Review the section on “CRM Opportunity”.
In what stage of the Competitive Life Cycle is the company?
Based on the financial information available on the annual report for 2016, this company has been in operation for seventeen years; and hence it is in the fading return cycle stage. The characteristics of this stage include the tendency to attract competition and create high returns which, in turn, cause a shift of those returns towards the cost of capital. Digital marketing is the most competitive aspect of Salesforce’s operations. Here, most vendors boast of a growing share, with Adobe having established itself as the leading digital marketing vendor. In addition to having the top market spot by revenue, Adobe’s value is due to align itself with content creation because of the synergies between the company and the Creative Cloud Product.
According to the above graph, the digital marketing industry has three frontrunners in Adobe, IBM, and SAP. However, it is Salesforce that shows an exponential growth pattern from the past five years. The patterns in this graph also show that although the leaders can win some of the digital marketing deals, those vendors with favorable end to end CRM packages will have the advantage of offering effective services to the customers. This fact is evident through Salesforce’s growth of its marketing platform over the years as shown on the graph.
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What are the most significant barriers to entry that competitors face? Explain.
As the leading company in the CRM industry, Salesforce does not have a MOAT that blocks any potential competitors. The most significant barriers here are:
The fact that the cloud Software-as-a-Service (SaaS) market is still in the building stages
A huge demand for provision of services
Lack of regulations by the government
Lack of sufficient upfront investments
The rate and sophistication of buyers’ needs
The introduction of new entrants into the market, as well as their interest in business niches not covered by the leading companies.
Although the CRM industry here is normal, it should be expected for the market to attract new companies due to its profitability (Brilliant & Collins, 2014).
Review the section on “Sales Cloud Analysis”.
What are the 5 key moat considerations that Salesforce.com must address in this market?
Advantages due to cost: Salesforce does not require an capital investment because there is no need for software and hardware systems expenses to keep the application operational.
High switching costs: as a leader in the CRM industry, Salesforce incurs high switching costs for the coverage of customer retention expenses.
Efficient scale of services: the growth of Salesforce over the past ten years has enabled the company to develop a broad range of value-adding services to the customers.
Customer network effect: this company has an expansive base of customers that has facilitated an improvement in the quality and breath of services offered.
Intangibles: although the company’s intangible assets declined in 2015, there was an increase in the subsequent couple of years.
Which of these are most important? Explain.
The network effects and economies of scale are important moats because the company has established a significant competitive advantage on these two. Since Salesforce was among the first companies that made moves in the CRM industry, the company was able to establish itself in the market and take a leading position in the market share. Salesforce has maintained this lead because of various internal factors that enabled it to develop customized solutions for a huge range of customers. Furthermore, this company has continually augmented its services to align them with customer requests and feedback. As a result of this innovative approach, Salesforce has been able to create a strong and competitive brand which is recognized by the clients as reliable and preferable. Furthermore, the popularity of the platform has attracted the interest of third party companies for integration and compatibility, hence creating a barrier for incompatible competitors.
Review the section on “Service Cloud Analysis”.
Briefly summarize how Porters Five Forces apply to this market.
Salesforce has unique advantages that help it to keep a competitive lead in the market against other companies. For example, this company is the only CRM in the market that offers a wide range of features at a scalable cost for any business. In addition to that, Salesforce offers a free trial period in the first month for new clients to give them an opportunity to discover the benefits accrued in associating with the company (Goodey, 2013). The Porters Five Forces Model can be used to get a review of the profitability of the company.
Potential entrants
Buyers
Suppliers
Market Rivalry
Substitutes
The implications of the identified market forces on Salesforce are as discussed below:
Potential Entrants (Medium Level)
The CRM industry is structured in such a way that is attractive to potential entrants, especially because of the lack of government regulations and the few requirements for upfront investment. Another attraction for new entrants is the fact that the market is in the building stages, hence the presence of a high demand from customers.
Suppliers Power (Low Level)
Here, Salesforce has the luxury of choice on the matter of selecting an infrastructure provider for the development of its application. Since the SaaS model does not have any fixed financial requirements or costs, the companies using it can scale comfortably as they wish. This ease of use, therefore, enables any SaaS provider such as Salesforce to change their supplier.
Buyers Power (High Level)
A high buyer bargaining power is expected when the supplier bargaining power is low. In the case, the buyer power is high because of the availability of free trial offers that give the customers a chance to experience the application software before a decision to purchase is made. The high competition levels among SaaS providers, therefore, benefit the buyer with a high bargaining power.
Presence Of Substitute Threat (Medium Level)
The on-premises model is the available substitute here for the SaaS market. Concerns within the cloud-based market such as the security of data and bandwidth issues can create doubt on the side of the clients hence bringing about the consideration for substitutes.
Market Rivalry (Very High Level)
There is a huge threat from the companies that are currently in direct competition in the SaaS industry. This threat is facilitated by the low entry and exit barriers, as well as the low costs associated with the industry. The lead that Salesforce enjoys in the CRM market is under threat from Microsoft on the business fronts of revenue and market share.
What are the most important competitive advantages that Salesforce.com has in this market? Explain.
These advantages are:
Expansive relationship with customers: Salesforce has developed a built on trust as an adviser for the customer, and in the process transformed strategic engagements.
Strong unmatched solutions: this company is a market leader in offering solutions at flexible price points for the convenience of the entire spectrum of customers.
Global market reach: Salesforce has employed aggressive strategies to enter the international markets and serve customers globally.
Review the section on “Marketing Cloud Analysis”.
Briefly summarize the Lay of the Land in this market.
Salesforce has penetrated the global market as a cloud SaaS Company due to success in the CRM applications as well as in social enterprise solutions. The core services offered by the company can be categorized as:
Professional – CRM for any size customer
Group – targets up to five users
Unlimited – no limit in CRM support
Enterprise – customizable service
This company has three main competitors in the CRM industry namely SAP, Microsoft, and Oracle.
What are the most important customer advantages (product attributes, horizontal differentiation, etc) to doing business with Salesforce.com? Explain.
The advantages for doing business with Salesforce are:
Full spectrum of functionality and features at a scalable cost
CRM by Salesforce helps in the growing a customer’s revenue by tracking sales activities through their application
The company offers a complete customer management package through its software which offers service at every customer lifecycle stage.
Review the section on “Commerce Cloud Analysis”.
What technology or process disruptions/disintegrations exist that could create challenges in this market?
The existing disruption here is the business rivalry between Microsoft and Salesforce. The relationship between these two companies’ swings from love and hate because of their interconnection within their systems as well as their completion in for the same market share. Although Salesforce is in direct competition with Microsoft, the former needs some of the latter’s technology such as Skype for integrated operations.
b. Which of these present the most realistic threats/opportunities? Explain.
One of the threats that have emerged from the above situation was evident when Microsoft attempted to buy out Salesforce. The attempted takeover was aimed at winning market dominance within the CRM industry. However, since the takeover did not succeed, Microsoft opted to use LinkedIn to access the Salesforce’s customer base. Microsoft could, therefore, use LinkedIn to increase its market share in the CRM industry by offering lower costs than those offered by Salesforce.
References
Brilliant, H., & Collins, E. (2014). Why Moats Matter: The Morningstar Approach to Stock Investing . New York, NY: John Wiley & Sons.
Goodey, P. (2013). Salesforce CRM: The Definitive Admin Handbook . Birmingham: Packt
Publishing.
Taber, D. (2014). Salesforce.com secrets of success: Best practices for growth and profitability . Upper Saddle River NJ: Prentice Hall.
