Stealing Customers – Indicator of a Saturated Business Software Market?

A fundamental marketing strategy decision is whether to generate sales and business growth by developing and growing the target market or stealing customers from other vendors in an established market.  In saturated markets with no or low growth projections, the tendency would be to focus on stealing customers.

Recent marketing campaigns from a number of business software vendors primarily focus on stealing customers from other vendors.  Another major business software vendor just announced this type of campaign targeting a particular competitor.  Does this mean that the business software market is saturated with limited growth prospects or are there other factors influencing these decisions?

Reviewing 2009 revenue performance for business software vendors, there’s a distinct dichotomy between two classes of vendors:

1. Legacy On-premises vendors showed significant and continuing declines in license revenues.
2. SaaS vendors showed significant and continuing increases in subscription revenues.

So it’s no surprise that many of the legacy on-premises vendors’ current marketing and sales tactics focus on stealing customers from other vendors – usually other legacy on-premises vendors.  No question that SaaS vendors are taking customers from on-premises vendors, but that seems to be more a result of customers motivated by a more appealing value proposition and solutions that meet their current needs.

There is good anecdotal evidence that prompting companies to consider switching business software, expands the evaluation to consider all alternatives.  An unintended consequence of legacy on-premises vendors raiding each other’s customer bases is that they’re probably creating additional opportunities for SaaS vendors.

Discounting is usually considered as the last resort in sales negotiations.  Is stealing customers the last resort marketing and sales tactic for vendors who are unwilling or unable to contribute to the development and growth of target markets?  Several of the customer-stealing campaigns also include substantial channel and buyer incentives and discounts.

Projections from analysts and other research sources show positive market growth, development and expansion opportunities for business software in most market segments.  Vendors that create real value for customers relative to current needs are in the best position to pursue these opportunities.  Vendors that contribute to the growth, development and expansion of their markets will reap long-term rewards while vendors trying to steal customers as a short-term revenue tactic will continue to see long-term business declines.

While stealing customers has always been a customer acquisition tactic in the software industry, the current focus on stealing customers as a primary marketing and sales tactic by so many business software vendors is unprecedented.

What are your thoughts about the marketing and sales tactic of stealing customers and how this relates to the current state of the business software market?  Your comments are always welcome.
Copyright © 2010 The Marketing Mélange and Ingistics LLC. http://marketing.infocat.com

Buy One Get Another Free – Is this a Good Marketing Tactic for Business Software Vendors?

A major business software vendor recently offered buyers at midsize companies CRM product licenses at no charge when they purchase a particular version of their ERP product.  There are qualification requirements to get the free CRM licenses.  The catch – customers must pay the regular annual maintenance fee on the no cost CRM licenses.

Other business software vendors have made this type of offer either directly with buy one get another deals or indirectly through product bundling deals.  The real objective is to get more of their software and more users in a client site which produces additional implementation services and annual maintenance revenues in exchange for foregoing the initial license fee.  I’ll discuss the business perspective of doing this in next week’s post, and focus on the marketing aspects of this tactic in this post.

From a strategic marketing perspective, considering that everything a company does is marketing and impacts marketing, I think there’s more downside than upside to this tactic for the following reasons:

1. This type of offer smacks of a wheeler-dealer approach to marketing and selling.  We’re talking about serious business buyers, and major industrial strength business software from major well-established vendors.  Do they really want to project a wheeler-dealer type of image for their company in that market?
2. There are a number of qualifying requirements for these types of offers and there’s always the back-end implementation and annual maintenance costs.  Even though the vendors may be upfront, open and honest about disclosing all these terms and conditions, there’s always the risk of the customer perceiving they were taken in by a bait-and-switch type of tactic.
3. The vendor is debasing the product they’re giving away by openly declaring that it has no license value.  The product they’re giving away will be viewed as adjunct or subordinate to the main product customers have to buy.
4. Is there any going back?  Although it may be a limited time special offer, buyers will remember that they attached zero value to this product, and may never be willing to pay for it again.
5. How do you explain this to existing customers who paid for the product that is now being given away?  If I were a customer who previously bought ERP and CRM, I would be on the phone with my sales rep asking for a refund or credit for the CRM I paid for and others are now getting for free.
6. What about customers who previously bought the core product (ERP in this example) but didn’t buy CRM, can they now get the CRM at no cost on the same terms?  If I were a customer in that situation, I would certainly ask for it if I need a CRM system.

