Planning/Design/Construction Integration

Marketing Lecture

I. Introduction

A. I don’t know who you are.

I don’t know your company.

I don’t know your company’s product.

I don’t know what your company stands for.

I don’t know your company’s customers.

I don’t know your company’s record.

I don’t know your company’s reputation.

You don’t know who I am.

Now – what was it you wanted to sell me?

B. What is a market?

C. Marketing strategy is defined by Pearce as, “the management process responsible for planning future action to identify, anticipate, and satisfy customer requirements profitably.”

D. Marketing is not just advertising and sales techniques

E. We must make what we know we can sell. We must not try to sell only what we happen to make!

F. Marketing is a strategy and a plan

1. Determining the needs of the market, which the seller sees as opportunities

2. Identifying projects that meet the seller’s goals and strengths

3. Identifying projects where the reward is appropriate for the risk

4. Good public and media relations (networking)

5. Develop a strategic sales and marketing program.

G. Design/Construction is a “service” industry (i.e., things that are done for, rather than handed to, the customer).

1. Bar of soap

2. Home

3. Hospital

4. Highway

5. Bridge

Figure 1. Value Disciplines by Treacy and Wiersema (1995)

II. Value Disciplines (Figure 1)

A. Value is defined as “a fair return or equivalent in goods, services, or money for something exchanged.” (Meriam-Webster 1997)

B. Value is determined by the customer in terms of price, performance, and service the seller provides, plus any user-specific criteria

C. Companies must choose to place their priorities on one aspect of providing value or a service to the customer while maintaining competency in the other areas.

D. Selecting one set of values to excel in generally precludes them from excelling in the others

E. These values typically include customer relations, product development, convenience, and price.

F. Types of value disciplines:

1. Operational Excellence (Wal-Mart)

These companies pursue convenience, low prices, and no-frills service at the expense of cultivating relationships with customers

· Streamlined process for product supply and service

· Carefully planned and controlled standard procedures

· Rewards for efficiency and punishment for waste

· Fast transactions and compliance-based management

2. Product Leadership (Nike, 3M, and Intel)

Product leaders consistently innovate, increase performance, and must create markets for their products.

· Focus on invention, development, and market exploitation

· Company structure can change to react to meet challenges of work in unexplored areas

· Management is results-driven: no punishment for experimentation

3. Customer Intimacy (Airborne Express)

Businesses practicing customer intimacy choose to only provide their services to a select few customers with whom they cultivate a strong relationship. They work towards creating solutions for their clients, and help the customer obtain maximum value for their services.

· Develop solutions for their customers

· Employees nearest the customer make the decisions- corporate structure somewhat hollow

· Systems geared toward obtaining results for clients.

Table 1. Value Disciplines and Examples

Value Discipline (1)	Manufacturing Example (2)	Construction Example (3)
Operational Excellence	Wal-Mart	Payne & Dolan
Product Leadership	Intel	Concrete Admixture Producers
Customer Intimacy	Airborne Express	M.A. Mortenson/American Family Fluor Daniel/Proctor Gamble Morrison Knutson/Dupont

Figure 2. Inputs to Selection of Value-Driven Operating Model

G. Value-Driven Operating Model

1. The combination of processes, management systems, business structures, and company culture gives the company the capacity to deliver the value it desires.

2. The best companies deliver a combination of quality, price, and ease of purchase that its competitors cannot match

III. How Companies Grow

A. Operational Excellence Companies

1. Growth through the providing of unmatched value

2. Use Assets: to find and expand into different markets, e.g., highway contractor buys quarry, sells overburden, sells/uses aggregates, washes aggregates, sells fines, sells lime; reclaimed concrete or asphalt.

3. Replication: The standard service is copied and moved to the new location

4. Examples:

Dell realized that he could outperform PC computer dealers by cutting dealers out of the distribution process altogether.

By selling to customers directly, building to order rather than to inventory, integrating his company’s logistics with its suppliers’, and creating a disciplined, extremely low-cost culture.

Dell undercut Compaq and other PC makers in price while providing a high quality products and services.

Eventually, this logic lead Ford to almost complete vertical integration – steel mills, glass factories, even rubber plantations in Brazil – all to create a single-threaded manufacturing process. Ford uses his management hierarchy to coordinate all of these activities, which coincidentally lowered transactions costs between activities.

Supplier Procter & Gamble and retailer Wal-Mart asked one another those questions, and then they turned purchasing and supply tradition on its head.

Redesigned the transaction process between themselves and their suppliers.

This continuous-replenishment concept is a simple one: Suppliers assume the responsibility for managing customer inventories, which, in return, allows them to smooth the flow of goods and lower their own end-to-end costs.

Details:

Companies of operational excellence get there by sweating the details.

After all it was Edison who said genius is 1% inspiration and 99% perspiration.

