Marketing Management
"Marketing ideas have made singularly little
penetration into
the centres of influence of the construction industry. To
some extent this
follows from the character of the industry as an
agglomeration of service
organisations, not without structural relationship
to one another, but serving a
clientele from which individuals seek service
very infrequently." (Jepson
& Nicholson, 1972: p.1) Although times have
and are changing the above
statement despite being written over twenty five
years ago is still to some
extent very true. The subject of this assignment
is a construction firm that has
recently designed and implemented a marketing
management strategy. The objective
of this assignment is fourfold, firstly
the company’s approach to marketing
management will be documented this will
then be related to marketing management
theory Then by analysing data
collected through research the effectiveness of
the strategy will be
discussed. Finally using marketing management theory as a
foundation
recommendations will be made to identify where the initial strategy
could be
improved in order to promote future business development and success,
in line
with the strategic mission of the company. The organisation in question
has
strong foundations, since it’s incorporation in the mid fifties turnover
has
grown in line with inflation. In 1984 the Company was purchased by the son
of
the original managing director, he took up the role of new managing
director.
By the beginning of the 1990’s it became apparent that the
company had reached
a stage where it was no longer a small "hands-on"
enterprise. The
level of turnover and number of employees had increased at
such a rate that the
organisation now employed a sizeable management team.
All with an experienced
technical background in the fields of surveying,
estimating or site management
and who had either progressed through the ranks
of this firm or other
organisations of a similar size and nature. The company
was at the time of the
initial implementation of this initiative
inexperienced in marketing management
and strategy. However, the senior
personnel realised the company had reached a
stage where future business
growth wasn’t just going to come from hard work,
doing the job well and
relying on a good reputation. The view was taken that it
was necessary to
pursue new ventures to bring about growth and development. The
Company
has a large contracting portfolio with contracts completed for public
and
private clients in the commercial and industrial sectors. Appendix A
shows
the diversification with the selection of recently completed projects
and list
the clients for whom work has been carried out. The reason for a
firm of this
size carrying out such a wide range of activities is largely
based on the belief
that in such a competitive industry as construction it
has been necessary to
take on whatever type of work was available in order to
maintain a consistent
order book. In developing the company’s marketing
management strategy numerous
workshops were held, attending these were the
company directors and two senior
managers. Information on the company was
gained from interviews with the persons
attending these workshops. There are
many reasons for running a business, this
company wanted to be clear on why
it wanted to improve or introduce the
marketing effort so that appropriate
goals can be set. The aim of wanting to
grow the business by increasing sales
while at the same time sustaining the
level of profit margin is the
underlying factor in this case. Turnover could be
increased very easily as
most of the work is procured on an invitation to tender
basis where the
deciding factor is almost always price, however, "buying
in" work will not
necessary have a long term positive effect. The secondary
objective was to
secure profitable business relationships. These objectives are
reflected in
the mission statement in the appendix B. The development of the
mission
statement was the start of the company’s marketing management
initiative. The
company’s overall objective in the eye’s of the leaders was
defined. It was
thought the development of a mission statement would provide the
foundation
needed. Perhaps the implementation of a mission statement doesn’t
have a
direct link to the theory of marketing management however it’s place in
the
overall field of strategy is illustrated below. "A firm’s mission is
top
management’s view of what the organisation seeks to do and become over
the
long term. Expressed in the form of a mission statement it provides a
publicly
available summary of the long term goals of a firm’s top
managers."
(Barney, 1997: p.10) After the preliminary stage it was decided
that careful and
critical examination of the company would be needed. The
questions of what do we
do well and what do we do badly ? were asked,
however, analysis of "what we
do?" was first necessary. Previously there had
been no formal
categorisation so the next step was to analyse the business in
relation to
it’s markets. It became apparent that this was impossible without
analysing
the different business activities and categorising the market
areas. The
categories for such a division were decided upon as being type of
client, sector
of work, type of work, type of contract and location of work.
