Note The same features can produce benefits with perceived and measurable value.
Advantages of Selling Perceived Value
When you sell benefits with perceived value, you do not need to prove the logical connection between the features and the benefits. The benefits might be what you say they are; you just cannot prove them. Conversely, customers and competitors cannot disprove them. It is your word against theirs.
Due to a high trust level, your long-term customers are more receptive to accept benefits with perceived value on face value than are new prospects and competitors. Therefore, use as many benefits with measurable value as possible when you sell to new prospects who cannot fully appreciate your trustworthiness yet.
Example
Does pouring hickory-flavored sauce on fried chicken produce as tasty a meal as does barbecuing the chicken with wood chips? Kentucky Fried Chicken claims it does and taste tests prove it (according to KFC).
Disadvantages of Selling Perceived Value
You damage your credibility if independent documentation casts doubts on your perceived value claims. In addition, when one claim gets disproved, all your claims come under scrutiny.
Example
A salesperson supplies an industry report proving his company’s digital reception is 10 percent clearer than competitors who claimed their analog signal was just as good. Now, the competitors’ other claims, such as extended battery life, are suspect as well.
Customers who eventually buy on perceived value change their minds often. You never know how their latest emotional attachments or personal preferences affect their purchasing decisions. Perceived value has no concrete proof, so conflicting claims create confusion. When enough confusion exists, customers use the certainty of lowest price or fastest delivery dates to clear it up. A take-them-to-lunch-and-lower-your-price strategy often surfaces in these situations as products become commodities.
Example
Another salesperson claims (without proof) that his new type of cellular phone offers the best reception but costs less. Customers try to figure out how companies can all offer the so-called best service. Price wars—and lunches—are right around the corner.
While you can (and do) win sales on perceived value, it is difficult to be compensated for providing more value than competitors—even if you do. You end up as being forced to match the lower price of a competitor who you know provides less value. Unfortunately, if you can’t measure the difference, your customers can’t either.
Note The more you depend on selling perceived value, the more you must rely on your personal relationship with the customer. Conversely, the more you depend on selling measurable value, the less you need to rely on personal relationships. A double win is to have a strong personal relationship and measurable value.
Advantages of Selling Measurable Value
The value of measurable benefits is difficult to dispute or discount by customers and competitors alike.
Example
A salesperson explains how a digital signal (feature) requires 20 percent less power than an analog signal for processing. Therefore, its battery lasts 20 percent longer than the one in an analog phone. How this feature produces benefits is not only logical but also measurable to the customers. Grateful for the facts, they take the salesperson out to lunch.
You use industry standards or reports by independent experts to support the validity of your measurable benefits. You also use them to refute competitors’ benefits that depend on perceived value. You demonstrate to customers your knowledge of the industry.
Example
A salesperson furnishes a Federal Trade Commission (FTC) report that highlights how a digital signal uses 20 percent less power than an analog signal. This report supports his battery life benefit. It also refutes counterclaims by analog telephone competitors that there is no difference between the battery life of analog and digital telephones.
Disadvantages of Selling Measurable Value
You must prove that your standards of measurement are valid. An erroneous “fact” jeopardizes your valid claims. When you sell on measurable value, ensure that your information is infallible. You should have two independent and measurable verifications in case one becomes suspect.
Example
The salesperson uses an outdated FTC report. He now needs another recognized authority (not counting his marketing manager) to substantiate the “20 percent less power” benefit.
You contend with conflicting claims that have their own proof. You constantly test your technical expertise when you sell measurable value. You must be sufficiently knowledgeable to prove your benefits while disproving competitors’ counterclaims.
Example
A salesperson hands out an industry report that shows average customers do not recharge their analog telephones more than digital telephone users. The digital telephone salesperson must now offer proof to refute this report’s claims.
Calculating the Value of Benefits
Benefits with both measurable and perceived value can produce either cost avoidance or dollar savings. You calculate the dollar value using indirect and direct savings. The former is more long-term and subjective, while the latter is more short-term and objective.
