The Gantry Group

Confidence to make Critical Business Decisions

Gantry Group Newsletter Issue No. 16, November 2002

This email is never sent unsolicited. You are receiving this email because you have opted in to receive news and updates from us or one of our affiliates. If you don't remember opting in, or you think someone else has opted you in against your wishes, please follow "Unsubscribe" instructions at the end of this newsletter.   Issue Insights: Today, 75% of companies require ROI analysis to support major investments. ROI is more than a number; it is the methodology for educating your prospects about how to interpret the value that your product brings. Understanding the customer's value drivers and identifying how your offering impacts them is the most critical step for communication tangible ROI. Lack of objective and quantifiable customer data is the single greatest weakness with ROI models. Be strong. Face up to your product's real ROI value proposition. It may be better than you ever realized!   Now Available! ROI of Mobile Solutions for Clinical Trials ROI Report for Palm, Inc. Gantry Group has just published a white paper commissioned by Palm, Inc. that reports on our ROI studies of how handheld hardware software applications are replacing paper-based subject diaries for automated clinical trials.  This report details the ROI value drivers for electronic diaries in clinical trials, based on a case profile of a major pharmaceutical company's experience using mobile applications to rapidly collect validated subject data, resulting in an accelerated drug efficacy decision.   Please CLICK HERE to download the white paper. Scroll to the end of this newsletter for more content information and details.

ROI Series Snapshot Getting the Dogs Back on the Chow   Leading With ROI: Fact Not Fairytale   Homing in on Your Market's Business Metrics   Quantifying Your Value Proposition   Tangible Marketing Messages   Selling with ROI   Tangible Marketing Messages Sales prospects and customers are continuing to demand ROI justification as a routine component of their technology purchasing process. Echoing this sentiment is the compelling IDC statistic, recently published in June 2002, that "75% of companies require ROI analysis to support major investments". Gantry Group enterprise market research repeatedly reveals that ROI is the most common of a number of business metrics utilized for enterprise investment decisions, across a broad industry spectrum. Clearly, understanding the right way to use ROI in the marketing and sales process is critical to business success today! There is nothing new or magical about this trend. ROI should be and always is, a fundamental factor in any purchasing decision -- and it is always present, whether formally calculated or not. What is new, is that companies now realize they they need to tale a more analytical and disciplined approach to using ROI in sales and marketing. An important factor to consider before communicating ROI to your prospects, is how you are going to go about calculating it. ROI consists of two components: Financial ROI (i.e. tangible ROI) and emotional ROI (i.e. intangible ROI). Each of these components is present in every sales transaction. The key for enterprise solution vendors is to understand the importance of each, and understand how to leverage ROI to shorten the sales cycle and close deals sooner. This newsletter focuses on the different methods and tools available to you to effectively communicate your tangible ROI to your prospects. The best news about ROI tools is that they can help sell your product -- even when you're not there. (More on this later.) You have heard the saying "It's not reaching the destination that really matters, but the journey taken". This is very much the case for the world of ROI. The calculated ROI statistic in itself is not compelling. ROI is most compelling when used as a holistic program for educating your target customers on how your offering can help them meet their critical business performance metrics. This means incorporating ROI disciplines into your corporate strategic process. Understanding your customers' value drivers and then identifying how your offering impacts them, is the first critical step for communicating tangible ROI.

The American Heritage Dictionary definition of "tangible" is:  Discernible by the touch; possible to touch. Extrapolating its meaning to your prospects, tangible means that your  prospects can see a clear, quantifiable benefit path -- from the time of investment in your product to the quantified positive impact reflected on their bottomline. The essence of ROI is simple: did you get back more than you put in? Today, the ROI case needs to aggressively convince sales prospects that payback will be realized within a twelve to twenty-four month period. This is the current market's predominant patience level for expecting a technology to recoup investment and deliver demonstrable payback.

