Glowing references?

When it comes to buying technology products, Ian Takats, group director of information systems at health club chain Holmes Place, wouldn’t dream of spending £5,000 or more without seeking advice from an organisation that had already deployed that product. And for purchases that run to five- or six-figure sums, he says, he would insist on visiting a customer’s site and taking a long, hard look at the product in action.

It is common practice among technology suppliers to give sales prospects the opportunity to talk to existing customers. And there are two main questions that IT directors want to ask: First, does the product live up to technical specifications in the run-time environment, and second, does the company live up to its service and support commitments? Or as Takats puts it, “Does the product do what you need it to? When you need help, will you get it? Is the vendor prepared to go the extra mile?”


Reference rewards

Polly Kruse manages the customer reference programme at enterprise resource planning software company, JD Edwards. She oversees a team of three full-time staff (two based in the US, and one based in Australia) responsible for keeping up-to-date details about JD Edwards installations at around 250 companies worldwide. “We track their environment, we know which JD Edwards products they use, what their user counts are, whether their original implementation was handled directly by us or by an implementation partner,” she says.

When a sales executive needs a customer reference in order to close a deal, Kruse’s team look for a good match – an organisation that has “common variables” with the sales prospect, she says. These might include size, industry, technology environment and project goals. Kruse estimates that customer references are used in around 80% of sales cycles.

So how does JD Edwards reward its reference customers? According to Kruse, no cash changes hands. Instead, reference customers receive cost of sales credits that they are “encouraged” to use against training, but can also put towards service and support costs.

They may also find that their registration for JD Edwards’ annual user conference may be waived, “although this is mostly in cases where they have agreed to present at the conference, or at least speak to sales prospects,” says Kruse. Finally, they may be asked to participate in JD Edwards’ product development plans.

Neil Morgan, vice president of European marketing at customer relationship management giant Siebel Systems, says that Siebel also offers training credits every time a reference customer agrees to take a call, participate in a webcast conference, or host a ‘showcase visit’ to their site. Siebel’s reference customers also benefit from a dedicated account management programme.

However, he claims, many decision makers are attracted to some of the ‘softer’ benefits that acting as a reference offers: for example, the opportunity to raise both their own profiles and those of their organisations through public speaking engagements and press exposure, and to network with peers.

Either way, says Morgan, reference customers are “hugely influential” in securing sales: “In many, many cases, software deals absolutely hinge on positive customer references,” he says.


The challenge is getting a truthful answer to those questions. Technology suppliers all offer alluring incentives to existing customers willing to act as reference sites. These incentives range from preferential treatment and increased influence on development cycles to financial incentives such as training credits – and in some cases, cash rebates. Inevitably that means that there are doubts about the trustworthiness of the reference site model.

Allen Eskelin, author of Technology Acquisition: Buying the Future of Your Business, says that the most important point to understand is that reference sites are unlikely to give an entirely objective view. “The references that you receive will not be random selections. Vendors will only give you references from happy customers,” he says. In other words, companies that agree to serve as references are typically satisfied customers attracted by the fringe benefits of acting as a reference customer, and with a vested interest in that supplier continuing to be successful and profitable.

Phil Scutchings, director of information systems at Surrey Police, agrees. “If it’s a major [product] acquisition, then we really have to look at references, but I try to be pragmatic about it. If a customer reference is provided by a supplier, then you should assume that you’re looking at a ‘best case scenario’ situation,” he says. However, like Takats at Holmes Place, Scutchings says he would never make a major purchase without contacting “at least two or three” reference customers to gain a balanced perspective.

The best advice

So how can IT decision-makers extract valuable input from the customer references suppliers provide, and use it to their best advantage?

First, says Scutchings, IT directors should talk to a selection of employees at the reference site. When he speaks to an existing customer, he says, he targets three key categories of employee: The “prime decision-maker” who headed up the acquisition and implementation of the product; the administrators responsible for the day-to-day management and monitoring of the product; and the end-users who use the product to perform day-to-day tasks.

Second, he suggests, with the downturn in technology spending, prospective customers are in a good position to take some control over the reference process, and make their own decisions about which reference customers to contact. “Ask the supplier for a customer list, and contact references yourself individually. Suppliers frequently prefer to steer you towards customers they can be sure will give them a good report, but these may not offer a good parallel with your own organisation or project. Plus, if a supplier is happy to let you contact whoever you like, then that level of openness and flexibility is a real confidence-builder,” he says.

Moreover, forums such as Elite, a membership organisation for IT directors and senior managers, offer a means by which decision-makers can obtain input from their peers, independent of a prospective supplier. “This can be really valuable. I would certainly distrust the advice of a customer that had received any kind of payment from a supplier to act as a reference. That doesn’t sound very open and above-board to me,” says Elite chairman, David Rippon. At Elite meetings, he says, members swap opinions on recent purchases in an informal setting. “Away from the influence of suppliers, members feel able to speak more freely,” he says.

Finally, adds Takats, do not be afraid to ask a reference customer what incentives they have received from a supplier to be a reference site. “It doesn’t get asked enough, and in fact, most IT directors are pretty happy to explain – as long as their relationship with the supplier is above-board.”

A matter of ethics?

In any case, Takats says, most IT decision-makers are not prepared to jeopardise their standing with their colleagues and peers by offering disingenuous endorsements for a particular IT product or vendor. “I have typically found that reference customers are pretty open. It is very rare indeed that a firm allegiance to a specific vendor comes across in the course of these chats. It seems to be an unwritten law, a code of honour, among IT directors that they are ‘on the same side’, and need to be open and honest with each other,” says Takats.

Moreover, both he and Scutchings agree that assessing a customer reference owes as much to the instinct and experience of the prospective buyer as it does to the ethics of a reference customer. “Direct, out-and-out lies are rare. And if you fall for one, then you’re not digging deep enough. If they [the reference site] tell you they’ve never had support problems, it’s up to you to explore that claim, because it’s pretty unlikely to be the truth,” says Takats. “It is a matter of judgement, intuition and experience. Once you’ve done this a few times, you can look them in the eyes and tell if they’re uncomfortable with giving you a straight answer,” he adds.

“Even if a customer seems a little ‘primed’, you can get some impression of their relationship with the supplier from their answers. Partly, your assessment has to be based on what the customer says when a representative of the technology supplier isn’t around, so always make a follow-up telephone call after your visit,” advises Scutchings.

Takats and Scutchings are clearly very rigorous in their approach to using customer references than many other decision-makers. But that does not prevent Takats, for one, from exploiting the benefits of acting as a reference customer himself. Indeed, Holmes Place is a reference site for several software companies, including accounting software specialist Coda and human resources software company Rebus HR. What does Takats expect to gain from agreeing to be a reference?

“If I’m going to be a reference customer, then I expect two things from that vendor: first, I expect a good deal on software price; and second, I expect to receive a good level of support from that supplier.”

Does he, in fact, expect preferential support from that vendor? “I’d like to think I have a little extra leverage over it as a result of my work as a reference,” he says – which reinforces the point that reference customers typically do not provide vendor endorsements out of gratitude or entirely altruistic intentions.

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Ben Rossi

Ben was Vitesse Media's editorial director, leading content creation and editorial strategy across all Vitesse products, including its market-leading B2B and consumer magazines, websites, research and...

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