SaaS requires established software vendors to be more customer-centric

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Most technology vendor web sites today offer a plethora of seductive company promises, values and service commitments to the customer. But are these promises delivered upon?

In a recent study by the CMO Council, more than half (53%) of the B2B technology buyers surveyed described their relationships with vendors as “dependent and captive,” “struggling for common ground,” or “combative and adversarial”. Not good.

Over-promising and under-delivering is the main source of customer dissatisfaction. The report urges vendors to be more “flexible and responsive” and to be “consistently delivering on promises, claims and deadlines” to win the trust of customers.

As product functionality (which is now relatively easy to deliver) declines in importance in the software industry, one of the main points of differentiation for suppliers is their ability to win the hearts and minds of customers. Word of mouth referrals from customers to their peers has been confirmed by many studies as by far the strongest influence on the choice of supplier.

The good news for entrepreneurial software and services vendors is that brand loyalty in the software industry is not so high. In many cases customer loyalty has been based on the prohibitively high cost of switching suppliers, rather than any intrinsic satisfaction with vendors. Supplier bargaining power has often been based on high switching costs. The SaaS (Software as a Service) model neatly gets around this issue—customers don’t switch, they just buy another service channel. Hence there is little risk of upsetting the delicate on-premise software investments of the past.

The message is clear: “incumbent suppliers beware”. SaaS can permeate your so-called captive accounts by stealth without you detecting it. SaaS vendors could also potentially understand how your customers use their software more intimately than on-premise vendors do. Hosted services can be easily monitored, analysed and measured. Conversely, many on-premise solutions vendors often have little idea of how their software is really used in customers’ business processes and as a source of value and profit.

Vendors need to be more customer-centric to earn customer loyalty. Fifty-six percent of vendors already perceive themselves as being “extremely” customer-centric. Interestingly, only 12% of B2B customers agree with the vendors’ self-perceptions. Best of the bunch are HP, Dell and Microsoft but there is little doubt that all vendors can improve in this area.

I remember one sales conference where the Global Sales Director gleefully told his salespeople “your job is to extract as much money as you can from the customer”. Hopefully this barbaric approach to engaging with customers has had its day, to be replaced with true customer-centric behaviours from the suppliers. These centre on investing time, effort and resource in building sustainable lifetime relationships and services for the mutual benefit of both customers and vendors. Such actions will separate out both winning suppliers and customers from their losing counterparts.