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Value Based Marketing Technology Vendor Perceptions of Economic Value

Introduction

z2m4 performed a survey regarding awareness of economic value to see how it is perceived and how it is used for sales enablement. We received nearly 120 responses from a variety of software, hardware, medical equipment, and communications equipment technology companies. Companies who participated in the survey and who routinely use ROI calculators have at least one of the following characteristics:

  • Emphasize customer business benefits of their offering such as increased revenue, not IT or infrastructure benefits
  • Position as much more for a higher price or more for the same price
  • Select markets that are early in the technology adoption lifecycle including innovators, early adopters, and early majority

Benefits to Vendor

To understand how technology vendors view sales enablement tools such as ROI/TCO calculators and economic value models, we asked a simple survey question: How effective do you think ROI/TCO calculators are in each of the following areas?

  • Increase the sales win rate
  • Decrease the time to close a sale
  • Reduce or prevent price decreases

In general, technology vendors believe that calculators are effective in all of the areas. They consider them most effective for increasing the sales win rate as 75% of the respondents said that such tools were either very effective or effective (see Figure 1 below.) However, more than half of the technology vendor survey respondents consider ROI/TCO calculators to also be effective or very effective for compressing the sales cycle and for defending the price. Paul Haddad, SVP at Concurrent Computer Corporation, said “the calculator reduced the sales cycle for a large deal with a Tier 1 cable company by a minimum of 3 and possibly as much as 6 months. Without the calculator, the cable company would have spent several months to determine the value of our offering.” In a similar vein, Gary Southwell CTO at BTI Systems relates that a calculator was “essential in maintaining price for a new offering in content delivery. There was an ‘aha moment’ for the customer when they were able to apply their own assumptions with the calculator and the pricing question went away.” In both examples, the calculator was essential to convey value because the offering was for a new product category where the customers have little or no familiarity in purchasing within the category.

fig1

The left column of Figure 2 shows how often the customers of the survey respondents require a business case for a purchase. 28% of the respondent’s customers always require a business case, more than half sometimes require a business case, and the remaining 20% rarely or never require a business case. The right column of Figure 2 shows that only 19% of vendors always use an ROI calculator while nearly 60% sometimes use a calculator. The underutilization of calculators is surprising for three reasons:

  • As discussed, vendors have a very favorable view of the benefits of using ROI calculators. A one percent improvement in win rate and price should be a powerful incentive to create and deploy these calculators.
  • According to IDC, nearly 90% of technology purchases have an economic buyer involved. This statistic is part of a broader trend called frugalnomics that has become sharper over the last decade.
  • The percentage of vendors who always use an ROI calculator is less than the percentage of customers who always require a business case. It would seem that if the vendors are responsive to their customers, that the percentages should be comparable since the calculator is a fast and powerful way for a vendor to influence or even define the business case.

Clearly, there is an opportunity for vendors to help themselves through the creation and deployment of ROI calculators. The remainder of this article show how companies use ROI calculators based on three different perspectives:

  • Benefits of the vendors offering to the customer
  • Company positioning of price and value
  • Placement of the product category in the technology adoption lifecycle

ROI/TCO Calculator Usage

Technology companies who routinely use ROI calculators are more likely to have offerings that provide benefit beyond the technology infrastructure to the business as a whole. These benefits to the business include increasing the customer’s revenue, decreasing the customer’s COGS, improving the customer’s C-SAT (customer satisfaction), or decreasing the customer’s support costs as shown in Figure 3. By contrast, technology companies who frequently use ROI calculators are less likely to provide benefit just within the customer’s technology infrastructure such as improving IT productivity or reducing technology CAPEX spend. This correlation between value and calculator usage makes sense: as technology moves from the back office to the front office, the benefits are by definition business benefits, not just IT or infrastructure benefits. Because many of these products are from new product categories, ROI calculators are necessary to convey the value to buyers who are inexperienced with the new category.

fig2

Technology companies who routinely use ROI calculators are more likely to deliver business benefits through their offering. 100% of these companies are positioned as providing either much more value for a higher price or more value for the same price as shown in Figure 4. By contrast, a sixth of companies who occasionally use calculators position their offering around lower price. On the surface, it is tempting to explain this phenomena as if youve got it, flaunt it. However, our analysis and experience suggests that higher value offerings almost always need to be justified economically. Frequently, the vendors need to educate buyers about new metrics for evaluating product performance. However, for existing product categories, price often speaks for itself. This is especially true when the metrics that define product performance (such as price per terabyte in storage) are well defined and agreed upon in the industry. Many medical, communications, and enterprise hardware products fall into this latter category where the metrics are well understood.

fig3

From the standpoint of market stage, all of the routine users of calculators are concentrated in early stages including innovator, early adopter, and early majority as shown in Figure 5. Technology companies who occasionally use ROI calculators focus on all stages of the technology adoption lifecycle except innovators (see Figure 5.) Their primary focus is on early adopters and early majority. When markets reach the late majority or laggard stage, products offerings are more similar and often commoditized. In addition, the buyers are more experienced purchasing within the product category. For these latter stage markets, companies position and message more around price than value. As a result, there is less application for ROI calculators in late majority and laggard markets.

Conclusion

Companies who participated in the survey and who routinely use ROI calculators have at least one of the following characteristics:

  • Emphasize customer business benefits of their offering such as increased revenue, not IT or infrastructure benefits
  • Position as much more for a higher price or more for the same price
  • Select markets that are early in the technology adoption lifecycle including innovators, early adopters, and early majority

The obvious question remains as to when ROI calculators and economic value models are appropriate. We believe that if a company has one of the above characteristics, a calculator will probably help close deals, close deals faster, or improve deal margin. Of course, many companies share two or three of these characteristics. Such companies may have developed a disruptive or breakthrough technology that is targeted at a new market with few competitors.