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Marketing Translation

Marketing strategy influences the design of products and services as well as internal processes. Competitive organizations evaluate how, when, why, and where customers use their products and services and align operations to those details. Customer requirements, once gathered, are translated through the supply chain to ensure alignment. In today’s global competitive environment, many industries have to customize products and services to satisfy local customer preferences. Organizations that do this effectively have a competitive advantage.

Marketing brings customer requirements into the organization. These may be for individual customers or for market segments, and the requirements may be enhancements to current products or services, or they may be requests for innovative solutions to new needs. In parallel, marketing actively works with design engineering to translate the major themes obtained from the VOC analysis into customer critical-to-satisfaction (CTS) characteristics, which are more detailed but not quantified. These CTS characteristics are then broken down in high-level metrics related to critical-to-time (CTT), critical-to-cost (CTC), critical-to-quality (CTQ), critical-to-safety (CTSF), and so on, depending on the industry, and each of these has initial performance targets. Design engineering continues the internal translation process by further breaking down the CTS, CTT, CTC, CTQ, and CTSF metrics into internal specifications by mapping them to the sub-systems that will satisfy customer requirements. These provide functional, dimensional, and aesthetic characteristics as well as other product or service attributes identified through the VOC translation process. Integral to these translation tasks are testing of various design iterations though focus groups and test marketing prior to full-scale commercialization. At this step of the translation process, design engineering is a gatekeeper to ensure that customer requirements will be met and that the product or service can be produced efficiently. Competitive benchmarking is another important activity between marketing and designers. It helps identify needed feature and functions that competitors may be implementing but may be missed by other VOC programs.

Marketing strategy begins with the goal of executing an organization’s high-level strategic goals and objectives to meet sales and revenue projections. Integral to these activities is the design of marketing research studies to gauge customer satisfaction levels and identify customer preferences and needs for new products and services. Effective marketing research requires stratifying markets by demographic factors to build models to forecast sales. After the initial sales models are built, test marketing plans are developed to improve the accuracy of the initial sales forecasts. Estimating new product demand is a methodological process. Information related to desired features and functions, the range of prices that customer are willing to pay, and other information is carefully collected from targeted market segments using structured plans. The marketing team identifies potential customers by market segment and their preferences for features, functions, price, and other attributes. Marketing models are developed using this information. Relevant information may include real disposable income, age, education level, and other descriptive information. Ideally, an organization will have a history of sales for similar products and services to these customers.

The market research methodology is quantitatively based on experimental design strategies and statistical analysis. The goal is to capture customer buying preferences using demographic factors that are statistically relevant to the targeted customers’ purchase intent. Data collection is conducted through test markets and analyzed to estimate the expected market share for a product or service. In the test marketing phase, some factors such as pricing are varied to analyze the impact on customer purchase intentions. Pricing evaluations are made on the basis of several considerations, with design attributes or features by market segment being the most critical. Therefore, the market research must be carefully planned and structured to provide useful information.

Another consideration is anticipated life cycle, which is an estimate of the length of maturation stages through which a product or service will move. This analysis is made based on similar products or services currently sold in similar markets. Depending on the specific industry, products and services have different useful lives. As an example, an automobile has an economically useful life of six to ten years, depending on the type of automobile, its expected type of use, and the recommended level of maintenance. In contrast, other products are seasonal fads. These latter products and services may have useful lives measured in months or weeks. Life cycle is important to consider how features, functions, pricing, and other attributes need to change to maintain competitiveness. As a result, design is heavily influenced by anticipated life cycles.

Marketing helps refine initial the estimates of market potential and penetration rate to forecast market share. This concept is shown in Figure 3.2. The shape of the growth curves depends on a specific product or service and the industry. Market penetration is estimated as a percentage of market potential. The shape of the market penetration rate curve is based on the concept of cumulative adoption. It takes time for a new product or service to be adopted or purchased by customers. This time lag is dependent on the ability to inform customers of the availability of the product or service as well as the purchasing preferences and behaviors of customers.

FIGURE 3.2

Forecasting sales.

Some customers are early adopters, and others are later adopters. Early adopters purchase products as they are released to a market to begin using features and functions. Early adopters are also likely to pay more than later adopters.

The initial market penetration estimates are also modified based on the market share and sales of similar product and services. It is important to estimate market potential, market penetration rate, and market share of new products or services correctly because sales forecasts are built using this information. Sales forecast that are higher than actual sales will lead to inefficient operations, including excess capacity or not enough capacity. Excess capacity is seen in too many people, excess or obsolete inventory, and other issues, whereas insufficient capacity causes delays to deliver the product or service to customers. The first situation results in higher operational costs. The latter situation results in lower sales and customer satisfaction. Sales forecasts lower than actual market demand results in lost revenue. Market penetration rates are estimated from field testing. Projected penetration levels, if not high enough, can be increased by changes to features, functions, pricing, and other attributes as well as using advertising and promotional programs. Final sales projections are developed based on these marketing research planning activities. Over time, demand forecasts are improved using feedback of actual to predicted sales by market segment.

