Case Study – SaleSoft
Section C – Group 11
Consumer Behaviour Section - C Group – 11 Name Aman Srivastava Deepak Sudhakar Krishna Bajaj Prasanna Patange Richa Singh Saikiran Pollamarasetty Vivek Gupta
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Roll Number PGP2011532 PGP2011617 PGP2011696 PGP2011770 PGP2011823 PGP2011843 PGP2011944
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Case Study – SaleSoft
Section C – Group 11 EXECUTIVE SUMMARY
SaleSoft, Inc. is a 2 year old company in the Software Automation industry. It was founded by Gregory Miller in 1993, who is the CEO. The company currently markets a product called PROCEED which is a Comprehensive Sales Automation System (CSAS). It integrates and automates various functions across the organization which helps in bringing down order cycle time and improving efficiency. However, the product is still incomplete and will take around 8 months and USD 1 million dollars to be completed. SaleSoft also recognizes that a portion of its consumer base wants a product that is based on the completed part of PROCEED (Sales System) but offers greater functionality (Sales Forecasting). This product, called Trojan Horse (TH), if developed will take 3 months and USD 200000 to be completed. It is much cheaper than PROCEED. However, SaleSoft doesn’t have the resources to either develop or market the 2 products simultaneously. Further, it has already spent a substantial amount of money on the development of PROCEED. But the sales of PROCEED are not satisfactory and customers are demanding a complete product. SaleSoft now faces a dilemma whether to continue developing PROCEED or to switch over to TH. While analysing the data, it was observed that the demand for TH was mainly from one of the decision making party, i.e., Sales VP, in the overall Buying Centre consisting of the CEO, CFO, VP Marketing and Sales Reps. All the other parties seem to want a solution that provides tools to integrate various departments in the organization and help increase efficiency and effectiveness. Seeing that the needs of the majority will be satisfied by PROCEED and not TH, it will be prudent on for SaleSoft to continue developing PROCEED and keep TH on the backburner for the time being. SALESOFT, INC. (A) Salesoft’s mission is to become a leader in Comprehensive Sales Automation Systems of sales
automation software industry. Greg Mille, the president and CEO of SaleSoft, convinced by his experience in automatic manufacturing environments sensed a tremendous opportunity for a solution that integrated a firm’s sales, marketing and service function. To accomplish their objective, SaleSoft launched a product named PROCEED SMRP (Sales and Marketing Resource Planning). PROCEED is a Salesoft’s CSAS system to help customers to drive out inefficiencies in their sales, marketing and service cycles and help them reduce their SG&A costs. SA industry which is of USD 1 billion is expected to grow by 40% in coming years, so SaleSoft wants to project PROCEED as a tool that allow customers to automate their entire marketing, sales and customer service operations. PROCEED was developed to run on Microsoft Windows, which has become an industry standard operating system shortening the learning time. SaleSoft also added features to PROCEED by integrating it with common E-mail, E -mail, word processing, fax, spreadsheet and presentation software. PROCEED also got advanced technologies which allowed sales persons to use the complete functionality of the system without getting detached from the host system. Buying Cycle of PROCCED:
Implementing PROCEED usually takes around 21-30 months. A typical customer buying cycle involves several steps. Firstly, the senior management (the main people who are involved in buying CSAS) has to realize the need for CSAS CSAS solution. Secondly, the firm has to evaluate evaluate which processes to automate first. This takes around 3-4 months on an average. Thirdly, the customer has to decide how the different functions to be automated are related and this process takes around 2-3 months to complete. Next, the customers decide on which vendor to choose, in this case SaleSoft, and this research takes another six to eight months. After selecting the vendor the CSAS is customized to meet the customer’s needs and is tested. It takes three to five months to implement this step. PGP 2011-13
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Case Study – SaleSoft
Section C – Group 11
Finally, after receiving the feedback from the customers the CSAS solution is modified and this modification process takes around 4-6 months to complete. The CEO, CFO, VP sales, VP Marketing and the Sales reps are the main people responsible in buying CSAS solution. Consultants specialize in implementing SA in one or a few vertical industry markets and usually help the firms in evaluating which processes to automate, how the functions in various processes to automate are related and which vendors to choose. Currently, SaleSoft does not have any partnerships with consultants. Hence, consultants do not have any role to play during the sale of PROCEED. Trojan Horse:
SaleSoft is contemplating introducing a new product called Trojan Horse. Trojan Horse or TH is a system, which enables companies to manage their sales forecasting process. There is a great demand for such a product from many firms, which are involved in long, complex selling cycles. TH can forecast revenues and the effect of selling cycles on operations o perations like revenue planning, inventory management, capital equipment budgeting and Human resource development. Trojan Horse is a specialized solution targeted solely at Sales. In larger organizations, the sales department is involved in complex selling cycles and requires a product that helps in forecasting revenues, which in turn would have a positive effect on the functioning of other connected departments. TH provides a dedicated solution wherein all the data needed by the sales department is made available online and is accessible to any member of their team anywhere, anytime. It keeps a database of contacts made with prospective customers and the progress of the deal. It keeps track of leads generated and calculates the best possible course of action the salesperson should follow next in order to seal the deal. It tries to eliminate low probability opportunities and instead recommends the next stage in the buying cycle. It helps in taking and supporting decisions taken by the sales team in order to increase chances to seal more deals. In effect, it is a sales forecasting solution and improves selling effectiveness and helps in reducing the selling cycle. TH helps sales managers to review expected opportunity closing dates and the probability of them closing on time. Shortfall in sales can be anticipated and corrective measures can be taken. Further, orders won and lost can be easily reviewed and salespersons’ performance can be reviewed for further action. In
terms of ease of use, TH is very similar to CMS and so customers will not need to go specialized training programs to learn how to use it. This helps in saving time and training costs. PROCEED vs. TH:
When compared to PROCEED, TH has its own unique features. Although it is derived from the Sales System modules of PROCEED, it has far greater functionality specifically the ability of forecasting using Decision Support Systems. When it comes to the Sales Department, it is a far more potent tool than PROCEED. On the other hand, PROCEED is a Comprehensive Sales Automation System that automates the whole sales order cycle. It provides Sales, Marketing and Service personnel with a suite of integrated tools to enable them to perform their jobs more efficiently and effectively. effectively. It also provides higher management with back-end decision support systems to enable them to manage marketing, sales and service resources more proactively. Overall, the main objective is to improve efficiency and effectiveness by integrating all departments and automate the overall order cycle. In the wake of the lukewarm initial response to PROCEED, SaleSoft increasingly felt the need to sell TH as a stand-alone product. TH will allow managers to review expected close dates, anticipate shortfall in sales and to archive data to improve sales performance. Compared to PROCEED, selling TH is far less complicated. This is because TH is solely focused on sales. Also, it is easier to quantify the benefits of TH and the fact that TH required minimal customization meant that the company PGP 2011-13
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Case Study – SaleSoft
Section C – Group 11
would save valuable time and money. Because TH was very different from a CSAS, there would be no need for SaleSoft to collaborate with SA consultants and could thus go after a much broader market than PROCEED. SaleSoft is faced with a dilemma with regard to the pricing of TH in case they decide to go with it. Trojan Horse is aimed at aiding the sales department of an organization. Using TH the sales manager will be able to review and forecast the opportunities in the market and the probability of closing them on time. TH is proposed to be a much better and evolved version of the current Sales System in the PROCEED CSAS. Hence, around three months will be required for the completion of TH with the company having to spend $200,000 on costs. Moreover, marketing TH would cost another half a million dollars over the 6-8months. TH is a solution s olution that is better than CMS for the sales team and for customers not interested in CSAS. Since, TH will be one-of-a-kind solution in the market; SaleSoft will have the first mover’s advantage. Furthermore, an improved TH offers greater advantages to the customers with a faster installation time and more efficient sales system. Hence, TH should be sold at a premium price of around $1000. The first- movers advantage won’t last long because TH market is extremely competitive. Thus, to break even with the cost of production of TH and to raise money of $2 million by 1997, SaleSoft will need to move fast and sell TH at a faster rate and at a higher premium price before the competitive prices of better CMS forces SaleSoft to lower the prices of TH.
