The Marketing of Works [1 ed.] 1527571246, 9781527571242

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The Marketing of Works

The Marketing of Works: A Textbook on General Marketing of Goods, Works, and Services By

Sergiy E. Pogodayev

The Marketing of Works: A Textbook on General Marketing of Goods, Works, and Services By Sergiy E. Pogodayev This book first published 2021 Cambridge Scholars Publishing Lady Stephenson Library, Newcastle upon Tyne, NE6 2PA, UK British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library Copyright © 2021 by Sergiy E. Pogodayev All rights for this book reserved. No part of this book may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the copyright owner. ISBN (10): 1-5275-7124-6 ISBN (13): 978-1-5275-7124-2

TABLE OF CONTENTS

Preface

xvi

Acknowledgments

xix

1. Introduction to the Marketing of Works

1

Overview The relevance of the marketing of works Definitions of “work” What do we study in the marketing of works? Modern research areas in marketing Revision of marketing functions Social and environmental aspects of marketing Developing the marketing paradigm Why has the marketing of works not been studied until now? An important marketing secret What tasks will we learn to solve? The unknown in the marketing of works Practical tips Definitions of concepts Questions for discussion and testing

1 1 3 4 7 9 9 10 11 13 14 15 15 17 18

2. The Subject, Object, and Matter of Marketing Activities

19

Overview The subject of marketing The object of marketing The ownership of the marketing object The matter of marketing Brief definitions of concepts Comparison of marketing characteristics What do specialists do in the marketing of works? What is the result of the marketing of works? Practical tips Definitions of concepts Questions for discussion and testing

19 19 20 20 21 22 23 25 30 31 32 33

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3. The Evolution of Marketing Classifications

34

Overview Why should we classify marketing? Criteria and methods for classifying marketing The history of marketing development The scientific discovery of the marketing of services “Works” in the classifications of services Marketing classifications Marketing services as an activity Disadvantages of the existing classification Examples of marketing classifications Practical tips Definitions of concepts Questions for discussion and testing

34 34 35 37 38 39 40 42 42 43 50 51 52

4. Goods, Works, and Services as Elements of a Product

53

Overview Work is a product of human labor Economic benefit for exchange An interpretation of the concept of a “product” Developing the marketing concept Features of industrial marketing New trends in marketing Mentioning works in activity classifiers Practical tips Definitions of concepts Questions for discussion and testing

5. The Marketing of Works: Basic Concepts and Definitions Overview Background to the scientific discovery of the marketing of works Works as an applied activity The conceptual basics of the marketing of works Differences between works and services in regulatory documents Works as a product of human activity: a reminder Project, discrete, and process productions Proof that the marketing of works exists Results from interviewing marketing experts: an example The concept of works in regulatory documents Basic definitions for studying the marketing of works Practical tips Definitions of concepts Questions for discussion and testing

53 53 54 55 56 57 58 58 60 61 62

63 63 63 64 65 67 68 69 70 72 74 75 77 78 79

The Marketing of Works: A Textbook on General Marketing of Goods, Works, and Services

6. Manufacturing, Renewal, Modernization, Re-Equipment, and Liquidation Overview Physical, moral, and structural deterioration Renewal, modernization, and re-equipment The main groups of works and their production cycles Changes in the market value of processed objects Additional information about structural deterioration and re-equipment The life cycle of an object’s operation and repairs Sources of financing and terms for repairing objects A contract’s expected scope and cost Obligation to fulfill works under contract Execution of orders for the liquidation of objects Practical tips Definitions of concepts Questions for discussion and testing

7. Environment and SWOT Analysis in the Marketing of Works Overview The elements and levels in a marketing environment The structure of the marketing microenvironment The marketing macroenvironment The dynamic matrix in the SWOT analysis Stability of development and adaptation to changes The life cycle of work execution technologies The firm as an open system in the market of works The company location and place of works execution Practical tips Definitions of concepts Questions for discussion and testing

8. The Competitiveness of the Company’s Works and Resources Overview A company’s competitiveness Components of the competitiveness of works Commercial offers for the execution of works Size of a contract’s “cost-duration” Life cycle of resource competitiveness A firm’s competitiveness in terms of its resources The competitiveness of company personnel Objective and subjective competitiveness The competitiveness of production processes

vii

80 80 80 81 81 83 84 85 87 87 89 90 92 93 94

95 95 95 96 97 98 99 101 101 102 103 104 105

106 106 106 108 110 112 113 116 117 118 119

viii

Table of Contents A company’s life cycle in terms of its total competitiveness Practical tips Definitions of concepts Questions for discussion and testing

122 125 127 128

9. The Marketing of Works: Project Management and Control

129

Overview Do we need to know how the specialists execute works? The project as a form of organizing works The project is a key tool in the marketing of works Features of projects in the marketing of goods and in the marketing of works The project’s start and end dates The project’s objectives The project’s composition and scope of works The project’s budget Parties to the project The rights and responsibilities of the project’s participants The conditions of the project The project implementation plan The marketing department’s level of independence Maneuvering resources in the execution of works Practical tips Definitions of concepts Questions for discussion and testing

10. Marketing Research in the Market of Works Overview Who needs marketing research and why? When is it more profitable to hire your own marketing researchers? Positioning the firm in the market How do you start marketing research? Internal marketing audits The effectiveness of marketing research in the market of works Stability of receiving discrete orders Practical tips Definitions of concepts Questions for discussion and testing

129 129 130 131 132 132 133 133 134 134 135 135 135 136 137 138 140 141

142 142 142 144 145 146 148 149 150 152 154 155

11. Information Systems and Customer Databases

156

Overview Information systems in the marketing of works Organizing activities using marketing information Narrowing the search field of information

156 156 157 159

The Marketing of Works: A Textbook on General Marketing of Goods, Works, and Services The volume and cost of marketing information Cost effectiveness of marketing information The secrecy of information The accuracy of information The urgency of information Loyal customers are key capital of a firm Creating and maintaining a customer database Customer contact schedules Personalization of contacts Information for making the right decisions Practical tips Definitions of concepts Questions for discussion and testing

12. Trade Secrets and the Protection of Information in the Marketing of Works Overview The market value of information Information that constitutes a trade secret Balancing advertising and preventing the disclosure of a company’s secrets The volume and value of information available The degree of confidentiality for information about the company How should we protect trade secrets? How to fight your competitor’s spies? Practical tips Definitions of concepts Questions for discussion and testing

13. Markets of Works: Segmentation and Ranking Overview The segmentation of the market of works Ranking participants in the market of works Restrictions in the markets The market’s spatial coordinate system Customer loyalty and competitor hostility Constructing the market space’s coordinate axes The market as a socio-economic system Market segmentation based on participant competition Practical tips Definitions of concepts Questions for discussion and testing

160 161 161 162 162 163 163 164 164 165 166 168 169

170 170 170 171 172 173 174 175 176 178 179 180

181 181 181 184 185 186 188 189 191 192 193 195 196

ix

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14. The Marketing Vector: Product and Marketing Specialization

197

Overview Prerequisites for creating a marketing vector representation The marketing vector of goods, works, and services The projection of the marketing vector as the cost of selling products The modulus of the marketing vector as the total cost of sales The planes of the marketing coordinate system A company’s marketing specialization in the goods, works, and services markets A company’s product specialization in the goods, works, and services markets Practical tips Definitions of concepts Questions for discussion and testing

197 197 198 199

15. The Marketing of Goods, Works, and Services, and Synergy in Sales Overview The reality of general marketing of goods, works, and services The concept of general marketing of goods, works, and services Prices of works, services, and goods in a company’s price-list Reducing marketing costs based on the synergy effect The synergy coefficient in hybrid offerings of products Practical tips Definitions of concepts Questions for discussion and testing

200 202 203 204 205 207 208

209 209 209 210 211 214 215 216 218 219

16. Market Capacity and Filling the Portfolio of Orders

220

Overview Market capacity and sales potential of works The sales potential of works in the market space The sales potential of works in market time Calculating market capacity in space and time Specialization and cooperation in the market of works Searching and executing works orders Competition for orders in the market of works Fullness level of a company’s portfolio of orders Stability of the fulfillment of contracts Availability of the contractor’s own production facilities Planned and random orders in the marketing of works Practical tips Definitions of concepts Questions for discussion and testing

220 220 221 222 222 225 226 227 228 228 229 230 231 233 234

The Marketing of Works: A Textbook on General Marketing of Goods, Works, and Services

17. The Space-Time Matrix for Works: Planning in Space and Time Overview Placing works orders in space and time Matrix for production facility characteristics Intensity of the revenue, costs, and profit generated by orders The space-time matrix for loading production facilities Boundary conditions and criteria for optimizing production loading The distribution in time of works intensity during order fulfillment Calculating the total revenue generated by an order using the intensity of works Shortening and lengthening the duration of the contract Real and planned tension of works orders Managing start and end dates of contracts Practical tips Definitions of concepts Questions for discussion and testing

235 235 235 236 238 240 241 243 245 247 248 249 252 254 255

18. Hybrid Offerings: The Promotion and Distribution of Works

256

Overview Hybrid offering as a set of products for sale Works add value, while services maintain the hybrid offering General and particular hybrid offerings Combinations of products in hybrid offerings General hybrid offering of a ship repair yard A construction company’s general hybrid offering The company as an object for direct promotion Marketing channels to promote works Agents and brokers as authorized representatives Sales of works in marketing channels Advertising and public relations in the market of works Practical tips Definitions of concepts Questions for discussion and testing

256 256 258 259 260 261 262 263 264 266 266 267 268 271 272

19. Pricing Policies, Strategies, and Tactics in the Works Market

273

Overview Marketing policies in the market of works An executing firm’s strategy and tactics Strategies and tactics depending on the company’s life cycle Marketing tactics in the works market How does the marketing department pursue a pricing policy? Changing strategies and tactics depending on the market situation

273 273 275 277 279 280 283

xi

xii

Table of Contents Pricing in ship repair and housing construction The variable and non-variable parameters of the works contract Using the compounding procedure for long-term discrete orders Absolutely or relatively profitable or unprofitable orders Coordinating stages of executing works and receiving payments How do bonuses and penalties affect a contract’s execution? Practical tips Definitions of concepts Questions for discussion and testing

20. The 9Ps Model of the Marketing Mix for Works Overview The marketing mix as an effective marketing tool The 4Ps and 7Ps models for the marketing mix The marketing of goods, works, and services as a basis for the 9Ps model The concept of the project as a source of new elements in the marketing mix Project factors controlled by marketing specialists Project factors that marketing specialists cannot control New elements of the marketing mix for works An expanded image of marketing mixes for goods, services, and works Practical tips Definitions of concepts Questions for discussion and testing

284 286 287 288 290 291 293 295 296

297 297 297 298 299 300 301 303 305 308 309 312 313

21. The Barter Marketing of Works and the Exchange of Works

314

Overview The role of barter transactions in marketing The importance of barter in the current economy Existing problems and ways of developing barter marketing Exchanging objects and products in barter transactions Homogeneous and heterogeneous barter deals One-pass and multi-pass barter deals Value equivalence of exchanged products in barter Developing a roadmap for barter transactions Practical tips Definitions of concepts Questions for discussion and testing

