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Case Analysis on SaleSoft, Inc.
23 rd Feb 2002
by Genius of “AND”
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Index •
General In Information – –
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Question 1 –
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Ourr rec Ou reco omm mmen end dat atio ion n to ch choo oose se on one e
Question 2 –
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Current Si Situation Current Crisis
SaleSoft ft’’s cu current ap approach
Question 3 – Benefits of CSAS – Pricing of TH
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Q&A Session
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Open Mind
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Index •
General In Information – –
•
Question 1 –
•
Ourr rec Ou reco omm mmen end dat atio ion n to ch choo oose se on one e
Question 2 –
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Current Si Situation Current Crisis
SaleSoft ft’’s cu current ap approach
Question 3 – Benefits of CSAS – Pricing of TH
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Q&A Session
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General Information
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Current Situation - Sal SaleS eSo oft ft,, Inc. - Market Trend
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Current Crisis
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Current Situation You are here > General Information > Current Situation
SaleSoft, Inc.
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Establishment – 1993. 6. Founded by Greg Miller to develop & market CSAS – Greg Miller : Chairman
engaged in application SW industry for 12 years
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Products – –
Main Products: PROCEED : unfinished • received good responses, Not converted to sales Alternative: TH : requires fine-tuning • Focused on sales (part of PROCEED)
Market Trend
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Projected the SA market size in year 1995 would be $ 1 billion
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Projected annual growth of 40% for 5 years – Reason: IT infrastructure = Better HW, SW, NW
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Situation: – Crowded with small firms with no absolute leader – Strong SW makers announced entry into CMS market.
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Current Crisis You are here > General Information > Current Crisis
Financial Situation
– – – –
1993. Equity investment of $ 800,000 by Miller, Tanner (CFO) and others 1994. Additional investment of $ 2 million by venture capitals 1996. Needs to finance another $ 2 million for 1997 1995. 9. Cost is almost same as projected, BUT revenue is far below projection
Must make an Exclusive decision
Determine the ‘Going Concern’
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QUESTION. 1
• • •
What is your recommendation? Would you continue trying to sell PROCEED of would you introduce TH(Trojan Horse)? Provide support for your recommendation.
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Short Answers You are here > Question 1 > Short Answers
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What is your recommendation? Would you continue trying to sell PROCEED or would you introduce TH(Trojan Horse)? – I recommend to introduce TH as soon as possible.
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Provide supports for your recommendation. – I will suggest the reasons from the analyses on • Resource and Capability, • Customer Needs, • Competitive Environment.
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Direction for Analyzing R&C You are here > Question 1 > Analysis on R&C
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Financial Situation – “It costs a million dollars to develop and roll-out the remaining five over the next 8 months.” (pg. 5) – “Developing and fine-tuning TH will take at least 3 months and cost about $ 200,000. And Marketing costs SaleSoft, Inc. half a million dollars over the next 6 months.” (pg. 10)
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Human Resource – “We do not have the resource to have separate sales forces for the two products.” (pg. 9)
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Analysis on Financial Situation You are here > Question 1 > Analysis on R&C > Financial Situation
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SaleSoft, Inc. needs about 1 million dollars over the next 8 months Development 8 months $ 1,000,000
For PROCEED 1995.9 For TH
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1995. 12
$ 200,000 Development Min 3 months
Ongoing marketing ; marketing cost
1996. 6
$ 500,000 Marketing 6~8 months
Ongoing marketing ; 1/3 of marketing cost for PROCEED
But, SaleSoft, Inc. doesn’t have enough cash. – According the Exhibit. 10, • Total current asset of SaleSoft, Inc. is expected to be as much as 1 million dollars by the end of 1995.
