SAP\'s Internet Marketing Strategy Evaluating

SAP's Internet Marketing Strategy

Evaluating SAP's Internet Marketing Strategy

SAP's ability to execute on and compete using their Internet-based market strategy as part of their global approach to defining integrating marketing strategies, defining go-to-market architectures that support core messaging and the definition of key target markets. SAP is very unique in their approach to defining entire architectures to support the multi-market focused based approach to planning, implementing and measuring the effectiveness of multi-channel campaigns over the Internet. The intent of this paper is to review SAP's use of go-to-market architectures to support their use of Internet marketing strategies, taking into account the facts of customer target segments, their acquisition strategies, and customer retention strategies. In addition, the use of these architectures includes customer service strategies, a highly developed approach to integrating Internet-based strategies with the overall marketing strategies. The technical architecture of how SAP is accomplishing this is also presented, along with an overview of their systems for content management. Finally the use of dashboards for measuring the performance of Internet strategies is discussed in addition to an overview of the social and regulatory issues the company faces in its global operations. Conclusions and analysis about the company's integrating marketing campaign are also provided.

Target customer segments

SAP's core business applications generated $30bn in worldwide revenue in 2004 and by 2010, an additional $40bn in Total Addressable Market gets created through organic growth of SAP NetWeaver, mid-market, industry vertical marketing and Small and Medium Businesses (SMB) programs is anticipated. The following graphic shows the growth projection of Total Addressable Market (TAM) as defined by SAP's senior management during the last Annual Shareholder's Meeting.

Figure 1: Global Available Market Sizing (SAP, AMR Research)

Source: SAP Annual Shareholder's Conference, 2006.

At the center of SAP's global growth is its coverage of key vertical markets. SAP's vertical market penetration is shown below, shows by vertical the total count of companies in the Global 500 overlaid by SAP's customer penetration by vertical.

Figure 2: SAP Penetration by Vertical Market Source: SAP Annual Shareholder's Conference, 2006.

SAP's approach to defining vertical markets is another segmentation criteria the company has consistently applied with success to their product strategies. Figure 3 shows how SAP's vertical market segmentation is used as the basis of their product differentiation strategies.

Figure 3: SAP's Vertical Market Segmentation Directly Drives Their Product Strategies

Source: Friedman, Billings, Ramsey (13)

Recognizing the recent growth of technology spending among SMB customers -- a 41% increase between 2001 and 2001 -- SAP sought to segment small- and medium-sized businesses according to their software needs to better serve this customer group.

SAP now divides SMB customers into two segments: "sophisticated," for the most technologically equipped, and "advanced," for those with less it sophistication. The following quotation illustrates the impetus behind SAP's segmentation strategy. 28

Based on SAP's segmentation initiative, the company launched a new program called "Smart Business Solutions," which addresses the distinct segments of SMB customers based on their degree of technological sophistication. SAP identified a need for product individualization and industry-specific functionality among the sophisticated customer segment, developing a product offering based on the company's flagship mySAP.com suite. The mySAP.com SMB product assists small- and medium-sized manufacturers that seek to extend and maximize their supply chains. For the advanced customer segment, the company recommends its BusinessOne product, a relatively less complex offering that assists with the core operations required to run a SMB, including accounting, customer and vendor management, purchasing, selling, reporting, and analysis. The BusinessOne software also offers analytical tools that can track events online and create customizable reports.

In 2002 -- one year after introducing its two-tiered segmentation strategy for small- and medium-sized businesses -- SAP representatives report strong global support for the initiative, citing increases in new customers obtained, geographic markets reached, and distribution partners utilized. Company representatives note that the momentum of the first year validates SAP's approach to the market. The following quote emphasizes the company's satisfaction with its segmentation effort. Today's growth continues with the development and refinement of SAP's approach to offering hosted and on-premise application solutions in the SMB arena.9

Customer Acquisition Strategies

SAP's approach to customer acquisition centers first on mining their existing customer base for follow-on sales of their products, in addition to extensive reliance on all forms of digital and electronic media. At the center of SAPs' customer acquisition strategies is a heavy reliance on their world-class base of referencable customers. Here are the key lessons learned from SAP in creating customer references as the basis of their acquisition strategy:

Approach references through multiple channels -- SAP relies heavily on approaching customers through multiple channels, including mailings, Web announcements, and sales representatives who are incented for bringing on references. Once accepted as a reference, participants receive a welcome call and a "fun box" filled with goodies like "bobble heads" and a fifties-style radio.

