Marketing system is a set of interconnected activities, both strategic and operational, which aim at selecting, penetrating and keeping target markets according to a company’s general strategy. Traditionally, three different types of activities can be distinguished as parts of the marketing system:
1. Marketing research and market analysis. In contemporary business, any strategic decision should be evidence-based to increase the possibility of success. That means that in competitive markets a company has to know its customers to satisfy their needs better than others. A company also has to carefully analyze the market itself and business environment to recognize emerging opportunities and threats, to evaluate its own potential in production and distribution of its products. The better information for marketing research and market analysis is, the better decisions a company can make.
2. Marketing Strategy. The system of marketing includes long-terms marketing goals and objectives, closely connected to the general strategy. Marketing strategy answer the key questions which direct a firm’s market behavior: Who are our customers? Which markets we are interested in? What share of market should we obtain? What is the source of our competitiveness?
3. Marketing program. When strategic goals are set, they have to be elaborated in details and transformed into objectives at the operational level. A typical marketing program is organized around the so-called marketing-mix, a number of tools used by a company to achieve its strategic goals. Marketing-mix consists of four general types of activities :
? product design, quality, packaging, services;
? price policy;
? placement and distribution;
In international marketing, the above-mentioned elements of the marketing system are all present but have specific features originated from the nature of international business.
Increased international interdependence is often recognized as the most significant trend in the world economy. Companies of all the sizes around the globe can find suppliers, partners, or customers in other countries. Even a small business can access distant markets through Internet-services or its own well-designed website. Innovation and export are two major sources of economic growth in the information society, and companies which manage to use both of them significantly increase their competitiveness. But many companies often cannot recognize the potential of export-plus-innovation strategies. As G.Albaum and E.Duerr noticed, ‘many small and medium-size companies are so daunted by their lack of knowledge of international business that they fail to follow up on the opportunities’ .
Despite the local and global economic and political crises occurring from time to time, globalization and the international trade will continue to dominate the world economy in long-term perspective. G.Albaum and E.Duerr point to five reasons for that:
1. The information revolution: technological innovations, lowered costs of communications, development of the Internet and Internet-based services for business, advanced business software, and so on.
2. The further development of logistics and supply chain management, supported by new ICT and advances in physical equipment.
3. Increased diversity of the population in many countries, resulted in more segmented niche markets which provide opportunities for small businesses.
4. The lowered governmental barriers to trade and investment, relocation of many economic activities, partially due to increased participation of China and India in international trade and development.
5. The increased competition and opportunities for companies of all sizes, resulting from the greater mobility of goods, services, information and ideas throughout the world .
These reasons are sufficient to consider export-oriented strategies as goals of highest priority. To do it, however, a company has to keep in mind those specific features of the international marketing which can be found in every component of the marketing system and in every element of marketing-mix. The international marketing operates within both a domestic environment and one or more foreign environments. While the elements of the marketing system and the functions of marketing activities are the same in all markets, differences between home and foreign environments can lead to significant errors if ignored.
G.Albaum and E.Duerr focus on four broad environmental components that are especially important for the development of the international marketing program:
? culture and societal structure;
? economic forces;
? competition; and
? political and legal forces .
As can be seen, the list is very similar to PEST analysis – a popular tool in strategic management and marketing used to analyze political, economic, social and technological factors of business environment. Technological factors are however not considered because technological advances are more globalized and widespread. Authors also include a micro-environmental factor of competition as especially important for the choice of the international marketing program.
Let us consider some general features of the international business environment factors which can significantly differ from the domestic market.
Social and cultural factors.
First of all, social and cultural environment influence the behavior of customers and their attitudes toward old and new products, old and new companies. Cultural differences are also important for human resources management, negotiating with business partners and governmental bodies, and in some other aspects of management. Countries differ in their cultural values regarding social relationships, order and authority, gender equality, perception of time and the punctuality, responsibility, competition and cooperation, exhibition of emotions, etc. A person raised within a particular value system, considers it as normal and self-evident. The differences between value systems can often be recognized only after they result in a conflict situation. Values affect social norms and patterns of behavior both in the workplace and in the markets.
At a different level, cultural differences can be seen in language, gestures, perception of colors, symbols and communication styles. Although the potential problems originated from socio-cultural differences in business contexts are now more recognized and more efficiently managed due to increased intercultural competences, especially in large business, they are still extremely important for the companies without sufficient experience in the international business.
An important source of competences and knowledge necessary for doing business outside domestic market is cross-cultural management. This discipline investigates the differences in business cultures, both at the level of basic values and at the level of day-to-day behaviors, practices and communication, and propose recommendations for choosing strategies and tactics in different countries. Examples of cross-cultural models widely used in the international business include the studies by G.Hofstede and F.Trompenaars .
