B2B Marketing

A Tale of Two Positions

Positioning by Ries and Trout a strategy classicAl Ries and Jack Trout wrote Positioning: The Battle For Your Mind to show how companies can capture a unique position for their brands in the minds of their customers. Almost all of their ideas are now gospel – and almost all of their examples use brands, technologies, and companies that are no longer a part of our ever-changing economy.

If they were to write Positioning today, Ries and Trout would use examples from the startup world. Perhaps they would cite the positioning strategies of Jet and Gusto.

A Position Stuck on the Runway

Jet is an e-commerce site offering a wide range of products at low prices. Jet has garnered substantial press and lots of investment, raising more than $200 million before launch.

The company originally built a business model based on a $50 annual membership fee and low prices. The prices would be especially low compared to competitors if customers would follow the site’s prompts to ship multiple items together. “If we can educate them that, ‘Look, instead of buying one thing every week, come back every two weeks and buy two things and you will save a few percent,’ it’s actually a lot of money,” said CTO Mike Hanrahan in a January cover story in Bloomberg Businessweek.

Jet.com marketing But Jet is attacking a position firmly held by established companies. Amazon’s Prime membership program, offering low prices and fast shipping for $99 a year, already counts 44 million members in the U.S. Costco’s $55 membership offers low-priced goods in stores and online to 81 million members. Consumers already think of these companies if they want to pay a membership fee in return for low prices and other benefits.

Even if Jet offers the lowest prices, with only $200 million it cannot hope to attack companies that control hundreds of billions of dollars in resources. The position Jet seeks as a low-price member club is just not available.

And so, three months after launching, Jet announced it would eliminate its membership fee. New York Times commenter Mitch P. wrote: “I don’t need a new vision of shopping. In fact I think my soul would reject any new shopping paradigms. For better or for worse, I’m sticking with Costco and Amazon.” There is no room in consumers’ minds for a new entrant in this space: the existing companies are dominant.

Jet is still trying to attract customers in expensive ways. The company continues to demonstrate its ability to shave its prices a little lower if customers accept restricted shipping or payment options. Jet’s new position could be described as savings through inconvenience. But this is a challenging position because it is difficult to make attractive in a few words, and arguably it is also covered already by Jet’s goliath competitors.

Jet tried to build a company based on pricing and technology, and not on positioning. And now Jet may be in trouble.

Too Much Zen Is A Bad Thing

In September, I received an email from startup ZenPayroll to let me know the company was changing its name to Gusto. The company also announced a line extension, introducing benefits and worker’s comp to its original payroll-as-a-service offering.

The company explained that the new name expresses the enthusiasm its customers feel for its service. This is a true statement in my experience. I know several small business owners who use Gusto, and they have a tendency to tell me how much they love their payroll provider (even though we are talking about something else). Gusto has good reason to feel it can increase its share of wallet from its loyal customers.

But still I question both the new name and combining the rebranding with a new product announcement. This plan doesn’t meet the rules of positioning.

Zenpayroll marketingZenPayroll always was a problematic name, partly because the company got unlucky. Founded in 2011, the company led a wave of businesses using the “zen” branding concept. As of late 2015, I count a dozen “zen” startups in the Bay Area alone:

  • Zenboxx (accessory for Macs)
  • Zencoder (basically Pied Piper (link), only real)
  • Zendesk (customer service as a service)
  • Zendrive (vehicle analytics using smartphone sensors)
  • Zendure (portable chargers for devices)
  • Zenedge (military-grade virtual firewalls)
  • Zenefits (cloud HR service)
  • Zenfolio (websites for photographers)
  • Zengularity (web app programming consultants)
  • ZenPurchase (procurement software; changed name to Coupa)
  • Zenput (mobile data collection software)
  • Zenti (data mining platform)

Zenefits, a competitor founded in 2013, was the real killer. Zenefits grew much faster than Gusto and provided a full HR platform. The names and market spaces were too similar, and so Gusto was ejected from its original brand.