These divisions
produced provided the workshop team initially with the
sufficient tools for
analysing the business. The areas highlighted under
these headings are shown in
appendix C. This way of thinking doesn’t have a
direct link to marketing
management theory but can be proved to be a form of
market segmentation. For the
construction industry the application of
marketing theory in order to segment
the market is not directly appropriate,
but it can be applied in the way stated
to produce effective results as the
common goal is the "identification of
target markets". Even though
demographic, ethnic, religious and national
classification are not
appropriate as regards construction, industry own
classifications appear to
make data collection and analysis possible.
"Market segmentation is the
analysis of the total demand in a market into
its constituent parts, so that
different sets of consumers, with distinctive
needs and behavioural patterns,
can be identified," (Page, 1995:p.40) It
would become apparent later that the
market segmentation would be extremely
useful when analysing markets. At this
moment the initial divisions would help
the effort of gathering information
from various sources enabling critical
analysis of the company. "From the
customer’s point of view, the
information process is the least visible of all
the marketing functions. It is,
nevertheless, the basis of all marketing
activity. If the product / service is
said to be the cornerstone of
marketing, then it must be remembered that good
products / services
accurately reflect the needs and wants of customers, which
can only be
ascertained by gathering information. Information provides the means
for a
company to fulfil the marketing concept," (Lancaster &
Reynolds,
1995: p.57) Examination of the company began by using the
personal experience of
the persons attending the workshop. In this forum,
lists were made of things
that were likely to happen in the business
environment which could have
beneficial or negative effects on the company’s
fortunes. Subjects that were
concentrated on were, new technology such as
Information Technology and the
latest building methods, the development of
communication methods and any known
developments within local and general
government. This type of analysis of the
macro environment could be perceived
as a form of STEP or PEST analysis. From it
the company compiled a list,
developed from the personal experience of the
workshop members, of all the
external factors affecting the organisation.
Further factors relating to
the proximate macro environment about markets and
competitors were also
noted. These environmental factors are in a broader
context and are ones that
the organisation has little or no control, however,
they could highlight the
marketing opportunities and threats of the future.
"Successful companies
recognise that the environment is constantly spinning
new opportunities and
threats and understand the importance of continuously
monitoring and adapting
to the changing environment." (Kotler, 1997 :p.147)
The next stage was
the development of the organisation’s strengths weaknesses
opportunities and
threats through a SWOT analysis. First came the opportunities
and threats
using the results of the analysis of the external environmental
factors.
Using a pragmatic approach all things on the horizon which could have
a
negative effect on the business. Including not knowing key competitors
well
enough, changes in government spending. It was found the most of the
threats
were also opportunities and vice versa, depending on how a firm made
predictions
and reacted to changes. From the list produced the top three
items that: had an
extremely high probability of happening and a potentially
high impact on the
business were identified. Following this the internal
factors were considered,
highlighting the sectors that the panel believed
they were good at (internal
strengths) and areas were they were lacking in
some way and where there was
potential for dangerous situations (internal
weaknesses). This type of SWOT
analysis gave the firm "the means by which to
identify it’s own strengths
and weaknesses as they relate to external
opportunities and threats."
(McDonald, 1995: p.28) Following SWOT analysis
further investigation into the
business was required as the SWOT had only
dealt with the personal views and
experience of senior personnel. The various
business classifications brought
about following segmentation were analysed
for the preceding five years. Factors
analysed were profit, turnover, levels
of enquiries and level of competition. As
most of the work in the building
industry is gained through tendering and
selective tendering the competition
factor would be the average number of
companies tendering for a particular
project. All agreed profit margin analysis
was particularly important as
profit margin was fundamental to both survival and
future growth.
