So, how can companies gauge their own readiness to make the switch? The first step is to understand how a consumption business differs from a traditional product-focused or a perpetual license business.
Take the way vendors interact with customers. Today’s empowered customers are self-educating on the myriad technology options— forming opinions on preferred vendors through collateral, review sites, social media, and their peers. Successful marketing and sales efforts target those channels where customers go to learn, engaging with the right content and collateral to interest the buyer early at each stage of their buying process.
A consumption business is heavily dependent on continuous customer value creation, and will often provide customers with the opportunity to test products for free and sign up after a trial period. In the sales process, customers expect the same customer experience they get in their consumer-based interactions with vendors—easy to use, seamless, quick, and self-service. After purchase, managing customer success and adoption becomes critical to keep the business, driving to renewals and cross- and up-sell opportunities. Customers demand the flexibility to add, reduce or otherwise change their consumption patterns and have that reflect in their contracts and invoices at any time and frequency.
Companies selling in a consumption business model also tend to drive many more iterations of their offerings, testing out incremental features quickly in the market. And due to their lower up-front cost than traditional sales models, they are better able to attract higher numbers of smaller and mid-market customers.
Ways in which sales, marketing and IT must adapt
These differences drive a need for significant operational and systems change across product development, sales and marketing. For example:
- The marketing and sales functions must roll out campaigns in an accelerated and agile fashion to attract new customers at pace. This requires marketing automation tools to create and test campaigns quickly across multiple channels.
- Product trials play a strong role in customer conversion and adoption, with product trial data used to gauge customers’ propensity for change. To provide leads, the product trial systems need to communicate seamlessly with marketing automation and CRM systems.
- A consumption business model requires much stronger collaboration between marketing, sales and the back office due to the stronger role in data-driven lead generation. This means the marketing automation and CRM systems need to be closely integrated.
- Consumption sales requires a closer quoting cycle and quicker turnaround for customer requests, meaning the CPQ systems and underlying quoting, pricing, and contracting capability must be streamlined and optimized.
- Consumption companies are increasingly embracing self-service models and e-commerce capabilities to reduce costs and maximize customer reach and self-assisted sales, including payment options.
- Sales organizations must rethink how they go-to-market, changing focus from a transactional sales model to ongoing relationship management, focused on long-term customer success and adoption. Sales compensation models need to evolve commensurately.
- Since consumption customers may change their consumption at any time, the backend order management and billing system need to agile enough to handle this.
In combination, these shifts mean that a company looking to move smoothly to a consumption business model will need to reimagine its technology infrastructure. Existing IT toolsets may make this challenging. So the question is how to navigate the change.
To reinvent their operations and systems for a consumption world tech companies and EY are focused on these critical path items:
- Packaging, bundle and price metrics design
A leading human capital management SaaS company launched a next-generation HCM platform, and was facing critical decisions on packages and pricing. Together with the EY organization, they developed a range of different metrics options – including new bundled designs – to support aggressive customer acquisition and create more holistic, robust concepts going forward.
- Lead-to-cash transformation
A global B2B managed cloud services provider was operating on a home-grown quoting tool, which required a series of approvals to provide customer quotes. Working with EY and a third-party CPQ software vendor, they streamlined the quoting process while delivering product and contract rationalization, pricing, sales process optimization and a channel partner strategy.
- Finance transformation planning and design
A global technology conglomerate was seeking to enable sales to cross-sell legacy hardware products and newly-acquired software capabilities which leverage pay-as-you-go consumption business models. The core infrastructure of the organization did not support the new model, so they worked with EY to build a series of new order entry and accounting systems along with modifications to the product master attributes that enabled the client to properly sell, bill, and account for consumption-based software products alongside it’s traditional hardware.