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  8.7. Intuit and the Market Infrastructure (8 min.)

Although Intuit did a great job of nailing the solution when they developed their first product, Quicken, they overlooked the importance of the market infrastructure, assuming they could use the same sales model that larger software companies used. At the time Scott Cook and Tom LeFevre were developing Quicken, the predominant sales model was to sell software through large retail outlets. Assuming they could leverage the existing sales model used by large companies, Cook went out to retail outlets to start selling Quicken. At one software store, Cook encountered a massive bin full of software titles, discounted by 90%. When Cook asked why these titles were on sale, the manager replied simply, “These were the titles I decided to sell.”

Consistent with the manager’s statement, as Cook traveled from outlet to outlet, he discovered that large software outlets generally had a hard time selling software they selected on their own, and so they refused to carry software unless large numbers of customers were requesting the product. Typically, big companies spent millions of dollars advertising their software to create the kind of demand the vendors needed to feel comfortable carrying their software. Cook discovered that one of the rules of the channel (distribution infrastructure) is that the channel doesn’t create demand, it fulfills demand. Instead, advertising dollars create the demand. The problem for Cook was that he didn’t have that kind of money to create demand, and when he tried to raise it from venture capitalists, they turned him down flat. As a second approach, Cook tried to stir up good press in PC magazines to jumpstart demand. But even though Quicken received positive press in PC magazines, it didn’t seem to create a significant increase in sales.

By this point Intuit was down to their last few hundred dollars, and in a moment of desperation, Cook tried selling Quicken at retail bank branches. Although a few bank branches agreed, sales trickled in at a meager pace. While Cook desperately and unsuccessfully tried to close more bank branches, Tom LeFevre finished an Apple version of Quicken, hoping to generate a few more sales. However, when the Apple version began selling in bank branches, a surprising thing happened. Not only did the software sell more quickly, but Apple software magazines began to cover Quicken. Suddenly customers began to call Intuit directly, asking for the product.

What changed? It was the buying process and the market infrastructure that the Intuit team had failed to understand but had accidentally stumbled upon. As it turned out, PCs tended to be used primarily by businesses, which had little interest in personal finance software. As a result, the PC version not only had limited appeal, but good press in PC magazines also had a limited effect on sales. In contrast, most people interested in personal finance software used Apple computers and read Apple software magazines to discover new products. When Quicken began to be featured in these magazines, customers were willing to try it, and sales began to grow. Finally recognizing the real customer buying process and market infrastructure for Quicken, Cook and LeFevre scraped together the rest of their money and borrowed a little extra to launch a modest advertising campaign in the magazines their customers read. The result was a phenomenal spike in sales.