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Analysis on Human Resource of SaleSoft, Inc. You are here > Question 1 > Analysis on R&C > Human Resource
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Desperate situation – 3 months left before the Sales Automation Conference – Within 8 months, SaleSoft has to make 5 remaining modules ready to keep the commitments to the buyers of PROCEEDS
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HR requirements – TH requires less resources including HR than PROCEED
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Not enough personnel for development of either PROCEED or TH – But even to have TH ready for the upcoming Sales Automation Conference, SaleSoft has to devote all the resources and efforts, not to mention PROCEED
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Analysis on Customer Needs for SA You are here > Question 1 > Analysis on Customer Needs
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Vendors failed to satisfy the customers’ needs – “I know I need more than a CMS. I also know that I do not need CSAS.” (pg. 8) – “I am not going to try to convince marketing and service about integrating their functions with sales.” (pg. 8)
Functions provided only by CSAS but not required by customers
Customer Needs
Needs being met by CMS Unmet Needs
Targeted position of TH
CSAS Value
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Direction for Analyzing Competitive Environment You are here > Question 1 > Analysis on Competitive Environment
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Merits in selecting TH – Quick Return – Easy to sell TH (similar to CMS)
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Analysis with BCG Matrix
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Merits in selecting TH You are here > Question 1 > Analysis on Competitive Environment > Merits in selecting TH
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TH gives cash flow to SaleSoft, Inc. in a relatively short time. – TH gives the easy way to get into customer account, gain quick sales, generate much needed revenue. (pg. 1) – PROCEED has only generated interest. • Converting interest to actual sales was taking a long time. (pg.1) • SaleSoft, Inc. needs enough money to survive immediately. • SaleSoft, Inc. does not have the resource to wait for the PROCEED market to open up.
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Selling TH is similar to selling CMS – Tanner believed that selling TH would be more like selling CMS. (pg .9) – The Cost and the Time required to develop the TH product are not very high.
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Analysis on Competitive Environment You are here > Question 1 > Analysis on Competitive Environment > Movement on the BCG Matrix
Trojan Horse
STAGE 1
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High
QUESTION MARK
STAR
e t a R h t w o r G
PROCEED • •
CASH COW
TH market is about to open up. But, many companies are planning to enter into this market.
CSAS market is growing rapidly. Owing to the development of IT infrastructure, CSAS market is expanding.
DOG
CMS
Low High
Market Share
Low
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In the early 1990s, market share of CMS is up to 80%. (pg. 2) But, the market needs more integrated solution.
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Analysis on Competitive Environment You are here > Question 1 > Analysis on Competitive Environment > Movement on the BCG Matrix
Trojan Horse
STAGE 2 High
• QUESTION MARK
STAR
e t a R h t w o r G
Low
TH’s market will grow with the decline of PROCEED and CMS.
PROCEED •
CASH COW
High CMS
CMS
DOG
Market Share PROCEED
Low Trojan Horse
The market share will fall down • Customers are very skeptical about CSAS and the ability of CSAS vendors to survive in the long run.
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CMS will decline significantly owing to the weakness in technology.
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Analysis on Competitive Environment You are here > Question 1 > Analysis on Competitive Environment > Movement on the BCG Matrix
Trojan Horse
High
QUESTION MARK
STAR
e t a R h t w o r G
Low
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TH will become Cash Cow product. With the growth, TH will gain more cash flow, which will be converted to develop the PROCEED.
PROCEED •
CASH COW
High CMS
CMS
DOG
Market Share PROCEED
Low Trojan Horse
With the support from the success of TH, PROCEED will be enhanced in technology and customization.
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CMS will sink to DOG because of its inferiority in every respect.
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QUESTION 2
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What is SaleSoft’s current approach to sell PROCEED? How will process have to change to sell TH?
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Short Answers You are here > Question 2 > Short Answers
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What is SaleSoft’s current approach to sell PROCEED? – They are trying to develop their product with technology-oriented mind.
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How will process have to change to sell TH? – They need to stand as a marketer rather than as a engineer.
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Technology-oriented Approach (for PROCEED) You are here > Question 2 > Technology-oriented Approach (for PROCEED)
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SaleSoft, Inc. does not pay attention to the relationship with Clients Greg Miller is too confident on the technical quality – (Miller said) “The benefits are so great that customers will be eager to adopt these systems at the earliest” (pg. 7) Marketing Initiated by Consultants 1
2
Realization by Senior Management
3
Evaluate Potential Benefit
4
Determine Methodology
5
Decide Type of SA
6
Pilot test & Customizing
Establishing System By Vendors
Modifying After feedback
7
Roll out
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Direction for changing process to sell TH You are here > Question 2 > process change > direction
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TH as a patch of the Whole System
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Focusing on the Targeted Market
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Need for TH as a patch You are here > Question 2 > process change > TH as a patch > Needs
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Customers might be favorable to patch product in this SA market – In this market, the Completed good is very expensive and involves a high level of risk for Customers
– In this case, customers want to add modules over time without risking any loss in past investment
– Patch product such as TH provides the vendor with an opportunity to make some money relatively quickly.
