1 Specificity of military purpose products
1.1 Similarities with capital goods
The usefulness and value of MP (Military products) for a buyer shows itself in a relatively long time and are capital goods to the choice of which the buyer is particularly careful and this determines the specifics of marketing and product promotion on the market.
Unlike non-durable goods, capital goods are expensive, their service life sometimes exceeds decades and purchase decisions are made by top managers, and these decisions are based on field trials and evaluation of all characteristics.
The estimation of the expected returns from capital goods is calculated by discounting future financial flows for the operation of the MP, which allows the buyer to analyze similar offers and evaluate the effectiveness of investments. Consumables, ammunition, spare parts, repairs, training of specialists can be considered as goods for discounting.
Characteristics reflecting the similarity MP with capital goods:
1.2 Similarities with long-term
financial assets
financial assets
The cost of MP and their real monetary value as in the case of financial assets is determined by the situation on the market and can be classified according to the psychophysical reaction of buyers.
The price of MP can have a high volatility depending on the state of the market and can also be determined by non-market reasons such as the political situation. The weapons system acquired by the buyer, by analogy with financial assets, resembles a portfolio in which it is necessary to balance samples of military equipment with different efficiency and price range.
1.3 The inclusion of military
products in a complex system
products in a complex system
Buying military equipment is only the initial stage of its use. The benefit from the operation is related with the additional costs for maintaining the product in its original state and its improvement. The use of MP is characteristic is possible only after its inclusion in a more complex system.
An aircraft cannot be used without an air traffic control system. Installation of weapon systems, ammunition, refueling with fuel and air, power supply to the airfield, logistics, specialists, etc. are necessary. Not only direct costs but also operating costs associated with the process of consumption are important for the purchaser of MP.
The cost of military products is only one of the parameters for assessing competitiveness compared to similar systems. The ability of the buyer to maintain efficiency in comparison with the size of total costs and its ability to satisfy a specific need are at the forefront.
1.4 Total Cost of Ownership
1.5 The limited choice of promotion methods
Modern promotion methods (focus group, trial sales, demonstration at the consumer, promo actions, event marketing, Internet, television) do not apply or are limited to the promotion of MP.
International exhibitions, demonstration of military equipment at test sites and during combat operations have the greatest effect on the buyer to stimulate sales in the military-industrial complex.
1.6 The segmentation of the global market
The world market of MP is segmented by the level of development of countries, participation in military blocs, international organizations and the political situation:
- the developed countries
- advanced developing countries
- developing countries
- other developing countries
- backward countries
1.7 A narrow circle of buyers
Military products have a narrow circle of customers compared with consumer goods.
Buyers of military equipment are most often government agencies, officials and decision makers on the purchase of MP, as well as military specialists responsible for the technical part of the transaction.
Resellers may officially or unofficially (black market agents) acting with the approval of state members may participate in the sale of military products.
1.8 State regulation
The export of products of military-industrial complex is carried out under the most severe control of the state, regulated by legislation and agreements between states. The arms market is influenced by the foreign policy of the seller and buyer states and it is subject to changes in the political situation and the world arms market condition.
Organization and participation in MP exhibitions are carried out within the framework of the system of control and supervision of marketing, advertising and exhibition activities in the field of military-technical cooperation, which in accordance with the legislation of the Russian Federation is carried out by the Federal Service for Military-Technical Cooperation.
The main task of the Russian FSMTC is to promote the development of cooperation between Russia and other countries of the world in the military-technical field, including through the organization and participation of Russian companies involved in the production and trade of military equipment in international exhibitions, hence, its export, marketing and promotion on global markets.
1.9 Problems of promoting Russian
products on the world arms market
products on the world arms market
2 The participation in exhibitions as a basic criterion of MP promotion
2.1 History of science and technology exhibitions
The idea of presenting the achievements of science and technology in the military industry, and in particular in the aviation industry, arose in Russia when aeronautical engineering was first demonstrated at an industrial exhibition in 1890 in Nizhny Novgorod.
The first international exhibition of the aviation industry was opened in Paris in 1909.
2.2 Interest in the world
2.3 Exhibition as the most
powerful marketing tool
powerful marketing tool
The participation of manufacturers in exhibitions is crucial in MP promotion, and the results of participation affect the activities for many years.
Promotion is any form of communication between the seller and the buyer whose main goals are to provide information (including texts, photos, videos, infographics, research), beliefs, product reminders, social activities and ideas. The most important promotion functions include:
2.4 The structure of the exhibition event
2.5 Competitive advantages
of participation in exhibitions
of participation in exhibitions
2.6 Problems arising at different stages
of participation in exhibitions:
of participation in exhibitions:
2.7 Examples of mistakes and recommendations to organizers and companies which have opportunities for total participation in international events
2.8 Expert opinions
3 Theory of behavioral finance
3.1 Behavioral marketing
3.2 Behavioral Finance
Behavioral Finance - finance theory which takes into account the irrational nature of human behavior and its influence on his decision-making.
The main achievement of the theory of behavioral finance is awareness of the fact that in the field of finance as in other areas of life people tend to make decisions and they often act in the effect of stereotypes, perception illusions, in-country media discourse, preconceived opinions, errors in information analysis.
Individuals do not tend to the rapid assimilation of information, as a result of which non-standard conclusions can be taken that violate the expected utility. The study of the theory of behavioral finance was formed from the classical theory that can determine the optimal choice but is completely helpless in describing the process of real choice.
For a real assessment of the situation during making important decisions, it is necessary to correctly use the information, otherwise it may lead to incorrect assessments and decisions.