While I can see this type of offer generating some activity and sales, I’m struggling to find anything positive from a strategic marketing and market positioning perspective.  I think the product being given away will be forever devalued or debased.  Is that a fair trade for the annual maintenance and short-term service revenues in the vendor's business and product plans?

What do you think about this marketing tactic for major business software vendors?  Have you tried something like this and if so, how did it work out?  Your comments are always welcome.
Copyright © 2009 The Marketing Mélange and Ingistics LLC. http://marketing.infocat.com

Time: An Overlooked Difference between Marketing and Sales

Most of us in marketing have experienced this scenario – your company misses the just completed quarter’s sales targets – marketing and sales leaders are hauled into the CEO/COO’s office for a grilling to explore why this happened.  Inevitably, Marketing is thrown under the bus for not producing enough leads.  But there’s a disconnect that is frequently overlooked or disregarded – what marketing are working on today is not what sales are working on today.

Although the above statement may be intuitively obvious to anyone who stops to think about it, this time difference isn’t sufficiently considered for marketing and sales performance measurement.

Consider a manufacturing supply chain as an analogy.  There are planning, scheduling, procurement and delivery activities that happen in the inbound supply chain long before manufacturing can produce a product, and then there’s the outbound supply chain to ship and distribute the product for purchase by the eventual customer.  This total lead time from end-to-end is typically 3 to 12 months depending on the industry.  Manufacturers use Demand Planning to deal with synchronizing the supply chain lead time with anticipated future demand relative to when the finished goods will be purchased.

Marketing has a life-cycle of processes over an extended time period like a supply chain.  Consider this hypothetical example of a typical B2B marketing campaign process over a quarterly time increments:

• Q1 – marketing does research, analysis and testing to formulate the campaign value proposition, target market(s), offer, etc.
• Q2 – marketing develops the campaign content, materials, enablement resources, etc.
• Q3 – marketing begins executing the campaign.  First leads start coming in.
• Q4 – campaign in full swing – leads are coming in.  Sales get qualified leads for action.

Now add the typical B2B sales and/or buying cycle of 3 to 9 months or longer on top of that and we’re in Q6 or Q7 or later when deals are planned to close for leads generated by this campaign.  So if Q7 sales didn’t make quota, marketing wasn’t working on the same leads or deals for Q7 as sales was.  That doesn’t exonerate marketing from some responsibility for the problem.  However, what these quarterly sales review meetings seem to miss, is not to look at what marketing did in the quarter in question (Q7 in this example), but what marketing did in Q1 through Q4 that led to the Q7 outcome.

Some questions executives could ask considering the time differences for a more relevant discussion and productive outcome from the review process:

• What was the original analysis for the campaign(s) that produced leads that should have generated sales in the quarter under review?
• What was the anticipated customer demand in the plan and how was it determined?
• What changed in the meantime?  Economic factors, buying cycles, customer budgets, competition, market shifts, etc.
• Did the campaign execute as planned and produce the expected results?
• Were adjustments made to the campaign as unanticipated external or internal changes occurred?
• Are sales selling according the campaign value proposition and reasons customers expressed interest?

That meeting is also a good opportunity to look forward for the next couple of quarters with the same questions to anticipate potential problems and proactively make adjustments. Also review what plans marketing have in the early phases of the campaign process that will drive sales activity 3 to 5 quarters from now.

Is this lead time difference an issue for you?  If so, how do you handle it?  Your comments are always welcome.
Copyright © 2009 The Marketing Mélange and Ingistics LLC. http://marketing.infocat.com