Criticality of the Purchase: Done deal or No deal

In B2B scenario, the criticality of the product being purchased in the value chain of the buying organisation is a very important factor. This is such an important factor that it makes the difference between a done deal and no deal.

Criticality can be due to the following reasons:
The volume of purchase

If the volume of purchase is very high then the criticality of the purchase is higher. As higher volumes indicate huge payouts, the buyers would like to get the best price for an acceptable quality. In the healthcare scenario, bandages and dressings are the best examples of this kind of a purchase. The quality in these cases should be acceptable but ideally the DMU (decision making unit) is driven by price. And as the purchase is in bulk and on going, the criticality of this sale is high. Conversely a highly specialized clinic would not require the dressings in bulk instead this would be a non critical purchase for them. Hence the DMU will not be very particular about the sales process and the salesman can expect some leeway in negotiations. When I was running a dental practice my highest volume of purchase was ‘water’. Surprised? Yes so was I, when I realized that I was almost using 10 liters of water daily. This was used to cool the dental machines while drilling and scaling. Hence I needed water of acceptable quality; I needed it in bulk almost 300 liters in a month and on a on going basis. A critical purchase for me!

Quality

When it comes to quality some industries on the whole are far more particular than the others. The biggest examples are those in which, quality lapses can lead to injury. Prime examples are automobiles and healthcare. Now even a quality tool like, Six Sigma (3.4 DPM) is not a quality standard in products that require precision. Some time ago we had to work with this firm designing software for nuclear power plants. Now we could not afford to have a single mistake in the monitoring software. This would not only be a costly mistake, it could endanger the lives of millions. The same we can’t say about a logistics firm that can live with 3.4 wrong or late deliveries. Hence the purchase of a software package for a logistics firm can have a margin for such errors but not design software for a nuclear power plant.

Cost of the component as a percentage of the total cost

This factor though not very important in small or mid-sized deals assumes importance when it comes to bigger deals. As larger deals would involve huge payouts, the importance of these deals from the DMU’s perspective is higher. So factors like cost, volume and quality would combine to enhance the criticality of such a buying decision. A colleague of mine used to work for a firm which specialized in designer bathrooms with ‘Jacuzzi’s’. Now for the Jacuzzi the critical component was the water pump which was almost 60% of the cost. Hence in their case the negotiations with their pump suppliers were far more critical that the other suppliers.

To add to these factors are the regulatory compliances. In industries like Lifesciences and Banking complying with government frameworks become very important, hence any sale to these organisations would require the supplier to be compliant too.

A good salesman would keep all these factors in mind before proceeding for sales. This requires elaborate preparation and doing your homework as to what are the conditions under which the prospective firm operates. This can make the difference between a done deal and no deal.

Written by: Dr Vikram Venkateswaran

Tags: , blog, closing, coach, learning, management, marketing, mentor, Pipeline, sales, Sales Training, selling

This entry was posted on Monday, June 9th, 2008 at 8:33 pm and is filed under Guest Blogger, Vikram on B2B. You can leave a response, or trackback from your own site.