In the broadest sense, a value-based strategy must deal with the customer’s economic and emotional needs. Economic factors are simply those that either
- Reduce costs or
- Increase revenue.
Economic factors can be quantified and verified. You can express them in a spreadsheet. On the other hand, emotional factors are intangible, subjective, and hard to measure. Emotional value factors include things like
- Prestige,
- Peace of mind,
- Confidence,
- Aesthetics, and
- Pleasure.
When it comes to implementing a value-based strategy, capital equipment suppliers have the edge. They only need to be concerned with economic factors. Emotional factors can be ignored.
Capital equipment is any equipment used to provide a service or to make, market, keep, or transport products. Organizations buy capital equipment to reduce costs or increase revenue. When choosing among equipment alternatives, they will choose the one that they believe will produce the best financial outcome. To capital equipment buyers, value is pure economics.
However, not all equipment fits the definition of capital equipment. When it doesn’t, the value-is-pure-economics rule does not apply. The distinction lies in how the equipment will be used. See examples in the table below.
| Capital Equipment Value is Pure Economics | Not Capital Equipment Value is Not Pure Economics |
|---|---|
| A lawnmower purchased by a landscaping company | A lawnmower purchased by a homeowner to mow his own lawn |
| A jumbo jet purchased by an airline. | A private jet purchased by a wealthy heiress for travel to exotic vacation destinations |
| An electron microscope purchased by a semiconductor manufacturer | An electron microscope purchased by a principal investigator at a research institute |
| A high-speed printer purchased by a printing service company | A high-speed printer purchased by a college student to print out her Ph.D. thesis |
| A drill press purchased by a machine shop | A drill press purchased by an at-home hobbyist |
| A refrigerator purchased by a restaurant | A refrigerator purchased by an apartment tenant |
For the cases above where the equipment is not capital equipment, economic and emotional factors will determine the buyer’s value.
Buyer As the Enterprise vs. Buyer In the Enterprise
When you are selling capital equipment, you are selling to an enterprise. For the enterprise, only economic value drivers matter. The enterprise does not have feelings.
However, the individual in the enterprise does have feelings. That individual may need to feel secure that his equipment-purchase decision won’t put his job at risk. Or he may need to demonstrate that he’s a tough negotiator to earn the boss’s respect. Individuals can expect to feel secure, appreciated, and respected by looking after the economic needs of the enterprise. But you cannot expect that the needs of the enterprise and the individual are always the same.
For example, suppose an individual decided to buy your competitor’s equipment the last time he added capacity. This time around, he’s changed his mind and wants to buy yours. However, he’s worried that doing so will appear as an admission that his previous decision was a mistake. This individual has an emotional need to “appear competent” in both decisions.
Therefore, in addition to substantiating your equipment’s economic value to the enterprise, the salesperson may need to address the emotional needs of the individuals participating in the purchasing decision.