Industrial Management
3.0 Marketing & Sales
This unit provides an overview of the marketing function in an SME and describes the interaction between the product development department and the marketing department in EEL. The effect of this interaction on the managers of both departments is examined, with emphasis on the manager of R&D.
Some companies have separate marketing and sales departments, but many SMEs combine both activities in one department. The reason for this is partly historical- up to about 20 years ago many UK companies traditionally only had sales departments- marketing only came to be regarded as important as competition intensified and markets became global.
There are many standard texts on marketing and sales and it is not our intention to reproduce the contents of these in this unit, but we shall refer to such texts as appropriate.
- 3.1 The Marketing Function
- 3.2 Market Segmentation
- 3.3 Profiling
- 3.4 Competition
- 3.5 The Relationship between Marketing and R&D
- 3.6 Some Standard marketing Concepts
- 3.7 The 4 P's
- 3.8 The Unique Selling Point
- 3.9 The Ansov Matrix
- 3.10 Medium & Long Term Market Trends
- 3.11 Sales
- 3.12 Management Issues
- 3.13 Summary
- 3.14 Suggested Reading
- 3.15 Self Assessment Solutions
3.1 The Marketing Function
Marketing is concerned with ensuring our company produces products that satisfy the needs of customers, at a price they can afford. We shall see that a good way of identifying customer needs is to identify customer problems and come up with solutions for them that our company can provide.
A major marketing problem is identifying potential customers and reaching them in an effective and efficient manner.
We should always remember that marketing is about people, their needs and problems and what they can afford. Even when we are selling in a business to business situation, it is people who make the choice of which product or service to purchase.
Whenever a product is purchased, whether for private use or in a company, something like the following process nearly always occurs:-
If the product is cheap and we want it we will probably purchase it without much thought. The price of the product is said to be within our disposable income, that part of our income left over after we have made essential purchases and paid essential bills.
If the product is more expensive we will be more careful- we will probably discuss the purchase with friends and/or relatives before buying the product. An example of such a purchase in a domestic situation is the purchase of a new video recorder.
For expensive products we are much more careful- for example if we want to purchase a new car, we are likely to check out several models and discuss the pros and cons of each with members of the family, friends and hopefully someone with a good knowledge of cars.
For really expensive purchases, such as the purchase of a new house, the situation is even more acute, we consult relatives, friends who have bought their own house, people with knowledge of houses such as builders, if we have contact with such people,and professional people like surveyors and solicitors.
The group of people that help us make up our mind about a purchase is called the decision making unit (DMU), in marketing terminology.
When a "company" makes a purchase, much the same process goes on, but even more so because the company probably employs several people with different skill sets and experience, who can provide advice and opinions. For expensive and/or critical purchases the company may also employ external expert advice, such as consultants and solicitors, etc.
The decision making unit in a company is a key group of people that decide which product to buy and when to buy it.
Typically the DMU in a company consists of the following type of people:-
- The decision maker- the person who actually makes the final decision to buy and when to buy
- Influencers- people who have expert knowledge and experience that may influence the DMU significantly
- Advisors- often technical people who have knowledge of the type product to be purchase
- Purchasing personnel- they actually make the purchase and knowledge of suppliers may make their opinions sought after
- Financial personnel- they tend to act as constrainers and are always important
If we are selling our products to a company in a business to business transaction, and we have direct contact with our customers, we should try and identify the DMU at the personal level in each of our customers.
[Back to top]3.2 Market Segmentation
The global market is vast- if we are to sell our products effectively we must try and break the market down into manageable segments we can afford to reach. This process is called market segmentation and is illustrated in Figure1.
Figure 1. Market Segmentation |
We note from figure 1 that we may segment the market geographically by country, then by region, even by post code if wish to attain that level of detail. In addition we may also segment the market by company type, company size etc. It is important to realise that we segment the market from our company's point of view- not some generalised idea of what the "market" is.
It is possible to segment the market very efficiently by accessing on-line data bases, such as Kompass, or by purchasing lists of potential customers from organisations called list houses. Data may be downloadable, be available on CDROM, or supplied in a file format suitable for direct mail purposes etc.
