Go to Market Strategies: SaaS Distribution
Marketing in a SaaS world is very different. A SaaS company’s go-to-market strategy is strictly dependent upon results, not leads or Marketing Qualified Leads (MQLs.) SaaS companies allocate a percentage of revenue to sales and marketing and often SaaS startups will spend up to 50% of revenue on sales and marketing. The split between sales and marketing can vary from 80:20 to 60:40 depending upon where field sales, inside sales, sales development reps, sales enablement and onboarding reside.
Obviously, SaaS companies that base their go-to-market strategy on investing almost half of their revenue on sales and marketing are dependent upon results – i.e. increased Annual Contract Value (ACV.) Increases in ACV can result from new customer acquisition, expansion in an existing account and upselling existing customers.
Go to Market Strategies – SaaS Distribution Fundamental B2B SaaS Metrics
Senior management teams and boards proactively monitor and manage the sales and marketing go-to-market strategy by focusing on the following key metrics:
New ACV – new ACV that is derived from new customers signed during the month
Churned ACV – lost ACV based on customers lost within the month
Expansion ACV – additional ACV gained from additional sales to another department, group, division or business unit of an existing customer
Upsell ACV – additional ACV gained from additional sales (more users, functionality, etc.) to an existing customer
Retention Rate or Customer Renewal Rate – this is the percentage of customers that renew their subscription. This is calculated by summing the up the number of customers that renewed their contract divided by the total number of subscriptions that were up for renewal in the period.
CAC – Customer Acquisition Cost – the sales and marketing costs to acquire a customer, i.e. the sum of all sales and marketing expenses divided by the number of new customers added in a period.
LTV – Lifetime Value – Lifetime Value is an estimate of a customer from contract to cancellation and is usually calculated as ARPA x Gross Margin % / Churn Rate
CAC Ratio – the CAC Ratio is the change in subscription revenue between two quarters, annualized by multiplying by 4, and dividing the result by the sum of sales and marketing spend for the earlier of the two quarters.
CAC Payback Period (CPP) – Months to recover CAC is a quantified measure of time required to recover the sales and marketing costs invested in acquiring a customer. CAC = CAC / Average MRR per Customer (some prefer to modify the denominator to Average MRR per Customer x Gross Margin %)
Marketers need to track, monitor and proactively manage B2B SaaS metrics to achieve the go-to-market plan goals.
Best-in-class B2B marketers understand the business as well as marketing’s financial contribution the business.
SaaS Distribution Models
In general, there are three sales models that SaaS vendors can choose from: Self-Service, Transactional and Enterprise.
SaaS Sales Model – Self-Service
In a Self-Service Sales Model, SaaS vendors distribute their offerings over the web through ecommerce. Prospects visit the site and then enter into some type of engagement such as a free download, try before you buy or a freemium to premium offer. The prospect then continues through to purchase. The key in this model is to reduce barriers to usage. The basic premise is that once a user starts using the offering, he or she will immediately realize value and become hooked. Or, users may be so passionate about the offering and/or the experience that they become an evangelist (inside or outside of their organization) and help acquire more users.
The Impact for a SaaS Self-Service Sales Model for Sales & Marketing
All of the information a potential buyer needs must be found on the seller’s website and in a format preferred by the user. The site must also understand and anticipate the needs of a user throughout the customer buying process. It is crucial that relevant information is presented from the user’s perspective — and not a sales process — at each step of the buying process.
To attract and move prospects through the sales cycle, the website design must engage prospects via use of meaningful and relevant content such as text, images, videos, charts and whatever other supporting material necessary.
Also, all engagement with the prospect (initial contact through onboarding) occurs in an automated, one-to-many fashion. Price points for self-service SaaS solutions are usually under $5K.
SaaS Sales Model – Transactional
In a transactional selling SaaS sales model, some purchases can be made through ecommerce while others may require the assistance of an inside sales person or customer success manager. In short, 100% of the buying process can’t be automated in a transactional model as prospects must have a verbal dialogue (on the phone or in-person) to complete a purchase.
