Making the Most of Every Marketing Dollar
In Marketing That Works: How Entrepreneurial Marketing Can Add Sustainable Value to Any Sized Company (Wharton School Publishing), the focus is on optimizing investments in every aspect of marketing, whether it's targeting the right customer, delivering added value or generating better product ideas. Authors Leonard M. Lodish, Howard L. Morgan and Shellye Archambeau offer tools, tactics and strategies that companies can use to differentiate themselves in today's marketplace. As the authors note, "Marketing, more than technology, is most often the reason for the success or failure of new ventures or new initiatives" in mature corporations. Knowledge@Wharton has excerpted a section of the book below.
Chapter 5: Product Launch to Maximize Product/Service Lifetime Profitability
The most crucial time in the marketing of a new product or service is the initial rollout. Because "first impressions last," it is essential for an entrepreneurial venture to successfully launch its product. In fact, in the world of Internet mania, the difference between an initial rollout being a success or a dud can mean literally billions of dollars in market capitalization. Much can be learned even before the launch of a new idea, using the "beta test" process to gather feedback and jump-start the customer acquisition process. This means choosing the most appropriate reference accounts, gaining those reference accounts, getting the press on board, and ironing out the bugs in the several months, weeks, or, in Internet time, days before a formal product launch. Most importantly, it means getting great referrals from delighted, influential reference accounts.
To properly plan and execute a product launch, it is imperative that marketing confirm the product availability date. Development and marketing must be in lock-step to ensure an effective launch. Unfortunately, problems do arise, bugs get discovered, and supplier commitments slip, so dates do change. Marketing must take ownership for staying in communication on the development schedule. The sidebar summarizes all of these necessary activities.
Product Launch Checklist
• Confirm and monitor product development timelines.
• Secure initial reference customers.
• Identify target reference customers.
• Create a strategy to reach these customers.
• Establish a compelling offer for these initial customers.
• What benefits do they receive beyond the product benefits?
• What do you expect from them in return?
• Determine an internal resource plan to ensure successful implementations.
• Account support
• Technical support
• Escalation process
• Product/experience feedback process
Secure external support for your product.
• Industry experts
Define partnering opportunities.
• To add credibility that the product will be successful
• To improve the opportunity for publicity
Include your channel/distributors in the product launch.
• Create supporting marketing materials and collateral.
In selling any product, nothing helps as much as strong references. This is especially true for products that are highly priced, mission critical, or perceived as risky. Enterprise software is a good example. Customers take a great leap of faith to believe the value proposition that you communicate via advertising or promotional materials. For them to believe what they hear from other experienced users is merely an act of trust that those users have no incentive to lie about your product's virtues and faults. Reference accounts provide for an organized word-of-mouth campaign, so that when the press and key targeted accounts need to hear from non-company sources, there are users to call.
The benefits to the company from a good reference account are great -- credibility with peers of that account, spokespeople to talk with the press, and examples to use in advertising and PR. In essence, you are trying to create "Cow Bell" accounts. "Cow Bell" accounts are those accounts that you want the world to know are your customers. You want to create as much noise as possible about the fact that they chose your product. Therefore, care should be taken to identify the ideal reference customers. The choice of who to get as initial reference accounts can have a huge impact on how fast (or whether) the product is adopted by the market. For Trust-Aid (see example later in the chapter), if the initial reference account had been a bank that other banks looked to for guidance on new technological innovations, the sales progress of Trust-Aid would have been much faster.
In most markets, there are individuals and entities that are known as early adopters and leaders in technology application. If these leaders are first to adopt your product, then the going will be much easier than if your first reference accounts are not respected as leaders. The medical market is probably the best defined in this dimension. For most new prescription drugs or new medical devices, who the first users are is crucial to whether they may become successful. Doctors have a "pecking order" of prestige and respectability. They will be much more likely to try a new innovation if it is first adopted by the physicians they perceive as highly influential in their field
Reaching Target Reference Customers
Once identified, strategies need to be created to reach these companies. In addition to leveraging your existing network, don't hesitate to use your board of directors, investors, your advisors, or even your vendors such as accountants to establish introductions into your targeted companies.
