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Marketing in Enterprise Software Moves to Customer Centric
By Richard Guha and Kevin Price, Partners, Max Brand Equity
High-tech and specifically enterprise software is a relatively new industry. It is now moving beyond the first generation and becoming customer centric instead of technology driven. We illustrate why these changes are taking place, how they are, and their benefits. There are specific skills and techniques, which have to be applied to make this effective. These are outlined here.
The computing industry is relatively new. FORTRAN, the first high-level programming language was only released in 1957. For many years after that, software was all custom created, often built by the company which built the computer on which it was to run and the company which purchased the computer. At this time, there was virtually no ‘packaged’, or pre-written software, as the computer manufacturers typically simply gave such few products as existed to customers. In 1970, IBM ‘unbundled’ its computers and services. While the packaged software industry started to grow, it was still small, not exceeding $1 billion worldwide until 1978 – still a very modest number for an entire industry. By 1980, the market exceeded $5 billion, and the introduction of relational databases and ERP systems were starting to accelerate the growth. By 1990, the market was over $34 billion, by 2000 almost $105, and today over $150 billion. In the early days of packaged software, custom programming services were more important. Also, each of the early packaged software products was unique and distinct. When SAP introduced ERP software, no one else offered it. Customers had to put up with its faults as the alternative, to build from scratch, cost many times as much. Furthermore, penetration of corporations was extremely small, so it was relatively easy to grow the business. In addition, a customer recognized that it would have to buy many different software packages from many companies and then either hire a Systems Integrator or in-house programmers to make them all work together. This was in much the same way that in the 1920s, most car owners bought a chassis from one company, engine from another, body from yet another, and paid someone to assemble it all. So customers compromised on most points.
The industry has changed a lot in the past ten years. Many of the ways, which people learned to carry out effective marketing a few years ago, are obsolete or even dangerous today. Products, which actually had no directly comparable competition, now do. Simply telling prospective customers about them is no longer enough. The customer is moving to the center of the process. Therefore, effective marketing has become more important and will continue to do so. The role of marketing has changed. Twenty years ago, Marketing’s main role was limited to marketing communications and lead generation – outbound marketing. Product was driven by engineers and customer relations by salespeople. Today, we see in the best companies that technology is enabling a customer-driven focus instead of driving the product.
Marketing Development in Business
In 1970, Phil Kotler was the first to codify the “4 P’s” of marketing: Product, Price, Promotion and Place. He simply published a system, which had been created with the Product/Brand Management system (the words are used interchangeably in Consumer Packaged Goods companies) at Procter & Gamble in 1931 and refined greatly since then in many companies such as General Mills and Unilever. This system and way of working has been expanded successfully to many other industries, such as financial services, telecommunications and high-tech.
Marketing in High-Tech
In the early days of technology marketing, when the industry was small, the technology shaped it, but as it has grown, customers have taken an increasingly important role. Since then a generation of Top Management has turned over in the software business. The people who founded the great software companies – Bill Gates, Larry Ellison, Hasso Plattner and others, have withdrawn from active management. Top management recognizes that while traditionally, software companies separated marketing into Corporate and Product (or ‘outbound’ and ‘inbound’); they must be integrated under a Chief Marketing Officer. They are two sides of the same coin. For example, there is an old saying, ‘nothing kills a bad product faster than good advertising’. In order to be successful, Marketing must play a more integrated role.
The Growing Importance of Brand
Brand is driven at each and every touch point – not just name, logo and advertising, so if the CEO expects Marketing to have responsibility for the Brand, it must be able to at least influence these. Several studies have shown that the sales force is the worst source of market research, so they should not be relied on for this. This is simply because information transmitted by the sales team is affected by too many filters. The buyer sees it as part of a negotiation process, sales people may not totally affiliate with their employer, and sales management have their own pre-conceptions. Research into needs must be part of a market research function, which gets the information directly from users (not analysts, however useful their perspectives may be). Long before it had a Product Management system, Procter & Gamble was known for its Market Research Department, which was formed in the early 1900s. This is closely linked to an effective customer reference program and advisory council in which enthusiastic customers are carefully managed to support sales efforts and to learn from them.
If top management wants to grow market value, the brand is an important asset. While in consumer product companies it will probably represent the majority of the market value of the company, even in high-tech B2B companies it will be important. Business Week reports that calculations by Interbrand and Price Waterhouse show that the IBM brand is 39.1% of the company’s market value. Even the Oracle brand is 12.5% of market value. So the growth of brand value should be a key objective for top management. Brand only grows effectively through a fanatical obsession with the customer. This obsession is not merely through a traditional sales focus, but through a marketing perspective. The fact is that customers want to buy. They do not need to be pressured, tricked, or persuaded. They are looking to find a way to justify a purchase. Companies often do not realize how difficult they make it to buy. For example, we know that downloading a white paper makes it three times as likely that a prospect will eventually become a customer. Yet many company force prospects to register so that a salesperson can call them. Prospects, knowing this, are less likely to download a white paper if they have to register. Given that we want to widely distribute white papers, why do most companies put barriers in the way?
