The Seven Deadly Sins of Software Marketing

Marketing collateral does not come cheap. Costs associated with textual content, graphic design, and production quickly add up. Obviously, you want to get an appropriate return on your investment. This article looks at seven common mistakes, or "sins," made when developing marketing collateral for the software industry. The sins discussed consider such concepts as targeting your market, lowering costs, and making it convenient for your potential customers to use your marketing collateral. Also considered are the various forms of marketing, such as hard copy, electronic, and e-mail. Finally, we consider the cost of changing marketing collateral and its reproduction.

However, before we start confessing our sins, we need to state the obvious. Marketing collateral must be tailored to your marketplace and products. To sell a car, you probably would emphasize miles per gallon, passenger accommodation, and maintenance costs. Applying these same metrics to software may not make a lot of sense or demonstrate the strengths of your software products. While it may go without saying, never lose sight of the obvious—know your marketplace. This simple statement is not considered one of the deadly sins because if you are committing this grievous offense, you need to go back to the basics and seriously rethink your marketing plan.

The good news is that committing one sin may not condemn you to marketing hell, but committing enough of them surely will. So, grab your holy water, prayer beads, or whatever your religion provides for protection, and let's proceed.

Sin #1. Hiding Your Message

Have you ever gone to a web site that is plastered with customer testimonials, but with either no indication of what it is selling or, at best, with its products or services written in small print? It's like lighting a candle and covering it with a basket. You need to tell your audience what you are selling, what services you offer, and what support you provide. Tell them up front that "We offer software designed for the process manufacturing industry," "We cater to the food and beverage industry," or "Our software was developed to support the field services industry."

To avoid the "hard sell" approach, it may be helpful to ease into the description of what you have to offer. Consider the example below for the food industry.

They say that "it's the ingredients that make food taste good." However, in a rapidly changing marketplace, it takes a lot more than ingredients to compete effectively and efficiently in the food industry. Our software is designed to take care of the production and operational issues of the food industry so you can focus on the freshness of the ingredients.

Don't assume that your audience already knows what you do. If they did, they probably would not need a marketing brochure in the first place. In creating marketing collateral, assume that the reader is seeing your company and its products for the first time. Stating the obvious is not a bad thing. With marketing collateral—hard copy or electronic—readers already familiar with a particular content can simply read on or scroll down.

Reducing Information Sharing Risks

Policy

* Segmentation—The basic foundation for protecting confidential data is the classic technique used by the military to protect secrets, classifying data according to its confidentiality and giving access only on a "need to know" basis. For example, a supplier designing a component that fits in your product usually only needs to know the physical envelope (attachment points and constraints) and electrical interface characteristics for their component, rather than receiving your entire design.

* Actionable Information—A promising approach is to scrub data into actionable information. Structured contracts, described in last month's issue (Parallax View), are a good example. Instead of sharing range forecasts, companies express future demand via structured contract terms like minimum firm commitments, lead times guarantees with different pricing for different lead times, capacity guarantees for upside flex at a higher price, etc.

* Escrow Account—At least one company had success with another creative approach; establishing an escrow account that is used if either party violates the agreement. The money is then reinvested in the relationship to fix the cause of the problem, for example, joint team education, fixing flawed processes, or new technology. This dramatically improved the level of trust in that relationship.

Process

It is critical that the policies are backed up by processes and controls to prevent, detect, and correct accidental or deliberate misuse of confidential information, such as:

* Physical Security—Controlled access to offices, receptionist diligence on who is allowed in the building, badges, questioning unknown people in sensitive areas, not leaving confidential documents out in the open, etc.

* Separation and Rotation of Duties—For example, having a different person control physical inventory than the one controlling information about that inventory.

* Training and Testing—Training employees on the procedures and importance of protecting confidential information (yours and other's under NDA). Testing awareness and taking corrective steps.

* Logs—Keeping accurate, tamper-proof records of who accessed what areas, what information, and when.

* Audits—Auditing your firm and trading partners to ensure safeguards and proper training. Some companies have computer-assisted "continuous auditing" of compliance. Particularly sensitive data may require structural organizational safeguards as well. For example, some engineering organizations establish a "clean room" approach that separates the people receiving the highly sensitive design information and restricts their interactions and communications with the rest of their engineering organization to prevent the partner's design information from leaking into their own proprietary designs.

Performance

Policy and process decisions must weigh trade-offs based on business performance impact:

* Business value of sharing information

* Cost of implementing proposed controls

* Consequences of compromising the information

Building Strategic Relationships

A clear distinction should be made between strategic partnerships and more tactical commodity vendor-buyer relationships. Building strategic relationships takes time and diligence and can only be done with a small, rationalized set of suppliers. Done right, suppliers become an extension of the enterprise. This requires methodically laying out an agreement on what will be shared, the benefits, as well as the consequences of breach—building an understanding of the mutual self-interest and interdependence of the relationship. Because traditional relationships are adversarial, it takes a lot of time to change mindsets.

