Marketing is concerned with the interaction between the corporation and the customer.Customers are the people or organizations that purchase products. However, we need to differentiate between the customer and the user of the product. The corporate purchasing agent is the customer in so far as the steel supplier is concerned, for she negotiates price and contract terms, but the design engineer who developed the specification for a highly weldable grade of steel is the end user (indirect customer), as is the production supervisor of the assembly department. Note that the customer of a consulting engineer or lawyer is usually called a client.
Markets
The market is an economic construct to identify those persons or organizations that have an interest in purchasing or selling a particular product, and to create an arena for their transactions. We generally think of the stock market as the prototypical market.
A quick review of the evolution of consumer products is a good way to better understand markets. At the beginning of the Industrial Revolution, markets were mainly local and consisted of close-knit communities of consumers and workers in manufacturing companies. Because the manufacturing enterprise was locally based, there was a close link between the manufacturers and the users of their product, so direct feedback from customers was easily achieved. With the advent of railroads and telephone communication, markets expanded across the country and very soon became national markets. This created considerable economy of scale , but it required new ways of making products available to the customer. Many companies created a national distribution system to sell their products through local stores. Others depended on retailers who offered products from many manufacturers, including direct competitors. Franchising evolved as an alternative way of creating local ownership while retaining a nationally recognized name and product. Strong brand names evolved as a way of building customer recognition and loyalty.
As the capability to produce products continued to grow, the markets for those products expanded beyond the borders of one country. Companies then began to think of ways to market their products in other countries. The Ford Motor Company was one of the first U.S. companies to expand into overseas markets. Ford took the approach of developing a wholly owned subsidiary in the other country that was essentially selfcontained. The subsidiary designed, developed, manufactured, and marketed products for the local national market. The consumer in that country barely recognized that the parent company was based in the United States. This was the beginning of multinational companies . The chief advantage of this approach was the profits that the company was able to bring back to the United States. However, the jobs and physical assets remained overseas.
Another approach to multinational business was developed by the Japanese automakers. These companies designed, developed, and manufactured the product in the home nation and marketed the product in many locations around the world. This became possible with a product like automobiles when roll-on / roll-off ships made low-cost transportation a reality. Such an approach to marketing gives the maximum benefit to the home nation, but with time a backlash developed because of the lost jobs in the customer countries. Also, developing a product at a long distance from the market makes it more difficult to satisfy customer needs when there is a physical separation in cultural backgrounds between the development team and the customers. More recently, Japanese companies have established design centers and production facilities in their major overseas markets.
It is very clear that we are now dealing with a world market . Improved manufacturing capabilities in countries such as China and India, coupled with low-cost transportation using container ships, and instant worldwide communication with the Internet, have enabled an increasing fraction of consumer products to be manufactured overseas. In 2005, manufacturing jobs in the United States accounted for only one in nine jobs, down from one in three in 1950. This is not a new trend. The United States became a net importer of manufactured goods in 1981, but in recent years the negative balance of trade has grown to possibly unsustainable proportions. The reduction in the percentage of the U.S. engineering workforce engaged in manufacturing places greater incentive and emphasis on knowledge-based activities such as innovative product design.
Market Segmentation
Although the customers for a product are called a “market” as though they were a homogeneous unit, this generally is not the case. In developing a product, it is important to have a clear understanding of which segments of the total market the product is intended to serve. There are many ways to segment a market. Table 2.1 lists the broad types of markets that engineers typically address in their design and product development activities.
One-of-a-kind installations, such as a large office building or a chemical plant, are expensive, complex design projects. With these types of projects the design and the construction are usually separate contracts. Generally these types of projects are sold on the basis of a prior successful record of designing similar installations, and a reputation for quality, on-time work. Typically there is frequent one-on-one interaction between the design team and the customer to make sure the user’s needs are met. For small-batch engineered products, the degree of interaction with the customer depends on the nature of the product.
For a product like rail cars the design specification would be the result of extensive direct negotiation between the user’s engineers and the vendor. For more standard products like a CNC lathe, the product would be considered an “off-the-shelf” item available for sale by regional distributors or direct from catalog sales.
Raw materials, such as iron ore, crushed rock, grain and oil, are commodities whose characteristics are well understood. Thus, there is little interaction between the buyer’s engineers and the seller, other than to specify the quality level (grade) of the commodity. Most commodity products are sold chiefl y on the basis of price.
When raw materials are converted into processed materials, such as sheet steel or a silicon wafer, the purchase is made with agreed-upon industry standards of quality, or in extreme cases with specially engineered specifications. There is little interaction of the buyer’s and seller’s engineers. Purchase is highly influenced by cost and quality.
Most technical products contain standard components or subassemblies that are
made in high volumes and purchased from distributors or directly from the manufacturer.
Companies that supply these parts are called vendors or suppliers , and the
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| Table 1 Markets for Engineered Products, Broadly Defined. |
companies that use these parts in their products are called original equipment manufacturers (OEM). Usually, the buyer’s engineers depend on the specifications provided by the vendor and their record for reliability, so their interaction with the vendor is low. However, it will be high when dealing with a new supplier, or a supplier that has developed quality issues with its product.
