Master the Krajlic Matrix for more effective relationships with purchasers
There’s something that companies with strong sales performance have all taken to heart: sales is a matter of adaptability. You have to adapt your offering, messaging, processes and organization to suit customers’ needs and mindset, to their budget and time constraints, organization and decision-making system, and value chain. This year marks the fortieth anniversary of the “contingency theory”* as an approach to selling, to which the trade owes its appeal. May it live on for many years to come.
In this article we shine the spotlight on new developments in procurement, as well as buyers’ expectations in relations with salespeople, so that sellers can learn to adapt better and outperform the competition!
Buyers are playing an increasingly important role in B2B sales. A 2020 study** provides a few figures: about 80% of purchases (excluding personnel expenses) pass through the purchasing function. 75% of buyers say that they are spending more time on the purchasing process and drilling down on their Return on Investment. The function is becoming strategic in the business world and is represented on a third of companies’ boards. Buyers work in multidisciplinary teams and use their own data feeds, leapfrogging salespeople, who were once viewed as a valuable source of information.
As our initial axiom dictates, a key skill for sales staff is to know how to adapt to the purchasing function’s expectations in a B2B setting, learn their frames of reference and speak their language. It’s an area where knowing the Krajlic Matrix offers a clear advantage for preparing an effective sales pitch.
A primer on the Krajlic matrix
Peter Krajlic, a director at McKinsey and later a professor at INSEAD Business School in France, published his model in the Harvard Business Review in 1983.*** The Krajlic Matrix has since become a very common part of training for buyers in many countries and entered widespread use at companies as a means of structuring the practices and organization of the purchasing function.
Let’s review the basics: suppliers’ products and offerings are divided into four categories:
- non-critical items are abundant and have little impact on the P&L statement
- bottleneck items have a low impact in terms of units sold but represent a substantial supply risk
- leverage items generate significant value with low supply risk
- strategic products have a major impact but with high supply risks, either due to switching costs (the expense of changing suppliers) or their rarity.
The Krajlic Matrix
How do buyers use the Krajlic Matrix?
For the first category, non-critical items, buyers focus on price and prefer a transactional approach to a relational one, opting for methods such as e-procurement platforms. Salespeople need to ensure that their products are available on these various platforms and facilitate secure digital transactions. Be careful, sometimes direct visits are not welcome: “I don’t expect a supplier to come see me on a weekly basis […] I would prefer for them to deduct the cost of the visit from my invoice,” complains one person in the metalworking industry.
The trend for bottleneck items is vertical integration, to reduce the risk of shortages. Salespeople need to convincingly present their ability to deliver over the long term, with an emphasis on internal performance, outside audits and contingency and risk management plans for the client. Some clients are taking the initiative: “We organize workshops at our suppliers’ facilities so that we can safeguard our supplies and share the productivity gains,” explains one aviation part manufacturer.
In the strategic product quadrant, buyers are geared toward cooperation and high-intensity relationships. They are particularly attuned to suppliers’ ability to innovate, so that they can maintain or develop a competitive advantage. And they’re willing to pay a premium to do so. “We are willing to pay a higher price to our strategic suppliers.That way they will choose us first when offering innovations,” says one telecom specialist.
Lastly, for leverage products, buyers think in terms of Total Cost of Ownership (TCO), incorporating all the phases and components of the purchasing process while acknowledging that some are hard to estimate reliably.
What are the consequences for salespeople?
Buyers are rather harsh—they have a negative overall view of salespeople, who, in their eyes, are ill-acquainted with procurement and fail to focus on their needs. Some sales reps even seek to avoid buyers!
This despite the fact that “consumer centricity” is not a recent concept. Peter Drucker has shown for nearly 60 years that companies which focus on their clients achieve better results and have several distinctive characteristics. They understand their clients, demonstrate how their offering meets the clients’ needs, cultivate relationships, aim to build loyalty, develop satisfaction metrics based on the net promoter score and clients’ lifetime value.
These precepts are repeated ad nauseum in business schools but rarely implemented effectively in the real world. A 2020 Forrester report*** found that only 47% of companies say that client needs determine sales strategies, 40% prioritize client needs over the promotion of their products, and 36% organize by client segment.
So there’s a gap to fill for salespeople. As is often the case, this involves gaining knowledge, but especially putting it to good use.
The concept of customer centricity requires factoring in the purchasing function, which does not equate to being a cost killer that measures performance solely in terms of savings on the unit price. Far from it. Buyers are certainly not the only ones involved in the process, but they are playing an increasingly important, often strategic role, structured by a popular frame of reference: the Krajlic Matrix.
The three practical tips that we suggest:
- Locate the quadrant on the Krajlic Matrix where the offering is located.
- List the key needs of the purchasing function based on the quadrant.
- Structure your pitch around key points that are relevant to procurement professionals: smooth, reliable transactions, the quality of internal practices (with corresponding references), ability to innovate, and TCO.
Keep in mind that, contrary to common preconceptions, buyers are interested in much more than just the price of sale!
* Weitz, 1981. ‘Effectiveness in Sales Interactions : A Contingency Framework.’ Journal of Marketing
** Paesbrugghe, Rangarajan, Hochstein, Sharma, 2020. ‘Evaluation of Salespeople by the Purchasing Function : Implications for the Evolving Role of Salespeople’. Journal of Personal Selling & Sales Management.
*** Kraljic, 1983. ‘Purchasing Must Become Supply Management’. Harvard Business Review.
**** Wizdo, 2020. ‘B2B Marketing Should Organize Around the Customer in 2020’. Forrestor Reports.
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