Effectiveness of Value-Selling Training Programs

Table of Contents

Acknowledgements

Abbreviations

List of Figures

List of Tables

1 Introduction

2 Management Problem and Context
2.1 Aim and Purpose of the Research
2.2 Research Questions
2.3 Business Context
2.4 Academic Context

3 Literature Review
3.1 Achieving Competitive Advantage
3.2 Concept of Customer Value
3.3 Value of Goods and Relationships
3.4 Value-based Selling
3.4.1 VBS Behaviours and Skills
3.4.2 Customer Value Management and Value Calculation
3.4.3 Value-based Selling Training Concept
3.4.4 Consultative and Relationship Selling
3.5 Measuring Training Program Effectiveness
3.6 Measuring the Financial Impact of Sales Training
3.7 Summary of Literature Review

4 Research Design and Methodology
4.1 Methodology for Primary Research
4.2 Coding
4.3 Semi-structured One-on-one Interviews

5 Findings and Analysis
5.1 Analysis of Primary Data
5.1.1 Question 1
5.1.2 Question 2
5.1.3 Question 3
5.1.4 Question 4
5.1.5 Question 4a
5.1.6 Question 5
5.1.7 Question 5a
5.1.8 Question 5b
5.1.9 Question 6
5.1.10 Question 7
5.1.11 Question 8
5.1.12 Question 9
5.1.13 Question 10
5.1.14 Question 11
5.1.15 Question 12
5.1.16 Question 13
5.1.17 Question 14
5.1.18 Question 15
5.2 Evaluation and Limitations of Study and Methodology
5.3 Results
5.4 Generalization of Research Findings

6 Conclusion and Recommendations
6.1 Research Objectives
6.2 Managerial Implications
6.3 Academic Contributions and Suggestions for Further Research

Bibliography

List of Appendices

Acknowledgements

I would like to express my gratitude to everyone who accompanied me during the time of writing my master thesis.

First, I would like to thank my supervisor Dr. Dieter Thumm who supported me greatly, for his guidance and many helpful contributions during the research and writing process. Without him I would not have written about this interesting topic. He also encouraged me to a new level of academic writing.

A special thanks goes to Jan F. who opened up my access to all the interviewees from his clients who conducted value-selling training programs with his company. One simply could not wish for a better expert on the subject and supporter of my collection of primary data.

I would also like to thank all the participants in interviews who have openly shared their knowledge, experience and results. They invested a significant amount of time to support my research project and enabled me to find relevant results to answer the research questions.

Furthermore, I am thankful of all my beloved family and friends for their patience and support during my time of studies. Thanks to my mother for supporting me throughout my entire life and believing in me and my partner who has not seen me for some weekends, but was always there and on my mind.

Finally, I want to thank my sons, Ben and Hugo, who are my inspiration in life and who missed some playing time.

Thank you all so much!

Abstract

Many companies in Business-to-Business (B2B) environment consider valuebased selling (VBS) to be a selling approach that can move the conversation with their customers from price to value. Thus, firms today invest in training their sales force to improve how the value of their product or service is quantifiable and communicated to customers effectively.

While the implementation of Value-Selling Training Programs (VSTP) is regarded as an important step in educating sales people, little is known about the effectiveness of the programs in regard to measurable financial results for the company and the effects generated for the various parts of the organization.

However, the effectiveness of VBS has not yet been measured (e.g. financial outcomes) extensively and the effectiveness of such programs must be questioned if there is no Return on Investment (ROI) for the organization.

Based on semi-structured one-on-one interviews with key decision makers of these companies, financial outcomes were identified, e.g. increase in margins or ROI (%) of such programs and portrayed the various effects of these VSTP i.e. behavioural, awareness and marketing-related benefits, which were caused by the training. The most outstanding finding was that company managers, who focused on measuring the outcome of the training initiative received positive results whereas the majority of interviewed company decision makers did not track the success (effectiveness) in detail or were only able to describe nontangible results -some provided a “gut-feeling” of their outcomes.

To further advance knowledge about the effectiveness of VSTP, future research avenues were identified to ensure ROI of such initiatives and areas of improvement such as suitable evaluation tools and practical methods to measure the outcome and increase financial returns of the investment.