All products contain parts that are custom designed to perform one or more functions required by the product. Depending on the product, the production run may vary from several thousand to a few million piece parts. Typically these parts will be made as castings, metal stampings, or plastic injection mouldings. These parts will be made in either the factory of the product producer or the factory of independent parts - producing companies. Generally these companies specialize in a specific manufacturing process, like precision forging, and increasingly they may be located worldwide. This calls for considerable interaction by the buyer’s engineers to decide, with the assistance of purchasing agents, where to place the order to achieve reliable delivery of high-quality parts at lowest cost.
Luxury consumer products are a special case. Generally, styling and quality materials and workmanship play a major role in creating the brand image. In the case of a high-end sports car, engineering interaction with the customer to ensure quality may be high, but in most products of this type styling and salesmanship play a major role. After-sale maintenance and service can be a very profitable market for a product producer. The manufacturers of inkjet printers make most of their profit from the sale of replacement cartridges. The maintenance of highly engineered products like elevators and gas turbine engines increasingly is being done by the same companies that produced them. The profits over time for this kind of engineering work can easily exceed the initial cost of the product.
The corporate downsizings of their staff specialists that occurred in the 1990s resulted in many engineers organizing specialist consulting groups. Now, rather than using their expertise exclusively for a single organization, they make this talent available to whoever has the need and ability to pay for it. The marketing of engineering services is more difficult than the marketing of products. It depends to a considerable degree on developing a track record of delivering competent, on-time results, and in maintaining these competencies and contacts. Often these firms gain reputations for creative product design, or for being able to tackle the most difficult computer modelling and analysis problems. An important area of engineering specialist service is systems integration . Systems integration involves taking a system of separately produced subsystems or components and making them operate as an interconnected and interdependent engineering system.
Having looked at the different types of markets for engineering products, we now look at the way any one of these markets can be segmented. Market segmentation recognizes that markets are not homogeneous, but rather consist of people buying things, no two of whom are exactly alike in their purchasing patterns. Market segmentation is the attempt to divide the market into groups so that there is relative homogeneity within each group and distinct differences between groups. Cooper suggests that
four broad categories of variables are useful in segmenting a market.
State of Being
A. Sociological factors—age, gender, income, occupation
B. For industrial products—company size, industry classification (SIC code), nature of the buying organization
C. Location—urban, suburban, rural; regions of the country or world
State of Mind— This category attempts to describe the attitudes, values, and lifestyles of potential customers.
Product Usage— looks at how the product is bought or sold Heavy user; light user; nonuser Loyalty: to your brand; to competitor’s brand; indifferent
Benefit Segmentation— attempts to identify the benefits people perceive in buying the product. This is particularly important when introducing a new product. When the target market is identified with benefits in mind, it allows the product developers to add features that will provide those benefits.
Functions of a Marketing Department
The marketing department in a company creates and manages the company’s relationship with its customers. It is the company’s window on the world with its customers. It translates customer needs into requirements for products and influences the creation of services that support the product and the customer. It is about understanding how people make buying decisions and using this information in the design, building, and selling of products. Marketing does not make sales; that is the responsibility of the
sales department.
The marketing department can be expected to do a number of tasks. First is a preliminary marketing assessment, a quick scoping of the potential sales, competition, and market share at the very early stages of the product development. Then they will do a detailed market study. This involves face-to-face interviews with potential customers to determine their needs, wants, preferences, likes, and dislikes. This will be done before detailed product development is carried out. Often this involves meeting with the end user in the location where the product is used, usually with the active participation of the design engineer. Another common method for doing this is the focus group. In this method a group of people with a prescribed knowledge about a product or service is gathered around a table and asked their feelings and attitudes about the product under study. If the group is well selected and the leader of the focus group is experienced, the sponsor can expect to receive a wealth of opinions and attitudes that can be used to determine important attributes of a potential product.
The marketing department also plays a vital role in assisting with the introduction of the product into the marketplace. They perform such functions as undertaking customer tests or field trials (beta test) of the product, planning for test marketing (sales) in restricted regions, advising on product packaging and warning labels, preparing user instruction manuals and documentation, arranging for user instruction, and advising on advertising. Marketing may also be responsible for providing for a product support system of spare parts, service representatives, and a warranty system.
Elements of a Marketing Plan
The marketing plan starts with the identification of the target market based on market segmentation. The other main input of the marketing plan is the product strategy , which is defined by product positioning and the benefits provided to the customer by the product. A key to developing the product strategy is the ability to define in one or two sentences the product positioning, that is, how the product will be perceived by potential customers. Of equal importance is to be able to express the product benefits . A product benefit is not a product feature, although the two concepts are closely related. A product benefit is a brief description of the main benefit as seen through the eyes of the customer. The chief features of the product should derive from the product benefit.
EXAMPLE
A manufacturer of garden tools might decide to develop a power lawnmower targeted at the elderly population. Demographics show that this segment of the market is growing rapidly, and that they have above-average disposable income. The product will be positioned for the upper end of the elderly with ample disposable income. The chief benefit would be ease of use by elderly people. The chief features to accomplish this goal would be power steering, an automatic safety shutoff while clearing debris from the blade, an easy-to-use device for raising the mower deck to get at the blade, and a clutch less transmission.
A marketing plan should contain the follow information:
A. Evaluation of market segments, with clear explanation of reasons for choosing the target market
B. Identify competitive products
C. Identify early product adopters
D. Clear understanding of benefits of product to customers
E. Estimation of the market size in terms of dollars and units sold, and market share
F. Determine the breadth of the product line, and number of product variants
G. Estimation of product life
H. Determine the product volume/price relationships Complete financial plan including
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