The role of the website in transactional selling is similar to a self-service SaaS sales model; however, the ecommerce system does not take the order, an inside sales person does. Also in this model there may be additional information that becomes available to a website visitor as they advance throughout the buying process. These are things such as access and resources that become available once an inside salesperson has vetted the prospect.
As opposed to a SaaS self-service model, the volume of deals in a transactional sales model is typically less, the number of individuals involved in the purchase process is greater and the average sales cycle is longer.
From a sales perspective, inside sales people are required to close deals. However, SaaS inside sales people conduct sales meetings on the phone and typically bring qualified sales opportunities to closure in 3-5 calls.
Marketing needs to support the inside sales team with a portion of the pipeline of qualified sales opportunities. Also, marketing should provide the inside sales team with marketing automation support that spans: lead appendage, lead routing, lead scoring,
Price points for transactional SaaS solutions are usually under $50K.
SaaS Sales Model – Enterprise
Enterprise SaaS selling is a complex sale at a high price point that requires direct field sales reps interacting directly with customers.
Enterprise purchase decisions are usually made by a rather large and diverse group (10 – 20 individuals when one includes the decision maker, approver, recommenders and influencers) over several months. Usually two functions (i.e. IT, Sales, Marketing, Finance, HR, etc.) are involved in the purchase decision with one initiating and the other validating. Both functions typically have strategic and operational needs.
It’s important to remember though that enterprise selling does not mean the website and online content are not required to facilitate the purchase. The website is critical for presence, scale and efficiency.
Most SaaS enterprise selling includes an inside sales function to support the direct field sales reps and to close deals. These are large deals of a certain dollar value, in a specific geography, industry or company size. These enterprise deals can also be up-selling and renewing existing customers.
Price points for enterprise SaaS solutions are usually over $50K.
Go to Market Strategies: Product / Market Growth Matrix
Go-to-Market Strategies: The Ansoff Product-Market Growth Matrix is a very useful go-to-market strategy development tool. Created by Igor Ansoff and first published in his article “Strategies for Diversification” in the Harvard Business Review (1957), the Ansoff Matrix is particularly useful for strategic planning because it provides a framework to help executives, senior managers and marketers devise strategies for future growth.
Ansoff’s matrix allows marketers to evaluate go-to-market decisions to grow the business via four possible product/market combinations. The matrix helps companies decide which go-to-market course of action should be taken given current performance. The matrix consists of four go-to-market growth strategies: Market Penetration, Market Development, Product Development and Diversification.
The Four Go-to-Market Growth Strategies
The market penetration strategy for growth focuses an organization’s go-to-market resources on its existing offerings (products and services) in existing markets. In other words, an organization tries to increase its market share in an existing market, or market segments, with and existing product or service. This can be achieved by selling more products or services to existing customers or by finding new customers within existing markets. Here, the company seeks increased sales for its present products in its present markets through more aggressive promotion and distribution.
Relative to the four go-to-market growth alternatives, market penetration carries the least implementation risk since an organization is focusing its go-to-market resources on its existing products and markets. Pursuing this strategy is likely to make sense if the firm has a strong competitive advantage, or if the overall size of the market is growing or can be induced to grow. In a growing market, simply maintaining market share will result in growth, and opportunities may exist to increase market share if competitors reach capacity limits. However, market penetration has limits, and once the market approaches saturation another strategy must be pursued if the firm is to continue to grow.
Market penetration involves increasing sales of existing products to existing markets, and could be pursued in the following ways:
- Increasing advertising to promote the product or reposition the brand
- Offering special promotions (e.g. Free Download, 2 for 1, or Buy One Get One Free)
- Introducing customer loyalty schemes
- Improving the quality or size of the sales force
- Modifying the products or product packaging in order to broaden their appeal
- Improving the distribution channels in order to reach more customers within existing markets
- Acquiring a competitor
- Changing product pricing
- Improving operational efficiency so that increased sales can be achieved without a proportional increase in costs
Growth via market development entails an organization entering a new market with an existing product. Simply put, this strategy means finding new markets for existing products. Market research and further segmentation of markets helps to identify new groups of customers.
