than just the home industry of the incumbent. Organizations need to move to a resource allocation that is centrically organized around opportunities and new business models, not existing structures.

1.1 Trends

1.1.1 Future sales needs and how personal emotions fuel B2B purchases

According to Forrester Research, 25% of sales people have business acumen and 88% know their products and services. This shows a clear gap in understanding business measure, strategic decision making, process understanding and ways of expanding an organization, including its transformation and cultural change management. Besides a financial knowledge management on key performance indicators like budgets, margins, growth rates, CAPEX vs. OPEX targets, cost optimization or return rates, e.g. IVV, NPV or ROI. Many of the CxO’s objectives involve gaining competitive advantage through time-to-market, costs and agility improvements. Sales is shifting the argumentation from product pricing to adding value to the customer’s value chain. This requires the skill of the salesperson to utilize economic models such as Net Present Value (NPV) or Return-on-investment (ROI) as well as cash flow analysis. They need extensive information and different contacts within the customer´s company. As the pressure to grow earnings has increased, the focus in most sales organizations is moving towards profitability rather than simply generating revenue streams. This results into streamlining the cost of sales around support costs, service models and selling higher prices to increase profit margins. It will be essential to move away from a prospect-oriented feature discussion to how clients can improve their total cost of ownership (TCO), time to market, agility, innovation rate, profit, cost savings and revenue growth by building a solution with tangible financial benefits to ultimately increase efficiencies across the value chain with the seller’s offerings.

Thus, account managers need to think and act as entrepreneurs and evaluate risks in delivering their solutions to the client and the impact of a price reduction. In general, the customer needs to be analyzed regarding his value contribution to the seller’s financial targets. Long-term thinking is an important prerequisite to not lose profit in every deal. There will be more times to make a hard decision to sacrifice short-term gain for a longer-term goal. The value assessment of and with customers comes in several steps. First, the identification of the value potential, then the evaluation of the performance after the initial baseline assessment. After a long-term value realization including data management and analytics these assessments should be conducted on a regular cadence by analyzing customer satisfaction after the delivery of the solution. Thus, account managers need to recognize opportunities in a systematic process with pre-defined key performance indicators (KPIs) to detect misallocation of resources, understand risks and potentials of the customer and develop a solution, which generates value for their client. This has been approached by solution selling and needs to be extended by value-selling to determine the value.

On top of this, we recognize the trend that buying centers are getting larger and more complex with up to six different stakeholders instead of the old-fashioned purchaser who only negotiates the price, delivery times, payment and termination term. The value proposition has to be explained to different people or groups of people from business, procurement, legal and other corporate functions.

Sales will be organized along customer segments and less around product groups. In fact, the matrix organization is moving away from a product / regional split to business lines and customer segments within the sales organization. If companies want to be truly customer-focused, they have to be obsessed about the customer and his structure and needs, instead of their existing silos that add no value to the buyer per se. This requires a detailed understanding of the customer´s business strategy, financial goals, major projects and their processes, e.g. procurement, supply chain, decision making and stakeholder network, which is not represented in an organizational chart. In the Business-to-business (B2B) domain, these sales-driven companies need to change their communication channels in the age of social media, touch points or multi-channel management and ensure that the customer can easily access information on a seller´s portfolio. The account manager´s role has already extended into an information broker and catalyst between the seller´s and buyer´s organizations.

Trends and sales approaches for the new era of value selling:

From product to solution offering

From purchase price to economic value

From transaction to value-generating

From product-only to product + service and customized solutions

From product/region matrix to customer segments

From personal sales to multi-channel

From information sharing to customer involvement with social media

From sales representative to catalyst

From customer-orientation to customer-obsession

In 2015, Forrester forecasted that 1 million US B2B salespeople will lose their jobs to self-service e-commerce by the year 2020. B2B buyers favor do-it-yourself online options for researching and buying products and services, and they are demanding that B2B sellers fully establish those digital paths to purchasing. Digitalization will change the buying behavior much more towards e-commerce and self-service consultation with support of sales robots. The salesperson will be an information catalyst and relationship manager until technology will be able to overtake the role by using machine-learning and understanding emotional vibes from speech to text recognition as Amazon´s Alexa or Apple´s Siri show nowadays with new skills every day from various companies and organizations.

Forrester suggested to B2B companies to reshape their channel strategies and fundamentally rethink the role of their sales people by:

Expanding the role of self-service e-commerce. The evidence has shown that nearly 75% of B2B buyers said in the survey that buying from a website is more convenient than buying from a sales representative. Furthermore, 93% said that they prefer buying online rather than from a salesperson when they have decided on what to buy.

Delivering a digitally enabled B2B selling model because digital channels are here to stay. B2B e-business and channel strategy professionals and their ecosystem partners must create websites that network B2B buyers researching online with call centers, inside sales agents, field sales professionals, and their own internal websites.

In 2017, the “Death of a (B2B) salesman report” has been updated by the author Andy Hoar as business leaders are continuing to automate sales processes and promote digitally enabled commerce:

53% of the B2B buyers Forrester surveyed in 2015 preferred to gather information on their own, as opposed to interacting with a sales rep. Today, that figure has grown to 68%. B2B buyers want to do their own product research

The survey found that upskilled inside sales will play an even greater role in all phases of SMB and enterprise sales than initially predicted in 2015.

Shifting from offline to online sales is both cost- and customer-effective. Companies such as Coca-Cola and Levi Strauss reported that shifting its B2B customers to a self-serve portal increased their revenue by 10%.

As an example, German based software start-up foxbase.de has started to develop a solution for digital B2B sales. Likewise, in a professional sales conversation, customer and sales staff of a selling company can easily find the best product from a wide range of product portfolio online. Henkel Adhesives B2B has engaged with foxbase and launched multilingual digital product selectors (DPS) for different industrial adhesives categories. Customers provide their individual needs and, based on this information, the DPS searches for the best suitable product through filters, and recommends up to three products. Prices could be made visible based on stipulated volume agreements between the supplier and the customer. The DPS is directly linked with the supplier’s lead management system and search behavior, combined with different information coming from the user, can be used for conversion and optimized product recommendation through machine learning. Data from DPS is stored, analyzed and visualized in sophisticated dashboards and reports to validate customer requirements and identify trends.

First, understand the customer, then increase the value

The seller needs to get closer to the B2B and B2C customer and create engagement instead of demanding generation. This can be achieved by understanding the Customer Journey through Analysis (CJA). The funnel concept fails to capture all the touch points and key buying factors resulting from the explosion of product choices and digital channels, coupled with the emergence of an increasingly discerning, well-informed consumer. A more sophisticated approach is required to help marketers navigate this environment, which is less linear and more complicated than the funnel suggests. We call this approach the consumer decision journey.