Unfortunately, ROI modeling has been stretched, warped, nipped and tucked using exaggerated risk factor analyses that try to make uncertain or improbable events and soft intangible benefits, a hard quantified number. Prospects and customers are quick to expose such modeling techniques for just what they are... blue smoke and mirrors.

Your best bet is to adopt a conservative, "stay on the well trodden path" approach to ROI modeling.  Don't try to model the exceptions and the unlikely events that could possibly - under unusual or rare circumstances - prove a cost savings, avoided liability, or increased revenue opportunity. These ROI upsides are just icing on the cake anyway.   Define the common customer experience ROI model for your product. Don't be tempted into adding to the already bulging library of ROI acronyms! Show the customer that you have nothing to hide by not inventing an extended definition for such a simple financial concept as ROI. Be bold! Your prospects will appreciate it and come away assured that you didn't need to play with statistics to pull through a positive return. Furthermore, by taking a conservative ROI modeling approach, the prospect will also believe that the ROI is achievable.

One of the issues that many companies wrestle with is when to assess ROI for their product or service. According to Kotler Marketing Group (Line56, 5/01):

"Most companies already realize that it's no longer enough to claim to deliver value; these days you must prove it. Today, customers don't want to hear that your solutions offer them 'the most scalable, reliable, XML-based, one, secure, end-to-end, customizable, extensible solution available'. And they are no longer swayed by 'star quality, leading-edge' company endorsements from leading industry analysts. Buzz marketing is essentially ineffectual... in fact, it's dead."

If you subscribe to the underlying premise that customers buy products that they believe will positively impact their businesses, then you will not find it difficult to accept the corollary that ROI should be a part of your company's strategic process -- and not just the marketing process. Alignment of ROI impact with critical target market challenges and needs is a process that should -- in a perfect world -- begin at the product concept stage. Understanding the value drivers of your offering at the early stages will allow you to "design in" your identified ROI metrics. ROI discovery is a process that is ideally done early in the product marketing lifecycle.  In this scenario, marketing, sales and the development groups are concurrently engaged in the ROI activity of talking directly to customers and prospects to understand value. These discovered value drivers can be immediately committed to an ROI calculator to quantify overall bottomline contribution of each driver. This is the optimum method to determine customers value for specific product features.

The sooner you start your ROI framework, the better off your product and marketing strategy will be. 

What many technology vendors have missed, is that ROI is more than a number. It's more than a new piece of marketing jargon. It's a way of thinking and approaching a prospect. ROI numbers presented without a supporting philosophical and defensible analysis framework are simply not credible to customers. It's not surprising then that any sound ROI project is proportionally 80% methodology and 20% technology. The "believability" factor comes from helping the prospect understand the value of the ROI approach, and through the application of their business data to the ROI tool.

Unfortunately today, many "ROI" projections hardly merit the term. A compelling ROI story should be solution oriented, and more importantly, value oriented. The power in pursuing an ROI process is in understanding the strengths of your offering, building up the perceived value of your strengths in the eyes of the prospect, and quantifying them. All too often, prospects have a poor understanding of the impact that a vendor's products have, or could have, on their operation. Technology vendors need to make an adequate effort to confirm and validate what customers tell them. Vendors that shortcut the process by simply asking customers and prospects what they think their solution is worth, yields unreliable results.

Some believe that ROI cannot be calculated in advance, creating expectations that cannot be met. The ROI discovery process provides a customizable framework to identify and quantify the perceived value of your solution in the prospect' eyes, and more importantly, helps the prospect to sell themselves on your value proposition.

Successful sales result when the sales executive not only uncovers details about the effects, consequences, or implication of a prospect's problems, but goes to the next step of determining the value or usefulness of a proposed solution in the eyes of the prospect. Quantifying and the summarizing the value of a solution is what ROI is all about.

Building a compelling ROI-based business case requires that technology vendors demonstrate the following four rules:

• Objectivity - Technology vendors must step into their prospects' world and view their product from the other side of the table (i.e. from the buyers' side). The ROI model should truly model the real-world business case. That is to say, don't trump up the ROI numbers. Let your product's merits speak for itself. If it can't then look toward adjusting your product -- not your marketing collateral.

