While a company`s major investment may be in intellectual capital, its return on investment resides in the ability to turn that capital into commercially viable products that appeal to a mass market.
The marketing effort is the critical success factor - the product will only sell if it is easily identifiable through branding.
At this stage the marketing effort is the critical success factor. The product will only sell if it is easily identifiable through branding, is packaged attractively and conveniently, and is sold through the appropriate channels. This is particularly important, as products often fail when the branding is inappropriate for the defined market. A tip here is not to try and brand the product using technical terms that describe the product. A simple example could be calling Microsoft`s famous software suite a "graphically-enabled data processing system", rather than "Windows".
The packaging of a product depends on the type of distribution channel one uses. If the product is "plug-and-play" and needs the minimum of support, it can be distributed through a retailer, and supported by an Internet-accessible demonstration unit.
In this case, the packaging should be compact, bright and contain everything the user would need to install the package and be up and running in the minimum of time. In other words, the packaging should attract the buyer, and at the same time remove the obstacles that would prevent someone from picking it off the shelf.
If greater value-add needs to be wrapped round the product, it can be sold directly by your own company, or through a VAR channel. Packaging, in these cases, is not as important.
Critical factors
Distribution is critical. Before selecting a distribution mechanism, identify the following requirements:
- Is the market broad-based or does the product address certain niches?
- What margins on the selling price of the product will the market sustain?
- How much user training and support will be needed?
- Will the product need to be customised to suit particular environments?
In a previous column I recommended that intellectual capital is maximised most effectively in developing products for niche markets. A broad-based product usually finds an outlet in the retail market, where high volumes and low margins are moved. In focusing on niche market products, the most cost-effective and profitable channel is the VAR, because the expenses of the channel are borne by them, and you share in the rewards. Negatively, you are not the only company that has identified the VAR channel as an opportunity, so competition for VAR favours is hot, and you have to invest a lot of money and time to get a proper channel going.
Stabilising influences
Before going the VAR route, however, you should start by selling the product directly. It takes at least a year to get a solid VAR channel set up, and to do so you must prove the product in the market, and get the VARs excited about it. It also allows you to identify the bugs and glitches that must be eradicated, and forms the final stage in stabilising the product.
Once VARs have been appointed, the value-add element must be put in place. The consulting and technical services around your product should be given to the channel as revenue for themselves.
Resellers today know they are extinct unless they can add value to their products and not commoditise them. Margins on software products are low and getting lower, and the real money lies in the value they can add around those products.
Impart knowledge
This means imparting the domain knowledge of the product to the VAR. By domain knowledge I mean the knowledge you have put into creating the product. For example, Ixchange has a call centre product that is developed out of years of expertise and experience in this industry. That domain knowledge must be transferred to the VAR, giving him the means of selling the product into more sites, adding greater value around the product, enjoying greater returns from sales, and most of all, securing annuity income in ongoing maintenance and support contracts.
The next prize is the international market. Only consider this once you have successfully penetrated the local market, have achieved critical mass for your product, and have the mechanisms in place to sustain your market edge. Too often local companies have dabbled in overseas markets and have lost their local market share through lack of focus.
In the international environment it is advisable to go the VAR route immediately. Use the Internet to research companies that can take your product and sell it. Check for track record and the suite of products already sold. Again, use the Internet to open up contacts. Establish a relationship during a preplanned trip. Know exactly who you are seeing and what agreement you want to reach with them.
The best market to go for first is the US. It`s English-speaking and is by far the largest market in the world. As an illustration, if your product is successful in New York City alone, your market share will be larger than selling into all of Africa.
Choose a single, reputable VAR in the beginning, and you can be assured that if that VAR is successful, the spin-offs will take care of themselves.
Charge the VAR a registration fee and immediately create the impression that the VAR is paying for something of value. However, be prepared to provide the necessary support to that VAR for a substantial period before you see returns. When determining pricing, bear in mind that pure dollar-for-rand calculations are not the best way. Take into account local factors such as the size of the market, competing products and so on. Be prepared to provide some kind of budget to the VAR to launch and market your product, and attach conditions to ensure you get maximum exposure for your rand.
Overall, it is vital to equip your overseas VAR with collateral to answer any question the customer may ask without having to go and dig it up himself. Provide him with an Internet-enabled support site, regular updates of the product on CD, and any other information to make sure the product is not only easy to sell, but easy to buy. Bear in mind that the time differences between South Africa and the US require that as much supporting information as possible must be made available through the electronic medium, as human contact will be strictly limited.
With these steps in place, you should be well on the way to turning your international capital into profit.
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