Organization Structure of SaleSoft:
SaleSoft Inc. follows a hierarchical organizational structure. At the top of the hierarchy is the President/CEO Mr. Gregory A. Miller who has an experience of over 12 years in the application software industry and had previously controlled a public company that developed and marketed manufacturing software. Having such an experienced person at the top shall be beneficial for PROCEED as he has already marketed MRP systems and is optimistic that PROCEED shall be as effective as MRPs. PROCEED allows users to connect to the host to transfer data that helps the sales personal whereas TH is for managing the sales forecast. The organization’s head has a past
experience in marketing MRP software, which may prove to be a boon for, PROCEED rather than TH. Strategy:
The Trojan Horse (TH) product is comparatively much less expensive than PROCEED and this encourages potential customers who have just spent a lot of money on hardware and software. Also low pricing means quicker and easier market entry. This in turn contributes to the revenue and will help jumpstart the company. Sales managers are desperately looking for a sales forecasting tool and TH is just that. It had much greater sales functionality than PROCEED. Furthermore, the company does not need to collaborate with SA consultants since specialized training is not required and can go after a much broader market. Meanwhile, development of PROCEED is still under progress and it is going to take 8 more months and an investment of 1 million dollars to see PROCEED through. Recovery will not be very quick since PROCEED is aimed at a niche, albeit high end market. The company also needs to tie-up with consultants for client base as well as for post sales training. TH has its fair share of disadvantages. It is inherently a low end product with next to no scope for customization. It is going to take USD 200,000 and another 3 months to fine tune tune TH before its introduction and a further USD 500,000 investment for its marketing. Also, with giants like PGP 2011-13
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Case Study – SaleSoft
Section C – Group 11
Microsoft and Lotus about to enter the low end of the SA market and existing CMS companies upgrading their capabilities, the market for TH will soon become extremely tough and competitive. The market for PROCEED on the other hand is less crowded since there are very few major CSAS vendors and many of the small start-ups don’t last long. The total SA market in 1995 is valued at around 1 billion dollars and is expected to grow by 40% in the next 5 years. PROCEED will have a great advantage in this scenario since it would have the first mover advantage. Also the primary objective of SaleSoft is to become the leader in the high end of the SA industry and PROCEED is the right choice for achieving this. The main concern of SaleSoft is to generate enough revenue for the full fledged launch of PROCEED. However, the company has already started pursuing sales opportunities with over 20 prospective buyers, out of which at least a quarter will probably buy PROCEED. This way, SaleSoft can generate at least USD 2.4 million in the next 12-15 months. This could be used to fund the further development and marketing of PROCEED. Typically when it comes to First-Time Buying in the B2B space, and especially for a costly buy like PROCEED, the CEO, CFO, VP Marketing, VP Sales and some sales managers of the company together form what is known as the Buying Centre and are the main decision makers when it comes to taking buying decisions. The requirements requirements of most of these managers, (except the Sales managers), managers), as expressed in Exhibit 4, is the need of a system that integrates various departments. These requirements are better met by PROCEED. Since it is in the interest of the business to provide a product that the main decision maker needs, it would be a safer and better alternative for SaleSoft to focus on and continue with PROCEED. A product like TH is beneficial only to the Sales team and hence only the VP Sales requires a product like TH. Keeping the main objective of the company in mind, the future competition that TH will face and the decision makers(Buying Centre) in the B2B space, SaleSoft should continue investing in PROCEED rather than TH. Evaluating performance of PROCEED for Company A
Estimated Reduction in Sales Cycle using PROCEED = 6 days Revenue generated due to reduction in cycle = 6*$120/120 = $6million Assuming that the number of new sales representatives in an year are (60/360) i.e. one-sixth of the total number = 120/6 = 20 Revenue generated due to reduction in start up time for a new sales rep. = (14/60)*($120/120)*(20)* (60/300) = $0.93 million Revenue generated due to reduction in sales rep turnover = (10%)*(20%of$120) = $2.4million So, Total Revenue Generated with use of PROCEED is = 6+2.4+0.93 = $9.33 million Cost of Using PROCEED = Implementation and Training Cost + License Fee + Annual maintenance and support + Hardware + Start-up Cost + Annual Cost of internal Resource = 0.18 + 0.6 + (20%of0.6) + 1.5+ 0.2 + 0.15 = $2.75 million Now Total Sales with using PROCEED = $129.33 million Selling Cost with using PROCEED = 30% of $120= $36 million + variable cost = $39.6 million assume that the total sales increases to $129.33 million without using PROCEES, In this case the selling cost will be 30% of sales i.e. $38.8 million + variable cost = $42.7 million Let’s
So savings = 42.7-39.6 = $3.1 million We can see that savings exceed the initial setup cost. Hence, we can say that PROCEED is profitable for the Company A
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