How Red Flag Alert Analysis Tools Help You Get More Out Of Your Business
by Rory Traynor
What do your customers value most about your offering? Low cost? Quality? Innovative technology?
Many B2B sales teams focus their value proposition on product or service features and differentiate it with statements such as ‘the most advanced on the market’ or ‘the lowest cost per unit in its class’.
However, research published last year by Bain & Company in the Harvard Business Review shows us that the more subjective elements of value are really what drive B2B buyers.
To illustrate this, Bain created a pyramid of 40 different kinds of value which B2B products and services can provide – the diagram is progressive, ranging from objective elements at the bottom to the most subjective at the top.
In this article, we’ll take a look at this research and explain how – with the right data – it can be used to help you better understand the more personal elements behind your customers’ choices, and use that to shape a value proposition that speaks to their deepest concerns.
Bain’s B2B Elements of Value Pyramid
The Elements of Value Pyramid (EVP) consists of five levels. At the bottom of the pyramid are fundamental objective values; as you read up the pyramid, the values become increasingly more subjective.
Level One: Table Stakes
This level covers the most basic functional elements such as cost, specifications and regulatory compliance.
Level Two: Functional Value
This level covers economic and performance factors, such as improved top line and scalability. These values have traditionally been the main selling points for line industries, such as manufacturing.
Level Three: Ease of Doing Business
This level encompasses a range of values relating to productivity, access, relationships and operational and strategic factors. A few more subjective elements begin to appear at this level – cultural fit and commitment, for example.
Level Four: Individual Value
So far, most of the values on the pyramid have been business-related and, therefore, objective. Once we get to level two, however, they become significantly more subjective. The two benefits areas at this level focus on are personal benefits and the individual’s career.
Level Five: Inspirational Value
The top level consists of just three deeply personal values and just one category titled ‘purpose’. It covers vision, hope and social responsibility.
Emotional Value
While the functional elements at the bottom of the pyramid are important business considerations, the emotional values in the top sections are also an important factor in a buyer’s decision-making.
For example, anxiety often plays a role for those customers responsible for purchases that involve significant amounts of money or affect a number of colleagues.
As an example of this, the research authors point to a hypothetical US telecommunications provider that has recently upgraded its fibre-optic video service. It chose a China-based company that offered a low price. However, once installed, it suffered regular outages and was faced with technical support based on another continent.
The impact of this negative experience highlights the importance of values throughout the pyramid. By implementing major changes without notice, the China-based company failed to maintain a good relationship (level three).
The company eventually changed provider, but not before suffering the loss of a good reputation amongst customers (level four).
Finally, the buyer was ultimately responsible for this, impacting levels four and five.
A Proven Approach
Many companies base their value proposition on functional elements from the lower half of the pyramid.
However, Bain wanted to understand how delivering on elements from the different levels of the value pyramid would affect company performance – particularly, customer loyalty.
With their partners, they surveyed more than 2,300 corporate decision-makers in the IT infrastructure and commercial insurance industries.
Bain gathered information on the decision-makers’ perceptions of how industry sellers performed on the 36 non-table stakes elements of value – table stakes were discounted because they are prerequisites for doing business, rather than differentiators.
Excellence was defined by being scored highly on at least six or more elements by at least 65% of decision-makers. This is then compared to the company’s Net Promoter Scores (NPS) to see how the two correlated.
Bain’s analysis revealed that excelling at multiple elements has a powerful impact on business performance.
The research showed that customers in the IT industry are more likely to repeatedly buy from those that performed highly on multiple elements: 43% of respondents said that they would be highly likely to buy from them again, compared to 21% for those that didn’t excel at any elements.
The analysis also showed the most important elements. IT industry survey respondents ranked cost reduction as their most important value. However, when Bain calculated how much each element influenced NPS, product, quality, expertise and responsiveness emerged as the strongest predictors of customer loyalty.
Seven of the ten most important elements for this industry sit within the ‘ease of doing business’ level. This means that IT infrastructure suppliers would do well to focus on these areas to improve business performance.
Improving Your Value Proposition
So how can we, as B2B sellers, put the pyramid and the research to practical use?
Step One: Assess Your Value
Review your value proposition against the pyramid. Identify where your offer sits in terms of subjective and objective values.
The most important part of this is finding out what your customers think. You might not have the resources to conduct an extensive survey of them all, but you should be able to conduct some interviews and collect what information you can during discussions with clients – anything to get an insight into how they feel.
Once you have a body of feedback, compare it to the pyramid – did you receive positive feedback on the top or bottom of the pyramid? Are there elements that you could be focusing on elsewhere that would improve your value proposition?
Now take a look at what your marketing literature and sales team currently focus on. How does this compare to what you have found? What needs to change to better communicate your value and sell your business?
Step Two: Use Data
Data is critical to understanding which values are most important to your customers. However, these values can change from day to day depending on how business is going.
By using real-time data on metrics like financial health, growth and new directors, you can get an insight into how the business is likely to react (the objective) and how the company’s employees feel about this (the subjective).
Step Three: Focus Your Value Proposition
Now you understand your value and you understand the needs and concerns of your customers, you can precisely focus your offer.
Elements like reduced anxiety, reputation assurance and hope could play their part when selling to a business that is on the verge of tough times.
For example, if you’re selling short-term working capital loans by focusing on interest rates and speed, then you should also consider highlighting elements such as reduced anxiety and providing hope.
The Opportunity to Perform
In this article, we’ve shown how with a small amount of research, a little self-reflection and rapid access to powerful real-time data, you can improve your business performance. Bain found that those companies scoring highly on more than six elements amongst 65% of respondents had an NPS that was 60% higher than those with no high scores. For us, this says that the value pyramid is something which no company can ignore.
To learn how Red Flag Alert’s B2B prospector tool can help your business grow, get started with a free trial.
