In the battle for survival, software which can spot sales opportunities and reduce customer fallout could prove to be an essential weapon.
When you are flying through fog trying to spot enemy aircraft you need excellent powers of observation and identification. Now Paul Gregory and David Bounds, who worked on aircraft control and defence systems at the Government's Royal Signals and Radar Establishment during the 1980s, have adapted their techniques for sales and marketing staff. The result, they claim, is software that can target customers more accurately than conventional software packages.
Their company, Recognition Systems, based at Aston Science Park, Birmingham, develops neural networks, the latest techniques in logic processing, modelled on the human brain. Neural networks are trained by example, rather in the way that a child might learn to recognise letters of the alphabet, or a dog would be taught to sniff out drugs. Unlike ordinary software, they can cope with fuzzy or incomplete information such as the distant image of an enemy fighter. 'Traditional sales and marketing software only identifies the obvious correlations between customers, products and markets,' says Gregory. But human behaviour is often erratic, he points out. 'Consequently, in the mapping of human behavioural patterns, which is very important for marketing, conventional computing techniques have often fallen short.' A neural network looks for unusual patterns in the data; it takes into account human variables and treats each customer as an individual, not a clone.
In addition to spotting new sales opportunities, neural networks can help reduce customer fallout from one year to the next, and forecast demand more accurately. Hence their appeal to Sun Alliance, the insurance company, which has just begun using Recognition's software to refine its direct-mail customer database. Tests conducted on 50,000 records of existing in-house policy-holders have shown that by mailing just 80% of its database, the company can still retain 97% of the expected overall response. Alternatively, mailing only 20% of the target database yields 63% of the expected overall response. As each mailing costs around 45p, the savings can amount to tens of thousands of pounds for large campaigns. 'We were interested in neural networks as learning systems that could produce answers out of a stack of data. One thing we are not short of is data,' says Mandy Bradley, of Sun Alliance's personal systems strategy department. The company plans to continue refining the database by retraining it with the results of successive mailshots.
Recognition Systems is among a number of suppliers applying artificial intelligence techniques to sales and marketing. Many other software houses have developed off-the-shelf products based on more traditional programming methods. Software is now available for the whole marketing process including the identification and tracking of opportunities, post-sales customer service and the generation of further leads using independent geographic and demographic databases. Field sales staff can use portable computers to quote the latest prices and log new business, while managers can monitor the performance of individual staff on an hourly basis, and analyse market trends as they happen.
The Price Waterhouse Sales and Marketing Software Handbook 1994 lists 120 packages, while the Management Today/Business Intelligence report, How to transform marketing through IT, puts the number of products at more than 300. Sales and marketing software is now one of the fastest growing sectors of the computer market, forecast to increase from $400 million worldwide in 1992 to $2.5 billion by 1998. But despite the market growth, many products have failed to meet users' expectations. Indeed, more than one-third of sales and marketing professionals still rely exclusively on paper-based reports, according to a new survey by Pilot Software of Chertsey. This is despite the fact that 78% have a PC on their desk at work.
Warren McFarlan, the dean of studies at Harvard, got it wrong in the late 1980s when he predicted: 'In five years' time there will be two types of company: those which use the computer as a marketing tool and those which face bankruptcy.' So what is the problem?
One answer is that many sales and marketing staff do not have a natural affinity with IT, preferring to work on the basis of intuition or gut feeling. Salesmen resent the fact that computerisation makes it easier for senior managers to look over their shoulders and see how many leads they have followed up or how many deals they have clinched that day. Marketing staff don't always like the 'black box' approach of techniques provided by companies such as Recognition Systems, says Bradley. 'Neural networks don't go down well because people want a chapter-and-verse explanation as to how you've arrived at your recommendations.' Another problem is that many products are less than 12 months old and have been developed by sales or marketing managers with scant technical skills. They lack flexibility and are difficult to use. The Pilot Software research, for example, shows that of those who have personal access to a centralised sales information database, more than 40% feel they cannot extract the information they need. Similarly, in a survey by Computing magazine, only 3% of marketing users said their systems exceeded expectations, compared with 12% across all other areas, making it the worst area of commercial computing.
To avoid the pitfalls, you need to specify precisely which tasks the software needs to perform. In its most basic form, this might be an electronic version of the salesman's Filofax. This won't necessarily speed up your access to names and addresses; indeed, it might even slow things down. Where it does score is in logging progress with customers and pinpointing sales opportunities. For instance, a salesman might be prompted to phone people who asked to be sent catalogues the week before, to see whether they would like any further information. Group working is also simplified because diaries can be compared on-line to arrange meetings.
