Choosing Sides

The interesting thing about the splitting of the sales world is that organizations often have a large degree of choice about whether to bring their offerings to market using either the commodity model or the enterprise model. Companies can decide which side their services and products will occupy.

Some companies, especially in the business-to-business sector, do not fall cleanly into a commodity or enterprise transaction. They are already straddling the chasm and will be forced to either choose one selling model for their entire organization or clearly segment their markets and products into one of the two models. The one option that is not viable is to continue to allow the conventional salesforce to cover both sides of the spectrum.

Other companies are operating in markets that are already defined as either commodity markets or sophisticated markets. But that doesn't mean that they can't change their business model and switch sides. For example, after reading about Buy.com, you might think that book selling is always a commodity transaction. Then a company such as KnowledgeMax, Inc., comes along and turns business-to-business book selling into a enterprise transaction. KnowledgeMax offers its organizational clients custom-designed intranets through which their employees can buy books and other educational materials. The client and its employees get the convenience of the electronic corporate bookstores and the financial efficiencies of centralized purchasing free. KnowledgeMax generates its profits the same way Buy.com does - from the orders that it fulfills.

The difference between what KnowledgeMax and Buy.com offer their customers can be expressed in terms of added value. Both companies sell books to business people, but the value in buying a book from Buy.com lies almost wholly in its discounted price. At KnowledgeMax, on the other hand, there is a great deal of created value, such as organizationwide access to targeted educational materials, the customer's ability to monitor and approve purchases, and the efficiencies involved in reducing payments for all book purchases to a single invoice. Buy.com may sell a book at a lower price, but when all of the costs of a complete transaction are calculated, the total cost of buying that book from KnowledgeMax is often substantially lower.

With the sales world splitting apart, the question you need to answer is: "Which model should my company pursue?"

There is no simple answer to this question. If your company can squeeze more cost out of the system than your competitors can, competing in the commodity sale may be a viable choice. Certainly, there are companies that have become very successful by sticking to a low cost, high volume strategy. Competing on price is, however, a two-edged sword. As soon as someone else figures out a way to beat your price, customers will switch their allegiance.

We believe that a value creation sales model ultimately offers a more profitable opportunity than a price-based sales model. It is the enterprise sale that offers the opportunity to create value for your customer and capture value for your organization. The enterprise sale allows you to differentiate your company from the rest of the field and capture and defend a competitive advantage in the marketplace. For all of these reasons, organizations that have a choice would do well to choose to embrace and develop a enterprise sales model.

The two key issues for those who choose the enterprise sale then become:

1. Can you create true measurable and incremental value for your customers and capture a share of that value for you and your organization?

2. Do you have a process that allows your customers to comprehend the absence of that value in their businesses and be willing to pay a reasonable premium in price to receive that value?