A possible market segmentation for EEL, is shown in Table 1.
| Segmentation Parameter | Segmentation Property |
|---|---|
| Country | United Kingdom |
| Region | North West |
| Company Type | SIC Code ( could be more that one) |
| Number of Employees | 100 to 10,000 |
| Company Turnover | £4M to £40M |
Note that we have assumed several parameters are used to segment the global market for EEL. They are explained briefly below:-
Country
The country we wish to trade in is of major interest- normally companies trade in the country they started up in and expand to wider markets when they grow, but this is not necessarily the case. Extending marketing operations into another country can be a risky business and should not be undertaken lightly, key things that should be considered are culture, language, national regulations, legal requirements, the cost of distribution etc. However, extending our marketing operations to include another country may increase our income significantly.
Region
Many companies start small and trade locally at regional level, so it's natural for them to segment the market according to region. However, as companies grow, they may wish to extend the market to include other regions. The cost of distribution, the cost of sales people traveling further distances, installation and commissioning etc. should be considered. Another important parameter is regional affluence, if you are selling expensive products the Southeast of England may be a good regional market to move into.
Company Type
Company type is a very important segmentation parameter- for example EEL develops and produces micro-electronic based products- consequently we want to be able to identify companies that will be interested in purchasing them. Companies are classified according to a Standard Industrial Code (SIC) and most list houses use this type of classification to produce lists of companies. Kompass uses its own classification codes, which allow refined and detailed classifications. Our marketing department has a list of the SICs we use when trying to identify prospective customers (prospects in marketing terms).
Number of Employees
The number of people a company employs gives a good idea of its purchasing power and the type of products they will purchase. It's unlikely that a company employing 20 people will be able to afford to purchase simulation software costing £1.0M. The number of employees a company employs is sometimes referred to as the company size: for example, a large company may produce high volume, low cost products and may need high end production test equipment.
Annual Turnover
The annual turnover of a company is the amount of income it generates in a year. The annual turnover is a good indicator of its purchasing power. If our products cost a significant proportion of a company's turnover, they will think very carefully before they purchase it, even if they can afford it.
Turnover/Head
The turnover per head gives a rough indication of how successful a company is, in a given market sector. In manufacturing the turnover/head can be quite low- maybe £30,000/person or less. So if we come across a manufacturing company with an annual turnover/head of £60,000/person, it indicates they are probably trading successfully, probably growing and probably need some new equipment. Remember turnover/head is only a rough indicator of company's financial position.
Market segmentation can be quite a sophisticated operation; we have only introduced the principles of market segmentation above.
[Back to top]3.3 Profiling
Being able to identify companies as prospective customers is not enough- we really need to have some knowledge of the people who will purchase and use our products. In a business to business situation, we may be able to identify the DMU in existing customers and even named decision makers in prospects. We can think of the segmentation parameters listed in Table 1 as a brief company profile of the type of companies EEL sees its self doing business with.
We may extend the idea of profiling to people, to aid us in determining the features our products will have: that is we will try and produce product specifications that solve the problems of people that will use our products and of course, purchase them. Note that profiling is used extensively by such organisations as the police and companies that sell through catalogues- and catalogue selling includes some very successful companies that supply components to the electronics industry. EEL uses profiling for companies, distributors and retailers as well as end users.
Profiling Product End Users
Knowledge of the end user of our products is very important, in particular when it comes to specifying new products. We should be aware of the type of person that will use our product, their qualifications, the skill sets we expect them to possess etc. In particular we should be aware of end user problems- so we can produce products that solve them.