Many companies use the quarterly business review, generally under strict nondisclosure agreements, as the primary forum for sharing confidential strategies. These planning sessions at a senior-executive-to-senior-executive level review things like the changes to market assumptions, scenarios, product roadmaps and transitions (strategy, timing, risks), and supplier performance (goals, actuals, and improvement plans). There are occasional instances where a trading partner abuses this position of trust, but the end result is usually bad for the abuser. For example, a CPG company planned a major promotion with one of its retailers. A week before the planned promotion, the manufacturer did a promotion on the same exact product at a lower price with one of the retailer's competitors. As a result of that breach of trust, the supplier lost business and took years to rebuild its standing with that major retailer. In another instance, a supplier of a component under severe allocation leaked information to one of its customers about a second customer's volumes and mix, in an effort to demand higher prices. The second customer eventually found out and fired the supplier.

Confidential dialogs can be even more challenging when the supplier or customer is also your competitor. Even with a nondisclosure agreement, the sharing of product strategies, roadmaps, and other confidential data is uncomfortable, though it is done every day. Many of the large diversified conglomerates that are likely to be both competitors and trading partners are in the Far East where IP rights are not as strongly upheld. Another twist is that as more and more manufacturing is outsourced to China and elsewhere, it raises the issue of sharing product and manufacturing knowledge with companies that could potentially become competitors of yours. Giant bicycle, founded in 1972 as a contract manufacturer for Schwinn and others, used the knowledge it learned from its customers about manufacturing and designing bicycles to build its own brand. Giant is now the largest bicycle manufacturer in the world and 70 percent of its revenue is from its own brand. A number of electronic contract manufacturers and ODMs are following this same path.

To Trust or Not to Trust: What to Share with Trading Partners

His answer was only partly tongue-in-cheek. It highlights a dilemma we all face. When important information is withheld, it leads to enormous inefficiencies or even disasters in the supply chain. Trust is needed to streamline decision making and interactions in the supply chain. But, in spite of what "Kumbaya Collaborationists" preach, there are very real and serious risks with sharing information, as shown in table 1 below. Not everyone is trustworthy.

Before the virtualization of the enterprise and the globalization of the supply chain, it was not so hard. The boundaries of your "domain of trust" aligned pretty clearly with the boundaries of the old vertically integrated enterprise. You just had to keep all that confidential information safe inside your company and you were fine.

Figure 1. Expanding Domain of Trust

No longer. The "domain of trust" now extends deep into the supply chain. We are so interconnected. Everything is networked. More to the point, we've outsourced so much that you MUST share confidential information with your trading partners. If someone else is designing major components of your product, someone else is doing your manufacturing, someone else is servicing your products at your customers' sites, and someone else is running your call centers, then by default you're sharing confidential customer information, product designs and IP, production information, etc. And all the competitive pressures to reduce cycle times, nventory levels, improve service, and innovate products faster are pushing companies to integrate more tightly and share more information, not less. No longer can you afford the sloppiness inherent in keeping your trading partners in the dark.

Non-core Areas

As previously mentioned, many MMS vendors must adapt themselves to the different verticals within retail due to the diversity of the retail industry. Much of this customization relates to non-core areas. Some vendors even develop new functions and features to satisfy their clients. The down side of this approach is that these new capabilities are not always used by all companies, and the added features can become confusing for end users.

Another approach is for vendors to acquire, or enter in a partnership with, third party companies, and develop an interface that allows the two solutions to communicate. By creating these interfaces, vendors can offer a best-of-breed solution to large enterprises, and they can also stay competitive for smaller retailers by customizing the MMS to their customers' needs. However, since the software comes from different vendors, the graphical user interface (GUI) and navigation through the system is not consistent. Thus, more user training may be required.

The following is a list of the third party systems or non-core components most commonly associated with merchandise systems.

1. Financial. Financial software includes general ledger, fixed assets, cost accounting, cash management, budgeting, accounts payable (AP), reporting, and other bookkeeping requirements. For more information on financial components, see Customer Choices for Achieving Growth.

2. SCM. SCM pertains to the management of supplier, manufacturer, wholesaler, retailer, and customer business processes. SCM addresses demand management, warehouse management, international trade logistics, transportation execution, and many other issues that are necessary for a complete solution. For more information on SCM, see Supply Chain Portfolio 2004.