An established product in the marketplace can be tweaked or targeted to a different customer segment to earn more revenue for the company. Developing a new market for an existing product does not mean that the market need has to be new in and of itself; the point is that the market is new to the company.
The market development strategy requires an organization to push its go-to-market strategy to expand into new markets (geographies, countries etc.) using its existing offerings. This can be accomplished by attracting new and different customer segments, new areas or regions of the country or global markets, or identifying new needs for the product or service. This strategy is more likely to be successful if:
- A company has a unique product technology it can leverage in the new market
- It can benefit from economies of scale
- The new market is not too different from the existing one, or
- Buyers in the market are intrinsically profitable
Market development options include the pursuit of additional market segments or geographical regions. The development of new markets for the product may be a good strategy if the organization’s core competencies are related more to the specific product than to its experience with a specific market segment. Because the firm is expanding into a new market, a market development strategy typically has more risk than a market penetration strategy.
Companies that pursue a market development go-to-market strategy for growth should have:
- Core competencies which relate to its existing products and a strong marketing team
- The ability to identify opportunities for market development including chances to reposition the brand, exploit new uses for the product, or expand into new geographical regions
- Go-to-market resources are can be diverted or redeployed
- The ability to market new products in new locations in order to expand regionally, nationally or globally
- Advertising through different media in order to reach different customers
- The ability to leverage new distribution channels to reach new market segments
- The power to modify the pricing policy, products or product packaging in order to appeal to different customer demographics
Adopting a product development go-to-market growth strategy means a company tries to create new products and services targeted at its existing markets. An organization with a market for its current products might choose a strategy of developing other products catering to the same market– a strategy to sell new products with new or altered features, for example, to existing markets. It’s important to note that these new products do not necessarily have to be new to the market; they only have to be new to the company marketing them. With that said, new product development can be a crucial go-to-market strategy for a company to remain competitive.
A product development strategy may be appropriate if an organization’s strengths are related to its specific customers rather than to the specific product itself. In this scenario, an organization can leverage its strengths by developing a new product targeted to its existing customers. Similar to the case of new market development, new product development carries more risk than simply attempting to increase market share. Product development involves thinking about how new products can meet customer needs more closely and outperform the products of competitors.
It may make sense to pursue a product development strategy when an organization:
- Understands the needs of its customers and identifies an opportunity to sell new products to satisfy changing needs
- Operates in a competitive market where continuous product innovation is necessary to prevent product obsolescence or commoditization;
- Has large market share and a strong brand
- Products benefit from network effects, and new products can gain a significant edge by being first to market
- Operates in a market with strong growth potential
- Identifies opportunities to commercialize new technology
- Has a strong R&D team
Diversification is a go-to-market strategy that requires developing new products for new markets. These can either be related to the current business (i.e., vertical integration or horizontal integration) or unrelated (lateral diversification). In addition, where a company previously had no presence, it seeks to increase profitability through greater sales volume obtained from new products and new markets. Diversification can occur either at the business unit level or at the corporate level. At the business unit level, expansion is most likely into a new segment of an industry in which the business is already in. At the corporate level, it is generally entering a promising business outside of the scope of the existing business unit.
Pursuing a go-to-market strategy based on diversification is signing up to grow market share by introducing new offerings in new markets. It is the most risky of the four go-to-market strategies because both product and market development are required to be successful.
A go-to-market strategy based on diversification also carries the most implementation risk since it requires an organization to simultaneously develop new products and enter new markets—all of which may require it to operate outside its circle of competence.
Diversification can enable a firm to achieve three main objectives: growth, stability, and flexibility. And the specific strategies that a company employs will differ depending on which of these goals it is pursuing.