B. Product Leadership Companies

1. Use management to organize work into a series of achievable goals

2. Use non-oppressive corporate structures, e.g., teams and not a committee of people representing their own interests

3. Concentrate their effort where it pays the most (usually at the end of the development process)

4. Product leaders have to prepare markets and educate potential customers to accept products that never before existed

5. At the end of the day, however, it comes down to the vision, insight, and judgment of a few people at the top of the organization to set or reset the company's direction.

Principle One - Keep people on track by organizing the work in a series of well-paced challenges, each with a clearly defined outcome and a tight deadline. Intermediate milestones, and the chance they create to celebrate interim victories, generate the excitement talented people thrive on.

Principle Two: Create business structures that do not oppress. Large companies replicate small ones' entrepreneurial spirit by breaking people up into teams or clusters.

Example:

Or they locate their research labs in the woods, away from the companies' potentially stifling headquarters. Thermo Electron, the Waltham, Massachusetts-based $1.2 billion high-tech company, has spun off eight divisions into autonomous, publicly-owned companies. They sell everything from perfume patches to pollution-measuring instrumentation and mammography equipment. Although Thermo controls a majority of all the companies' shares, their CEOs act as entrepreneurs, not divisional caretakers. Seven to 12 percent of shares in each new company are reserved as options for that company's management. Thermo's central management is unable to impose any plan on any company in the Thermo family. The company expects, to spin off about 10 more companies in the next decade.

Principle Three: Stress procedure where it pays the biggest dividend. Almost invariably that means emphasizing procedure during the final leg of the product-development effort. Looming drop-dead dates and commitments, tense the work. The velocity and frenzy of activity accelerate. Teams burn money and their own energy at hyperspeed.

C. Customer Intimacy Companies

1. Are superior at addressing the shortcomings of their clients

2. May find themselves as a corporate partner with the client due to outsourcing

3. Rent, rather than own, much of their capabilities to retain their flexibility

4. Examples:

IBM’s unmatched value was not in product or price, but in the extraordinary level of service, guidance, expertise, and hand-holding it offered clients rocked by the turbulent changes in information technology.

Many customer-intimate organizations, like Roadway Logistics, offer a range of products and services to their clients that is staggering. How do they do it? How do they amass such capabilities and make them available to their client. The key is that the client “rents” rather than owns many of these capabilities. Many customer-intimate companies are hollow businesses.

Federal Express and UPS have responded by offering a narrow set of services to a broad rang clients. They have leveraged their own value proposition: operational excellence. They have shied away from tailoring services and have instead tried to maintain their margins through low variety and high efficiency.

Airborne can afford to, since one of its strategies has been to focus on high-volume corporate accounts that give it economies of scale.

Overall, Airborne sells customers a package that includes customized basic service, value-added services, and expertise in logistics redesign - all as a partner willing to sit down and talk about whatever arrangement would make the customer more successful.

Airborne was the results of the merger of two small West coast freight-forwarding companies. It changed direction in 1980 when it expanded into the relatively new overnight air-express industry. It operates its own airline, ABX, Inc.; owns a hub airport at Wilmington, Ohio; forwards freight to 200 countries overseas; and runs a global communications system that gives customers real-time 24-hour-a-day access to information about their shipments.

Airborne seeks out customers with whom it can create a mutually profitable relationship.

IV. How Do Companies Select Value Disciplines?

A. First, they must assess the value of the product from the customer’s viewpoint

1. Determine the products standing compared to its competitors according to the important value dimensions (cost, performance, ...).

2. Determine why the product is failing or succeeding for each dimension considered.

B. Develop alternative value propositions and operating models

1. Would these provide any unmatched value for the customer?

2. How fast could the competition catch up?

3. What changes are needed to implement each alternative?

C. Management must commit to one value discipline

1. How does this change the company’s operating model?

2. What corporate initiatives and restructuring must take place?

3. How will the company manage this change of focus and the risks associated with it?

V. Developing a Marketing Strategy (Pearce 1992)

A. Building relationships among businesses is still the most effective way for consultants and contractors to market their services

B. A marketing strategy identifies the best customers, what they should be offered, the best way to approach them, and the how to convince them to buy from the seller and not their competitors.

C. Example Preparation for a marketing strategy (Pearce 1992)

Table 2. Possible List of Headings for Preparing a Marketing Strategy

Plan	Plan for preparing the strategy
Data collection and assembly	SWOT analysis What business are we in? Products Customers Competitors Resources Volume, pricing, and profit External factors
Analysis	Key factors influencing the strategy
Strategy for customers and products	Positioning Segmentation Products Customers Selling arguments Pricing Volume and market share
Action, organization, resources, and budget	Sales strategy Organization Budget The marketing action plan Arrangements for review

