Case analysis Of SaleSoft, Inc. (A) SITUATION ANALYSIS: SaleSoft was founded in July 1993 with the objective of marketing PROCEED, a Comprehensive Sales Automation System (CSAS). Despite the fact that there was a good level of enthusiasm amongst the prospective buyers, the high level of supply time was a drawback with a meagre five such systems being sold till date. Thus converting the interest to sales was a real problem.
Now, to seek additional funding from the Venture Capitalists for future developments, the company was under dire pressure to show performance and is in a dilemma whether or not to introduce a new product christened Trojan Horse (TH). This product can be developed, with some work, using the existing modules of PROCEED’s Sales System that are already available. Trojan Horse (TH) could potentially distract SaleSoft from its primary objective of becoming a leader in the high end of the Sales Automation (SA) software industry. There is also a risk that it might cannibalize sales from the PROCEED product.
TH can potentially prevent SaleSoft from forming relationships with consultants whose support is critical to the success of PROCEED. But, TH might offer an easier alternative for SaleSoft to get new customers, gain quick sales, and generate the much needed revenues. The situation is further complicated by the fact that current PROCEED customers are expecting SaleSoft to deliver the complete PROCEED solution as soon as possible. The company has delivered only 3 modules out of a total of 8, and developing the remaining five would cost them about $1mn and a would take a time of approximately 8 months.
UNDERSTANDING THE BUYING CYCLE OF PROCEED: PROCEED falls under the category of Comprehensive Sales Automation Systems (CSAS). There following steps are involved in the customer buying cycle: 1) Realization by senior management that CSAS might solve some of the existing sales, marketing and service problems. 2) Evaluating the potential to automate existing processes and to specify the order of functions to be automated. Sales Automation (SA) Consultants were generally approached for help regarding the same. This step took about 2-3 months for completion. 3) Customers decided how different functions to be automated ere related and determined how data was to be collected, stored and analysed. This step was also done with the help of SA Consultants and usually took about 3-4 months. 4) Customer decided the type of hardware and software to be purchased, based on inputs from SA Consultant. Short listing and selection of vendors was done, which took about 6-8 months. 5) Pilot tests conducted after customizing the CSAS to meet the customer’s specifications. This usually took about 3-5 months. 6) To modify the CSAS software in response to feedback from the pilot test, this took 3-4 months. ) Full scale roll-out took another 4-6 months. The completion of the entire cycle takes somewhere between 39 and 55 months. PEOPLE INVOLVED IN THE BUYING PROCESS: The people involved in the buying process include: 1. Senior Management: The senior management, including CEO, CFO and other relevant positions (such as President or Vice-President Sales, Marketing and Service) would occupy the most important role in Problem Recognition. They would also play a significant role in the final supplier selection. However, for other stages, their role is limited. . Consultant: Consultant is hugely responsible for stages in the buying cycle like General Need Description, Product Specification and Supplier Search. The consultant shapes the view of the organisation with inputs based on his experience and expertise in the industry. 3. Sales force: The opinion of the sales force on the quality of the product offering would convey the need for any changes in the product by providing the most valuable and the most relevant feedback. 4. CSAS Vendor: Based on the inputs from the firm, the vendor customises the offering.
After running pilot tests, the vendor collects feedback and makes the necessary changes. Apart from the role mentioned above, the consultant, if in a partnership with a CSAS vendor, might allow the vendor to access his customers. Also, the consultant might take care of training issues by exploiting his in-house training skills or long standing partnerships with specialized training firms. CURRENT APPROACH OF SELLING PROCEED: Salesoft’s CSAS product PROCEED had eight modules. These included 3modules each in Sales System and Marketing System, and 2 modules in Services System. Currently, only three modules were ready.
The expected cost for developing and rolling out the remaining 5 modules was 1mn$ over the next 8 months. Slaesoft had sold the existing modules of PROCEED to 5 customers in the computer software industry and had an installed base of 300 users. Salesoft had committed the release of remaining modules by June 1996. Salesoft was also pursuing sales opportunities with over 20 prospects in computer software and hardware, financial services and banking. The number of users varied from 200 to 600. In each case, the customer wanted to see the complete PROCEED product before making any purchase commitment.
It was expected that barring any delays in product development, at least a quarter of current prospects would buy PROCEED over the next 12-15 months. QUANTIFYING THE BENEFITS OF CSAS: Now to quantify the benefits of CSAS (in this case PROCEED as the exhibit gives the data, only for the same). For Company A Additional Sales due to Sales cycle reduction = 6120 X $120m = $6 mn per yr Not considering the reduction in sales cycle and reduction in startup time for new sales rep for now, the total additional sales for Company A from using CSAS = $6 million
Since, this extra revenue generated by using PROCEED is independent of sales cost, the company A will not have to spend the fixed component of Selling costs which is 30% – 10% (variable) = 20% of total sales. Therefore, A will be earning $6 x . 20 = $1. 2 million extra in the first year after implementing PROCEED. Now the total cost of implementing PROCEED = PROCEED License Fee + Implementation and Training cost + Hardware costs + Project start-up costs + Annual Cost of Internal resources = $(0. 6 + 0. 18 + 1. 5 + 0. 2 + 0. 15)mn = $2. 63 mn
Therefore, to recover the cost it will take company A 2. 631. 2 = 2. 2 yrs Similarly, for company B the total cost of implementing PROCEED = $(1. 44+ 0. 43 + 3. 6 + 0. 45 + 0. 35)mn = 6. 27 mn. Additional Sales due to Sales cycle reduction = 15180 X $350m = $29 mn per yr Therefore, to recover the cost it will take company B 6. 2729 = 3 months Thus company B will gain more quickly by implementing PROCEED. THE TROJAN HORSE OPPORTUNITY: Trojan Horse (TH) is a sales automation system which provided solutions that took a process view to automating the sales order cycle.
