How secure are SAP, Oracle and PeopleSoft’s bread-and-butter installed-base dollars? According to ERP BrandMonitor survey results, vendors have a weak hold on their customers’ hearts, minds and wallets.
ERP BrandMonitor is a quarterly decision instrument offered collaboratively by the Monitor Group, a leading strategy consulting firm, and the Yankee Group, a leading technology market research firm. The partnership combines Monitor’s branding and marketing consulting experience with the Yankee Group’s technology industry expertise. The ERP BrandMonitor tested the power of ERP providers’ corporate image among 350 business decision-makers. The results were surprising.
Despite the importance of repeat business, vendor affiliation is weak. No single ERP company stood out as a brand of choice. The share of respondents inclined to recommend a particular supplier was starkly lower than scores for similarly complex business products. It’s typical in a healthy business category to see about 50 percent of decision-makers recommending a market-leading brand. The highest recommended rating in the ERP category was 32 percent.
Competitive distinctions, which should be loud and obvious, were muted, if they existed at all (see Exhibit 1). With the exception of a few poor performers with distressed brands, vendors lack potent corporate characteristics or unique brand traits. This lack of distinction creates an opportunity for an existing or new player to push the category in a fresh direction and break away from the nondescript pack. For example, respondents rated an outside-the-category brand, IBM, more favorably on desired attributes than well-known category players such as Oracle and SAP.
The survey also illustrates a disconnect between buyer requirements and vendor performance. Decision makers want an enterprise software partner that “knows my business”, “provides good service”, and “offers a flexible and practical solution”, yet few vendors deliver these qualities. ERP players are associated with attributes like “technology leadership” and “innovation”, two characteristics with limited purchasing influence. Vendors promote speeds, feeds, and technology prowess, but these traits are not seen as meaningful or relevant to the basic challenges ERP customers face in today’s demanding business environment.
ERP vendors thrive on maintenance revenue and installed-base sales. As the market consolidates and competing products mature, repeat-customer revenue becomes even more important. Yet ERP brand loyalty and distinctive corporate characteristics, qualities that mature industries use to lock in customers, are weak.
Vendors have become overly dependant on ERP switching cost to ensure installed-base business. Even with high switching costs, a subtle market shift can wreck havoc in an industry dependent on repeat business for growth. As client-server computing taught Digital and as integrated web applications will teach ERP vendors, switching costs don’t guarantee growth.
Developing a distinctive corporate image and targeting products, sales people, and marketing materials at the attributes buyers value is a healthier way to drive growth. ERP vendors can also take advantage of weakness in the competitions’ corporate image to win business. Additionally, gaining insight into the good, bad, and ugly perceptions a $2 billion high-tech manufacturer has of SAP or Oracle (with the high degree of statistical probability that BrandMonitor® delivers) can drive a very effective sales tactics.
Vendors like SAP, Oracle, PeopleSoft, and Microsoft had a terrific run in the public markets in the 1990s. Between January and November of 2003, these ERP leaders under-performed the NASDAQ (see exhibit 2). The NASDAQ increased by 41 percent while the ERP BrandMonitor™ Composite increase by only 20 percent. Vendors need to invest to improve their images if they plan to recapture the growth and glory experienced in the 1990s.
The Yankee Group originally published this article on 15 January 2004.
- Microsoft should review its competitions’ strengths and weaknesses in the small and medium business sample of the ERP BrandMonitor. The company can leverage current brand perceptions to outmaneuver encroaching competition. Over time, quarterly BrandMonitor deliverables will enable Microsoft to track the performance of SAP highly touted SMB initiative.
- IBM should exploit its impressive ERP market strength. The ERP BrandMonitor compares IBM, which does not offer its own ERP software, to nine traditional ERP vendors. IBM was included as a blue-chip brand. Although it lacks an ERP offering, the company outperformed the competition by a wide margin for several highly desired attributes. IBM should explore opportunities to drive additional revenue by restructuring its existing ISV relationships to better promote its brand strength among ERP buyers.
- Oracle should build unique, desirable attributes to capitalize on its rank among ERP leaders as the brand end users are most likely to recommend.
- ERP vendors need to align technical initiatives with well-defined, practical business problems. ERP buyers place greater value a vendor’s ability to understand the customer’s business than a vendor’s ability to deliver innovative technology. To win business in the installed base, products such as SAP NetWeaver, Oracle Application Server 10g, PeopleSoft AppConnect, and Siebel UAN need to be tightly associated with solving distinct business problems.
- SAP needs to complement its brand awareness, which is high, with distinctive image attributes, which are limited today. Not surprisingly, SAP is the company that comes to mind first when decision-makers think about ERP. Unfortunately, this top-of-mind awareness doesn’t encourage companies to recommend SAP.
- SAP should build on its perceived integrity, something the competition lacks but the market desires. SAP’s integrity rating scored a standard deviation above the average.
- SAP needs to fix its dismal ROI reputation. End users rated SAP a standard deviation below the norm in three critical value categories: inexpensive to operate, easy to implement, and fast ROI.
- PeopleSoft should leverage its tight brand association with the coveted, “understands my business” and “practical” attributes. The vendor should emphasize this advantage in marketing materials and sales conversations to drive new business.
- Oracle needs to prove to ERP buyers that it cares about its customers’ business. Oracle leads the pack as an exciting, innovative, technology leader. Unfortunately for Oracle, ERP buyers aren’t interested in these attributes. Oracle’s technical prowess and speeds-and-feeds marketing miss the mark in the ERP industry.