Setting a price for new embedded software
Rinne, Johanna (2015)
2015
Tuotantotalouden koulutusohjelma
Talouden ja rakentamisen tiedekunta - Faculty of Business and Built Environment
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Hyväksymispäivämäärä
2015-09-09
Julkaisun pysyvä osoite on
https://urn.fi/URN:NBN:fi:tty-201508271542
https://urn.fi/URN:NBN:fi:tty-201508271542
Tiivistelmä
Setting the right price is perceived to be challenging especially for new products, and due to software’s intangible characteristics and different cost structure traditional cost-based approach to pricing can also be very hard to apply. Thus, many software suppliers tend to use intuition or rules of thumb in price setting, and the approach to the overall price setting process is not systematic and customer-focused enough.
This thesis aimed at presenting academic frameworks and factors that a software supplier should acknowledge when setting a price for new embedded software, and finding suitable methods for setting a justifiable price for such products in the Case Company. The Case Company has struggled with the price setting process for new embedded software products. The challenges have mainly been encountered in the software deve-opment phase when the profitability of a new software product has been analyzed. This thesis was conducted as a literature review together with an empirical research with a qualitative research approach. The empirical research consisted of 16 semi-structured one-to-one interviews. The research approach was constructive, as enough former research on the exact research topic was not found.
The results in this thesis were a combination of the existing research and the empirical research, as well as the construction of a multi-method pricing model. The results showed that a supplier setting a price for new embedded software should especially acknowledge the system’s long life-cycle and interfaces between hardware and software, coordination of cooperation, uncertainty, the cost structure of software, value measuring, related metrics and communication, software component reusability and clarity of internal communication. In the Case Company, especially incomplete tools and documentation as well as ambiguity in responsibilities were seen hindering the price setting process. As a result, a price discretion model, which uses cost-, competition- and value-based approaches to price setting was developed for the Case Company. Also a software component reuse utilization matrix was constructed for creating a calculative variable cost for new software products in cases where the software product can be built from existing components almost at a zero-cost and other pricing approaches seem im-possible. The main recommendations were to clarify the responsibilities and process documentation and implement the model in use. For further research it was recommended to study further the results of using the model in practice, pricing of embedded software and how software component reusability should be approached in pricing.
This thesis aimed at presenting academic frameworks and factors that a software supplier should acknowledge when setting a price for new embedded software, and finding suitable methods for setting a justifiable price for such products in the Case Company. The Case Company has struggled with the price setting process for new embedded software products. The challenges have mainly been encountered in the software deve-opment phase when the profitability of a new software product has been analyzed. This thesis was conducted as a literature review together with an empirical research with a qualitative research approach. The empirical research consisted of 16 semi-structured one-to-one interviews. The research approach was constructive, as enough former research on the exact research topic was not found.
The results in this thesis were a combination of the existing research and the empirical research, as well as the construction of a multi-method pricing model. The results showed that a supplier setting a price for new embedded software should especially acknowledge the system’s long life-cycle and interfaces between hardware and software, coordination of cooperation, uncertainty, the cost structure of software, value measuring, related metrics and communication, software component reusability and clarity of internal communication. In the Case Company, especially incomplete tools and documentation as well as ambiguity in responsibilities were seen hindering the price setting process. As a result, a price discretion model, which uses cost-, competition- and value-based approaches to price setting was developed for the Case Company. Also a software component reuse utilization matrix was constructed for creating a calculative variable cost for new software products in cases where the software product can be built from existing components almost at a zero-cost and other pricing approaches seem im-possible. The main recommendations were to clarify the responsibilities and process documentation and implement the model in use. For further research it was recommended to study further the results of using the model in practice, pricing of embedded software and how software component reusability should be approached in pricing.