But if the “zen” part was an unlucky loss, the “payroll” part was a foreseeable problem. In Positioning, Ries and Trout use Eastern Airlines as an example of a restrictive brand name. Customers would not consider Eastern a national carrier because its very name denied what it was trying to be. In the same way, ZenPayroll restricted itself from the very beginning with too narrow a brand.

Gusto marketingThe company has now replaced this issue with another. Gusto may be too clever – existing customers can appreciate it, while new prospects won’t be able to understand or differentiate it. A Google search for “gusto” made from a San Francisco IP address finds a number of other products using this name:

  • At least 3 restaurants in California
  • Nescafe Dolce Gusto single-serve brewing systems
  • The Mahindra Gusto scooter
  • A Yu-Gi-Oh! character named Gusto
  • The Samsung Gusto, a flip phone
  • And numerous coffee shops, apps, and other products

Gusto is prominent in paid advertising and is mentioned in articles, but the company’s site is nowhere in the native search results. And notwithstanding the quality of service Gusto offers, many of the products that share its name could be considered inferior by its typical buyer, an American manager.

Clearly the ZenPayroll brand had to change, but now it is not unique or clearly positive. Moreover, the company is trying to associate it with new products: workers comp and benefits. The net effect is to eliminate any position its name maintained in the minds of target customers. Gusto describes the mindset of existing customers but may not appeal to new customers because it is too widely associated with other product categories.

Better would have been to change the company’s name at least a year ago, as soon as the competitive threat from Zenefits was clear. Applying the tenets of positioning, ZenPayroll/Gusto could see that Zenefits had the better name and would dominate the broader cloud HR services category as long as Gusto kept its original name. Only once a new name was established should Gusto have attempted to introduce new products.

Gusto could thrive despite its positioning challenge. Positioning is important, but cultivating evangelical customers also can be a winning strategy. A different series of positioning choices would have set Gusto on a more blissful path.

 

Company logos courtesy of Jet and Gusto.

A Maturing Category: What Every B2B Company Should Know About CPQ

Dreamforce product marketing successWhen was the last time you got an incorrect quote or invoice? If you can’t recall, you may have a CPQ system to thank.

Wading through the Cloud Expo at Dreamforce last month, I was struck by the amazing growth of configure-price-quote solutions among exhibitors. There seemed to be dozens of them. And they had the best spots on the floor, with the largest booths and biggest giveaways.

I had heard of CPQ, but hadn’t realized it had become such a major part of the CRM ecosystem. CPQ has exploded onto the scene. And the reason was obvious from talking to these vendors: Companies that adopt CPQ can gain a major boost in sales effectiveness. CPQ has gone from competitive advantage to competitive necessity – in no time at all.

But I couldn’t figure out what set these different companies apart. A lot of vendors offered CPQ. Why would I choose one over another? So I set out to discover what differentiated the major CPQ solutions from each other.

Methodology

The first thing I discovered is that there are a lot of CPQ players. Like the markets for many other three-letter-acronym business software tools, the CPQ market is highly fragmented.

So I limited my research to the most visible providers, those that appeared on the first page of a Google search for “CPQ” or “configure price quote”. I searched between October 1 and October 15, 2015, from an IP address in California, and found 18 vendors. (If you work in CPQ and don’t see your company on the list, it’s time to call in your SEO/SEM specialist.)

I evaluated the companies based on their websites and recorded basic information about how they sold, who they sold to, and what they cost. I also judged what their major points of difference were from one another – as that was just the thing I could not figure out from the trade show.

In particular, I tried to find a single brand message (positioning statement) that each provider used for its CPQ solution. I also identified 1-3 differentiators, either features or selling points, that a vendor considered to be unique. Sometimes this information was displayed front-page center, and other times it was buried in a white paper. I made my best judgment of what set each company apart.

Survey Results

The raw results are below.