Economic factors directly shape local markets and are thus by definition relevant for international marketers. One important economic factor is total population and location of the population with the country (e.g. urban/rural ratio) – as they determine the potential market size. Income and wealth of the people determine purchasing power. Existing infrastructure, including the communications, energy, and transportation, are important for several marketing elements, such as logistics and the distribution chains.
International organizations such as the World Bank, the World Trade Organization, the World Labour Organization, Organization for Economic Cooperation and Development, and others, gather a lot of statistical data which can be used to compare and classify nations. Different indices and classifications can be used to compare risks and profitability of different foreign markets, to evaluate markets potential, to make investment decisions. International statistics helps to detect trend in local economy and compare it to neighboring or distant countries. At the same time, classifications directly taken from the World Bank or other organizations, should be used with some precautions as they may ignore many factors important for marketers. Sometimes a company can produce an economic classification of countries by themselves. For example, General Electric Company classifies countries into the five clusters: less developed, early developing, semi-developed, developed, and communist societies .
Currency rates are another factor which is crucial for any exporting company. It directly determines the cash flow and profitability of any national market as well as the price policy which can be adopted.
The structure national economy is important because it affects the structure of consumption. In some cases, such as food, or cars, the structural differences are relatively unimportant. But other products, especially in b-2-b markets, are much more sensitive to them. Different industries have different needs, and if an exporter’s production is industry-specific, the structure of national economy directly affects the size of its market.
Political and legal factors.
This category of forces is of high importance for any international enterprise. Different countries have different jurisdiction, which can be a source of both opportunities and restrictions for businesses. The governmental policy, actions, and decisions are the major political force in a country. Governments have their own interests and goals in dealing with companies from abroad. Pursuing these goals – which can unexpectedly change due to elections or other events – government can intervene foreign company in many ways. G.Albaum and E.Duerr point to three general groups of such interventions:
? those that promote international trade and marketing transactions;
? those that impede them;
? those that compete with or even replace international marketing transactions by private business firms .
More specifically, the interventions which have to be analyzed by a company, may include political ideology, legal rules for foreign investors and firms, participation in international organizations and corresponding obligations, membership in formal and informal political, economic and military blocs, import-export restrictions, profit remission restrictions, control over currency conversion, property rights for foreign agents, and others.
Governmental policy and decisions can be motivated by different internal and external factors: electoral situation, career perspectives of the officials, economic situation in a country, external threats, or geopolitical situation and goals.
International relations between the countries determine the easiness of doing business for companies from the different countries, even if the rules are declared as ‘one and the same for anyone’. Another difficulty for planning marketing strategy and developing marketing program is that international changes can rapidly and unexpectedly change. A good example is the situation around Ukraine, or the crisis in Russia – Turkey relations after an accident with a Russian bombardier Su-24 in 2015.
At the same time, the political environment should not be reduced to governmental decisions only. Other factors can also be important. Foreign companies almost never interact with the government of a country they penetrate. They interact with local authorities and depend on their attitudes, practices, and interests. The extent of their independence from the government as well as regional heterogeneity of a country becomes an important focus of attention for market analysts. It worth noting that formal rules, rights and obligations formally declared and fixed in laws and other legal documents, constitute only a part of the political and legal environment. The actual practices determining how these rules are implemented are as significant as laws themselves.
Although competition is the key factor affecting a company’s strategy, it has some nuances in the international marketing. A firm working in a distant market faces a lot of local competitors which are more familiar with it. This is not a problem per se. Lack of familiarity with local market can be counterbalanced with new competences and products a company brings to customers. Being a foreign company can be a competitive advantage in many cases.
What is important is lack of knowledge on more subtle things such as informal rules of competition, determining what can and cannot be done in competition, which methods can be used, how possible are alliances or cartels, and so on. Export marketing planning requires a knowledge of the structure of competition, the number and types of competition, the competitive tools available for competitors’ decisions.
An important factor affecting competition in a local market is product homogeneity: whether a product of one producer is a good substitute for the products of other companies (as in case with steel, or sugar). For homogeneous products, price becomes the key factor of marketing-mix, and companies, including foreign ones, have to reduce cost as much as possible, by reducing, inter alia, the product quality to the minimally acceptable level. When the product is less homogeneous, differentiating strategies are more relevant.
The factors mentioned above should be carefully analyzed to develop a promising marketing program. They affect all the elements of marketing-mix.
The product has to be adopted for a local market to a larger extent as compared to domestic markets. National technical regulations, customers’ cultural differences and behaviors, policy of localization, the necessity to translate documentation – all this makes the product policy more complicated than at home.
Pricing has to take into attention customers’ expectations, typical ways of payment, and the changes in currency rates.
Placement decisions are based on local transportation infrastructure with its limitations, and have to be made according to local customers’ practices of shopping and logistics.
