Author: Andrew Carlson



When Inflation Bites, Value Fights



In recent days, the Federal Government is finally acknowledging what many in the retail industry have been saying for more than 15 months: Inflation is real, it is significant, and it does not appear to be going away anytime soon. The day after he was nominated to lead the Federal Reserve for another term, Chairman Jerome Powell acknowledged that high inflation is a “severe threat” and that the United States is on an “unsustainable debt path” with the national debt “growing meaningfully faster than the economy.” On January 12, the Labor Department announced that the Consumer Price Index rose by 7% in 2021 — the steepest increase since 1982!

Even worse, the Labor Department said on January 13 that its Producer Price Index, which measures inflation at the wholesale level before it reaches consumers, surged 9.7% in December 2021 from the year-ago period. This marked the highest figure on-record since the government began trading the data in 2010. One major hardlines wholesaler had raised retail prices on over 42,000 items through June of 2021, and the pace has only accelerated from there. Prices of plumbing supply items have gone up an average of 23.5% in the last 12 months alone.

Wholesale price increases are being driven by sharp increases in the price of raw materials. For example, the price of steel recently topped $600 per ton with forecasts showing the price headed toward $750 per ton. The price of epoxy resins, which are used in many paints and coatings, have risen by 60% in recent months. And, after a decade of steady declines, the price of semiconductors has risen 8.2% in the past 12 months due to global shortages and capacity issues driven by the pandemic. These raw material price increases are being compounded by severe shortages and rising prices in transportation. The price of ocean containers recently topped $20,000, up from $1,500 just 18 months ago. Freight surcharges of 10-18% impacting trucking transportation is driven by fuel price increases and driver shortages.

AN INFLATED FUTURE

In addition to my role as a Mereo Principal, I have several decades of experience in retail, which has shown that consumer prices rarely go down unless impacted by technology change. For example, the price of a can of spray paint has gone from $4.99 to $6.99 in recent months — an increase of 40%. This price is unlikely to lower, or if it does, it will lower sluggishly over the course of three or more years. Contrast this with the prices of LED light bulbs, which have been declining steadily due to technology advances as well as government subsidies. This means price increases on most durable goods are likely here to stay for the foreseeable future.

Recent inflation, though, is not limited to just goods; it is also impacting services. US wages rose by 4.7% in 2021, with faster increases in parts of the country like Denver, Colorado, where the minimum wage rose to $15.87 on January 1, 2022, putting it among the top 10 cities in the country. Wage increases are impacting the prices of services in categories like accounting, software subscriptions and services, and even healthcare.

SELLER DECISIONS

So, you ask, how should we respond as sellers? Well, we are already seeing goods manufacturers resort back to “shrinkflation,” which we really have not seen on a broad scale since the 1980s. For example, the CEO of Domino’s Pizza recently announced they are reducing the number of chicken wings per serving while holding the price constant. General Mills is shrinking the contents of cereal boxes but charging the same prices. Gain detergent is holding its prices steady by reducing its product by 11 ounces. Similarly, consumers will find less in their Crest 3D White toothpaste tubes, their Milky Way bars and their Aleve pain killer bottles.

Domino’s is also making some products available only through online ordering, saving the costs of labor in the ordering process. Retailers like Walmart and Sam’s Club are eliminating 70% of their cashiers and enabling consumers to shop and check-out using an app on their smartphones. Fast food restaurants like McDonald’s and Wendy’s are rapidly installing kiosks for ordering and checkout, thereby eliminating most of their front-end staff.

But sometimes, it is not possible to sell less product for the same price or reduce costs through automation to hold your prices constant. What should you do then? The answer is to truly understand why your product or service is differentiated from the competition and how it adds value for your customer, and then clearly articulate that differentiated value proposition to your customer. This approach reduces the importance of price as part of the buying experience — even when prices are increasing with inflation.