A few statistics sum up the findings:

  • Of the 18 companies, 8 serve large enterprises, 14 serve midmarket customers, and 6 serve the SMB market (definitions of these categories). Most companies serve more than one category. One company provided no information on its customers, perhaps because it is too new.
  • Fourteen companies publicize the ability to integrate with Salesforce, and 5 have a native Salesforce product. No other CRM provider comes close to this level of popularity. With custom effort – available directly from most vendors – most CPQ systems can be plugged into most CRM and ERP systems.
  • Just 5 companies list pricing publicly. Three use a named-user pricing model, one uses a concurrent user model, and one charges for software and user licenses.
  • Twelve companies offer a SaaS option and 7 offer an on-premise option. The SaaS companies tend to offer only this delivery option (10 of 12), while every on-premise company also offers a hosted (6 of 7) or SaaS (1 of 7) option.
  • The greatest number of companies specialize in manufacturing and distribution customers, reflecting the complexity of quoting in these industries.

So which one’s the best? I couldn’t tell you (and if you ask their customers, they’re probably all great – and far better than nothing). I was mostly interested in the positioning.

A Common Core

Based on features and core messaging, most of the companies are hard to distinguish from each other. The presentations these companies make show CPQ is an emerging category, one that tech majors believe will be a necessary part of every organization’s arsenal of tools. Yet a close examination shows that the market participants have already staked positions as market leaders, up-and-comers, and niche players.

Business software is not an area where bold product choices are likely to be rewarded, and CPQ is no exception. Virtually all CPQ products offer a core set of features, described in slightly different ways and with different emphases. They are:

  • Ability to load in a product catalog and pricing tiers
  • Rules and constraints to prevent “illegal” combinations of products, pricing, and shipping options
  • Selling optimization (“guided selling”) tools alerting reps to the best options for upselling, or to meet other company goals such as profitability
  • Automatic proposal and quote generation
  • Integration to CRM, analytics, and sales history
  • Capability to run on mobile devices and tablets.

With these features fully implemented, CPQ users see benefits in faster quote generation, less administrative time for reps, fewer quoting errors, greater sales conversion, and ultimately greater topline and bottom-line results. Most of the brand messages sell these benefits (“quote faster”, e.g.) rather than a competitive pitch.

It’s clear that CPQ providers see their main challenge as lack of awareness, not competing companies. A large share of promotional material is designed to educate potential buyers on the value of CPQ generally. No case study I examined described a competitive switch. These findings are characteristic of an emerging category: CPQ has plenty of room to grow.

Yet the crowd of players at Dreamforce suggests increased heat in this market, and perhaps a pending turn to more aggressive messaging. How are the providers setting themselves apart today, and how will this change as the market matures?

Leaders and Upstarts

Looking at each company’s positioning and its customer base, I divide the companies into five groups. They are charted in the quadrants below.

CPQ Quadrants by Steve Feyer

The five groups display some specific characteristics.

  • Category Leaders. These providers serve a diversified base of large customers. Their positioning focuses heavily on education and emphasizes their expertise in the CPQ category across multiple industries. These players feel that their job is to educate as many potential customers as possible about the value of CPQ – once informed, those customers are likely to pick them. They do not worry about providing exhaustive feature lists, at least initially.
  • Emerging Leaders. These vendors also serve large and diversifying customer bases. They have entered the CPQ market through single verticals, and are now branching out into other industries. They are focused on benefits, less on features.
  • Conglomerates. These 800-pound gorillas entered the market through acquisition (Oracle: BigMachines, 2013; PROS: Cameleon, 2013; IBM: Sterling Commerce, 2010), judging that CPQ would become a necessary product offering from any full-line provider of business software. They make the least effort to educate buyers or list features, probably judging that their massive installed customer bases will come to them first for CPQ. Perhaps for this reason, they are also generally comfortable showing list prices – the highest seen in the survey.
  • Upstarts. These providers are scrapping for growth and attention using bold statements and attention-grabbing website designs. They are smaller and typically newer than the leaders. They are the only vendors that set themselves up in competitive opposition to other players, claiming better approaches and greater benefits. In particular these companies say their systems will be up and running faster. These plucky companies back up their claims with published pricing and generally list more integrations.
  • Specialists. These businesses focus on customers in specific industries, mostly manufacturing-related. They provide substantial detail on features, benefits, and integrations, and usually highlight features unique to their verticals. Perhaps focused on direct marketing, these providers have the least developed brand messages.

