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The Value of Expansion

Updated: Mar 17, 2023

Last week, we explored the topic of retention value. As a reminder, the three sources of value are:

  1. Retention

  2. Expansion

  3. Lower Costs

This Week, we are Going to do a Deeper Dive Into Expansion.

Expansion includes cross-selling and up-selling, and there are many ways to “expand” a relationship.

We know that strengthening client relationships makes buyers less price sensitive. If antagonistic or transactional buyers believe they can get the same product from another company, there is no reason for them to pay a price premium. On the other hand, those in the trusted advisor or predisposed relationships, such as the ones that care about who they are doing business with, will pay more because of the trust and other intangible benefits the supplier offers.

For example, in the insurance industry, the price premium is about 10%. If you are selling a $10 million insurance policy, your client could probably take their business to one of your big competitors and get the exact same terms and conditions for $9 million. However, a predisposed or trusted advisor client will happily pay that extra million dollars to stay with you because they know your account team is going to look out for them. You did not have to do any additional work to get that extra revenue.

Expansion can also be the Co-Creation of Value.

Co-creation of value comes from the joint tailoring of your buyer’s 1:1 experience, creating unique value for that buyer. It is hypothesized that buyers would no longer be satisfied with making “yes” or no “decisions” on what a company offers. Instead, buyers will seek to “co-construct” a 1:1 experience, and examples of co-creation include:

  • FedEx seeking to ensure on-time, zero-defect delivery of live tissues for organ donation. FedEx also developed a sophisticated logistics technology that manages key variables like location, temperature, and pressure along the side of medical professionals and suppliers.

  • General Electric: Saught an environmentally friendly, low-cost way to extract Alberta Canada’s heavy oil, and worked with its clients and government officials to develop a new water filtration system that reduced water consumption.

Tell us your favorite example of co-creation of value in the comments below! Afterward, follow us on Linkedin at “Encompass-CX” for more updates and blog posts.

Co-written by Alexis Audeh

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