There are three primary types of diversification that a firm might undertake:
- Vertical Integration: the organization expands its business to different points in the supply chain
- Horizontal Diversification: the organization adds new products that may be unrelated to existing products but are likely to appeal to existing customers
- Lateral Diversification: the organization adds new products that are unrelated to existing products and are likely to appeal to completely different customers.
While lateral diversification has little relationship with the company’s current business, the organization might adopt this strategy in order to:
- improve profitability by entering a lucrative industry
- develop resources and capabilities in a potential new growth industry
- poach top management or key talent
- compensate for technological weakness
- expand the company’s revenue base so as to improve its perception in the capital markets and make it easier to borrow money
- increase strategic flexibility in an uncertain business environment
- reduce risk by spreading the company’s activities across multiple products and markets, and thereby decrease its vulnerability
As seen in the Ansoff matrix, diversification usually requires a company to acquire new skills, new techniques, and new facilities. As a result it almost invariably leads to physical and organizational changes in the structure of the business which represent a distinct break with past business experience. For this reason, most traditional marketing activity revolves around increasing Market Penetration. Therefore, Diversification is meant to be the riskiest of the four strategies for a firm to pursue.
Generally, the final strategy involves a combination of these options. This combination is determined as a function of available opportunities and consistency with the objectives and the resources of the company.
Go to Market Strategies – Relative Market Position
Market Leader (~40% Market Share)
The market leader occupies the dominant position in its industry with the largest share of the market. Usually, the market leader is the industry leader in developing innovative new products and business methods, and as such, has a significant impact on the direction that the market takes.
Companies may be the first to develop a product or service but that does not necessarily mean that they will be the market leader. It does allow however for them to set the tone for messaging and functionality, at least in the short term. While companies that are first to market are typically referred to as pioneer brands, they can be surpassed by companies that enter the market at a later date.
Market leaders are typically faced with trying to:
- Expand the total market by finding new users or new uses of the product (same market or different market)
- Expand the total market by encouraging more usage on each use occasion
- Protect market share by developing new product ideas, improving customer service and improving distribution effectiveness
- Expand market share by targeting one or more competitors (same market or different market)
Market Challenger (~ 30% Market Share)
A market challenger is an organization in a strong, but not a dominant position in the market while following an aggressive go-to-market strategy to gain market share. These companies typically target the industry leader as the primary competition with the focus on taking market share from them. They focus on finding or creating differentiators to exploit opportunities.
Market challengers invest time and money into finding differentiators from the market leader and develop their unique selling proposition to communicate their brand value. Differentiation may be unique to the market challenger, or it can be a comparative advantage based on the market challenger’s approach. Or, it can be realized through the market challenger’s eco-system. Also, come challengers successfully use fear, uncertainty and doubt based upon qualitative or unsubstantiated claims.
Market Follower (~ 20% Market Share)
A market follower seeks to gain market share but is less interested in differentiating its brand from the market leader. Instead, the market follower effectively rides on the market leader’s coattails while positioning its brand just far enough away from the market leader to be different. Usually market followers are not focused on becoming a market leader and are content in the market follower position.
The rationale of a market follower is that by developing strategies similar to those of the market leader, they will gain a good share of the market while being exposed to very little risk – it is a play it safe strategy. Some advantages of this strategy are:
- No expensive R&D failures
- Ability to capitalize on the promotional activities of the market leader which significantly lowers the cost of customer acquisition
- Low risk of competitive attack
- Significant cost savings by avoiding a head-to-head battle with the market leader
To be effective, the market follower needs to copy the market leader while positioning its brand slightly differently. Below are three approaches that market followers may choose:
- Clone: this is where a follower imitates the market leader by going to market with similar advertising, products, and distribution.
- Imitate: in this scenario, an imitator copies some things from the leader but maintains an element of differentiation.
- Adapt: to be a successful adapter, a company would slightly change and improve its products and predominantly sell them in a different market.
