Dollarization Discipline: How Smart Companies Create Customer Value... and Profit from It

Overview

"GE people realize that our job is to help our customers make money. Dollarization thinking helps us do that."
–Damian A. Thomas, General Manager and Corporate Sales Leader
General Electric Company

"THE DOLLARIZATION DISCIPLINE demystifies the often misused term ‘value,’ and shows how to become a thought partner and sell the true worth of your offering. This book will pay for itself many times over."
–Anthony Parinello, Author, Selling to Vito and Getting the Second Appointment

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Overview

"GE people realize that our job is to help our customers make money. Dollarization thinking helps us do that."
–Damian A. Thomas, General Manager and Corporate Sales Leader
General Electric Company

"THE DOLLARIZATION DISCIPLINE demystifies the often misused term ‘value,’ and shows how to become a thought partner and sell the true worth of your offering. This book will pay for itself many times over."
–Anthony Parinello, Author, Selling to Vito and Getting the Second Appointment

"Strategic marketing begins with an understanding of how a business creates economic value for its customers. This is a core focus for PPG businesses, and THE DOLLARIZATION DISCIPLINE creatively demonstrates how this thinking can be applied to all aspects of sales and marketing."
–Dennis A. Kovalsky, Vice President, Automotive Coatings PPG Industries

"Read this book and do what it says. Your customers, and your employer, will thank you for it."
–John Chickosky, Vice President, FTS Systems

"A must-read for any business looking to improve sales growth, profitability, and customer retention."
–Dean Graham, Managing Director, CapitalSource Inc.

"THE DOLLARIZATION DISCIPLINE presents powerful concepts with practical implementation ideas. Businesses large and small will benefit from putting Dollarization to work."
–John Vander Vort, Director, Private Markets Group
DuPont Capital Management

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Editorial Reviews

Soundview Executive Book Summaries
At the heart of The Dollarization Discipline lies the concept of understanding the financial impacts a product or service has on its buyer. Although this involves the idea of "total cost of ownership," it focuses on more than just cost reduction and cost avoidance. In The Dollarization Discipline, marketing guru Jeffrey J. Fox and management consultant Richard C. Gregory describe how organizations can also measure the financial impact of noncost benefits, including increased market share, increased sales volume, and increased pricing power.

Getting Started With Dollarization
You are shopping for paint and find many choices at the local paint store. Product X costs $12 a gallon; product Y costs $20 a gallon. Which paint should you buy?

The salesperson says, "I strongly recommend product Y. Its price may be higher, but it will last eight years, while the other paint will last four at best. That means that over eight years, you'd have to buy product X twice, for a total of $24 a gallon, versus just $20 a gallon for product Y. In reality, product Y costs less!"

You reply, "That's very interesting, but I'm preparing to sell my home, so I don't care about how long this paint will last. I think I'll go with product X for $12."

The salesperson listens and responds, "I understand, but I think product Y is still your best choice. You see, product Y contains 50 percent more pigment, which results in better coverage than product X. This means you will need to apply only one coat to your house. Product X will require at least two coats. This will also cut your labor costs in half. Plus, you are guaranteed that your house will look freshly painted, which will improve your success in selling your home. Wouldn't you agree that an extra $8 per gallon is a great investment to sell your house at the price you want?"

Finally, you decide. The $20 paint is actually less expensive than the $12 paint.

Financial Consequences of Choosing
When businesses make purchases, too often they are myopic and overemphasize the importance of price. They overlook the many other financial consequences of choosing one offering over another. This is a failure on the buyer's part, because it may very well result in financial harm to the organization. But more importantly, it is a failure on the seller's part because the seller has missed the chance to demonstrate the true financial impact that could be provided to the customer.

The meaningful way to compare the cost of two offerings is by evaluating the total cost of using each. In order to help customers to understand the true net cost of your product, you must dollarize the product's true value.

Dollarization is figuring out what your offering is really worth - in dollars and cents - to your customer. It is the management discipline that is missing in many sales and marketing organizations, and its impact can be great, and its applications are many. Dollarization can help your company better understand, articulate and profit from the value you create for your customers and clients. Dollarization should become a standing discipline that guides your thinking about pricing, selling, positioning, new product development, and nearly every other area of your sales and marketing.

Value Is a Number
In sales and marketing, value takes the form of value-added, value chain, value proposition, or value engineering. When sales and marketing people talk value, they use words - words that lack precision - and rarely use numbers.