Its major objective is to increase productivity of an enterprise by improving efficiency and effectiveness and reducing order cycle time. Trojan Horse allows sales manager in anticipating any shortfall in sales and set up early and timely intervention programs to manage gaps in performance. It archives data which can be used later by a sales manager to track and review previous wins and losses, associated sales activity and competitive behaviour to improve sales force performance.
Trojan Horse can act as an alternative to PROCEED which provides the complete integration of sales, marketing and services. Trojan Horse is a product that caters only to the sales section and proved to be superior to the sales system incorporated in PROCEED, which requires substantial work. Trojan Horse being more economical than PROCEED (PROCEED is priced $2400/user whereas Trojan Horse to be priced either $1000/user or $400/user) will provide a much greater market.
Trojan Horse reduces the risks for the customers as it provides them with an opportunity to try out the product first before thinking of investing further in the sales automation sector as in the past CMS (Contact Management Systems) did not proved out to be much useful for the customers. Trojan Horse provides opportunity for the vendors in gaining extra money as this product being very economical it will generate more demand thereby increasing vendor margins. TH vs. PROCEED: Selling TH is different from PROCEED in several ways. First, unlike PROCEED, TH is focused only on sales.
This significantly reduces the number of people involved in the buying cycle as well as the need to build consensus between the traditionally diverse sales, marketing, and services departments of customer firms. Secondly, it was easier to quantify the benefits of TH, which simplified the selling process for TH. It would only require 1/3rd of the time required for selling PROCEED. Thirdly, TH needed minimal customization. TH delivers enormous value to Sales VPs of firms that are involved in selling big-ticket items with long, and complex selling cycles.
These Sales VPs find it difficult to provide their firms with accurate forecasts, which in turn affect the firm’s ability to plan operations and resources. Thus, TH might be an easier sell than PROCEED. PRICING OF TH: Trojan Horse should be priced $1000 as per Miller because it will increase the margins for the company as it is operating under a loss (0. 658 mn $ in 1994). Pricing it higher will provide the company to extract more money from the consumers as the demand for Trojan Horse is already high in the market and pricing it higher will not affect its demand and will generate greater returns.
Price of Trojan Horse should not be kept low as customers will not switch to Salesoft’s more sophisticated product PROCEED which is presently in its development state. By keeping large difference in the prices of PROCEED and Trojan Horse, customers will find it difficult to switch to the advanced version of the product as the switching cost will be high but by pricing TH high switching cost is minimized. In this scenario it is also insured that market for both the products is intact and Trojan Horse does not turn out to be a cannibal for the sales of PROCEED.
In order to develop PROCEED more investment would be required which can be generated by earning more from the sale of Trojan Horse by pricing it higher. Once PROCEED is developed fully it can be launched as a upgraded version of Trojan Horse which will make customers to shift to the newer version. Market of Trojan Horse will not be effected by this shift because efficient working of the product will attract more customers which were initially not willing to invest in the sector of sales automation fearing the risk in the investment and also expecting low return on investment.
It is evident from data provided that using PROCEED for Company A decreases sales cycle by 6 days and for Company B by 15 days which supports the sales automation sector, hence will prove out to be sector generating high returns for a customer. TH BREAK-EVEN CALCULATION: The entire development cost for complete TH package will be around $0. 2 MN and marketing cost will be approx.. , $0. 5 MN. So the total cost to SaleSoft for developing and selling TH will be 0. 7 MN USD. Now if they price it at two levels according to
Miller – $1000 per userBreak-even = 7000001000 = 700 users| Tenner – $400 per userBreak-even = 700000400 = 1750 users| ORGANIZATIONAL STRUCTURE OF SALESOFT: The departments such as development and support services have comparatively large number of employees than sales and the marketing departments which are small, with only five and four people, respectively. The above setup clearly shows that that this firm is still organized to develop products but not to sell them. Whereas to market the products such as TH, where even educating the customers is of prime importance, the marketing and sales teams need to be augmented.
Moreover, with giants like Microsoft and LOTUS announcing their plans to enter into this segment and with existing vendors upgrading their capabilities, the market environment has become very competitive. Therefore, SaleSoft needs to completely re-organize the firm and build up selling capability very quickly. But the trade-off is that a product development oriented company like SaleSoft will find it a herculean task to become a marketing/sales oriented firm. THE DECISION – PROCEED over TH: As we can see that the competition is going to heat up very quickly in the TH market – Microsoft and Lotus are planning to enter.
Also there is competition from CMS vendors who are upgrading their capabilities. Whereas, all the CSAS competitors are small and like SaleSoft – this is an easier battle for SaleSoft. Also the situation is not expected to change any soon. Moreover, SaleSoft as of now don’t have the skills and manpower in the sales and marketing teams to sell at such a high rate. It would also cost them around 0. 5 mn$ to create awareness about the product. SaleSoft has spent too much time on PROCEED to walk away from it now.
They will lose out on their first mover advantage in the CSAS market if they divert their attention to TH. TH will also prevent SaleSoft from partnering with consultants who are very important to the firm. They have committed to deliver the remaining modules on a staged basis by June 1996 and even if they could convert half of their prospective customers to use PROCEED they could have a revenue of $ 480000*10= $ 4. 8 mn which would leave them comparatively well placed among the CSAS competitors. Whereas developing the full PROCEED module will require only an investment of $ 1mn.