Logical Thinking
Creative Mind
Open Mind
Interpersonal Skill
Case Analysis on SaleSoft, Inc.
23rd Feb 2002
by
Genius of “AND”
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Logical Thinking Creative Mind Open Mind Interpersonal Skill
Index
• General Information
– Current Situation
– Current Crisis
• Question 1
– Our recommendation to choose one
• Question 2
– SaleSoft’s current approach
• Question 3
– Benefits of CSAS
– Pricing of TH
• Q&A Session
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General Information
• Current Situation
- SaleSoft, Inc.
- Market Trend
• Current Crisis
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Current Situation
You are here > General Information > Current Situation
SaleSoft, Inc.
• Establishment
– 1993. 6. Founded by Greg Miller to develop & market CSAS
– Greg Miller : Chairman
engaged in application SW industry for 12 years
• 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
• Projected the SA market size in year 1995 would be $ 1 billion
• Projected annual growth of 40% for 5 years
– Reason: IT infrastructure = Better HW, SW, NW
• 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
• 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.
• 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
• 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)
• 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
• SaleSoft, Inc. needs about 1 million dollars over the next 8 months
Development Ongoing marketing
For 8 months ; marketing cost
PROCEED $ 1,000,000
1995.9 1995. 12 1996. 6
For TH
$ 200,000 $ 500,000 Ongoing marketing
Development Marketing
Min 3 months 6~8 months ; 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
• 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
• HR requirements
– TH requires less resources including HR than PROCEED
• 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
• 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
CSAS
Value
Needs being met
Customer by CMS
Needs Unmet
Needs
Targeted position of TH
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Direction for Analyzing Competitive Environment
You are here > Question 1 > Analysis on Competitive Environment
• Merits in selecting TH
– Quick Return
– Easy to sell TH (similar to CMS)
• 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
• 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.
• 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
STAGE 1 Trojan Horse
• TH market is about to open up.
• But, many companies are planning to
High enter into this market.
QUESTION
STAR
MARK
Growth Rate
PROCEED
• CSAS market is growing rapidly.
• Owing to the development of IT infra-
structure, CSAS market is expanding.
CASH COW DOG
Low CMS
High Market Share Low • 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
STAGE 2 Trojan Horse
• TH’s market will grow with the decline of
PROCEED and CMS.
STAR QUESTION
High MARK
Growth Rate
PROCEED
• The market share will fall down
• Customers are very skeptical about
CSAS and the ability of CSAS
vendors to survive in the long run.
Low CASH COW DOG CMS
High Market Share Low • CMS will decline significantly owing to
CMS PROCEED Trojan Horse
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
• TH will become Cash Cow product.
STAR QUESTION • With the growth, TH will gain more cash
High MARK flow, which will be converted to develop
the PROCEED.
Growth Rate
PROCEED
• With the support from the success of TH,
PROCEED will be enhanced in
technology and customization.
Low CASH COW DOG CMS
High Market Share Low • CMS will sink to DOG because of its
CMS PROCEED Trojan Horse
inferiority in every respect.
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QUESTION 2
• 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
• What is SaleSoft’s current approach to sell PROCEED?
– They are trying to develop their product with technology-oriented mind.
• 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)
• 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 3 4
Realization Evaluate
Determine Decide
by Senior Potential
Methodology Type of SA
Management Benefit
5 6 7
Pilot test
Modifying
& Roll out
After feedback
Customizing
Establishing System
By Vendors
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Direction for changing process to sell TH
You are here > Question 2 > process change > direction
• TH as a patch of the Whole System
• 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
• 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
• With introducing the patch version, SaleSoft, Inc. can maintain and
enhance the sales volume.
Sales
Sales
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
• 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%
15%
Candidates
10%
5%
44% 10% 7% 6%
0%
finance 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
• 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
• 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
Director of Director,
Exec. VP/CFO VP Sales VP Marketing
Development Support Services
Computer,
Washington Office Equipment
DC
Boston, MA
Electronics,
Regional Electrical Equipment
Atlanta, GA
Columbus, OH
……….
From Exhibit 8
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QUESTION 3
• 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?
• Additional Sales due to Sales cycle reduction
Selling time reduction
= X ($ sales / year)
Avg. selling time
• Additional Sales due to reduction in start-up time for a new sales
representative
Days reduced in Start-up
= X ($ sales / Rep / year)
No. of days to start-up
No. of days to start-up
x X (No. of new representatives)
Work days / year
• Additional Sales due to reduction in sales rep turnover
Days to start-up
= (% reduction) x ( current turnover) x ( Sales / Rep.) x
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?
• Cost reduction
Without PROCEED With PROCEED (million $)
Sales Orig. Value [Link] + Add’l sales = New Value
Selling Costs [Link] x % New Value x %
(at % of sales) + commission on New Value
• Total Gain: Add’l Sales + Reduced Selling Costs ---(1)
• Costs: HW + SA license fee + start-up + Training + Internal Costs ---(2)
• Benefit = (1) – (2)
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Pricing of TH
You are here > Question 3 > Price of TH > Concept
• Value based Pricing – How much Customers are willing to pay?
Willingness to pay
Customers are willing to pay based
on the improvements that TH gives
them
Before TH After TH Î MAX of Price
Ex> $ 100 Ex> $ 200
• 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
Î Min of Price
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Pricing of TH
You are here > Question 3 > Price of TH > Procedure
• Order of Pricing
1) 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.
Î 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
Î Decide MAXIMUM
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Pricing of TH
You are here > Question 3 > Price of TH > Procedure
• Order of Pricing
5) Analyze its cost structure
Î Decide Minimum
6) Price High for companies in industries with high potential of
improvements and vice versa.
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Question & Answer
Session
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