Maintain privacy of references -- SAP maintains the exclusivity and privacy of its community. To become a member, a potential reference has to apply and be accepted by moderators. Applicants have the option to remain anonymous. Furthermore, only customers and potential clients can access the community; extraneous SAP staff and sales representatives cannot participate in the program.

Ensure full disclosure of the reference program -- Once the customer agrees to participate, an SAP representative contacts the reference to explain the exact role and obligations of serving as a reference. From there, the reference and the representative examine availability and determine how the reference would like to interact with potential clients, such as via e-mail, telephone, or at trade shows.

Cultivate relationships with references -- Milam decided that the community needed to focus on one purpose -- to cultivate relationships with customer references -- thus narrowing and maximizing the efforts of the group.

Provide a rewards system -- SAP maintains a compelling rewards system based on a point accrual system. In addition, because many corporations have strict rules about employees receiving gifts from vendors, SAP carefully chose the incentives offered to references. For example, incentives include hats, T-shirts, free SAP technology training, free tickets to SAP conferences, and significant donations to charities. SAP utilizes a point system and awards incentives based on points accrued. Additionally, references who accrue a high level of points receive guest speaker invitations at lectures and conferences, thus acting as experts among their peers.

Make the Internet site enjoyable -- SAP strove to make the Customer Reference Internet site fun. The immediate result was a major jump in traffic and a very high level of adoption of the program by those companies wanting to be references.

Customer retention strategies

SAP administers customer satisfaction surveys in 17 languages and 32 countries. As such, the company employs the following two mechanisms to ensure consistent communication and internal support of this customer retention effort among all SAP employees worldwide:

Global Survey Advisory Counsel -- SAP invites selected high-level executives from every region and company organization to join the Counsel, which facilitates the survey process locally at offices worldwide. The company considers the Counsel akin to a "24-hour support hotline" for survey administration that can answer questions, provide education and support to account managers, and coordinate at a local level. The Counsel holds bi-weekly conference calls as the survey nears completion, which serve to identify and problems or necessary changes within the survey process.

Retention Communications campaign -- Through an internal Web site called Customer Advocacy, SAP posts frequently asked questions, tips, and news regarding the survey for internal constituencies. The site informs visitors of the survey process's start and completion dates, as well as information on changes from the previous survey. An internal newsletter delivered to sales managers also keeps employees updated on survey news.

Heavy Emphasis on Customer participation

Once SAP has compiled its target list, sales representatives briefly speak to customers to explain the importance of the survey and secure participation. Should the rep require additional assistance to answer questions, they may request support from the Global Advisory Counsel. Upon speaking to the rep, customers receive an e-mail invitation to participate, along with a user ID, password, and a link to a unique URL where they complete the survey online.

Customer service strategies

SAP is one of the few software companies that actively look to tie back their performance service to their customer service strategies. As SAP actively uses their own CRM applications, the company has often been quick to point out that the higher the level of integration between their internal systems, the greater the ROI possible from a synchronized customer service strategy. This is consistent with Columbus (1). Integration specifically is the foundation of SAP's core strength in customer service; they company strives to create a 360 degree view of their customers. Here are additional key points from Columbus 1, 3):

CRM plays a key differentiating role between the average and top performers in the enterprise software arena

Investments in CRM capabilities directly impact SAPs' bottom linesand may generate hundreds of millions of dollars in additional profits.

The emphasis that companies placed on capabilities in three main CRM areas -- customer service, marketing, and sales -- accounted for 80% of the difference between high and low pretax profits among the utility companies studied.

Columbus (3) found that within the customer service arena, one CRM capability in particular demonstrated the greatest impact on profit improvement -- customer service execution.