A simplified example of a product end user profile is given in Table 2.
| User Parameter | User Property |
|---|---|
| Job Title | Electronics Technician |
| Age Range | 25-55 |
| Formal Qualifications | HND (Electronics) |
| Experience | 5 -15 years |
| Job description 1 | Assisting and interfacing with Electronic Systems Engineers |
| Job description 2 | Use of electronic measuring equipment |
| Job description 2 | Pre-compliance EMC testing |
| Job description 3 | Breadboard production |
| Breadboard evaluation | |
| Recording evaluation and test results | |
| ......... | |
| Problem 1 | Interfacing with design engineers |
| Problem 2 | Keeping up to date with new electronic measuring equipment |
| Problem 3 | Keeping up to date with EMC regulations |
| Problem 4 | Time management |
| ................... |
Profiling can be extended to include other members of the DMU in prospective customers, distributors or retailers if our products are sold to the general public.
[Back to top]3.4 Competition
Companies that are in direct competition with our company are very important- we should know about them at company level and at product level. A major function of our marketing department is to identify our direct competitors and obtain detailed information about their products, which must include product price, product features, performance figures etc.
The techniques we have described for market segmentation and profiling can be used directly to identify competitors. Note that once competitor companies have been identified many of them will supply data sheets and prices etc, simply by asking for them. Alternatively, visiting a competitors web site can be very rewarding.
We should know the market leader, who is second in the market, etc and make a realistic appraisal of where we are in the market place.
A major function of the marketing department in EEL is to produce information on our direct competitors that is easy to understand, is structured and is readily available to people in other departments in our company.
Consider the situation where we are contemplating developing a new product that is to compete with a competitor product- it would help our development staff enormously if we had an example of the product, the instruction manual for the product and the selling price of the product.
Note that we have used the term direct competition- we should also consider indirect competition. For example consider a small taxi firm- its direct competitors would be other taxi firms operating in the same area as itself. Examples of indirect competitors are bus companies and train companies. Note that we may become suppliers to some of our indirect competitors- for example taking people to the railway station by taxi.
An important aspect of competitor analysis is that it must be treated as an ongoing exercise- our competitors will continue to bring out new products, technological advances may introduce new indirect competitors and market conditions may change.
[Back to top]3.5 The Relationship between Marketing and R&D
The relationship between marketing and product development is crucial. If our company is to develop products that solve the problems of end users and sell them at a price they can afford we should identify end user problems and give our products features that solve them.
The following areas are of particular importance:-
The Product Market Selling Price
The product market selling price is the price that the "market" is willing to pay for it. If we are considering developing a product similar to one that is on the market, the price of the competitor product will give us some idea of the market selling price. Another way of estimating the market selling price is to relate the price of the product to the of cost of the problem the product is solving. For example, a product that saves energy would reduce the cost of energy to our customers- if the saving in energy costs over a relatively short period is more that the price of our product, we have a good selling point. We shall say much more about product pricing in a later unit.
The Product Instruction Manual
The standard of instruction manuals, especially for technological based products, is usually very poor. One reason for this is that they are often produced at the last minute; when the product is due for release. It should be possible to produce the product instruction manual, in draft form, very early in the product development cycle. If it is produced by marketing and technical people working closely together, it could provide an excellent vehicle for clarifying which product features are required and how the end user is expected to interact with the product.
The Product Specification
The product specification for a new product is vitally important. The formulation of the product specification cannot be left to marketing alone, because they are likely to include features and performance levels that are not possible, or are not realisable within the constraints imposed by the market selling price. If R&D produce the product specification in isolation they are likely to include features and performance levels based on technical merit and produce product to user interfaces that are not user friendly.
At EEL, product specifications are produced principally by marketing and R&D working in close collaboration as part of the proposal for a new product development. It is realised that the product specification will be modified as the development progresses and several elements of the specification will be marked TBD- to be decided- such as product packaging and transportation details. Product specifications are highly structured at EEL and are a major source of information for project planning and costing.
Product specifications specify the product: they do not provide detailed specifications, such as the specification of a complex component such as an ASIC. Such detailed specifications are derived from the product specification as the product is being developed. Specifying components in the product specification is a dangerous practice, for example it may be more appropriate to use a microprocessor instead of an ASIC. If an ASIC has been specified it may lead R&D down the ASIC route, without them considering a software solution. This applies particularly to newly qualified engineers.