While many new companies rely on these networks for introductions that lead to their first set of customers, it is amazing how many companies don't. It is not professional, nor will it be productive to ask investors or board members for a list of whom they know. The company must do the work to narrow a target list of potential reference companies. With this narrowed list, it is then appropriate to ask your network if they can assist you with introductions. This request should not be made via an email distribution list. People's relationships are typically guarded. When you ask someone to make an introduction, you are asking him or her to take a risk. They are risking that you will have something valuable to offer their contact and will be able to deliver.
Vendors such as law firms and accountants can be excellent sources of introductions. They typically organize their firm's professionals around industries and geographies. Even if the person who serves your company can't help, he might be able to find someone in the firm who can. Because you are his customer, he is usually willing to help where appropriate.
Establish a Compelling Offer
Once identified, the venture must secure these initial reference customers. The targeted reference accounts themselves need a compelling reason to take the initial risk associated with being a first customer of a product. They need to understand what benefits they receive and what the company expects from them in return. Remember, the benefits received must outweigh the natural inertia to wait for someone else to try your product first, or worse, for them to use a competing product. These benefits often take the form of reduced pricing (at least for a long initial period), increased training, and far greater and more responsive support than later customers may find (although hopefully the product's bugs will have been ironed out and less support will be needed).
It is also critical to communicate, and ideally to contractually commit a targeted reference account to what you expect from them in support of your product launch. It's not helpful to have a successful implementation, only to learn your customer has a corporate policy prohibiting joint press releases with product vendors. The following is a list of examples of marketing support you can request from your customers:
• Joint press release announcing use of the product
• Use of their name as a product user in marketing materials and on the Web site
• Participation in a case study highlighting benefits of the product
• Participation in a seminar or webinars
• Take calls from press and prospective customers
Sometimes, the value to a venture of an initial customer is important enough to make a deal with a customer that would otherwise pain the CFO. In the 1970s, an MBA student at Wharton who had developed a time-shared computer program to automate the trust accounting process for banks started what became the SEI Corp. He wanted to commercialize the software and an associated support service for bank trust departments to use. His competition during that time were in-house accounting machines and manual calculations, for the most part. Without his product (called Trust-Aid), when IBM declared a dividend, someone manually had to go into each different trust account to enter that event so it was accounted for correctly.
Conceptually, adopting Trust-Aid should have been a very easy decision for any bank based on very high value in use. However, as the student quickly found out, no bank was going to put its "family jewels," its trust accounts, onto a system that no one else had shown to be reliable and to actually work. He asked his teacher, one of this book's co-authors, for advice. The advice was simple. "You need to get a very credible reference account, and even if you have to give the software and service away for free, it'll be very worth it." That is exactly what the student did to get his first customer. He gave it away for free for over a year to his first "customer." He was not very happy about not having any initial revenue for a year, but it was probably the only way the company (now with a market cap in the billions) would have gotten started.
It wasn't until that first customer had run the system for nine months without using the old manual system as a back up, that the student got his first paying customer (at still reduced "charter rates"). The first customer was really only a credible reference after he had put his trust department "family jewels" in the care of the Trust-Aid software and service and had stopped using the old manual system. Even when the reference account had both systems running (with Trust-Aid running very successfully), he was not a credible or convincing reference site until he had demonstrated his own faith in the software and service.
Build Internal Resource Plan to Ensure a Successful Launch
The SEI example highlights the importance of ensuring your first customer(s) are completely satisfied with your product and their experience with the company. This doesn't happen by accident. Spend the time upfront to establish your internal resource plan to ensure a successful implementation.
The plan starts with sales. Most companies that are willing to be first users tend to be early adopters. Because these innovators know that they are taking a risk, they prefer to work directly with the company to mitigate additional risks associated with going through intermediaries. Regardless of the distribution channel decisions you've made, the best approach is to ask the potential reference account how they want to be treated. You may have to either hire a direct sales force if the number of initial customers requires it, or as the entrepreneur, you and other senior managers may assume the sales role directly.
Geoffrey Moore, in his excellent book Crossing the Chasm, also recommends a small, top-level sales force as a way to deal, in particular, with those innovators he terms "visionaries," to manage their expectations during the sales and initial usage process.
"Because controlling expectations is so crucial, the only practical way to do business with visionaries is through a small, top-level direct sales force. At the front end of the sales cycle, you need such a group to understand the visionaries' goals and give them confidence that your company can step up to those. In the middle of the sales cycle, you need to be extremely flexible about commitments as you begin to adapt to the visionaries' agenda. At the end, you need to be careful in negotiations, keeping the spark of the vision alive without committing to tasks that are unachievable within the time frame allotted. All of this implies a mature and sophisticated representative working on your behalf."
