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Selling your software at computer stores
Copyright © 2002 Ernesto De Spirito
Special thanks to Dave Murray for some
ideas to
improve this article and for correcting my English.
Contents
Abstract
One of the dreams shared by most developers is selling their software
through computer stores, or at least at -the more specialized- software
stores, and I'm not talking of virtual stores, but of the real thing,
the brick-and-mortar retail stores (well, actually, virtual stores are
also real, so perhaps we should call them e-stores).
Probably many of you have wondered "Is it possible? Can I have my
product standing on the shelves or hanging from the racks of computer
stores? How?" Well, let's see how this business works...
The software commercialization chain
If we go to a computer store, we'll see they have many software titles
on display in windows, showcases, display cabinets, racks, and shelves.
How do these CDs, hangers and boxes get there? Well, computer stores
don't order the products from the developers, in the same way record
stores don't order the records from the music artists, or bookstores
don't order the books from the authors. Instead, computer stores deal
with software publishers, in the same way that record stores deal with
record companies (like Sony Music, Columbia Records, etc.) and
bookstores deal with book publishers (like Addison Wesley, McGraw-Hill,
O'Reilly, etc.), but stores deal mainly with software distributors, that
are intermediaries between the publishers and the stores. These
intermediaries exist basically because for most publishers it's
difficult or impossible to reach every region of the market, and the
smaller publishers (the majority) also have the problem that their sales
volume is too small for the stores to consider dealing with them
individually.
We can represent the commercialization chain of the software industry
with this diagram:
+-------->---------->------+
_________ _________ _____|_____ _____ ____|___
/ \ / \ / \ / \ / \
( Developer )->( Publisher )->( Distributor )->( Store )->( Customer )
\_________/ \_________/ \___________/ \_____/ \________/
| | | | |
| +------->---------------->----+----->----+ |
| |
+-------->-------------->---------------->---------->-------+
Distributors form a complex software distribution network with
specialized positions (like topic-specialized distributors, regional
distributors, concentrators, importers, exporters, and resellers). In
particular, if you are going to self-publish, you will probably be
interested in those software distributors that deal with small
publishers, gathering them to make a volume that will interest other
intermediaries (distributors, exporters, resellers, and bigger
concentrators), or the stores.
Software publishing
What is publishing all about? Basically, it's about marketing (packaging
the software, advertising, offering the product to customers, stores
and/or distributors, taking orders, deploying).
E-publishing is easy, almost natural, but traditional publishing is not.
Basically, you have two choices: self-publishing (i.e. becoming a
software publisher), or publishing through an independent publisher.
The advantage of self-publishing is that we have full control and we
avoid an important intermediary in the commercialization chain (more
profits for you). The disadvantages are the work load it implies, the
initial investment that is required, and the experience that is needed.
An independent publisher knows the market, has a contacts network and
distribution channels, will run with the investment and will relieve you
from all the work, but you'll get small royalties for the sales your
product generates, and there's one more thing: the publisher will
evaluate your software and decide whether to publish it or not (remember
a software publisher is the equivalent of a record company in the music
industry, or a book publisher in the book industry).
The best choice depends on the case and the opportunities available...
Unfortunately, usually we can't choose. Independent publishers are few,
nowadays most are dedicated exclusively to free software, freeware, and
shareware (i.e., no royalties for the developers), and those that take
commercial software are quite selective, and the market trend is to buy
rights rather than paying royalties (so it won't be YOUR software the
one selling at the store). In the rest of this article we'll be speaking
about self-publishing.
Self-publishing
This is the hard way, but also the one that renders the biggest payoff.
Normally, you should start small and slowly grow larger. Before you dive
into high costs and great efforts, you should consider starting with a
small probe and see what happens.
The first thing you have to do is packaging your software. For the
purpose of a probe, a home-made solution (like a labeled CD with the
cover printed with an ink-jet color printer) would do. Some brochures
would be useful. Now it's time to go the local stores and ask them to
sell your software for a good commission, like 50%-60%, but if you have
to pay to have your software sold there, pay! What you need is proof
that your software sells at computer stores for a certain price, because
in the future this is what will open you doors when you knock, and the
probe itself will give you some first-hand information about the market
that you won't find in this article or anywhere else.