It is important to remember that the product specification specifies the product- it does not suggest solutions.
Product specifications at EEL are structured as follows:-
- A specification title page, which includes the product version number and date
- A brief introduction to the specification, which includes an explanation of how the specification is structured (about half a page).
- A product functionality section, that states the functions in simple, non-technical language- diagrams are encouraged
- A product operational section, that explains how the product operates with particular emphasis on how end users interact with the product.
- A product performance section, that defines such things as product accuracy, response time etc.
- A product environmental section that specifies the environment the product will be used in. This includes product transportation and storage environments.
- A section that specifies any regulatory requirements such as EMC, LVD and product disposal.
- A mechanical section that specifies important mechanical details,
such as constraining dimensions.
When EEL prepared its first structured specification it was very time consuming, but they also produced a product specification template that ensured that future specifications would be easier to produce. Also the use of structured specifications based on a template ensures a high level of consistency when specifying products.
An example of a fragment of a structured specification produced by EEL may be obtained by clicking here.
[Back to top]3.6 Some Standard Marketing Concepts
In this section we shall briefly discuss some standard marketing concepts, which are explained fully in most standard marketing texts.
3.7 The 4 P's
The 4 Ps are:-
- Product
- Price
- Promotion
- Place
The 4P's summarise the important aspects marketing. Clearly the product we are offering and its price are of central importance and we have discussed them both in earlier sections. Promotion is also clearly important- if people don't know about our products and the benefits they provide, they will not purchase them. Place is important for consumer based products in particular, companies that sell directly to the public are very interested in "place".
Many marketing books are based on large companies that can afford expensive promotion campaigns and have access to a wide range of outlets. For an SME operating in a business to business environment, product and price are clearly important, but promotion may mean exhibiting our products or advertising them in trade journals. Place may mean selling our products through recognised distributors.
Marketing concepts should always be adapted to our company, if they are to be useful.
[Back to top]3.8 The Unique Selling Point (USP)
If a product has an important, unique feature, that no other products has, it is referred to in marketing terms as a unique selling point. It is important to realise that the potential customers decides what is unique and if it will be useful to them. Just claiming to have unique selling point is not sufficient.
Consider a young engineer that has just graduated, writing his CV- what would be his/her USP when compared with all the other people who have just graduated?
If your company does have a product with a useful USP it is a very powerful marketing tool. However, be sure to protect it because as soon as the competition become aware of it will soon lose its unique status.
[Back to top]3.9 The Ansov Matrix
The Ansov matrix is a simple marketing device that illustrates the problems associated with developing new products and moving into new markets. The Ansov matrix is shown in Figure 2.
| Figure 2. The Ansov Matrix |
 |
Cell 1, in Figure 2, represents the status quo, our company is selling existing products into existing markets. This is supposed to be a low risk situation.
Cell 2, represents the situation where we develop new products for sale in our existing market- there is a fairly high risk associated with this activity: many new products fail to sell.
Cell 3, represents the case where we attempt to sell our existing products in new markets. If the new market is almost identical to our existing market, for example an new region within the UK, the risk will be small. However, if we wish to penetrate the American market say, the risk would be considerably higher.
Cell 4, represents the most risky situation, where we develop new products for sale in markets that are new to us. This is of course possible but must be undertaken with a great deal of care and planning.
You could get the impression that the way forward for our company is to stay operating in cell 1, supplying existing products to our existing market. This may work in the short term but it will almost certainly fail in the medium to long term as competitors develop new products and global market forces, such as technological innovations, make our products obsolete and also possibly our markets.
It is sensible to assess the risks and benefits to our company of continuing to supply our existing products to our existing markets, of developing new products and moving into new markets.
[Back to top]3.10 Medium & Long Term Market Trends
Marketing is a dynamic exercise, market conditions can change rapidly, stock market fluctuations occur within hours, political instability in regions around the world is common place, even extreme weather conditions may affect our short term income and sales.
However, medium and long term market trends should be monitored by our marketing department and senior management, to try and ensure our company will survive and prosper in the future.
