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Published 21 March 2014 13:10, Updated 21 March 2014 13:30
Perhaps the ‘justifier’ in this case was lifetime birdcage liner replacement? A scene from the Stella Rose Pet Shop at Bondi Junction, Sydney, 7 August 1939.
Customers in business-to-business markets are becoming increasingly sophisticated about purchasing. Recognizing that most products and services they buy are not strategic to their businesses, they begin by simply seeking suppliers that will meet their basic specifications at a competitive price. Then, after they’ve winnowed down the contenders, they often ask the finalists to offer “something more.”
Many suppliers misunderstand this request. They’ll respond with the well-worn tactic of stressing features their offerings have but competitors’ lack, and when that doesn’t work, they propose price concessions. But it turns out that customers are looking for neither of those things.
When purchasing managers ask for something more, they are looking for what we call the justifier: an element of an offering that would make a noteworthy difference to their company’s business.
The justifier, or tiebreaker, helps the purchasing manager demonstrate to senior leadership that he or she is making a contribution to the business. Giving purchasing managers a visible “win” is how suppliers win. They gain a larger share of customers’ business - and, potentially, the ability to price their offerings at or near the upper end of each customer’s acceptable range.
WHY SUPPLIERS MISUNDERSTAND CUSTOMERS
Strategic purchases are those that a business has decided contribute significantly to differentiating its offerings. Most purchases are not strategic. Nonetheless, nonstrategic purchases can be consequential, considering the large amount spent on them. The process for nonstrategic deals tends to be relatively simple, and the criteria for evaluating each decision are cursory: that it didn’t consume too many resources and that there are no complaints or problems with the item selected.
We found that suppliers of nonstrategic products and services don’t fully appreciate this purchasing task. So when they try to land a deal, they make two common mistakes:
+ They focus doggedly on their offerings’ distinctive features even when customers don’t want or need them.
+ They offer price concessions that customers don’t want.
But this move can create more work for purchasing managers. They often have to go back to the other finalists and offer them a chance to cut their prices, too, to get the prices back within an acceptable range of one another. And after happily taking any price reductions, the purchasing manager again raises the request for “something more,” which isn’t surprising. If the only goal was to obtain the lowest possible price, why would the business need the purchasing manager?
Even when the other finalist suppliers won’t reduce their prices, purchasing managers frequently are still reluctant to choose the lowest bid, fearing that it’s too good to be true. They might do one of two things if they win the deal: try to recoup the concession further down the road by charging stiff penalties for any changes or cut corners and compromise on quality.
Why do suppliers fall back on these ineffective practices rather than proposing justifiers?
HOW TO DISCOVER JUSTIFIERS
Exceptional suppliers - or tiebreaking sellers -invest resources in a process for finding, vetting and developing justifiers. They investigate three potential sources of ideas for justifiers:
+ How customers actually use the offering. Tiebreaking sellers coach their salespeople to explore this topic with customers and engage them in a conversation about their concerns.
+ Opportunities to integrate offerings with those of other companies. Suppliers should explore how their products and services relate to other purchases the customer is making and how they might be combined to provide added value.
+ The customers’ business priorities. The top yearly goals of a customer’s senior management can be a great source of ideas for justifiers.
CREATING NEW BUSINESSES
Sometimes the search for a justifier can lead to a new source of revenue and profit. A service that North Carolina-based TLC Van/Pickup Upfitters offers illustrates how.
The company designs and installs shelving and other functional items in commercial vans. Most of its competitors consider their job done once they have completed an installation. Not TLC. After an installation, it will inspect customers’ vans twice a year at their locations at no charge. If the customer desires, TLC will then do whatever maintenance is needed at a reasonable price.
This can save customers lots of money: If not addressed early on, a minor problem that TLC would charge $30 to fix can become a $1,000 repair and take a van out of service. In addition to saving fleet managers time and hassle, TLC provides them with a win: It gives them concrete examples of the cost savings that timely repairs deliver, which the fleet managers can pass along to their senior managers.
Performing the inspections has allowed TLC to position itself as a preferred supplier and earn more of its customers’ business.
IDENTIFYING FRESH JUSTIFIERS
By their nature, successful justifiers have a limited life span. Customers’ priorities and concerns change, and competitors catch on and match your moves. This means that a supplier has to be on the continual lookout for fresh justifiers.
The exemplary suppliers we studied approach that task with a structured process. Take UPS. Understanding the ongoing need to find segment-specific justifiers, the firm has reorganized its marketing and selling efforts around targeted industry segments such as health care, retail and professional services, as well as U.S. regions with strong growth potential. Each segment and region has its own marketing and sales managers who reside in the field.
In the past, ideas for new services and justifiers came mainly from UPS’s new-product development unit in Atlanta and often took a long time to implement. Today, UPS encourages its segment and regional marketing and sales managers to offer ideas at periodic meetings. In addition to an annual meeting in Atlanta, UPS holds two monthly teleconferences, one at the regional level and a second at the national level. Both conference calls have lots of structured brainstorming. The meetings conclude by proposing new services and justifiers that might effectively and profitably plug gaps in UPS’s offerings.
Most suppliers of nonstrategic products and services think they have few options other than selling on price or pushing distinctive features that don’t really matter to customers. In the vast majority of cases, these suppliers are wasting their time and resources. The justifier approach is an attractive alternative.
But like any major change, it won’t come easily. It requires investments in new structures and processes. And more often than not, it means suppliers will have to change the established mind-set of their executives and salespeople. But with enough determination, even a supplier of a nonstrategic offering can persuade its customers’ purchasing managers and leadership that it is something special.
(James C. Anderson is the William L. Ford Professor of Marketing and Wholesale Distribution at Northwestern University’s Kellogg School of Management. James A. Narus is a professor of business marketing at Wake Forest University. Marc Wouters is a professor of management accounting at Karlsruhe Institute of Technology in Germany, and at the University of Amsterdam.)