Insufficient margins are unlikely to give the business the
freedom to choose
the best strategic option because of the impact on break even
levels. From
the data analysis the following conclusions were drawn, the
majority of the
company’s turnover came from work on schools and colleges and
the industrial
sector from the construction of warehouses and other similar
buildings. Over
recent years there had been a swing, however, towards work in
the leisure
industry. Industrial and commercial work had risen while public work
had
remained constant as the overall turnover increased. As far as
profitability
was concerned it was difficult to see any particular definite
trend as to the
more and less profitable sector of work. As regards the other
areas of analysis,
design and build work had increased steadily over the last
couple of years and
had proved profitable but was also considered an area
where the company lacked
experience. Repair and maintenance work accounted
for a small percentage of
turnover but was highly profitable. Location
analysis didn’t prove any
particular use apart from the fact that contracts
carried out outside the north
west region were generally for existing
clients. At this stage the company
didn’t have the set-up and was reluctant
to venture further a field unless it
was to carry out work for valued
clients. Following the analysis and information
gathering stage, the workshop
team were in a situation where numerous internal
and external factors
affecting the company’s ability to achieve profit and
sales had been
identified. They were asking the question How do we reach our
goal using the
results of the analysis undertaken? In order to make marketing
management
decisions some kind of formal marketing planning would now be
required.
"There can be little doubt that marketing planning is essential
when we
consider the increasingly hostile and complex environment in which
companies
operate" (McDonald, 1995: p.21) The team focused their attention
on the
options for development. Stay offering our regular clients the same
services
which would only be possible with the large clients that carryout
regular
building work and profitability would need to be maximised by reducing
costs
through increased efficiency. Provide a new type of service to
existing
clients possibilities included offering regular repair and
maintenance service
or offering the "complete service" from the initial
design stage to
the finished product. The advantage would be that the company
would be dealing
with clients where good stable relationship existed but the
disadvantage was the
company’s unfamiliarity. Another option was to offer the
"usual"
service to a wider range of clients, not necessarily meaning a
different type of
client but to increase the marketing effort as regards
selling the company or
perhaps by widening the geographic region. This type
of strategy undertaken by
the company fits well with the theory of product /
market expansion. Meaning the
route chosen to achieve company goals through
the range of services it offers to
its chosen market segments. The
simplification of the firm’s competitive
situation into only the two
dimensions of products and markets. Despite not
actually using a framework
such as Ansoff’s expansion matrix the group managed
to simplify their task to
produce a logical path towards their objectives.
"Marketing objectives are
about each of the four main categories of the
Ansoff matrix, market
extension, product development, market penetration and
diversification."
(Baker, 1993: p.85) During the planning stage it became
clear that two
strategies were equally attractive. However, it would be
necessary to focus
on one particular one very clearly for a given time because
resources are
likely to be too limited to spread thinly. The plan of action was
to stay the
same for six months to consolidate customers, to ensure
profitability and
develop the action plan investigating the marketing methods
needed in the
months to come. Following this the idea was to push forward and
target new
customers enlarging the client base and awareness of the company
within the
current sectors that the company was already involved. "There
may be any
number of strategic options, which give us the chance to be creative
in
thinking about a variety of routes that might be chosen to achieve
company
and marketing objectives" (Lancaster and Massingham, 1993: p.354)
Finally
the product development strategic option was employed, where the plan
was to
widen and develop it’s range of services for existing clients. The
sectors of
work with traditionally a higher share of turnover or where the
company had
experienced growth in recent years were areas targeted. Together
with the
sectors where the trend was towards increased number of new
enquiries and the
areas of least or diminishing competition. Although design
and build work looked
an attractive option on the face of it, potentially
highly profitable and an
area of low exploitation by the competition. It
requires specialist resources
some of which the company did not possess,
however, there was the option of
outsourcing certain constituents of work.
The company was also inexperienced in
this area showing that it is a risky
proposition. However, continued exploration
of this area was agreed at the
firm’s current pace. Having determined the
range of segments in which they
will participate, and nature of services to be
offered, the next decision in
formulating the marketing strategy is to determine
the utilisation of
individual elements of the marketing mix and the relative
degree of reliance
to be placed on each. In accomplishing the market development
strategy of
promoting the company’s range of services to a wider audience the
work group
fitted to the theory of the marketing mix. Hence the allocation of
the 4 P’s,
product, price, place and promotion. "The marketing mix is a
set of market
tools that the firm uses to pursue it’s marketing objectives in
the target
market" (Kotler, 1997: p. 92) Having determined the desired
markets that the
company would compete in the next step was organising a
promotional strategy
in these area. Following the apportionment of a marketing
budget discussions
were held in order to decide the best way of using this
allocation. In this
idea of market development the company would attempt to sell
its range of
services to a wider market. The communication of the firm's
reputation and
ability to the targeted markets was necessary. One source of such
markets was
a database of forthcoming planning applications for building work
that the
company thought would be of benefit to subscribe to. Mail shots would
be sent
to the companies on this database and to large local companies in
the
commercial and industrial sectors and a follow up call strategy would
be
implemented. Further promotion of the company’s name was also planned
through
promoting the company through it’s assets and the projects being
worked on.