Indirect Savings
Indirect savings, such as that afforded by maintenance or insurance programs, has perceived value. Customers assign value to their benefits according to the negative events they avoid. The following two factors influence the value of indirect savings:
The probability these negative events will occur
The financial ramifications if they do occur
Note As the probability and dollar ramifications increase, it is more likely that customers will place value on indirect savings.
Example
Doing an oil change every 3,000 miles supposedly makes your car engine last longer. Its value is hard to prove in dollars. If you never had engine problems, you might believe that a $20 oil change saves you a $2,000 engine rebuild. Additionally, as you put on more mileage (greater probability), the more valuable the oil change becomes.
Direct Savings
Direct savings have measurable value. You assign value to benefits without depending on cost-avoidance calculations. Customers measure the value of direct savings immediately.
Example
You buy a new car that uses regular gas instead of premium. Regular gas costs ten cents less a gallon. You calculate your cost savings instantly by taking the number of gallons and multiplying them by ten cents.
Note Unless you are always the low-price supplier, you do not want the only direct savings to be Column 1’s price difference between you and competitors.
It Matters Who Receives the Benefits
Benefits produce internal and/or external value to customers. The focus of these benefits plays a major role in how much value customers place on them. Additionally, whether benefits are internal or external determines what departments and positions you contact first.
Internal Benefits
Internal benefits produce value only for the purchasers of your products. They appeal more to departments with low customer contact such as accounting, purchasing, engineering, or manufacturing. Often, these departments are more concerned about Column 1 issues than Column 2 issues.
Example
You sell paint wholesale to painting contractors. One of the features of your paint is two-hour drying time. Painters can apply a second coat sooner, thereby reducing the time it takes to complete a job. They receive the internal benefits of reduced labor costs.
External Benefits
External benefits occur only when you sell to businesses, not consumers. They produce value for your customers’ customers. External benefits appeal more to departments with high customer contact such as customer service, marketing, and sales. Often, these departments are more concerned about Column 2 issues than Column 1 issues.
Example
Painters use the quicker drying time of your paint to give homeowners faster completion dates. The quicker drying time produces an external benefit—faster completion dates—to the painters’ customers: the homeowners.
Internal and External Benefits
As the name subtly implies, both your customers and their customers receive benefits. This combination produces the most value because everyone benefits (including you).
Example
The painting contractors pass along some of their cost savings to homeowners as lower prices. Everyone wins because painters increase their competitiveness and profitability, homeowners receive better prices and quicker completion dates, and you sell more paint.
The last column on the right in the table in Exhibit 2-4 demonstrates this concept for the cellular phone and the bottle of barbecue sauce.
Cellular Phone Features (Adjective-Noun)
Benefits (Verb-Noun or Adverb-noun)
Value Type (Measurable or Perceived)
Focus: Internal, External, or Both
Digital Signal
Improves reception
Perceived value
Both: you can reach customers more easily and for longer periods (I) Customers can reach you more easily and for longer periods (E)
Increases battery life
Measurable value
Both: same as above
Extends talk time between recharges
Measurable value
Both: same as above
Hands-Free Operation
Increases safety
Perceived value
Internal (external to other drivers)
Sauce Features (Adjective-Noun)
Benefits (Verb-Noun or Adverb-Noun)
Value Type
Focus
Hickory Flavor
Improves taste
Perceived Value
Internal
Eliminates the costs of wood chips
Measurable Value
Internal
Eliminates the time and expense of grilling
Measurable Value
Internal
Fat-Free Ingredients
Reduces the intake of fat grams
Measurable Value
Internal
Exhibit 2-4: Know the focus of the value.
Which Value Should You Use When Selling?
If you can prove your products are technically superior, sell on measurable value and direct savings to offset low-priced competitors. If your products are not technically superior but cost less than competitors, sell on perceived value and indirect savings to offset higher-value competitors. In the final analysis, your unique strengths determine whether you sell on perceived or measurable value.