In the previous article, we discussed what marketing and software marketing in particular is and what it is not. We defined marketing, its scope and how it fits into business processes as an organizational function. To better understand the marketing function and move forward to software marketing specifics, we need to have a shared understanding of some core marketing concepts.
Disclaimer: In this article, we’ll cover some core marketing principles and concepts that relate to the general marketing theory. While the material might look interesting from the academic perspective only, I believe it’s crucial for software marketers to understand those core principles before we start considering more specific cases related to marketing software products and services.
Marketers and prospects: A marketer is someone who seeks a response from another party, called the prospect. As we discussed in the previous article, money is not always the only or even the top priority response that marketer is after. It can be a purchase, attention (or time spent with a product or on a platform), a vote, a donation, etc.
Marketers should be skilled at stimulating demand for their products, but that’s a limited view of what they do. Positive demand isn’t possible if consumers don’t like a product or it doesn’t satisfy their core wants and needs. Sure, in a short-term one could cheat the market, driving a lot of attention to a waste product, but once the truth is revealed, the product and the company as a whole are going to experience dramatic consequences.
Several product/service demand states are possible:
- Negative demand — Consumers dislike the product and may even pay to avoid it.
- Nonexistent demand — Consumers may be unaware of or uninterested in the product.
- Latent demand — Consumers may share a strong need that cannot be satisfied by an existing product.
- Declining demand — Consumers begin to buy the product less frequently or not at all.
- Irregular demand — Consumer purchases vary on a seasonal, monthly, weekly, daily, or even hourly basis.
- Full demand — Consumers are adequately buying all products put into the marketplace.
- Overfull demand — More consumers would like to buy the product than can be satisfied.
- Unwholesome demand — Consumers may be attracted to products that have undesirable social consequences
In each case, marketers must identify the underlying cause(s) of the demand state and pursue shifting it to the full demand (irregular is also ok if it’s a market reality or your established business model). Full demand is impossible without A: a great product and a superior value that it delivers B: coordinated work of the product team (developers, marketers, designers, sales, etc.).
Market: Traditionally, a "market" was a physical place where buyers and sellers gathered to buy and sell goods. Economists describe a market as a collection of buyers and sellers who transact over a particular product or product class (such as the housing market, grain market or IT market). On the other hand, marketers use the term market to describe prospect/customer groups. They talk about need markets (the diet-seeking market), product markets (the software market), demographic markets (the "millennium" youth market), geographic markets (the Chinese market), or voter markets, labor markets, and donor markets.
The diagram below shows the connection between sellers and buyers by four flows. Sellers send products, services and other entities and communications such as ads, direct mail, content (on a website or a blog), to the market; as the response, they receive money (or other desired type of response) and information such as customer feedback and sales data. The inner loop shows the primary market request/response; the outer loop shows an exchange of information (which is supplementary, but extremely important):
Main types of software customer markets
Consumer Markets (B2C) - Companies selling, mass consumer products and services by developing a superior product or service, ensuring its availability, and backing it with engaging communications and reliable performance.
Business Markets (B2B) - Companies selling business software products and services often face well-informed professional buyers skilled at evaluating competitive offerings. Advertising and websites can play a role, but the sales force, the price, integrations with other market players (other software systems), customizations (incl. APIs), reliable partners and the seller’s reputation may play a greater one.
Global Markets - Companies in the global marketplace navigate cultural, language, legal, and political differences while deciding which countries to enter, how to enter each, how to adapt product and service features to each country, how to set prices, and how to communicate in different cultures.
Nonprofit and Governmental Markets - Companies selling to nonprofit organizations with limited purchasing power such as churches, universities, charitable organizations, and government agencies (with their budget specifics) need to price carefully. Much government purchasing requires bids; buyers often focus on practical solutions and favor the lowest bid, other things equal.
Needs, Wants, and Demands
Needs are the basic human requirements such as for air, food, water, clothing, and shelter. Humans also have strong needs for recreation, education, communication, entertainment, etc. These needs become wants when directed to specific objects that might satisfy the need. A consumer needs to communicate with friends and family but may want a free messenger with text and video calls which can be installed on multiple devices. Our wants are shaped by our society.
Demands are wants for specific products backed by an ability to pay. Many people want the latest the greatest smartphone or a laptop. Not everyone can afford it. Companies must measure not only how many people want their product, but also how many are willing and able to buy it. It’s especially important for the software industry, where there could be dozens of free and open source alternatives for a given product.
Marketers do not create needs: Needs pre-exist marketers. Marketers might promote the idea that a software product satisfies a person’s need for increased productivity. They do not, however, create the need for high productivity. That’s why if there’s no need for high productivity, communicating this value might lead to a failure.