314 314 315 316 318 320 321 322 324 326 328 329

The Marketing of Works: A Textbook on General Marketing of Goods, Works, and Services

22. Direct Marketing in the Market of Works Overview Applying direct marketing in the market of works Direct contact of the contractor’s representatives with the customer Data transmission channels in the direct marketing of works Customer dissatisfaction with the contractor’s activities Interdependence of the customer and the contractor Using hospitality costs in the marketing of works Economic effectiveness of applying hospitality costs Controlling the position of the breakeven point Informal methods of influencing customers in the marketing of works Practical tips Definitions of concepts Questions for discussion and testing

23. The E-Marketing of Works and Electronic Document Management Overview The importance of electronic marketing in the modern economy Using the Internet to find works orders Mobile tools and devices in the marketing of works Search engines as online marketing tools Online negotiations between the customer and the contractor Electronic document management in the marketing of works Why do we need paper documents in e-marketing? Blockchain marketing as an element of Internet marketing Practical tips Definitions of concepts Questions for discussion and testing

24. Features of the Marketing of Works in the Economy Sectors Overview Marketing specialists sell works in every sector of the economy The marketing of works in industry The marketing of works in building construction The marketing of works in agriculture The marketing of works in the transport sector The marketing of works in the field of communications The marketing of works in healthcare and education The marketing of works in advertising and consulting activities The marketing of works in the film and audio industries The marketing of works in the field of public administration The marketing of works in the field of information technology

xiii

330 330 330 331 333 334 335 337 339 340 344 348 350 351

352 352 352 354 355 356 357 359 361 362 364 365 366

367 367 367 369 370 371 372 372 373 373 374 374 375

xiv

Table of Contents The marketing of works in the field of sports, recreation, and entertainment The marketing of works in the beauty industry The marketing of works in scientific research Practitioners apply the marketing of works in the newest sectors of the economy Technological specialization enables firms to work in many sectors of the economy The seasonal factor in the marketing of works Practical tips Definitions of concepts Questions for discussion and testing

25. Marketing Department Activities in the Market of Works

375 376 376 377 377 378 378 380 381

382

Overview Evaluating the effectiveness of marketing How do marketing practitioners influence a firm’s business? Rotation of managers and specialists in the marketing department The marketing department’s life cycle The psychological pressure on the marketing team Parameters of the marketing team’s life cycle Transferring the functions of other departments to the marketing team Motivation and stimulation of the marketing department employees Practical tips Definitions of concepts Questions for discussion and testing

382 382 384 386 387 390 391 393

26. The International Marketing of Works and the Export/Import of Works

402

Overview The development of marketing in the international markets of works Entering foreign markets for exporters of works Participation in foreign auctions for the purchase of works Moving across the border to execute works Full or partial export of works The customs regime for processing a foreign customer’s object Calculating the export coefficient of works The necessity of signing the General Agreement on Trade in Works Practical tips Definitions of concepts Questions for discussion and testing

Topics for Essays and Reviews

395 398 400 401

402 402 403 405 406 407 410 412 413 414 415 416

417

The Marketing of Works: A Textbook on General Marketing of Goods, Works, and Services

xv

Themes for Role-Playing Games in Practical Classes

419

Appendices

422

Index

430

PREFACE

Marketing specialists often sell their promises to consumers, rather than their goods. Selling promises is very difficult. Marketers promise to execute works for a customer or provide services to a client. However, the buyer of works or services is often cautious and distrustful. He needs proof, that is, evidence that the contractor will execute works or services at a high quality and on time. What if the customer’s object, processed or served, will be lost or damaged by the contractor? Or the executor violates the terms of the contract? Who will vouch for this contractor? Indeed, the buyer can touch the ready-made “substantial goods” (sports car), can taste (appetizing bread), or can smell them (fragrant perfumes). He can see “non-substantial goods” on the laptop screen (computer game) or can hear them on the radio (favorite song). If you agree with physicists, substantial goods and non-substantial goods are called material goods. These are real goods for which you can receive real money from the buyer upon delivery. At the beginning of the last century, the marketing of products became the theory of sales and market activities. In an era that is expanding the production of goods, marketing specialists identified the products of human labor with finished goods, such as furniture, clothing, and jewelry. The marketing of goods has reached a high degree of development over the course of more than a hundred years of history. Marketing specialists have learned to sell everything: goods that are needed by the consumer, and goods that he does not need at all. But in the second half of the last century, leading scientists and marketing practitioners drew attention to the fact that an increasing share of the gross domestic product of developed countries is made up of income from the sale of services. It became clear that the existing marketing of goods is not suitable for selling services. The promise to provide a virtual service that is not yet available is much more difficult than offering the buyer a product on the counter, a sample at the fair, or a price-list with photos on a commodity exchange or online (Internet) store. In the 1980s, scientists gave marketing practitioners a new concept, namely the marketing of services. The marketing of services has its own

The Marketing of Works: A Textbook on General Marketing of Goods, xvii Works, and Services

tools and techniques that enable us to sell virtual promises almost as easily as real goods. The marketing of services complemented the marketing of goods and, as a result, the marketing of goods and services became integrated. Time has passed, and the marketing of goods and services has safely entered the third millennium. Again, marketing practitioners face new challenges. In some European countries, scientists pay attention to the fact that a product is traditionally regarded as a set of three elements, including goods and services already mastered by marketing specialists, as well as the long-known element, “works.” Due to the confusion in the scientific and legal definitions of the concepts of “services” and “works,” scientists and practitioners absolutely did not pay attention to the differences between them. Specialists believe that works are a special type of services that suppliers (production companies)—such as, construction companies, shipyards, cinematographic studios, and design organizations—provide to consumers. In the national classifications of works and services, one can still find following mysterious phrases: “services for executing work,” “production services,” “repair services,” and so on. In February 2010, the author overcame this confusion in the understanding the terms “services” and “works.” It turned out that the work is a product of human labor, which changes the market value of the processed object. Service is a product that does not change the market value of the object being served. Other differences found between the works and services will be studied in this textbook. In fact, marketing managers sell goods, services, and works. If, for the first two positions, scientists developed the marketing of goods and services, then for the third position, namely works, there was no own theory (the marketing of works). In order to give marketing specialists more specialized tools and techniques for selling works, the author proposes to study a new special conception: “the marketing of works.” The marketing of works has become a new stage in the further development of marketing. For more than a century of marketing history, scientists from around the world have developed such basic concepts as marketing mix, market segmentation, hybrid offering, market capacity, barter marketing, product life cycle, competitiveness, channels of product promotion, and the like. These and many other terms are used in the conception of the marketing of works. If we add a third element (that is, the marketing of works) to the existing integrated marketing of goods and services, we will get advanced marketing of goods, works, and services. It becomes clear that the

xviii

Preface

company’s product specialization and marketing specialization in the market is not the same thing. The traditional name, “marketing of products and services,” is more correctly replaced by the terms “marketing of products” or “marketing of goods, works, and services,” which takes into account all the elements of the product. As a result, marketing is becoming a three-dimensional concept, and we can personally see the well-known marketing vector. It turns out that traditional barter marketing must be complemented by the exchange of works and the exchange of services. We learned that there is an export and import of works. And these works include the manufacture of objects, their renewal, modernization, re-equipment, and liquidation. In this textbook, students will find new knowledge in the marketing discipline, marketing practitioners will receive new tools and techniques for selling works, and marketing theorists will find new directions when researching and developing their own theories. So, welcome to “the marketing of works!”

ACKNOWLEDGMENTS

The author is grateful for the helpful comments on this textbook by Nadezhda Yu. Psareva, Dr. Sc. (Economics) and Professor, Head of the Department of Economics and Management at the Academy of Labor and Social Relations. The author sincerely thanks Wesley J. Johnston, Ph.D. and CBIM Roundtable Professor of Marketing, J. Mack Robinson College of Business at the Georgia State University, for his great help in promoting the conception of the marketing of works. The author highly appreciates the methodological support of Olena V. Panukhnyk, Dr. Sc. (Economics) and Professor, Head of the Department of Economics and Finance at the Ternopil Ivan Puluj National Technical University. The author also thanks Olga N. Anisimova, Dr. Sc. (Economics) and Professor, Head of the Department of Information Management Systems at the Donetsk National University, for her organizational support and belief in the author’s success. The author expresses special gratitude to the editorial staff of the Journal of Business and Industrial Marketing for the valuable and prompt assistance provided to the author when preparing and publishing one of his basic scientific articles on the marketing of works in their journal.

CHAPTER ONE INTRODUCTION TO THE MARKETING OF WORKS

Overview This chapter shows the existing marketing of works and defines the concept of works. Readers will learn what they will study in this textbook and what the current trends are in marketing research. In this chapter, we will describe traditional marketing functions and highlight its social and environmental aspects. Readers will become acquainted with marketing paradigms and find out why scientists have not studied the marketing of works before. We will share an important marketing secret with you. Readers will learn what tasks they will need to solve in their future activities. The author will explain why such a scientific and practical area as the marketing of works was not known until now. Also, the author will present the theory of the marketing of works and will describe its practice using the example of two conventional firms: a construction company and a ship repair yard.

The relevance of the marketing of works The marketing of works is one of the recently discovered types of general marketing. Therefore, we are sure that the readers of this textbook are already familiar with the basic principles of marketing as a science and as a practical activity. This circumstance enables us to avoid repeating generally accepted marketing concepts and to move on, thereby deepening the readers’ knowledge. The author devotes this textbook to the description

2

Chapter One

of the features of the marketing of works which distinguish it from other types of marketing. In 2010, the author discovered a new type of marketing: the marketing of works. This does not mean that this type of marketing did not exist before. Specialists have applied the marketing of works along with the marketing of goods and the marketing of services since the emergence of the market-driven economy. The author defined the marketing of works a hundred years after the discovery of the marketing of goods and thirty years after the discovery of the marketing of services. The sale of works is the result of the marketing of works. At the beginning of the last century, marketing and sales often coincided. Indeed, in marketing, product sales are a very important goal. However, in order to achieve this goal, marketing specialists must study the market, understand consumer preferences, calculate market capacity, advertise their products, segment the market into groups of buyers, analyze the strengths and weaknesses of competitors, see their own opportunities and threats, ensure that their firm only manufactures products that the market needs, and perform many other specific marketing functions. Nevertheless, actual sales are at the top of the marketing pyramid. Sales include finding a buyer; receiving goods from the warehouse; the loading, delivery, and unloading of goods; transferring the products to the buyer; receiving payments; registering accompanying documents and warranty obligations; providing an after-sales service; and so on. The listed operations are routine actions. Sales require searching, creativity, and inspiration because marketing cannot exist without them. Why should we study works and the marketing of works? Works are not services and, moreover, works are not goods. We sell industrial goods and services using the industrial marketing of goods and services. But how can we sell “works?” We can only do this if we use the “marketing of works.” There are goods, services, and works markets. We call an activity in these markets “marketing.” Works constitute, for example, the largest part of the repair specification for any ship. Here, the marketing of works is a topic of paramount importance. “Moreover, the marketing of works is necessary in many key branches of industry, including house-building, highway repair, airplane production, and developing new technologies” (source: https://www.emeraldinsight.com/journal/jbim/28/8). It is important to study the marketing of works due to the fact that many companies in each national economy execute works to order. Almost all these companies’ marketing specialists believe that they should use the marketing of goods and services to find works orders. However,

Introduction to the Marketing of Works

3

the use of non-specialized tools limits their ability to increase production and sale of works. Actually, an activity that changes the market value of an object (such as manufacturing, renewal, modernization, re-equipment, or liquidation) requires the use of specialized marketing tools and techniques. The marketing of works provides these tools and techniques. Marketing activities in the field of receiving works orders can give the following results: Ɣ Create new jobs for highly qualified professionals Ɣ Obtain production orders for technologically related companies Ɣ Develop research in the field of marketing Ɣ Encourage training production specialists Ɣ Increase revenue for the national budget (and so on) Therefore, specialists sell manufactured goods using the marketing of goods; future services through the marketing of services; and future works based on the marketing of works.