Abbreviations

Abbildung in dieser Leseprobe nicht enthalten

List of Figures

Figure 1 Porter's Generic Value Chain

Figure 2 Translating Customer Value Learning Into Action

Figure 3 Customer Value in Exchange

Figure 4 Conceptualization of VBS and Its Potential Consequences

Figure 5 Suggested Process Framework for a Value-based Sales Process

Figure 6 Product-Selling to Co-Makership Matrix

Figure 7 Research Onion

Figure 8 Question 2

Figure 9 Question 3

Figure 10 Question 4a

Figure 11 Question 6

Figure 12 Question 7

Figure 13 Question 8

Figure 14 Question 10

Figure 15 Question 12

Figure 16 Question 14

List of Tables

Table 1 Customer Value Determination Process

Table 2 Value Drivers in Key Supplier Relationships

Table 3 Key Practices for Bridging the Theory-Application Gap in VBS

Table 4 Sampling Frame

1 Introduction

This research will allow companies to understand if and how the principle of value-based selling (VBS) within a sales training concept contributes to improving financial performance in order to maintain a competitive advantage. VBS is often conducted as one part of sales training concepts within a company, particularly with an eye towards the effect of turnover and margin. The resulting recommendations from this work will provide guidance in further designing, conducting and improving the structure and contents of value selling training programs (VSTP).

Most of the research dedicated to this topic so far was related to providing support for the implementation of value selling, e.g. how a company's management can implement value selling to the sales force by rolling out training and support systems or sales tools. This dissertation examines the success of VSTP e.g. measurable financial improvements and perceived outcomes before and after the VS-initiative. A major Belgium-based consultancy and training company called Jan F. (JF) specialised in value-selling programs will kindly support the research with selected informants from their European customer base.

In VBS, the customer's purchasing process, which ought to be supported by the sales representatives, is a business process on the customer's value chain. Value selling therefore requires a higher level of engagement on the part of the sales representatives, moving beyond conversations about prices, features and benefits to increasing the perceived value, i.e. emotional and economical value.

Brief Outline of Chapters

This Chapter provides a brief introduction to the field of research, the issue of effective implementation of VBS and a high-level overview of the purpose of the research. Chapter 2 illustrates some of the prevalent issues of measuiring the effectiveness of training programs and in particular the ability to measure the success of VSTP. It also gives an overview of the business and academic context and further presents the resulting research questions. Chapter 3 attempts to synthesize the literature with the different streams of past research to understand the different concepts around value based selling. Chapter 4 (Research Design and Methodology) describes the approach, which was selected to conduct the research including the strategy how data was collected and how reliability and validity was ensured. Chapter 5 reviews the results from the collection of primary data from the conducted interviews and presents the findings. A discussion of the outcomes from each question is summarized. The chapter ends with a review of the evaluation and limitations of the study and concludes the results and generalization of the findings. Chapter 6 completes this work with the conclusion of the key findings, managerial implications, which should be considered and recommendations for future research.

2 Management Problem and Context

Companies today invest in training their sales force to improve the skill how the value of their product or service is communicated to customers. On one hand, training attempts to raise the competence level of a sales representative who deals with customers, e.g. purchasers, key decision makers or buying centers in B2B environments. On the other hand, it also seeks to change the sales representative's behaviour in sales conversations and improve results in negotiations. However, the effectiveness of VS training has not been measured (e.g. financial outcomes) extensively and the effectiveness of such programs must be questioned if there is no Return on Investment (ROI) for the organization.

2.1 Aim and Purpose of the Research

The purpose of this research is to understand the influence of VSTP on an organisation's financials on one hand and on the other hand to study perceived change of behaviour e.g. if sales representatives are able to expand their behaviour repertoire in sales conversations. The study focuses on the effectiveness of VSTP for a sales organization within a company and will be evaluated based on the following criteria (Menthe, 2015):

Identify key performance indicators and measures to understand how a VSTP will contribute to increased profits and sales closing
Review past research and transfer evaluated applicable findings
Determine the added value (e.g. gross margin) of VSTP from recent programs delivered by JF (valueselling.be) to organisations
Describe the impact on a company's financial situation
Critically analyse and evaluate findings, build conclusions and recommendations based on the research results

2.2 Research Questions

As a consequence, the following two research questions were formulated to explore the research purpose, which resulted from the problem:

1. Is the effect of implementing VSTP measurable with regard to company's financial results?
2. What effect does VSTP have on the organization?