1.1.2 E-commerce within multi-channel strategies

With the shift towards online business (e-commerce), the number of channels being used by consumers has expanded. CJA offers a company the possibility of visualizing and quantifying the CJ across multiple channels with the added value of understanding and optimizing the journey by analyzing large volumes of data. It should then provide more relevant and differentiated insights into consumer behavior, which is more complex today, since customers go through a sequence of non-linear interactions. While in 2016 50% of worldwide data has been collected, only few insights have been generated to introduce data-driven decision-making.

Predictive data analytics providers offer applications for finding complex patterns, profiles and common interaction paths to increase marketing effectiveness and customer satisfaction. Scientific research and studies have proven that the idea of online-to-offline flow (and vice versa) is common sense and online media can lead to offline sales. Sufficient technology (e.g. session-based tracking, multi-touch cookies and algorithmic attribution services), data coordination and knowledge management between business departments are the first steps in developing a new value model of marketing (Skinner, 2010), which includes the value of both online and offline media to sales. The Makebuzz example - how marketing automation impacts media spending- resulted in a decrease of 10% from the marketing budget due to a shift of approximately 25% of online media budgets (paid touch points), which reflected the growing importance of internet media and incorporated marketing and sales data from both channels to form a comprehensive CJ picture. By understanding the impact of all media to e-commerce, store and call center, Makebuzz.com found a way to ‘right size’ the complete customer journey with their advanced CRM technology. They transformed a media services firm from a single point offering to a significant technology and organization. Revenue grew from $80 to over $450 million. Table1 provides an overview of the CJA phases in more depth.

Table 1: Phases of customer journey analysis

Phase

Description

Tools

1. Analysis

Define objectives and target groups for touch point management and CJA.

Identify relevant touch-points and channels. Output: Customer insights (e.g. process, needs, expectations). Mapping of customer experience (CE) at each touch point (TP).

Develop a visually descriptive CJ map and charts which capture the TPs, the critical path of the CJ and processes

More general:

Investigate user experience/customer journey

Focus interviews (qualitative) or capture of real-time experiences (e.g. proband provides feedback with mobile phones) which is extensive

Surveys (quantitative) like

Google Analytics tool “Customer Journey” to understand online purchases

Various methods e.g. usability walkthrough, critical incident technique or customer journey

2. Redesign

Find competitive differentiators through CJA on customer service, process optimization concerning speed, positive emotional boosting, quality, flexibility and ease of doing business

Redesign marketing-mix. Especially promotion-mix: advertising strategy, omni-channel communications (e.g. data-informed content strategy) and the in-store experience (e.g. waiting time, skilled sales representatives)

Innovation of service quality

Improve product design

How to create value out from all the customer interactions?

Develop business requirements and a creative strategy that execute the delivery of new value propositions

CJA, process design, Fishbone technique, Six thinking heads, Total Quality Management, ISO certification, Business process re-engineering, Innovation

SERVQUAL methodology

3. Implementing

Change

Change management on cross-functional level with bottom-up and top-down approach, modify organizational structure towards a customer-centric model and adjustment of performance measures and employee incentives to improve customer experience and loyalty

Technology upgrades to the appropriate channels

Change Management

4. Review

Conducting regular reviews and continuous touch point management based on defined key performance indicators (KPIs)

Meetings, reviews, dashboards, measurement systems

Source: Thomas Menthe, 2018

1.1.3 The linear funnel model – outdated?

The marketing funnel is a visualization for understanding the process of turning leads into customers, as understood from a marketing perspective. As consumers are using different researching techniques today (e.g. social media advertising) and get various inputs throughout the process, the linear sales funnel (see figure 1) in B2B or B2C is somewhat of an obsolete model. One alternative to the marketing funnel is McKinsey’s consumer decision journey, which employs a circular model (see figure 2) to show how the buying process fuels itself and to highlight pivots or touch points. In the traditional funnel metaphor, consumers start with a set of potential brands and methodically reduce that number to make a purchase.

Figure 1: Linear Funnel model

Source: McKinsey, 2009

Figure 2: The customer journey today

Source: McKinsey, 2009

1.1.4 The future of B2B sales

AT Kearney described in their publication “Beyond Limits: The future of B2B Sales” (ATKearney, 2015) that technology is equipping companies to set new records in the B2B sales race, but they must

act sooner rather than later to profit from these new opportunities. While the B2B sales innovation is on, people will implement the new ways and processes and it will be more important than ever to hire inspired, motivated and engaged sales staff into B2B sales organizations to drive the change.

Companies say they are already struggling to deal with challenges such as:

More complex products and services to meet clients’ demands

New entrants with alternative offerings, unconventional business models, and lower prices

Accelerated commoditization and substitution

Greater market transparency and growing customer procurement capabilities

Shifting control of the buying process toward customers

Cloud providers such as Amazon Web Services, Google or Microsoft Azure are taking the market share in pay-as-you-go infrastructure (IaaS) and disrupt the model of buying infrastructure from hardware vendors such as IBM, HP or Dell. With Software as a Service (SaaS), companies do not even need to buy large license-agreements but just select the Oracle or SAP Solution and the Anti-Virus protection from the Amazon marketplace and pay on an hourly, monthly or yearly base to streamline costs, use the scalability and avoid expensive hardware or software upgrades of the IT landscape. On top of this, offers provide up to 60% lower prices to their customers, which is a thread to existing compute and storage suppliers.

The innovation has begun and technology-fueled sales practices with advanced analytics in real-time involve replacing salespeople with technology solutions. More importantly, productivity and revenue are higher than average and customers receive information much faster compared to calling their account manager and waiting hours for a reply.

The following emerging practices are being implemented and a fast growing number of tools and technologies like tech-enabled consultative selling improve the selection and use of products and services in client organizations:

- Bundles, pricing and value capture are combined in a new way with self-parametrization offers

- Co-creation with customers meets collaborative selling with other business units or ecosystem partners to maximize the value for the customer

- Education of customers about value-creation opportunities

- Orchestrating partners and internal functions to raise efficiencies and reduce the amount of customer touch points

- Scientific models like big data-enabled customer analytics redefine customer value as sales management is using predictive models or experiments to understand the true potential

- Virtual experience like augmented or virtual reality in a gamified, multimedia and multisensory environment triggers the human need for experiential adventures during the buying process

- Marketing generates must-have situations and influences the buyer to create customer pull rather than pushing products through sales

- B2B offerings and services concepts are providing 24/7 accessibility through all channels- primarily the digital ones

- Sales reps use tablets with an online store app and guide the buyer through the online purchasing process to educate them about future purchasing options

- Personal B2B buying portals allow seller companies to analyze data from customers using the digital connected experience and have the ability to anticipate and adapt customer needs with data-driven activities

For example, Amazon has introduced customer interactions where they are presented with preconfigured value propositions geared toward their specific needs based on their historic search behavior. MyIBM provides personalized support and services to B2B customers based on interest and purchase history. Other suppliers increased their sales efficiency substantially by implementing a configurator that lets customers quickly put together a customized product solution and quote.

