The Care and Feeding of You
According to one survey by the IT Services Marketing Association, 52 per cent of IT buyers make purchase decisions based on referrals from colleagues. If you don't have a buddy you can call for a reference, vendors are ready to help. They enlist and groom armies of happy reference customers to take calls about their experiences. "There's a science to the care and feeding of these references," says analyst Jim Shepherd of Boston-based AMR Research. That's because references are the cornerstone of the software sales cycle.
Being a reference can be informal and simple - such as agreeing to be listed on the vendor's Web site or doing the occasional favour for the vendor's sales team. Or it can be quite complex, with specific agreements written into the software contract between the reference and the vendor. The contract might stipulate taking a certain number of calls from prospective customers, the press or analysts, for example, or speaking at a user conference, or approving a certain number of press releases and case studies about the implementation.
At large software companies like PeopleSoft, managing these references is a full-time job. In fact, it's five full-time jobs, overseen by Wendi Wolfgram, program manager for the user reference program, for which more than 700 companies have signed up. Wolfgram and her staff keep a database of information about those customers, including details about each installation, multiple contacts in different parts of the business, and the customer's level of commitment to and history of serving as a reference. When a salesperson needs a reference for a prospective customer, the reference team looks for a good match - a company in a similar industry that's not a direct competitor, that has a similar shop and that hasn't been overused as a reference. According to Wolfgram, the program is so valuable that it affects more than 78 per cent of deals closed each quarter. And it's so valuable that PeopleSoft puts a great deal of time, effort and money into keeping it running smoothly.
"We do have rewards, and it's kind of like a frequent flier program," says Heather Loisel, PeopleSoft's vice president of global sales productivity. "It's completely voluntary, and it kicks in after a certain level of volunteer activity. The reference earns points, and those points can be used for things like a pass to one of our member conferences."
Givers and Takers
Free conference passes are only the beginning. "You usually get something out of it," says Eastman Kodak CIO Mark Gulling, who has got free consulting and, from SAP, a rebate for serving as a reference. He won't give specifics but says the rebate is minimal and benefits his employer, not him. "[Vendors] understand that it takes time for you to do this, but that's not why you do it," he says. "It gives me contacts that I can go back and talk to later."
The vendors CIO spoke with for this story - i2 Technologies, Manugistics, Oracle and PeopleSoft - all downplayed these incentives. (Other competing vendors declined to be interviewed for this article.) "We don't want to have a program in place where the reward is so large that the customer says: I'm going to go after that award," says Katrina Roche, chief marketing officer for i2 Technologies. "We want people to know we appreciate them, but we don't want that appreciation to sway that decision."
But it would be naive to assume that shady reference deals aren't cut in the software industry. Roche remembers working for one small software vendor that offered a customer a $US7000 discount to serve as a "marketing centre" - participating in ad campaigns and the like.
Dave Munn, CEO of IT Services Marketing Association, says typical reference deals involve credit toward training classes or a future purchase. And a cheque in the mail? "Clearly that happens," he says.
Patti Morrison, CIO of Office Depot, and former CIO of GE Industrial Systems and Quaker Oats, does not count herself among the takers. But she does feel pressure from vendors that want her to put a reference agreement in the software contract - especially smaller start-ups trying to solidify their position in the marketplace with references so that they can get financing. "They say, If you do a press release by the end of our first quarter, we'll give you X per cent discount," Morrison says. "They might use it as a negotiating tactic for price, but that [discount] is not a good decision on which to make the choice of that vendor." Morrison, whose company has a policy of not putting reference agreements into contracts, tells them that she'll serve as an informal reference - only after the project is complete and has been successful. But even in this reduced role she still benefits, albeit in a roundabout way.
"It's an additional incentive for the vendor to support you," she says, noting that serving as a reference sometimes gets her better customer service, including access to early software releases, and better response from the vendor's senior managers and software developers. "It's a great way to build a relationship with the supplier [and get] their skin in the game to make you successful."
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