3. ERP. ERP systems support a range of production capabilities, such as production planning, shop floor control, product costing, batch control and reporting, formula and routing, and material management capabilities. They also provide information for discrete and process manufacturing, as well as other enterprise management modules. For more information on ERP, see ERP: Origins, Development, and Trends.

4. Customer relationship management (CRM). CRM modules have the capacity to manage customer interactions, marketing campaigns, sales force automation, help desk support, and other important CRM functions. For more information on CRM, see Comparing On-demand Customer Relationship Management Service Alternatives.

5. Warehouse management system (WMS). A WMS manages the movement and storage of products throughout the warehouse. It should include capabilities such as yard management, inventory management, order picking, receiving, logistics, shipping, and distribution.

The Information System for Retailers: Functions and Features

RMM, MMS, retail systems, and retail ERP all designate information systems used by retailers. Essentially, RMM solutions can record product performance to allow buyers to purchase merchandise according to this information and to make accurate merchandise decisions. To achieve this objective, communications to third party systems play an integral role in an RMM system. Successful retail operations generally require communication between the SCM or ERP solutions and the RMM system.

Due to the diversity of the retail market, a one size fit all approach to MMSs does not work. Depending on the retail segment and strategy, different features and functions are needed for every retailer. Banks and hotels may both be considered retailers, but they have different requirements. For instance, an apparel retailer such as Louis Vuitton is product-oriented; a service retailer is usually client-oriented; and an e-tailer is likely transaction- or security-oriented. Therefore, customizing retail systems according to the functionality required by different verticals is a common task for MMS vendors.

Core Area Definition

Categorizing the requirements of various types of retailers into five main areas will aid in the understanding of the components of a merchandising system. The following categories can be considered as the core or "must have" areas of a retail system.

1. Inventory management
2. Inventory optimization
3. Revenue management
4. Sales management
5. Reports and inquiries

Note that this nomenclature is not an industry standard. Different merchandising software vendors have different naming conventions. However, all the capabilities categorized under these main areas are core components of a retail solution.

1. Inventory management. No matter which proprietary title (e.g., merchandise management, merchandise inventory and analysis, or merchandise operations) inventory management goes by, this area covers basic functionality that relates to the inventory on hand or in transit. Inventory management tracks the ins and outs of a product down to its color and size level, using capabilities such as purchase order process, receipt process, allocation process, distribution process, transfer process, style consolidation process, physical count process, and inventory freeze process. The schematic below reveals why efficient inventory management is the first rule of thumb for a retailer.
   
   
   
   
2. Inventory optimization. Inventory optimization consists of tools used by merchandisers to make important buying and selling decisions regarding inventory. Though vendors employ varied terms, such as strategic merchandise management, merchandise and assortment planning, planning decision support, and replenishment, to describe inventory optimization, all these terms refer to software that helps merchandisers make accurate decisions and that ensures products are placed at the right time, price, and place. The tools inventory optimization uses to do this often include planning, forecasting, replenishment, and stock optimization. These functions help users determine both where items have the best sell through rate and sales treends, so that the system can replenish stores appropriately. However, planning and forecasting capabilities are not necessarily integrated in all the retail systems available on the market. Some vendors instead choose to integrate with best-of-breed solutions specialized in those areas of interest.

Retail Systems: A Primer

Although many people recognize technology terms such as enterprise resource planning (ERP) or supply chain management (SCM), RMM and MMS are acronyms that lack such widespread awareness. Moreover, the terms retail merchandise management system (RMM) and merchandise management system (MMS) likely have little more market recognition than their acronyms. Despite their relative anonymity, these systems, also known as retail ERP systems, are the enterprise back-office software solutions upon which the majority of retailers rely to manage and to support their daily tasks.

The following article provides an overview of both retail and the core and non-core areas of retail ERP systems.

Retail Overview

The retail industry evolved from merchants selling goods to local villagers, to the opening of stores by small business owners, to the creation of department stores and big box retailers by major corporations. Although today's brick and mortar retail industry is dominated by these major corporations, the Internet has provided smaller business owners with new opportunities, allowing them to operate as e-tailers.

Today's retail industry is diverse. Retail companies come in many different types and flavors. There are retailers, such as BMW, Louis Vuitton, and McDonald's, that have a global presence. Banks, hotels, and medical professionals fall within the service retailer category. On-line stores, such as eBay or Amazon.com, are e-commerce businesses that represent a relatively new breed of retailers. There are also companies whose activities include more than just retailing. For example, companies like Nike and Guess are both manufacturers and retailers because they produce their own products and sell them directly to consumers. Lastly, wholesalers, such as Costco and Sam's Club, are blurring traditional lines as they sell bulk items not only to small companies (business-to-business [B2B]), but also to consumers (business-to-consumer [B2C]). This list illustrates that the retail industry in fact has verticals within a vertical.