Some customers have needs of which they are not fully conscious or cannot articulate. We can distinguish five types of needs:
- Stated needs (The customer wants an inexpensive smartphone)
- Real needs (The customer wants a smartphone that will last for at least two years)
- Unstated needs (The customer expects frequent system updates and compatibility with modern apps)
- Delight needs (The customer would like the vendor to include NFC so he or she can use Android Pay)
- Secret needs (The customer wants friends to see him or her as a savvy consumer)
Responding only to the stated need may shortchange the customer. Consumers did not know much about smartwatches or Siri when they were first introduced, but Apple worked hard to shape consumer perceptions of them. To gain an edge, companies must help customers learn what they want.
Segmentation, Targeting, Positioning
We’re all naturally different, so not everyone likes the same. Marketers, therefore, identify distinct segments of buyers by identifying demographic, psychographic, and behavioral differences between them. They then decide which segment(s) present the best opportunities according to company’s goals. For each of these target markets, the firm develops a market offering that it positions in target buyers’ minds as delivering some key benefit(s).
Offerings and Brands
Companies address customer needs by putting forth a value proposition, a set of benefits that satisfy those needs. The intangible value proposition is made physical by an offering, which can be a combination of products, services, information, and experiences.
A brand is an offering from a known source. A brand name such as Apple carries many different kinds of associations in people’s minds that make up its image: creative, innovative, easy-to-use, fun, cool, iPhone, Macbook and iPad to name just a few. All companies strive to build a brand image with as many strong, favorable, and unique brand associations as possible.
To reach a target market, the marketer uses mainly three types of marketing channels:
Communication channels deliver and receive messages from target buyers and include magazines, TV, mail/email, billboards, posters, fliers, in-app notifications, search/display ads, websites. Beyond these, firms communicate through other media, adding dialogue channels such as e-mail, blogs with comments, text messengers, social media, online chats as opposed to one-way communication channels. The banded look of the retail stores and websites is also critical: currently, the omnichannel concept is trendy. This concept suggests that people’s relationships with an organization can be improved by orchestrating communication channels and their supporting resources to cooperate, building a coherent, evolving, cross-channel experience:
Distribution channels help display, sell, or deliver product or service(s) to the buyer or user. These channels may be direct via the Internet, mail, or smartphone or indirect with distributors, wholesalers, retailers, marketplaces and app stores as intermediaries. Marketers also use service or partner channels that might include training companies and integrators.
To carry out transactions with potential buyers, marketers also use service channels that include banks, payment providers, transportation (Amazon using DHL as a service provider).
Marketers face a design challenge in choosing the best mix of communication, distribution, and partner channels for their offerings.
Paid, Owned and Earned channels
The rise of digital media gave marketers a host of new ways to interact with consumers and customers. We can group communication options into three categories. Paid media include TV, magazine and display ads, paid search, and sponsorships, all of which allow marketers to show their ad or brand for a fee.
Owned media are communication channels marketers own, like a company or brand leaflet, website, blog, Facebook page, or Twitter account.
Earned media are streams in which consumers, the press, or other outsiders voluntarily communicate something about the brand via word of mouth, buzz, or viral marketing methods. The emergence of earned media has allowed some companies to reduce paid media expenditures. Many small companies and startups, those who are short on budgets, rely heavily on this type of media. Digital revolution transformed the way companies do business now. If some time ago all you had to have was a budget and good relationships with media owners, now it’s even advisable to avoid established paid media for startups. Even large corporations rely less and less on traditional media or digital paid channels and more on social media, content marketing, natural or prompted word of mouth, just because these types of media are more reliable, predictable, measurable and more efficient.
Impressions and Engagement
Marketers now think of three “screens” or means to reach consumers: TV, Internet, and mobile. Surprisingly, the rise of digital options did not initially depress the amount of TV viewing.
Impressions, which occur when consumers view a communication, are a useful metric for tracking the scope or breadth of a communication’s reach that can also be compared across all communication types. The downside is that impressions don’t provide any insight into the results of viewing the communication.
Engagement is the extent of a customer’s attention and active involvement with a communication. It reflects a much more active response than a mere impression and is more likely to create value for the firm. Some online measures of engagements are Facebook "likes", Twitter tweets/retweets and tweet "engagements", comments on a blog or website, and sharing of video or other content.
Value and Satisfaction
The buyer chooses the offerings he or she perceives to deliver the most value, the sum of the tangible and intangible benefits and costs. Value, a central marketing concept, is primarily a combination of quality, service, and price (QSP), called the customer value triad. Value perceptions increase with quality and service but decrease with the price. Coefficients for QSP are unique to your product or service, and it’s your job as a marketer to find the right balance between them to deliver the most value. It’s similar to the marketing mix (product, place, price, promotion) which is also unique for your given situation.
We can think of marketing as the identification, creation, communication, delivery, and monitoring of customer value. Satisfaction reflects a person’s judgment of a product’s perceived performance in relation to expectations. If performance falls short of expectations, the customer is disappointed. If it matches expectations, the customer is satisfied. If it exceeds them, the customer is delighted.