Thus, B2B sales organizations are learning to point out desires of their clients they did not even know they had. Oftentimes that means not just educating the customer, but also orchestrating the different parties and functions within the customer organization to discover and recognize the need. New players in the all-different sectors from banking to logistics use algorithms (machine learning) to intelligently track the data points their clients leave in various digital platforms such as Amazon, eBay, or Facebook.

Another example for how B2B sales can add value to companies is, once more, online retailer Amazon, who provides a mindset of “selling everything inside the company.” Amazon has taken an almost religious 360-degree B2B sales perspective on its operations, looking at every part of the company as potentially salable products and services. No matter if B2B or B2C, Amazon examines its entire value chain with a B2B sales eye. With these new large revenue and profit streams, Amazon’s B2B sales force is a powerful contributor to the bottom line and as a B2B-centered customer-focused company the B2B sales force can become the “superwomen and supermen of the future”.

Machine-learning enables recommendation engines to boost cross-selling revenues and generate new sales based on the user’s buying and search patterns. Churn prediction is another concept used to predict the risk of customers moving away and help maintain them before they switch providers, e.g. to avoid the unnoticed switch of electricity providers after a move.

1.1.5 Value through Digitization

New chances emerge in digitization for companies in the B2B and B2C areas in order to approach customers and decision-makers and present them with new offers. Nowadays, customers use apps on their mobile phones to read the news, make purchases, monitor their fitness activities or control their homes. In the business area, apps are being used to grant access to information anywhere, edit approval processes from anywhere and at any time, as well as observe the business development in real-time, to be able to react to altering trends.

Many services of companies do not offer a sufficient way of distinguishing between competitors in the area of 'low involvement' products and are thus being categorized by price. Digitization provides opportunities through new technology that improves the customer's experience, makes the offer come alive (e.g. through virtual reality) and presents need-based solutions (e.g. individual online consulting). Modern cloud-services - the online provision of IT-resources and applications on-demand for usage-based prices - allow for the acceleration of the time-to-market and the development of new applications and thus enroll new digital offers worldwide within minutes. Due to the usage-based availability of IT-resources such as the infrastructure (server, memory), as well as platform offers, services can be developed and innovations advanced in cost-efficient ways. Usually these are the strengths of start-ups that are available to large companies via cloud-services. This agility, which is typically known from software development, is not only a method, but also a disposition and a culture in which adjustable, interdisciplinary teams complement the hierarchically coined structures and focus their development on the customer (see also: customer-centered focus of a company). Real-time processes and agility are crucial when it comes to modern supply chains that are influenced by the paradigm shift in the trade between companies (B2B).

The commercial success of businesses is going to depend on their ability to know and understand the individual needs of customers and decision-makers in order to be able to develop and sell recoverable services for them. Agile product development focuses on the customer benefit and sets manageable goals. Development teams concentrate on products and solutions that create a surplus value for the customer. To achieve this, the customers are incorporated into the development as early as possible, so that their feedback can be considered in the next steps.

Product functionalities that the customer is not interested in will then be modified or left out accordingly. At the same time, through big data analytics, the customer journey will be analyzed along touchpoints with a product, brand or company all the way to the desired target action. Common target actions are purchases, orders, interactions with the company and product, as well as requests. Despite 'big data', the success rate of innovation has been shockingly low for decades because marketing managers and product developers focus too much on customer profiles and meaningless correlations of records instead of figuring out what it is that decision-makers look to attain in certain situations.

It is less about the features of a customer that determine his desires but more about the tasks that they want accomplished in a B2B and B2C surrounding. The customer is not aware of these sometimes complex tasks, so they need to be detected by the company. For example, consumers do not only take cough medicine when they are sick, but also if they just need a good night's rest. Des Traynor, founder of the IT-business Intercom, points out four tasks that his company's customers really wanted solved:

Show me the people that use my product and what they use it for

Help me approach these customers

Help me broaden my knowledge with the help of comprehensive feedback from users

Help me help my customers and solve their problems

This resulted in a software that assists companies with staying in contact with their customers through their website, mobile apps, e-mail and messengers.

As an example, the energy revolution forces suppliers to face enormous challenges: Because the production of energy has become almost free and consumers feed in electricity into the network, electricity and gas may be offered in unlimited plans in the future. Therefore, energy suppliers will be required to differentiate and offer their customers additions, such as a secure data access, entertainment without commercials, smart-home applications and other convenient and technological extras that consumers can pick freely according to their needs. A personal app could show when the e-car should be charged according to the hourly energy price or which saving opportunities for electricity there are for a certain time depending on the weather forecast. Individual ratings and usage-based billing can help energy suppliers with the development of new offers and the promotion of customer loyalty. The offering of a customer portal can provide consumption data in real-time in order to avoid surprises in the following bill. This creates trust as a central surplus value.

A radical customer orientation means to initially show interest in the customer, because decision-makers nowadays are able to obtain full transparency about their suppliers and change over to a different one if they are discontent with their appearance, quality and service. The keyword, as well as the most important requirement when it comes to the selection or deselection of offers, is relevance. Correctness as another criterion means to emerge ethically and price-competitively on the market. Security in the digital world will be a crucial benefit argument, as people carry the basic fear of losing personal information to other people or institutions without their consent. The basic demand in the age of digitization is therefore to put all data into a secure system and store it without any danger (e.g. by hackers).

So far, nobody knows what the models for a world of digital providers look like, but energy providers need to start thinking about this transformation, as well as which new business models and products will help secure their profit. Additionally, the desires of customers in the digital age are not only about functionality, but also about emotions, which you have read about already. Furthermore, managers find the best customer benefits of their offers via benefit elements that fulfill functional and emotional needs, the need for recognition, as well as the desire for life changes. The combination of these elements strengthens the customer relationship and the desired growth in sales through product development, pricing and customer segmentation.

2 Creating and defining customer value

You will find many versions and definitions of value. The most relevant one is your prospect´s definition. This will always be an individual one and, thus, you need to understand the value perceptions from your conversational partners and the value derived from companys’ KPIs and strategic objectives. Therefore, value creation should be led by the perceived value-add of the buyer. In general, internationalization, differentiation, cost leadership or diversification can achieve a company’s competitive advantage. Keep this in mind when you want to link your solution’s value to the client’s strategic objectives.

