A Story of Transactional Versus Value-Based Selling
Many companies and sales people are trapped in a transactional selling cycle using price as their primary tool to solicit and close business. Of course, the result is that customers treat them as a quote or proposal factory. Transactional selling cycles are characterized by a commoditization of products and services with an over-weighted emphasis on price. In these scenarios the sales team’s primary line is “Can we have an opportunity to quote?” The sales manager’s primary line is “The more business we quote, the more business we book.” The buyer’s line is “What’s your price?” This suboptimal cycle of behavior conditions prospects, customers and salespeople to engage in a continuous “bid-quote” loop where products or services are reduced to a price and lead time. The result is price erosion and a massive drain on selling, quoting and estimating resources until someone or something breaks the cycle of behavior.
To reverse transactional selling behavior, companies must review their selling process, sales toolbox and message the sales team is taking into the marketplace. Ideally, companies should differentiate in a way that creates value and business outcomes to customers. The following is a story of 2 competitors and their different approaches to selling through a distributor.
Transactional Manufacturing vs ValueWise
Transactional Manufacturing supplies widgets and has a broad catalog offering that they sell through a global distribution network. To support distribution, Transactional uses both direct sales people and independent reps. Transactional is known for aggressive discounting both at the distributor and end user level. Their product quality is satisfactory but they are not considered a market leader. Transactional’s National Sales Manager, Will Quoteman, is excited to make a sales call on Ace Distribution’s General Manager Reggie Truth in Erie, PA. At one time, Ace Distribution was Will’s largest distributor but has since left and become the #1 distributor for Transactional’s biggest competitor, ValueWise. Will has an aggressive program to present to Reggie at Ace. During the meeting Will unveils an aggressive discount program that, on paper, represents a far better deal than Ace is currently receiving from ValueWise. In addition, Transactional is willing to place consigned inventory on Ace’s shelf and extend payment terms of 180 days. From a product comparison perspective, Transactional’s product coverage is equal to ValueWise but doesn’t offer the brand awareness. ValueWise is considered one of the top 3 brands in their space.
As Will closed his presentation, he asked for feedback from Reggie. Reggie expressed his appreciation for Will’s visit and offer but that Ace would not be leaving ValueWise. Will learned the following about the Ace-ValueWise Relationship and the basis on which Ace left Transactional Manufacturing years ago:
• ValueWise & Ace engage in an annual mutual action plan that covers all 6 of Ace’s branches. As part of that plan, they agree on an annual sales goal with a plan to achieve it. The mutual action plan is driven by John Rock, Principal at Rock Enterprises, ValueWise’s local manufacturer’s rep firm and Reggie and they commit to executing the plan. John pulls in his ValueWise. Regional Manager when factory support or position power is needed.
• In addition to the annual sales goal, ValueWise and Ace create a simple dashboard to monitor the relationship. The measurables include:
- # of new customer activations
- Ace’s gross margin on ValueWise products
- ValueWise Sales $ by Ace Sales Territory
- ValueWise Point of Sale Information (Sales by Zip Code)
- ValueWise On-Time Delivery Performance
- ValueWise Fill Rate % (in stock vs out of stock)
- ValueWise Return Rate (# of occurrences & $)
The dashboard shows actual to goal, actual to prior year and year over year change in %.
Within the mutual action plan, both parties agree to action items that support their overall goal.
• Jointly Ace & ValueWise agree to:
- An annual sales goal
- Publish a dashboard to monitor progress toward goal and plan effectiveness
- Engage in target account planning to grow their mutual business
- A marketing plan to support their sales efforts
- Monthly reporting and quarterly reviews of the mutual action plan
- The plan is documented and signed by leadership
• Ace agrees to the following:
- To stock ValueWise product at all branches, especially their most popular SKUs.
- To provide ValueWise point of sale information monthly.
- To pay their invoices within 30 days.
- Make their inside and outside sales teams accessible to ValueWise’s local rep agency.
- Full sales team participation in ValueWise lunch and learns 2Xs per year at all branches.
- Engage in target account planning and make joint sales calls with ValueWise Reps.
- Be responsive and follow through on open action items.
• John Rock, ValueWise’s Manufacturer’s Rep, agrees to the following:
- Conducts educational sessions for Ace’s Inside and Outside Sales People at all branches twice per year. John schedules in ValueWise support personnel as needed.
- ValueWise provides marketing dollars that enable Ace to promote ValueWise in digital, print, point of sale displays or customer specific events (marketing dollars are a % of Ace’s prior year purchases to ValueWise).
- ValueWise extends Ace their best distributor discount structure and agrees to provide contract pricing for competitive situations.
- Support Ace’s selling efforts to win business.
- Provide high quality product
- Be responsive and follow through on open action items.
As Will drove away, he realized that his aggressive terms were no match for the relationship John Rock and ValueWise had built at Ace. ValueWise was training Ace’s inside and outside salespeople and helping them sell more effectively – multiplying their collective influence. ValueWise had the confidence of Ace’s Leadership and Sales Team based on 3 years of sales growth and the local rep agency (Rock Enterprises) was so firmly entrenched that no set of aggressive terms could possibly dislodge them. The obvious business outcome ValueWise created was sales growth but, more than that, they had built a business process backed by the commitment and resources of both parties. They were an unstoppable force.
In summary, Will was hoping his transactional offer would resonate with a transactional distributor. It didn’t work. Ace and ValueWise are aligned because they know price is one element of a business relationship. Creating value generally requires a larger vision, an investment of time, talent and capital to support a desired business outcome and ValueWise & Ace were making that happen through their mutual action plan.