The solution is an approach to sales and marketing that goes beyond articulating features and benefits, but in fact calculates the full economic value a customer receives from a product or service; the seller is then able to price the product or service as a true reflection of that value. This approach is called dollarization.

Businesses do not buy; they invest. Every time a company makes a purchase decision, it is committing company capital. In theory, that capital is constantly being allocated and reallocated to achieve the best available return. Too few companies exercise this discipline for all purchases. And far fewer companies market and sell in a way that permits customers to understand the economic value provided in return for the investment. Whatever you do, you must map exactly how your offering translates to value for your customer's business. Copyright © 2005 Soundview Executive Book Summaries

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Product Details

  • ISBN-13: 9780471659501
  • Publisher: Wiley
  • Publication date: 9/28/2004
  • Edition number: 1
  • Pages: 272
  • Sales rank: 529,532
  • Product dimensions: 6.00 (w) x 9.00 (h) x 0.75 (d)

Meet the Author

JEFFREY J. FOX is the author of the Wall Street Journal and New York Times bestseller How to Become a CEO. He is also the founder and President of Fox & Company, Inc., a management consulting firm that specializes in marketing strategy development and sales effectiveness.

RICHARD C. GREGORY is a Senior Consultant with Fox & Company. He leads Fox’s Dollarization Consulting and Training practice, which helps clients develop innovative approaches to articulating and quantifying the value they deliver to their customers.

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Table of Contents

Preface.

Introductory Notes.

SECTION 1: INTRODUCTION TO DOLLARIZATION.

Chapter 1. Getting Started with Dollarization.

Chapter 2. Value Is a Number.

Chapter 3. Why Dollarize?

Chapter 4. After the Bubble Burst.

SECTION 2: DOLLARIZATION AND SELLING.

Chapter 5. Dollarization and Selling Your Price.

Chapter 6. Dollarization and Selling Something New.

Chapter 7. Shortening the Sales Cycle.

Chapter 8. Dollarization to Protect and Keep Business.

Chapter 9. Removing Doubt in the Seller’s Mind.

Chapter 10. Dollarization to Get a Prospect’s Attention.

Chapter 11. Dollarization and Channel Partners.

Chapter 12. Dollarizing and Selling Services.

SECTION 3: DOLLARIZATION AND MARKETING.

Chapter 13. Dollarization and Marketing Communications.

Chapter 14. Pricing New Products.

Chapter 15. Dollarization and Market Segmentation.

Chapter 16. Dollarization in Consumer Marketing.

Chapter 17. Dollarization and the Commodity Myth.

Chapter 18. Dollarization and New Product Direction.

SECTION 4: DOLLARIZATION TECHNIQUES.

Chapter 19. The Mechanics of Dollarization.

Chapter 20. How to Dollarize Any Benefit.

Chapter 21. Developing Dollarization Data.

Chapter 22. Making Dollarization Work with the Customer.

Chapter 23. Constructing the Customer Value File.

Appendix: The Dollarization Doctrine: Ten Rules to Successful Dollarization.

Notes.

Index.

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First Chapter

The Dollarization Discipline

How Smart Companies Create Customer Value ... and Profit from It
By Jeffrey J. Fox Richard C. Gregory

John Wiley & Sons

ISBN: 0-471-65950-9


Chapter One

Getting Started with Dollarization

The weekend arrives and you're shopping for paint to freshen up the outside of your home. You arrive at the local paint store to find many choices. You narrow the possibilities down to two: Product X costs $12 a gallon; product Y costs $20 a gallon. Which paint should you buy?

The salesperson greets you with a warm smile. She watches you deliberate, then says, "I strongly recommend product Y. Its price may be higher, but it will last eight years, while the other paint will last four at best. That means that over eight years, you'd have to buy product X twice, for a total of $24 a gallon, versus just $20 a gallon for product Y. In reality, product Y costs less!"

You reply, "That's very interesting, but I'm preparing to sell my home, so I don't care about how long this paint will last. I think I'll go with product X for $12."

The salesperson listens and responds, "I understand, but I think product Y is still your best choice. You see, product Y contains 50 percent more pigment, which results in better coverage than product X. This means you will need to apply only one coat to your house. Product X will require at least two coats. This will also cut your labor costs in half. Plus, you are guaranteed that your house willlook freshly painted, which will improve your success in selling your home. Wouldn't you agree that an extra $8 per gallon is a great investment to sell your house at the price you want?"

Finally, you decide. The $20 paint is actually less expensive than the $12 paint.