There are other important points of difference between these CPQ products. Several are Salesforce native, but only Experlogix says it is native to Microsoft Dynamics and Netsuite. Just Model N and Technicon specialize in SAP integration. If your company is not ready for the cloud, your options for on-premise deployment are limited. And if you really require a small footprint, just Aspire’s CPQ system is desktop-installed. (It’s important to note again that there are many other CPQ providers – they just didn’t make the survey.)

To truly evaluate the subtle differences between these CPQs, you’ll need to see demos of the software and align their performance against your requirements. The information the companies provide is rather undifferentiated. Yet the different profiles of the companies mean that you can limit your evaluation to perhaps 3-5 providers based on your needs (SaaS vs. hosted or on-premise, your CRM incumbent, your industry, ease of install vs. customization, etc.) The positions the companies have staked out can inform you to a great extent.

The Future of CPQ

Up to now, CPQ has been an emerging category. This is about to change.

BigMachines at Dreamforce 2013
Dreamforce 2013: Win a TV. Dreamforce 2015: Win a Tesla. CPQ is growing more competitive as providers vie for attention.

Why? The messaging of the Upstarts suggests an imminent switch from “green field” selling to displacement as CPQ becomes established in more firms. Conglomerates acquire CPQ providers to protect their full lines. Potential customers, seeing the Category Leaders and Emerging Leaders vie for attention at a huge show like Dreamforce, cannot help but become aware of the potential value of CPQ.

This transition point for the CPQ market illustrates the Red Queen Effect, an idea transplanted from evolutionary biology to business. The theory holds that businesses must adapt merely to keep up with their competitors. Now that many B2B firms have adopted CPQ, the laggards will soon be at such a disadvantage without it they’ll have no choice but start using CPQ or fail.

The CPQ providers will also have to adapt their marketing strategies to a more mature market.

  • Companies serving diversified customers must demonstrate greater understanding of the unique needs of each industry served, and tailor messaging to verticals. Explaining the general value of CPQ will no longer be enough – because customers accept it.
  • Providers will describe the unique long-term advantages they can provide, distinguishing themselves more from their main competitors. Conversion efforts can switch from benefits, which are understood, to features and competitive differentiation.
  • Messaging may begin to include explicit competitive traps.
  • Messages designed to reach new prospects will switch focus from introducing the need for CPQ to introducing the CPQ provider as the best choice.
  • In the face of displacement campaigns from competitors, providers will increase emphasis on customer success operations. This may particularly affect smaller vendors that historically invest less in retention operations outside of sales and marketing.

The CPQ market is reaching its teenage years – literally, for many of the main providers. An adolescent market is growing into maturity, and every B2B business will soon need a CPQ system, or suffer the consequences.

10/19/15 update: As of today, Selectica has announced a new company name, Determine.

 

Reading with Steve: Permission Marketing by Seth Godin

Reading with Steve is a regular feature at SteveFeyer.com. Read product marketing and content marketing book reviews.

How many advertisements do you remember seeing yesterday? Think back to your journeys, from home to work, through the freeway or subway, and across the Web and the channels on your TV. Can you recall 10 ads?

I couldn’t remember even 10 – yet according to one famous estimate, the average American sees 5,000 ads every day.

Seeing this problem, Seth Godin published his foundational book Permission Marketing, which described a new way to market in an era of overwhelming noise.

An interruption marketing strategy attempts to grab consumers’ attention when they are not looking for product information. Consumers usually hate interruption marketing, and the performance of such techniques sinks over time. A permission strategy asks consumers to volunteer to receive marketing, and rewards them for doing so. Consumers appreciate and even enjoy this type of marketing, which increases in value as it identifies motivated and responsive customers.