If the probe was successful, then it would be time to go for the real
thing. Now we won't be talking of home packaging a few dozens of CDs,
but of professionally packaging a few thousands, or even more, depending
on the case. Without money, it's very difficult to get anywhere, so you
can try to find an investor or go to a bank and ask for a loan. A
successful probe should make it easier for you to get the financing you
need for your marketing plan (if your software still needs development
to be ready for publishing, and you need financement for this, then you
should have a business plan, rather than just a marketing plan).
Don't forget you will need brochures the salespeople can give to
potential customers, and perhaps other marketing material.
Even if you plan to sell through intermediaries, you should never give
up from trying to sell by yourself directly to the stores, and why not
to the final customers, so your budget should include at least the
salary of a sales executive who would take care of offering your product
to the stores (often visiting them), customers and distributors, taking
orders, deploying, etc. If things go well, eventually you can think of
dealing with a software marketing company to make your sales grow.
Packaging
When it comes to packaging, you have the following standard options:
CD: It's the CD box wrapped in thin cellophane. This is the simplest
and most economic package, and is the base for the other packaging
options.
The CDs are more appealing for teenagers and youngsters, used to
buying music CDs. The simpler the packaging the better, because at
this age packaging is usually considered a trick to fool you into
paying more for content that is actually worth less... Yeah, well,
they are right, but sooner or later they will grow up! ;-)
Hanger: To the CD we add colorful cardboard, and both objects get
wrapped in transparent plastic, with a small hanger (or a perforation
for the same purpose).
Hangers are very appealing to children and teenagers. Notice the
rotating racks in the stores are at their sight level. At this age,
we like things we can manipulate.
Box: The typical cardboard box, with the CD, a printed manual,
brochures, offers, discount coupons, etc.
The box is more appealing for adults. For the sole fact of being
packaged in a box, a software is considered more serious and
professional, and the company that produces is considered big and
important. Additionally, the box gives us a big surface to write on.
An adult is more prone to buy a box for the slogans, the quotes, and
the list of features he can read on it (tip: use check marks as the
vignette symbol for the list of features; it gives the sensation that
your software is graded good and that it covers everything).
DVD box: Although it's more compact than the traditional box (which is
nicer for the user, not to say for the stores and the distributors),
it still offers a good surface for features, slogans and screenshots.
This format has become very popular, and for games it's a must (a
budget game can triple its sales price for the sole fact of coming in
this package).
Not as atractive for children like the hangers, it is well accepted
for the rest of the ages.
This distinction between age groups is somehow relative, because we all
know men never mature and women always want to manipulate, but sexist
jokes apart, you should try to get the resources for the package that
better fits the intended target audience of your software.
Software pricing
Pricing is very important. In general, your business will be volume or
it won't be, so the retail price should be attractive to potential
buyers. The reason is that stores prefer to sell hamburgers than caviar,
speaking in gastronomical terms. This doesn't mean your product should
be a hot selling item, but if it doesn't sell a few units per week, or
per month, you are out. Salespeople don't like to "push" a product that
doesn't sell, not even if the commission is good, so maybe you should
seriously consider taking a zero away from the shareware price. Just a
joke, I'm exaggerating, but don't think I'm exaggerating that much...
For instance, if you are selling accounting software for $500 in the
shareware market, what's the likelihood that an accountant purchasing a
$1,000 computer at the computer store would also buy your software if
the sales clerk offers it to him? Reducing the price increments the
sales and your income... up to a certain point. See the following
example:
| Monthly sales of Product X
in a store at different prices |
Variable
costs (specially packaging) per unit: $50
Intermediation: 25% |
|
Unit
price
[a] |
|
Units
sold
[b] |
|
Intermediation
[c = (a*25%)*b] |
|
Total income after
variable costs (a.v.c.)
[d = (a*75%-50)*b] |
|
Unitary
income a.v.c
[e = d/b] |
|
$500
$250
$200
$150
$125
$100
|
|
3
8
14
20
25
33
|
|
$375
$500
$700
$750
$781
$825
|
|
$975
$1,100
$1,400
$1,250
$1,097
$825
|
|
$325,00
$137,50
$100,00
$62,50
$43,88
$25,00
|
Of the prices listed in the table, $500 seems to be the one that
maximizes the return of our investment in variable costs (specially
packaging), getting us $325 per unit after covering the $50 individual
variable costs, but I wrote "seems to be", not "is", because there are
factors to take into account that are not considered in the table: at
that price, our sales volume and the income for the intermediaries are
the lowest, and this means most distributors and retailers will turn us
down, and obviously if we don't sell, we'll never recover the investment
at all!
