Last June, a man in his early thirties, wearing a gray, summer-weight suit, entered the McGraw-Hill Book Store on Avenue of the Americas in New York City. The man quickly scanned the 500 or so software packages against the walls of the bookstore's computer department, then turned to the salesman.
"I own an Apple IIe, and I'm looking for software to generate a mailing list for my business," said the customer.
The salesman presented him with two choices: either Software Publishing Corp.'s PFS File, a software package for $125; or Apple Computer Inc.'s Quick File for $100. He added that PFS could handle more names but that Quick was easiertouse.
When Fred Gibbons left the bookstore that afternoon, he had mixed feelings. Gibbons, the 33-year-old founder and chief executive officer of Software Publishing, was pleased that the bookstore carried his word processing software and that the salesman recommended it. However, he was disturbed that Apple's product was considered easier to use, since ease of use was PFS's major selling point. Gibbons also guessed that none of his sales representatives had visited the store to convince salespeople of that message.
Such gumshoe market research is a matter of course for Gibbons, who visits local dealers whenever he is away from his Mountain View, Calif., office. Sometimes he identifies himself to dealers; other times he remains anonymous. But always he wants to find out what is going on in retail stores and in dealers' minds. Do they stock his product? Is it visible? Has a rep been in to train the dealer's salespeople? Do the salespeople recommend the product? If not, what do they recommend?
Getting a dealer's recommendation has grown increasingly difficult for software publishers. In 1980, Gibbons explains, "building a dealer base was simple if you had a quality product." But times have changed. Gibbons claims that since then, the tremendous infusion of venture capital into software start-ups has created a "glut of software products that has raised the ante for doing business." That situation translates into multimillion-dollar levels of spending for advertising and dealer promotion.
This year, Software Publishing is spending at the rate of 13% of its gross sales on advertising -- approximately $1 million -- and more than 25% of sales will be plowed back into other types of marketing. Most of those marketing dollars are spent catering to dealers through dealer training and support programs, special promotions, demonstration and trial-size disks, advertising, and "spiffs" -- contests to entice dealers' salespeople to try out and sell more of the company's products. For example, 1 out of 10 of Software Publishing's demonstration disks carries a message alerting a lucky salesperson that he or she has just won $100. The company's rationale: To win the prize, the salespeople must use the product. Once they have mastered it, they are in a better position to sell it to the customers.
Wooing dealers has become, in fact, as important to software publishers as the products themselves. Three years ago, most companies touted their technological edge; today they strain to become specialists in retail and consumer marketing Gibbons's staff now includes former retail imerchandisers, as well as one-time account executives for Clorox bleach, Hawaiian Punch, and Hidden Valley Ranch salad dressing.
While Software Publishing has so far relied primarily on old-fashioned, shoe-leather market research to keep abreast of what is going on in retail stores, other companies have chosen a more formal approach and appointed dealer advisory councils. While such councils have long been successfully used in other industries, the fledgling software industry is just beginning to recognize dealer groups as a valuable way to learn about the retail marketplace and to strengthen dealer relations.
One of the first companies to form a dealer advisory council was Microsoft Corp. of Bellevue, Wash. Last spring, the $70-million company, which publishes more than 20 software products, including the best-selling Multiplan, laid out the red carpet for its newly formed dealer group during Comdex, an industry trade show. From across the country, two dozen dealers, representing retail chains and independent companies, came to be wined and dined in an antebellum estate outside Atlanta with top executives from Microsoft.
The bill for the dinner topped $25,000. But Jim Spillars, vice-president of Microsoft's retail operations, says it was a small price to pay for the "tremendous amount of information that could be transmitted back to us from our dealer channel." It is the dealers, he says, "who have their fin gers on the pulse of the customers."
Keeping track of what the consumer is doing is not unlike a squash player trying to figure out which wall the ball will bounce off next. The customer is "fickle," says Rick Inatome, president of Microsoft's dealer council and owner of Inacomp, which owns Computer Mart, a retail chain of 13 stores based in Troy, Mich. Software can sell briskly for several weeks then languish on store shelves a month later. Unless a company hears quickly about a drop in demand, it continues to assume that it has a hot product. Then, says Inatome, inventory builds, distributors get fewer orders, and the company learns the truth. "When you have that lag in reaction time," Inatome notes, "it can cause financial hardships for the retailer, the distributor, and the manufacturer."
