In a recent issue of the Harvard Business Review, James C. Anderson and James A. Narus present an excellent and thought-provoking piece on understanding what customers value. Their premise is that the ability to pinpoint the value of a product or service for a customer has never been more important. To persuade customers to focus on total costs — rather than simply on acquisition price — a supplier must accurately understand what its customers value.

Anderson and Narus contend that suppliers that draw on their knowledge of what customers value can gain marketplace advantages over their less knowledgeable competitors.

Frankly, there’s nothing particularly new or earthshaking about what the authors write. Several people within our industry have been talking and writing for years about understanding what customers value and documenting it for them. And some — like Tim Underhill and Chuck Holmes — have done so within the pages of this magazine.

One thing particularly noteworthy about the approach of Anderson and Narus, however, is their emphasis on developing “customer value models.” The models are data-driven representations of the worth, in monetary terms, of what the supplier is doing or could do for customers.

They point to Applied Industrial Technologies and W.W. Grainger as examples of distribution companies that have realized the benefits of measuring and monitoring value for customers.

Progressive Distributor regularly writes about innovative ways distributors learn what customers value and how they capitalize on that knowledge.

For example, last issue we reported on ISA’s In-Plant Store program, the integrated supply initiative marketed by Strategic Distribution. One of the first steps ISA takes with a potential customer is to do what it calls a “value management study,” or VMS. A VMS is simply ISA’s process that says to a customer, “Here’s what your total cost is today, here’s what your total cost would be with In-Plant Stores, and here’s the savings.”

But you don’t have to be a national integrator to focus on value.

J. Fegely of Pottstown, Pa., a regional distributor with revenues of just under $50 million, teaches its salespeople to utilize a variety of reports for documenting cost savings and other value-added services it offers customers. The company, which nearly doubled in size through acquisitions of five distributors in the past two years, has realized great benefits from convincing salespeople to focus on cost savings and measuring and documenting value, not simply on the products they sell.

Progressive distributors use many other methods to distinguish this thing called value. We’ll continue to write about them in future issues because understanding what customers value is more important now than ever.