Definitions of “work” And what is work? Work for an airport dispatcher is the coordination (in time and space) of many airplanes’ arrivals, movements, and departures. Work from the viewpoint of a theoretical physicist or a supermarket loader is the movement of cargo of a certain mass over a certain distance. Work for an engineer or a production worker is the manufacture, renewal, modernization, re-equipment, and liquidation of objects. As we can see, specialists from various professions will define the concept of “work” in different ways. What do dictionaries say about the concept of work? The Free Dictionary by Farlex (source: https://www.thefreedictionary.com) states that “work” is, for example, physical or mental effort or activity directed toward the production or accomplishment of something; something that one is doing, making, or performing; the effort made to achieve or make something; the productive or operative activity; and the transfer of energy from one physical system to another, especially the application of a force to move a body in a certain direction. However, the customer does not pay for work as a process because the work is sometimes not needed or not effective. The customer pays for the change in the market value of his object as a result of this work.

4

Chapter One

Therefore, the definition given in the Merriam-Webster dictionary (source: https://www.merriam-webster.com) is unsatisfactory because it defines work in the following ways: activity where one exerts strength or faculties to do or perform something; a specific task, duty, function, or assignment, which is often a part or a phase of some larger activity; sustained physical or mental effort to overcome obstacles and achieve an objective or result; and something produced or accomplished by effort, exertion, or exercise of skill. Due to the separation of products into goods and services, marketing theorists have developed the marketing of goods and services, which is the basis for the marketing of goods, works, and services. They developed a marketing classification based on the expansion of marketing types. Thanks to their scientific creativity, marketing practitioners have mastered new marketing techniques and tools. The marketing of works is based on the foundations that outstanding marketing theorists, academics, and practitioners have created. They include David Aaker, Tim Ambler, Olga N. Anisimova, Richard Bagozzi, Barry Berman, Ganesh D. Bhatt, Mary Jo Bitner, Bernard H. Booms, Neil H. Borden, John Cairns, Roy Church, Efthymios Constantinides, James Culliton, Zino Davidoff, Erwin Dichtl, Peter Drucker, Alexander P. Durovich, Joel R. Evans, Christian Grönroos, Stanley C. Hollander, Shelby D. Hunt, Margo Komenar, Philip Kotler, Jean-Jacgues Lambin, Robert F. Lauterborn, E. Jerome McCarthy, Akio Morita, Edward L. Nash, Dave Needham, Olena V. Panukhnik, Michael E. Porter, Nadezhda Yu. Psareva, David L. Rogers, John K. Ryans, William Rudelius, Richard L. Sandhusen, John Sculley III, Paul H. Selden, Koichi Shimizu, G. Lynn Shostack, Richard S. Tedlow, and Orville C. Walker, Jr. Nevertheless, in the scientific and regulatory literature there was no satisfactory definition of the concept of work.

What do we study in the marketing of works? The purpose of the textbook is to study the marketing of works as a separate type of marketing and to provide theoretical knowledge using practical examples and calculations of marketing parameters. We will solve the following tasks in the textbook: Ɣ Acquainting readers with the current state and development trends of the marketing of goods, works, and services Ɣ Presenting the existing classification system for types of marketing

Introduction to the Marketing of Works

5

Ɣ Describing the practical basis of the marketing of works and the theoretical prerequisites for its identification Ɣ Searching for features for the practical implementation of the marketing of works Ɣ Developing new marketing tools specific to the marketing of works Ɣ Demonstrating ways to improve the marketing activities of companies that execute works under contracts Ɣ Considering practical tips that use the basic principles of the marketing of works Ɣ Describing methods for calculating the effectiveness of marketing activities for the sale of works (and so on) The topics that readers will study are the marketing activities of companies operating in the market of works, who fulfill customers’ orders for the production of objects, as well as their renewal, modernization, re-equipment, or liquidation. Readers will see a well-known but previously poorly represented marketing vector. We will find this vector using a three-dimensional representation of the marketing of goods, works, and services in an orthogonal coordinate system. Based on the orientation of the marketing vector of goods, works, and services, the opportunity to use the company’s marketing specialization will arise. Marketing specialization, unlike product specialization, enables marketing specialists to develop an effective marketing strategy with adequate marketing tactics, and implement a well-founded marketing policy in the goods, works, and services markets. The author has created a new 9Ps model of the marketing mix for “works” by expanding the conceptual base of marketing and considering new marketing tools (“period of time” and “payment terms”). This model, in contrast to the well-known 4Ps model for goods and the 7Ps model for services, gives marketing specialists the ability to effectively control the firm’s activity factors in a specific market of works. New concepts for the barter marketing of works and works exchanges (unlike the existing barter marketing for the exchange of goods and services) enable marketing specialists and supply managers to increase opportunities for product exchange. These concepts make it possible to carry out time-efficient barter transactions and combine marketing and logistical functions in companies. At the same time, the company’s specialists can realize the exchange of products even in conditions of low financial liquidity during macroeconomic crises.

6

Chapter One

In the textbook, readers will learn a new concept for the general marketing of goods, works, and services, which the author created by developing the marketing of goods and services. This circumstance, unlike the existing concept of marketing, expands the capabilities of multiproduct firms to sell three components of a product and achieve savings when promoting goods, works, and services to the market. At the same time, marketing specialists are able to use the synergy effect to save costs due to the joint sale of three elements of the product. Readers will learn new types of particular hybrid offerings—“works + services” and “works + goods”—as well as the general hybrid offering: “goods + works + services.” Unlike the existing hybrid offering—”goods + services”—these new hybrid offerings include works as a product that adds value. This enables marketing specialists to increase revenues generated by sales of products (goods, works, and services) and penetrate new markets. Based on the electronic marketing of works, we will consider the use of the Internet, e-mail, social networks, mobile communications, cryptocurrencies, and so on. Also, we will show how marketing managers negotiate online and how marketing specialists develop electronic documents, as well as sign and store them. Readers will learn about the importance of paper documents in electronic document management. The author will pay a lot of attention to the use and protection of trade secrets, and particularly consider the sufficiency of advertising. He will also highlight the features of the international marketing of works, the export and import of works, as well as the differences between export/import of works and goods. We will examine the components of the revenue generated by selling the company’s products when executing the following works: Ɣ Manufacturing new objects for customers Ɣ Renewing existing objects to overcome their physical deterioration Ɣ Modernizing objects to overcome their moral deterioration Ɣ Re-equipping objects to overcome their structural deterioration Ɣ Liquidating existing objects on the customer’s orders From microeconomics, readers know that the source of payment for the manufacture, renewal, modernization, and re-equipment of fixed production assets are depreciation charges that firms accumulate to compensate for the deterioration of their production facilities.

Introduction to the Marketing of Works

7

Modern research areas in marketing When considering new trends, scientists develop marketing theory and practice by expanding the set of exchanged products, introducing 3D printing, artificial intelligence, and nanotechnologies in the production of goods, replacing hierarchical control with cooperation and synergy in networks, and so on. The issues with regard to the economic and social effectiveness of marketing and the efficiency of measurement techniques remain the key topics of modern research in marketing theory. The theory of industrial marketing and the concept of markets for industrial products have been further developed in recent years. The importance of strategic planning and forecasting in a continuously changing market environment has increased. Modern scientists have been studying integrated marketing (with other activities), marketing relationships with society, environmental impact, expansion of the marketing mix, and so on. Developing concepts related to the competitiveness components of companies and their products has recently gained a new impetus. Researchers are currently paying special attention to the emergence and growth of startups, as well as the application of innovations. Scientists consider marketing communications through the prism of Internet technologies and the use of mobile communications and social networks. In addition, marketing experts are currently focusing on the following issues in marketing theory and practice: Ɣ The development of electronic marketing, including online blogging and the use of e-mail and social networks Ɣ The growth of blockchain marketing, which uses decentralized databases for transactions in a network with multiple users Ɣ The turnover of cryptocurrencies, including Bitcoin, Litecoin, Ethereum, Dash, and Ripple, which provide the main means of payment in blockchain Ɣ The expansion and integration of marketing communications using mobile telephony, SMS/MMS, Viber/WhatsApp and corporate messengers to send advertising Ɣ The involvement of consumers in the product suppliers’ marketing activities and studying customers’ behaviour Ɣ The automation of processing large volumes of marketing information, including customer databases Ɣ The development of branding strategies to increase consumer loyalty

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Ɣ The implementation of account-based marketing into practice Ɣ The development of a customer engagement strategy and datadriven marketing strategy Concepts of socio-ethical marketing, interaction marketing, creative marketing, marketing of services, and so on are reviewed by the authors in articles published in leading marketing journals, including: Ɣ European Journal of Marketing Ɣ Industrial Marketing Management Ɣ Journal of the Academy of Marketing Science Ɣ Journal of Business and Industrial Marketing Ɣ Journal of Global Marketing Ɣ Journal of Marketing Ɣ Journal of Marketing Research Ɣ Journal of Marketing Theory and Practice Ɣ Journal of Services Marketing Ɣ Marketing Intelligence and Planning Ɣ Marketing Science Authors study the following issues in the above journals: Ɣ Marketing ethics and their impact on the environment and society Ɣ Developing green marketing and non-hazardous goods, works, and services Ɣ Limiting product characteristics to a reasonable level Ɣ Developing marketing metrics and the application of numerical methods to analyze research results Ɣ Growing markets and achieving success with startups and newly established businesses Ɣ Reorienting marketing from goods-dominant logic to servicesdominant logic Ɣ Developing relationships between suppliers and consumers, as well as increasing the value of customer feedback Ɣ Studying consumer behavior and improving the mathematical models for their decision making Ɣ Managing marketing personnel and improving their efficiency Ɣ Developing hybrid offerings based on goods, works, and services that add value or serve sales The range of topics studied by marketing theorists is constantly expanding.