The logic in this example seems obvious, yet every day, sellers and marketers lose sales because they unintentionally allow customers to believe that their higher-priced products truly cost more than their competitors'. And every day, customers choose low-priced products despite the higher total cost that will actually result.

Consider another familiar scenario: When buying a car, there are many costs and considerations to weigh. There is, of course, the price, which typically gets 99 percent of the buyer's attention. But there are also fuel costs, maintenance costs, finance costs, insurance costs, personal property taxes, resale value, and on and on. In reality, price is but one of many costs to consider when weighing the decision to buy a car.

When businesses make purchases, too often they are myopic and overemphasize the importance of price. They overlook (sometimes inadvertently, sometimes intentionally) the many other financial consequences of choosing one offering over another. This is a failure on the buyer's part, because it may very well result in financial harm to the organization. But more importantly, it is a failure on the seller's part because the seller has missed the chance to demonstrate the true financial impact that could be provided to the customer.

As with house paint and cars, the meaningful way to compare the cost of two offerings is by evaluating the total cost of using each. In order to help customers to understand the true net cost of your product, you must dollarize the product's true value.

WHAT IS DOLLARIZATION?

This book is about a concept we coined called dollarization. Dollarization can be defined many ways depending on its usage, but the essential concept is:

Dollarization The translation of the benefits a product or service delivers to a customer into the dollars-and-cents financial impact to that customer.

In other words, dollarization is a method for converting the ubiquitous buzzword "value-added" into real money. It is figuring out what your offering is really worth-in dollars and cents-to your customer.

Dollarization is a management discipline that is missing in many sales and marketing organizations. Its impact can be great, and its applications are many.

Dollarization is not an entirely new concept. For years, good companies have understood the need to express their value in financial terms. But even the best firms tend to utilize a dollarized approach to sales and marketing only in selected situations. Or they apply it too narrowly. For example, some companies use the concept called "lowest cost of ownership." This is a good concept-if the seller really does the math-but it is often half the dollarized story. The other half of the dollarization story is calculating the top-line revenues (and consequent margin dollars) that a seller's product can generate for the buyer. If the seller's product enables the customer's company to get its product to market faster, or to outperform the customer's competition, or to raise prices, then the customer's return on the seller's product can be enormous.

Sellers of big-ticket items are often forced (by customer capital appropriation policies) to demonstrate the return on investment (ROI) for their wares. Other industries dollarize because the need is self-evident: For example, jet engine makers compete on fuel efficiency because small changes in miles per gallon can have enormous impact on the operating costs of their airline customers. But more often than not, dollarization is not even considered by the seller.

Nor is dollarization demanded by enough customers. The foremost mission of a business is to create value for its owners. Managers of a business have a fiduciary responsibility to the owners to manage in a fashion that can be reasonably expected to create value. And when shareholders discuss "value," they are talking about the financial value of the share price, the cash flow, the dividend paid.

When a business operates, its managers must align the available resources to create value. It follows, then, that every expenditure made by a company should be made with an eye toward value creation.

When a company needs to make a major infrastructure investment-a new piece of capital equipment or a new software platform, for example-it is common for managers to conduct some level of due diligence and economic analysis to assure themselves that their investment will provide the best return. But somewhere down the purchasing chain, after the capital goods but long before the paper clips and toilet paper, many managers abandon this financial discipline. They see those remaining products as inconsequential and focus not on value but on price. Worse yet, the marketers and sellers of these products succumb to this negative belief and complain that their so-called commodity products are judged only on price. But even seemingly inconsequential products can be dollarized. Whether through subtle product design or performance differences, or through packaging, delivery, or service elements, any product a business buys can be dollarized.

With this book, we will explain how dollarization can help your company better understand, articulate, and profit from the value you create for your customers and clients. Dollarization should become a standing discipline that guides your thinking about pricing, selling, positioning, new product development, and nearly every other area of your sales and marketing.

Companies that truly create economic value for their customers deserve to share in that value. The price premium a value-creating firm can command enables the company to invest in continued innovation and to commit resources to generate even further value. Dollarization enables companies to afford the necessary investments required to perpetuate the creation of customer value.

Too many companies create value but don't keep their rightful share. We hope after reading this book you will do otherwise ... and dollarize.

(Continues...)



Excerpted from The Dollarization Discipline by Jeffrey J. Fox Richard C. Gregory Excerpted by permission.
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
Excerpts are provided by Dial-A-Book Inc. solely for the personal use of visitors to this web site.

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