Consultative Selling

The Hanan Formula for High-Margin Sales at High Levels

 Consultative Selling

Author: Mack Hanan
Pub Date: March 2011
Print Edition: $21.95
Print ISBN: 9780814437506
Format: Paper or Softback
Edition: Eighth Edition
e-Book ISBN: 9780814416181

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Consultative Selling is profit-improvement selling. It is selling

to high-level customer decision makers who are concerned

with profit—indeed, who are responsible for it, measured by it,

evaluated by it, and accountable for it. Consultative Selling is selling

at high margins so that you can share in the profits that you

improve. High margins to high-level decision makers: This is the

essence of Consultative Selling.

Since 1970, Consultative Selling has revolutionized key account

sales. It has helped customer businesses grow and supplier

businesses achieve new earnings along with them. Everywhere it is

practiced, Consultative Selling replaces the traditional adversarial

buyer-seller relationship with a win-win partnership in profit improvement.

This is no mean feat. To accomplish it, Consultative

Selling requires strategies that are totally divorced from vendor

selling. It means that you stop selling products and services and

start selling the impact that they can make on customer businesses.

Since this impact is primarily financial, selling consultatively

means selling new profit dollars—not enhanced performance benefits

or interactive systems, but the new profits they can add to each

customer’s bottom line.

The single most critical difference between Consultative Selling

and vending is the way the two methods deal with price. Vendors

base their price on their costs. Margin is their way of asserting

their right to a ‘‘fair price.’’ Consultative sellers base their price on

their value. They consider margin to be their responsibility, not

their right. To them, it is the sellers’ responsibility to add sufficient

value to customer businesses so that customers will be able to add

margin to the sellers in return.

In this sense, margin is a consultative seller’s pay for performance.

The sale itself is no longer a transfer of a product or service

in exchange for a price. It becomes a value exchange. In exchange

for having their profits improved, customers trade off some of the

improvement as margin to the supplier.

A consultative seller’s price is a function of the contribution

the seller makes to improve customer profits. The only way the

seller can maximize price is to maximize the value of the profits

that are improved. That requires the seller to stop selling products

because there is no longer any way to make margin by selling the

value of the seller’s own assets. Margin can be made only by helping

customers make their own assets more valuable.

Consultative Selling is selling a dollar advantage, not a product

or process advantage. There is no way to compromise this mission.

Anything less is vending.

Vending is discount selling, giving away value to make a sale.

Discounting can take on many forms that go far beyond price cutting.

Each of them represents another giveaway of margin that

adds up to a hidden reduction in selling price:

• Multiyear contracts with built-in annual price cuts

• Zero inventory and just-in-time delivery

• Sharing in product development

• Free aftermarket services, such as training and maintenance

• Free upgrades

• Lease financing at below-market rates

Consultative Selling, on the other hand, is high-margin selling.

Full margins are the proof of value. When they are discounted,

that is proof that their value was not sold. The most frequent reasons

are that it was not known or that it could not be proved.

Performance values put into a product or service are validated

by the financial values that a customer gets out of them. Performance

values are important only insofar as they contribute to the

value of a customer’s operations—either they add the value of new

or more profitable revenues or they help preserve that value by

reducing or avoiding costs that would otherwise subtract from it.

Discounting denies that superior value has been put in or that

superior value can be taken out—or, if it can, that it can be documented.

With each discounted sale, value is either denied or downgraded.

It is obvious how this deprives the seller of a proper

reward. Less apparent, perhaps, is how the seller’s customers are

also deprived. Unless they know in advance what value to expect,

which means how much new profit they will earn and how soon

they will earn it, they cannot plan to put it to work at once. They

incur opportunity cost even though they add value, because they

cannot maximize that value. Their own growth is impaired along

with the growth of their supplier.

As long ago as the early 1970s, Bill Coors of the Adolph

Coors Company said that ‘‘making the best beer we can make is

no longer enough’’ of a value on which to base a premium price.

Making the customer best in some way or other would be necessary

to maintain the margins that were once easily justified by

product quality alone. In 1977, a company named Vydec was

finding it increasingly difficult even then to cost-justify its highquality,

high-priced information systems when it was competing

against the decreasing costs of competitive systems. Its managers

realized too late that hardware performance could no longer justify

a premium price. ‘‘Future hardware will all look alike,’’ they

admitted after the fact. ‘‘The greatest values will be in training,

software, and system support. You will be able to almost give

away the hardware.’’


The differences between vending and Consultative Selling are

significant. They are differences of 180 degrees. Their languages

are different. Their mindsets are different. Their definitions of

product, price, performance, customer—yes, even of selling—are

different, as Figure I-1 shows. The main difference is in their ability

to produce profits on sales.

Consultative Selling takes a position about the sales process.

It says that there are two ways to sell. One is the way of outsiders,

which is the way that most suppliers approach their customers.

The customers’ gatekeepers are their purchasing functions. At the

gate, vendors who hope to sell high come face to face with gatekeepers

who want to buy low. This is where sales cycles are born,

costs of sale begin to accumulate, and margins are sacrificed. For

every so-called coach, champion, or foxy politicizer who is cultivated

at the gate, suppliers’ costs of sale are being extended, their

sales cycles stretched thin, and their eventual discounts deepened.

Meanwhile, consultative sellers beyond the gate are extending customer

budgets, stretching customer cash flow, and deepening their

eventual profits. In the same customer worlds, these two strategies

go on every day.

What separates them? They live by different rules:

• Vendor suppliers sell computers because they make them.

Consultative sellers may make computers, but they sell the

value they add by reducing a customer’s downtime.

• Vendor suppliers sell packaging because they make it. Consultative

sellers may make packaging products, but they sell

the value they add by increasing customer revenues and reducing

shipping costs.

• Vendor suppliers sell wireless telephone systems because

they make them. Consultative sellers may make wireless

telephone systems, but they sell the value they add by allocating

manufacturing labor more cost-effectively.

No matter what vendor suppliers make, they sell it.

No matter what consultative sellers make, they sell the value

it adds.

The essential differences between Consultative Selling and

vending are made clear where value meets price at the point of


• Vendors sell to buyers who want to minimize the prices

they pay for operating assets. This requires vendors to sell

against their competitors. Consultative sellers sell to operating

managers who want to maximize the value they add

to their assets. This allows consultative sellers to sell by

comparing current customer outcomes to future outcomes

that they propose to competitively advantage.

• Buyers want to reduce two types of direct costs: their costs

of acquisition and their costs of ownership. Operating

managers want to reduce the opportunity costs of delay in

making their operations more competitive. This is why

buyers can wait for a lower price, while operating managers

cannot wait for an added value.

• Buyers want to help reduce their suppliers’ internal operating

costs and share in the gains through reduced prices.

Customer operating managers want to reduce their own internal

costs and are willing to share the gains from improved

outcomes. This is why buyers try to control supplier

operations, while customer managers bring in consultative

sellers to help control their own operations.

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