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Revision of marketing functions The revision of the production, organizational, economic, and social aspects of marketing functions also affects marketing activities. When defining marketing, authors always point out its role in society. Theorists define marketing as a science, an educational process, and a philosophy, rather than just as a management system. At the same time, marketing practitioners in sectors of the economy related to the execution of works have been faced with a new phenomenon, which is caused by the inconsistency of some existing methods, concepts, and models (developed in modern marketing theory) with practice. Marketing specialists’ dissatisfaction forced scientists to pay more attention to the applied aspects of marketing science but, at the same time, the vision of developing the mainstream of fundamental marketing theory was partially lost. In particular, it became clear that marketing activities in the field of works orders did not have corresponding theoretical apparatus, despite the fact that European theorists have believed for a long time that “works” provide a source of revenue. Scientists use the concepts “markets for goods,” “markets for works,” and “markets for services.” Activity in the market is marketing. The concept of activity in the market of works was the last link in the chain of conclusions that led to an understanding of “the marketing of works.” Since the marketing of works is closely related to a company’s production activities, the integration of marketing and production has expanded the functions carried out by marketing managers and specialists in the marketing of works.

Social and environmental aspects of marketing Social, ethical, and environmental approaches are important in the marketing of works due to the negative impact on the environment of certain technological processes used in the execution of works (for example, welding, metal smelting, casting, painting, and galvanizing). Marketing specialists should consider the need to protect the global environment when new technologies are introduced. They should take a more cautious approach when using limited natural resources, revise marketing programs for production growth (based on their customers’ real solvency), and so on. Environmental constraints (when executing hazardous works) are also an important factor in terms of a company’s competitiveness.

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Scientific publications about the image, mission, and reputation of companies executing works contain important results for the marketing of works. In 1956, Kenneth E. Boulding proposed the concept of an “image” (source: https://www.journals.uchicago.edu). In order to overcome prejudice against industrial companies in the conservative part of society, marketing managers must control their firm’s image when implementing the marketing of works. A positive corporate image is a prerequisite for achieving stable business success, because it enables the companies to increase their market power, the uniqueness of their products, and simplify access to resources. In addition, managing the company’s image provides an opportunity to survive a global recession, quickly recover from a crisis, increase customer loyalty, invite new partners, retain talented employees, and so on. Corporate culture—as an important element of a company’s competitiveness—is a set of values, rules, customs, traditions, and business ethics that is not fixed by legislation, but which is still necessary for a company’s success. A firm accumulates a positive business reputation based on years of impeccable work and this reputation is an objective factor (unlike a subjective factor, such as image), which the firm can artificially create with the help of image-makers. It is important to match the top managers’ personal interests with the company’s collective interests for profitable activity in the market of works. Monitoring the level of customer satisfaction is an effective tool for finding, executing, and delivering completed works orders.

Developing the marketing paradigm In order to study the marketing of works, we will apply the concept of the marketing paradigm, which is a model that describes how scientists understand the marketing processes at a certain stage in the development of science and practice. Types of the marketing paradigm include fragmentary marketing, marketing as a company’s function, marketing as a company’s management system, and marketing as a product exchange. In order to become familiar with the marketing of works and the general marketing of goods, works, and services, we will progress from analyzing marketing’s constituent elements to the synthesis of an integrated marketing model. Scientists believe that marketing must focus on satisfying customer needs with the help of a product via its creation, delivery, and consumption. A new marketing paradigm should meet the challenges of

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the information era and be based on the Internet’s capabilities. Information marketing is a new business philosophy, which operates in the Internet’s global virtual environment. At the beginning of the 21st century, a new impetus emerged to research social networks and the application of mobile electronic gadgets. Some authors have focused on developing a marketing paradigm based on the functional paradigm, the marketing management paradigm, and the product exchange paradigm. These authors include Karel J. Alsem, James C. Anderson, Robert Bartels, Christian Grönroos, Janny C. Hoekstra, Shelby D. Hunt, Philip Kotler, Peter S.H. Leeflang, Anabela M.B. Marcos, Adrian J. Palmer, Atul Parvatiyar, Don Peppers, Martha Rogers, Jagdish N. Sheth, Dick R. Wittink, and David B. Wolfe. The functional paradigm describes marketing institutions and their functions. The paradigm of marketing management is based on the study of marketing processes using manufacturing companies as examples. Marketing specialists’ responsibilities extend from selling and advertising to improving the product and attracting customers’ attention. The paradigm of exchanges is no longer limited to the exchange of goods, works, services, and money. Marketing theorists study the exchange of resources, such as time, energy, feelings, places, ideas, symbols, and information. They also researched the network marketing paradigm at the end of the last century. Scientists believe that the third millennium’s marketing paradigm should consider consumer neuropsychology and the development of nanotechnology; it should also be based on the principles of a network economy. The dominant technologies of the present century (nano and genetic technologies, 3D printing, artificial intelligence, cyborgs, etc.) have replaced the dominant technologies of the last century (digital and computer technologies). Collaboration, solidarity, and synergy in networks have supplanted hierarchical marketing control. Also, marketing specialists manage relations with consumers using databases.

Why has the marketing of works not been studied until now? Until now, there has been no exhaustive definition of the concept of marketing. The incomplete classifications of marketing based on new approaches and criteria have created a possibility and a need for further scientific research, thanks to which the marketing of works appeared. Some countries’ regulatory and legislative acts state that goods, works, and services are the constituent elements of a firm’s products. At

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the same time, in both theory and practice, the interpretation of works and their differences from services remains unexamined. Work is a source of revenue generated by selling this element of a product, but the definition of the marketing of works is considered in this textbook for the first time (except for articles by the author). The textbook also focuses on the expanded and augmented concept of the marketing of goods, works, and services. We will apply a multi-step argumentation in order to demonstrate the development of the relevant concepts. There are about three thousand different definitions of the concept of “marketing” in the world, and readers of this textbook will help to develop new marketing definitions in their practical classes. The author also hopes that the readers’ essays with suggestions for improving marketing activities will be of interest to marketing specialists. The new concept of “the marketing of works” is a tool for finding and fulfilling works orders. The use of its conceptual and categorical apparatus and tools helps marketing specialists to increase the effectiveness of finding and signing contracts for the execution of works, filling the company’s order book, and preventing production downtime. Mastering the marketing of works and its inherent concepts gives readers a deeper knowledge of the general marketing of goods, works, and services, as well as its marketing tools and the specifics of its application in practice. Readers can learn concept of the marketing of works based on the following academic disciplines: Ɣ Marketing Ɣ Marketing of goods and services Ɣ Industrial marketing Ɣ International marketing Ɣ Strategic marketing Ɣ Electronic marketing Ɣ Marketing management (and so on) By studying the concept of “the marketing of works,” readers will overcome difficulties in identifying the concepts of “work” and “service” in various situations. We will pay attention to the applied nature of activities such as works and services. We will also focus on the main difference between them, namely, the ability to change the market value of the customer’s object (for works) or to not change the market value of the client’s object (for services). We will consider dozens of specific practical examples to illustrate this.

Introduction to the Marketing of Works

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We can illustrate the prerequisites of the marketing of works using a historical approach: Ɣ Marketing of products ĺ Ɣ Marketing of goods ĺ Ɣ Marketing of services ĺ Ɣ Marketing of goods and services ĺ Ɣ Marketing of works ĺ Ɣ Marketing of goods, works, and services As we know, goods are the result of the manufacturer’s activities, and these goods are his property before selling them to the buyer. Works and services are applied activities that are focused on processing or servicing the customer’s object. The customer’s object is not a commodity and is not for sale, but it is, instead, returned to the owner after the execution of works or the provision of services. When analyzing contact works or services, we must consider whether the customer is a participant in the labor market. As a result of the works performed, the value of the customer in the labor market as a specialist increases, but his/her value in the labor market does not increase as a result of the services rendered. When classifying goods according to their materiality, we must avoid the terms, “material goods” and “non-material goods,” as this contradicts physics. Instead, we will use the terms, “substantial (tangible) goods” (such as a laser CD or a USB flash drive) and “non-substantial (intangible) goods” (an antivirus program that the developer recorded on the CD). Adherents of augmented virtual reality will easily understand the comparison of finished goods with real (existing) products and future works and services with virtual (not yet existing) products.

An important marketing secret Readers will learn an important marketing secret. It turns out that marketing specialists sell sets of products that in one way or another consist of goods, works, and services. Marketers can call the sale of only goods or only works or only services largely conditionally. At the same time, marketing specialists must take into account their company’s dominant marketing specialization. Firms execute works using the project form of works implementation, regardless of whether the executor calls his activity a project or not. Marketing managers operate in the field of circulation, rather than

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production. Nevertheless, in the marketing of works, marketing managers must control works execution processes according to the signed contracts. The influence of the firm’s marketing department on the activities of production divisions should not lead to duplication. The main goal of the marketing of works is to provide the company with the best works orders: i.e., the sale of works as a product.

What tasks will we learn to solve? To illustrate the concept of the marketing of works and understand the above assertions, we will solve the following tasks: Ɣ Calculating the characteristics of the marketing vector of goods, works, and services Ɣ Finding out the company’s marketing specialization Ɣ Calculating planned sales performance for the marketing department, taking into account its life cycle Ɣ Estimating the contract’s expected value for the object’s renewal or modernization Ɣ Optimizing the placement of works orders at the company’s production facilities in space and time (and so on) The presence of the third main element of a product, i.e. works, has enabled us to improve the standard marketing tools. We will study a new model: the 9Ps of the marketing mix for the marketing of goods, works, and services. Marketing specialists control the new elements of the marketing mix for works—the “period of time” and the “payment terms”—when executing orders for works. A significant source of revenue for machine-building firms is the reequipment of the main production facilities (such as machine tools, conveyors, robots, tractors, and reactors) to overcome their structural deterioration. At the same time, the customer’s company saves money due to its partial technical re-equipment. We will learn to protect the interests of the marketing department and overcome the pressure and prejudice of a company’s top managers. When planning activities, a company can use the algorithm in this textbook to calculate the expected value of the contract for works. Large firms (that simultaneously fulfill several orders) need to develop optimal space-time matrices for loading their production facilities. Marketing managers use hospitality costs not only to receive works orders, but also to increase the profitability of orders that have already

Introduction to the Marketing of Works

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been obtained. By applying practical examples and tips from this textbook, the marketing department will be able to transform relatively unprofitable orders into relatively profitable contracts.

The unknown in the marketing of works Excluding the author’s articles and books, there are no literary sources that refer to “the marketing of works.” Some scientists use the concept of “the market of works,” but no one applies the concept of “the marketing of works.” “Also, there is no mention of the concept of the marketing of goods, works, and services in information sources” (source: https://www. emeraldinsight.com/journal/jbim/28/8). Four copyright certificates and a Ph.D. dissertation confirm the scientific discovery of the marketing of works. Like any new research area, the concept of the marketing of works will create new theories and practices. The author invites theorists, academics, and marketing practitioners to further develop the concept of the marketing of works.

