ScanSoft leaves customers options

By JULIE SCHUM KIRKWOOD

PEABODY _ ScanSoft, an international software company based in Peabody, has a sales strategy that may seem contradictory.

The company sells its products through a distributor, which stocks them on the shelves of traditional brick-and-mortar retail stores, such as Staples, Circuit City and CompUSA.

Meanwhile ScanSoft also sells software directly from its Web site, seemingly in competition with its own distributor and traditional retail stores.

But in a market where customers want many options, the strategy makes sense.

"We're trying to be where the customers are," explains Beth Coate, a ScanSoft sales manager.

ScanSoft is not the only company selling its products through many avenues. Paul Ritter, director of on-line retail strategies for the Yankee Group, a Boston-based consulting firm, says many businesses these days are retailing anywhere they may grab a customer.

"We're seeing a rise in multi-channel retail," Ritter says. "...It may appear to be a sort of cannibalistic approach ... but it can be a good approach if applied properly."

The most important factor, Ritter says, is having a business with a solid gross profit margin so it can afford the cost of putting its products on real and virtual shelves.

ScanSoft, he says, appears to be one of these companies.

How it works

ScanSoft's main product is a computer program called OmniPage, which reads text from a piece of paper and converts it into digital text on the computer. The company also sells software that translates pictures, charts and forms into computer images.

The software is only useful to a customer who owns a scanner. So ScanSoft arranged to have major scanner sellers give away OmniPage samples with scanner purchases.

Customers can later order a full version of the software through the mail or buy it in an office supply store.

ScanSoft began about three years ago incorporating the Internet in this process.

Customers can now purchase software from www.scansoft.com, or from a dozen on-line retailers linked to the site. They get direct marketing e-mails from ScanSoft. And they may see advertising anywhere on the Internet, from offers on America Online to a recommendations from on-line stores when they put a scanner in their virtual shopping cart.

Since going on-line, ScanSoft has increased the proportion of its direct sales versus store sales, says Jim Tedesco, a ScanSoft sales director.

"We've definitely grown our direct business," Tedesco says. "I think it's just another way of touching a customer."

Even on-line, most of ScanSoft's customers buy their software directly from the company.

About 80 percent of on-line sales come directly through ScanSoft's own Web site, Tedesco estimates. Only 20 percent come through other on-line stores, such as Buy.com or Staples.com, which carry ScanSoft products.

"Our site probably has more in stock," Tedesco explains, compared to computer or offices supply stores which may carry only a few ScanSoft products.

Price is less of a factor, Coate say, in a customer's decision where to buy the software. That's because the prices everywere are about the same. ScanSoft sets its direct price the same as the retailer price, even though the costs are less, out of respect to the retailers.

"If they knew we were undercutting them," Coate says, "they wouldn't want to carry our products anymore."

The move to the Internet has not increased total sales of ScanSoft products, though. Tedesco says that's because the number of people buying scanners is still the same.

"They bought somewhere before," he says. "It's not like they've expanded the market."

ScanSoft's customers are mostly people who use computers in small offices or home offices in the United States, Canada and Australia.

Reaching customers

The Internet, ScanSoft sales people know, offers more than a new avenue for sales transactions.

New advertising techniques are available that were never possible before.

One popular example is a system called the affiliate program model, which has become popular, Ritter says, among Internet companies. It involves one company paying other companies for referring customers from their Web sites.

Amazon.com uses the system to bring customers from smaller Web sites to buy its books.

"There are thousands of other companies that are now setting up affiliate program systems," Ritter says.

Although ScanSoft does not fit this model exactly, it does depend on the notoriety of stores like Staples to attract customers to its product.

The Internet has also changed the way ScanSoft runs direct marketing campaigns.

ScanSoft uses e-mail to reach its list of 6 million potential customers, because it is so much cheaper and faster than telephone and mail marketing.

But using new technology takes practice. ScanSoft's marketing department learned the hard way e-mail marketing must be used sparingly.

When the company first got on-line, Tedesco says, it was so cheap and easy to send e-mail, marketers started sending blanket e-mail advertisements to potential customers.

It was a bad idea.

"Some people get real mad," Coate said, "and say `don't ever send me an e-mail again.' You have to make sure you choose your offers carefully."

Since then, the company has learned to be more selective in its advertising. It has also learned how to use e-mail in targeted doses.

For example, ScanSoft can offer special promotions to a small subset of customers, then watch sales and see if the promotion worked. If it did, the company can expand the offer to the whole e-mail list. If it didn't, the company saves the cost and effort of running an unsuccessful promotion.

Another way ScanSoft uses the Internet for marketing is to monitor its product placement in e-stores. In a brick-and-mortar store, Coate says, it's difficult for a company to keep track of where the store is stocking its product.

But on the Internet, Coate simply clicks her way to Buy.com or America On-line and looks for ScanSoft products to see how easy they are to find.

Also, she can suggest marketing strategies to the e-tailers, such as having ScanSoft products pop up as a recommendation to anyone who buys a scanner.

E-mail has also revolutionized how ScanSoft gets feedback from its customers.

A Web survey costs only about $1,000, Tedesco says, which is cheap compared to a $20,000 to $30,000 telephone questionnaire.

An Internet future

Internet sales still constitute less than one percent of total retail sales in the United States, Ritter says, but it is increasing.

The Yankee Group projected Internet sales would increase about 70 percent this holiday season, hitting $9 billion for the last quarter of the year.

Total retail was expected to be over $900 billion. This, Ritter says, is a sign traditional retail stores are not going anywhere.

In fact Ritter sees Internet sales not as an imperative for traditional companies to stay alive, but as an additional source of revenue for those who choose to pursue it.

Coate and Tedesco agree, Internet commerce is here to stay, but so are brick-and-mortar stores.

"I don't think brick-and-mortar is going to go away," Tedesco says. "I think for some people it's an event to go shopping."

"But occasionally you don't want to go to the store," Coates counters. "I don't think either of them will go away."