Integration into Overall Marketing Strategy

SAP seeks to improve global campaigns' effectiveness at generating qualified sales leads, and to do so at lower cost per lead and greater speed over the Internet. To accomplish this SAP conducts an internal evaluation of its Marketing practices and uncovers the following problems during one of its marketing audits:

Regions often choose irrelevant communication tactics for the campaign goal or target customer and these tactics often end up on specific countries' websites.

Regions may sequence communications and target interactions ineffectively.

Regions often fail to share best practices across borders, leading to repetition of common mistakes.

Regions may experience difficulty translating campaign themes into local marketing messages, leading to globally inconsistent messages.

Moreover, Central Internet Marketing finds that regional groups spend time and resources planning their own campaign strategies, with some groups conducting effective, efficient campaigns and others using ineffective campaign designs and messages. As a result of its internal evaluation, SAP executives conclude that the firm's current process for executing global campaigns allows for wasted resources and would prove more globally effective if Central Internet Marketing provided local marketing groups with standardized campaign planning tools.

As a result of these many challenges, SAP's Central Internet Marketing determines that standardizing many campaign processes could allow regional internet marketing groups to improve overall campaign quality, performance, and efficiency, leading to lower campaign costs and better ROI. As a first step toward standardizing these processes, Central Internet Marketing surveys regional groups' biggest challenges with regard to executing campaigns.

Next, Central Internet Marketing works with regional marketing representatives to identify leading regional and industry marketing practices for overcoming these challenges. Central Internet Marketing leverages these findings to create campaign execution guidance tools or campaign architectures and other campaign facilitation tools. Once Central Internet Marketing refines the tools, it then houses the architectures, along with the tools, in a central, internal portal to ensure that regional groups around the world are able to conveniently access the adaptation toolkits. Thus the campaign guidance tools not only facilitate and standardize more effective campaign execution, but standardize planning to ensure more efficient marketing spend. Figure 4 shows the process by which SAP Central Internet Marketing accomplishes this level of coordination.

Figure 4: Coordination of SAP Central Internet Marketing Across Regions

Source: LWC Research (14)

After seeking and leveraging regional input, SAP creates core campaign architectures -- decision trees that regional groups use to inform application of global campaigns to their markets by guiding their communications channel selection. The architectures establish standard procedures with embedded best practices for regions to follow in order to ensure consistency in design and adaptation, leading to improved performance and more efficient use of marketing resources. The architectures guide marketing groups to choose the type and sequence of marketing communications based on campaign circumstances and target customer interactions. Figure 5 shows an SAP go-to-market architecture that is common across geographic and product regions. The construction of these architectures is the foundation of how the company completes integrated marketing strategies.

Figure 5: SAP's Approach to Creating Go-to-Market Architectures

Source: LWC Research (14)

Technical Infrastructure Required

SAP understandably has moved aggressively in the direction of adopting their own Services-Oriented Architecture (SOA) of SAP NetWeaver. The basis of SOA architectures is the ability to integrate disparate systems together and provide the integration and coordination across the extended internal and external network of suppliers, buyers, and customers. SAP has actively promoted their NetWeaver platform specifically in this area, and their adoption internally is focused on how to ensure the content on their websites, internal Intranets, product brochures and all other forms of communication are consistent. Further, SAP looks to use their SOA platform to streamline their entire marketing and customer strategies. The move toward customer-driven communications processes requires the ability to build and adapt channel-specific, product-specific, and customer-specific order flows quickly without an army of developers creating custom code.

Figure 6, Services Oriented Architecture Hierarchical Model.

Services Oriented Architecture Hierarchical Model

Source: LWC Research (18)

Role-based and contextual personalization is where the Internet-based strategies reside in this model. Notice the depth of integration necessary to make any Internet-based strategy work successfully. While this model is worthy of an entire paper unto itself, the gist of it is that for any Internet strategy to be successful, there needs to be a very strong level of coordination and synchronization across all systems of record and content.

Data Acquisition, Management and Use

What is emerging from SAP's approach to handle data acquisition, data management and its use is a comprehensive framework. The approach SAP is taking specifically focuses on Enterprise Content Management (ECM).