According to Webster’s Dictionary, value is: “The monetary worth of something marketable; relative worth, a quantitative determination of usefulness …” Others define value as “the added competitive advantage you bring to your customer” (Hanan and Karp, 1991). Consequently, the selling company who delivers the highest value, not the highest quality product, will win the race. Mittal and Sheth (2001) concluded that value, not money, is the basic currency of all human interaction. This can be emotional or rational value. Lindgreen and Wynstra (2005) stated that “the supplier-perceived value is the sum of the direct functions of a customer relationship i.e. profit function, volume function, safeguard function and the indirect functions of a customer relationship i.e. innovation function, market function, scout function, access function”.

Customers and stakeholders of a buying center weigh benefits differently. As an example, economic, relationship, quality or safeguard value are not equally the same for individuals involved in the buying process because of different personality styles e.g. dominant, initiative, relationship of rational behavioral styles. Also, different objectives as defined by their roles and responsibilities and even disadvantages need to be handled proactively as complex or delaying decisions, risk assessments, scenario calculation of business cases, vendor lock-in or loss of control should be weighted and addressed to the client.

It is important to mention that relationship benefits have a stronger potential for differentiation than cost considerations do. Ulaga and Eggert (2006) found in their research that price accounts for approx. 20% of the variance and relationship benefits account for four times as much. In more detail, service support and personal interaction have been reported in their studies as core differentiators followed by the knowledge of the selling company e.g. the account manager or pre-sales engineer and finally the ability to improve the time-to-market (speed). On the other side, product quality and delivery performance, along with acquisition costs and operational costs only showed moderate potential to get and maintain a preferred supplier status. The price shows the weakest potential for differentiation.

Customer benefits

In this chapter we will see different models of customer benefit and value and how these can be measured, i.e. by the value quotient (VQ). In general, benefits such as image, relationship, safety, quality, innovation rate, time, agility, flexibility, control or economic advantages have different objectives to convince the customer and require diverse management techniques to establish and improve them, e.g. branding management, communications, innovation management, quality and cost management. Since a couple of years ago, social responsibility and sustainability have become important values for the buyer and the society. Sustainability will be influenced by image, communication, innovation, economic feasibility and environmental safety. Sustainability needs to be part of the sales conversation and enables the seller to position brands, products and services in the market with a unique selling proposition (USP). The positive image of sustainability could be a door opener to raise a prospect´s interests. Beside this, cost savings still have the highest value for buyers, especially in times where industries like the utility and energy sector have announced significant billion $ saving programs. Belz et. al. (2016) reported from a study of 278 companies that customer value is a key in the sales process and value selling drives the focus to a value-orientated approach.

Three benefits were found in their research: Relationship, economic feasibility and image.

Relationship as the highest ranked perceived benefit implies the interconnectedness between the seller and the buyer, as well as personal relationships, credibility and reliability. 91% of the interviewees defined relationship as very important to win customers and maintain them. Something that is hard to be substituted by chat robots.

Economic feasibility means the seller´s contribution to improve the client´s profitability to allow higher competitive advantage by lowering their costs, optimize total cost of ownership, revenue growth and profit improvements, e.g. EBITDA, margin. 82% reported this as important. Image refers to the brand image, positioning and leadership, e.g. market, quality or innovation leader.

2.1 Concept of Customer Value

The total customer value and customer's perception is affected by four factors, namely: functionality, solution, experience and meaning, as Horovitz articulated (Horovitz, 2000). He defines functionality as the outcome that the customer obtains from basic product features whereas a solution obtained by extending the offering is to include support services such as installation and maintenance. Experience includes the rational experience as well as emotional elements derived by the total experience. Meaning, as the fourth factor, takes the experience to the next level of self-actualization (Khalifa, 2004).

Woodruff differentiated other categories of product value: functional, social, emotional, epistemic and conditional value, which might be intrinsic or extrinsic. In his classification of customer value concepts, he suggests that customers also consider value at different times, such as the time of making the purchase decision, experiencing its performance, or after use (Woodruff, 1997). He defines purchasing as ‘choosing’, which requires customers to distinguish between product offer alternatives and evaluate preferred product needs.

Woodruff provides a definition of customer value, which adopts a customer perspective derived from empirical research:

Customer value is a customer's perceived preference for and evaluation of those product attributes, attribute performances, and consequences arising from use that facilitate or block achieving the customer's goals and purposes in use situations (Woodruff, 1997).

Woodruff also elaborates on how to close the gap in an organization to deliver value to their customers, i.e. a customer learning process, where managers can understand what the customer really values versus what they think they may value. Woodruff suggests a customer value determination process as a tool to bring the voice of the customer into a selling company by identifying target customers; identifying their key buying criteria and analyzing the broader, complex range of desired value dimensions (see figure 3). A continuous learning cycle, which consists of learning, creating the value delivery strategy, translation, implementation and performance tracking supports the success to increase the effectiveness of value creation and learning within the value-selling concept.

Figure 3: Translating Customer Value Learning into Action

Source: Woodruff, 1997

Woodruff presents a customer value hierarchy model (see Table 2 below) to capture the essence of customer value which suggests that customers conceive of desired value in means-end way.

Table 2: Customer Value Determination Process

Step

Key question

Next step

1

What do target customers value?

2

Of all value dimensions that target customers want, which are most important?

3

How well (poorly) are we doing in delivering the value that target customers want?

4

Why are we doing poorly (well) on important value dimensions?

1

5

What are target customers likely to value in the future?

2,3,4

Source: Woodruff, 1997

Starting at the lower level of the hierarchy, customers learn to think about products as bundles of specific attributes before they use goals and purposes to attach importance and consequences.

He draws more attention to the process of understanding value dimensions rather than identifying a customer's preferred or desired attributes as used by customer satisfaction management, which is advocated by quality management, an internally focused initiative. The process provides value to the effectiveness of VSTP if the execution is secured and monitored and should be part of the training program as a self-assessment to understand the areas for improvements on a skills and process level.

Furthermore, Woodruff argues that managers need to translate that learning into actions (see figure 4) leading to competitive advantage, which requires skills in order to shape a manager's mental model of their customers, and how they actually perceive desired and received value (Senge, 1990). Thus, the training (e.g. VSTP) of managers and salesforce on how to apply interview techniques and analyze the industry of the customer for finding out what customers desire (e.g. innovation, products, process improvement, service) can be part of the translation process to create a customer value delivery strategy. However, the amount of input on how to effectively implement this for the selling company to ensure a ROI from the translation-process is limited. Woodruff mentions managerial learning barriers to acquire these new skills, but new methods and tools will be needed as well to deal with the customer value learning process (e.g. predicting future customer value change).

