There is no question that customer field trials of new products or services can play an important role in establishing a reputation for the product or service and in becoming the first step in achieving external validation. In many cases, the primary goals of the trial will be to obtain useful feedback, a public reference, and, hopefully, a purchase order. It is not uncommon for multiple prospects in the same sector to all request trials. In some cases, those requests may come long after other trials have been completed successfully and results are published. These prospects may be ultra conservative and risk averse, or may feel that they have some unique environment that warrants their personal scrutiny. In other cases, the prospect’s desire to conduct the trial may be motivated by some other factor.
One of those other factors could involve an inquisitive “kick the tires” desire, to test the product with no intention or ability to actually authorize a purchase. These situations commonly occur when the trial’s sponsor is a CTO or member of an internal testing organization. There requests may be legitimate, and follow the mandate of proving the product before it is authorized for purchase. Many telecommunications carriers and military and other Federal agencies follow this process.
Another reason could involve simple “make work” activities for departments that have idle time in intervals between other major programs. Again, most of these situations will involve staff organizations that do not have the authority to purchase and deploy products.
Finally, some prospects will test products as a confidential favor to other suppliers as part of a competitive analysis program for the benefit of another company. No comments will be made on the ethics of this business practice, but they certainly can be questioned.
Independent of the prospect’s motive, there is a technique that can be employed to call to question the prospect’s intent on placing an order for the product or service. It, however, assumes that other testing and trials have already resulted in positive results and external validation, as evidenced by satisfied customers. It also assumes that the new testing request does not involve some truly unique requirements. This technique involves proposing a Conditional Sale arrangement as opposed to a no commitment Customer Trial.
Typically, in a trial, the prospect is expected to evaluate the product or service and, at the end, make a buying decision or simply say “thank you” and cease using the product or service. In a Conditional Sale, the buying decision is made before the trial begins and, at the end, that decision may stand or be reversed resulting in no sale.
The obvious key difference is that the prospect is asked to make a purchase commitment that can be reversed later. It generally requires the involvement of individuals within the prospect’s organization who have buying authority. Unlike others in the organization involved in trials, these individuals are likely to question the purpose and applicability of the trial. The key element that allows the conditional sale approach to work is that there is no risk involved on the part of the prospect other than their time and resource commitment, which is the same for both a trial and a conditional sale. To achieve this no-risk approach, the short Conditional Sale document needs to clearly state that the prospect has the right to terminate the trial at any time or for any reason and is not obligated to purchase the product or service at the end of the trial period independent of its success or failure. The only caveat is that the prospect must state their reason or reasons for deciding not to move forward. Finally, those reasons are not subject to negotiation by the vendor, they are binding and simply a statement of fact or opinion.
From a GAAP revenue recognition perspective, a trial or conditional sale are treated the same; revenue cannot be recognized. There are, however, a number of distinct advantages in pursuing the conditional sale approach:
- It provides a “blink” test through the required involvement of purchase decision makers.
- It allows the trial period to proceed based on a simple one or two page document while, in parallel, contractual terms and conditions and final pricing can be negotiated, thereby reducing the sales cycle time.
- The vendor can make marketing (non-financial) claims either anonymously or with the prospect’s consent about “sales in the works.”
- Internal management support and vendor resources are more likely to be made available to support the conditional sale rather than “just another” trial.
- The value of the product or service may become more apparent to the prospect, which will help in contract negotiations and prospect personnel acceptance.
- Legal and contract personnel need not become involved as a precursor to starting the trial, and the required documents can be prepared during the trial at a more leisurely pace without impacting the overall sale and implementation timing.
- With the probable involvement of a senior person with decision-making authority, the results of the trial are more likely to be formalized and a decision to terminate or proceed be made more objectively.
- Finally, it is likely that no harm is done with the prospect relationship if they do not agree to a conditional sale framework. The vendor can revert to agreeing to a convention trial or walk away.
This technique follows the old adage: “If you don’t ask the question, the answer is ‘No’ but if you do ask, the answer may be ‘Yes.’” There is virtually no downside to suggesting a conditional sale, but it can be in the best interest of everyone involved. Try it.