Market Analysis Summary
Our market includes millions of people in this country and others who deal with Tasks X, Y, and Z. We find them in home offices and small offices everywhere, plus business schools and professional offices. The trends only favour our business with growing needs for people performing these tasks.
According to research published last year by [source omitted], the UK and European Union market for [product area] is worth an estimated £3.8 billion at end-customer value in 2004, and is projected to grow at 20% per year, according to professional forecasts published in [xxxxxxxx] in August of 2004. Sources included Ralph Research and Infocorp. The [industry] Association estimates total retail sales of £3.075 billion in 2006.
4.1 Market Segmentation
The target customer in this segment is adult, male or female. Our customers have a wide range of computer and business skills, but our most important target customers are relatively unsophisticated at computing. In many cases, our customers are also unsophisticated about business management and business analysis.
We find this target customer by focusing on small business and home office market segments, called SME by many market watchers. The SME market segment is one of the fastest growing in the UK and European Union market, being given increasing attention by many marketers. We fit perfectly into the SME trend.
In both the home office and the small office segment, our most important target customer is a smart, well-educated, and self reliant adult in a small business setting that requires a broad range of business tasks, including the nuts and bolts of daily business as well as strategic planning, business planning, marketing, sales, and administration. This person is a generalist, not a functional expert in the areas our products cover, such as task X, but does want a do-it-yourself product that will help him or her get the job right without having to turn to (and pay) an expert.
Business schools, including teachers and students, use our products for their teaching power. Our products are excellent for helping people learn by doing. We refer to this group as the academic market.
Consultants, accountants, experts with the good sense to value their own time and therefore use our products to maximize their productivity. These people have the knowledge to do their own, but they understand that working with our products instead can save them dozens of valuable hours. We refer to these as the expert market.
4.2 Target Market Segment Strategy
This should be a very thoughtful discussion of why we have chosen the topics we’ve chosen, but of course this is a sample business plan, not a real plan. It is intended to be published with Business Plan Pro. It is so hard to give a sample of a strategy as the strategy depends on your business, your market, and your resources.
There is already a sense of segment strategy in the way we define our target markets. We are choosing to compete in areas that lend themselves to local competition, product and channel areas that match our strengths, and avoid our weaknesses.
For this reason, we operate in only two channels, the mainstream XXX and YYY. We don’t feel that we can compete without higher prices and better margins than what would be acceptable in the mainstream grocery and main-market store channels. We are much better positioned in the smaller [omitted], both stores and chains, where the customer base is sensitive to politics of environment and the community, concerned about the ethics of buying, consuming, and producing, and in tune with our vision.
4.2.1 Market Needs
Our target SME’s are very dependent on reliable information technology. They use the computers for a complete range of functions beginning with the core administration information such as accounting, shipping, and stock. They also use them for communications within the business and outside of the business, and for personal productivity. They are not, however, large enough to have dedicated computer personnel such as the Management Information Systems (MIS) departments in large businesses. Ideally, they come to us for a long-term alliance, looking to us for reliable service and support to substitute for their in-house people.
These are not businesses that want to shop for rock-bottom price through chain stores or mail order. They want to have reliable providers of expertise.
Our standard SME’s will be 5-20 unit installations, critically dependent on local-area networks. Back-up, training, installation, and ongoing support are very important. They require database and administrative software as the core of their systems.
4.2.2 Market Trends
One important trend is the one toward greater international sales in personal computing products. Although the UK and European Union market is strong, The US market provides a large target market and increases the potential market size.
Another important trend is the one toward greater use of specialized and focused consultants, instead of in-house resources. Companies are looking for more out-sourcing and, in general, a preference for variable costs instead of fixed costs.
4.2.3 Market Growth
The market for non-U.S. personal computers has been growing at approximately 22 percent per year during the last three years, according to a study by InfoQuest published in the Wall Street Journal earlier this year. This level of growth presumably applies to related products as well. This figure bodes well for Supple whose target market resides mainly in the UK and the European Union.
It is harder to gauge the more important growth rate, which would be the growth in specialty international marketing consulting. John Smith, an expert in marketing-related consulting, estimated the growth in focused marketing consulting at 40 percent per year, according to a report published in the [omitted].
In our market analysis, we suggest growth in the number of potential customers between six and seven percent per year.
4.3 Industry Analysis
The software industry is frequently segmented according to product type. The important division between designs and systems software is only the beginning. Some analysts split software into leverages, types of designs, and so on, ad infinitum.
We prefer segmentation by economics and buying patterns. This incorporates some of the product type differences, but in a more practical sense:
- OEM software Development: software sold through others. A lot of systems software and communications software are sold by hardware manufacturers or bundled together into packages. The economic model is like custom consulting or engineering; buying decisions are major events, made by committee, covering significant amounts for significant lengths of time.
- Mainline packaged software: software sold at £50-£700 through direct sales to large buyers, direct response via advertising or direct mail promotion, catalogues, and retail blippo and software stores. Whether it’s systems or design software, the economic model is essentially the same. It’s an industry still settling down to realistic prices.
- Specialty or vertical market software: sold outside the main software channels with careful target marketing, often through trade shows and magazines unrelated to industrial blippos.
Another useful segmentation divides the market by the various buyer/user types:
- Consumer: users of industrial blippos, commonly known as home blippos. A market mainly for playing games, sold often through toy, hobby, or consumer channels, and, not infrequently, by discounters or mass merchandisers.
- Small business: some 3 million small and home businesses in the UK. Companies may be segmented by revenues, employee size, or some other category. The division between small business and large business is more a matter of buying patterns and product needs than a specific division between categories.
