Marketing a Loss Leader

Situation:

This company sells a low-value software title to developers that supports its core technology. While its Sales Department would prefer that the company give away this enabling software, the company would like to at least break even on the costs associated with its development, support, and continuous updating.

If this product were given to the Sales Department to manage, they would pay the low cost themselves or expense it to win accounts. This would leave the company with no way to track ROI or customer commitment to this product. Additionally, the nominal sales revenues from this product created discourse in the channel model, because partners who wanted to sell the appliance could not make a margin on the software to support the costs associated with the sale.

Action:

The company worked with Bates Strategy Group to create a new distribution channel that lowered the costs of software production and sales via internet e-commerce and electronic delivery. They created a cross-functional team to outline the sales experience and product offering, then trained channel partners and their internal sales teams on how to effectively market this product. With Bates, the company developed success criteria and a potential time line for evaluating the results of this new channel. Because the internet channel would allow customers to service themselves, this eliminated any resistance to the purchasing the enabling software through direct sales or the channel. As a third party negotiated that part of the company’s offerings.

Results:

As a result, the company actually sold all licenses for this enabling software, giving away no freebies. It increased its return on this software to a level that supported its development and internal sales costs. Because robust customer information was gathered via the internet, this enhanced customer tracking and enabled the company to deliver more qualified leads to its sales and channel partners, which helped shorten their sales cycles. Customer data was shared openly within the company, which helped them keep better track of sales and product usage, and became an important part of the company’s future product road maps.