– Patch product is an instrument for heightening a barrier by increasing the switching costs to the customer.
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Effects from the Patch Product You are here > Question 2 > process change > TH as a patch > Effect
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With introducing the patch version, SaleSoft, Inc. can maintain and enhance the sales volume.
S a l e s
S a l e s
Trojan Horse
Time
Time
New Patch Introduction
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Focusing on Target Market You are here > Question 2 > process change > Focusing on Target Market > Selecting
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TH does not provide the integrating function SaleSoft, Inc. should focus on the industry which requires less integration among Sales, Marketing & Service Sales Reps Ratio ( # of Sales Reps / # of Employees) 50% 45% 40% 35% 30% 25% 20%
Candidates
15% 10% 5% 0%
44%
finance
10%
7%
6%
computer
electronics
others
This figure is made with the data of Exhibit 2
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Focusing on Target Market You are here > Question 2 > process change > Focusing on Target Market > Selecting
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Number of Sales reps is key criteria. Out of candidates chosen at the last sheet, Computer industry has more sales reps than the others. Average # of Sales Reps ( # of Sales Reps / # of firms with 50+ sales reps) 700 600
Target Industry
500 400 300 200 100
624
510
299
275
0
finance
computer
electronics
others
This figure is made with the data of Exhibit 2
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Implementation for attacking Target market You are here > Question 2 > process change > Focusing on Target Market > Implementation
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For efficient marketing, it is more desirable to re-arrange the Sales Division from regional standard to Industrial one.
President / CEO
Industry Admin. Assistant
Software Industry Exec. VP/CFO
Director of Development
VP Sales
Washington DC Boston, MA
Regional Atlanta, GA Columbus, OH
From Exhibit 8
VP Marketing
Director, Support Services
Computer, Office Equipment Electronics, Electrical Equipment ……….
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QUESTION 3
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What are the benefit of CSAS? How does TH compare to PROCEED Based on what you analyzed, how will you price TH?
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Benefits of CSAS – EXAMPLE of How to quantify the benefits You are here > Question 3 > What are the benefits of CSAS?
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Additional Sales due to Sales cycle reduction =
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Selling time reduction Avg. selling time
($ sales / year)
Additional Sales due to reduction in start-up time for a new sales representative =
Days reduced in Start-up No. of days to start-up x
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X
X
($ sales / Rep / year)
No. of days to start-up Work days / year
X
(No. of new representatives)
Additional Sales due to reduction in sales rep turnover = (% reduction) x ( current turnover) x ( Sales / Rep.) x
Days to start-up Workdays / year
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Benefits of CSAS – EXAMPLE of how to quantify the benefits You are here > Question 3 > What are the benefits of CSAS?
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Cost reduction Without PROCEED
With PROCEED (million $)
Sales
Orig. Value
Orig.Value + Add’l sales = New Value
Selling Costs (at % of sales)
Orig.Value x %
New Value x % + commission on New Value
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Total Gain: Add’l Sales + Reduced Selling Costs ---(1)
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Costs: HW + SA license fee + start-up + Training + Internal Costs ---(2)
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Benefit = (1) – (2)
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Pricing of TH You are here > Question 3 > Price of TH > Concept
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Value based Pricing – How much Customers are willing to pay?
Willingness to pay
Before TH Ex> $ 100
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After TH Ex> $ 200
Customers are willing to pay based on the improvements that TH gives them MAX of Price
Cost Base Pricing – R&D, Manufacturing cost and so on – SaleSoft needs to get at least as much as this cost.
– SaleSoft also has to get some more to get through with its financial crisis Min of Price
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Pricing of TH You are here > Question 3 > Price of TH > Procedure
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Order of Pricing Basically, TH is the same as the present status of PROCEED. ( since only Sales System is completed in PROCEED)
2)
So, we can use the Value-based pricing methods and the incremental value can be measured based on existing customers. Customers have different potential for improvements according to the industries they belong to. Price TH according to the industry (in such aspects as mark-up)
3)
Identify potential of improvements in terms of reduction of days not related to performance, reduction of costs, increase of sales and so on. if exact data are not available, use projection or estimate based on statistics, related data or logics
4)
With quantitative methods like those used before, evaluate potential improvements Decide MAXIMUM
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Pricing of TH You are here > Question 3 > Price of TH > Procedure
• 5)
Order of Pricing Analyze its cost structure
6)
Decide Minimum
Price High for companies in industries with high potential of improvements and vice versa.