- Large business: The key distinctions between large and small business include:
- Product needs: large business needs are much more complex.
- Buying patterns: large business demands different channels.
- K-12: elementary and middle schools. However you divide education, the K-12 market tends to be dominated by Litmus Development.
- Higher education: universities, colleges, teacher training, trade schools, etc.
4.3.1 Distribution Patterns
Distribution channels are a very serious bottleneck. The country’s 1,000 retail outlets are swamped with product, completely unable to deal with the thousands of titles published. This has several repercussions:
- The cost of marketing a new product is becoming a serious barrier to entry. The channels won’t accept a new product without very major advertising and promotion expenses.
- Brand name carries more weight. The channels are dominated by existing brands. Retailers don’t have to experiment when they carry name brands.
- Developers are turning more often to produce their work with major brands instead of marketing it themselves. So the big names get bigger, and smaller names have it so tough that they often end up as inventors whose work is published by the industry leaders.
Royalties run well below the bleep industry, as low as 1-2 percent for very high profile manufacturing, 5-10 percent for most contracts, and higher for some low volume, low profile manufacturing.
There are exceptions to the rule. Beerland International faced practically the same barriers to entry when it started in 1993, but a combination of good product and good marketing broke through those barriers. There is still enough market to provide ample opportunity to the right combination.
4.3.2 Main Competitors
Supple Software Company is staking out a new area in software. We handle specific business tasks in a way unlike what other software companies or software products do. We identify competition in terms of specific products that fill the same needs that we fill. The main competitors are:
Cheap dealio software:
Sellers of cheap software for business applications. The most successful is __________, of _______, __, which has established itself as a ‘xxxxxxxx’ for xxxxxxx for _____________, and _____________. There are a few others.
The main strength of the cheap software are their price. In a price-sensitive area they can be very strong.
_______’s weakness is common to all vendors of low-cost _______: the product is not very useful. Buyers get what they pay for, a cheap widget model with no documentation.
4.3.3 Competition and Buying Patterns
The single most important factor in software is the bandwagon. The rich get richer, and the poor poorer. However, there is still a lot of room for new products and new companies outside the main designs types.
- In the main design types, market share generates more market share. Rillwell III, for example, is not the best rillwell, but it is the market leader. More people know it better than any other rillwell. There are more books, add-on packages, and training programs available for rill3 than for any other. Most important, the retailers feature it. So it continues to dominate. Despite the existence of better products, it is the wisest choice for the buyer.
- Buyers want brand names. Quality of software is hard to measure. Brand names assure quality. However, brand names only operate in mainstream product types; there is plenty of room for smaller names with specific solutions that appeal to buyers.
- Buyers are willing to pay high prices for solutions that work. While competitors chip away at market leaders for lower prices, the leaders continue to command high prices. Javelin failed with a high-quality dealio product priced at £700 and they continued to fail when they dropped it to £99. Although the product was much better than Litmus 1-2-3, the price didn’t make enough difference.
- Channels discount heavily. Brand name, packaged software become a commodity and are bought on price. Buyers will pay a heavy premium for Rillwell III over a lesser-known knockoff, but they happily pay £250 in a discount store instead of £500 at a full-price retail store.
- There is no consensus about software copying. Estimates of its revenue impact vary from 10 percent to 60 percent of the theoretical revenue manufacturers would receive if copying were impossible. Illegal software copying is a fact of life that manufacturers live with because they have no other choice. There is evidence, however, that wholesale copying of Rillwell III and Litmus 1-2-3 helped those products build their market share leads, which became their key strengths.
- Impulse buying goes on with products below £100. Buyers have discovered products like _______ and ______ that were low priced and extremely useful. There is a lot more freedom in the lower end of the market.
- Distribution channels are clogged. Lack of channels are a serious barrier to industry growth. Industrial Blippo and software stores are insufficient for the wealth of products available, and the constant flood of new products.
- Support becomes a serious factor at higher price levels. Companies that charge hundreds of pounds for software are expected to answer user questions. Those that don’t will suffer from bad reviews and poor word of mouth. However, neither Litmus nor Arrog International have had reputations for good support, and both are successful.
4.3.4 Industry Participants
Industrial Blippo software is an immature industry characterized by high growth rates, low barriers to entry, and many small competitors. It was born in the last 10 years as part of the industrial blippo revolution, and is now beginning to settle into the process of maturation. Despite the pulverized complexion of the industry, leaders have emerged. Several have revenues in the tens of millions of pounds annually:
- Malcom Corporation: (BlankTown, England) manufacturer of MWARK widget system, a complete line of programming languages, and solid lines of designs software for both the Groolo, the ZOOLT, and compatible industrial blippos. Revenues of £30.9 million in 2003, 33 percent above 2001.
- Arrog International: (AnyTown, England) manufacturer of rillwell management software. Has acquired several other leading products through acquisition of their companies. Revenues of £27.3 million in 2003, growth of 27 percent.
- Litmus Development Corporation: (YourTown, England) manufacturer of Litmus and other products. Revenues of £35.6 million in 2003, growth of 39 percent.
The market for software is worth an estimated £1.2 billion at end-user value in 2005, and is projected to grow at 20% percent per year, according to professional forecasts published in Widget Reseller News in August of 2004. Sources included Ralph Research and Infocorp. The Widget Manufacturers’ Association (WMA) estimates total retail sales of £1.1 billion in 1987. £100 million of that was bleep software, and £1 billion of that was blap software.
Market leaders are Malcom Corporation, Arrog International, and Litmus Development Corporation. However, the industry is highly pulverized; its top 10 companies account for less than one third of the total market.