SaaS Marketers Need to Learn from Service Marketing

March 31, 2012 by

I must say this: we are still in the Stone Age of SaaS Marketing!

The industry is still missing the point about marketing SaaS product and that is why SaaS customer acquisition costs have been so unattractive. Yet, everyone is still trying to paint a rosy picture of eventual profitability and sustainable customer acquisition costs, and using that to justify sky high valuations and market capitalizations.

Even for companies that start out with a nice, lean and profitable customer acquisition model (not necessarily profitable in accounting terms, but in the sales and marketing vs first year booking terms), as they scale up and start trying to inorganically grow their business, their marketing costs shoot through the roof, and the sales team never look back. But, as I have pointed out before, sometimes more marketing does not mean better marketing.

I think a huge missing component of SaaS marketing is the failure to explain and sell the “customer experience” and through it to connect on a personal level with the buyers and users. And this is not because SaaS marketers are not good marketers – they are great software product marketers, but they have only focused on the “Software” piece and neglecting the “Service” piece of their offering.

We need to look back to good old Service Marketing principles to glean some valuable lessons.

Service Marketing, the marketing of (often human-rendered) services (not of physical, transferable goods), is the ugly stepchild of what we typically considered classical marketing. Unlike the classic marketing setup for an actual product, a “service” has several distinguishing (and perhaps extinguishing – in the sense that it makes marketing it a lot harder) features:

  • intangibility: it is not a physical entity that can be viewed, evaluated and tested. In fact, it is the ultimate “experiential” good.
  • inseparability of production and consumption: the service rendered is also the service consumed, therefore, the quality of the service is tied closely to how it is produced and consumed – there is no “recall” or  “mass quality control” of these services
  • heterogeneity: because service is often done by people, for people, it takes on a manner of customization and variation, and the perception of its quality and value differ greatly
  • perishability: one can’t stock up a “service”, nor can one transfer a service from a customer to another without major modification
Service marketing is notorious because it is hard to price “service”, it is hard to readily display or flaunt the “service” unless it can be readily demonstrated, and that unlike marketing a product that is self-contained and can be bought in an instant, marketing a service requires that the service is available and valuable throughout the lifetime of its usage or consumption.

Being increasingly more of a “Service”, a SaaS product clearly faces the same type of challenges:

- Intangibility leads to difficulties on both the marketer and the prospect in the buying cycle: it is harder for prospects to evaluate the SaaS product until it has been used for some time. It is hard for the marketer to prove the value of the product and show off  the return on investment.

- If we look at SaaS product as a service, then it makes sense why pricing SaaS is always so confusing: a service cannot be priced too rigidly because it needs to address a wide range of requirements and usage demand, but its prices can not be too variable because it will affect the company’s economics models and cause a lot of distrust in the customer base

- The most important measure of value for a SaaS company comes from the ongoing whole product experience, which incorporates customer service, support and user experience, is paramount. It is well known that performing a good service is the most important marketing weapon for a service marketer, and a SaaS marketer has to ensure that the technology performs, the service is available (99.9% SLA), and that the human interaction is also superb. It is incredibly hard to do this well - there are not a whole lot of SaaS companies that are well known for their great customer experience, not because of the lack of trying, but because of the immense and impossible scope doing it well, especially for complex B2B enterprise applications.

Apple’s strategic weapon is the great whole product experience that they create for all customers, from the beautifully designed hardware, the intuitive user interface, the classy retail stores and helpful sales associates, to fantastic software that do not fail to work, but it is because they have the scale and the skill to control all of the components of their supply chain (literally and figuratively). SaaS companies are still along way from this mastery.

My colleague Firas Raouf is also speaking on a very similar angle:  marketing the cloud is all about delivering the service, at the Mass Technology Leadership Council today.

In my next post, I will discuss how we can turn these challenges into opportunities, leveraging the very differences that stumble unsuspecting software marketers when they try to sell SaaS product.