Market analysis for product software

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Market analysis for product software consists of a number of techniques that allow an organization to collect and disseminate information from their external environment of software products for use in determining their market strategy and actions. For example, market analysis helps to determine critical strategies for new software products such as time-to-market length, creating product differentiation, creating and preserving supplier credibility, developing effective distribution channels, forming relationships with large customers, and managing market efforts (Igel & Islam, 2001).

This topic has its roots in marketing discipline. Many types of market research techniques are used to gather this information. Market analysis plays a large part in explaining the current situation of a marketing plan. Marketing is very important to new product development because software products have a short average lifespan of five years and incur 75% of the costs during the research and development phase (Atkinson et al, 2004). Therefore, including market analysis information early on in the product lifecycle can ensure resources are not wasted.

It is a wide field so this article is a sample of scientific work that has linked the fields of marketing and product software. This consists of research in the fields of general market, customer, and competitor analysis which can be seen as processes that are hierarchically grouped under market analysis in the meta-process model from the figure below. There are many processes that can be used for each of these three processes to acquire information from the market. This article only lists a selected few for each.


Contents

[edit] General Market Characteristics for Product Software

Analysis of general market characteristics should lead to information about the market such as definition, size, trends, and market segmentation. This analysis is needed to help develop and maintain marketing strategies for product software and overall business strategies. The covered methods and techniques to obtain this information are Porter’s five forces model, risk analysis, marketing intelligence, and marketing decision support systems.Porter’s five forces analysis is useful for software since it highlights many important factors that will be discussed in customer and competitor analysis such as switching costs, brand equity, product differentiation, and price of total purchase.

[edit] Customer analysis for product software

Customer analysis is needed to predict behavior and create demand forecasts for product software. It is also necessary in the development of new products to help select the most profitable choice. One author states that a key issue for new software product development is creating links between customer needs and the product design specifications (Kekre et al, 1995). To analyze customers, aspects such as demographics, buying motivation, and expectations are studied. Besides basing behavior on software only, customers also look at the network externalities from software packages, such as manuals, add-ons, and training courses, to make purchase decisions (Shurmer, 1993). All of these subjects are useful for determining target groups (also known as market segments).

Additionally, this information helps determine the optimal solution to the tradeoff between time-to-market and quality. Market analysis results are important to help establish an optimal point between the tradeoff of time-to-market and quality. While customers would love to have a short time-to-market with lots of features and high quality, it is impossible for the vendor to find financial success in this scenario. Therefore, a managerial decision must be made on the resources and objectives for new product development. Risk analysis techniques can be used to manage this trade-off decision (Carmel, 1995). With the heavy competition in most software product markets, gaining early market acceptance is essential to achieving firm success (Trondsen, 1996). This is not easy to do. Product complexity and rapid changes in requirements (see also Requirements management processes) increase the difficulty of rushing software products to market (Ramesh et al, 2002). There are some ways to relieve this tension of time-to-market. Following market rhythms with versioning can reduce this pressure by allowing incremental innovation (Carmel, 1995). Versioning also gives flexibility to quality factors since problems can be repaired in the next release (Ramaesh et al, 2002). In the end, quality level perceived by customers is can be influence by their expectations (Kekre et al, 1995). The best way for a software company to remain competitive, is by finding ways to include quality assurance activities during software development and at the same time find ways to reduce the time-to-market (Carmel, 1995). This is one of the key management decisions during product development facing software companies.

Customers can be divided into two groups, consumers (an individual) and corporate buyers. Consumers generally buy software for personal use on their home computer. While they behave as individuals, they are influenced by the environment and the other people around them. For consumers, psychological traits, such as risk-taker versus risk-avoider, play a great role in major decisions by the individual (Trondsen, 1996). Many other factors play a role for corporate buyers of product software. Businesses buy product software usually as an indirect material to help them increase the effectiveness of their processes. Trondsen describes the corporate buying process for product software. There is a complex interaction of individual and group goals working during the decision-making process that are constrained by available resources (1996). A technique for dealing with the buying process in a firm is the buying center.

Many techniques are used to provide information on customers. Some examples are:

[edit] Competitor Analysis for Product Software

The final major area of analysis in market analysis is the industry itself. By knowing what is happening with competitors, a software company can adjust strategies to be more successful in the marketplace. Companies should know about market share percentages, strength and weaknesses, industry structure, and strategic groupings among other things to get a good picture of what the competitive environment is like. Strategic groupings can be in the form of alliances between product software firms.

Competitor analysis is especially important when it comes to new product introductions. There are many advantages, especially for revenue, for a software company that can show major enhancement to software or be first to market (Messerschmitt & Szyperski, 2004). This makes competitor analysis particularly important because it can help a firm decide which new product opportunities to pursue by what the market size will be following the actions of other competitors. Research has shown that knowledge about the competitors’ strategies is very important to help distinguish failures from the successes in product software (Cornish “Product”, 1997). Knowing what is going around in the software industry is essential for software firms to be successful. Firms need to know which other software products their product must work with (eg operating systems) to provide the most usability for the customer. Therefore, developing and sustaining of architectural control can lead to competitive advantage (Messerschmitt & Szyperski, 2004).

One author has made a list of industry characteristics for product software that affect marketing strategies: emerging fragmented industry, end user competition and imitation, high level of research and development intensity, high degree of integration with hardware, high degree of specialization, complementary with hardware and computer services, high level of maintenance and marketing costs (Rao & Klein, 1994). Competitor analysis is available to explore these areas and others in greater depth to help a software firm determine their future goals and strategies.

Some techniques to conduct competitor analysis are:


[edit] References

  • Atkinson, A. A., Kaplan, R. S. and S. M. Young. Management Accounting. International 4th Ed. New Jersey: Pearson Education International, 2004.
  • Carmel, E. “Cycle Time in Packaged Software Firms.” Journal of product innovation management , Volume: 12, Issue: 2 (March 1995), pp: 110-123
  • Cornish, S. L. “Product Innovation and the Spatial Dynamics of Market Intelligence: Does Proximity to Markets Matter?” Economic Geography. Volume: 73, Issue 2 (April 1997), pp: 143-165.
  • Igel, B., and N. Islam. “Strategies for service and market development of entrepreneurial software designing firms.” Technovation , Volume: 21, Issue: 3 (March 2001), pp: 157-166
  • Kekre, Sunder, Mayuram S. Krishnan, and Kannan Srinivasan. “Drivers of Customer Satisfaction for Software Products: Implications for Design and Service Support” Management science , Volume: 41, Issue: 9 (September 1995), pp: 1456-1470
  • Messerschmitt, D. G. and C. Szyperski. “Marketplace Issues in Software Planning and Design.” IEEE Software. Volume: 21, Issue: 3 (May/June 2004), pp:62-70.
  • Ramesh, B., Pries-Heje, J., and R. Baskerville. “Internet software engineering: A different class of processes.” Annals of Software Engineering. Volume: 14, Issue: 1 (December 2002), pp: 169-195
  • Rao, P.M., and J. A. Klein. “Growing importance of marketing strategies for the software industry” Industrial marketing management, Volume: 23, Issue: 1 (February 1994), pp: 29-37
  • Shurmer, M. “An investigation into sources of network externalities in the packaged PC software market.” Information economics and policy , Volume: 5, Issue: 3 (October 1993), pp: 231-251
  • Trondsen, T. J. “Some Characteristics of Adopters of a Major Innovation in the Computer Field and Its Potential Use in Marketing.” Industrial Marketing Management Volume: 25 Issue: 6 (November 1996), pp: 567-576