Understanding Transactional Buying
There are 1000’s of articles about transactional selling. The collective wisdom of most of those posts can be summarized as follows:
“Transactional selling sucks!” It does!
To expand on what most of these say, it not only sucks, the only way you can win is on price, and “real sellers” want to avoid it at all costs. Others say that it is all going the way of the web and e-procurement, so there is really no “selling opportunity.”
But the focus on transactional selling has blinded us to transactional buying and the real value we can create for those customers that have a transactional buying process.
There are a couple of things to think about with transactional buying.
First, the transactional buying process is often preceded by a very complex selling process. Take any part that goes into building a product, where that part may be a component, semiconductor, engine, subassembly, or anything that is part of the “Bill of Materials.” The buying process is very complex and often very long (in terms of time to revenue). We have to first get the “design win,” then we have to get the “manufacturing win,” then we have to look at/solve the whole supply chain management, sourcing problem.
Ultimately, we win the deal–simultaneously crossing our fingers the product launch will be a blockbuster success with their product volumes through the roof. At the end of the road, the buying becomes very transactional and fulfillment oriented–which we still have to work on in terms of preferred sourcing or moving from second sourced. But we never get to “solve that problem,” until we have gone through three very complex buying processes.
So once we “win” that complex deal, we have a potential for a very large contract that may go for years. That’s the good news.
But that’s where the buying process converts to a transactional process. While product/solution selection is no longer the core issue, there’s still a lot of issues our customers face over the years of the contract. These may include, supply chain management issues, vendor managed inventories, annual cost-downs, quality issues, safety/liability, engineering changes and the list goes on.
So the transactional buying process can become very complex. So we have to continue to work with the customer through the life of the product/contract, continuing to earn the business.
But there’s more. Typically, these types of deals are dual sourced or more. This means, we still must compete to win our share of the orders. We may be very fortunate, we may be sourced as the lead supplier, but we still don’t have 100% share, more importantly, there’s a second sourced supplier trying to knock us out, trying be become lead.
Or we are a secondary supplier, trying to convince the customer to give us more share, even moving into the lead supplier role.
You can get some sense of the number and complexity of the issues that remain. They have little to do with the product, but all the issues surrounding maintaining the contract. We have to continue to focus on creating value through this transactional process.
Anyone involved in selling parts that are embedded in other products face both this design/manufacturing win complex buying process, and if they are lucky and win, years of transactional buying to maintain the contract.
There’s another type of transactional buying process many of us get involved in. These are products that may be highly commoditized. The classic example we use is “Staples, pens, paper, or even things like PC’s, tablets and other electronic devices that may become commoditized.”
To often in our “transactional selling” we think the only way we can compete with these products is through pricing actions. But we can still create a huge amount of value, reducing the focus on pricing–though in every buying decision, pricing s always an issue.
With these types of buying processes, the buying really has little to do with the product itself. The products are indistinguishable and any supplier could provide the product. Here the greatest areas where we can create value for the buyers in their buying process, is in reducing and simplifying the costs of acquisition.
Like the other transactional buying process, there could be a huge number of supply chain issues, in which we can both remove cost for the customer, as well as simplify their acquisition process. For example, we can eliminate the need for inventories, instead providing daily deliveries, or periodic restocking. All things that make it simpler for the customer and eliminate them having to take time or resources to manage.
Even something as simple as contracting and vendor management can be complex and cost a lot. When I was CEO of a mid sized company, managing the contracts, keeping them current, managing vendor reporting and all the things involved in managing the vendor relationship, cost us $60K/year for each vendor. We had hundreds of vendors, consequently were spending $10’s of millions each year just in vendor management.
Now you can see why so many companies are looking to reduce the number of suppliers and vendors they have.
Helping reduce this, helping reduce the complexity of managing the various vendors, parts, and so forth can create huge value and savings for the customer–all without having to take pricing actions.
Transactional buying can be very complex. While price is a consideration in any type of buying process, there are huge areas of value, and many complex problems we can solve for our customers. Price is just one element, often the least important element in these buying processes.
I think the misunderstanding is generated by us, the sales people. Rather than understanding how the customer buys—their complex or transactional buying processes. Rather than understanding how we can create value for each customer regardless of the buying process, we create the problem.
We invent these things called complex selling and transactional selling processes. They actually are quite separate from the customer buying process.
For example, too many sales people engage customers going through a complex buying process with a transactional selling process. Rather than understanding the issues the customer faces, helping them with their buying process, sales engages them on a transactional basis–it becomes all about price.
Likewise, when a customer is engaged in a transactional buying process, we add cost to their process by making leveraging a complex selling process.
Complex and transactional selling processes are artifacts created by sales people. Theoretically, they are to align our sales processes with the customer buying process. Too often, instead, we ignore the customer buying process–inflicting our sales process on them.
Which would you prefer to focus on? How our customers buy–complex and/or transactional, or how we should sell.
I know my choice–it’s all about value creation in their processes, not about pricing.
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