A Framework for Software Product Line Practice, Version 5.0
Market analysis is the systematic research and analysis of the external factors that determine the success of a product in the marketplace. It involves the gathering of business intelligence, competitive studies and assessments, market segmentation, customer plans and strategies, and the integration of this information into a cohesive business strategy and plan. For the purpose of this practice area, we define market as the place where people meet for the purpose of trade. Those involved include sellers, buyers, prospective customers, providers of complementary products or services, competitors, and any other party that "participates" in the day-to-day conduct of business transactions.
Organizations conduct market analysis as a means of characterizing quantitatively the business opportunity for their products. From this analysis flows the statement of organizational objectives for cost, quality, and productivity and any associated constraints. Based on this analysis, a business case, strategy, and plan can be developed. The goal of market analysis is to provide sufficient detail to answer the fundamental question: "Does the market represent sufficient economic potential for us to achieve our business goals with this product?"
Even defense organizations considering the procurement of a military system must ask themselves a version of this question. While some commercial market analyses may slip in colorful military metaphors (such as "doing battle with the competition"), these terms are literal for defense groups. For them, a market analysis becomes a "mission" analysis; the competition is referred to as the "threat" or (less obliquely) "the enemy." Time to market becomes time to deployment, time to field, or time to operational readiness. Competing systems are the "counterforce." And whereas the return on investment (ROI) is not the overriding business goal, effectiveness and protecting the war fighter are. Such a market analysis may look very different from one produced in a software start-up company looking for venture capital, but the need for it is the same: to answer the question "Will this product be successful?"
Not surprisingly, market analysis provides a fundamental input to the business case for a product.
Because markets change and evolve, a market analysis should be a living document that guides the decision making throughout the life of the product or products included in the product line's scope. Many organizations couple their ongoing market analysis with an annual planning and budgeting cycle, so that product development and evolution priorities are explicit and integrated into the plan.
Aspects Peculiar to Product Lines
A market analysis is an important ingredient in a decision to shift an organization's business strategy from single-system engineering to product line engineering. The market analysis informs the business case, and together these two documents form the basis of the decision package used by management to justify the shift in strategy. Once a product line engineering organization has been established, a market analysis is conducted on a continuous basis to guide the introduction of new products into the product line, to steer the evolution of the product line as a whole, and to inform the spin-off of related product lines.
The "Building a Business Case" practice area relies on business assessments of forecasts, market share, and pricing. It highlights the relationship between the market analysis and the organizational need for the business case. That is as true for the ongoing product line operation as it is for the organization making the decision to shift strategy to a product line operation.
In a product line organization, responsibility for the market analysis lies within a strategy formulation or business development function or with the individual responsible for the success of the business unit or product linewhether it be a general manager, product line manager, or product manager.
While engineering and research and development (R&D) personnel will certainly contribute, they would not normally take responsibility for market analysis. In this way, organizations avoid building products for which there is no market or building elegant solutions before searching for a problem. In a similar way, the sales organization is a significant, but often optimistic, contributor to the analysis because it knows the market. A sales contribution might provide the answer to some key questions, such as
- "Given a set of products with these rough distinguishing capabilities available around these dates with a projected price targeted for about these amounts, how many of each product in the product line can you sell in Year 1? Year 2? Year 3?"
- "Can you commit to this forecast, and do you agree to be held accountable for its achievement? If not, what level of specificity is required for the capabilities, dates, and amounts so that you will agree to such accountability?"
Answering these questions leads the market analyst to the answers to other questions, such as
- "What customers or market segments will purchase which products?" Or, less concretely, "Which features or feature combinations are important for which customers?"
- "What are the similarities and differences in their buying patterns?"
- "What features are available and how are they (or how might they be) configured for each product within the family?"
- "Who else offers products that overlap with our product line?"
- "What trends are observable in the market that may affect the answers to any of these questions?"
Armed with quantitative business goals and constraints, a characterization of the market requirement, and known engineering competencies, an organization can make informed decisions concerning the viability of introducing a product line or new products in a product line.
Market analysis helps determine the feature-binding time by defining the feature delivery method [Kang 2002a]. During core asset development. those features that are common to all products are bound into the core assets. Those features specific to a product are provided for during product development and may be bound then or at later times such as product configuration time.
Application to Core Asset Development
Market analysis is one of the early steps that help determine the product line scopethat is, what products the product line will comprise, suggesting a first-order approximation of the product line's commonality and variability. The scope, of course, leads to the architecture, which leads to the software core assets. The result of a market analysis helps provide a customer and product profile around which a focused R&D or engineering program can be designed. The organization makes core asset development or acquisition investment decisions within the context of customer or market requirements for the product, thus giving the engineering program a goal.