• Repeatability - The ROI business case must convey that your ROI is a repeatable event for any prospect within a specific solution sector, industry or with a well specified set of business attributes. You must prove to your prospects that your ROI data is not the result of a unique set of circumstance that rarely occur.

• Relevant Case Comparisons - Prospects most "bond" with your ROI case examples. Prospects will believe in your product's value more if they believe the ROI case is relevant, having similar business circumstances in common with their businesses.

• Competitive ROI Comps - Catalyze your prospects' buying decision by providing them with the ROI analysis that comparisons your ROI methodology and ROI data with your top competitors.

What type of ROI program do you envision? What ROI tools do you dream about putting on the laptops of your sales force? The overall design of your ROI program should happen at the onset of product introduction, even if its implementation needs to occur in phases over an expanse of time. It's important to have the cohesive "big ROI picture" in mind from the get-go. An ROI program can pull from a menu of tools, each briefly described below.

ROI Value Driver Whitepaper - The whitepaper memorializes the pain points and challenges of your target customers, and documents how the ROI value drivers of your offering positively impact their business. Such a whitepaper reinforces that you have taken careful consideration to build value into your product. It conveys that ROI is more than a number for your company, overcoming any suspicion of limited "statistical thinking".  The content of the whitepaper relies upon essential primary research derived from a representative set of 5 to 15 customers or prospects and closed/lost sales analysis with your sales force. These research interviews delve into the ROI experience with your deployed offering and the criteria for evaluating your offering. (Click here to download Gantry Group's newest ROI whitepaper for the Pharmaceutical industry.)

Critical questions include:

• What are the market sector's challenges that your offering can impact?

• What the value and cost drivers for the target market?

• How does your offering address their pain points and challenges?

• What are the mechanisms and timeframes for payback?

An ROI white paper is a good first step since it enforces the discipline of getting a solid foundation of your tangible ROI message first, prior to calculating it. The ROI Value Driver Whitepaper is particularly useful for companies who do not have an established customer base or whose customer base does not have a long enough deployment track record with the offering being modeled for ROI.

ROI Calculators -  Some believe that ROI cannot be calculated in advance, creating expectations that cannot be met. However, ROI calculators have proven to be excellent frameworks for advancing the sales process. An ROI calculator steps the customer or prospect through the value drivers of the product. While the end goal of the ROI calculator is to reveal a bottomline number, the real value of the calculator is establishing a thought process in the prospect's mind about how your product delivers tangible value. In addition, the ROI calculator communicates to the customer that you have "done your homework" and you understand their business.

ROI calculators can be used by the sales force to direct a highly consultative session with prospects. Leading with ROI exudes confidence in your offering to the prospect... a vendor that is ready to practically discuss how the product will affect the prospect's business.

Many companies publish their ROI calculators to the Web, making them readily available to prospects to compute their own ROI.

ROI Benchmark Study -  ROI Calculators are great for profiling the customer's experience with your deployed product. They are even more powerful if they can be used to project a prospect's expected ROI with your offering prior to purchasing and deploying your product. By applying the ROI Calculator, a statistically representative set of ROI profiles can be developed for your customers. Aggregated, averaged data for each driver can then be used as default benchmark values with the ROI Calculator. This transforms the ROI Calculator into a credible forecasting tool.

The additional bonus is that the aggregated customer ROI data can be used as defendable statistics for strategic marketing messages. Such ROI studies are typically conducted with at least ten to twenty customers to achieve confidence in the data.

ROI Case Studies - ROI Case Studies are a great way for prospects to learn about your customer's experience. The participating customers need to be carefully selected to provide a business situation with which each of your prospects can identify. An ROI case study should summarize:

• The business situation and challenges.
• Motivations and the decision process that led to purchasing your product.
• How your offering helped the customer overcome these challenges.
• Description of key realized ROI value drivers for the customer.
• The customers' ROI Scorecard.