Sign boards were to be redesigned and the policy was
introduced that all
projects would display these in prominent positions.
Company vehicles and plant
would also be in a good state of repair and
display the company logo. Good
relations with the press were keen to be
developed so that coverage could be
given to occasions such as foundation
stone laying and official openings. As
well as the clients the company also
planned mail shots and a follow up call
strategy for firms offering
professional services relating to the building
industry such as architects
project managers and design companies. The price as
regards building
contracting is largely determined by the amount of margin to be
added to the
build up of the estimate for the project. Price is almost always
considered
as being the single most important factor for the client as 99% of
contracts
are let to the lowest bidder. "The setting of the correct price
is of
enormous importance in marketing - both in getting the product accepted
by
the target market, and in generating sufficient revenue for the
organisation."
(Page, 1995:p.120) Factors taken into consideration in
determining the level of
profit margin to be added to the tender build-up are
contract workload, nature
of work(location, client etc.), number of
competitors and recently reported
results. It was agreed that use would be
made of the analysis undertaken for
marketing purposes when making the
commercial decision of the level of profit
margin to be added to a project.
We have seen how the firms approach to
marketing management links closely to
theory. Now the effectiveness of this
approach shall be analysed and it’s
success shall be measured. It has been two
years since the implementation of
the initial marketing plan and it is assumed
that sufficient time has past to
draw conclusions as to it’s effectiveness.
The obvious ways of
determining this is by the analysis of financial information
and statistical
data. However, not only has financial information and
statistical data been
collected relating to the internal environment of the firm
but also data has
been collected about the external environment i.e. the
economic climate, the
building industry and about local companies and
competitors during this
period. The company has experienced both growth in
turnover and not only
sustained the level of profitability but increased this.
This is largely
down to the fact that it has concentrated it’s efforts in
particular sectors.
This narrowing of it’s portfolio in some areas (no
residential or transport)
and diversification (design & build) into others
seems to have had a
positive effect. When comparing the company’s performance
to the rest of the
industry (Appendix D) we can see that most of the areas the
company chose
were areas that the industry as a whole experienced growth. This
could
perhaps prove that the external analysis made by the workshop team,
despite
not being data analysis, was beneficial. Now critical analysis of
the
marketing management strategy recommending improvements and changes to
promote
future business success and development. Firstly, the stages taken by
the
company in developing the marketing management function relate directly
to that
of theory and therein provide the perfect framework for the critical
analysis.
Analysing marketing opportunities, developing marketing,
planning marketing
programs and implementing the strategies is in essence the
way that the workshop
team organised itself during this initiative. "As a
management function
marketing involves the process of analysis, planning,
implementation and
control." (Lancaster and Massingham, 1993: p.8) On the
surface the
company’s approach seems logical and well applied and as we have
seen it seems
to have had a positive affect in some areas. However, I believe
that the actual
significance of the marketing concept has not been realised.
"When applying
the marketing concept the firm seeks to evaluate market
opportunities before
production, assess potential demand for the good,
determine the product
characteristics desired by consumers, predict the
prices consumers are willing
to pay, and then supply goods corresponding to
the needs and wants of target
markets more effectively than competitors."