Market segment demand is estimated based on the best available information. In this estimation process, the market share of similar products and services can be very useful in estimating the market share demand for a new product or service. Second, market segments are stratified by demographic factors and their levels. Stratification is especially important for global organizations competing in a market segment within different regions and countries. As an example, teenage students who purchase computers is a market segment. But it may be useful to further stratify this segment based on local culture and personal preferences and provide variations of the basic product design or service. Computers could be offered in different colors; different languages may need to be added, and with differentiated features and functions. In this context, it is important to consider the ability of local culture to use and purchase the new product or service. Laws and regulations are also important considerations. Significant modifications to a product or service design may be required to sell within a country or region. This is especially true for products or services that may impact safety. There may also be country-specific tariffs and taxes, which would increase total customer cost and make products or services less competitive in a local market, potentially even pricing the organization out of that market. As part of marketing analysis, price elasticity must also be estimated. This evaluates how much customers of different market segments will pay for features and functions as well as competitive pressures. Finally, customer feedback is needed to ensure things stay on track. Feedback is gathered using carefully designed studies, including focus groups and surveys. Statistical methods enable extrapolation from the analysis and limited samples to estimates of market share and forecasting models. This information is fed to design engineering and operations.

Figure 3.3 shows the steps to create a sales forecast for new products and services. It is calculated using market potential, penetration rate, the estimated number of customers who will purchase the product or service, the number of customers who either are aware of or could be made aware of the product or service, the sales success, and the anticipated usage rates

FIGURE 3.3

New product sales forecasts.

for the product or service. Market potential is estimated using the size of the current customer base, the likelihood a customer will use a product or service, the awareness and the availability of a product or service (i.e., the ability of the organization to effectively distribute the product or service to the customer at a local level), and, finally, the intention of a customer to actually make a purchase. This is shown in Figure 3.4.

Figure 3.5 shows market penetration patterns that depend on specific products or services. These penetration patterns are impacted by advertising, local laws and regulations, available distribution networks, product, or service pricing levels, as well as the relative importance of the product or service to the customer. The market penetration rate can be described in terms of a diffusion model based on the concept of early and late adopters and the uniqueness of the product or service relative to those products and services that can be substituted for the new product or service. These concepts are shown in Figures 3.5 and 3.6. The model shown in Figure 3.6 is the basis for the market penetration graph shown in Figure 3.5.

FIGURE 3.4

Estimating market potential.

FIGURE 3.5

Market penetration patterns.

Table 3.5 shows an estimate of the sales potential for a new residential valve. Sales depends on several factors, including the number of new houses to be built and the potential market for the new valve. Assuming the new valve has a unique design, the number of new adopters is estimated as 20%. The proportion of these new adopters who will purchase the valve is estimated at 80% from market research. Customer awareness is estimated at 80% based on previous advertising of valves of similar design. The sales effectiveness is 50% based on the success rate of previous proposals. The number of valves that must be used per house is estimated as 10. Multiplying the various terms together provides a total annual

FIGURE 3.6

How to estimate a market penetration rate.

TABLE 3.5

Estimating Product Demand

Number of new houses to be built

100,000

Number of new adopters

20%

Proportion to buy

80%

Awareness

80%

Sales effectiveness

50%

Use per customer

10

Annual sales (units)

64,000

Sales of a new commercial valve must be estimated for the next year.

The valve is sold in residential housing in groups of 10.

demand of 64,000 valves at the current sales price. However, sales could be increased by lowering the sales price, increasing advertising, and taking other actions. The strategy needs to be balanced relative to its impact on gross margin and profitability.

Marketing plays a very important role in helping design engineering obtain the VOC, and in turn helping operations estimate production demand. Marketing also has a direct impact on operations because operational capacity depends on demand. Figure 3.7 shows that demand for a product or service moves through four stages during its life cycle: introduction, growth, maturity, and decline. Figure 3.7 associates a modeling method for estimating demand by stage. Prior to introduction of a

FIGURE 3.7

Forecasting methods by product life cycle.

new product or service to the market, estimates of demand depend on the available and quantified information. Information comes from several sources, including customer and sales feedback and historical sales of similar product and services. In the absence of historical or firm estimates, an organization relies on mathematical methods. If there are no available marketing data, organizations must rely on best judgment. This may create inaccurate forecasts that have negative operational impacts. In addition to the long-term product life stages, products and services may also have localized demand patterns based on seasonality, economic cycle, and other related factors. In summary, marketing’s demand forecasts for new products and services must be quantified on both a long-term and a short-term basis. Longer-range demand estimates are important when they require significant capacity expansions rather than a simple extension of current product or service offerings.

 
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