2.3 Business Context

The research was conducted with seven customers of JF's customer base, from different industries and with international reach, where he has delivered VSTP over the past years with his consulting business. The effect of these training activities were measured to understand the benefits for the company itself. Recommendations from the research will help to increase these effects long term to maintain the competitive advantage of differentiation.

2.4 Academic Context

In order to evaluate the return on investment of VSTP for B2B companies, measurements on a management level, in order to illustrate the financial impact of sales results (e.g. increases in revenues or profit margins) need to be made. On an individual level, the change in behaviour of sales people needs to be analyzed, because it has resulted in higher margins before and increased finalized business transactions (Terho et al., 2012).

The following key areas of theory were explored to provide context for the research topic before the primary research was conducted:

Concept of competitive advantage (M. Porter) and value creation principles
Two relevant selling behaviour constructs related to customer value i.e. consultative selling and relationship selling
Value selling concept (Kaario, 2003)
Kirkpatrick’s four-stage evaluation model to evaluate training programs

3 Literature Review

This section attempts to synthesize the literature with the different streams of past research to understand the different concepts around value based selling.

The chapter begins with trend analysis, e.g. the need for a company to differentiate itself more than ever before (Ulaga & Eggert, 2006) and to gain competitive advantage (Woodruff, 1997). It will proceed through a review of literature about the concept of customer value and then delve into literature on the value-based selling approach, including needed behaviours, calculation of value and value mapping capabilities. The VBST program developed by JF is summarized because it is the basis for the research on his educated companies by this particular training concept to understand the effectiveness of a VSTP. The chapter ends with a brief review of literature related to the effectiveness of training programs on behavioural and organisational level with a focus on identifying measures to quantify the financial impact of such a training initiative.

Literature review revealed that research on customer value concepts was undertaken in the 1980s and 1990s (e.g. Rust 1993, Woodruff 1997, Zeithaml 1988). From 2000 on, research has started to focus on customer perceived value, selling value and value-based differentiation and since 2011 the VBS approach was a specific area of investigation by researchers (e.g. Töytari et. al 2011, Terho et. al 2012 and Ulaga et. al 2015). Literature on measuring training effectiveness is linked to the foundational work of Kirkpatrick and has developed into the area of measuring sales training effectiveness (e.g. Honeycutt et. al 2001). It appears that research has not deepened recently into the area of measuring sales programs on the organizational levelfrom reviewing the available academic papers.

3.1 Achieving Competitive Advantage

Expectations of customers in a changing business environment have constantly evolved within the past years as research has revealed (Ulaga et. al 2015, Terho 2012).

Therefore, companies need to further develop their ability to differentiate themselves from competition, which is more critical when playing in a global environment than locally because global players have more resources and flexibility in pricing to win large projects.

Competitive advantage results from the value a company can create for its customers according to Porter (Porter, 1998). Porter suggests the model of a generic value chain (see Figure 1) as a key source of creating competitive advantage and to differentiate oneself from value chains of competitors.

Abbildung in dieser Leseprobe nicht enthalten

Source: Porter (1998)

In comparison to the 1970s, when quality management on internal operations processes became popular, today superior customer value delivery of the various parts of a value chain will lead to creating competitive advantage and, as stated by Woodruff, will focus an external orientation towards the customer and customer satisfaction management (Woodruff, 1997). This requires an understanding of the customer’s value chain, his requirements, strategic objectives and priorities. Obviously, value-selling can contribute to the process of understanding and developing product and services based on these requirements before ultimately selling and installing them. Porter states that competitive advantage can come from many sources and creates more value by improving primary (e.g. Marketing & Sales) and supporting activities (Porter, 1998). Researchers have pinpointed that understanding customer value creation is an important source of competitive advantage (Woodruf 1997, Ulaga et. al. 2015). Thus, creating customer value is a crucial part and outcome of a sales process before competitive advantage gets developed long-term.

