Professor James C. Anderson

Kellogg Faculty Research: James Anderson, Marketing

New book by Professor James Anderson details how to capture more business and prevent 'value drains'

Most managers would jump at the chance to learn a proven method for winning more B2B business and increasing profits.

Now they have a new resource to help, thanks to James C. Anderson, the Kellogg School's William L. Ford Distinguished Professor of Marketing and Wholesale Distribution.

Value Merchants: Demonstrating and Documenting Superior Value in Business Markets, finds Anderson and co-authors Nirmalya Kumar and James A. Narus presenting a systematic approach for collecting and analyzing data to substantiate the superior value that a company can deliver to customers.

"Customer managers, particularly purchasing managers, are under tremendous pressure to reduce the cost of acquired goods and services," Anderson says. "One easy way to do this is to reduce price, but if your company doesn't want to do that, then it becomes more difficult."

Anderson says that to be the winning supplier, proposals must be backed with data that distinguish a company from the competition, numbers that will persuade purchasing managers that this firm is the best choice to help them reduce costs. In Value Merchants, Anderson calls such a fact-based approach demonstrating and documenting.

The tools that Anderson details — including how to create value propositions that resonate with customers — have been developed through years of consulting and research. Examples from various industries and countries make the book's approach one that today's managers can implement.

"Companies typically are awash in data, but they're starved for information, which comes from analyzing the data," he says. "Somebody has to get in there, generate or gather the data, do the analysis and provide the results in a readily understandable way. That's what the suppliers, and their sales people in particular, do in our approach." This, he notes, is a critical part of how a sales force can be transformed into value merchants, rather than competing using price concessions.

But a company must create a culture that rewards these value merchants. Anderson says that getting price premiums, a natural way to think about gaining a fair return for delivering superior value, is only one of four ways a supplier can be rewarded.

Other possibilities are getting a larger share of the customer's business, gaining a more profitable mix of the customer's business and identifying and eliminating what Anderson calls "value drains" and "value leaks." Value drains are services, programs and systems that cost the supplier more to provide than they are worth to the customers receiving them. These drains have no strategic significance. Value leaks are customer activities and practices that increase the cost of doing business for the customer or the supplier and that yield no offsetting greater cost savings or value to either.

The essential message in Value Merchants, Anderson says, is the importance of doing research to understand the customers' preferences and how an offering fulfills these better than the competitor's. "Everyone has perceptions, opinions and beliefs, but the question is: Can you prove it?"

Anderson says this book, his second, is geared for general managers, marketing managers and sales managers because it presents a business philosophy and the process, concepts and tools needed for implementing that philosophy.

"It's the idea of how we can deliver superior value to targeted customers and get an equitable return on the value we deliver," he says. "The perception of what's equitable can be influenced by how well we demonstrate and document what that value is. If we do a poor job of that, we have to give more of that value away to the customer as an incentive to do business with us. If we do a better job, we get to keep more of that as profit."