Figure 1, ECM Framework, defines the it architecture that SAP is relying on in conjunction with its multi-layered model for handling their SOA platform.

Figure 1: Enterprise Content Management Architecture

Source: (Murphy 4)

The core building blocks of this framework include the presentation and client layers, where web-based applications aligned with the needs of all departments in SAP and specifically those serving customers. The need for synchronization across Platform, Storage and Infrastructure and Integration areas of this framework dictate the speed and accuracy of responses to all users of the system. Thinking of this framework as the foundation that the specific processes that all divisions of SAP must with to serve customer needs.

Evaluation of Goals

The following table shows the key metrics that SAP uses in evaluating the performance of its Internet and Integrated Marketing Strategies globally.

Areas of Measurement

Baseline: What is Measured

SAPs' Accomplishments

Company-specific

Project costs and expenses

Use as a baseline for defining ROI

Number of orders per year

Determine configuration's impact on inventory turns

Current software inventory and costs

Software Inventory turn savings

Customer Data

Lifetime cost per customer; avg. deal size by customer

Sales

Order cycle time

Order cycle times reduction of 35% or more recorded with mftrs contacted

Cost of Sales

Days Sales Outstanding reduction from 55 to 23 days on average

Cross-sell and up-sell revenue

Increase of 46% on aggregate

Average sales price per order

Increase from 7% to 29%

Quote and Order

Average costs to complete an order

91% reduction in cost per order

Special Pricing Requests

Over 92% ROI on automating Special Pricing Requests

Bad or incomplete orders

Incomplete order reductions of 30%

Customer Service

Number of customer complaints

89% reduction in cost of simple requests

Revenue lost to churn

69% when cross-selling is used with quote-to-order

Number of calls on order status

Median level of 15,000 per week to 200

Warranty and Returns

Reduction in warranty cost on customized products

14% reduction at a minimum

Labor cost reductions

Decrease order re-work from 18% to 1%

Social and regulatory issues

Foremost in SAP's efforts to maintain compliance with regulatory requirements is the need to stay in compliance with the many government initiatives in the nations its serves globally. The Sarbanes-Oxley Act of 2002 is by far the most taxing and time consuming for the company to stay in compliance with and has become the most major regulatory issue the company is facing.

Four sections of Sarbanes-Oxley affect SAP specifically:

Section 302: Corporate Responsibility for Financial Reports. Requires that firms audit, verify, and take corrective action to make sure that their financial data has a high level of accuracy and transactions are ACID-compliant.

Section 404: Management Assessment of Internal Controls. By far the most well-known of the sections in the SOX Act, section 404 calls for support for internal controls that are auditable by a third party. This section gets the most focus because it's pushed most often by accounting firms that sell auditing services. What's most interesting about Section 404 is the fact that liability for reporting accuracy also carries forward to outsourcers who are contracted to complete this work.

Section 409: Real-Time Issuer Disclosures. This section defines how quickly a company has to report a material event to the public on a rapid and current basis. Many analyst firms say that the rule is 72 hours or less, and define a material event as any task that has a lasting financial impact on a firm. There's considerable debate about just what is and isn't a material event today -- and the fact that synchronization between databases is at the heart of reporting material events throughout a company.

Section 802: Criminal Penalties for Altering Documents. Focusing on the requirement of retaining records and defining policies for archiving data, this section has the hardest impact on it, and what's most interesting about this specific area of the Act is that it's not prescriptive, just instructive. This is a major difference for any it team working on SOX compliance -- the Act itself doesn't tell you how to do this, but what level needs to be done.