When used on portable computers, this software allows sales staff to key in useful competitive data when they are out in the field. For example, Imperial Tobacco's 450 sales representatives perform instant audits whenever they visit one of the company's 150,000 outlets, tapping in details of competitor activity such as canopy advertising, point-of-sale promotions, and prices. If a rival company has introduced a special offer which threatens Imperial's products, the sales reps can reduce prices on the spot, and transmit their findings back to divisional offices from home that evening. 'Key account managers become the eyes and ears of the manufacturer, spotting what retailers and rival suppliers are doing in terms of shelf space and promotions,' says Godfrey Smith, commercial director of Portable Software Solutions (PSS), which supplied Imperial's software. The system has helped Imperial increase annual sales by around £150 million.
Sophisticated sales and marketing software lets users specify relationships such as those between customers and products, locations and customers, products and locations. The best packages also allow you to look for the all-important absent relationships - customers that have not been offered a particular product that might appeal to them. A building society, for example, might not know that its mortgage account customer needs house-contents insurance or a life policy. On the other hand, customers who have had a bad experience with one product might be put off buying another from the same organisation. Sales staff need to be alerted to the opportunities or dangers.
Tom Richardson, managing director of Ensure Technology, which specialises in this type of software, says: 'Typically, a company might have several salesmen all talking to the same customer about different products, unaware of each other's activities, or failing to pass on potential sales leads.' Software can alert companies to the cross-selling risks as well as the opportunities.
Relationship-oriented systems are ideal for selling to large organisations where a number of people may be part of the decision-making process. They are also invaluable when several companies collaborate for a bid - for instance, architects, clients, builders, quantity surveyors, and sub-contractors selling to the construction industry.
At the Automobile Association (AA), a vast database is being compiled including everything from profiles of members to the latest prices being offered by competitors in the vehicle-repair-and-recovery business. The 40 staff who currently have access to the database are being encouraged to use it creatively, says Nigel Clark, the AA's finance director. 'They get immediate access to a full analysis of how many members we have in each category, how many have left, and how growth compares to budget.' It demystifies bureaucracy because staff don't have to go looking for paper reports to find answers to their questions. They might decide to target lapsed members with special offers, or introduce incentives for existing members to sign up their friends. Staff can then monitor the success of such strategies at any time by checking progress on the system. The colourful screens and snazzy graphics of the Pilot software used by the AA make trends easy to detect. Users can also view data at whatever level of detail is required - from the number of jobs carried out during the year to how many engine repairs on pre-1984 Ford Escorts were carried out during the past week.
Like most users of sales and marketing software, Clark finds the cost-benefits extremely hard to quantify, preferring to focus on 'soft' advantages such as improved operational efficiency, better decision-making and enhanced teamworking. In any case, the price is marginal compared to the advantages, Clark says. So far, he reckons that the AA's investment of around £20,000 has saved it up to £1 million. 'It's very difficult to do a cost-benefit analysis so we haven't tried. It is a matter of survival and competitive advantage. The most important difference is that all staff have the same access to our business information .' One of the fastest-growing areas of sales and marketing software is for use in dealing with customers over the phone. For example, telesales staff call up on-screen scripts to guide them through their sales patter as they talk to callers. In addition to sounding more authoritative, they can sell a much wider range of products.
Great Universal Stores (GUS), whose 11 million customers generate 50 million phone calls a year, uses this technology to help its 200-strong telemarketing team maximise results. The system continuously monitors the relative success of various scripts and learns which work best. 'What everyone wants to do is increase average order value, shorten call time, and alter the ratio of calls to orders,' says Ian Graham, managing director of Graham Technology, which supplied the software being used by GUS. Thanks to Graham's software, GUS has reduced the number of calls per order by 20% while increasing the average order value.
Similar benefits are reported by Touchline, a direct insurance company which has attracted around 200,000 customers since it began two years ago. Touchline uses software from the US supplier, Co-Cam, to perform underwriting calculations while the customer is on the phone. 'We can hire people who are excellent communicators, regardless of their formal qualifications or previous experience,' says managing director Sandy Dunn. Staff appreciate being able to train so quickly, and they enjoy sounding more professional and informed on the phone, he believes.
At Touchline, staff turnover is less than 15% compared with the telesales norm of around 50%. Dunn agrees that it is hard to quantify the cost-benefits, citing the main advantage as 'the ability to move quickly in a very fast-changing business environment'. Supervisors receive detailed analyses on the performance of individual telesales staff and hourly reports on the number of responses to direct mailings. 'Though the benefits are not tangible, the software has given us the leading edge. The speed with which you can introduce change or enhancements is crucial in a fast-moving world like direct insurance.' Sales and marketing software isn't just streamlining existing organisations, it has made possible entirely new multi-million pound ventures. As yet, few users are ready to experiment with neural networks. Indeed, companies such as Recognition Systems have yet to prove that their pioneering techniques can work in a large number of practical applications, but the value of applying computer power to the sales and marketing function is now widely recognised. Although McFarlan might have been a little optimistic in his timescales, his long-term view still stands. Sales and marketing software is ceasing to be an optional extra that it might be nice to have: it is fast becoming an essential weapon for business survival.