Practical tips We will study the marketing of works using the example of the following two companies: Ɣ Construction company Field of activity: the construction and repair of residential, office, and industrial buildings and rooms. The company is located in a small town in the center of the country. Ɣ Ship repair yard Field of activity: the repair, modernization, and re-equipment of passenger, cargo, and technical vessels. The shipyard is located in a large port city on the seashore. Both firms are at the stage of growth of their life cycle. Their marketing strategy is a growth strategy. Marketing tactics involve increasing the market share, developing new market niches, expanding the number of customers, acquiring new equipment, developing innovative technologies, engaging qualified staff, creating a positive image and reputation in the market of works, and so on. Typical features of these exemplary firms are as follows:

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Ɣ Both companies, the ship repair yard and the construction company, are focused on implementing the entire nomenclature of works in their specialization. Ɣ These companies’ marketing departments have a number of resources, including well-equipped offices, the best specialists, a security system, high-speed telecommunications facilities, and comfortable cars. Ɣ The marketing specialists are highly motivated and they receive bonuses based on the results of their activities. They are ready to work overtime and overcome difficulties and challenges. Ɣ Every marketing department is the “face” of its firm. There is a business dress code and strict rules for staff behavior. Ɣ Young and energetic top managers lead these companies. They understand that developing marketing activities is an important goal. Ɣ Each marketing office has all the necessary equipment and consumables (including cutlery, food, and drinks) for the customers’ delegations and they are also able to organize negotiations (and even hold a banquet if necessary). Ɣ Both companies’ marketing specialists understand that idle time without work orders leads to serious problems. These problems include non-payment of wages, debt on loans and taxes, and the violation of obligations. Ɣ Marketing managers and specialists operate under relentless pressure and the high requirements of their companies. Ɣ Specialists in the marketing of works are highly responsible and stress-resistant employees, excellent team players, and self-starting professionals. Ɣ They are familiar with the features of the works and technologies used; with the characteristics of production facilities; with unit prices for works; and so on. They can calculate the real terms of the contract and convince the customer to make an advance payment in order to start the works.

Introduction to the Marketing of Works

Definitions of concepts Ɣ Work is a kind of applied activity that is an element of the product of labor, which changes the market value of the processed objects and is a source of revenue for the contractor. Ɣ The company’s image is a subjective representation that is perceived by the buyer and which is artificially created and promoted by image-makers. Ɣ The company’s reputation is an objective representation that is perceived by the buyer, which arises and accumulates as a result of the company’s long-term activity in the market. Ɣ Corporate culture is a complex mix of modes, norms, and rules of staff behavior and business administration that distinguishes this company from its competitors. It is not legally fixed. Ɣ The marketing paradigm is a model that describes the mode of functioning and the way of developing marketing activity in terms of the marketing concept at a certain time. Ɣ Marketing tools are the formulas, recommendations, concepts, approaches, and other theoretical knowledge that marketing specialists use in their practical activities in the market. Ɣ Goods in substantial form are material objects that are the products of human labor, which people can directly perceive using their senses. Ɣ Goods in non-substantial form are material objects that are the products of human labor, which need substantial devices in order for people to perceive them. Ɣ The project is a means of organization and a set of methods for executing works in the conditions of the determined time, price, and quality, as well as material, financial, labor, and information resources. Ɣ Marketing is a kind of activity that meets market demand for products (goods, works, and services) by exchanging them for other products or their monetary equivalents. Ɣ Sales of goods, works, and services are the final stage of marketing activities, including receiving payments, transferring the product to the buyer, processing purchase and sale documents, and after-sales services.

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Questions for discussion and testing 1. What is the difference between marketing and the sale of products? 2. What is reality of studying and applying the marketing of works? 3. What is the social and economic effect of marketing activities in the market of works? 4. What does “work” mean from the viewpoint of an airport dispatcher, a supermarket loader, and a factory worker? 5. Does the customer pay for the work process or the result of this work? 6. What are the purposes, tasks, objects, and topics of study in the marketing of works? 7. List the basic concepts that you will learn in this textbook. 8. What is the focus of current research in marketing theory? 9. Why does no comprehensive definition of marketing exist? 10. How useful are the results and recommendations of this textbook for both marketing theorists and practitioners?

Author’s note: The author periodically repeats the basic definitions and concepts from the first chapters of this textbook for better understanding and memorization by readers, since the existing scientific concepts reflect the positions of many authors and do not always coincide with their meaning in terms of the general marketing of goods, works, and services. The marketing of works is a multifaceted concept that requires a multi-point of view approach for its presentation and justification.

CHAPTER TWO THE SUBJECT, OBJECT, AND MATTER OF MARKETING ACTIVITIES

Overview When studying the marketing of works, readers will become familiar with short definitions of concepts: the subject, object, and matter of marketing activity. It will become clear why the ownership of objects is not transferred from the customer to the contractor in the market of works. We will compare the main characteristics of marketing activities in the production of goods, execution of works, and provision of services. We will also find out what specialists engaged in the marketing of works really do. Readers will learn about the practical application of the marketing of works and answer questions for discussion and testing.

The subject of marketing As readers know, in the theory and practice of marketing, scientists distinguish between the subject, object, and matter of marketing. The subject of marketing is a manufacturer of goods, as well as an executor of works and a provider of services, carrying out marketing activities in the markets of goods, works, and services. In general, marketing specialists are the subjects of marketing (namely, the firm’s marketing department), who are engaged in marketing activities when manufacturing and selling goods, selling and executing works, and selling and providing services. The functions of the marketing subject are not limited to the sale of products, such as goods, works, and services. Marketing managers and specialists must perform many actions and make continuous efforts to

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achieve a set of market goals and to sell their products at a profit. As future or current marketing subjects, readers will learn how to do this.

The object of marketing The object in the marketing of goods is a product that the manufacturer makes and sells. The object in the marketing of services is the client’s thing (the provider serves the thing) or the client himself (the provider serves the client). The object in the marketing of works is the customer’s thing (the contractor processes this thing according to the order) or the customer himself (the contractor processes the customer’s body and/or mind). In this case, the market value of the customer’s thing or the customer himself (as an object of marketing) could change. The last phrase sounds somewhat unusual. However, in the process of studying the marketing of works, readers will agree with this strange statement.

The ownership of the marketing object Manufacturing goods for sale without first receiving an order from the consumer means that marketing specialists have to search for buyers of finished products using techniques, methods, and tools from the marketing of goods. Unlike the marketing of goods, where the manufacturer retains ownership until the sale of the object, in the marketing of works, the manufacturer does not own the produced object and only transfers it to the customer. The transfer of ownership from the seller to the buyer takes place in the process of buying and selling goods. In the marketing of works and services, the customer remains the owner of the object. After the contract is completed, the executor returns the object to the customer. Services include consumer services (contact services) and the maintenance of the client’s objects (non-contact services). Giving a client a new haircut or washing his/her car does not change the market value of the objects. However, the manufacture, repair, remake, renewal, re-equipment, or liquidation (i.e., works) can change the market value of the object. Renovated houses or repaired vessels have a higher market price than they did before repairs. The customer can sell the house or the vessel at a higher price. “In this way, he can recover the money spent on repair works” (source: https://www.emeraldinsight.com/journal/jbim/28/8).

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21

With regard to ownership of the customer’s object, the marketing of works and the marketing of services have many similarities in contrast to the marketing of goods. Let us remember the following definition: “The marketing of works involves marketing activities, which form a part of the general marketing of goods, works, and services. It means searching for and obtaining orders to meet customer demand for the manufacture, repair, modernization, reequipment, or liquidation of the customer’s objects, which will change their market value, and without transfer of ownership of these objects from the customer to the contractor.” “Works” in the marketing sense are an integral element of the “product” in the marketing mix. They provide a source of revenue for the executor of works, and are made up of a human activity that creates, changes, or liquidates the market value of objects, which belong to the customer. We can use the following definition for the marketing of services: “The marketing of services involves marketing activities that form a part of the general marketing of goods, works, and services. It means searching for and obtaining orders to meet client demand for the servicing, operation, and maintenance of either clients or their objects without changing their market value and without transferring ownership from the client to the service provider.” The American Marketing Association (AMA) is one of the leading organizations in the world that develops and promotes key concepts and recommendations in the field of marketing. Marketing theorists applied the concept of distributing elements (such as ideas, goods, and services) of the marketing product in the AMA’s 1985 definition of marketing. However, later (in 2004 and 2007), the AMA excluded these constituent elements from the definition of marketing, and it focused on the social functions of marketing (source: http://www.ama.org). This consideration of marketing as a holistic phenomenon due to rejecting in-depth analysis has meant that researchers have not paid attention to the existence of the third constituent element of general marketing, that is, the marketing of works.

The matter of marketing “Marketing matter” (essence or content, but not physical or philosophical “matter”) is the marketing activity that marketing specialists carry out to sell goods, works, and services. In this textbook, the author will pay much

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attention to the matter of the marketing of works, as well as marketing tools, techniques, resources, efficiency, and other factors. In the marketing of works, some features of the marketing subject, object, and matter take place. These differences are due to the specifics of the sale of works as activities in the market. The lack of guarantees of sales or stable demand for products forces firms to avoid risk by manufacturing and accumulating products at their own expense. It is much safer to first find a consumer, obtain a prepayment or a guarantee of payment, and then start manufacturing the product. Thus, the market risks in the marketing of works are mainly transferred to the customer. In addition, the contractor does not need to provide a loan to the buyer using his own or borrowed cash resources. After signing a contract for a product’s manufacture and receiving an advance payment, the contractor is in a better position than the consumer or the manufacturer of the goods for sale. Unlike the marketing of goods, where marketing managers sell an existing product, in the marketing of works, they sell a promise (namely, a promise to fulfill an order for works). This is much more difficult to do.

Brief definitions of concepts We will use the following brief definitions of the essential concepts: Ɣ The “subject of marketing” is the manufacturer of goods, executor of works, or provider of services, who carries out marketing activities in the markets of goods, works, and services. Ɣ “Objects of marketing” are things that marketing subjects manufacture, sell, maintain, repair, modernize, process, re-equip, or liquidate according to the consumer’s orders. Ɣ The “matter of marketing” is the market activity by the manufacturer of goods, the executor of works, or the provider of services. Over the course of this chapter, we will consider more complex definitions for these concepts. Also, we need to know the similarities and differences between goods, works, and services as products. Marketing of goods, works, and services is an economic concept, which is a system of three mutually related marketing areas that provide revenue for manufacturers of goods, executors of works, and providers of services. Through exchange, it meets customer demands for the products of human labor, including goods, works, and services.

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Adding the concept of “works” to the product enables us to revise some conventional schemes and definitions. For example, it would be wise to expand the definition of the American Marketing Association, which the AMA adopted in 1985 (source: http://www.ama.org): [Marketing is] the process of planning and executing the conception, pricing, promotion, and distribution of ideas, goods, works, and services to create exchanges that satisfy personal and organizational goals.

In 2013, the AMA posted (source: http://www.ama.org) the following definition of marketing on its website: Marketing is the activity, set of institutions, and processes for creating, communicating, delivering, and exchanging offerings that have value for customers, clients, partners, and society at large.

In this description, marketing specialists combined all three types of product into one united concept of offerings that have value for market members. Nevertheless, the reference to “offerings that have value” turned out to be productive when developing the concept of the “hybrid offerings of products,” which we will consider in Chapter Eighteen of this textbook. Product offerings may also include ideas. What are ideas? Ideas are a non-substantial form of goods that marketing managers can sell, supply, give, or lose, and so on. For example, original advertising layouts, scientific discoveries, and patents may contain ideas. As they are information products, non-substantial ideas become goods when marketing specialists promote them to the market for sale or exchange. While we consider this, let us remember our short definition of marketing: “Marketing is the prediction, management, and satisfaction of the market demand for goods, works, and services through exchange.” In any field, marketing specialists must clearly distinguish between what is a subject, an object, or a matter in marketing activities. This makes it possible to achieve marketing goals with minimal spending. In practice, there are no unlimited resources.