Government departments, such as the Department of Trade and Industry (DTI), produce market surveys that can yield important information about market trends on both a national and international scale. Pending legislation that may affect our company, our customers or our suppliers, should also be monitored.
Technological change can be both a threat and an opportunity- in severe cases whole markets can disappear as a result of the introduction of a new technology.
[Back to top]3.11 Sales
The function of the sales section of Marketing & Sales in EEL is defined as follows:-
- To secure new orders from existing customers on a regular basis
- To obtain new customers on a regular basis
- To interact with key distributors
- To secure new orders for develop and produce contracts
- To provide technical and product help for customers (Help Desk)
- To obtain feedback from customers (DMU)
- To obtain feedback from our product end users
Sales is at the "sharp end", having direct contact with customers and often end users. If things go wrong sales are usually the first to know. Late deliveries, faulty products, poorly written instruction manuals- all of these bounce back to sales. Another important aspect of sales personnel is that they are constantly monitored and judged on their ability to sell. This is done on a monthly basis and also over longer durations, every six months for example. In some companies sales people are paid on commission, so if their sales drop so does their income. Sales people at EEL are not paid on commission, because senior management feels it places too much stress on them and could lead to bad sales practices.
Sales people are often denigrated by other people in an organisations, but in EEL their worth is realised by all and they are respected throughout the company. They realise that a fall in sales this month means a reduction in output next month, which in turn means a drop in income the month after that.
We shall look at some aspects of the sales function that require direct interaction with R&D: the help desk and customer feedback.
The Help Desk
EEL employs several sales personnel, called sales application engineers, that have a technical background and all of them are expected to provide telephone help on a rotor basis. This ensures that several people can provide technical and product help. It is a requirement of the sales section that the help desk is attended to at all times.
While a new product is under development there is strong interaction between design engineers and sales application engineers, especially in preparing the product instruction manual. Prior to the release of a new product the sales application engineers are familiarised with the new product, so that they can provide help to customers. This familiarisation is principally the responsibility of R&D.
Costumer Feedback
Obtaining customer feedback is an important aspect of the sales function- feedback concerning late deliveries and faulty products is given to The Quality Department and Production as well as R&D. However, information concerning customer problems in using our products is fed back to R&D. In addition, they gather information about customer problems in general, which can be vitally important when we develop new products or enhance existing ones. Sales personnel provide crucial information about end users in particular, that allows us to develop realistic end user profiles.
[Back to top]3.12 Management Issues
The relationship between marketing and R&D is extremely important and the managers of both departments must work together closely.
The manager of R&D should ensure that new specification formulation, instruction manual preparation and the training of sales applications engineers are carried out efficiently and to the required standards. In particular, when new personnel are appointed managers must ensure they go through an effective induction program.
Personnel in both departments are expected to have good working relationships and because the areas of interaction are clearly defined both managers and managed know what is expected of them, which assists them and the people they manage.
[Back to top]3.13 Summary of Marketing & Sales
In this unit we have tried to provide a brief outline of the marketing and sales function in an SME operating in the microelectronics sector. We have paid particular attention to the interaction between Marketing and R&D and identified some key areas of interaction associated with the development of new products. These are the production of new product specifications, the production of instruction manuals and the familiarisation of sales applications engineers with new products.
We have also looked briefly at some marketing concepts and suggested that these should be adapted to the needs of our company.
[Back to top]3.14 Suggested Reading
| Title | Author | ISBN | Date |
|---|---|---|---|
| Small Business Marketing Management | Chaston, I | 0333980751 | 2000 |
| Market Segmentation: how to do it, how to profit from it | McDonald, M | 033373369X | 1998 |
3.15 Self Assessment Question
Q1 Development Proposal for a New Product
EEL is considering developing a new energy management system for use in domestic properties in the UK. This will be a new venture for EEL: it normally operates in a business to business environment.
Identify the main elements of the proposal, which is to be presented to the internal management of EEL and explain how you see different departments in the company contributing to the proposal.
Updated 13/07/07