WINTER 2020 EDITION

VALUE PROPOSITION

DEVELOPMENT

AN ESSENTIAL TASK FOR LEADERS

Given increased global competition and the rise in digital as a major sales channel, a value proposition has never been more important for independent distributors today.

A value proposition tells customers who the company is and why they should do business with them. A clear and compelling value proposition has a direct and positive effect on a distributor’s bottom line and should drive everything in a distributor’s business. It affects how they communicate with customers, select customers and align their services around what customers value.

Unfortunately, more than 88% of distributors that responded to a Distribution Strategy Group survey placed a large emphasis in their value-proposition messaging on just a handful of features: product selection, availability, speed of delivery, pre-sales technical support and professional sales representatives. In other words, many distributors are telling prospects the same thing. For most, that will not differentiate them. What’s more, the logistic functions of product selection, availability and speed of delivery are typically what the largest competitors do well, making it difficult for any distributor to make headway by highlighting these features and reducing the relationship to one that is price-based.

What’s in a value proposition?

A value proposition should consider what a company does that differentiates it from its competitors, what’s important to the customers and the market and what competitors claim about their offering.

A Value Map brings importance, differentiation and claims together to fashion a value statement.

Differentiation represents attributes for which your company is differentiated relative to your competitors.

Attributes that are important to your customers and the market land in the Important category.

The remaining category represents attributes that are unclaimed by your competitors in regard to core services, value-added services and benefits. In other words, they may offer those, but they don’t market around them. In the Value Map on the right, Product expertise is in the white area of the map. That means that it is an attribute that is important to customers, unclaimed by competitors and performed very well by the company.

If an attribute is not in the white space, but close to it, then it could become part of the value proposition. For example, Vendor Managed Inventory (VMI) is important to customers and unclaimed by competitors, but at present the company does not have differentiation. If the company were to improve its VMI capability, then it is an attribute that could form part of the value proposition.

Areas of Opportunity to Create Value with a Clear Value Proposition

Targeting the Right Customers: When distributors understand which customers they are best at serving— and what those customers value—they can align their organization around that. They can then target more of the same types of customers, resulting in market-share growth. They will also serve existing customers better for an increase in wallet share. What’s more, when customers get what they like, they’ll stick around longer. Customer retention will improve. For example, a distributor we have worked with sells many of the same products that others do, including abrasives, safety products and hand tools. But their value proposition is their exceptional service with customized solutions, and they charge for it. This service proposition is engrained into front-line team members who interact with the customer from Day 1. As a result, they do not pursue customers who only care about the lowest price.

Selling the Right Products and Services: If a distributor talks about product selection but their customers only care about how quickly they get the order to the jobsite, that distributor is wasting their breath. Similarly, many distributors tout the benefit of their own value-added services. Yet, few know whether or how much customers value these services. It’s important to understand which products and services customers value—and which they don’t. Distributors that are trying to be all things to all people are leaving money on the table. This doesn’t mean that distributors must change or remove any products and services, but they may want to add products and services or adapt their offerings based on customer feedback. Customers will share which products and services are most important to them. This will vary by role and customer segment. For example, a purchasing agent may value easy-reorder capabilities while an engineer may value technical support. Targeting the right person with the right message matters. Distributors need to shift their messaging to what customers care about.

Assigning the Right Resources: When a distributor knows what a customer values, it can align its customer-facing resources accordingly. For example, a customer that doesn’t value the service provided by an in-person field sales rep could better be served by inside sales or a distributor’s e-business channel at a lower cost. The field salespeople can focus on consultative value-added activities such as generating more business from existing customers and targeting new customers that match a distributor’s value proposition.

Systematically Sharpening and Improving Your Offering: Distributors that have a strong value proposition know which direction they need to go. They won’t be distracted by new ideas that don’t align with what the market values and what they do well. They can continually refine their products and services to maintain a competitive advantage.

Benefits: Alignment with the Right Value Proposition

The benefits of a strong value proposition go beyond selling the right products and services. Internally, distributors with the right value proposition will experience alignment across their organizations, which will lead to increased efficiencies and cost savings across the board. What’s more, the distributor will see a greater return on its team’s investment of time.

Executive: With a clear value proposition, C-level management teams can focus on strategy and value creation because they have peace of mind that the organization is united around doing the right things right.

Finance: Budget and oversight are focused and streamlined because the company has specific strategies around value. Departments have accountability and are spending on the right initiatives and inventory.

Operations: The company no longer sources everything for customers, plugging a value leak. It has optimized suppliers for the right product in the right places, resulting in more turns and less excess/obsolete inventory.

Customer Service: Front-line team members, including customer service reps, understand the value the company provides. They prioritize their time with the right customers, delivering better service and satisfaction.

Inside and Outside Sales: Sales teams don’t compete on price as much, having a clearer definition of the right customers and prospects that will value the distributor’s products and services.

Marketing: The distributor’s messaging is more targeted and relevant and focused on the prospects that will be most likely to respond, leading to greater return on marketing investment.

The Bottom Line

The development of a strong value proposition does not come quickly; it can take up to six months.

If a distributor sees itself as all things to all people, and aligns around that, it will bleed profitability. This is not just about a cool mission statement for a website. The importance of internal and external communication cannot be understated. Internal communication is critical to calibrating a distributor’s engine before taking the message externally. Without that organizational alignment, a value proposition lacks strategic value. And without external communication across every customer-facing touch point, the distributor will remain undifferentiated in the customer’s mind. That is a matter of life and death in today’s market.

Jonathan Bein, Ph.D.managing partner, Distribution Strategy Group
Jonathan Bein Ph.D. is the managing partner of Distribution Strategy Group. He has developed and applied analytic approaches for customer segmentation, customer lifecycle management, positioning and messaging, pricing and channel strategy for distributors. Reach him at jbein@distributionstrategygroup.com.
Debbie Paulpartner, Distribution Strategy Group
Debbie Paul is a partner with Distribution Strategy Group who has a rich background in developing and growing revenue streams with inside sales and direct marketing. Contact her at dpaul@distributionstrategy.com.