Comparison of marketing characteristics There are many differences between the marketing of goods, the marketing of works, and the marketing of services. We compared their basic characteristics. As a result of this comparison (source: https://www. emeraldinsight.com/journal/jbim/28/8), “the marketing of works does not

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exactly match the marketing of goods or the marketing of services.” According to these characteristics, the marketing of works includes five common features that are inherent in the marketing of goods and five common features that are inherent in the marketing of services (see Table 2-1). Table 2-1. Comparison of matter, object, and subject in terms of marketing Characteristics of comparison

The consumer is an author of the marketing matter Changes in the market value of the marketing object High level of purchasing risk for the consumer Storage ability of the marketing matter Tangibility of the marketing matter Consistent quality of the marketing matter The ability to demonstrate the marketing matter Synchronicity of production and consumption The need to advertise the marketing subject The need to advertise the marketing object

Marketing lines The The marketing marketing of goods of services No Yes

The marketing of works Yes

Yes

No

Yes

No

Yes

Yes

Yes

No

Yes

Yes

No

Yes

Yes

No

No

Yes

No

Yes

No

Yes

No

No

Yes

Yes

Yes

No

No

The production and consumption of the “marketing matter” in the area of works is not an indivisible process, such as in the marketing of services. We cannot say that the works executed (in production or liquidation) are as intangible as services. However, both the executor of works and the service provider are not the owners of the marketing object. As we noted, the executor of works (as well as the provider of services) first finds a consumer and then receives payment or a guarantee of payment. The executor of works does not offer credit to the future buyer. A special marketing line is required to search for orders for the liquidation of objects. According to the definition, we relate such activities

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to the marketing of works because the market value of objects changes. The demolition of buildings or cutting ships into scrap metal are “works for the liquidation of objects.” As a result of such works, the market value of objects tends to be zero (excluding the cost of dismantled materials and components).

What do specialists do in the marketing of works? In order to study the marketing of works, we need to find out what marketing managers and specialists really do in this area. In other words, we need to find out what exactly is the “matter of activity” in the marketing of works. Taking into account companies’ existing practices when executing orders for works, we will consider the main features of their marketing activities in the search for and execution of works orders (see Table 2-2). Table 2-2. Components of marketing activities in the preparation and execution of orders for works 1.

Marketing specialists advertise their company When selling future works instead of existing goods, marketing specialists advertise their company, its experience, high quality outcomes, and timely execution of orders. At the same time, attention is mainly paid to increasing the competitiveness of the company’s resources, such as material resources (production facilities, equipment, tools, etc.), financial resources (stock quotes, balance liquidity, receivables, etc.), information resources (new technologies, licenses, software, etc.), and human resources (experience, skill level, discipline, etc.). Manufacturers of goods do not generally advertise their production facilities, as they advertise their goods instead.

2.

Marketing specialists search for customers to executing their works The marketing department must search for potential customers who are interested in manufacturing new objects, or in renewing, modernizing, or re-equipping their existing objects. The customer makes the decision to sign the contract on the basis of the executing firm’s commercial offers. Marketing specialists develop commercial offers on the basis of the customer’s request. This is where the customer invites the potential executors to take part in an auction to determine the winner for the order fulfillment.

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Marketing specialists develop price-lists for each work In order to prepare a commercial offer, the marketing department should develop a price-list that covers all the types of works offered and sets unit prices for each work, depending on the work scope. The contractor may send a promotional price-list that initially reflects the company’s highest prices for potential customers. When preparing a commercial offer, the marketing department also applies average unit prices. Specialists apply lower unit prices during negotiations with a potential customer in the case when this customer insists on price discounts. At the same time, they must take into account the presence or absence of the production loading of the firm executing the works.

4.

Marketing managers provide price discounts for some works If there are not enough orders, the marketing department may recommend signing a contract with the customer and providing him with price discounts that will ensure the minimum acceptable level of profitability. If a company has a lot of orders, then marketing specialists will offer an average price and will not provide discounts greater than 5–10 percentage points. Signing a contract for the execution of works using unit prices that match the cost of the work, will mean that the order is relatively unprofitable order for this company. Usually, in practice, unforeseen expenses appear that lead to real unprofitability of an order. Nevertheless, when there is no production loading, the company’s management can make the decision to sign such a contract to avoid downtime of equipment and workers and compensate for the accumulation of fixed costs. Orders with prices that are below the level of their cost price are absolutely unprofitable and cannot be accepted for execution under any circumstances.

5.

The unit price of work depends on the scope of work When preparing a commercial offer, the executing firm can provide the customer with a price discount if he has a large order. In the price-list, marketing specialists indicate unit prices that will be dependent on the physical scope of the works, such as the processing area (square meters), weight (kilograms), length (running meters), and others. The “scope of the works” is an important factor, which directly affects the company’s pricing policy.

The Subject, Object, and Matter of Marketing Activities

27

6.

Marketing specialists discuss the price of each work with the customer During the negotiations between the executing company and the potential customer, each unit price and the total value of each work must be discussed. At the same time, marketing managers can give discounts for a group of works but refuse them for another. As a rule, there are no significant discounts for material-intensive and energyintensive works, because the cost of materials and energy determines the bulk of the price. On the other hand, marketers can provide price discounts for laborintensive works where the cost structure includes a significant portion of workers’ wages. In addition, the use of materials and components that the contractor has previously purchased (usually at a discount) provides a reserve for price reductions.

7.

The duration of works is an important factor when ordering works Participation in auctions is a component of the marketing specialists’ activities in searching for and obtaining orders for works. During such auctions, the market competition between contractors becomes obvious. For example, some customers set the date and time of the auction, and invite the participants to submit their commercial offers. The customer’s representatives will fix on the stand or the screen of a computer projector the characteristics of each bidder’s commercial offers, including the value of the contract, the terms of execution, the duration of the works, and the counter demands of the executors. Such an open form of auction enables the customer to significantly reduce the duration of the contract through open bidding (in comparison with a closed tender system). Many customers want the works to be completed as rapidly as possible at transport or production objects that generate profit for these customers.

8.

The customer studies the contractor’s company In the field of the marketing of goods, the buyer is often not interested in the manufacturer’s production equipment and technology. Instead, the customer will usually examine the contractor’s production capacity, process equipment, personnel, quality, and ability to adhere to deadlines, since the work is a future (not yet existing) product. Moreover, marketing specialists will demonstrate the process of fulfilling orders that the contractor has already received from other customers. The new customer will study the reputation of the executing company, as well as take into account the feedback from other customers and even competitors.

Chapter Two

28 9.

Marketing managers monitor the tension of works orders Marketing managers monitor the tension of works—as an important factor—while preparing and signing a contract. At the same time, marketing managers compare the planned intensity of works with the normative or optimal intensity of works. Overly tense orders require work with increased intensity, which entails additional costs, degrades quality, and creates the risk of contract failure. On the other hand, orders that are too long in time do not allow achieving high productivity and optimal production loading.

10.

Marketing managers carry out marketing control of production Despite the fact that specialists carry out marketing in the area of circulation—rather than production—the marketing department supervises most of the production activities related to the execution of contracts. This phenomenon arises due to the personalization of relations between the representatives of the customer company and the contractor company. First of all, contracts are given to people whom the customer knows and trusts. Before signing a contract, marketing managers (as representatives of their company) always promise the customer’s representatives a fast and high-quality execution of works. As a result, the personal responsibility of marketing managers to the customer forces them to check the progress of the order, as well as to promptly respond to the customer’s requests and appeals regarding the contract. Consequently, there is redistribution of functions, and the marketing department takes over some of the additional responsibilities. This redistribution of functions is also accompanied by a redistribution of resources.

11.

Marketing managers carry out marketing control of projects As the contractor executes the works orders in the form of a project, the marketing department takes part in the preparation and implementation of these projects (without the substitution of project managers). In addition to marketing support for projects, the marketing department also controls a number of other project factors. These factors are the basis for developing a new marketing mix model for works.

The Subject, Object, and Matter of Marketing Activities

29

12.

Marketing specialists manage the timeline for the execution of the contract During the negotiations, and before signing the contract with the customer—depending on the presence or absence of other orders in the company—marketing specialists manage the start and end dates, as well as the duration of the contract (as important time factors). If there is no production loading, the expected contract should start shortly. When the contractor has an overloading with a large number of works orders, marketing managers must agree on a later start date for the contract (so as not to lose the customer). If the intensity of the order is extremely high, the executors will postpone the end of the works until a later date and, when the intensity of the works is low, the executors will plan to complete the works early.

13.

Works are the main part of the product Works are the main part of orders for the manufacture of new objects, as well as the renewal, modernization, and re-equipment of existing facilities (or their liquidation). The provision of services is a related (auxiliary) activity due to the need to perform basic works. During executing works, the contractor uses the materials and components, which he installs on the objects. However, when searching for works orders, marketers mostly sell future works, but they carry out the sale of services and goods as part of a hybrid offering.

14.

The contractor performs works on the basis of the technical task and the design Since the works change the value of objects, the contractors manufacture new objects on order, as well as renew, modernize, reequip, and even liquidate the existing objects according to the engineer’s design and technological documentation, which has been developed on the basis of the customer’s technical task. Marketing specialists from the executing company are directly involved in the coordination and approval of the technical task, and must take the capabilities and interests of their company into account. Project documentation is a subject to external approval, which is in contrast to the design and technological documentation for the production of goods on the initiative of the manufacturer and for his money. The manufacturer of the goods does not agree with the external buyer on the design and technological documentation for the production of these goods. The service provider acts on the basis of standards, regulations, instructions, and so on, rather than projects (which are used for works).

30 15.

Chapter Two Production where managers apply the marketing of works Managers search for and receive contracts for order-based production (and for the customer’s money) using the marketing of works. Such contracts include orders for the production of aircraft batches, the design and manufacture of launch vehicles, the construction of civilian vessels and warships, the modernization and manufacture of tractors and bulldozers, the design and manufacture of unique equipment for power plants and industrial companies, the manufacture of locomotives and wagons, the production of agricultural facilities, and so on. The application of the marketing of works is necessary to obtain orders for the renewal, modernization, or re-equipment of production facilities, household appliances, and residential and office buildings, etc. The marketing of works is also used by auto repair companies, computer and smartphone repair shops, housing repair firms, and so on.

What is the result of the marketing of works? Marketing specialists use specialized marketing of goods to sell their goods in the marketplace. When selling services, marketing specialists use the marketing of services. When selling works, they should apply the marketing of works, right? The concept of the “marketing of works” appeared after revealing the importance for industrial companies of marketing activities in search for works orders. As a result of the analysis of marketing related to manufacture, repair, renewal, modernization, re-equipment, and liquidation of objects, it became obvious that this type of marketing is different from the marketing of goods and the marketing of services. The result of the marketing of works is orders for changing the market value of the customer’s objects. Managers and specialists of the executing company’s marketing department can research the market, develop marketing plans, negotiate with customers, take part in industrial exhibitions, and do much more besides. However, this will only be an imitation of intensive activity that does not bring results in the form of profitable and stable orders according to the company’s specialization in the market of works. Sooner or later, the company’s top managers will say the following to the marketing specialists: “You have done a lot. But where are the real works orders that bring wages and generate profits?” Therefore, the author wishes that the readers’ portfolio of works orders—that is, the order book—to always be full.

