In a nutshell: Opportunities for value-based selling in an economic crisis

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Original

When economic crises disrupt markets and stifle sales, business-to-business (B2B) vendors are often tempted to respond by offering temporary price reductions to maintain sales and empathize with the customers’ plight. [However,] this is a reactive and short-term strategy, and diminishes the vendor’s profitability and competitive position. In contrast, we propose that there is another way to approach B2B selling in an economic crisis, with a strategy that is not only proactive and long-term but also mutually beneficial and equally profitable for vendors and their customers. This approach is value-based selling, which allows customers to drive down immediate costs while preserving access to resources that are required to grow with the market when the economy eventually recovers. Value-based selling focuses on understanding, quantifying, and communicating the value that vendors co-create with customers, and delivering value propositions that reduce customers’ total costs while improving their productivity.
Because value-based selling commands premium pricing, this approach may seem counter-intuitive during an economic crisis, especially amidst tightening budgets and apprehensive buyers. However, in this article, we discuss and subsequently demonstrate i) why economic crises should make customers more receptive to value-based selling, ii) how this approach is more beneficial to both vendors and customers than just reducing prices, and iii) how vendors can capitalize on this opportunity by reshaping firm boundaries in customer-supplier relationships. […] We believe that companies that take a proactive and growth-oriented stance while controlling short-term financial damage, will emerge stronger from economic crises.
Value-based selling is a tool that helps managers achieve these objectives, allowing vendors and buyers to work closely together to find mutually beneficial solutions to combat disruptions and market decline. However, for value-based selling to work, customers must be willing to shift boundaries, and vendors need to know how to help them do this.

Key statements

How do B2B suppliers safeguard their revenue and continue to remain competitive in times of an economic crisis? In order to retain their customers, many B2B suppliers rely on short-term price reductions. This strategy, however, is not sustainable, as it weakens the suppliers’ position in the long term and reduces the amount of profit they generate. In their article, the authors therefore suggest value-based selling (VBS) as a tried-and-tested sales approach in times of crisis.
In general, VBS focuses on the benefits for the customer. Within the scope of VBS, B2B suppliers continuously adapt their offering to cater to the needs of their customers and sell their products and services on the basis of their value to customers.
The authors highlight that both suppliers and customers can benefit from VBS in the long run. For example, VBS allows customers to temporarily rein in their purchasing in times of crisis and continue to focus on essential resources. This ensures that they can grow with the market once the crisis bottoms out. The following levers enable B2B suppliers to successfully implement VBS even in times of crisis:

  • Do not forget short-term gains: VBS typically focuses on long-term cost reductions. Show your customers how you can also help them to cut costs or increase income in the short term during an economic crisis.
  • Focus on new values: Criteria that used to be important to customers can become less important in an uncertain market (e.g. large delivery volumes). Pay attention to what generates genuine added value for customers in the new situation and adapt your offering accordingly.
  • See the crisis as an opportunity for innovation: Especially in times of crisis, there is massive pressure to act in many companies. Customers are therefore often prepared to discuss new and innovative collaborative methods. Take the opportunity to make long-term changes and show your customers the specific ways in which you will support them and create a win-win situation via VBS during an economic crisis.

Source:
Keränen, J., Salonen, A. & Terhoc, H. (2020). Opportunities for value-based selling in an economic crisis: Managerial insights from a firm boundary theory. Industrial Marketing Management, 88, 389–395. ScienceDirect