Custom ROI Program Profiles - With the best intentions, ROI programs that do no include formal sales training, still cannot achieve momentum with a company. One of the biggest problems is getting the sales force to actually use the tools -- in particular, the ROI Calculators. A sales force can be immediately ROI enabled by providing an ROI analyst service to develop custom ROI profiles for their prospects. Salespersons can schedule ROI profile interviews with the ROI analyst. The ROI analyst interviews the prospect, completing the ROI calculator, and presenting an ROI Analysis Report to the sales person and/or prospect.

ROI "Bake-offs" -  Sometimes it is more compelling to compare the delivered value of your top competitors with your own ROI.  An effective ROI study rigorously applies a consistent ROI model to your customers and your top competitor's customers. A sample of 10 to 50 customers per product is recommended; the more ROI data points, the more statistically valid is the resulting aggregated statistics.

Integrating ROI into your marketing strategy is not a simple tweak to your marketing collateral. Developing compelling ROI-based sales tools requires hard work. Unfortunately, it's fairly easy for an ROI program to go awry. Here are some tips that we hope are valuable:

Research the ROI Value Drivers - According to Kotler Marketing Group, lack of objective and quantifiable customer data is the single greatest weakness with ROI models. In the current economic climate, customers are quick to discount and dismiss claims that, in their view, are based on estimates, industry averages, and back-of-the-envelope calculations. What they want to know is how an investment in your specific platform, application, and service will pay-off over time.

Companies frequently do not wish to invest the time and/or money to uncover the true ROI value drivers for their offering. Such essential data can only be revealed through direct one-on-one interviews with both customers and prospects -- each constituency providing a unique perspective. Custom primary research can diagnose a technology's delivered ROI value proposition, and synchronize these ROI drivers with those business performance metrics that are indeed most important to the customer. Technology vendors often make the following common mistakes when preparing their ROI communications about their technology:

• A generic off-the-shelf "category" ROI calculator is used, which does not win the confidence of either customers or prospects. They lack depth in understanding the solution and deployment situation.
• Secondary ROI research is used, leading again to a high-level, broad ROI approach that does not muster credibility. Understanding of the ROI equation is simply not communicated.
• The ROI methodology is informal, based upon anecdotal conversations with customers. Lack of rigorous methodology and a statistically valid customer sample brings non-compelling ROI communication.
• ROI drivers are incompatible with customers' business performance metrics. The result is that while the technology solution may actually boast a healthy ROI, it is of little importance to where customers are investing their budgets to achieve their annually determined business performance metrics.

Taking on the Competition - Oddly enough, when it comes to quantitative ROI claims, technology vendors tend to shy away from comparing the value of their offering to that of their direct competitors. And sometimes the competition is your customer's own in-house IT team. It's important to recognize your top competitors and be in a position to argue the quantitative ROI advantages over each competing alternative.

Unusable or Incredible ROI Calculators - Few ROI calculators get it right. Either they are so simplistic that they really model nothing and are not credible with prospects, or they are so complex and difficult to use that no salesperson or prospect can survive completing the data input. The user interface is just as critical as the ROI methodology  - watch that it doesn't become a barrier to use.

Backsolving ROI - Sometimes, a product just doesn't deliver a positive ROI. Companies can get over exuberantly creative to ink out a value proposition that jives with a preconceived expectation of ROI. This approach typically backfires. Not only do the prospects see through the charade, but they are skeptical to subsequent product offerings from the company even if they do live up to their promised ROI  performance.

Some companies are more excited than others about the opportunity of using ROI as a tool to accelerate sales. Regardless of the enthusiasm level, ROI is going to be around for several years as the dominant determinant of a buy decision while the economy finds its way to recovery. So, embrace it! Making delivering measurable value to your prospects and customers the central theme of your company is not such a bad concept after all...

Below is a graphic that represents the methodology practiced by Gantry Group -- one which we find to be highly effective, conservative, and accurate.

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