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31

Practical tips We will consider examples of the object, matter, and subject of the marketing of works in the fields of housing construction and ship repairs. The marketing of works in housing construction involves the following: Ɣ The “subject of marketing” is a construction company represented by its marketing department. Marketing specialists are looking for works orders for the construction, finishing, or repair of residential and non-residential buildings. Therefore, they contact potential customers (and developers) including individuals, private and state companies, non-governmental organizations, and authorities. Ɣ The “objects of marketing” in construction are residential and nonresidential buildings, such as individual and multi-apartment houses, hotels, hospitals, production workshops, sports complexes, schools, universities, business centers, and supermarkets. Ɣ The “matter of marketing” in the construction industry means the activities of a construction company and its marketing department to find and fulfill orders for the installation of engineering networks, the construction of buildings, the assembly of equipment and systems, the finishing and repair of facilities, landscape design, road construction, and so on. The marketing of works in ship repairs involves the following: Ɣ The “subject of marketing” is a shipyard represented by its marketing department that is looking for orders to repair, modernize, and re-equip motor and non-motorized vessels. Therefore, marketers establish contacts with shipowners/charterers and their representatives, including agents and brokers. Ɣ The “objects of marketing” in ship repairs are cargo and passenger ships, motor and non-motorized vessels, sea and river ships, floating berths and workshops, floating docks and landing stages, tugs and floating cranes, floating drilling towers and yachts, etc. Ɣ The “matter of marketing” in ship repairs means the activities of a shipyard and its marketing department to find and fulfill orders for the renewal, modernization, and re-equipment of floating facilities. The contractor performs repairs according to defect-technological sheets, notices from the Register of Shipping, and repair specifications. Besides, shipyards modernize and re-equip floating objects on the basis of special design and project documentation.

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Chapter Two

Definitions of concepts Ɣ The subject of marketing is the manufacturer of goods, the executor of works, and the provider of services who carries out marketing activities in the markets of goods, works, and services. Ɣ The object of marketing is a substantial or non-substantial object (which the producer manufactures for consumers) that contractors use, maintain, repair, modernize, re-equip, sell, or liquidate. Ɣ Ownership of the marketing object refers to the legislatively and regulatory fixed power of a market member to alienate or acquire the object for its resale, use, disposal, possession, and so on. Ɣ The “matter of marketing” is the market activity of the executor of works, the provider of services, and the manufacturer of goods. Ɣ Market exchange is the exchange of human labor products (in barter transactions) or products and their cash equivalents (in purchase and sale transactions). Ɣ The marketing of works is a line of marketing activities, which is a part of the general marketing of goods, works, and services that searches for and obtains orders to meet the effective demand of customers for the manufacture, repair, modernization, reequipment, or liquidation of the customer’s objects leading to a change in their market value and without transferring ownership of these objects from the customer to the contractor. Ɣ The marketing of services is a line of marketing activities, which is a part of the general marketing of goods, works, and services that searches for and obtains orders to meet the effective demand of clients for the servicing, operation, and maintenance of the clients or their objects without changing their market value and without transferring ownership of these objects from the client to the service provider.

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Questions for discussion and testing 1. Unlike the marketing of goods, marketing specialists sell promises in the marketing of works. Why? 2. Who (the customer or the contractor) bears the main market risks in the marketing of works? 3. Who is the subject of marketing when selling goods, works, or services? 4. What is the “matter of marketing” for the contractor? 5. What do you know about the similar characteristics of goods and works, or services and works? 6. What is the difference between goods and works, as well as services and works? 7. What do marketing specialists advertise in the marketing of works? 8. What do the following concepts mean: “price-list for works” and “price discounts for works?” 9. Are contractor’s prices for works a topic of discussion with the customer of works? 10. Can the customer make himself familiar with the production capabilities of the contractor and photograph the execution of works? 11. Give definitions of the “marketing of works” and the “marketing of services.”

CHAPTER THREE THE EVOLUTION OF MARKETING CLASSIFICATIONS

Overview In this chapter, readers will learn why it is necessary to classify marketing and what the criteria and methods are used for this. Studying the history of marketing will enable us to understand the importance of the marketing of services discovery and the place of the works within the classification of services. Readers will consider detailed classifications of marketing types, which have been developed by many authors according to various criteria. We will find the place of marketing services within the activities of the company’s marketing department. An analysis of the disadvantages of the existing classifications will be useful for theorists, academics, and marketing practitioners in order to search for new knowledge. Readers will be able to make scientific discoveries and offer their own contributions to new types of marketing.

Why should we classify marketing? In marketing theory, there is perhaps no wider field of activity than the expansion and refinement of marketing classifications. To this end, theorists apply a variety of different criteria for systematization. This process is far from complete, and marketers will be able to make their own contribution to the development of marketing classifications. Readers of the textbook will be shown how to do this.

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The classification of marketing is one of the key tools for studying knowledge accumulated over more than a century, as well as for finding and justifying new types and concepts of modern marketing. If researchers find gaps in the multifaceted structure of marketing, then new types and concepts of marketing will appear. This textbook also clarifies and extends the existing classification of marketing through the introduction of new elements, such as the marketing of works and the marketing of goods, works, and services. We will consider various types of marketing that practitioners can use in their fields of activity.

Criteria and methods for classifying marketing In order to classify the marketing of goods, works, and services, theorists have applied various criteria to the matters and objects of marketing. As we already know, scientists divide goods into substantial goods and nonsubstantial goods, and their sales were equal in volume at the turn of the third millennium. Also, theorists distinguish between contact services and non-contact services. Works include the manufacture and liquidation of objects, as well as their renewal, modernization, and re-equipment. The criteria for the classification of works are focused on overcoming the object’s physical, moral, and structural deterioration. Some scientists admit the existence of a market of works along with markets of goods and services. If there is a market of works and there is activity in this market, why cannot we call such activity in such a market “the marketing of works?” The marketing of works supplements the existing marketing of goods and services, and we therefore gain a “widened concept of the marketing of goods, works, and services” (source: https://www.emeraldinsight.com/journal/jbim/28/8). We applied the analogy method to find out about the existence of the marketing of works. Corporate revenue includes three sources of income: sales of goods, works, and services. Next, we used the scientific method of induction for generalizing three marketing lines in the marketing of goods, works, and services. Using the deduction method, we studied the specifics of a company’s marketing and execution of works. Abstraction is the basis for the transition from an initial understanding of the marketing of industrial services to the concept of the marketing of works, which is free from the non-essential features of this firm’s activities.

Chapter Three

36

Marketing

The marketing of goods

The marketing of services

The marketing of goods and services The marketing of works The marketing of goods, works, and services

Marketing matter: liquidation works

Marketing matter: re-equipment works

The marketing of works

Marketing matter: modernization works

Marketing matter: renewal works

Marketing matter: manufacture works

Marketing matter: non-contact services

The marketing of services

Marketing matter: contact services

Marketing object: non-substantial goods

Marketing object: substantial goods

The marketing of goods

Fig. 3-1. Marketing classifications based on objects and matters Theoretically, we can use different classification criteria for the marketing of goods, services, and works. Marketing researchers can distinguish substantial goods from non-substantial goods. Also, they can divide services into contact and non-contact services. The manufacture, renewal, modernization, re-equipment, and liquidation of objects are works (see Fig. 3-1).

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37

The history of marketing development We will examine the existing approach to marketing in order to chart its development—as well as overcome the contradiction in understanding of its previous and current state—from an integral part of economics and management to a separate science. At the beginning of the last century, marketing emerged as the “marketing of products,” which theorists identified as material goods or material objects due to the revolutionary growth of industrial production of goods. Theorists also paid a great deal of attention to the identification and classification of marketing activities. The following concepts were believed to define the stages of marketing development until the end of the last century: Ɣ Concept of improving production ĺ Ɣ Concept of product improvement ĺ Ɣ Concept of intensifying commercial efforts ĺ Ɣ Concept of marketing ĺ Ɣ Concept of social and ethical marketing ĺ Ɣ Concept of relationship marketing ĺ etc. However, these classifications do not reflect the changing views on the essence and structure of the product itself. There is a marketing classification that meets the scientific understanding of the evolution of the “product,” which reflects the concept of the marketing of services. This notion complemented the concept of the marketing of goods. By applying a historical approach to marketing development, we can obtain a chronology for the concept of product marketing: Ɣ Concept of marketing (the first half of the twentieth century) ĺ Ɣ Concept of the marketing of goods (mid-twentieth century) ĺ Ɣ Concept of the marketing of services (1970s) ĺ Ɣ Concept of the marketing of goods and services (1980s) ĺ etc. Nevertheless, this chronology is not complete and we must extend it so that it considers works as a separate activity and the third element of a product. We could then continue the chronological sequence as follows: Ɣ Concept of the marketing of works (February 2010) ĺ Ɣ Concept of general marketing of goods, works, and services (April 2010)

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Chapter Three

In marketing science and practice, there are dozens of variants for classifying types of marketing according to key parameters that show different approaches and systematization tasks. The main function of scientific systematization is to create a holistic system of interacting elements. This system enables theorists to structure accumulated knowledge, refine the existing results, and obtain missing or insufficiently studied components, as well as the relationship between them (that is, to close the gap between theory and practice). Thus, current scientific research determines the purpose and direction of further development. Classification enables us to create a framework of scientific concepts that help to improve the study of marketing, as well as to clarify its structure and implement best practices in activities. Along with well-established results that do not need a radical revision, there are areas in marketing that have entered the arena of scientific discussion. Millions of enterprising, motivated, and creative people test marketing theory daily by satisfying society’s needs through the realization of their own interests. Due to the deepening integration of science and practice, new practical results in marketing are returned to practice after scientific analysis as new or improved marketing tools. For example, owing to the accelerating social and economic processes in society, changes in the structure of market demand need a quick and adequate response in terms of the market supply. The economic benefit that marketing specialists offer to the market as a product of human labor needs further analysis and a possible revision of its structural elements.

The scientific discovery of the marketing of services A significant achievement in the study of marketing specialization was the discovery of the marketing of services in the second half of the twentieth century. This was a response to the challenges of restructuring industrialized countries’ economies when researchers revealed the flow of labor resources from the manufacturing sectors to the provision of services in the context of globalization. This circumstance led to the dominance of services in most countries’ gross domestic product (GDP). Accumulated facts about the peculiarities of services forced theorists to reconsider some marketing issues. Scientists have developed several conceptual models of the marketing of services. An analysis of the main characteristics of “services” has made it possible to find differences from goods, such as the synchronicity of production and consumption, variability in use, inconstancy of quality,

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39

impossibility of storage, inseparability from the object, and ethical barriers. There are special classifications of services, including those created by the World Trade Organization, the World Bank, the Organization for Economic Cooperation and Development, the International Monetary Fund, and others, as well as general classifications of services by type of activity as components of the economic system. Such classifications are the basis of national and international statistical and accounting systems, and economists use them for macroeconomic analysis. Among them are the Statistical Classification of Economic Activities in the European Community (source: https://ec.europa.eu) and the International Standard Industrial Classification of all Economic Activities by the United Nations Organization (source: https://unstats.un.org).