Companies also get burned because what they think is a great idea can end up bombing in retail stores. "The industry is full of propeller heads," says dealer councilman Bruce Burdick of Overland Park, Kans., who owns eight ComputerLand stores that will bring in sales of more than $20 million this year. "They're whiz kids, says Burdick,"brilliant technicians who lose sight of the consumer's needs." Burdick recalls, for instance, being on the dealer council of a microcomputer company that wanted to bring out a complicated programming language. Dealers were stupefied. "It was a good idea, a good product," he says, but, because it was too sophisticated, "nobody wanted it."
Besides warning software companies about sudden changes in demand and alerting them to potential "dogs;" dealers tell them what works -- and what doesn't -- in closing a sale at the point of purchase. "Everybody's trying to be as cute as they can," says Microsoft's Spillars, referring to the multishaped and multicolored in-store displays many manufacturers have produced to distinguish themselves. "Publishers are spending tremendous amounts of money on what they think are effective displays, then sending them to retailers who don't use them because they don't fit in the stores " says Inatome. "Floor space is a valuable commodity." Franchisees such as ComputerLand's Bruce Burdick aren't even allowed to erect displays until they have received approval, which is seldom given, from corporate headquarters.
Packaging is also a subject for debate. "It's 1983, not 1978," says Joe Harmon, vice-president of merchandising for CompuShop, a 24-store chain based in Richardson, Tex. "We still see Ziploc bags with Xeroxed copies of instructions, complains Harmon. When customers can't understand the documentation, Harmon's salespeople have to take time to explain it. "That's margin," he says.
Like most dealers, Harmon credits IBM Corp. with setting the standard not only in service and support but also in professional packaging that fits neatly on dealer shelves. Some have followed IBM's example: Digital Research Inc., of Pacific Grove, Calif., for instance, now encloses its software in businesslike, gray and maroon wrappers that clearly describe what is inside. According to Rick Magnuson, Digital Research's director of retail marketing, the company followed the example of a hot-sauce company and has printed a thermometer on each package. The level of the "mercury" indicates the degree of difficulty of the programming language.
Although all dealers insist on training and support from manufacturers -- which means having representatives in stores to train salespeople once a month, providing interactive demonstration disks, dealer handbooks, and after-sales technical support -- they argue that it has to be better. For example, a number of companies offer toll-free telephone lines for dealers and customers.
Despite promises of assistance, however, "many companies have numbers that must be called 15 times before you get through," complains Paul Jenusaitis, executive vice-president of sales for ComputerLand of Connecticut. "When you reach someone, it's a $10,000-a-year clerk that knows one-fifth what your salespeople know."
Another potential waste of money, says Rick Inatome, are training seminars. A lot of manufacturers hopped on the bandwagon and packaged seminars featuring their products. Inatome says he never used the several thousand dollars worth of resources -- not because they weren't good or professional, but because he prefers to customize his own seminars.
"A retailer distinguishes himself by his training seminars," says Inatome, who wants bare-boned training aids like software demonstrations and well-written documentation. "We don't want to do the same thing as the guy down the street."
While Microsoft is poised to gather plenty of market information from dealers, it is not a one-way street. Most dealers jump at the opportunity -- and pay their own way -- to spend two or three days twice a year with a manufacturer. Dealer councils give them the chance to meet other dealers, get a preview of upcoming products, and discuss trends such as price cutting, the growth of software-only stores, and the emergence of major book publishers as licensors and distributors of software.
Dealer voices, particularly those raised against manufacturers who bypass dealers to sell directly to large national accounts, are being heard. Following a trend, Alpha Software Corp. of Burlington, Mass., recently appointed Eric Kaplan as director of national accounts to stimulate interest in its new software within Fortune 1000 companies. Through telephone conversations and direct mail, Alpha creates demand for its database-management package. But once the pump has been primed, the company calls in a local dealer to close and follow up on the sale. An added benefit of this joint approach, notes Kaplan, has been a growing number of leads from satisfied dealers.
As the industry matures, successful publishers and dealers are beginning to regard each other as partners rather than adversaries. "A lot of companies think of the person they're selling to as the enemy," says Rick Inatome. "Today, we can't afford that kind of relationship."