Once the sale is finally closed, the venture must be ready with plans to provide account support and technical support. Many times the person responsible for the initial sales takes responsibility for ongoing account support. He or she must make sure that whatever happens, the initial client's expectations are exceeded. Salespeople tend to respond directly to the financial incentives inherent in their compensation structure -- i.e, they focus on the tasks that will generate the most income. During this phase, it is important that the salesperson is compensated not only for the sale, but also for customer satisfaction. This can be measured and paid when the customer agrees to be a reference. Many companies forget this step and don't understand when the salesperson is off selling the next accounts and not adequately focusing on ensuring that the current customer is being well managed.
The referrals of these initial users are what the business will live on. If this initial salesperson is not a senior manager, this person should have direct authority from the CEO to do whatever is necessary to exceed this customer's expectations. Likewise, engineering and development must be prepared to respond very quickly to technical issues or problems that arise.
One mistake that entrepreneurs sometimes make is to neglect to put in place processes for escalation of issues and for customer feedback on the product or experience with the company. Although it is important to make the product work as represented, it is equally important to solicit feedback on the overall value received and what could be done to make the product even more valuable.
A very successful Israeli high-tech company had established a very nice North American business selling products and services to call centers through VARs (Value-Added Resellers) and large equipment vendors. They had a different new product targeted toward security departments of large firms. The firm originally planned to use the same type of sales and distribution (VARs) to introduce the new security product and large equipment vendors. However, after interviewing the potential innovators, the company had to change their initial marketing plan. The innovative potential initial customers were not receptive to dealing with intermediaries. They wanted to deal directly with the company. The company used its senior managers as direct salespeople and began a very successful rollout of its new, innovative, security product. If they had not asked their initial target customers how they wanted to be treated, they would have had significant problems in penetrating the market.
The Beta Process
Most products go through many revisions between the concept and final versions. The changes are often stimulated by real user feedback to the engineering and product management teams. The process that helps this to happen is the beta process. The terminology is in common use in engineering hardware and software areas, where the first versions of a product are called "alpha" versions, the first versions that can go to customers for testing are called "beta," the almost final versions are called "release candidates," and the final versions are called the released
At each stage, successively more users and/or customers have the product in hand and are making comments to the product management team. This process is normally run by, and of benefit to, the engineering department. Properly managed, however, it can be a great help to the marketing of the product.
In today's Internet world, beta users provide the buzz, and amplify the presence once the service is launched openly to the world. Where in the past beta testing was usually limited to a few customers, or a few dozen, there are now cases where the number of beta users is in the tens of thousands. Microsoft Windows 95 had over 100,000 beta users, and Netscape Communicator usually has a beta version and a shipping (frozen) version available for download most of the time.
When customers agree to join a beta program, they usually agree to spend some minimum amount of time using the product, to respond to questionnaires about the features and benefits of the product, and to be available for calls from the press or other customers. In return, their questions and problems should be dealt with at high priority, and they can gain visibility to their peer groups as thought leaders, as well as the psychic income of seeing their name in print in interviews and articles about the product.
Choosing the right customers is very important since they will not only influence the press, but also provide the most cogent feedback at a key time when the offering may still be changed. Customers whose needs are not aligned with a majority of intended users could skew product features in an undesirable direction. In the software world, beta customers are often chosen from existing users of previous products. Such customers are already predisposed to a company, and can get the extra benefits of additional support and relationships to help if they have problems with any product.
On the Web, many offerings are completely new, and there is no customer tradition. In this case, make a list of the key target customers -- whether they are Fortune 500 companies, Inc. 500 newcomers, consumers of certain demographics, and so on Then, network into a decision maker who is willing to listen to the benefits of a new product, and convince him or her that his or her company will benefit from being a first mover -- not only through discounts, but also through having a several month advantage over any competitors. For consumer sites, there may be specific discounts, and the ability to say, "I've been there first."
iExchange.com, a site that permits people to share stock market advice and rates them on the accuracy of their predictions, needed to beta test for two reasons. The first involved the usual issues of making sure the programming was properly done and that the servers could handle the loads. Second, in order for the site to be attractive to general users, there needed to be enough predictions, about enough stocks, to give interesting content to new users. As an idealab! company, iExchange.com first called on all the people in the idealab! building (about 150) and asked them to post recommendations. The incentive offered was free pizza and T-shirts. After two weeks of building several thousand recommendations, these people were asked to virally expand the beta test to their friends and family members, by sending them emails promising prizes for their entries.