WIN WITH VALUE

The Mereo way: Customer value derives from how your product or service uniquely either decreases costs, decreases time-to-market, increases cash flow, increases revenues — or a combination of these. Mereo uses a Value Messaging Workshop to help clients prepare this compelling story that can be clearly articulated by your sellers. This approach has proven to be effective even in periods of high inflation like we are experiencing today.

Learn how Mereo Principals shared our value messaging framework to build sales tools that helped align and enable sellers at Castellan, as well as supported the organization in entering the business continuity and resilience SaaS marketplace as a clear leader.

 

LEARN MORE



Putting Differentiated Value in B2B Value Calculators



A value calculator seems like a selling organization’s dream come true: a tool that can actually demonstrate your solution’s real worth to a buyer. This is more than a flashy trick; this can motivate your buyers to act.

Recently, an emerging ERP software company realized this potential — and Mereo value engineering experts helped fulfill it in a uniquely rewarding way.

When it comes down to it, not many B2B organizations build value calculators that achieve the results they are supposed to achieve. As we started to develop this client’s calculator, we tested and assessed their competition’s current offerings. Each competitor had created a marketing tool that might attract mid-level influencers online — but would never influence real action in a sales cycle. Across the board, the tools’ output consisted of pie in the sky promises no decision maker would fall for. They lacked any proof or any indicators that they were different or better.

Value engineering is more than applying high-level financial metrics. And, with increased C-suite involvement in sales cycles, it is even more important to equip sellers with a tool that will demonstrate how your solution can enable a buyer’s specific business priorities. Salespeople need to cut to the chase with the benefits that differentiate them from the competition and drive the buyer to act.

In true Mereo fashion, we infused Seek to Serve, Not to Sell™ groundwork into this ERP provider’s value calculator — and helped them in-turn better serve their buyers for a win-win outcome.

The Mereo Approach: B2B Value Engineering2

As the Mereo team began the design phase of the project, we focused on a core driving question: What is the point in building a value calculator? Why create something that will not engage a true decision-maker — or, worse yet, that no one will gain justifiable results from if they use it?

For B2C businesses, brand-infused value statements can serve well as marketing tactics that drive demand. Yet tools that exist on a webpage can only provide so much output that is typically over-simplified. For B2B, salespeople need to be armed with a value engineering approach that actively engages the prospect to go deeper and provide specific, value-focused data.

The outputs need to be compelling and relevant to a prospect. The calculations need to drive home the sale. And the Mereo team has developed a proven three-part framework with real engineered value to do just that.

1. Configure Pain Points

What issues are your buyers trying to overcome? This is a vital first question to address in value engineering. Without an identified problem to overcome, a solution is irrelevant and useless. Organizations must dig deep and explore what pain points (issues) target buyers are facing that can be addressed with your specific solutions.

2. Emphasize Differentiated Value

Where can your solution drive value for the buyer — and how is that different from other solutions on the market?  Value calculations need to emphasize these differentiated, value-backed elements of a solution to clearly distinguish your solution from the competition in the buyer’s mind. Make your solution the most valuable option in the equation.

3. Make it Believable and Provable

What relevant use cases can be built into the value calculations? Leverage the experiences of your customers to build realistic ranges of expectations for differentiated value directly into the value calculator you create. Consult third parties and analysts as well to understand what value best practices can deliver. These elements will provide a starting point for discussions as you hone-in on the unique, differentiated value your solution can deliver for each buyer. Then as your solution is selected and implemented, use the value calculator post-sale to validate the business case and truly demonstrate the value realized to your customer.

With this framework applied for our ERP client’s value calculator, salespeople are demonstrating specific, differentiated value. Unlike most value calculators that prove to be an equation for client expense without much return, our team helped this B2B organization better engage and convert prospects into buyers.

Prove Your Worth

Mereo has a decades-long history of value engineering that helps to serve sellers and buyers alike. From software companies to tech startups to Fortune 50 B2B organizations and more, Mereo experts have repeatedly applied this framework to help organizations realize sustainable revenue performance™ with value engineering.

If done right, this tool can be applied to any B2B organization’s solution for real results. Contact us to get started on your own value calculator.

 

Let’s Connect