Market Niche (~ 10% Market Share)
A niche market is a subset of the market for a specific product. The market niche defines its product as a subset of features aimed at satisfying a set of needs for a very specific market. This is in addition to the price range, production quality and the demographics that the product is intended to impact.
Companies that compete in market niches try to dominate specific segments. These are generally smaller companies that can’t effectively compete against market leaders for a variety of reasons, but can reach their business goals through focusing on differentiating factors that speak to highly specific and targeted consumer groups.
Pursuing a market niche strategy (also called a focus strategy) means concentrating on a select few target segments. The objective is to focus go-to-market resources on one or two narrow market segments and tailoring the marketing mix to better meet the needs of that smaller targeted market. The goal is to gain a competitive advantage through effectiveness rather than efficiency.
The most successful market niche competitors tend to have the following characteristics:
- They tend to be in high value added industries and are able to obtain high margins.
- They tend to be highly focused on a specific market segment.
- They tend to market high end products and are able to use a premium pricing strategy.
Go to Market Strategies – Offensive & Defensive
A Frontal Attack go-to-market strategy is when the market challenger measures everything against its competitors – i.e. price, distribution, feature, functionality, benefits and business outcomes. With a frontal attack strategy, attacks are most effective when they are directly focused at another brand’s weaknesses. Frontal attacks can stall or prevent sales, impacting a competitor’s market share. For this type of attack to succeed, a thorough Strength, Weakness, Opportunity & Threat (SWOT) analysis as well as additional resources and insights are required.
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Here, the market challenger looks to capitalize on gaps the market leader might be missing and focuses their attack on these opportunities. In a flanking attack, while the attack is on the brand, it is concentrated on the competitor’s actual approach, so depending on the approach taken, there may be limitations. Specifically, these choices may not be reversible or turn out to not be the best course of action.
Guerilla Attacks are relatively small in scope but can be powerful. These attacks may be intermittent but they are typically well orchestrated and difficult for the market leader to defend. Guerrilla attacks are popular among small competitors who focus on stealing small units of market share that appear to be insignificant to market leaders. These small units are simply ignored by the leaders but over time they add up to a significant absolute value. Guerrilla attacks might be small, but because they’re usually repetitive, the cumulative effect can be significant.
A Proactive Defense strategy requires ongoing competitive, market, analyst and thought leader intelligence research in order to diffuse potential attacks and pre-empt potentially effective strikes. The goal is to ensure that one’s brand marketing efforts consistently help to retain and gain market share.
A Reactive Defense strategy is usually employed after a competitor has launched a significant attack against one’s organization; some may refer to it as retaliation. The counter attack must be swift and strong in order to weaken the competitor to stop market share loss. However, it’s important the counter attack is part of the overall go-to-market strategy and not simply a knee-jerk reaction.
The definition of a Blitz Attack is a sudden and coordinated effort, akin to a sudden and invasive military attack. In a business context, a blitz attack is when a market challenger “blitzes” a competitor from different directions (weaknesses) at the same time to disrupt their go-to-market strategy. This approach requires a good deal of resources and coordination, but if executed well can be effective. Defending such an attack requires segmenting resources and effectively managing numerous battles at once.
Summing it up
The bottom-line is that organizations need to be prepared to create and update their go-to-market strategies to effective compete. Organizations must attack competitors directly and be able to react to threats, in order to take market share and continue to grow. Growth can happen by grabbing share of an expanding market or taking share away from competitors by poaching customers when the market shrinks or when it is flat.
Go-to-Market Sales & Marketing Tactics
The best go-to-market strategies are useless unless they produce the desired business outcomes. And, there is the constant requirement to do more with less so every go-to-market resource has to be optimized, all the time. Fortunately, numerous marketing planning templates (and sales planning templates) have been developed and proven that you can leverage (for free) to guide your marketing tactics.
