Friday, 22 September 2006

AR Classics Series: A Low-Budget, High-Return Program

Who would have thought it? Analyst relations is getting so old that some of the early, classic writing about AR is off line and out of print. Over the next few weeks, we'll be publishing some of them. To start the series, this article by Norma LaRosa originally appeared in Software Marketing Journal, vol. 3, issue 1 (November, 1997).

Whether vendors like it or not, industry analysts and consultants have a profound effect on sales. One analyst's "thumbs-up" on a vendor or its products can equal millions of dollars in revenue. Similarly, negative analyst reports can severely impair sales, cause misuse of employees' time, or worse yet, effect irrecoverable damage in the public's eyes.

Not all industry analyst reports have such impact, but their influence is far-reaching. Analysts and consultants are, in fact, the ultimate target audience. By communicating effectively with this audience, vendors can influence all of their other target selling audiences: customers, prospects, the press, Wall Street, resellers, and other business partners. This ripple effect is the reason information technology providers spend enormous sums of money and resources in attempts to compete for analyst and consultant mindshare.

The problem is that some vendors, particularly large, well-established players, wield more ability to influence industry analysts than others. Analysts are more likely to provide positive reports about a vendor's product if the vendor allocates funds for spending "face time" with analysts. Face time can serve a number of purposes, but it's not cheap. Large ($50 to $100 million) and very large (over $100 million) vendors spend at least $1 million annually on industry analyst research, excluding custom consulting and special projects.

For example, a vendor will secure an analyst's billable time early in the product development cycle for "pre-testing," so that products are as robust and competitive as possible at the time of their unveiling. At this stage, an analyst can consult on market needs, product development, interoperability and connectivity features, competitive launch strategies, competitive analysis, distribution strategies, and service and support issues. This process also helps hammer out responses to the litany of questions that the analyst community will have at launch time. The cost of this kind of consulting service varies among analyst firms and independent consultants. Contrary to popular belief, consulting rates are negotiable. Some vendors have even offered analysts stock in lieu of cash, though this practice is ethically questionable.

Vendors also set aside funds for briefing key analysts prior to a launch, and for ongoing communications and support. The time and travel expenses of the presenters, the preparers, and their administrative staff present additional costs, along with lost productivity from being away from the office. If the vendor uses an outside agency to make appointments with analysts, or conducts the briefing session at a hotel, those costs are incurred as well. Funding is also required for the development and distribution of analyst support materials and vehicles, including Web sites, faxing, telephone briefings, and video conferencing. These costs can amount to between $500,000 and $1 million a year.

Another facet of the financial issues affecting vendors is that some research firms pay their analysts a commission on research and consulting as an incentive to sell the firm's services and support the paying client. As a result, analysts from these firms are more likely to concentrate their product focus or technology awareness on vendors who pay for services and require support. All analysts will claim they cannot be bought, but few vendors, based on their experiences, believe this to be true.

Size Doesn't Matter

A vendor is not an underdog based solely on the size of its analyst relations budget. An underdog is any size vendor that operates at a disadvantage, as perceived by industry analysts and consultants. Recent bad news such as widespread product bugs, poor quarterly earnings, and long delays in product delivery can have major negative effects on the way analysts perceive the vendor's viability and the competitive benefits of its products.

Vendors that have historically struggled with repeated loss of market share, inability to meet market needs, false starts, lack of vision, or other negative factors also create an uncomfortable situation for analysts and consultants. Analysts want to believe in such disadvantaged companies, but it will take carefully executed communications, backed by substantial changes, to win their confidence. In this way, small, relatively unknown vendors operate at an advantage, as they have an opportunity to put their best foot forward with all analyst communications, instead of being stuck in recovery mode.

Another potential disadvantage concerns attitude, a touchy-feely area that is difficult to quantify, yet has everything to do with how analysts and consultants feel about a vendor and its products. Complaints about a vendor's attitude may be real or perceived to be real. Does the vendor have a history of arrogance? Has it been unresponsive to analysts' and consultants' needs? Does it show little respect for the intelligence of analysts and consultants? Does the vendor disregard analysts' time constraints and deadlines?

What Motivates Analysts

The majority of analysts and consultants want the underdog vendors to succeed. Analysts and consultants are motivated to keep them as clients - clients whose research budgets continue to grow. Still, they are hard-pressed to speak favorably of struggling vendors, let alone recommend their products. After all, their reputations are at stake, not to mention their contract renewals. Therefore, new underdog initiatives must be well-founded and precisely executed to receive any analyst's backing.

However, simply throwing money at this endeavor is a mistake that smaller vendor organizations cannot, and should not, make. The key for underdogs, especially smaller firms, is to work smarter. Instead of dedicating endless resources to the problem, it is critical for these firms to step back and assess the quality of their analyst and consultant support programs. Knowing how analysts and consultants view a company and its products, and how the program measures up to competitors' programs, can maximize an underdog's limited resources and eliminate costly pitfalls. To assess a support program, a vendor must do the following:

  • Understand what kinds of information individual analysts and consultants need. For example, certain analysts want product strategy information, but vendors frequently do not understand how to define a strategy. The "strategies" they produce are often misplaced mission statements or selling objectives. Product information is frequently considered important to analysts, but only some of them want deep technical detail, and only on an occasional basis.
  • Assess where it stands in providing the needed information and how it rates compared with competitors. Again, this is not a one-size-fits-all assessment. Say that a vendor regularly provides "standard" list pricing to an analyst because that is what the company dictates - the party line. But the analyst would rather have "street" or enterprise prices, or information about how the pricing is structured. The vendor may be making it harder for the analyst to get the information when his or her time is already tight. That analyst might rate the vendor lower than competitors in this area, because the analyst is not receiving effective support from the vendor firm. The result can translate into a subconscious negative perception about the vendor, its products, or both.
  • Understand how individual analysts and consultants want to receive information. Blanket e-mails, faxes, "snail" mail, and overnight deliveries are overused. Some analysts prefer to be briefed with a succinct telephone call. Others want to interact with the vendor's executives in person. Others have gone full circle and now want information by mail so they can read it on a plane or at home.
  • Identify how the company rates comparatively in the ways in which it provides the needed information. Briefings are a good example. Vendors often fail to qualify the analyst's area of expertise in advance to make sure they aren't wasting the analyst's time. Even vendors who qualify analysts often provide standard marketing pitches that don't get to the point quickly, or worse, don't require a briefing at all. Not only does this waste time, but it results in a less-than-positive attitude about the vendor or its products. Competitors that perform this and other analyst communication functions well will usually gain more mindshare.
  • Be aware of how analysts and consultants feel about the firm and its communications with them. Traits such as responsiveness, candor, and credibility often affect an analyst's perception. A perceived lack of responsiveness could result from simply not returning a telephone call immediately, a turn-off for analysts that can have critical repercussions. Perceived lack of candor or credibility could results from discussions with analysts that are based on the "party line" or hype, rather than honesty and trust forged from establishing a relationship. Demonstrating a lack of respect will surely yield negative results.

A Company-Wide Effort

Annual benchmark studies of vendor best practices conducted by the Kensington Group reveal how firms can be more effective in working with industry analysts and consultants. Recommendations for underdogs are based on individual vendor situations and are multi-faceted. However, a few words of advice apply to any underdog's situation:

LEVERAGE THE COMPANY'S BEST ASSETS: PEOPLE. Executives should be available for analysts and consultants to answer questions and communicate strategy, vision, company viability, and execution plans. This is providing, of course, that they are knowledgeable, can easily address analysts and consultants without relying on visual aids, possess the ability to discuss strategy and vision, and can be perceived as candid.

COMMUNICATE CONTENT; CUT THE HYPE. Analysts and consultants have heard it and seen it all before. They can tell a marketer what the vendor's strategy is before the marketer gets through the first foil. They not only want meat; they want you to show them how you will emerge. Strategies must include investments for execution. Prove that the company is focusing on core competencies. "Just say no" when interrogated about providing new products or features that are unrealistic - it is simply the analyst's test of the company's focus. Provide consistent messages across departments and people.

LEVEL THE PLAYING FIELD. Demand the same amount of analyst time as analysts allott to larger companies. Challenge analysts on their commitment to providing a complete picture of product choices. Demonstrate to analysts how the company's products solve business problems without creating any. Differentiate the products and their features, services, performance, and functionality. Define how the company is competent, positioned, and focused to compete.

BE COMMITTED TO THEIR NEEDS. Treat analysts and consultants as the company's largest account. Personalize communications. Make sure they get what they want, when they want it, and how they want it. Convince everyone on the marketing team to have this same commitment and understand the value of working effectively with industry analysts.

BE AWARE OF THEIR ATTITUDE. In a way, underdogs have a unique advantage in this regard, as their position is one of relative weakness. Underdogs have no choice but to do whatever it takes to satisfy and establish positive relationships with this target audience, because they are competing for analyst and consultant mindshare. This audience knows it, expects it and welcomes it. They believe that vendors who are undergoing change are the most receptive to their feedback.

DIFFERENTIATE THE COMPANY. Show analysts and consultants how the company has a clearer understanding of business problems and their impact than competitors do. Prove that solutions are well thought out, and show how they are unique. Messages and their supporting facts must be industrial-strength for this audience.

APPEAL TO ANALYSTS' EGOS. Grab analysts' attention by doing things that larger companies often fail to do. Interact with them openly and enlist their help. Show them how their analysis and advice contributed to company efforts and made a difference. This closes the communications loop, makes them feel useful, and helps them look good to their management. Let's face it, there are no shortages of ego here.

KEEP YOUR EYE ON THE BALL. Remember that the objective is not just to have a "good program." The objective is to be competitive in reaching industry analysts and consultants, and the overall goal is to have a positive impact on sales.

Roles of underdog and winner change frequently. Companies that come ouit on top understand that the entire business is centered on relationships. If a vendor does nothing else, it should show respect for analysts and consultants, understand their motivations, be responsive to their needs, and establish ongoing relationships based on sincere communications and trust. That will be the wisest and easiest investment, and the returns will be abundant.


ARonaut said...

Nice post, I hope good old Norma won't wake up from her long sleep and haunt you... Where is gone anyway?

theARpro said...

She's certainly not asleep! Norma's been doing some work with Howard Teich and the others at Quadrix Partners. Also, she's another woman bitten by the genealogy bug: I half expect to get a postcard from Guarcino one day to announce that she's moved into their records office for a month.

Tony Byrne said...

You know what's interesting about this post? "Customer" is only mentioned once, and then even cursorily. The analyst industry is changing. Smaller firms are focusing on the needs of buyers, rather than vendors. Software companies forget who pays their bills at their own peril...

Tony Byrne
Founder, CMS Watch

ARonaut said...

Agree Tom -this article is quite old and ROI imperatives are much more pressing now.

On the other side, AR managers are increasingly sick and tired to listen to analysts for hire who don't impact customers directly. We've got our in-house fair share of hyper-inflated egos to feed already...