Strengths, Weaknesses, Opportunities and Threats

SAP has been successfully been able to extend an initial strength in their core order management and ERP applications into an entire series of application areas including Customer Relationship Management (CRM), Supply Chain Management (SCM0, Supplier Relationship Management (SRM), and many other application areas that are collectively known as the ERP extensions marketplace as defined by AMR Research. The following are the key strengths, weaknesses, opportunities and threats that SAP faces in 2007 and going forward:

Strengths

The acknowledged market leader in enterprise applications. As many manufacturing and services companies alike seek to streamline their core business processes, the need for enterprise software that can significantly increase efficiencies are critical. SAP has successfully capitalized on this global business dynamic. The fact that SAP leads in many of the core business application areas that rely on an ERP platform for data integration and process workflows contributed to their global leadership in applications. According to AMR Research (2006), SAP has a market share of 56% in the customer relationship management vendor market, delivering this specific solution set to more than 26,150 customers and 88,700 installations globally. Oracle, SAP's archrival, follows the company with 23% market share, Microsoft (12% market share) and dozens of best-of-breed vendors. Because of its ongoing investment in CRM, specifically aimed at dominating this market, SAP has redefined the core aspects of CRM, leaving Oracle in a position of having to play catch-up on many critical aspects of their CRM strategy.

Global presence and the ability to excel in multiple geographies simultaneously.

This is a major competitive advantage, as it shows the ability of SAP to scale across multiple geographies effectively. SAP is headquartered in Germany, and enjoys a very nationalistic level of support in both their home nation, Austria, and throughout Central and Northern Europe. In the 1990s SAP successfully expanded into the U.S. And throughout Asia as well. This ability to scale across multiple geographies quickly has served as a competitive advantage over the years, as representatives of many large companies have told us that SAP is the best choice for global corporations. None of the company's competitors have the same global presence in their applications business as SAP, and this has become a major competitive advantage relative to Oracle specifically.

Strong public awareness for SAP across all sectors of the market they serve. One of the major reasons why it professionals decide to go with SAP over other competing ERP vendors is their global reputation for precision in their products. The advantage for it decision makers is that they can far more readily justify the purchase of SAP software than an investment in less well-known products. Even if rival suppliers offer equivalent software packages at a far cheaper price, the decision is frequently still more likely to be made in favor of the SAP products.

Large and industry-diverse installed base of customers. SAP enjoys the largest installed customer base in the ERP industry with over 22,000 clients globally. The next-closest competitor is Oracle, with roughly 13,000 clients. SAP is working aggressively to move its installed base into the latest generation of products including MySAP and NetWeaver. The company's enterprise-class customers include Sony, Siemens, Texas Instruments, Hewlett-Packard, Bosch, Deutsche Bank, Philips, Honda, Unilever, Lufthansa, Audi, Nokia, Lockheed Martin, Cadbury, Nestle, Deutche Telecom, Carlsberg (Coors), and Airbus.

Exceptional ability to recruit talented programmers and managers. SAP's dominance globally has also made it fairly easy for the company to recruit outstanding talent both in programming and managerial roles. The growth of their NetWeaver platform development teams specifically are a case in point.

Weaknesses

Difficulty in creating inorganic growth. SAP struggles with organic growth from new products, yet has an excellent track record in getting their installed base to recommend and validate the acquisition of third-party companies. Yet SAP, despite these promptings from its customer base, has a rather limited approach to acquisitions overall. The acquisition of TopTier, and the resulting inclusion of its functionality in NetWeaver, is a case in point. SAP has been growing its business without making any major acquisitions. However, the company's competitors have been growing inorganically as well as organically. For example, PeopleSoft acquired J.D. Edwards, and then PeopleSoft was acquired by Oracle

Product failures sparking liability issues. The bankruptcy trustee for the U.S. company FoxMeyer Corporation instituted legal proceedings against SAP and SAP America, the U.S. subsidiary of SAP, in 1998. FoxMeyer was a pharmaceutical wholesaler and licensee of the company's R/3 system software. FoxMeyer's bankruptcy trustee alleged that the company's software failed to perform properly, damaging FoxMeyer's business, and that such failure was a significant factor contributing to FoxMeyer's bankruptcy in 1996 and its subsequent liquidation. During June 2004, SAP reached a settlement agreement with FoxMeyer pursuant to which the company was required to pay a specified amount to FoxMeyer. This indicates that the company's software was not able to perform effectively that damaged FoxMeyer's business. This would affect the company's image in the market.