Christopher (2006) explains that customer value can be achieved by increasing the perceived benefits and/or reducing the total cost of ownership. This is in-line with Porter's statement that it is important to redefine the way the buyer thinks about the product's function by widening the basis of buyers choice which requires effective marketing and product development (Porter, 2004).

The challenge is then how to develop value based selling skills for the salesforce and how to effectively implement the approach in order to improve financial results for the selling company and generate measurable value for the buyer.

3.2 Concept of Customer Value

The total customer value and customer's perception is affected by four factors, namely: functionality, solution, experience and meaning, as Horovitz articulated (Horovitz, 2000). He defines functionality as the outcome that the customer obtains from basic product features whereas a solution obtained by extending the offering to include support services such as installation and maintenance. Experience includes the rational experience as well as emotional elements derived by the total experience. Meaning as the fourth factor takes the experience to the next level of self-actualization (Khalifa, 2004).

Woodruff differentiated other categories of product value: functional, social, emotional, epistemic and conditional value, which might be intrinsic or extrinsic to the product. In his classification of customer value concepts, he suggests that customers also consider value at different times, such as the time of making the purchase decision, experiencing its performance or after use (Woodruff, 1997). He defines purchasing as ‘choosing’ which requires customers to distinguish between product offer alternatives and to evaluate preferred product needs.

Woodruff provides a definition of customer value, which adopts a customer perspective derived from empirical research:

Customer value is a customer's perceived preference for and evaluation of those product attributes, attribute performances, and consequences arising from use that facilitate or block achieving the customer's goals and purposes in use situations (Woodruff, 1997).

Woodruff also contributes on how to close the gap in an organization to deliver value to their customers, i.e. a customer learning process, where managers can understand what the customer really values versus what they think they may value. Woodruff suggests a customer value determination process as a tool to bring the voice of the customer into a selling company by identifying target customers, identifying their key buying criteria and analysing the broader, complex range of desired value dimensions (see Figure 2). A continuous learning cycle, which consists of learning, creating the value delivery strategy, translation, implementation and performance tracking supports the success to increase the effectiveness of value creation and learning within the value-selling concept.

Abbildung in dieser Leseprobe nicht enthalten

Figure 2 : Translating Customer Value Learning Into Action

Source: Woodruff (1997, p 147)

Woodruff presents a customer value hierarchy model (see Table 1 below) to capture the essence of customer value which suggests that customers conceive of desired value in means-end way.

Table 1: Customer Value Determination Process

Abbildung in dieser Leseprobe nicht enthalten

Source: Woodruff (1997, p 144)

Starting at the lower level of the hierarchy, customers learn about to think about products as bundles of specific attributes before they use goals and purposes to attach importance and consequences (Woodruff, 1997).

He draws more attention to the process of understanding value dimensions rather than identifying a customer's preferred or desired attributes as used by customer satisfaction management, which is advocated by quality management, an internal focused initiative. The process provides value to the effectiveness of VSTP if the execution is secured and monitored and should be part of the training program as a self-assessment to understand the areas for improvements on a skills and process level.

Furthermore, Woodruff argues that managers need to translate that learning into actions (see Figure 2) leading to competitive advantage, which requires skills in order to shape a manager's mental model of their customers, and how they actually perceive desired and received value (Senge, 1990). Thus, training (e.g. VSTP) of managers and salesforce on how to apply interview techniques and analyse the industry of the customer for finding out what customers desire (e.g. innovation, products, process improvement, service) can be part of the translation process to create a customer value delivery strategy. However, the amount of input on how to effectively implement this for the selling company to ensure a ROI from the translation-process is limited. Woodruff mentions managerial learning barriers to acquire these new skills, but new methods and tools will be needed as well to deal with the customer value learning process (e.g. predicting future customer value change).

As buyers can be consumers and/or professional purchasing managers, they can be seen as a person who makes buying decisions depending on their role in the buying process i.e. economic buyer, technical buyer or purchasing manager within a business-to-business scenario (B2B). A customer needs range from pure utility needs to pure psychic needs and correspondingly, Khalifa states, customer benefits range from tangible to pure intangible benefits or a combination of them (Khalifa, 2004). Porter defines value as “what buyers are willing to pay” and identifies value only with the value that the selling company has managed to obtain for itself. In contrast, Khalifa suggested that there would be also value created for the customer e.g. consumer surplus (Khalifa, 2004). The model of customer value build-up is complementary to the value exchange model, which is a benefits-cost model (see Figure 3) and used in strategy literature.

