Consultative Selling is profit improvement selling. It is selling to high-level customer decision makers who are concerned with profit—indeed, who are responsible for it, measured by it, evaluated by it, and accountable for it. Consultative Selling is selling at high margins so that the profits you improve can be shared with you. High margins to high-level decision makers: This is the essence of Consultative Selling.
Since 1970, Consultative Selling has revolutionized key account sales. It has helped customer businesses grow and supplier businesses achieve new earnings along with them. Everywhere it is practiced, Consultative Selling replaces the traditional adversarial buyer-seller relationship with a win-win partnership in profit improvement. This is no mean feat. To accomplish it, Consultative Selling requires strategies that are totally divorced from vendor selling. It means that you stop selling products and services and start selling the impact they can make on customer businesses. Since this impact is primarily financial, selling consultatively means selling new profit dollars—not enhanced performance benefits or interactive systems, but the new profits they can add to each customer's bottom line.
The single most critical difference between Consultative Selling and vending is the way they deal with price. Vendors base price on their costs. Margin is their way of asserting the right to a "fair price." Consultative sellers base price on their value. They consider margin to be their responsibility, not their right. To them, it is the sellers' responsibility to add sufficient value to customer businesses so that customers will be able to add margin to the sellers in return.
In this sense, margin is a consultative seller's pay for performance. The sale itself is no longer a transfer of a product or service in exchange for a price. It becomes a value exchange. In exchange for having their profits improved, customers trade off some of the improvement as margin to the supplier.
A consultative seller's price is a function of the contribution made to improve customer profits. The only way the seller can maximize price is to maximize the value of the profits that are improved. That requires the seller to stop selling products because there is no longer any way to make margin by selling the value of the seller's own assets. Margin can only be made by helping customers make their own assets more valuable.
Consultative Selling is selling a dollar advantage, not a product or process advantage. There is no way to compromise this mission. Anything less is vending.
Vending is discount selling, giving away value to make a sale. Discounting is taking on many forms that go far beyond price-cutting. Each of them represents another giveaway of margin that adds up to a hidden reduction in selling price:
Multiyear contracts with built-in annual price cuts
Zero inventory and just-in-time delivery
Sharing in product development
Free aftermarket services, such as training and maintenance
Lease financing at below-market rates
Consultative Selling, on the other hand, is high-margin selling. Full margins are the proof of value. When they are discounted, that is proof that their value was not sold. The most frequent reasons are that it was not known or that it could not be proved.
Performance values put into a product or service are validated by the financial values a customer gets out of them. Performance values are important only insofar as they contribute to the value of a customer's operations—either they add the value of new or more profitable revenues or they help preserve that value by reducing or avoiding costs that would otherwise subtract from it.
Discounting denies that superior value has been put in or that superior value can be taken out—or, if it can, that it can be documented. With each discounted sale, value is either denied or downgraded. It is obvious how this deprives the seller of a proper reward. Less apparent, perhaps, is how their customers are also deprived. Unless they can know in advance what value to expect, which means how much new profit they will earn and how soon they will earn it, they cannot plan to put it to work at once. They incur opportunity cost even though they add value, because they cannot maximize it. Their own growth is impaired along with the growth of their supplier.
As long ago as the early 1970s, Bill Coors of the Adolph Coors Company said that "making the best beer we can make is no longer enough" of a value on which to base a premium price. Making the customer best in some way or other would be necessary to maintain the margins that were once easily justified by product quality alone. In 1977 a company named Vydec was finding it increasingly difficult even then to cost-justify its high-quality, high-priced information systems when competing against the decreasing costs of competitive systems. Its managers realized too late that the justification of a premium price could no longer be attributed to hardware performance. "Future hardware will all look alike," they admitted after the fact. "The greatest values will be in training, software, and system support. You will be able to almost give away the hardware."
The differences between vending and Consultative Selling are significant. They are differences of 180 degrees. Their languages are different. Their mindsets are different. Their definitions of product, price, performance, customer—yes, even of selling—are different, as Figure I-1 shows. The main difference is in their ability to produce profits on sales.
The sellers supply profit as their product.
The sellers supply product.
The sellers offer a return on the customer's investment.
The sellers charge a price.
The sellers use a Profit Improvement Proposal.
The sellers use a bid.
The sellers quantify the benefits from their customers' investments.
The sellers attempt to justify their cost.
The sellers attach the investment to their customers' return.
The sellers attach a price to their product.
The sellers help their customer compete against the customers' competitors.
The sellers compete against their own competitors.
The sellers let their customers close.
The sellers try to close.
The sellers sell to a business manager.
The sellers sell to a purchasing manager.
The sellers feature their customers' improved performance.
The sellers feature their products' improved performance.
The sellers' products are improved customer profits.
The sellers' products are equipment, a service, a process, or a system.
The sellers sell vertically to a dedicated industry and to dedicated customers within it.
The sellers sell horizontally to all industries within a dedicated territory.
Consultative Selling takes a position about the sales process. It says that there are two ways to sell. One is the way of outsiders, which is the way that most suppliers approach their customers. The customers' gatekeepers are their purchasing functions. At the gate, vendors who hope to sell high come face to face with gatekeepers who want to buy low. This is where sales cycles are born, costs of sale begin to accumulate, and margins are sacrificed. For every so-called coach, champion, or foxy politicizer who is cultivated at the gate, suppliers' costs of sale are being extended, their sales cycles stretched thin, and their eventual discounts deepened. Meanwhile, consultative sellers beyond the gate are extending customer budgets, stretching customer cash flow, and deepening their eventual profits. In the same customer worlds, these two strategies go on every day.
What separates them? They live by different rules:
Vendor suppliers sell computers because they make them. Consultative sellers may make computers, but they sell the value they add by reducing a customer's downtime.
Vendor suppliers sell packaging because they make it. Consultative sellers may make packaging products, but they sell the value they add by increasing customer revenues and reducing shipping costs.
Vendor suppliers sell wireless telephone systems because they make them. Consultative sellers may make wireless telephone systems, but they sell the value they add by allocating manufacturing labor more cost-effectively.
No matter what vendor suppliers make, they sell it.
No matter what consultative sellers make, they sell the value it adds.
The essential differences between Consultative Selling and vending are made clear where value meets price at the point of sale:
Vendors sell to buyers who want to minimize the prices they pay for operating assets. This requires vendors to sell against their competitors. Consultative sellers sell to operating managers who want to maximize the value they add to their assets. This allows consultative sellers to sell by comparing current customer outcomes to future outcomes that they propose to competitively advantage.
Buyers want to reduce two types of direct costs: their costs of acquisition and ownership. Operating managers want to reduce the opportunity costs of delay in making their operations more competitive. This is why buyers can wait for a lower price while operating managers cannot wait for an added value.
Buyers want to help reduce their suppliers' internal operating costs and share in the gains through reduced prices. Customer operating managers want to reduce their own internal costs and are willing to share in the gains from improved outcomes. This is why buyers try to control supplier operations while customer managers bring in consultative sellers to help control their own operations.