Ed and I had the pleasure of interviewing Dan Morris, co-founder of VeraSage Institute, and one of the world’s leading experts on crafting the value conversation. Dan did a video for the AICPA on the value conversation, which is well worth watching.

We’ve also included an excerpt from the value conversation chapter of Ron’s latest book, Implementing Value Pricing: A Radical Business Model for Professional Firms, as well as some additional books and resources mentioned during the show:

The Value Conversation

Language was invented to ask questions. Answers may be given by grunts and gestures, but questions must be spoken. Humanness came of age when man asked the first question. Social stagnation results not from a lack of answers but from the absence of the impulse to ask questions.
––Eric Hoffer, Reflections on the Human Condition, 2006

Any company that establishes prices based upon value will agree that the conversation with the customer is the most important part of the process. Skipping an in-depth conversation is similar to a contractor attempting to build a customer’s dream home without any architectural plans. The better your firm comprehends the customer’s value drivers, the more likely you will be able to create and communicate maximum value, convince the customer they must pay for that value, and capture that value with an effective pricing strategy custom tailored to the customer.

This is an opportunity for you and the customer to create a shared vision of the future, to analyze where the customer is at this point, and to develop the necessary action plan to move them to where they want to be.

This focus is crucial, because if you do not discus value with the customer, you will be forced into a discussion of costs, efforts, activities, and deliverables, usually by procurement, or some other professional buyer within the customer’s organization. Remember that the customer is trying to maximize the value they receive while attempting to minimize your price. It is far more strategic to engage in a discussion over what the customer is trying to maximize rather than what they are trying to minimize. If all you focus on is price, it can never be low enough. If the customer says your price is too high, what they are really saying is, “I don’t see the value in your offering.” It is not a question of money; rather, it is lack of belief.

Naive Listenting

When I am getting ready to reason with a man I spend one-third of my time thinking about myself and what I am going to say, and two-thirds thinking about him and what he is going to say.
––Abraham Lincoln

Questions require doubt, something salespeople who are experts in what they sell are not comfortable with. After all, we are paid to have the answers, not express doubt; and if you already know the answers there appears to be no need to gather any more information from the customer, chaining ourselves to the limits of our existing knowledge.

For this reason, during the conversation the customer should talk at least twice as much as the salesperson. This is incredibly difficult because it requires self-restraint. Naïve listening is difficult because you think much faster than people talk. While someone is talking, you are usually listening with one-half of your brain and formulating your answer with the other. Active listening is a skill that needs to be developed.

Talkers may dominate a conversation but the listener controls it. Taking notes conveys to the customer that what they are saying is important and that you care enough to record it. It also helps you remember exactly what they said. But most of all—and this is precisely why psychiatrists and psychologists take notes—is the person will provide much more detail. The more you know, the more value drivers you will be able to uncover, and the higher prices you will command.

You also want to deal with the economic buyer—the person who can hire and pay you. Many consultants believe you are wasting your time if you cannot get in front of this person, because most likely you will be dealing with gatekeepers who can only say “no,” never “yes.” This may take a few iterations, but the customer is sending a signal they are not serious if they deny you access to the economic buyer, and you may want to invest your resources in more profitable opportunities—such as servicing existing customers.

Avoid the ever-present temptation to provide solutions to the customer’s needs and wants. That is not the purpose of the conversation at this stage. You are on a value quest with the customer, not in a venue to begin providing solutions. Your role at this point is to ask questions and have the customer formulate—or at least articulate—a vision of the future. Before doctors prescribe, they must diagnose, which is the role you must assume at this stage in the conversation. Anything less is malpractice.

Starting the Conversation

This is one of the most effective statements to utilize somewhere near the beginning of the value conversation, regardless of whether you are meeting with a new or current customer:

Mr. Customer, we will only undertake this sale if we can agree, to our mutual satisfaction, that the value we are providing is greater than the price we are charging you. Is that acceptable?

This establishes the right tone near the beginning of the conversation that yours is a firm obsessed with value, along with the willingness to demonstrate the economic impact that your products and/or services can have for the customer—how it will improve the customer’s life or business. It also subtly suggests that you will not enter into relationships that do not add value for both parties—the exact tone you want to set, as both sides to a transaction must profit if it is to be sustainable.

Questions You Should Ask the Customer

If all patients were the same, medicine would be a science, not an art.
––Sir William Osler, one of the fathers of modern medicine

Something similar to Osler’s statement can be said of questioning—it is an art and skill, not a science. Each customer is unique, and so must be your approach to questions. Just as with naïve listening, one should not be afraid to take the Lt. Columbo approach and ask simple questions. As English mathematician and philosopher Alfred North Whitehead wrote, “The ‘silly question’ is the first intimation of some totally new development.”

Peter Drucker also taught an effective approach to assignments: approach the problem with your ignorance:

I never ask these questions or approach these assignments based on my knowledge and experience in these industries. It is exactly the opposite. I do not use my knowledge and experience at all. I bring my ignorance to the situation. Ignorance is the most important component for helping others to solve any problem in any industry.

There are questions you should ask every customer to assist you in determining just where on the value curve your customer is located. The more information you seek from customers, the better equipped you will be to assess their price sensitivity. Always ask open-ended questions to engage the customer in discussing goals, aspirations, fears, desires, and dreams of the future. This has a tremendous psychological impact, because most people’s favorite topic is themselves. Start with the following questions:

What do you expect from us?
What is your business model? How do you make profit?
What are your company’s critical success factors and Key Predictive Indicators (KPIs)
How will the services we provide add value to your customers?
Which of our company’s offerings is of the highest value to you?
Who is the next best alternative (competitor) to our company?
What characteristics do they have we do not, and vice versa.
What is your current pain?
How do you see us helping you address these challenges and opportunities?
What growth plans do you have?
If price were not an issue, what role would you want us to play in your business?
Do you expect capital needs? New financing?
Do you anticipate any mergers, purchases, divestitures, recapitalizations, or reorganizations in the near future?
We know you are investing in Total Quality Service, as are we. What are the service standards you would like for us to provide you?
How important is our service guarantee to you?
Why are you changing suppliers? What did you not like about your former supplier that you do not want us to repeat?*
How did you enjoy working with your former supplier?**
Do you envision any other changes in your needs?
If we were to attend certain of your internal management meetings as observers, would you be comfortable with that?
How do you suggest we best learn about your business so we can be more proactive in helping you maximize your business success?
May our associates tour your facilities?
What trade journals do you read? What seminars and trade shows do you regularly attend? Would it be possible for us to attend these with you?
What will the success of this engagement look like?
What is your budget for this type of service?

*Do not denigrate the predecessor supplier. First, this insults the customer and reminds the customer of a poor decision. Second, it diminishes respect and confidence in the industry as a whole.

**Even though the customer is changing suppliers, almost certainly the customer liked some characteristics of the predecessor. Find out what these were and exceed them.

Believing Your Worth

There is great nobility in getting paid what you are worth. Nothing is more satisfying than customers who believe—and act on the premise—that they get what they pay for. The best way to achieve this is to have a value conversation.