SPIN Selling and Value-Based Pricing – Friends or Foes?
Is pricing out of touch with the market? Are salespeople frittering away profits? Are these two groups really at war with each other? Or, are they aiming for the same goal but language differences are preventing proper teamwork?
Research by Homburg and Jensen demonstrated that some differences between sales and marketing improve profits and others destroy them. Improving profits are differences in time horizons and orientations towards the alignment of products and market demand versus products and customer specific relationships. Destroying profits are differences in interpersonal skills and competencies.
In this article, I seek to address the issue of competency alignment between pricing and sale in business markets. Specifically, I seek to show that both expert sales professionals and expert pricing professionals share a core competency when it comes to capturing profitable customers through mutually beneficial exchange. To demonstrate the shared competency, I will demonstrate the alignment between the leading sales methodology, SPIN Selling, and the leading pricing principal, value-based pricing.
(This article is partially motivated by the impending 2012 International Business Marketing Association Conference, GROW, in which Neil Rackham, author of SPIN Selling will speak at 12:30 and Tim J Smith, author of Pricing Strategy will speak at 4:30 on Thursday, May 31, in Chicago, USA.)
SPIN Selling starts the sales process by examining the customer’s current situation. Are they in growth mode seeking to capture a new opportunities (Target, Amazon Prime, Parker Hannifin) or in trouble mode seeking to avert a disaster (Sears, Netflix, Foxconn)? How are competitive, technological, political / legal, social / cultural, and economic issues influencing their potential corporate strategy? How recently have they purchased from your product /service category? From whom did they last purchase? What is their likelihood of taking action with you? Driving toward the key question: are they in the market and are they likely to purchase from you?
Both sales and pricing drive this question in defining the target market. Not everyone will purchase, just as not everyone will be willing to pay the price demanded to acquire the product. The firm cannot and should not seek to serve everyone, only those who will value the firm’s offering and are willing to pay for their acquisition.
In this starting point for every customer interaction, both sales and pricing are well aligned. Both rely on a clear focus of the target market. In setting customer-specific sales strategy and pricing strategy, both sales and pricing need to understand which part of the market is theirs to serve, and which can be served on an opportunistic basis at best, and which part is out of scope.
As Theodore Levitt used to tell his students, “People don’t want to buy a quarter-inch drill. They want a quarter-inch hole!”
The second step in SPIN Selling is to know the problem the customer is seeking to solve. Is Foxconn seeking to solve the challenge of rising Chinese labor costs? Is Amazon Prime seeking to take a major share of the growing market for video on demand? Is Sears seeking to stay relevant to the market as a general department store or grow the value of their Kenmore, Craftsman, Diehard brands in a newly defined landscape where brick-and-mortar give way to focused big-box retailers and generalist clicks-and-ships competitors? What problem is the customer trying to solve?
Again, in this question we have both pricing and sales completely aligned. Value-based pricing requires understanding the challenge that an offering solves in order to identify the potential price that can be charged for an offer. Sales requires an understanding the nature of the problem as faced by the customer in order to identify the right solution to their challenges.
A problem may be well identified by a prospect, but that alone is rarely the entire story. Specific unmet needs may imply a broader set of challenges are also present, and that through addressing a specific need, these other issues can also be addressed. In other words, what are the broader effects and consequences of a problem?
As an analogy, a torn Achilles tendon may be the identified problem of a person, but this one specific issue may imply other challenges such as a reduction in running because of the bad Achilles causing weight gain and other potential health challenges. Similarly, automation at Foxconn to improve labor productivity may be an expressed need to address rising Chinese labor costs, but the implications of automation improvement may expand to include improved manufacturing flexibility, labor relations, and intellectual capital.
Here, both sales and pricing are aligned in their need for art and craft, not simply analytics and drive. What specific problems is the offering targeted to solve and what ancillary problems might be solved by addressing the focal problem is the question being asked from a sales perspective. And, identifying these ancillary challenges relies upon the art of detection and listening. From a pricing perspective, the art arises in determining which focal challenges and reference points will be used to determine deal specific pricing and which points of differential value are used to capture the customer.
The final step in the SPIN Selling approach is to define the need payoff. What offering does the customer need and what is the payoff for acquiring this solution? In no other area are sales and pricing professionals aligned in terms of goals as they are in focusing on this question. It is the WIFM of sales (What’s In it For Me?), the point of truth for marketing, and the focal question good pricing.
In selling, business impact models (BIM) which demonstrate the payoff of solving a problem with a specific offering are the clincher of the deal. Not the price, but the payoff for acquiring the product at the price stated in the proposed offering.
In pricing, the exchange value model (EVM) uncovers the value of the offering and forms the basis of pricing to the benefits delivered, also known as value based pricing.
Importantly, a salesperson’s BIM is a pricer’s EVM in disguise, and vice versa. One informs the other and the sharing of insights between the two can go both ways.
Thus, we find the goal of a solid market strategy, capturing a profitable customer through mutually beneficial exchange, is also the litmus test prior to closing a deal in sales and the focal question in defining prices and price structures for pricing.
SPIN Selling and Value-Based Pricing Aligned? Yes.
Pricing and sales are after the same goal – capturing profitable customers through mutually beneficial exchange. Though sales may use one language and pricing use another, their goals are the same and even some of their tools and techniques are the same, albeit with different names and emphasis. Because of these shared competencies, pricing should leverage the insights of their lead salespeople to make better pricing decisions, and salespeople should leverage the insights of their pricing counterparts to close better deals. Profits need not be frittered nor prices be out of touch but rather, by developing positive communication with each other, both sales and pricing can excel and the firm can deliver on its core purpose: serving customer needs profitably.
References & Notes
- Christian Homburg & Ove Jensen (2007), “The Thought Worlds of Marketing and Sales: Which Differences Make a Difference?” Journal of Marketing, 71(July) 124-142.
- Rackham, Neil, (1998) SPIN Selling, McGraw-Hill Publishing: New York, NY.
Note of Interest and Holdings: At the time of writing, the author is not currently a direct consultant to nor investor in any of the firms listed in this article.