Beyond this, however, the market analysis is, itself, a core assetone that is created when the product line is launched but maintained and updated as the market changes, as new members of the product line are considered, as the product line itself evolves, and perhaps as a new product line is spun off. In the last case, an organization can use market analysis to identify untapped market areas that it can exploit through a product line's existing core asset base.
Market analysis also provides input to the development of the production strategy. One approach to developing the production strategy for a software product line is to resolve the five forces identified in Porter's strategy development framework [Porter 1980a]. In this approach, the organization examines the forces exerted by competitors currently in the targeted market and potential entrants into the market. Then, it develops business and product production strategies to counter these forces. For example, the product line organization may determine that price is a critical issue in the market and decide to design the core assets so that products can be generated automatically. That lowers their manufacturing costs, thereby allowing price reductions that make the market less attractive to potential entrants.
Application to Product Development
The marketplace is an ever-changing environment, so market analysis needs to be an ongoing activity that continues through product development. Market analysis helps the product developers factor other customer preferences into the product definition. The knowledge of customer preferences drives the decisions about features and feature combinations, as well as quality attributes such as performance, availability, and configurability.
A more detailed knowledge and understanding of the needs of specific customers or customer groups lead to decisions about the number of discrete products within the product line and how these discrete products are defined. Among specific products, there are choices of configuration. What features are selectable or definable by the customer? What is the range of options available for each product within the product line?
A market analysis can be conducted by executing the steps outlined below.
Identify information sources: The market analysis starts with the identification and location of any information resources that could have an impact or provide insight into the definition of the product line. In identifying these resources, it is important to consider some basic attributes of the resource or information being provided, such as: Is it accessible and reliable? Will it reveal valid needs or simply a passing fad? Is it relevant to the product line at hand? Sources of information include sales calls, meetings, conferences, customer services, newspapers and magazines, past performance, focus groups, surveys, consultants, budgets, published planning data, economic indicators, technology trends, and other intelligence sources.
Gather information: The next step is to gather the information necessary to get a broad market definition, with additional details about specific segments that most closely align with the products within the product line. The analyst should assume that every contact with every customer, potential customer, user, competitor, or other market participant should be exploited for the information it can produce: requirements, a list of features liked/disliked, pricing, competitive trends, business goals and strategies, purchasing plans, budgets, and so forth. This broad market survey provides the product line organization with detailed knowledge and an understanding of the market, their potential customers, and the other market players.
Identify customer segments: Next, the analyst focuses on the similarities and differences among the product usage characteristics of specific customers. This study makes distinctions among customers evident and helps the analyst make and categorize generalizations about different classes of customers. The analysis shows preferences for such things as price, configuration, availability, and technical approach. Other environmental concerns, on a product-by-product basis, results from the analysis of these segments: economic potential, the strength of the competition, standards, the rate and direction of technological change, and other key factors critical to the customer's purchasing decision.
Map products to segments: In light of this market information, the analyst can compare the capabilities of each product or proposed product within the product line to the customer's expectations and requirements within each segment. Based on the degree of alignment between the products in the product line and the segments the product line was designed to satisfy, the analyst can make recommendations concerning the scope, magnitude, and direction of the organization's core asset, product development, and acquisition activities.
Examine the competition: The analyst can compare individual products in the product line with those offered by competitors. The purpose of this comparison is to evaluate the product line's strengths, weaknesses, and competitive differentiators. Based on the outcome of this analysis, the organization can make recommendations concerning product development investments as well as product positioning relative to important competitors.
Without an adequate, thorough market analysis, the wrong products are likely to be builtwrong in their overall configurations and in how they respond to customer or market requirements. An inadequate market analysis can result from the following factors:
an inaccurate forecast of the market size: If the forecast of the market size is inaccurate, the product line organization is likely to be unable to achieve a sufficient ROI from product line development. That could result from an inadequate analysis of the economic potential of the segment or from the organization's inability to penetrate the segment as a result of product weaknesses, unanticipated competitive strengths, or other compelling factors. When this situation occurs, the product organization must face the decision to pull the plug or to increase or redirect investments in the project.
right product, wrong market: Analyzing the wrong marketfor example, by interviewing the wrong market groupswill result in an analysis that appears valid but, in reality, does not apply.
right product, wrong price: Having the right product but approaching the market with the wrong price, partners, suppliers, or sales channel can also be a risk. These factors can influence a product line's success or failure as much as the product itself can.
[Faulk 2000a] Faulk, Harmon, and Raffo provide a tool for analyzing the value of a product as perceived by a customer.
[Kang 2002a] Kang, Lee, and Donohoe discuss the role of market analysis in determining feature-tree binding.
[Porter 1980a] Porter's Competitive Strategy is required reading for anyone responsible for conducting market analyses.
[Prahalad 1990a] Prahalad and Hamel make clear the imperative of developing organizational capability to build products that align with market requirements.