Sunday, May 1, 2011

A Repositioning Case Study

This article was adapted from a series of posts made in our online discussion group by Matt Haley—PWH

I joined a company selling internet, and CD-ROM e-commerce solutions that used a common engine and had a service component to take paper and some electronic product data and create a customized solution that acted like a sales person it would lead a customer to the right solution without the customer having to know squat about the internal naming conventions of product lines and the like.

What was clear was that the technology was excellent: no large downloads! The problems included selling to the building product markets at $12K to $18K. It was profitable, but not as profitable as possible.

After looking at what we were doing, I did the standard review of needs and technology fit and we targeted raising the price to the current market while evaluating new markets.

To raise the price, we stopped calling on the web or sales support people charged with getting a “web catalog” going. We started talking to the VP of Sales first, then the President about using the Web as a channel, and how the Web needs to support your other channels issues.

In companies with an indirect channel primarily, we talked to whoever owned the channel and the president.

The VP of Sales, the partner manager, and the presidents all care about top line revenue. Mid-level marketers, anyone in Information Services, Marcom people, Web designers and the like care about cost containment. If you save $100K, the price has to be less than $100K.

If you increase top line revenue and bottom line profit, then the price can be anything less than the risk rated increase in profit.

After doing this research, we found a price point of approximately $90K to $120K for the same product we had been selling at $12K to $18K. And our customers were happier. And the sales cycle dropped dramatically!

After doing a lot of competitive analysis and some secondary research, I changed the product description to be a software license at 50% of the price and Consulting for 50%. This served to help people understand why we had a standard maintenance contract and increased the acceptance of the 20% maintenance on both the service (consulting) and the license.

We then changed to Computer and Instrumentation as the target markets, and raised the price to $175K per channel used plus the Consulting Service at $70K per product line.

We sell this model to the business owners, the VP’s of Sales, the VP of sales operations and the president or as close as we can. Each channel can be bought separately, and therefore the total is less than most companies that are large need to take to the Board of Directors. VPs and Presidents make decisions quickly, so the sales cycle is shrinking.

By packaging what was a service into products that match the needs of the person best able to increase their income, we bypass the techno-squirrels until they are boxed in.

By doing fixed-price whole solution pricing, we remove the biggest risk factor to the IS manager. When IS (not if but when) the IS department and we get down to a couple of acceptance test quibbles, we let the funding party make the decision, and we give alternatives based on time, not cost. An extra $10K won’t sway the decision as effectively as two months on the schedule will.

We know the current price point is too high for many potential prospects. So we are packaging the tools we use in house and a set of standard templates and will be offering a lower cost solution that has less Consulting Service, removes some product features we find only large international companies care about and will be available at a much lower price.

The person who will increase their earnings or decrease their risk is always a good place to start. They have almost always delegated the problem to someone who does NOT see the business problem driving the request.

In our case they think they were charged with getting a configurator online, not increasing top line revenue.

Matthew Haley is VP of fast-growing software technology company.

1 comment:

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