Product – the Leading ‘P’
Since one of the four major components of marketing is product, Marketing must be able to translate the customer information it receives into a brief for product engineering. This market requirements document is used as the basis for discussions between Marketing and Engineering so that a final product brief is both desirable and feasible within a time-frame. This has to be based on an objective understanding of both recognized and unrecognized customer needs. Recognized needs are those, which the customer can describe and define. Unrecognized needs, more difficult to understand, are those, which the customer does not know he or she has. One way to find these is to understand problems and frustrations. Another is to understand the processes and uses of the product so well that the company can creatively develop ideas, which can then be tested with the customer. An even more focused approach that of user-driven design, has been in use for over 30 years in some other industries, and is even taught at MIT. The company, which offers the most distinctive and relevant products, will beat its competitors.
Market Driven Pricing
Pricing also has to be driven by customer perspective, competition, desired profitability and existing contracts. This is the result of input from Finance, Sales and Marketing, where Marketing represents the customer internally, as well as having the long-term interest of the company in mind. As is so often the case, Marketing does not have sole authority per se over this, but an effective marketer will have the ‘power of knowledge’, with which to persuade others.
Promotion Comes in Many Different Forms
The role of Marketing in Promotion is, of course, central, but it is not limited to Marketing. Many think that Marketing focuses on brand/product advertising and on lead generation. While these are critical elements of the function, there are other communication areas, which touch the customer and can influence them as much as, or more than, pure Marcom. For example, the contact center, services and support, billing, the website and its functionality, each have the ability to help or hurt brand value. Marketing cannot have responsibility for the brand without at least substantial input into how the company presents itself at each touch-point. Analyst relations are also an extremely opportune way in which to build business. Research has shown that IT management is very influenced by industry analysts, while line-of-business managers are more impacted by peer referrals.
While lead generation may be needed, in many companies this is the measure of Marketing’s effectiveness. It tends to set up conflict between Sales and Marketing, with each pointing fingers at each other. As Peter Drucker said, “Marketing and Sales are antithetical. If Marketing were able to do its job perfectly, we would not need Sales.” The reality is that Marketing has to get the prospect in the frame of mind to buy when a sales person calls. Promotion is, however important, just one of the tools used to achieve this.
Channels Frequently have Unforeseen Impact
Finally, the issue of ‘place’, or channels is far more strategic than is often realized. While there are many areas in which sales management skills are critical, for example recruiting and training distributors, or motivating direct sales people, there are marketing implications to many earlier decisions. Frequently, companies select distributors with a view to extending the range of their direct sales people. Then some years later, they may realize that they have picked the wrong ones. This happens a lot when the company first wants to move into international markets. Channel conflict is a common situation. A direct sales force finds itself competing with a distributor or online sales.
Often decisions get made to meet the needs of the channel, or the desires of the company, rather than customers’ wants and needs. These may be decisions of pricing, allowances, incentives, or even product. It is essential that the company first understands how the customer wants to buy, and from whom. Equally, partnering with other companies, be they independent software vendors, value-added resellers or system integrators has to be part of a strategy, not just a tactical solution to a short-term problem, such as getting introduced to a specific customer. Companies have to avoid trying to force customers to buy in ways not desirable to them. On a very simplistic level, we see some retailers make it difficult to buy, while one of the secrets of Apple Computer’s retail stores success is that they revolve around the customer.
Changing from a technology-driven business to a customer-driven one is not easy. Cultural and organization change never is. Instead of the driver, technology becomes the enabler. Some people just do not see why they should. Many think that they are already customer-driven, as they are convinced that they have a solution, which customers would or should want if only they knew about it. The videophone, first introduced at the New York World’s Fair in 1964, with much fanfare, is one such. As a rule, if we believe that customers would want something if only they knew more about it, or should want something, but just need to be ‘educated’ about it, that is a warning sign. There are cultural attitudes as well as specific skills, which we have personally spread within companies, and continue to work with on a daily basis.
Knowing the path, which the company has to take, is an essential beginning. This article outlines them. Then there are a number of key organizational steps, process improvements, and skill developments, which are essential. Simply wishing to be more market-driven is not enough without the skills, processes, and organization. We have seen many companies in which management has tried to graft new skill-sets on without addressing the other factors. Equally, appointing someone a Chief Marketing Officer or Chief Customer Officer, without the requisite skills and authority is doomed to fail.
We have, both as line managers and advisors to management, put the requisite essentials in place for companies to be successful. They are sometimes conceptually straightforward, but very difficult to implement. For many companies, talking to us may be the first step.
Richard Guha is Partner of Max Brand Equity, a firm that works to understand and maximize the value of clients’ brands from a customer perspective – often the most valuable part of a business. He has worked in and with large and small businesses for over 30 years, building several $ Billion of businesses and growing the market value of many by multiples of from 2-12 in a short period of time. With a Masters degree from Cambridge University, and a career starting in Marketing at Procter & Gamble, Richard went on to become a CMO and CEO in several Fortune 500 companies, as well as an advisor and Board member to a number of other Fortune 500 corporations and start-ups. He works hands-on to maximize the value of businesses from a customer perspective. For article feedback, contact Richard at email@example.com
Kevin Price is Partner of Max Brand Equity, a firm that works to understand and maximize the value of clients’ brands from a customer perspective – often the most valuable part of a business. He has also helped numerous blue chip consumer product, information services, health care, and financial services companies achieve greater success in the marketplace. Kevin’s background includes Marketing, Sales, and General Management experience at General Mills and Campbell Soup prior to entering the consulting field 20 years ago. Kevin has written and published a number of articles relating to his marketing, sales and strategy expertise and is frequently quoted in leading trade press and general publications such as Advertising Age, USA Today, The Wall Street Journal, and Fortune.For article feedback, contact Kevin at firstname.lastname@example.org