The NPVI Method to Support Market Entry Strategies for Software Products

Market entry strategies deal with the complex trade-off between economising on time-to-market and economising on product maturity. How much testing is required? What are the expected cash inflows and cash outflows if the product is released? What is the market window? Based on product life-cycle models frequently used in the semiconductor industry, a method was defined using one of the most commonly used capital budgeting methods: NPV. This method takes into account the discounted value of money, and can be used to calculate the difference between two alternatives in one single variable. This variable, the NPV Incentive (NPVI), is calculated from various underlying metrics and measures the economic incentive to favour one alternative over another. Practical use of the method requires the ability to determine the values of the underlying metrics with significant certainty. It should be the objective for decision-makers to search for a zone of cost effectiveness: a bandwidth in which the marginal net asset value of additional information is equal or close to zero.