This concept is central for marketing traditional products but often overlooked when marketing software products and services. Software is much different from traditional products, but we can see analogies and realize that supply chain principles fully apply to software products.
The supply chain is a channel stretching from raw materials to components to finished products carried to final buyers. The supply chain for coffee may start with Ethiopian farmers who plant, tend, and pick the coffee beans and sell their harvest. If sold through a Fair Trade cooperative, the coffee is washed, dried, and packaged for shipment by an Alternative Trading Organization (ATO) that pays a minimum of $1.26 a pound. The ATO transports the coffee to the developed world where it can sell it directly or via retail channels. Each company in the chain captures only a certain percentage of the total value generated by the supply chain’s value delivery system.
End-user software products and services almost always rely on other high-level application software, development frameworks and libraries, APIs, databases (Oracle Database, IBM DB2), system software (low level libraries and operating systems), virtualization solutions, hosting services (including cloud hosting providers such as Amazon EC2, Microsoft Azure), communication services (Marketo, MailChimp, MailGun) and many others.
If your software uses databases, which is quite likely, and the database queries are slow, that dramatically affects end-user experience. If the mailing services are down, that affects their experience by not getting important emails (order confirmations or license delivery as an example); if your hosting doesn’t provide high availability, your product or service may be completely unreachable, meaning no service. Every layer and every part of the end-user solution affects the final product value. That’s why largest software companies, such as Google, Amazon, Microsoft, and Oracle develop own full stack solutions and acquire other companies if they feel a new technology can benefit their customers.
When a company acquires competitors or expands upstream or downstream, it aims to capture a higher percentage of supply chain value. Problems with a supply chain can be damaging or even fatal for a business. Oracle Corporation started in 1977 and had just one product at that time - Oracle Database. It’s still their core driver of revenues, however, since then Oracle has built the entire stack by developing their own solutions and acquiring other companies. They expanded upstream by developing ERP and CRM systems, but more interestingly they expanded greatly downstream. One of the most significant tech news was an acquisition of Sun Microsystems by Oracle in 2009. With this move, Oracle stepped beyond just software and instantly jumped into the hardware business. Now they have their own hardware systems, own programming language (Java), their own operating systems (Solaris and Oracle Linux), own virtualization platform (Oracle VM), and many more components of their end-user solutions.
Competition includes all the actual and potential rival offerings and substitutes a buyer might consider. Competition in the software market is fierce and sometimes breaks all the traditional rules. Buying software is a relatively straightforward process, software delivery is seamless in most cases so jumping from one product to another is much simpler than compared to traditional physical products. Open source software, subscription licensing model, freemium model, and many more are something invented because of the features of software and the ways it’s bought, distributed and used. There are no national borders when purchasing software. A firm in the US can easily buy and instantly start using software developed by an Indian firm. As an alternative, it can also hire a few developers at cost savings to adapt and maintain an open source solution which is free. Product substitution is also quite common as software is very flexible. Considering a CRM solution, one can go with full-fledged Salesforce or consider HubSpot, or SugarCRM or Odoo (open source), which offers less out of the box, but can be a better choice when applied to a particular case. Marketo or Zoho Campaigns, which are not CRM systems, can also be considered as alternatives.
The marketing environment consists of the task environment and the broad environment. The task environment includes the actors engaged in producing, distributing, and promoting the offering. These are the company, suppliers, distributors, and target customers. In the supplier group, there are lower-level solution suppliers and service suppliers, such as marketing research agencies, advertising agencies, banking and insurance companies, transportation companies, and telecommunications companies. Distributors include agents, brokers, resellers, vendor representatives, and others who facilitate finding and selling to customers.
The broad environment consists of six components: demographic environment, economic environment, social-cultural environment, natural environment, technological environment, and political-legal environment. Marketers must pay close attention to the trends and developments in these and adjust their marketing strategies as needed. New opportunities are constantly emerging that await the right marketing savvy and ingenuity. Consider Pinterest:
"Pinterest One of the fastest-growing social media sites ever – its surpassed 10 million monthly unique U.S. visitors in January 2012 and doubled that just four months later–Pinterest is a visual bookmarking tool that lets users collect and share images of projects or products on digital scrapbooks or "pinboards". Especially popular with women planning weddings, saving recipes, and designing kitchen upgrades, Pinterest has driven more traffic to websites in a month than Twitter, Google+, LinkedIn, and YouTube combined. Part of its appeal is its unique customizable grid of images. Pinterest’s sweet spot is that users are often in a shopping mindset; one study showed almost 70% of online purchasers who found a product via Pinterest went on to buy, compared to 40% for Facebook. Brands from Dell and Mercedes-Benz to Peanut Butter & Co. and Zombie SAK are integrating the site into their social media strategies. Nevertheless, Pinterest is still exploring how to best monetize its business venture."*
*Kotler, P. and Keller, K. (2016). Marketing management.: Pearson.
That's it for today. Let's keep going with learning marketing for software products and services.