Research paperOpportunities for value-based selling in an economic crisis: Managerial insights from a firm boundary theory
Introduction
When a major economic or social crisis hits the global economy, the most immediate impact on many B2B suppliers is often a drastic decline in new product sales (cf., Bain and Company, 2020; BGC, 2020). This can be particularly fatal for vendors who sell large capital projects, tailored turnkey solutions, or complex customer offerings that are expensive to purchase and costly to implement.
From a customer perspective, the key issue in a crisis is usually maintaining a continuous supply for critical operations, while cutting back on non-critical processes and purchasing categories to reduce costs and ensure performance in core areas. This usually means that purchasing budgets get severely restricted, new investment plans frozen, and expensive maintenance packages and equipment modernization contracts downscaled or put on hold. In situations like this, the key question for B2B vendors is how to maintain sales without sacrificing margins, and retain customers without reducing prices (cf., Ritter & Pedersen, 2020).
While conventional wisdom tends to advocate temporary price reductions as a way to maintain sales and empathize with distressed customers, this is a reactive and short-term strategy, and diminishes the vendor's profitability and competitive position. In contrast, we propose that there is another way to approach B2B selling in an economic crisis, with a strategy that is not only proactive and long-term but also mutually beneficial and equally profitable for vendors and their customers. This approach is value-based selling, which allows customers to drive down immediate costs while preserving access to resources that are required to grow with the market when the economy eventually recovers.
Value-based selling focuses on understanding, quantifying, and communicating the value that vendors co-create with customers, and delivering value propositions that reduce customers' total costs while improving their productivity (Anderson, Narus, & Van Rossum, 2006; Terho, Haas, Eggert, & Ulaga, 2012). Because value-based selling commands premium pricing, this approach may seem counter-intuitive during an economic crisis, especially amidst tightening budgets and apprehensive buyers (cf., Töytäri, Keränen, & Rajala, 2017). However, in this article, we discuss and subsequently demonstrate i) why economic crises should make customers more receptive to value-based selling, ii) how this approach is more beneficial to both vendors and customers than just reducing prices, and iii) how vendors can capitalize on this opportunity by reshaping firm boundaries in customer-supplier relationships.
To develop theory-based recommendations, we draw on the well-established and conceptually rich firm boundary theory (Santos, 2009; Santos & Eisenhardt, 2005), which employs four boundary conceptions (efficiency, competence, power, identity) as distinct lenses to understand how firms set their boundaries under different conditions. While earlier B2B marketing studies have applied firm boundary theory to highlight key managerial decisions in solution business (Salonen & Jaakkola, 2015), we consider how these boundary conceptions help vendors explain to customers why value-based selling makes sense during an economic crisis.
If successful, the long-term impact of the adoption of value-based selling can be a shift in the buyer's identity, away from a transactional relationship toward a value-based partnership. For managers, this article offers important insights and theory-based recommendations on why value-based selling is a powerful approach in an economic crisis, and how it can be adopted by shifting firm boundaries.
The rest of this article proceeds as follows. First, we outline the concept of value-based selling. We then analyze the opportunities for value-based selling during an economic crisis through the four boundary conceptions of efficiency, competence, power, and identity (Santos, 2009; Santos & Eisenhardt, 2005). Finally, we discuss emerging insights and suggest managerial implications.
Section snippets
The concept of value-based selling
Value-based selling refers to a selling approach “where a seller works with the customer to craft market offerings in such a way that benefits are translated into monetary terms, based on an in-depth understanding of the customer's business model, thereby convincingly demonstrating their contribution to customers' profitability” (Terho et al., 2012). It builds on understanding the customer's business model, developing quantified value propositions, communicating value potential, and verifying
Discussion
Our analysis of the opportunities highlighted by applying firm boundary theory to value-based selling in an economic crisis provides three key insights. First, while vendors might be tempted to take the easy route and offer temporary price reductions to maintain sales in a crisis, this is often a suboptimal approach, because it emphasizes short-term gains at the expense of long-term performance for both vendors and their customers. Instead, value-based selling (Terho et al., 2012; Terho et al.,
Managerial recommendations
For managers, this article offers six important and immediately applicable recommendations to help B2B vendors remain competitive in crisis, while also solidifying their competitive position for the time when the market recovers.
Consider strategic, not reactive, selling approaches in changed market conditions. Instead of reacting to customer situations by offering temporary price reductions to maintain sales, vendors should consider more strategic approaches that help them capture
Conclusions
Echoing Ritter and Pedersen (2020), we believe that companies that take a proactive and growth-oriented stance while controlling short-term financial damage, will emerge stronger from economic crises (see also Osiyevskyy, Shirokova, & Ritala, 2020). Value-based selling is a tool that helps managers achieve these objectives, allowing vendors and buyers to work closely together to find mutually beneficial solutions to combat disruptions and market decline. However, for value-based selling to
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