“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.
