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.
This article was first published in our Open Forum for Software Developers
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Contents
- Abstract
- The software commercialization chain
- Software publishing
- Self-publishing
- Packaging
- Software pricing
- Preconditions for publishing
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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 )
\_________/ \_________/ \___________/ \_____/ \________/
| | | | |
| +------->---------------->----+----->----+ |
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+-------->-------------->---------------->---------->-------+ 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.
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.
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.
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.
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 |
3 |
$375 |
$975 |
$325,00 |
||||
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).
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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