Promotion is the most sensitive to cultural differences in symbols, language, naming, colors, design, advertisements, and other tools used to influence customers’ behavior.
To sum up, we may conclude that entering foreign market is a responsible decision, which has to be done on the basis of a detailed analysis of local markets. Political, cultural and economic environment in various countries and regions has important differences as compared to domestic markets, and should be kept in mind when choosing marketing strategy and developing marketing programs.
Not only countries differ in their business environments. The same can be said about industries. As the current study deals with software products, it is reasonable to analyze some general features of the software market important for the development of marketing programs.
1.2 Marketing of Software Products in International Markets
Software industry is one of the most internationalized industries in the world and a necessary prerequisite for the formation of global markets of other products. Specific features of the software products marketing are determined by the nature of the software as a computer product.
Computer software can be defined as ‘computer instructions that control the functioning of computer hardware and direct its operations’ . It includes two types of instructions: machine instructions and source code. A software program is a set of instructions performing a specific task with a computer. A group of interrelated and interconnected programs compose a computer system. Instructions are written with programming languages, utilities, and other tools. There are different generations of programming languages determining to what extent they are ‘programmer friendly’ and understandable by humans. This is particularly important for marketing because it affects the degree of customers’ dependence on programmer skills.
Recent advances in software engineering facilitate the process of programming by using sophisticated tools and approaches such as computer-aided software engineering (CASE) or model-driven architecture (MDA). Such tools enable reuse the code and fasten the production of a software program or system.
When a software program is compiled it has to be tested. Testing procedures include integration tests (whether the interfaces between connected programs work), system tests (how a program works as a whole), acceptance tests performed by users to verify whether a program satisfies their needs .
There are several strategies to develop computer programs including the waterfall, spiral developments, rapid application development, object-oriented development, and agile development . These features of software products and the production process are important for marketers because the affect the properties of the end product, its flexibility, as well as the mode of relations between the developer and customers.
Software products can be classified in different ways.
According to the main technical purposes of the product, one can distinguish between two broad categories:
1. Systems software. It performs functions necessary for computers to run. It controls, integrates and manages the low-level processing of computers, servers, networks, and devices. Systems software includes:
? operating systems (Microsoft Windows, Linux, etc.);
? device drivers (for hardware elements, printers, USB drivers, and so on);
? compiler or debugger software (necessary to fix errors in machine functioning);
? utility software (archiving software, disk defragmenters, encryption software, etc.).
2. Application software. It accomplishes particular tasks necessary for end-users. It can consist of a single application or a package. There are a lot of types of application software: office programs, game software, applications and packages for business management, manufacturing, construction and design, data management, data analysis, graphic design, and so on.
Figure 1 depicts the global structure of the software development market, excluding software-related services.
Figure 1. The structure of the software development market
P.Buxmann and others propose a classification which include different roles of software providers in markets:
1. Software providers in the narrow sense, creating standard or custom software.
2. Providers implementing software.
3. Providers operating software .
Although many applications and systems are highly standardized in current economy, there will remain a need for complex solutions that has to be implemented and integrated into an application environment. There are three types of companies providing software support on later stages in the software lifecycle:
? IT consultancies and systems integrators which offer IT consulting, customize software, select and integrate the software products with companies’ business processes;
? IT service providers (outsourcing, training etc.);
? Business innovation/transformation partners (IT management and consulting, system implementation) .
A new and different type of software product is the software as a service (SaaS) concept which is considered as a key trend in the industry. SaaS products are software solutions provided in the form of a service over the Internet. SaaS products are based on cloud computing and its customers do not need to install the software on their computers. The SaaS provider is responsible for the operation and maintenance of its software and does not charge license fees.
The unique nature of software product and software industry has direct implications for the choice of marketing strategy and the development of marketing program. In terms of the marketing-mix, it is possible to identify the following distinctive features of software marketing.
Software products are more flexible and, once developed, can be modified to satisfy the needs of different groups in a relatively simple way. The customer can gain the varying degree of control over the product up to the full access to the program code. The quality of every copy of a product is exactly the same and its functionality can be restored even in case of hardware damage or malware attacks. The development process can be performed by the distribution team of programmers, system analysts, and other specialists situated in different places and countries. The user interface – a functional equivalent of a product’s design, – can easily be customized and localized for different markets. Software products can be updated – a feature which is generally absent in case of other products. One and the same software product can be sold as a licensing product, or as a service without licensing requirements. Finally, one important feature of the software, crucial for marketing, is its sensitivity to violations of intellectual property rights. It is almost impossible to control the illegal use of software products, especially in b-2-c markets. In many developing countries, the share of illegal software installation can be up to 60-70% or even more.