Figure 3: Customer Value in Exchange

Abbildung in dieser Leseprobe nicht enthalten

Source: Khalifa, 2004

Khalifa states that customers are willing to sacrifice a certain amount of time, effort and money and even take risks in exchange for receiving total benefits that outweigh their investments. Net customer value as the difference between total benefits and total sacrifice results in net customer value, which triggers a purchasing decision only if it is zero, or above. Similar to the customer value build-up model, psychic and utility values are incorporated. The customer value exchange model also includes total customer ownership (TCO) and is set in a wider context of customer value. TCO consists of financial and non-financial customer costs, i.e. pre-use, at-use and post-use costs (Khalifa, 2004). Considering the TCO of an offering is different than looking purely at the purchase price of a product and maybe its maintenance contract costs attached. Therefore, the TCO needs to be analyzed for the customer during the value selling process.

The role of marketing to create value for its customers is key to delivering superior products and as Rust et. al among others declare, this can deliver superior value to firm’s shareholders in consequence (Rust et al., 2000) and more importantly create satisfied and loyal customers, who want to place future purchases with the seller (Rust & Zahorik, 1993).

3.3 Value of Goods and Relationships

Lindgren and Wynstra investigated with their research on value in business markets from the perspective of business marketing, purchasing and supply management in respect to two aspects: the value of goods and services as well as the value of buyer-supplier relationships (Lindgren & Wynstra, 2005). The research stream of value of goods and services found different definitions for value such as: Value is the quality a person gets for price or value is what one gets for what they give (Zeithaml, 1988). According to Dodds & Monroe(1985), competitive advantage is the capability to attract customers with offers that the buyer perceives as providing superior value against competitors offers and customers will buy from those competitors that they perceive as offering the best value. The products perceived value is defined by Dodds & Monroe as: Vendor's product minus product price minus costs of owning/using it. These offerings must consider value not only in non-monetary terms but also primarily in monetary terms.

Other researchers examined the concept of relationship value regarding the economic value of customers, since buyer and supplier companies do not only do business because of value from goods and services, but also because of a firm's reputation, innovation capacity, expertise or market leadership (Lindgren & Wynstra, 2005). Not only relationship marketing literature has focussed on trust and commitment in supplier-customer relationships and dialogues, Naude & Buttle(2000) argue that the quality of relationships should be of considerable corporate interest because it does have commercial pay-offs from satisfaction, customer retention, loyalty, reoccurring purchases or increased amounts of purchases.

Ulaga & Eggert (2006) identified that relationship benefits display even stronger potential for difference than costs i.e. service support and personal interaction as core differentiators followed by a suppliers know-how (expertise) and its ability to improve a customer's time to market. Because of product commoditization in many markets, product and price become less important differentiators and suppliers of routinely purchased products search for new ways to differentiate themselves from competition through improved customer interactions.

They state that from an academic point of view, differentiation in business relationships, i.e. buyer-seller relationship can be researched from a valueadded perspective. This adds relationship value as a key differentiator in VBS besides providing tangible cost-impacting benefits. Their research revealed that customers consolidate their supply base and implement preferred supplier programs so that suppliers need to gain a key supplier status or will be pushed towards a backup supplier status. A thorough investigation of how value is created in a supplier relationship is necessary and suppliers must be aware that gaining a greater market share of a customer's business helps very little, if it comes at the cost of reduced profitability. In their study, main suppliers secured 73,3% of customer's order volumes while backup suppliers only captured 19,5% (Ulaga & Eggert, 2006). In consequence, VBS should help to ensure profitability because key suppliers are heavily dependent on their key customers and they need to maintain this status.

Ulaga & Eggert (2006) measured relationship value on two formative value dimensions: Relationship benefits (e.g. cost benefits, sourcing benefits and operative benefits) and relationship costs with three dimensions: Direct product costs, acquisitionand operation costs. While buyers face increased dependence and higher risks of supply disruption and supplier opportunism when relying on key suppliers based on the above measures, key suppliers are often required to provide internal cost data and are pressured to invest into the relationship (e.g. relationship costs model). Table 2 (following page) shows the value drivers in key supplier relationships.