1. Planning- prepare for the study ahead of time

2. Data collection and assembly

a. SWOT analysis: strengths and weaknesses of the company; opportunities and threats perceived that are outside the company’s control

b. Determine objectives of the company

financial- profit

quantitatively- market share, value of projects

qualitatively- customer satisfaction, improving quality

c. Determine value of a product as seen by the customer

A ‘service product’ is a clearly identifiable set of services which the client will recognize and buy. For example, each phase of an architect's or consulting engineer's professional engagement might be thought of as a separate product-inception, studies, design, documentation, working drawings, supervision and so on.

d. Product portfolio analysis

A company’s products should be spread among Stars, Cash Cows, and Problem Children

Table 3. Boston Matrix

Outcome (1)		Level of Attention
		High (2)	Low (3)
Profitability	High	Stars- business’s best products	Cash Cows- cannot be improved just reap profits
	Low	Problem Children- have star potential with nuturing and some luck	Dogs- not worthwhile

e. Customers-

Who buys from the company?

Who are the repeat buyers?- these are the most important

f. Competitors

What areas can the competition be beaten?

g. Markets

-The company’s market share indicates how much the company can dictate the market climate.

-Determine what the competition offers and the prevailing economic and social conditions.

3. Analysis- These factors explain the company’s current position and are a useful guide to predict the effect of changes in the company’s strategy

4. Strategy for customers and products

This is the marketing strategy. Its structure and layout depend on the nature of the business, but it will contain statements on the following aspects of our strategy. The headings may not be shown separately, or may be shown in a different order.

Positioning

Which parts of our chosen market sectors do we aim to serve, and how do we present ourselves to them?

Segmentation

How do we divide our customers and products to enable us to plan our marketing efforts most effectively?

Products

We list our products.

Customers

We describe our target customers.

Selling arguments

What case shall we put in each segment?

Pricing

What is our pricing policy, as it affects our efforts to obtain business?

Volume and market share

How much business do we expect to acquire in each segment, and in what time-scale?

5. Action, organization, resources and budget

Sales strategy

We have stated what we are going to offer to each kind of customer, and what we believe we should say to convince them. We now need to write down how we are going to do it!

Organization

Marketing is not an activity confined to the marketing department. The marketing strategy must not only show how the dedicated marketing function is organized, but also the other parts of the organization that share its aims.

Budget

What we have outlined so far is all good stuff, but can we afford it? The marketing budget should be related to the gross margins that the various segments can earn and, of course, to a realistic assessment of the likely business volume. There are no standards to go by, but for a significant proportion of construction-related businesses, marketing costs between one and two percent of turnover. Everything that anyone plans to do for the purpose of getting new business should be reflected in the marketing budget. Possible headings for the marketing budget are given in Figure 3.

Direct costs of dedicated marketing staff

Salaries

Other salary-related costs

Hotels, fares and meals

Vehicle expenses

Entertaining

Training

Corporate entertaining

Publicity

Advertising

Press

Journals

Television

Other

Literature and brochures

Design costs

Display materials

Giveaways

Conferences and exhibitions

Market research and information

Public relations

Sponsorship

(Speculative professional costs)

Figure 3. Possible Headings for a Marketing Budget

The marketing action plan

The real end product is the action plan, a detailed schedule of all we intend to do to implement our marketing strategy. Everything we have done so far has been in preparation for this plan.

Arrangements for review

The marketing strategy should contain procedures for monitoring its application, for periodic review and for a response, to future external internal changes that may require its alteration.

6. Many entrepreneurs succeed in business without a single page of formal research or analysis. But no business has ever succeeded on analysis alone!

VI. Practical Tips

A. Always practice good relations with the public, other businesses, and especially the media -- never mess with anyone that buys ink by the barrel!

B. Choose one value discipline and stick to it... otherwise your business is doomed to mediocrity

C. The business’s corporate structure and management must be geared to support the value discipline, not vice-versa.

D. Construction and consulting clients do not buy concrete and steel, rather, they buy the means to realize their vision of a new facility

E. What is the greatest temptations facing market leaders? Getting greedy, milking their success, and not moving forward.

a. Operationally excellent companies can get tempted into overpricing,

b. Product leaders into underinnovating, and

c. Customer-intimate firms into underservicing.

F. The Customer Credo

1. Customer value is the ultimate measure of performance

2. Increasing the value of the product is the critical measure of success

a. Operationally excellent companies strive to achieve lowest cost and total dependability for the consumer

b. Product leaders wish to dazzle consumers with new products and get consumers to understand the worth of their improvements

c. Companies intimate with their clients show a strong interest in becoming the client’s trusted advisor.

G. Most business units in the construction industry offer a limited range of discrete products. Our industry has not yet embraced the marketing culture to the extent that it thinks readily of the services it delivers as ‘products.’

H. Discipline and reasoned forethought!!!

VII. References

AGC (1992). Marketing, Wisconsin Chapter of the Associated General Contractors of America, WI

Pearce, P. (1992). Construction Marketing, Thomas Telford House, London, England.

Treacy, M. and Wiersma, F. (1995). The Discipline of Market Leaders, Addison-Wesley Publishing Company. MA