As buyers can be consumers and/or professional purchasing managers, they can be seen as a person who makes buying decisions depending on their role in the buying process i.e. economic buyer, technical buyer or purchasing manager within a business-to-business scenario (B2B). A customer’s needs extend from pure utility needs to pure psychic needs and correspondingly, Khalifa states, customer benefits range from tangible to intangible benefits or a combination of them (Khalifa, 2004). Porter defines value as “what buyers are willing to pay” and identifies value only with the value that the selling company has managed to obtain for itself. In contrast, Khalifa suggested that there would also be value created for the customer e.g. consumer surplus (Khalifa, 2004). The model of customer value build-up is complementary to the value exchange model, which is a benefits-cost model (see figure 4) and used in strategy literature.

Figure 4: Customer Value in Exchange

Source: Khalifa, 2004

Khalifa states that customers are willing to sacrifice a certain amount of time, effort and money, and even take risks in exchange for receiving total benefits that outweigh their investments. Net customer value as the difference between total benefits and total sacrifice results in net customer value, which triggers a purchasing decision only if it is zero or above. Similar to the customer value build-up model, psychic and utility values are incorporated. The customer value exchange model also includes total customer ownership (TCO) and is set in a wider context of customer value. TCO consists of financial and non-financial customer costs, i.e. pre-use, at-use and post-use costs (Khalifa, 2004). Considering the TCO of an offering is different than looking purely at the purchase price of a product plus its attached maintenance contract costs. Therefore, the TCO needs to be analyzed for the customer during the value selling process.

The role of marketing to create value for its customers is the key to delivering superior products and, as Rust et. al among others declare, this can deliver superior value to firms’ shareholders in consequence (Rust et al., 2000) and, more importantly, create satisfied and loyal customers, who want to place future purchases with the seller (Rust & Zahorik, 1993).

2.2 Value of Goods and Relationships

In their research (2005), Lindgren and Wynstra investigated value in business markets from the perspective of business marketing, purchasing and supply management in respect to two aspects: the value of goods and services, as well as the value of buyer-supplier relationships. The research stream of value of goods and services found different definitions for value such as: Value is the quality a person gets for price or value is what one gets for what they give. Competitive advantage is the capability to attract customers with offers that the buyer perceives as providing superior value against competitors’ offers and customers will buy from those competitors that they assume offer the best value. The product’s perceived value is defined by Dodds & Monroe as: Vendor's product minus product price minus costs of owning/using it. These offerings must consider value not only in non-monetary terms but also also primarily in monetary terms.

Other researchers examined the concept of relationship value regarding the economic value of customers, since buyer and supplier companies do not only do business because of value from goods and services, but because of a firm's reputation, innovation capacity, expertise or market leadership. Not only relationship-marketing literature has focused on trust and commitment in supplier-customer relationships and dialogues. Naude & Buttle (2000) argue that the quality of relationships should be of considerable corporate interest because it comes with commercial pay-offs from satisfaction, customer retention, loyalty, reoccurring purchases or increased amounts of purchases.

Ulaga & Eggert (2006) identified that relationship benefits display even stronger potential for difference than costs, i.e. service support and personal interaction as core differentiators followed by a supplier’s expertise and their ability to improve a customer's time-to-market. Because of product commoditization in many markets, product and price become less important differentiators and suppliers of routinely purchased products search for new ways to differentiate themselves from competition through improved customer interactions.

They state that from an academic point of view, differentiation in business relationships, i.e. buyer-seller relationship, can be researched from a value-added perspective. This adds relationship value as a key differentiator in VBS besides providing tangible cost-impacting benefits. Their research revealed that customers consolidate their supply base and implement preferred supplier programs so that suppliers need to gain a key supplier status or will be pushed towards a backup supplier status. A thorough investigation of how value is created in a supplier relationship is necessary and suppliers must be aware that gaining a greater market share of a customer's business helps very little if it comes at the cost of reduced profitability. In their study, main suppliers secured 73,3% of customers’ order volumes while backup suppliers only captured 19,5%. In consequence, VBS should help to ensure profitability because key suppliers are heavily dependent on their key customers and they need to maintain this status.

Ulaga & Eggert measured relationship value with two formative value dimensions: Relationship benefits (e.g. cost benefits, sourcing benefits and operative benefits) and relationship costs with three dimensions: Direct product costs, acquisition- and operation costs. While buyers face increased dependence and higher risks of supply disruption and supplier opportunism when relying on key suppliers based on the above measures, key suppliers are often required to provide internal cost data and are pressured to invest into the relationship (e.g. relationship costs model). Table 3 shows the value drivers in key supplier relationships.

Table 3: Value Drivers in Key Supplier Relationships

Source of Value creation

Relationship Value Dimensions

Benefits

Costs

Core offering

Product quality

Delivery performance

Direct costs

Sourcing process

Service support

Personal interaction

Acquisition costs

Customer operations

Supplier know-how

Time-to-market

Operation costs

Source: Ulaga & Eggert, 2006, p. 122

Because the results of their study revealed that relationship costs account for only 20% of the variance while relationship benefits account for nearly four times as much, VBS must include parts in a VSTP to build the skills needed. Furthermore, the findings suggest that throughout the exploration of value creation in ongoing relationships, cost factors only serve as key criteria to get a supplier on the short list but, ultimately, the relationship's benefits dominate when deciding which supplier to name. This is a noteworthy finding as cost competitiveness emerges as necessary but not sufficient condition to gain a key supplier status and offering superior benefits and value to customers is essential for winning a substantial share of their business.

In conclusion, VSTP needs to educate about the value concept and the relevance of relationship value, which should increase the effectiveness of VSTP once the learning is applied in practice. Because value is an increasingly relevant concept, companies and their salesforces must be able to define value and make it measurable when selling it to their customers. Sales people should be able to effectively explain how value is produced and delivered in a sustainable way to ensure long-lasting financial benefits from a loyal customer.

Value selling enables the sales person to identify these perceived benefits in the business partnership and to fulfill them during the sales process, e.g. communication of proposal before finally delivering the results to the value proposed. Thus, value selling is not just a technique but, even more so, part of the overall marketing strategy, which includes the personal sales approach. The goal of value selling is to sell a company’s portfolio by its relevance to the customer’s perceived value and ultimately increasing the value experience of your client. While performance and price have always been in the center of sales, value creation and experience need to play important roles to grow the relationship with the buyer.

Value selling at its excellence focuses on the early stages during the buying process and differentiates itself from transactional selling where it is always the price negotiation along the late stages of the process. The customer relationship is getting far more complex as research showed and includes personal relationships, product performance, information value-add and money. A value-seller should sell for the relationship value instead of a short-term commission. Long-term thinking should be the main focus to create value over years for the prospects. Only then, value-selling will result in enhanced customer relationships and decision makers will become a confederate partner and start selling your services internally to other decision makers and influencers, including executive management.

