April 20, 2006

New Research Helps Marketers Predict Which Business Technology Prospects Will Buy (and Which Won't)

SUMMARY: In high-end business technology (software, IT tools and related services), it's marketing's job not only to generate demand but also to gauge which leads are worth following up on.

Because, let's face it, the one impossible-to-grow resource is your sales reps' time. They have limited hours in the day, so you need to focus them on the accounts that will close. (Plus, reps will love you for it.)

Here's an exclusive look at new b-to-b behavioral-buying research that's the next best thing to a crystal ball. Use it to figure out which types of prospects to go after harder.
Over the past year, Indaba, a newly formed division of Info-Tech Research Group, has been surveying 25,000 IT professionals about their buying habits. 

At first the team expected they'd merely come up with interesting-but-standard data.  You know, "XYZ tech will sell more this year but ZYX software won't."

But, as the researchers crunched the numbers, they learned something unexpected.  Turns out that traditional demographic factors such as company size, location and industry vertical aren't always awfully good for predicting which leads will close.  If you're targeting your marketing offers and copy to generate these "assumed best" leads, you may be targeting the wrong group.

So, what segmentation factor matters more than classic b-to-b demographics?  An organization's IT buying "personality." 

According to Michael O'Neil author of Indaba's new report "Behavior-Based Segmentation: Using Corporate Personality Profiles to Understand IT Management Patterns," turns out every organization has a an IT buying personality you can track through its behavioral patterns.

O'Neil calls these Corporate Personality Profiles.  Here are the three key behaviors to track to figure out which personality each lead falls into.

   #1. Propensity of a prospect to purchase leading-edge vs more established goods/services

   #2. Sophistication of the prospect’s IT environment

   #3. Strategic business focus of the account (orientation towards innovation/new products vs efficiency/cost control)

If you research every prospect with these factors in mind, O'Neil says you can then break them into two big segments that almost always buy IT differently:

--Progressive transformers (PTs)

These are companies that use a sophisticated infrastructure and are focused on innovation/unique products as opposed to efficiency and cost control.

--Incremental innovation (IIs)

These companies use a relatively unsophisticated infrastructure and are focused on innovation/unique products as opposed to efficiency and cost control.

In order to discover which category a company falls into, O'Neil suggests a phone call to the IT manager. Ask them to describe their IT infrastructure based on whether they use mainly multiple complex server applications that are interrelated (PTs) or whether they use complicated server applications that are not connected to others or relatively simple server environments (IIs).

So, what did he learn by slicing the 25,000 IT buyers surveyed into these specific groups?  Here are the results by technology niche.

Biggest overall lesson -- Web vs in-person buying

PT buyers are nearly three times as likely as II buyers to conclude transactions through in-person sales representatives. 

Conversely II buyers are much more likely than PTs to use Web sites as a transactional medium.

Productivity applications' best prospects

There is a substantial opportunity in all size categories, with 40-50% of respondents in O'Neil's study planning to buy productivity software in 4Q05.

--In small accounts, PTs and IIs are much more likely to purchase than other accounts; target organizations that pursue innovation/unique products, rather than those that are focused on cost/control/efficiency, regardless of the complexity of the IT infrastructure.

--In large accounts, the II group is the most aggressive in buying. Target accounts that are focused on innovation/unique products, and which have an IT environment that is relatively simple; that is, that rely on desktop applications and relatively simple server environments.

Operating systems, utilities and other system software's best prospects

If you are targeting small accounts, you need to be focused: O'Neil cites 4Q05 data that suggests they are about a third less likely to make purchases in this category than larger enterprises.

--Small PT and II accounts are 40% more likely than other groups to purchase.

--Distinctions between the CPP-defined groups become less pronounced in larger accounts. Other segmentation criteria, such as industry, are more valuable in these markets.

Industry-specific applications' best prospects

Traditional segmentation matters here -- a lot. Large accounts are twice as likely as small accounts and 50% more likely than mid-sized accounts to report 4Q05 spending on these products.

When they do report spending in this category, mid-sized accounts are much more likely than small organizations (or large enterprises, for that matter) to report that they’re buying new products, rather than upgrades or add-ons. This makes the mid-market an appealing target for firms looking for "net new" customers.

In the mid-market, the PT and II buyers combined are nearly 40% more likely to be buying industry-specific applications than other enterprises. This distinction disappears in both the small and large account market: target these organizations in mid-market opportunities and use other segmentation criteria in large enterprise and small account marketing.

Financial/administrative applications' best prospects

Traditional segmentation isn’t particularly valuable as a targeting tool; all size categories report similar levels of 4Q05 purchasing activity.

The ASP in larger deals in this category is very high, so large accounts are likely to be much more valuable than smaller accounts, but the majority of large account purchasing activity is directed to upgrades and add-ons.

That means that suppliers looking for "net new" accounts may need to focus on the less lucrative small and mid-sized enterprises. 

In these categories, roughly half of 4Q05 purchasing activity is directed to new products.

In the mid-market, a very high proportion of the PT group reports 4Q05 spending on financial/administrative applications. (The II group does not stand out from other personality-defined groups.) 

Vendors targeting mid-market opportunities, then, should look for accounts that both are focused on innovation/unique products and boast sophisticated IT environments.

Application development/maintenance software's best prospects

Traditional segmentation is somewhat important. Mid-sized and large accounts are more likely than small accounts to report 4Q05 purchases in this category. 

However, this approach will not provide a great deal of help in providing target marketing focus. Behavior-based segmentation is of limited use in identifying target accounts in the large and small account markets. 

In the mid-market, however -- which has the highest proportion of "net new" decisions reported in the 4Q05 results -- PT accounts are twice as active as any other group. 

Marketers here need to focus on innovation-driven companies with sophisticated environments if they are looking to appeal to the most active purchasers of new application development/maintenance software.

The most compelling story in this group is the relatively high acceptance of products based on Unix/Linux, rather than the Windows operating system, and the radical difference in buying motivations reported by this group, as compared with the motivator/demotivator findings in other product areas. 

(This information may be of some help in segmentation, but would probably be more useful in structuring marketing messages.)

Networking and security software's best prospects

Findings for both traditional and behavior-based segmentation follow the patterns observed in the application development/maintenance area.

--There is relatively little difference in the adoption rates between small, medium and large enterprises.

--Mid-sized accounts are by far the most likely to be purchasing entirely new products.

--From a CPP perspective, the one compelling observation is the fact that in the mid-sized enterprise segment, the PT group is twice as likely to report 4Q05 purchases as the rest of the population.

There are major differences between the application development/maintenance and the networking and security software markets in terms of the story told by the related data elements included in Info-Tech's research.

--Application development/maintenance purchases are generally intended to support a limited number of users, often located solely within the IT department.

--Purchasers of networking and security software are more likely than buyers in any other product category to report that newly-purchased products are being deployed across the entire enterprise and that these products are being purchased to support more than 100 users. 

(This information may well be helpful in evolving/fine tuning targeting approaches.)

Content/data management software's best prospects

Traditional segmentation is useful: large accounts are roughly twice as likely as small organizations to purchase this type of software.

The proportion of "net new" accounts (as gauged by 4Q05 buying activity) is the same across small, medium and large enterprises.

--The PT group has uniquely high levels of content/data management software acquisition in large and medium enterprises. In large accounts, PTs are about 50% more likely than non-PTs to report 4Q05 purchases of content/data management software, while in mid-sized organizations, PTs are more than three times as likely to report recent content/data management acquisitions.

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Info~Tech Research Group


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