Between Solution and Transactional Selling

by Tim Smith, PhD, 18 August 2004

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“You get rich quicker by working smarter, not faster” has long been a mantra that guides our competitive drive to improve. In sales, the issue of working smarter over working faster underlies the tension between solution selling and transactional selling. Does this imply that all businesses should adopt a solution selling approach?

This article provides a clarification of the transactional sales and solution sales approaches, the relationship between the selected approach and price management, and the business issues that guide executives to select one approach over another. We conclude by examining some of the factors that are driving overall industry trends towards solution selling.

Transactional Selling
In transactional selling, most of the value added through the sales process is the matching of needs between customers and their business. The focal sales activities are to find prospects with a need, to develop relationships with prospects, and to take orders for the desired products or services at an acceptable price. Revenues are increased by making more sales calls and taking more orders. Transactions are usually handled through purchase orders and invoices with shipping and scheduling as paramount variables to be controlled. During customer interactions, the size of the order is expanded through cross selling or offering discounts for larger volumes.

Transactional selling is most appropriate for businesses providing standard inputs. The customers will have a clear need for the product or service and will be interested in sources that can provide it when needed and at an acceptable price. The responsibility of the salesperson is to uncover prospects with that need and supply them with the appropriate product or service.

Suppliers of standard business inputs find that transactional selling provides an acceptable level of customer service at an acceptable business cost. Much of the customer interaction will involve a procurement officer that is evaluated according to his/her ability to provide supplies in a timely manner and at the lowest cost. As such, the sales team should focus on managing price variations and ensuring timely delivery. Procurement officers have limited ability to make big business decisions therefore there is little point to attempt to sell procurement officers on entirely different approaches to doing business.

Price discussions in transactional sales focus on moving the price between the seller’s minimum and the buyer’s maximum. Salespeople will focus their competitive instincts on uncovering the maximum price a buyer is willing to pay for their products or services and on claiming as large of a portion of that price as possible. The price negotiation involves a dialogue between the salesperson and the procurement officer.

Solution Selling
In solution selling, the salesperson adds value during the sales process by developing an understanding of the challenges faced by the customer and creating a vision of the potential solution. The focal sales activities involve prospect dialogue about challenges they face. Questioning and listening become more important than communicating features and positioning statements. The actual purchase decision is managed through a proposal, contract negotiation, and solution delivery. The size of the transaction is managed through understanding the scope of the challenges faced by the customer and clarifying the value of overcoming these challenges.

Solution selling is most appropriate for businesses that offer a transformational product or service such as consulting or specialized, rarely purchased items. Transformational products and services change the business processes of the client to produce a more productive organization or lower cost structure process. Suppliers of transformational products or services find solution selling necessary due to the customers’ lack of understanding of the possibilities. Customers will be aware of the challenge they face and be open to explore alternative approaches, but need to define of the product or service that properly addresses these challenges. The responsibility of the salesperson is to clarify these challenges and communicate a vision of a possible solution.

Sales cycles elongate when executing solution selling versus transactional selling due to the requirement to hold more in-depth prospect dialogues. These customer dialogues will focus on exploring the challenge, the status quo approach to addressing this challenge, the shortcomings of the status quo, and the value of overcoming the challenge in an alternative manner. Most of the conversation are held directly with key decision maker and their influencers while procurement officers play the role of a checkpoint at the end of the sales cycle. Quantification of the value of overcoming the challenge adds tremendous value to the sales process, both in facilitating the sale and managing price variance.

Price negotiation does not always occur in the solution selling process. Instead, most negotiations focus on contractual terms and conditions to shift risks between the supplier and customer. When price negotiation occurs, all price concessions are in tandem with value concessions wherein parts of the solution that were on offer are removed from the table as the price is lowered to develop the right-sized transaction.

Shifts in Popularity
The decline in popularity of transactional sales approaches is due to two industry trends, the rise of e-commerce which displaces transactional sales managed by people and the increasing complexity of businesses. As more business supplier related transactions are managed through portals and online bidding, businesses have a diminished demand for salespeople to manage the transaction. Furthermore, as supplier relations move towards strategic sourcing and business partners, gaining transactions requires moving the sales process up the decision making ladder.

In contrast, the rise in popularity of solution sales approaches is related to the increased complexity of running a modern corporation. Business solutions vary as widely as the competitive strategies of the customer businesses. By focusing on the individual challenges faced by individual businesses, solution sales approaches create transactions that are better suited to the buyer and the seller.

Making the Choice
By comparing a transactional sales approach side by side with a solution sales approach, it is easy to determine that no one approach is best for all businesses. Moreover, despite the growing popularity of solution selling, most business sales are managed through transactional sales approaches. Indeed, businesses purchase far more “inputs” than “transformational solutions”. Yet, transformational solutions earn much higher margins than mere inputs, and therefore executive interest in solution selling is bound to grow.

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Author
Tim Smith, PhD is Editor of The Wiglaf Journal, Principal of Wiglaf LLC, and Adjunct Professor at DePaul Graduate School of Business.

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