Software applications are ideal products to sell online but many merchants limit themselves to only selling into a single country. Whether you’re just starting to sell online or have an established business, selling internationally is an important opportunity for the development of your business overall. In this article we look at some of the key things to consider when seeking to expand abroad.
First things first: decide where you’re going
Before launching on your international growth campaign, you need to decide where to expand. The US is generally where software companies get most of their sales, and it’s a strong market with a good long-term outlook. However, you shouldn’t limit yourself to that territory, especially as developing economies gain traction. More and more software companies are looking to grow in emerging markets like Latin America (LATAM), China and India, but all of these markets have unique requirements.
To prioritize your approach, you’ll need to do some intensive research on your target markets. This should include identifying the market size and trends, competitive landscape, opportunities and risks. Also take into consideration where the customers and traffic on your website currently come from, which can make it easier to get started planning your expansion.
As you can see in figure 1, the Americas account for almost 50% of the entire global software and software-as-a-service (SaaS) market. North America (US and Canada) specifically is a mature market that’s growing more slowly than emerging markets but still faster than Europe. Competition is strong in the US, so have your company’s SWOT (Strengths, Weaknesses, Opportunities, and Threats) analysis close by and know how you plan to stand out from the crowd. When it comes to emerging markets in the Americas, Latin American is growing very quickly. One of the most important factors to focus on is localization of your existing offers – this is especially important in Brazil.
Figure 1 – Software Applications Market Geographical Breakdown(source: Gartner Market Databook 3Q11 Update)
The second biggest software market to target is Europe, Middle East and Africa (EMEA), and specifically Western Europe: United Kingdom, Germany, France, Italy and Spain. These established markets currently make up around one-third of the total software and SaaS sales. EMEA also features three interesting emerging markets with a lot of potential: Russia (and CIS), Poland and Turkey.
Last but not least, the Asia-Pacific (APAC) region claims some 16% of the worldwide software and SaaS market share, with a strong market in Japan and major emerging markets in China and India. APAC is expected to grow dramatically in the coming years due to a combination of population growth, increasing demand and current market headroom, so it’s a great place to turn your focus now.
Use affiliates and resellers as “translators”
One of the best strategies for approaching new markets is to minimize costs and risks by using affiliates. Growing your business through affiliates offers many benefits:
- Affiliates get paid only if they generate value (sales, leads).
- Affiliate programs are easy to set up.
- Affiliates have established online audiences in a specific market
When it comes to business models, performance marketing encompasses several models that you can experiment with when selling online: pay-per-sale, pay-per-install and even pay-per-lead. Depending on the type of products that you have and the locale you’re targeting, you can come up with ways to effectively motivate affiliates using your model.
Pay-per-lead, for example, works best with larger deals for business-to-business (B2B) software and online services, while affiliates targeting emerging markets will most certainly prefer pay-per-install instead of pay-per-sale due to lower conversion rates in those areas. Work closely with experienced affiliates and examine competitors’ tactics to refine your strategy in a specific market.
Once you’ve established your target market and affiliate model, join a local affiliate network and start recruiting affiliates. If you have the budget, working with agencies or outsourced program managers (OPM) to connect with strong local affiliates and resellers can really accelerate the process of seeing returns from your affiliates. But with the right localized offer, you can successfully recruit affiliates yourself.
If things go well with affiliates thus proving that the market opportunity exists, the next step is to start looking for resellers. Strong points in favor of using resellers include their usually reliable and experienced sales techniques, their established long-term industry partnerships and their preexisting active presence in the local market.
There are no “rules” that determine whether to use affiliates or resellers in any particular case, but both can help you tap into new markets more easily and cost effectively than you can by using only your own resources.
Dress like a local: 5 steps to prepare your product for growth
Now that you’ve gained a sense of where and how to sell to customers within a certain territory, we recommend working through five steps to prepare for expansion into new markets. You might compare it to “dressing like a local,” or adopting local customs to appeal to customers in a specific market.
1. Localize your offer. Translate your website and products or services into the language of the region you’re targeting. English is not always the best converting language, so having your offer localized can greatly help generate and convert new leads. And don’t stop there, if you include testimonials on your website add endorsements from local influencers, well-known publications or prominent clients.
Proof point: Patrick Llewellyn from 99Designs says his company saw a 50% to 60% uplift in sales in Germany after translating their website, adding a local support number with local business hours and supporting local payment methods.
2. Take care of legal requirements and local taxes. When entering a new market, consider the local legal framework. Find out if there are any particular regulations to consider such as the European Union’s ePrivacy Directive (also known as the “cookie law”). Localizing prices must also include adapting to local taxation characteristics. For instance, shoppers in Europe and in other countries, unlike the US, are accustomed to having taxes included in the prices, not added during the purchase process. Seeing taxes pop up later can surprise and deter these shoppers.
Tip: Identify a partner to act as your Merchant of Record or Reseller in a particular market who can deal with all the aspects of financial transactions and shopper payments on your behalf. A Service Provider (Direct) model requires you to handle taxation and payment processing yourself and interact directly with shoppers and payment processors which can be expensive, confusing and time-consuming.
3. Support local payment methods. Not every buyer is able or willing to pay in US dollars using a credit card, so team up with a solutions provider that can fulfill local payment methods for your target region. Or go even further and establish regional
pricing models to attract new users in a specific locale.
Proof point: AVS4YOU, a UK based software company, saw sales in France increase by 40% after establishing regional pricing, displaying prices in the local currency and adding local payment methods.
Preferred local payment methods around the world:
- Over 40% of shoppers in the Netherlands prefer iDeal, a standardized online banking-based payment method.
- PayPal is now the preferred online payment method for German shoppers.
- Alipay is the dominant online payment platform in China, accounting for approximately 50% of the market.
- 30% of all online payments made by Brazilian shoppers are processed through the Boleto Bancario system.
- Konbini payments account for up to 18% of ecommerce transactions in Japan.
4. Offer native language support during local business hours. This is an absolute requirement for the strongest markets out there, including Japan, France and Germany. Not only does it help customers find information and deal with any issues, but it
also builds confidence in your company, products and services. This is especially important in software, where companies can’t just make a sale and run, but need to provide ongoing support. Be sure to localize product documentation as well as establishing local email and phone support. Outsource translation and support for specific languages if you don’t have sufficient internal resources, or consider using resellers to handle support requests.
5. Customize promotions for each market. Depending on the region you want to target, you can build traction by reaching out to customers in different ways. Find out what the top performing companies in a region do, then follow their lead while also differentiating your promotions. For example, failing to offer a free trial for a business-toconsumer (B2C) software product will almost certainly reduce your opportunities in the Middle East and many emerging markets. Your discounting policy will also affect sales in different regions, so see how you can add value for your customers with region-specific offers.
Going international will help drive more revenue for your company at low risk if you do it the smart way: by sharing your risks and your earnings with affiliates and resellers initially. Starting out with support from partners is a great way to drive additional revenue in the short term while incurring minimal costs. Then, if a market proves worthwhile, you will be able to focus additional resources with less risk.
International markets will continue to grow. Now is the moment to ensure that your international expansion plans are in place and that you have spent the time to find good partners with which to work.