(Bennett, 1996 :171)
Marketing’s contribution to business success lies in
its commitment to
detailed analysis of future opportunities to meet customer
needs. The central
focus of the business has to be the customer, marketing
management has to take
the lead in researching the customer and the markets
in order to develop
strategies. The ideas don’t have to be new ones just ones
that are potential
good for business success and development then the company
can strive to become
more profitable in these areas thus either creating
value for the customer or by
reducing costs so that the firm can compete
better with the competitors. It has
to be agreed that the detailed analysis
of the company was a particularly useful
exercise. However, in spite of this
it is still an old fashioned production
orientated company or perhaps is part
way between production and customer
oriented. The markets are segmented but
the act of understanding the customers
values and needs are not performed.
The workshop team’s analysis of the
external environment curtailed at the
PEST analysis, which was in itself only
personal views brought about by
experience. While this type of analysis can be
beneficial it is not usually
wholly accurate. Further detailed analysis of the
macro environment is
undoubtedly required if the company is to understand it’s
customers
requirements and capitalise by being one step ahead of the
competition.
"Changes and trends in the macro environment give rise to some
of the most
significant opportunities and threats that any organisation
faces.
Companies which fail to recognise and take account of changes in
their
environment have, in the past, either failed to capitalise on
their
opportunities or - worse still - have suddenly realised that their
markets have
disappeared." (Lancaster and Massingham, 1998: p.26) A
successful external
analysis needs to be directed and purposeful. There is
always the danger that it
will become an endless process resulting in an
excessively descriptive report.
Without discipline and direction, volumes
of useless descriptive material can
easily be generated. The external
analysis process should not be an end in
itself. It should be motivated
throughout by a desire to affect strategy and it
should contribute to the
decision of the application of investment, by doing all
of these it will be
responsible for the development of a sustainable competitive
advantage.
External analysis can also contribute to the marketing management
strategy by
identifying significant trends, future events, opportunities and
threats. It
has to be recognised that by identifying these areas threats to
one
organisation can become opportunities for another in being able to
sustain
competitive advantage. "Attempting to lay any sort of plans for the
future
without first gathering enough information is not only foolish, it
also
demonstrates dangerous tendencies towards complacency and arrogance.
Knowing
that information must be gathered is one thing, knowing how much and
what to
gather is quite another." (Fidfield, 1992: p.39) As the customers are
the
focus of the marketing concept the first logical step when beginning
marketing
management is to analyse the customers. The workshop team’s
approach to
segmentation was the right platform. However, as we saw their
segmentation for
this type of industry is applied differently than that of
other different
industries that tend to be referred to in marketing theory.
Nevertheless,
through segmentation we can identify customer groups that
respond differently
than other customer groups. The way that the workshop
team undertook the task of
defining the segments was good as it identified
the variables that can
differentiate between one project and another.
Following this the subdivision
was useful because it recognised the broad
categories like to the industry were
to vague. In essence the divisions
proved to be effective and can be linked to
the industry standard. The act of
segmentation opens the doors for analysis of
the industry, an individual
organisation, it’s markets and it’s customers.
It also provides the focus
for the organisation’s strategy for business
success. The workshop team’s
method of segmentation links directly to the
Department of Trade and
Industry’s method of segmentation when analysing the
whole of the
construction industry for government statistics. For this reason it
is very
easy to collect data and analyse the external sectors and then link this
to
the company’s own business. The data has been collected from various
sources
and this is stated in the appendix D. The conclusion are drawn below.
The
output of the construction industry for work done for the industrial
sector
is relatively small. The current output for this sector is estimated
to be £3.26
bn, where as the total output of the industry as a whole is in
excess of £55bn.
The problem with this particular sub sector is the
manufacturing sector has not
grown by very much, steel has undergone radical
changes and coal has all but
disappeared. Fewer factories and warehouses are
being built. For the company the
only work undertaken in the industrial
sector is the construction and major
alteration to warehouses, it is a large
and important part of the company’s
turnover. Clearly the prospects for the
industrial sector are less favourable
than for those of the others. In
general, there has been no change in the
pattern of investment and, although
there has been an increase in the value of
orders in the private sector, it
is not large enough to make a significant
difference to future output of the
construction industry. However, the level of
output for work carried out in
relation to warehouses is increasing year on year
despite the shift from a
manufacturing to a service economy. The deciding factor
is whether or not
this will continue to be the case. Commercial construction is
a much more
important sector in that it represents nearly 39.8% of the output of
the
construction industry. It is highly cyclical and very sensitive to changes
in
economic conditions. The sector has been favourably affected by
privatisation.