During this beta period, users were periodically asked for comments about the user interfaces, their interactions, and their overall comments about the site, including look and feel, mission, and effectiveness. Their movements through the site were tracked with software that could show each successive click, and determine when they were leaving the site. All this information was fed to the product managers and developers each day, and changes were made to improve the length of time and number of page views per visit, as well as the overall performance of the site.
As you reach the later stages of the beta process, it is important to have critics, as well as friends, test the site or the new product. People with a real need and use for the product will provide a less-filtered set of responses than those who are merely friends doing a favor. It is often the harshest critic who provides the spark for a feature change that turns him or her into a fan -- and makes the site that much better for all other users.
InsiderPages.com, a Web site tagged "the Yellow Pages written by your friends," allows people to rate local merchants, either positively or negatively, and have those ratings accessible by their friends and others. In order for this type of site to be useful, it has to have a meaningful number of reviews and categories. This attracts new users, who then post their own reviews and further build the network. A beta test period was necessary to make sure it was easy for users to get their reviews in. For example, the system is designed to scour your Outlook contacts looking for words such as Doctor, Engineer, Plumber, and so on. Making that process simple and intuitive took several retries on the code during the beta process.
Users were asked for feedback throughout the process, and observed while using the system (for those users at the InsiderPages.com facility). After several weeks, the internal users were able to invite friends from outside the InsiderPages and idealab! communities. The spread of new users was carefully monitored, and comments fed to the product and development teams. This led to the creation of a marketing program that offered a $5 Starbucks card for the first three reviews posted. Once a critical mass of reviews (about 5,000) and users (about 2,000) was achieved in Los Angeles, the product was opened up from beta. The beta period allowed many adjustments to be made without the fear of a very large user community being unhappy with any particular change.
AutoDesk, an extremely successful software maker for Computer Aided Design and Manufacturing, understands how important their beta accounts are. They have a department whose responsibility is only to follow up every comment, suggestion, or problem that arises during the beta test process. This group is charged with communicating to the reference account about exactly what happened with every suggestion made during the reference, beta test process. Each reference customer is never left hanging about whether their suggestions or feedback were integrated into the released version of the product.
Even if their suggestion is not implemented, the reference account is told why it wasn't. For many organizations, this step of saying what was not implemented in the new product is not completed. It is human nature not to want to give your important reference account bad news. However, such news is still very valuable to the account. This kind of communication adds a tremendous amount of credibility to the AutoDesk organization and gives their reference accounts a big signal that AutoDesk is trustworthy. This management of the reference, beta test process is one reason why AutoDesk has maintained the clear leadership in its marketplace for more than 10 years.
For B2B products or services, finding initial customers may be more difficult. You have to convince them to try something that may not succeed, and hence could leave them stranded if they are not careful. And the growth may be much slower. This is why it is so important to choose influential innovators and early adopters to be the initial customers. It also is critical to market to them in the best way.
The need for reference accounts is tied to a product, not to the company. The process for securing reference customers takes place with each new product introduction. Buyers don't attribute references across product lines; they want to know that others have successfully used the specific product they are considering. MetricStream, a quality and compliance software provider, had been selling software to large companies to manage their operational compliance needs, such as those dictated by the FDA, ISO9000, and Six Sigma. Despite the fact that they had customers such as Pfizer, Hitachi, and Subway successfully using their software, when they launched their Sarbanes-Oxley compliance module, they needed references for that specific module in order to successfully sell it. They established a charter customer program that provided pricing discounts, enhanced support, and consulting. This program enabled MetricStream to obtain their first few customers for the Sarbanes-Oxley module.
This practice is not limited to small companies. Companies as large as IBM establish incentives to acquire their first set of customers for a new product. These incentives are targeted at the sales force and at prospective customers. Salespeople are typically offered bonuses or accelerators to their commission plans for selling new products. Likewise, customers are offered discounts or attractive benefits for being early adopters.