OK, so you are an established company and your growth hasn’t met expectations for a few years. How do you focus resources to accelerate growth, and where are those resources wasted?
Long before you arrive at the negotiating table, it is fruitful to prepare by engaging in a thought exercise that prepares you to best articulate your value — whether you’re trying to win new business or more business from an existing account. Once you’ve decided on a strategic path, the rigorous preparation and advance research to create credibility at the bargaining table can begin.
For many established companies the paths to growth are:
(a) adding new products or services through development or acquisition,
(b) selling more to their existing customers, or
(c) winning new customers for their existing products or services.
Now consider option (c). For example, you sell BAFOs, a new light-calorie, chocolaty, nutty snack. When would a customer who has never heard of BAFOs try them? One possibility is that their current snack favorites are no longer satisfying. So BAFOs promises a new level of satisfaction. A second possibility is that BAFOs promises something new and different that appeals to a customer subset, for example, those looking for a “new and healthier lifestyle on the go.” A third could be circumstances that affect previously available customer alternatives, such as regulations that ban certain snacks in schools.
How do these simple dynamics operate in a more complex business-to-business environment? For example, when will a business customer switch accounting firms, IT service or software providers. Do the three conditions that apply to BAFOs apply in this business environment?
Customers are unlikely to buy products or services from a new supplier unless those products or services promise a new or better value for them. New or better value means that the customer’s existing suppliers or in-house staff are incapable of efficiently providing that level of value. When does this occur?
Current Providers are Underperforming
One situation is when the current provider or in-house staff is failing to do the job expected by the customer. In business the cost of making major shifts of vendors has to be considered. Staying with a current supplier who is having some problems is often less costly and less risky than switching to a new supplier. For a customer to consider switching suppliers, the current provider would have to have major quality or service issues. Of course the issue of switching doesn’t exist for a completely new type of solution for the customer (for example, a customer who has never needed audit services, but now does).
A High-Value Offer from Outside
A second circumstance is a believable promise by the vendor of a new high level of value. This value has to deliver important impact that is not obtainable from existing suppliers. This type of “transformational value” justifies the cost of switching or engaging a vendor for the first time. Of course, a first time engagement is likely to be done slowly until proof that the value matches the promise is established.
External Circumstances Force a Customer to Consider New Vendors
The third circumstance is political. Examples include customer management changes that affect vendor relationships or a regulatory environment that forces a customer to consider competitive vendors. We have seen this in a number of cases where incumbents have gotten too comfortable, and customer management has dictated that alternatives be seriously considered.
Some argue that price can be a fourth consideration to win business against existing suppliers. However, consider that an existing supplier has knowledge, customer relationship and start-up cost advantages.
These advantages make it difficult for a new vendor offering the same solutions to compete on price, unless it wants to sell at a loss to “win the business.” Even then, the present supplier can decide to take the same loss to keep the customer.
What’s interesting about the above three circumstances is that the aspiring vendor looking for a new customer controls only the second one. This situation is dependent on identifying, articulating, quantifying and getting the customer to believe the Transformational Value – that unique, and significant impact that the vendor’s products or services have on the client. This is fundamental to creating the credibility that wins deals at the negotiating table.
Consider the three circumstances as an initial “smell test” to help you determine whether to invest resources to pursue opportunities where your competition has the account. Otherwise, you might be committing money and effort best put somewhere else.