In the private sector the sub sections of offices shops
and entertainment are
the dominant factors. While for the public sector
output is concentrated in the
areas of education and health. The overall
trends for both are positive,
however, there is a strong element of
volatility in the output and the orders,
for private sector work. There are
still a large number of small and medium
sized firms in the industry but this
number is declining. Design and build has
been a growth area in the
construction industry in recent years. Design and
Build is where on
organisation takes responsibility for both functions on behalf
of a client.
As the market for building contractors has become more competitive
and
margins have been squeezed tighter the contractors sought other ways
of
increasing competitive advantage by offering the full service it had
dual
benefits for client and contractor. Design and build projects do have
an
attraction nevertheless there are pitfalls to this market. "To
the
detriment of the traditional architects practice, recent times have
brought
about the augmentation of design and build contractors. It appears to
be an
increasingly preferred method of tendering for private concerns in the
light
industrial and commercial sectors. More recently research suggests some
building
contractors have paid the penalty for entering the new sector with
little
experience. The attractiveness of low competition and perceived
greater margins
had blinded the judgment some what." (Ashworth, 1998: p.7)
The
identification of trends within the industry can provide vital
information as to
the current and future state of the various sectors. The
correct prediction of
future trends is the key to achieving the competitive
edge. "Trends within
the market can affect current and future strategies and
assessments of market
probability." (Aaker, 1995: p.26) In the construction
industry clear trends
can be identified. The long term trend in the
industrial sector has been a move
away from manufacturing towards a
service-based economy causing overall decline
in the industrial sector.
Decline also in coal mining and steel based industries
causing construction
firms connected with these areas to switch their efforts to
other activities.
In the commercial sector an appreciable amount of
traditionally public sector
work has been transferred to the private sector
though the privatization of
industries. Increase in demand for entertainment and
leisure activities and
the consequent increase in demand for the necessary
facilities. Despite
objections from various pressure groups, large commercial centers
are
increasing in number. There is a demand for modern offices adaptable to
the
requirements of information technology and computerization, together with
the
recognition of the fact that the working environment has a significant
effect on
the performance of individuals. When analyzing the external
environment using
PEST the company needs to have a list of areas to
investigate for each of the
four factors; political, economic, social and
technological. Political factors
could be to look at the effect of a change
of government would have on spending
in the public sector. The state of play
as regards the ability to obtain grants
from the European commission. Changes
in the requirements for obtaining planning
permission. Changes in the health
and safety regulations. Economic factors to be
looked out for would be
situation with the UK’s Gross Domestic Product. Which
industries are
experiencing increased investment as this is likely to lead to
increased
construction activities. Change in the demand for new buildings that
will be
suitable for changing needs of other industries for example the needs of
a
high technology environment. Changes in interest and exchange rates have
large
effects on construction projects. Development grant awards for various
regions
and sectors such as the national lottery. Social factors that could
be
identified are as follows. Inner city regeneration and outer city
development
would bring about an increased requirement for construction
work.
Environmentalist pressure for the extension of the Green Belt and
other current
environmental factors. Demographic changes leading to increased
need for special
housing. Changes in social trends and consumer behavior.
Technological factors
that could potentially provide the company with
competitive advantage can be
identified by looking at the following areas.
Increased use of information
technology. Innovations in construction
techniques for example the greater use
of pre-fabricated elements. Further
development in high technology creating a
need for suitable buildings. Using
the information gathered from an appraisal of
the external environment we
need to turn the information into action. What’s
important is to search
through the environment for specific opportunities which
appear to be open to
our organization. It takes time to develop new services and
develop new
markets. If there is a hint that new market possibilities are likely
to open
then we should plan our time accordingly to gain the maximum benefit. As
well
as identifying the opportunities in tomorrow’s market place it is
also
important that we clearly identify the threats which may appear in the
business
environment. The important thing is not just to identify the threats
but to be
able to do something about
them.