Download the FREE Marketing PowerPoint Templates that can be used immediately to support your go-to-market tactics.
Go to Market Strategy Examples
Go to Market Strategy examples have been created (by a CMO with decades of experience spanning Fortune 1000 companies and Startups) for B2B companies to document their go to market strategy, create the fundamental GTM building blocks (differentiation, value drivers, sales messaging), develop integrated marketing campaigns to create marketing qualified leads and to design and implement a demand management system to convert marketing leads to qualified sales opportunities.
Go to Market Strategies & Insights
Pragmatic, actionable, how-to posts, written by a CMO about GTM Strategy, Marketings Plans, Marketing Process, Marketing Techniques, Sales & Marketing Strategy, Technology Trends and B2B Market Research. B2B Marketing insights are shared based on years of developing and executing go to market strategy at public and private companies, advising portfolio companies and teaching at the executive MBA level.
Go to Market Strategies & Tactics – Market Maturity
Successful go to market strategies are based on the relative market, technology and competitors. The available market, served market and target market not only need to be quantified but the markets adoption of the technology needs to be documented and managed. The technology adoption curve or market adoption curve provides a useful way to break down the market into five homogeneous market segments: innovators, early adopters, early majority, late majority, laggards.
Innovators typically represent the first 2.5% of the market and are the first step to concur in any go to market penetration strategy. Innovators are the first individuals or organizations that adopt the newest technology. By definition, innovators are willing to take risks as the perceived benefits or being first outweigh the costs and the chance of failure is understood.
Early Adopters are the next set of adopters and they represent 13.5% of the market. Early adopters also invest early on in new technologies, not as technologists, but to address their concrete problems. Often times, early adopters are key influencers in a market and are considered thought leaders. Innovators prove that the technology works but it is the early adopters that figure out how to apply the technology efficiently and effectively.
The Early Majority represents 34% of the market and when combined with Innovators and Early Adopters this represents 50% of the available market. It takes the Early Majority much more time to adopt (as short as 5 years and as long as 10 years).
The Late Majority represents another 34% of the market. This segment is much more of a Missouri state of mind – Show me. This segment approaches technology with a high degree of skepticism and will only adopt after the majority has adopted.
Laggards represent 16% of the market and many industries never penetrate this segment. The sentiment in this group is that the old way works and that the new way will create more work, it won’t work and that will create more work. This group has an aversion to change-agents and tend to be older and clock-pinchers.
Go to Market Strategies & Tactics – Competitive Differentiation
Product, solution or services differentiation is the process of distinguishing a product, solution or service from similar offerings or substitutes, to make it more attractive to the served target market.
Product, solution or services differentiation is a marketing strategy whereby a company attempts to make their product, solution or service unique stand out from competitors. At its core, product, solution or service differentiation means that some feature, physical attribute, capability or substantive difference exists.
The presence of differentiation is not enough for a company to pin it’s go to market stregy on to be successful. The differentiation has to be received to be important to the end-user. More often than not, engineers and developers will point to the latest technology or being able to do something faster, better or cheaper but at the end of the day it will have no impact unless the people in the buying process perceive that differentiation to be important.
And, once differentiation is established that buyers value, there is one more hoop to jump through – credibility. Even if a company can communicate something that is important to an individual in the customer buying process, it will not resonate unless it is believable. Just because words are on a web page or typed in a brochure or white paper do not make them truths. Usually, credibility will come from a peer, subject matter expert, analyst, third party study etc.
Differentiation comes in three primary forms:
- Comparative – other vendors have provide this feature, function, capability or benefit but they do it differently
- Holistic – the vendor does not provide the feature, function, capability or benefit directly but the vendor’s partner ecosystem provides the differentiation.
- Unique – the vendor provides the feature, function, capability based on something on it can do – no other organization currently does it.
As a company develops its g to market tactics, it’s a best practice to complete a competitive differentiation worksheet to identify the differentiation that is meaningful and relevant to the market and the difficulty to deliver it.