The hole is the value, not the drillWhy customers buy

People make purchasing decisions not because they want the products or services but because they need the value derived from using them. Remember the famous Theodore Levitt quote from the 1970’s – “people don’t want a quarter-inch drill; they want a quarter-inch hole.” The hole is the value derived from using the drill.

Except for a few very rich sole proprietorships or poorly run companies, there is little chance of selling a product because of its award-winning design or because someone likes a service provider. Today, purchase decisions are made based on the value the buyer will get from the purchase in exchange for the payment.

Some examples

Hospitals purchase new capital equipment because it will “improve patient outcomes” (help get them well faster or reduce their stay in the hospital) or because reimbursement schedules are based on the efficiencies gained from new techniques. Industrial laboratories buy instruments because they need the data from the device. Factories buy new trucks only after exploring leasing and outsourcing options. Railroads buy new locomotives when they need additional capacity or when the older models are maintenance hogs. And businesses buy support contracts for several reasons:

  • Uptime is critical, and they need a fast response.
  • The plan includes a discount on consumables (which are generally low-cost, high-usage disposable items)
  • The combination of plan and equipment allows the service provider to include tasks usually performed by the business employees at a higher incremental cost.

How do we create customer value?

It sounds straightforward, but the answer is complex because it depends on the customer and her business situation. For example, reducing required floor space in a manufacturing operation is usually good, except that many plants have excess capacity because of offshoring, reduced demand, or building owners in a depressed area. The best approach is to create a list of all the value adds that your business can offer and then talk with each prospect to gain a detailed understanding of their needs and wants. Also, learn how they assign a monetized value for the “intangible” benefits you can provide, like helping the prospect’s customers grow. Then go back to your computer and craft a proposal that quantifies the value you can deliver and is on the customer’s needs and wants list. This approach requires a genuine relationship with the “champion” for valuable insights. And you will only get these insights if they trust you.

Sometimes the salesperson has this relationship, and sometimes it is a service person. Don’t let false pride or a lousy compensation plan stand in the way of making the information-gathering process a team effort. If no one in your company has a good relationship with a critical person in the buying chain, you had better get started. Without insight and information, your chances of success are less than hitting the lottery for a big payoff.

Sources of value

This is a partial list of the kinds of attributes you can add to your products or service that will add value for your customer:

There are many ways to create business value, and everyone must work together to identify and commercialize them before their competition does. There is no better time to begin than today!

A useful link: Click here to learn how we look at Value Creation.

About Middlesex Consulting

Middlesex Consulting is an experienced team of professionals with the primary goal of helping capital equipment companies create more value for their clients and stakeholders. Middlesex Consulting continues to provide superior solutions to meet the needs of its clients by focusing on our strengths in Services, Manufacturing,  Customer Experience, and Engineering. If you want to learn more about how we can help your organization create more value for your customers, please contact us or check out some of our free articles and white papers here