Table 2: Value Drivers in Key Supplier Relationships

Abbildung in dieser Leseprobe nicht enthalten

Source: Ulaga & Eggert, 2006, p. 122

Because the results of Ulaga & Eggert's study (2006) revealed that relationship costs account for only 20% of the variance while relationship benefits account for nearly four times as much, VBS must include parts in a VSTP to build needed skills. The findings suggest furthermore that throughout the exploration of value creation in ongoing relationships, cost factors only serve as a key criteria to get a supplier on the short list but ultimately the relationship's benefits dominate when deciding which supplier to name. This is a noteworthy finding as cost competitiveness emerges as necessary but not sufficient condition to gain a key supplier status and offering superior benefits and value to customers is essential for winning a substantial share of their business.

In conclusion, VSTP need to educate about the value concept and the relevance of relationship value, which should increase the effectiveness of VSTP once the learning is applied in practice. Because value is an increasingly relevant concept, companies and their salesforces must be able to define value and make it measurable when selling it to their customers. Sales persons should be able to effectively explain how value is produced and delivered in a sustainable way to ensure long-lasting financial benefits from a loyal customer.

3.4 Value-based Selling

Value-based selling (VBS) or value-selling can be described as a sales approach to identify opportunities for growth and profitability within the customer base (Kaario et al., 2003). It requires different skills on the salesperson level and the current literature has shown a link between performance of a sales organization and this approach to generate value to the buyer. Kaario states that unit prices are going down in almost all industries provoking margin erosion and driving companies to find new revenue streams and sources of profit by selling business impacts that result in increased profits for the customer and finally for the selling company instead of selling products, services or solutions. He suggests two dimensions, i.e. bringing value to the customer during and after the process and secondly, selling needs to bring value to the provider by generating strong and steady cash flows to compensate for the costs of the resources needed to develop these seller-buyer relationships (Kaario et al., 2003). Kaario et. al. attribute that this investment needs to be allocated to customers with greatest future potential.

In consequence, VBS is a long-term approach and a segmented logic to identify the right potential customers who are willing to pay an extra price because of the tangible and intangible value (e.g. process innovation, timeor cost savings) it brings to their business and how it contributes to achieving personal goals of the key decision maker or the buying unit.

Terho et al. provides a definition of value-based selling (VBS):

Value-based selling is the degree to which the salesperson works with the customer to craft a market offering in such a way that benefits are translated into monetary terms, based on an in-depth understanding of the customer's business model, thereby convincingly demonstrating their contribution to customers’ profitability (Terho et al., 2012).

As a consequence, understanding the customer's business and expectations is critical to being able to add value to customer's goals.

Ulaga & Terho. stress that VBS is deeply embedded in value co-creation logic and emphasizes the importance of the seller-customer interaction which translates to the need, similar to Woodruff (1997), for B2B salespeople to collaborate with their clients to understand the selling firm's potential contribution to customer's business performance (e.g. cost savings and/or performance enhancements), develop a customized proposal and effectively communicate the value how the buyer can benefit and how the seller contributes to achieving their client's goals (Ulaga & Terho, 2015).

Ulaga et al. have identified that very little is known about how to implement a sales strategy effectively or about the mechanisms of how a sales strategy affects performance. While marketing literature sees sales as a tactical activity to implement marketing strategies, recent studies (Homburg et al., 2008) have found that the role of selling in B2B is often more central than the literature suggests (Haas et al., 2012). Grönroos identified a change that companies are moving from an operational focus to a more strategic one and that B2B companies are shifting from a product-focussed logic to a service-focussed one in which they emphasize high value-added offerings, e.g. complex services, integrated solutions and hybrid offerings (Grönroos, 2008). This speaks for a need to change the selling approach in B2B markets by applying VBS as a suitable selling logic within a firm's sales strategy implementation.

Terho et al suggested that effective VBS requires prioritization as a key enabler that impats a salesperson´s performance because it is a resource-intense selling approach that needs deep customer insights and upfront investments such as training and VBS-tools (Terho et al., 2012).

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