Rackham (1999) developed three stages from transactional selling to enterprise selling. While the investment by a supplier and customer is low on transactional selling, it becomes more important in consultative selling when new value creation is in the focus rather than stripping costs. At the top, enterprise selling creates extraordinary value with high involvement of the selling and buying company. Outcome-based account management delivers tools to implement enterprise selling based on a value-oriented approach. Sales people - and especially key account managers - need to think and act entrepreneurial: they need to inject new and innovative ideas to let the customer think about new business models e.g. digital products and models by using your products and services. At the same time, they need to start evaluating the risk together with their customers, deliver a feasibility study and build a financial business case.

Creating value assessments for customers is one option to identify new business models. This can be realized in five steps:

Value potential identification

Baseline assessment

Performance evaluation

Long-term value realization

Structured data management

Customer value assessment is not just a one-off event that can be conducted by sending the client a satisfaction survey after the project has been installed. Instead, it is an ongoing process, which begins before and continues long after delivery, often until the end of a solution offering’s lifecycle. Alternatively, account managers can start opportunity recognition by detecting a misallocation of resources, defining an associated customer problem and developing a solution that generates value for the customer and profit for the selling company –known as solution selling effectiveness and efficiency.

2.3 Decision-Making During Sales

The existing literature on sales provides scientific models, such as marketing strategies and key-account-management-models on the one hand, and numerous guidebooks with practical examples on the other. However, the subject of ‘buying behavior is neither presented in a thorough, nor a structured way. This chapter displays decision-making processes based on the most recent findings of brain research, the role of trust in deciding, how decision-makers act and how we, as marketing and sales representatives, can influence these conditions. It is beneficial to understand how people decide on a purchase on an emotional and rational level. Only then are we able to follow advice from guidebooks. In most cases, our first attempt at persuading a customer needs to be successful. In this context, the topics decision-making based on trust, inclination to risk, internal assessment of operational alternatives, the principle of reciprocity and the maximization of value in case of uncertainty in association with expectations are relevant for the prosperous salesperson and negotiator.

2.3.1 The Phenomenon of Unreasonable Decisions

“The fundamental ideas of economy and the belief in a profound rationality have taken such deep roots in our view of the social world that people of all professions appear to regard them as fundamental laws of nature.” Dan Ariely (2008)

The behavioral economy better displays reality in business-to-consumer (B2C)- and business-to-business (B2B)-capital goods markets. It considers human weaknesses and the influence of emotions on economic decisions. If all of us systematically blunder in our decisions, then why should we not develop new strategies in marketing and sales that assist the customer in making better decisions in the future?

The economic model implies that supply and demand regulate the market, where we always act rationally, as well as making reasonable decisions. In this book, we will not strike a blow for the emotional sales process, but closely examine the – rational or emotional – decision-making behavior in the fields of B2C and B2B. Too often B2C and B2B cold calling techniques, presentation skills and closing methods are being confounded in sales trainings. The way we see it, a more precise distinction makes more sense.

2.3.2 ‘Complimentary’ – an Emotional Hole-in-One

In the consumer department, we often find offers such as ‘Buy three pairs of shoes on sale, get one for free’, which results in more frequent purchases by consumers. When Amazon.com launched free shipping for purchases exceeding a certain amount several years ago, different country-specific reactions followed. Have these been culturally determined? In the USA, sales went through the roof, because many bought an additional book solely in order to avert shipping fees. In France, the book orders remained static, despite the claim for only a symbolic figure. The difference to free shipping was moderate, yet severe in terms of the development of sales. When stumbling upon the words ‘complimentary’ and ‘free’, consumers can barely contain themselves. It is the origin of irrational excitement. Free does not mean price reduced. It is a different world that we, in the B2B domain, can benefit from. Free goods and services raise the overall value of solutions and justify higher prices.

2.3.3 Luxury – The consumer’s increasing Desire for the Noble

Is the price the priority of our buying decisions, is it prestige or the need for harmony? Louis Vuitton has to close their stores an hour early, because production lags behind with delivery. Germany represents part of the LVMH company’s ten biggest markets worldwide. The German luxury market is growing. It was surprisingly stable during recession. Germans steadily continue to discover the pleasures of luxuries and fashion. Brands such as Hermes, Channel and Gucci prove that Germans do not refrain from luxury and that society’s attitude towards luxury is changing. This trend also influences the purchase decision criteria. Germans love good quality. This coincides with an artisanal tradition similar to Louis Vuitton’s. These values are being represented by luxury brands as well. Many Germans refrain from a use-and-throw-away culture. Good quality signifies an important buying motive in order to be able to enjoy a product for years to come.

Are Germans led by reason when it comes to making purchases? If, for example, they buy a ‘Never full purse’ model by Louis Vuitton for about 500 € they regard their purchase as rationally economic, as the purse lasts a long time and, additionally, brings more joy than a down-market product due to its high-quality workmanship. Now, does quality or pleasure have priority? Luxury represents one of the few opportunities to set oneself apart in the consumer department. The motives prestige, strive for luxury, reputation, as well as egotism and beauty significantly influence purchase decisions, if often subconsciously or implicitly, and hence are of utmost importance for the argumentation. One simplifies the luxury-oriented customer’s purchase decision by helping him understand that the product represents his primary buying motive. Louis Vuitton seems to succeed in.

In Japan, 85% of women between the ages of 25-50 own a Louis Vuitton product. In Asia, the strive for perfection that Louis Vuitton represents can be observed constantly. In many regions, people do not refrain from radiating: I am successful in what I do. Yet there are products that are more discreet for the opposing group of consumers. Traditional micro economy developed the homo oeconomicus, whose mood improved with the increase of a commodity he owned. Scientists verified that most people care about their appeal in comparison with others – their relative rank was more important to them than their absolute rank of income (cf. Easterlin paradox). A customer does not only purchase a car because it represents a practical means of transportation, but because he strives to enhance his colleague and neighbor’s respect.

2.3.4 Added Value Project Coordination, Documents and Books Included

The trainer’s daily rate of the market leader for advanced training for executives was between 3.800 € and 5.000 €, depending on the target group’s level. However, the entire project coordination and every other service except for translations and travel expenses were included. Still it represents a significant contrast to the average trainer’s rate in Germany, which amounts to 1.800 € to 2.500 €. Surely, the image, rate of recommendation by alumni, variety of language and topics influence the line manager has or staff developer’s decision for internal advanced training measures. But does it justify a rate almost twice as high for a similar service? 25m € of annual turnovers for a subjectively perceived added value speak for themselves.