At $200 we get a nice return of the variable costs, a more acceptable
sales volume for the stores, a greater income for the intermediation
(the commercialization chain), and we maximize our global income after
variable costs (a.v.c.), so we get the best return for the non-variable costs
(like development costs). Therefore, $200 is perhaps the best sales
price for the public.
In the example, it was considered that intermediation took 25% of the
final (retailer) price, but this doesn't mean this is the industry's
standard. Depending on the case, the percent for the commercialization
chain ranges approximately between 15% and 50% (and sometimes even
more). To begin with, the longer the distribution chain, the worst, so
it's not the same if you distribute directly to the stores, or if you
deal with distributors. Reaching certain markets sometimes means dealing
with distributors or chain stores that have a monopolistic position they
can use to set the rules. It also makes a difference whether the
distributors and/or the stores sell on commission or buy in advance (in
the latter case, they would expect an important discount). Finally, in
general, the easier it is to sell your software, the less the
intermediaries will take (in terms of percentages).
Preconditions for publishing
I left this matter for the end of this article, but this doesn't mean it
is last in importance, or that it should be last in your considerations.
On the contrary, it's critical, and it should be considered first...
Is your software ready for publishing? You should be aware that this
market is quite different from the electronic one, or from the
person-to-person one.
E-publishing is more simple. Taking orders and deploying is very easy,
but apart from that, the Internet is ideal to work with the shareware
approach, which somehow acts as a safeguard for the customers, who can
try the software first and see if it fits their needs, so they won't
buy what they would return the next day ;-) and we have to add the fact
that e-customers are more used to the Internet, to email support and to
downloading fixes and upgrades.
When you sell your software face to face with the customer, the customer
can ask you questions about your software, perhaps you can run a demo,
and your customer knows that for any problem with the software that may
arise he can call you over the phone and he expects you to be there to
fix it.
These two markets have in common that the customers can be relatively
satisfied with a not-quite-perfect product. This won't happen in the
traditional market... If your product is doing well in the e-market,
this doesn't mean it will do well in the traditional market, where much
of the e-magic is lost. Likewise, if your product is doing well in the
person-to-person market, it doesn't it will do well in the traditional
market, where you won't be available to visit the customers' locations.
Your software will now be commercial, not shareware, and therefore
customers won't have the opportunity to try it before buying it, or to
ask the developer in person about the product features in detail. It
should be considered that those people who buy software at a store are
not used to the Internet, or they assume that a product sold in a store
is of much better quality than a product they can buy electronically.
These customers are much more demanding, and their expectations
regarding features, performance and robustness are quite high. They want
a good product from the very beginning, not a product that is getting
constantly fixed and improved, and if the product doesn't satisfy them,
they are more prone to returning it to the store than contacting the
author to request a fix or a new feature.
Just in case you wonder, a license agreement won't prevent a customer
from returning your product and asking for a repayment because the laws
are usually against the typical "no warranty" clause, and even in those
places were it is considered valid, the stores have a reputation to
keep, and generally they will give a refund to an unsatisfied customer.
Stores don't like returns (especially if a credit card was involved in
the operation because it means an economic penalty and a stain on their
records with the credit card company), and after one or two returns they
might stop selling your product, and eventually your distributors may
decide to do the same, because they don't want complaints or returns
from the stores (or other distributors), and as a publisher you might
end up blacklisted for the rest of your life.
In brief, your product must be of good quality. Since it's easy for a
developer to overesteem his work, an independent evaluation is needed to
objectively assess whether your software is ready to go to the stores.
In general terms, what is evaluated is whether the software is robust
(it shouldn't crash your system or alter the system's performance), easy
to install, easy to use (it should be obvious, intuitive),
resource-friendly and fast (there are exceptions), and if it has enough global
features and details to make it suitable for the purpose the software
was designed for. Please notice that there aren't degrees of
suitability: a software is suitable or isn't suitable for a task, i.e.
the customer will keep the software or will return it to the store.
Period.
In your development efforts you have to distinguish between "required
features" and "desired features", because you should cover all the
first ones, at the expense of the all the latter ones if necessary.
A marketing study is necessary to determine the required and desired
features, and their priorities, as well as other important marketing
information like possible demand for different sales prices, and an ABC
categorization of customers to help you guide your future marketing
efforts (like advertising, packaging, etc.).
Finally, once you are ready, I'd like to say two final words to you:
"Good Luck!"
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