Precise Software Case Analysis

Introduction

Problem: When and how to introduce an end-to-end new product to the market?

Issues:

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• Should we (Precise) introduce a new product in Open World conference 2000? What could be the impact if we delay to offer an end-to-end solution in the performance management space?
• What is the best selling strategy for the new product?
• What is the best pricing strategy for the new product?
• Should we maintain a single sale force or separate sale force dedicated to the new product? What kind of commissions and how much authority should we set up for the sales force regarding to the new product?
• How can we deliver the value of the new product to meet our customer expectation and solve our customer problems?
• How to grow and compete in order to be a leader in the market on a much broader level?

Industry/Market Analysis

Database management software referred as performance management market where efficiency and effectiveness are really important. There are a lot of opportunities due to the need of IT system from the companies. Nearly every company in the industrialized world spent a significant amount of money every year on software purchases ranged from $99 to $10 million. The software market estimated to be $4 billion in 2003 compare with $2.4 billion in 1999. However, the market was fragmented. Products were differentiated principally in two ways. On one hand, products differed widely in terms of underlying resources and platforms with they are associated. On the other hand, available products also differed in terms of the functionality they offered. There are few major competitors in this market and the industry need high intensive labor cost. It usually takes long time to develop new product in this industry. Effective advanced technology and product, which can solve the problem for the companies, are very important to success in the industry.

Time is another important key to determine whether business will success or fail. Companies in this industry should improve their technology quickly to catch up the ever-changing information technology trend as well as dig the problems of the companies to present the right problem-solve products. One of the largest segments of the market was for software to manage the performance of Oracle databases. A true end-to-end market seemed to be quite large and there was no current direct competition because none of the companies offered an end-to-end solution yet. Consumer Analysis:

Database administrators (DBA) are the main targets for Precise. The former usually are well trained thus capable of recognizing the products value. Many DBA’s were authorized to purchase a product range under $25,000. Precise looked for companies had sales of at least 100million and had a business model that required database-intensive applications. DBA need to report to the CIO and need to improve the job performance in order to make performance application efficiently as well as satisfy the business unit head. They are usually budget-limited when they purchase the product.

IT Reliability and effectiveness are the other main factors to concern for users. Regarding to the end-to-end management tool service, business firms using enterprise-wide applications have a desired demand. They require the enterprise applications such as ERP and CRM, which were 10million and above. The applications were distributed across many locations and highly data intensive. Firms depended critically on the ability to deliver information quickly, will be the main targets for the new end-to-end product. Competitor Analysis: The three biggest competitors in the software market were Oracle, BMC Software, and Quest Software.

Oracle is provides “Oracle Optimizer” as a part of its basic database package helped to execute SQL statement it received in the most efficient fashion and also offer an add-on package to help measure efficiency. BMC Software has a large range of products. Its revenue grew rapidly since 1998 and Patrol Product line, which target on performance management and availability market, provided timely and accurate data. Quest Software offered around 25 different products, with some of the functions offering products relevant to Precise. Marketing Mix Analysis: A) Product Analysis:

Precise offered the software that helped its clients to manage the performance of their information technology (IT) systems. Precise is in the performance management and availability market. Its products are designed to manage the performance applications utilizing Oracle database. The company had focus on a small range of core products but provided users high quality that promised. Precise offered the software license and services. The main products were insight products, SQL and Presto. Precise/SQL accounted for 86% of all Precise’s software licensing fees.

The company has strong trained account reps with very strong relationships with key clients. End-to-end response time is extremely important to ensure the system ran efficiently and effectively. All of the available products focused on the performance of each of the components of the system. The sales cycle is 6 to 12 months on average. Precise realized from the feedback of its consumers that they should provide right solutions to its clients rather than the products. However, a full-functionality end-to-end performance tool needs a long time to be developed.

It’s going to take six and nine months to get a basic product with purely monitoring only. The fully functional product will accomplish in 2 years.

Price Analysis

It has one-time license fee with annual maintains and service contracts, priced 15%-20% of the one-time licensing fee. Average price of Precise /SQL had been between $15,000 and $25,000. Precise often offered discounts around 25% which allowed sales force to sell the product easier as well as DBAs can make their decision easily to purchase without approve by the CIO. In addition, price can be varied greatly depending on the customers and other factors.

They charged more for higher-powered computing environments, which means the price is based on the value that the customers receive from the performance management.

Distribution Analysis

There are three common channels for distributing commercial software applications such as direct sales, value-added resellers (VCRs), and systems integrators. VCRs and systems integrators earned a margin of about 30-35% on the software sales. And original equipment manufacture (OEM) agreement is popular in smaller niche areas. Precise sells its products through a duel-channel distribution system.

Internationally, the company sells through both VARs and system integrators in most countries. 17 account executives are hired to do direct sell and also sell through distributors in most countries, and each is paid a salary of $75,000 and a 5%-9% rate high commission. The average sale of each rep is $800,000 annually and earned $300,000 for the highest. Therefore, the operating expenses are extremely high (sales and marketing is 35% of the total operating expense) and made the operating loss since 1996. About 55% of its revenue comes from the direct channel and 45% come from the resellers.

Precise had a client list of about 400 companies and each sale rep was well trained to sell the products.

Promotion/ Advertising Analysis

Reps in Precise are the main factor in selling the products. Precise purchase industry lists with the names and phone numbers of key contacts in the target firms and give it to reps. Reps can call the main clients and meet them and try to keep a good relationship with the people who make decisions. Reps are high motivated and professional to sell the products because of related training and high commission strategy.

They have an effective sales tool that reps can offer to put the product on the potential buyer client’s system to demonstrate what the product would do. In addition, Precise conducted a survey of ten Precise/SQL clients drawn from a range of different business to find main benefits of their products and able to generate an expected ROI for the purchase.

Options:

A) To launch a new product in 2000 ROI Analysis

Pros:

• To be the first one get into the end-to-end market and to be able to announce the new product in the conference with many motivated and qualified prospects gathered in the room at one time. Precise will become a much broader level brand.
• Gain more revenue at the beginning with no competition so far in the market.

Cons:

• New products will attract competitors to get in the market.
• There is not enough time for reps to be trained properly to sell the products.
• If the new product cannot satisfy the clients, it will destroy the brand image as well as make competitors catch up and run over the Precise.
• The new product can only be “generally available” at this time. There will be much more problem and risks.

B) To launch after fully-functional

Pros:

•  Have much more possibility to satisfy customers with fully functional product in term of effectively and efficiency
• Its reps will be fully trained to get ready to contribute in selling the new products
• If consumers satisfied with the products, Precise will be a leader in the market and increase its profits in the long-term.

Cons:

• Competitors may launch a similar new product in this market before Precise.
• A small range of the products may slow down Precise to be a real broader level brand

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