Not only the word “complimentary” allures consumers and decision makers in the purchasing organizations of customers, as our decisions are more strongly influenced by emotions, experiences and comparisons, than we would like to believe as salespeople. Whether we buy a car, rent an apartment, purchase a software solution: As soon as we have more or less settled on a product, it becomes the object of comparison to alternatives. That means: We generally compare an object’s cost with arbitrary prices. When a new product emerges on the market, such as the Red Bull Energy Shot in a small plastic container, gas stations demand between 2,79 € and 4,99 €, and customers comply due to a lack of comparisons or alternative offers. The second we discover the product for a lower price somewhere else, we ask ourselves: “Why not pay less?” and in markets of comparable products (commodities) this signifies the cause for price decline. In the domain of capital goods, we also discover how important our differentiating feature is. The following questions have been frequently posed to us as sales trainers and consultants by participants: How can our company differentiate or set ourselves apart regarding customer presentation? In purchase decisions, we allow ourselves to be led by false expectations, arbitrary comparisons and emotions.

2.4 Buyer Decision Processes – The Fear of Consequences

When we talk about buying decisions – whether they are B2C or B2B – we emphasize two crucial topics:

Choices

Consequences

Choices

When we choose between two options, we disregard other tasks. Whether Peter Private is searching for a new apartment or Mike Manager is choosing between two copiers systems, both of them come to the conclusion that they require more information in order to make a final decision – even though Mike M. probably faces a predetermined deadline for his decision. However, there are always reasons to postpone decisions and extend appointments. People struggle with closing a door in order to concentrate on another. Afraid to miss out?

A hungry mule trots toward a haystack and discovers two ricks of the same appearance that are approximately 10 m apart from each other and hence cannot be evaluated in a direct visual comparison. The mule stops in the middle of them and does not know which one to decide for. Hours pass. Eventually, he does not reach a conclusion and dies of starvation.

In today’s world, we diligently try to keep our options open and to refrain from rushing a decision. This counts for a job search, two different customer requests for a sales training within the same week, relationships, car purchases, and the choice between advertising agencies and so on. Some people take a long time to decide, or cannot at all. This phenomenon is called procrastination. For example, we buy a well-equipped off-road vehicle not for the purpose of using the all-wheel drive in sand dunes, but in case we might want to do exactly that in the future. Many people do not realize that we pay a high price in order to have many options available at any time.

We purchase a super-computer for the company that is equipped with more functions than needed, or that guarantees a high availability of 99,99%, which few companies need. We add travel cancellation insurances just in case something happens. Security is an important motivator in our decision-making. Hence we spend the time we have with our kids browsing Mobile.de to compare buying options. We postpone important tasks at work, because in order to be sure we are making the right decisions, we search for two more offers we can compare. By jumping back and forth between things that might be important we lose track of what really is and succumb to a delusion maneuver. Assuming the choices were limited, would we refrain or try to leave them open as long as possible? Would we sacrifice part of a secure profit, of previously evaluated alternatives, for the privilege of having other, newer options at hand?

How often have we purchased something for a cheaper price not because we really needed it, but because we did not want to miss out on the opportunity? The instinct for bargains runs deep in most people, however, not every bargain is a bargain in the long run. Is it just perception?

When it comes to decision making, we prefer to pick the best option. What does that mean for Peter Private, Mike Manager, Carl Customer and Eric Executive? Psychology has tried numerous time to prove that a larger selection of offers does not make us happier, but that little choice is better. Would you prefer to pick a yoghurt or financial software from 24 or rather from four suppliers? The preselection is carefully made by decision makers in purchasing organizations through a process called shortlisting. Technical decision makers and operators cautiously pick criteria. In the field of consumption, for example in retail, the purchasing department either selects cheap suppliers or brand leaders. The consumer generally decides for a mid-level solution. This means neither the cheapest, or else our streets would be filled with Dacia Logan and Brilliance (a Chinese car manufacturer), nor the most expensive, otherwise our living rooms would be equipped only with Bang & Olufsen sound systems, Loewe televisions or LG’s latest OLED 88-inch 8k screens, starting at $ 55,000.

Consequences

The fear of having made a wrong purchase decision is expressed through the psychological phenomenon of buyer’s remorse that we suffer from when we feel insecure about our choice. However, we believe that we can make better and safer decisions in order to minimize risks and, even more so, disappointment. In the field of mathematics, we find decision rules for probabilities that may help make ‘good’ decisions. To protect oneself against dangerous results, a risk surcharge is set for all data situations through the method of ‘expectation concept’. Similarly, the risk-benefit approach (Bernoulli’s principle) tries to capture the risk by formulating a superior utility function. The utility function is determined by the individual decision-maker’s risk appetite. This results in two different methods we can apply to assure we find the right hair dryer or facility services company for our business.

In purchasing organizations, economic decision-makers display a mostly risk-averse behavior. Needless to say, the willingness to take risks varies from person to person, but while our ratio still tries to compare 30 product specifications with regard to 6 decision criteria, our sub consciousness has already selected the products that are put on the shortlist. Yet, the question remains: What is the relationship between emotional and rational decision arguments? Every purchase bears consequences: staff training, reading of the manual, installation period etc. This expenditure is also evaluated and influences the decision-making process as emotional or economic cost. If these ‘expenses’ appear too high, we pick another option or none whatsoever (omission alternative).

We then speak to ourselves: “Is this really necessary at the moment?” and in a business environment: “There is no rush…” or “The return on investment (ROI) is too low, this purchase does not make sense”.

Especially in the buying process, the potential buyer notices whether the salesperson is convinced by his or her offer, because our body language constitutes 55% of said impression, whereas our words only comprise 7%. For this reason, it is all the more important for us to exude a confident impression, are able to anticipate objections and can easily access the product use argumentation.

Consequences for bargain hunters

"There is hardly anything in the world that someone cannot make a little worse and sell a little cheaper, and the people who consider price alone are that person's lawful prey. It is unwise to pay too much, but it is worse to pay too little. When you pay too much, you lose a little money – that is all. When you pay too little, you sometimes lose everything, because the thing you bought was incapable of doing the thing it was bought to do. The common law of business balance prohibits paying a little and getting a lot – it cannot be done. If you deal with the lowest bidder, it is well to add something for the risk you run, and if you do that you will have enough to pay for something better.”

(John Ruskin, social reformer 1819-1900)

2.5 How Customers Buy Today – A New Decision Model

The internet has not only changed the way we work, play, live or learn, but has also immensely influenced customers’ behavior towards brands. In the past, car dealers fished for customers in the showroom and their relationship dissolved in the time between the purchase and the first repair shop visit. Nowadays customers notice various brands in the decision-making phase. Suppliers and brands are included in the consideration phase, online-media is used, friends are consulted and the results successively eliminated. After signing the contract, customers stay active on the internet. They rate their purchase decision and recommend products and brands to an audience of millions of consumers. In the case of a negative buying experience, the buyer’s remorse is shared on Facebook, YouTube, blogs and review sites. By doing so, the customer contributes to a brand’s development. Marketing experts therefore need to adjust their strategies and invest into the areas consumers dwell. This means bidding farewell to the purchasing funnel, which implies that consumers have many brands in mind at the beginning of the buying process that they sort out systematically. Eventually, the brand affiliation is limited to the product’s use or the contact with customer support.

