The four levels of value provide an orienting generalization that gives guidance on what your dream clients value. Because value is in the eye of the beholder, creating value means providing something your client perceives as value (for a primer on value creation, read this post). The four levels also offer a way to think about winning big clients.
As a disclaimer, what follows is a generalization. All generalizations are lies (including this statement, and also what follows), but they contain so much truth that they provide useful distinctions.
Level 1: Your Product Itself
When you sell your product, you are selling what is generally the lowest level of value. The fact that “product” is the lowest level of value does not mean that it isn’t important—or even essential. You cannot reach higher levels of value creation without the value of your product. You cannot, for example, have the most strategic of ideas and approaches and fail because your product or service doesn’t work.
For the most part, it is difficult to differentiate on your product alone because it is certain you have many competitors who, if you are honest, also have good products. It can be tough to displace a competitor when there is little difference between your product and your competitors. (For more on competitive displacements, see Eat Their Lunch: Winning Customers Away from Your Competition).
There are plenty of exceptions where the product itself rises to the level of strategic, especially when it is innovative and provides an enormous competitive advantage or solves a systemic challenge in a new way. Much of the time, however, problems at the higher levels create a more compelling case to change.
Because there are so many organizations that make good products, you can find a lot of small deals around the product, and you can find bigger deals that are mostly transactional and treated as commodities.
Level 2: Experience – Easy to Do Business With
One level up from product is “experience.” The value here is what it’s like to do business with you. It includes your service and support. The level of value here transcends and includes of the lower level of value. If your product works but comes with problems and challenges, how well you resolve and eliminate those challenges is a differentiator.
Perhaps because I spent a good part of my sales life selling and intangible, my experience has convinced me that we lose more clients to a poor experience than the product or service itself. If it is a problem that the product or service doesn’t work, the fact that your client can’t get the help they need makes things even worse. There isn’t a company on Earth that is without its challenges, problems, and failures. There is, however, enormous variations in their processes, their approaches, and their responses to those challenges.
If the experience and the support and service are more valuable than the product, it’s often because your client uses more of what of the product and service and needs more help. Companies that don’t buy much of the product or service don’t tend to have as many problems.
A little larger prospective client is likely to have more substantial problems.
Level 3: Tangible Results – Solving Problems
Let’s assume a hypothetical company manages insurance claims. The tangible result their clients seek is the effective management of the claims. Maybe they measure this result with a metric of cases handled. Because many companies can manage claims, it can be difficult to perceive any real differences outside of price. Most companies can solve their client’s problems, often without there being much different in their approaches.
What makes the third level of value greater than one and two is that it includes both of them, and it usually means there is some solution, some problem you are solving. You and your competition can both solve the problem, even if you might do one way while they solve it using another approach. The fact that many companies can solve the problem means we have been commoditized at this level.
When there is a need for a solution, there is more of a problem and more of a need. Bigger problems equal bigger deals.
Level 4: Strategic Value
Because of my long experience in staffing, it provides the most straightforward example for me to demonstrate the fourth and highest level of value. The level three value is providing an employee who can do the work required of their assignment. The fourth level might be providing an employee who can be hired full-time, reducing their turnover, improving their productivity, or reducing their overall cost of hiring.
The problems listed about over are of a greater magnitude than those you find at lower levels. They’re systemic, difficult to improve, and strategic. Improvements here create more value than the gain at the lower levels, all of which is necessary of you to get to level four.
If you need very little of something and going without it for long periods isn’t a problem, then the problem doesn’t rise to “strategic.” If you rely on something and going without puts your future at risk, it’s strategic.
The Big Deal about Big Deals
Every day there are very, very large deals for products. However, even in sales where products are purchased, winning big deals almost always requires something more than price. Imagine a chip manufacturer who sells its components in hundreds of thousands, each with a minuscule amount of four cents. You can imagine the higher levels of value matter very much. The experience, support, and service are necessary. It’s also easy to believe that the failure rate (problems at the third level of value) would also be a factor, especially if the client discovers this fact after they assemble the product they produce with the chips.
At level four, the supplying company’s willingness to invest in equipment to scale up their operation to serve their customer, to locate their factories close to their customer, to carry the cost of inventory, or to provide exclusivity to give their customer a competitive advantage would all be considered more strategic than the other levels of value.
If you want to win bigger deals, you need to start solving bigger, more strategic problems.
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