3.3 The reasons for the irrational people behavior
(on the example of information):
(on the example of information):
3.4 Conservatism in the processing of information
In 1968 psychologist William Edwards published the results of a study in which he showed that the slowing down of subject views changes in the in connection with new information is associated with its gradual processing.
If a person has a preliminary opinion about a concept, then the rest of the information that has a different point of view will be ignored, and at best it remains underestimated.
In order for well-established knowledge to be undermined, two to five new testimonies of the same direction are necessary.
3.5 The most important emotional factors that cause the deviation from rational behavior in particular include
3.6 Examples of effects reflecting the characteristics
of the human psyche during making decisions
of the human psyche during making decisions
3.7 Consistent patterns in military trade
- success in the MP sale is related to the degree of the arms sellers involvement in reducing risks for the buyer
- the purchase of a weapon product is constrained by the fear of failure, fear of making a mistake because of the wrong decision
- the negotiation process can both reduce and increase the risk perception and fear of the buyer
- the creation of a trusting relationship occurs through answers to questions: the aim of these questions is clarifying the real needs of the buyer
- weapon sellers usually listen twice as much as they say
- the weapon contract cannot be frustrated by careful consideration of the buyer's requests
- to build a good relationship with the seller is important for the buyer first of all
- after the sale of complex and highly intelligent weapons, relations remain for a long time
- established relationship between the seller and the buyer is more important than the product itself
- success rates increase if the buyer and the seller unite their efforts in the result
- the seller can win if it will be presented as a consultant and even as a partner who solves individual problems
- in order to satisfy the buyer requests the seller must introduce himself not as the seller, but as an assistant who is interested in the transaction
- the seller must act as an advisor knows how products can meet the needs of national defense and state security
- each attribute of the organization including the seller appearance, the product, its packaging, brand, advertising materials, creates a certain attitude and creates a desire to have a relationship with such company
- no one is able to present the proposed samples of military equipment better than the enterprise of the developer and MP manufacturer
3.8 Adam Smith's Theory of the Economic Man
3.9 Psychological profile of the buyer
| Officials (further) | Military technical specialists (further) | Resellers (further) |
|---|---|---|
| Organizational factors | ||
| Makes transactions for the export of MP. Attends official exhibitions and other business events, makes the final decision about transactions. | Develops and concludes export contracts. Collects and analyzes market information, compares prices, establishes business contacts. | Acts in the customer interests to the organizer’s advantage. Collects specific technical information. |
| Interpersonal factors | ||
| Belongs to the highest management level in state structures. Responsible for the failure of contracts, responsible to the leadership of the country. The work is focused on the preservation and strengthening of their positions. | It belongs to the middle management in the state or commerce structure. Responsible to supervisor. The work is focused on certain growth and new opportunities. | Connecting but independent link between the supplier and the buyer. Responsible for his reputation for the transaction. The work is focused on the end result and a good deal. |
| Psychological factors | ||
| Insatiable desire for power and the accompanying privileges. Perception of work as a way of self-assertion. They have an authoritative opinion on each issue of the transaction. They are able to hear only the opinion of the leadership of the country. | Work for the sake of professional incentives, prestige and dedication. They perceive work as a career ladder. They have their own opinion on any issues of the transaction, listen to the opinion of the senior management. | Reward makes an appeal to them in work. They have an independent but customer-focused opinion on each issue. The opinion of others makes influence on them. |
| Behavioral factors | ||
| The buyer may act under the influence of already existing illusions and errors in information processing. It is important to consider the subjective factors for each individual customer that determine its irrational behavior, including emotional factors. | ||
4 Analysis and recommendations to russian exhibitors
4.1 The structure of participation of Russian delegations in international exhibitions
India, China, Vietnam, and South Korea are the most important areas of Russian arms exports. These countries account for more than 50% of the export of all Russian-made military products.
Domestic manufacturers of MP take part In exhibitions and forums held in Russia less often. Meanwhile, the largest contracts are signed at Russian exhibition events. Negotiation of transaction terms can be divided into several stages and it is clear that making a deal must be held in the producer’s country in order to become imbued with the spirit of the country and confirm your emotional choice, as well as visit test sites that are most suitable for showing in the producer’s country.
Russia actively takes part in the leading exhibitions in Europe. It demonstrates the importance of participation, but due to the prevailing political circumstances, the share of exports is more complementary and it is only 3%. In recent years, there has been a trend towards the diversification of weapons in developed countries and rapidly developing countries which are ready to review their past agreements. These countries are UAE, Algeria, Egypt, Syria, Greece, Turkey, Saudi Arabia, Azerbaijan, Venezuela, Mexico, Algeria.
4.2 The reasons for the purchase of Russian weapons
Russia does not change the political orientation in contrast to the developed countries.
Russia sells products which are used in this country and therefore there will be no shortage of spare parts.
Russian equipment is easy to set up and operate.
It is cheaper than the best in the arms market.
4.3 Analysis of the Russian MP promotion
4.4 Preservation of the competitive position
of the Russian MP in the world market
of the Russian MP in the world market
Russian companies of the military-industrial complex are faced with two complementary problems. On the one hand, significant investments are needed to modernize and speed up production processes, while at the same time the current level of profitability does not allow to consider these assets as attractive to outside investors.
In the format of alternative factors that hold demand and attention to Russian military products, a special attention is given to revising the strategic role of marketing, behavioral finance, expanding the range of participation in specialized events, creating high-profile media events. These steps are able to provide organizations with new opportunities to implement projects based on current production capabilities.
