New_York_Times

Salesforce.com Case Questions Overview: The company is growing rapidly and they are looking to expand operations. Top Management debate over whether to maintain the focus on current products or to expand. As put they would like to be “the Microsoft” of CRM by offering back office software to work with current product line. They would like to move into a new area of customer billing. Questions that were asked by employee Clarence So: “How should we define the new product, what market to approach, and how to integrate into current market mix'” Question 1: How is Salesforce.com suite CRM products different from other CRM and ERP competitors: Overview of Products offered: Company started in 1999 with a product that was for small companies to help manage sales. Salesforce.com separated themselves from the competition by having a web-centric design. The product is Customer Relationship Management software. There are three different products: Team Edition (small businesses), Professional Edition (mid-size businesses) and Enterprise Edition (large businesses). In 2000 Salesforce.com then expanded successfully by expanding horizontally into marketing, customer service, and customer support. Pricing is different from competitors: Price was reduced because customers were able to access the product online. The product was also less complex since it was the same product to be used by each customer. Another feature that cut cost was the customer did not have to install any new technologies to use or maintain the product. Price is $50 per month. Salesforce.com was positioned as a small business product. But they soon realized that they could position themselves against the largest CRM provider Siebel. Sales Channel different from competitors: Salesforce.com sells on the internet and most sales done through tele sales. They offer a very formal training process to sales team. They also put in place V2MOM-vision, values, methods, obstacles and metrics. V2MOM is the guidance of top management down to every employee. Siebel Systems is the largest company in the CRM market and they use a client server technology. At first, Siebel and PeopleSoft were not really seen as competition because their focus is on large customers with complex systems. Salesforce.com later realized that they could meet the needs of the larger companies with their product as well. Competitors in small to medium businesses are changing product to meet more specific needs of the customer. Salesforce.com core competency is their CRM products that have a web-centric design. They also have the capability to know what there customer is looking for with the use of their own product. Question 2: Recommend (target market and market mix) a new growth market strategy for the Back Office Operations. Based on the information given, one could suggest implementing Salesforce.com’s newest product, a back office operations suite, to smaller businesses initially and gradually increasing in the scope of promotion. The company already has well established market segments reflecting small, medium, and large size businesses and their latest marketing plan can and should fall within those segments. The smaller companies described in the case have sales departments that need less organization to be successful and therefore one can assume much of the company is run loosely as many small businesses are. These clients will see the biggest changes once implementing the new product. It is likely that they are also less scrutinizing of issues that Salesforce.com could test before moving onto larger and more critical organizations. As Salesforce.com offers products to these clients, they will become more complex. The marketing department will collect data to continuously improve the structured, formalize approach of the sales staff which Salesforce.com has found so vital in the past. This strategy allows Salesforce.com to use its existing market segments to grow as fast as it deems possible. Also, they can still achieve high customer satisfaction by breaking into their other, more difficult market segments with an increasingly proven product. Question 3: Use the Strategic Profit Model to explain each ratio in detail from years 2002-2007 (could not find information on these years so we used the financial statements for 2005-2009. Salesforce.com | | 2009 | 2008 | 2007 | 2006 | 2005 | Net Sales | 1,076,769 | 784,700 | 497,098 | 309,857 | 176,375 | COGS | 220,471 | 171,591 | 118,890 | 69,126 | 33,454 | Gross Margin | 856,298 | 613,109 | 378,208 | 240,731 | 142,921 | Operating Expenses | 792,556 | 556,800 | 381,806 | 220,629 | 136,401 | Net Profit | 43,428 | 18,356 | 481 | 28,474 | 7,346 | | | | | | | | 2004 ratio | 2003 ratio | 2002 ratio | 2001 ratio | 2000 ratio | Net Sales | 125.7% | 128.0% | 131.4% | 128.7% | 123.4% | COGS | 25.7% | 28.0% | 31.4% | 28.7% | 23.4% | Gross Margin | 100.0% | 100.0% | 100.0% | 100.0% | 100.0% | Operating Expenses | 92.6% | 90.8% | 101.0% | 91.6% | 95.4% | Profit Margin | 5.1% | 3.0% | 0.1% | 11.8% | 5.1% | | | | | | | Total Assets | 1,479,822 | 1,089,593 | 664,832 | 434,749 | 280,499 | Total Liabilities | 20,106 | 10,601 | 1,408 | 1,339 | 2,317 | Net Worth | 1,459,716 | 1,078,992 | 663,424 | 433,410 | 278,182 | | | | | | | Asset Turnover | 0.73 | 0.72 | 0.75 | 0.71 | 0.63 | ROA | 2.93% | 1.68% | 0.07% | 6.55% | 2.62% | Financial Leverage | 1.01 | 1.01 | 1.00 | 1.00 | 1.01 | ROE | 2.98% | 1.70% | 0.07% | 6.57% | 2.64% | | | | | | | Profit Margin | 4.03% | 2.34% | 0.10% | 9.19% | 4.17% | Using 2005-2009 data and the strategic profit model, we see much consistency in Salesforce’s financial operations. They grew efficiency in asset use from 2005 to 2006 and have remained consistent since with an asset turnover ratio between .71 and .75. Additionally, they have not used debt financing with any notability, maintaining financial leverage of 1.0 throughout. Their variation has occurred in profit margin. Their numbers have risen and fallen cyclically dating to the company’s founding: they spiked in 2001 and 2006 before dismal, identical 2002 and 2007 showings of bare profitability, rebounding each time with subsequent and steady growth. The 2008-2009 rebound has not matched that of 2003-2004 (2.3 and 4.0 compared to 3.0 and 5.1), matching the wider economic downturn.