A key distinctive feature of software products, in terms of the production process, is that they can be reproduced cheaply. It makes the pricing much more flexible as compared to traditional products. The fact that software is a digital product, means that it can be delivered by electronic communications (via Internet or email). This can reduce the costs of delivery for 95-97%.
Any digital product can be delivered by electronic communication, as has already been noticed. Software can be written down on any digital media: CD or DVD, flash drive, it be delivered by downloading from a website, or accessed via the Internet within the SaaS model. Electronic communication make it possible to deliver the software in seconds throughout the world. Any individual or corporate customer can pay and get their ordered software without exiting his/her home or office.
Software products can be promote in many different activities, like any other product. One specific promotional tool for software is trial versions of a program, or freeware. Software companies often use these forms of delivery to get customers interested. A customer can use a fully functional version of a program to evaluate how it works and to understand whether it satisfies their need, without paying pro the license. Freeware products can be used to promote other, commercial products of the same vendor.
From the customers’ point of view, different elements of the marketing-mix can be crucial for buying decisions. The following selection criteria have been identified as the most important for the users of Enterprise Resources Planning (ERP) systems:
1. Functionality. For implementation phase it includes the ability of software to be integrated into existing IT-infrastructure of a company.
2. Cost, including implementation time and customization costs.
3. User friendliness, including access to technical support from provider.
4. Reliability, partially based on the reputation of provider .
Taking into account diversity of software products and markets, no surprise the companies can adopt very different business models according to their competences, resources, and experience.
P.Buxmann, H.Diefenbach and T.Hess identify three generic business models of software companies.
1. Supplier of individual software. Such firms develop custom software to satisfy specific needs of a company. The distribution model is based on direct contacts with customers, and revenue is generated by payments for completed solutions and used resources.
2. Supplier of standard software B2B. Software is developed for a mass market on the business side. Revenue is based on one-time license fee and support fees, and the distribution model is also based on direct sales to customers.
3. Supplier of standard software B2C. Software is developed for a mass market on the consumer side. Distribution model is based on digital or physical retail and, sometimes, as OEM preinstallations on computer hardware. Revenue is generated by one-time license fees .
Within these generic business models, a lot of general and marketing strategies are possible.
An empirical study conducted by Markus Schief showed several areas of strategic decisions made by software companies.
1. Value proposition. Value proposition is the core of the competitive strategies, it determines how the company create value for their companies. Using M.Porter’s classification of the competitive strategies, M.Schief found that most companies choose differentiation strategies whereas cost leadership strategies are less common. Firms strive to be perceived as unique in the industry .
2. Investment horizon. The strategy can be more or less growth-oriented and thus lead to different investment decisions. According to M.Schief, a number of firms considering growth as the most important objective is roughly the same as a number of firms focusing on a different goal .
3. Value chain. The software value chain consists of all activities relevant to software firms. But companies differ in their perception of relative relevance of these activities. The study showed that the following activities are considered as relevant by the surveyed companies:
? support (99% consider as relevant);
? development (98%);
? maintenance (98%);
? implementation (96%);
? marketing (89%);
? operations (89%);
? education (89%);
? replacement (74%);
? research (69%);
? production (41%) .
4. Degree of vertical integration. Relevant activities mentioned above can be an offer in the marketplace, or it can be a demand, an activity which must be performed by someone. The study showed that three activities (operations, production, and marketing) are mainly outsourced to partners, whereas the others are performed internally .
In developing marketing programs, software companies pay attention to the following factors relevant to marketing-mix :
? sales volume;
? revenue source (direct or third-party);
? pricing assessment base (usage-based or user-independent);
? payment flow structure (upfront or recurring);
? software stack layer (application or systems software);
? platform (desktop computers, servers, mobile devices, cloud computing, embedded systems, etc.);
? license model (proprietary, open source, etc.);
? degree of standardization;
? key cost driver (personnel costs or purchase costs);
? sales channel (sales agents, events, telesales, online shops, retail stores);
? target industry;
? target users (software developers, specialist, broad workforce, customers, etc.);
? implementation effort (low – high);
? operating model (on-premise or on-demand operations;
? maintenance model (release frequency);
? support model (standard or customized); and
? replacement strategy (a number of releases).
The description of the software industry presented above, as well as the theoretical analysis of the international business features important for the marketing program development, allows us to make some preliminary conclusions.
Both international and industry-specific aspects of the global software industry significantly affect a company’s marketing strategy and marketing program development. Foreign markets differ from the domestic market in many important aspects which have to be thoroughly analyzed by a marketer. Political, economic and cultural factors of business environment are of a special importance. The nature of software products, in turn, provides new opportunities and threats for a company which shapes its marketing-mix, especially in terms of product characteristics and pricing.
The next chapter provides a detailed analysis of business environment and market situation in one of the most complicated region of the world – Iraq.