The new model is called “consumer’s decision journey”, because studies (McKinsey 2010) show that, in the phase of evaluation, interested parties continuously deal with brands of certain categories (premium, price, etc.) that they either include or discard.

The steps of this journey can be portrayed as follows:

Considering → Evaluating → Deciding → Buying

The Individual Phases

Considering: Advertisements, displays, recommendations and other external stimuli connect the buyer with products, solutions, services provided by manufacturers of major or minor brand value. Because of the overstimulation, the number of brands is not reduced successively as is the case in the funnel model, but is limited directly via data processing in our sub consciousness. One does not pay attention to every available offer as our mind protects us from a flood of information.

Evaluating: The assessment process is initiated by the comparison of offers with the help of review sites, recommendations of friends, acquaintances and colleagues. The decision maker gets smarter, knows more about the offers and changes the selection criteria. This results in the discarding of certain brands that are replaced by new and similar offers. Experiences gained through the exchange with experts, friends, various providers and other sources of information further influence the buyer, because he searches actively and is emotionally biased by other people.

Buying: Customers often make their decision upon first exposure to the product. When they hold it in their hands, watch a product demonstration, sit in the car, view the training material etc. Placement, packaging (e.g. Apple), presentation and consultation all play an important role in the decision-making process. Quite often people gain their information on cheaper products (approx. up to 500 €) at a store, only to buy them online for a smaller price. In the domain of capital goods, this is realized through so-called reverse auctions.

Thus, the sub consciousness considers, evaluates and buys. After the purchase, the following steps ensue:

Usage → Enjoyment → Recommendation → Repurchase (loyalty)

If the bond between a potential buyer and the supplier is strong enough, he will return frequently until his buying motives and decision-making criteria evolve from limbic instructions or his environment convinces him of a change. Due to this loyalty cycle, the buyer does not have to take the first step of the journeys of his purchase decisions again.

McKinsey presented this model and conducted a study with roughly 20,000 consumers. The influence of the consumer is much higher in the phases of ‘considering’, ‘enjoyment’, ‘recommendation’ and ‘repurchase’ and the only strong purchasing incentive is another person’s recommendation. An American T-Shirt read ‘Marketing lies’. It is time to implement the new model, rethink budgets and relocate advertising efforts from the phase of consideration to the phase of evaluation and the subsequent loyalty cycle.

Does Target-Group-Specific Advertising Make Sense?

Advertising makes use of the most recent findings in science, which results in the development of very specific target group appropriate campaigns. If people were assessable and predictable, advertisements would be much more useful. Certainly, a large amount of the target group responds, yet the question of efficiency arises, since people change within a short period of time. In order to shape a brand’s image, advertising in different forms of media still renders beneficial. People change according to their environment, loss of job, sickness, development, progression, meditation or change in the family. Due to a profound shift in their living environment people, become intolerant, impatient, uncertain, moody, irascible or vulgar in the course of a few weeks.

It is easy to imagine to which degree target groups transform, for example by considering the increase in transport and the risk of accidents. People that belong to a target group because of their demographic properties, for instance, can be less responsive to advertisements, because their mood and emotional mindset have a stronger influence on an advertisement’s effect. It is crucial whether the advertisement reaches their decisive brain areas or not. It is important to first meet the requirements that make a purchase decision probable, because, as Marx said: “It is not the consciousness of men that determines their existence but their social existence that determines their consciousness”. Hence, the importance of target group definition for advertising efforts should not be underestimated.

So, can biologists and brain researchers help look into the consumer’s brain to reveal his subconscious decision-making patterns? Every year companies waste millions of advertising budgets because their products fail and marketing directors aspire to gain control over this issue. Advice by advertisement psychologists are supposed to yield those that are scientifically found. Is this the eagerly anticipated, strictly scientific access to customers? The industry manipulates B2B and B2C customers consequently and neuromarketing is supposed to make this manipulation more accurate. Brain researchers assume that our subconscious autopilot guides our everyday life and manages our shopping. If it gets more complex, the conscious pilot takes over. The autopilot essentially controls our (purchasing) behavior and is not only faster, but also more efficient when it comes to processing the large amounts of data we receive through advertisements. Without it, we could not survive.

A short story:

Just the other day my son - after having discovered a pair of scissors in our bathroom cabinet - cut his own hair. During his next hair appointment, the hairdresser asked him: "Say, why did you cut your hair so short in the front?" to which he replied: "Because my brain told me to".

What our brain 'does' depends on inner and outer stimuli. The ones on the inside are produced by our thoughts and memories. Memory, as indicated above, means that we are quick to draw a comparison between knowing and not knowing something and how we evaluated it: positive or negative? Hence the saying "There is no second chance for a first impression". On the one hand, we are constantly influenced and guided by our surroundings, on the other hand, we sense intrinsic influences that filter or enhance our environment. With this, our perceptive filters are meant, as are the preferred sensory channels, such as the visual, auditive, sensory, olfactory or gustatory channel.

The procedure of the occurrence is resorbed as a sensory stimulus: from the assessment of information to the initiation of a certain emotion. The stimulus processing takes place in the amygdala, the central region that increases blood pressure and heartrate and initiates our behavior accordingly.

The James-Lange-theory in emotion research says that feelings are created because our body reacts to something. For example, our heart starts racing, we break out in a cold sweat or we shake from the cold or vertigo. This means, at first there is a physical feeling, followed by an emotion. A different theory by Cannon-Bard claims that our brain considers something that happens externally frightening, which results in our thoughts gaining a highly emotional state that increases our heartrate. Evolution taught us that we had to have a quick survival instinct that helped us react instantly when facing a sabretooth tiger or a snake without having to take a detour through the cerebrum, our reason. Renowned emotion researcher Antonio Damasio stands behind the first theory, in spite of Cannon-Bard's possibly being the more plausible one.

Convincibility Influences our Purchase Decision

Robert Cialdini, professor at the Arizona State University wrote the popular book The Psychology of Persuasion (2009). According to him, the most relevant reasons for people to comply and be convinced are: authority, shortage, returned favors social approval, sympathy and obligation.

Authority

People have a deeply rooted feeling of respect for authorities. What used to be leaders or alpha males now are socially recognized experts, doctors, judges, police officers, celebrities, managers and politicians. Renowned titles let people appear greater. They leave a different impression. Information, suggestions and instructions provided by such people influence our actions in certain situations. Obedience is comfortable and saves time. This way we do not have to worry unnecessarily. We rarely ponder the pros and cons of an authority's instruction.