Permission Marketing by Seth Godin is critical product marketing readingIt’s a testament to his influence that the techniques Godin describes have been universally accepted, particularly in a B2B setting. Classic interruption techniques such as banners, TV spots, and print ads have been in crisis for years, increasingly relevant only to mass-market brands. Newer permission techniques such as email and loyalty programs are in the ascendant.

Thus it is that a radio spot in 1995 usually concluded with a pitch to buy. Today, the ad likely will ask listeners to seek more information online. This is an example of the swing to permission: Almost no one will buy because of an advertisement, but some consumers will opt in to express their interest. The permission-based ad ultimately has a greater impact on long-term sales.

You are already a permission marketer – and that only makes it more important to understand Godin’s original philosophy. Every lawyer ought to read the Magna Carta, and you ought to read Permission Marketing.

One pleasure of reading Godin is his writing. He is a consummate stylist who fluidly weaves stories, humor, and critical observations. His tendency toward short phrases makes concepts easy to understand. And he has an effective habit of saving compound sentences for times when he must, when he is simply compelled, to create an emphasis. I enjoyed reading Godin and recommend every content creator learn from his style.

The Maturing of the Internet

Godin is frightfully prescient when describing the then-nascent Internet. “Is there something going on here,” he writes, in 1999, “or is this another tulip bulb frenzy?” He nevertheless concludes that “[t]he Internet is the greatest direct marketing medium ever invented.” Emphasis in the original.

The problems he describes with Internet marketing are mostly specific to the era – search engines are no longer an unsteady source of site traffic, and 14.4 kbps modems no longer inhibit the value of video. His prescriptions are nevertheless still valid, even though most of his case studies have long since failed (one of them is the subject of my favorite memoir of the dot-com age, also a recommended read).

If the specific issues Godin sees are now so dated, and the companies he cites are long vanished, how can his advice still be valid? An overarching theme of the permission concept is that the marketer must be nimble, attuned to changing customer desires, and adept in emerging tactics. Whatever technology is used, permission marketing must be anticipated, personal, and relevant to the prospective buyer. The maturation of the Internet since Godin’s first writing, if anything, only proves the timelessness of his thinking.

His ideas are more than momentary. They encapsulate basic truths of the human psyche, packaged for the benefit of marketers everywhere.

Yet something fundamental has changed.

Up Is Down, Black Is White

Godin could not have foreseen the changes in our habits, including the rise of social and mobile. These new technologies have altered behavior in momentous ways, and turned media consumption on its head.

There is a revolution brewing that could have a huge impact on marketing.

Interruption marketing was once the standard, but it’s now failing. Yet millions of us have embraced ever more interruptions. We often drop what we’re doing to answer text messages, read tweets, send snaps, and spend our Candy Crush lives. We embrace interruptions that are no more essential than any GEICO ad. It’s a phenomenon I call interruption entertainment.

At the same time, permission marketing is facing a new challenge from consumer rejection of modern techniques. We agree to terms that allow marketers to give us information we ought to value such as sponsored stories, SEM, retargeting, and email coupons. These modern Web marketing techniques follow the letter of the permission marketing ethos – yet the permission given is often so subtle, and the results so uncanny, that millions of us are rebelling against the outcome. I call this emerging backlash against Internet marketing the permission revolt.

In 2015, we are willing to interrupt ourselves but increasingly will not accept interruption from a marketer even if it is what we are looking for. How can this be?

Once again, marketers must be nimble, and again the permission marketing framework can offer a response to the permission revolt in the context of interruption entertainment.

In my next post, I’ll look at evidence of these changes and show how marketers can respond.

Buy the book Permission Marketing.

 

Stray thought: Godin and I share – in addition to certain depilatory habits – a fascination with transportation as a service, now commonly discussed in the context of driverless cars. He repeatedly writes in his book about how much he wants a subscription automobile that’s delivered clean and fueled to his driveway each morning. He is still on the case.