“Works” in the classifications of services According to the Services Sectoral Classification by the World Trade Organization (source: http://i-tip.wto.org/services), there are many true “works” that have been classified as services (which are marked in bold underlined font in Table 3-1): Table 3-1. Services Sectoral Classification List by the World Trade Organization

3. A. B. C.

SECTORS AND SUB-SECTORS BUSINESS SERVICES Section B Other Business Services Maintenance and repair of equipment (not including maritime vessels, aircraft or other transport equipment) CONSTRUCTION AND RELATED ENGINEERING SERVICES General construction work for buildings General construction work for civil engineering Installation and assembly work

D.

Building completion and finishing work

1. F. n.

CPC

633+ 88618866 512 513 514+ 516 517

40

11. A. d. B. d. C. d. E. d. F. d.

Chapter Three Table 3-1. Continued TRANSPORT SERVICES Maritime Transport Services Maintenance and repair of vessels Internal Waterways Transport Maintenance and repair of vessels Air Transport Services Maintenance and repair of aircraft Rail Transport Services Maintenance and repair of rail transport equipment Road Transport Services Maintenance and repair of road transport equipment

8868** 8868** 8868** 8868**

6112+ 8867 The (**) indicates that the service is only a part of the total range of activities covered by the CPC concordance (CPC: Central Product Classification).

In the above classifications, the secretariat of the World Trade Organization correctly indicated a number of works, which included construction, assembly, and finishing. Among the transport services, the authors listed such works as the repair of vessels, aircraft, and rail and road transport equipment. According to a number of European countries’ national classifiers, specialists distinguish between market services for profit and non-market services of government agencies and non-profit organizations, which meet public needs. The Organization for Economic Cooperation and Development categorizes public services as follows: distributive, personal, production, and social services. Many outstanding business and marketing experts indicate that some traditional marketing schemes and theoretical concepts do not meet the new challenges of practice. These experts include Bill Gates (Microsoft), Zino Davidoff (Zino Davidoff Group), Lido A. Iacocca (Chrysler), Akio Morita (Sony), David S. Cairns (Xerox), and John Sculley III (Apple). All of these critics are highly successful people, whose achievements were aided by a creative approach to marketing.

Marketing classifications An example of the direct influence of practice on theory is the classification of types of marketing according to the market demand. Marketing is a focused human activity that specialists use to meet society’s demand for products. But, at the same time, obtaining revenues and profits generated by selling products is the primary goal of marketing

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activities. In addition to classifying marketing by objectives, we also categorize it according to the techniques and tools used. For example, viral marketing refers to a product being widely promoted by its consumers (using ubiquitous propaganda). Partisan marketing is based on solving marketing problems with non-standard and unexpected methods for competitors, using such tactics as “offensive and retreat,” disguising plans and actions, and the like. Ambush marketing provides sponsorship for a variety of sporting events by influencing fan audiences. Mobile marketing uses mobile phone channels for direct access to potential consumers, usually by sending appeals via SMS and MMS messages. Content marketing develops concise and understandable text for consumers. These types of marketing (that is, viral, network, partisan, ambush, mobile, content, and so on) use different techniques to influence consumers. Marketing managers achieve their goals by solving a number of relevant tasks; therefore, the next criterion for classifying marketing types is based on the breadth of marketing tasks that they solve. Classifying types of marketing based on the level of objectives provides for the division into strategic and tactical marketing. Marketing as a market activity ensures, among other things, the development and retention of target markets for potential or real buyers (intermediate or end consumers). As a result, scientists use marketing classifications, which are based on the target market’s degree of coverage. In addition, they distinguish between local, national, regional, and global marketing. If marketing practitioners focus their priorities on developing and maintaining a market niche, then their tactics will depend on the niche. There is a wide field for developing new marketing types, which can be classified by industry. At the same time, we will base our classifications on the economy’s structure (supplemented by a list of specific activities) and obtain the corresponding types of marketing. These classifications include customs marketing, educational marketing, healthcare marketing, and so on. This textbook gives a far from complete list of marketing types by industry. Readers can contribute to expanding this list. Researchers pay great attention to the classification of products that meet consumer demand. Product classifications are used to classify marketing. For example, theorists currently identify only three types of marketing, which depend on the product elements. The author based this classification on two criteria: firstly, if we divide the classes of industrial and consumer products, then it is necessary

42

Chapter Three

to distinguish between services for industrial and consumer purposes; secondly, we also need to consider industrial and consumer works. Therefore, this classification’s shortcomings are centered on finding new types of marketing. Researchers also proposed to classify marketing according to the stability of the demand for goods. Another classification criterion is the duration of consumption of products (goods and services). Eventually, scientists divided the marketing of services into various subcategories. Inaccuracies can often be found in the list of production services: for example, the repair of equipment is not a service but is, instead, a “work” supported by services and goods (using materials and components during repairs).

Marketing services as an activity Scientists have proved the need to improve the multi-level classification of the marketing services themselves that marketing firms—for a fee— provide to third-party organizations. Marketing services are activities that examine consumer needs; assess market opportunities; adapt production to identified demand based on available resources; promote the product to the consumer; organize sales; and so on. Many national classifiers of services mention that marketing services are provided by market research firms, advertising agencies, consulting companies, exhibition centers, and chambers of commerce. In addition, their marketing services vary in nomenclature, assortment, and volume. The global market for specialized marketing services is tens of billions of dollars a year. The world leaders in this area are Nielsen Holdings N.V. (USA), Kantar (United Kingdom), Ipsos SA (France), GfK SE (Germany), Information Resources Inc. (USA), INTAGE Inc. (Japan), and others. The basis for developing marketing classifications are national and international regulatory documents, which need to be improved so that they take into account the marketing of works and the marketing of goods, works, and services. In addition, based on other management criteria, works are the tasks and duties that employees perform.

Disadvantages of the existing classification The main disadvantage of the existing marketing classification is the absence of works as an element of product, and its unreasonable mixing of works with services, including production services. In this regard, it is

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essential to study the concept of works, as well as the broadest classifications of marketing products. To overcome the shortcomings, theorists have widened the classification of marketing to Internet marketing (e-marketing or web marketing) that has its own specific features, such as using channels to promote products in a virtual market environment. Direct marketing of the previous century was complemented by fast and inexpensive technology for marketing communications in mobile marketing. The concept of social marketing was further developed as an activity aimed at promoting socially necessary ideas and programs put forward by organized social groups (for example, overcoming global warming and pandemics). Theorists have also developed consumer marketing, which aims to create a system that protects consumer’s rights and interests. Green marketing is focused on protecting the environment and public health through, for example, the introduction of safe and resource-saving technologies and products.

Examples of marketing classifications Marketing classifications are given in the tables below. However, this list is not final or comprehensive and its development is ongoing. It is also a contribution to the science of many authors. Therefore, the readers of this textbook are invited to conduct their own research into finding new types of marketing in accordance with the existing classification criteria. Table 3-2. Classifications of marketing by market demand Type of marketing Conversion marketing Stimulating marketing Developing (creative) marketing Remarketing Synchronous marketing Supportive marketing

Type of market demand Negative demand corresponds to a situation where most consumers refuse the product Lack of demand due to consumer indifference or lack of interest in the product Potential (hidden) demand has arisen, but a specific product does not yet exist The demand for the product has decreased depending on the stage of the product's life cycle Demand for the product fluctuates over a period of time Market supply corresponds to the volume and structure of demand for the product

44

Demarketing Countermarketing

Chapter Three Table 3-2. Continued Demand for the product far exceeds its market supply Irrational demand for harmful products that are undesirable from the viewpoint of society

Table 3-3. Classifications of marketing according to its aims Type of marketing Commercial marketing Non-profit marketing

Features of marketing This type of marketing aims to obtain the highest revenues and profits This type of marketing aims to meet consumer demand and achieve the greatest social effect

Table 3-4. Classifications of marketing according to its methods Type of marketing Viral marketing Network marketing Neuromarketing Partisan marketing

Ambush marketing E-marketing Blockchain marketing Social network marketing Mobile marketing

Content marketing Pull-marketing

Features of marketing Propaganda by consumers of the products that they admire Uses multi-level networks of distributors Uses neuro-linguistic programming techniques Solves marketing problems with non-standard and unexpected methods, including “offensive and retreat” tactics, disguising plans and actions, etc. Provides sponsorship for sporting events that affect the fans audiences Uses the Internet and electronic document management, including websites, e-mail, and so on Conducts transactions using cryptocurrencies in a decentralized Blockchain network with many users Uses the contacts on social networks, such as Facebook, Instagram, LinkedIn, Twitter, and YouTube Uses mobile telephone channels for direct access to potential consumers, including sending mobile messages, posting appeals, and advertising blogs Develops and disseminates effective concise text, which is adapted to a specific target audience Activities initiated by the client, customer, or buyer who “attracts” suppliers

The Evolution of Marketing Classifications

Push-marketing Inbound marketing

Operational marketing Online marketing

45

Table 3-4. Continued Activities initiated by the manufacturer, executor, or seller who “attracts” buyers Uses automated marketing to create demand by generating interest, as well as increasing traffic, leads, and conversions Activities consisting of a set of standard operations and processes that are correctly performed Provides continuous marketing activities with consumers in real time

Table 3-5. Classifications of marketing by breadth of tasks Type of marketing Differentiated marketing Undifferentiated marketing Concentrated marketing

Product-focused marketing Customer-oriented marketing Integrated marketing

Features of marketing Covers several market segments with the promotion of various products for each of them Promotes one product that is attractive to most customers from different market segments Concentrates marketing efforts on one large (or several) market segment(s) and increases economic efficiency due to specialization Offers the most advanced or innovative products to the market Identifies products by properties that consumers prefer Simultaneously targets both the product and the consumer of this product

Table 3-6. Classifications of marketing by the level of tasks Type of marketing Strategic marketing

Tactical marketing

Features of marketing Makes general managerial decisions based on the analysis of the state and dynamics of external factors and internal resources. This marketing covers the choice of target market segments, product and business positioning, and so on Maintains the current company activities, including marketing communications, product promotion to the market, and so on

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Chapter Three

Table 3-7. Classifications of marketing by target market coverage Type of marketing Micro-marketing Macro-marketing International marketing Global marketing

Volume of activity Operates within a company or a single product group Covers the country’s national economy or industries Covers markets in several countries Covers global product markets

Table 3-8. Classifications of marketing by market niche Type of marketing Target marketing Marketing of unique products Vertical marketing

Horizontal marketing

Clustered (bundled) marketing

Features of marketing Uses time-stable and small part of the market, which large competitors do not fully cover Sells unique products that cannot be quickly provided by competitors due to changes in the market’s economic situation Sells a product with similar consumer properties to different groups of consumers in a vertical market niche Constantly expands the company’s product nomenclature in a horizontal niche within a single target segment Sells a set of products for different purposes to consumers located in one place

Table 3-9. Classifications of marketing by industry affiliation Type of marketing Industrial marketing Scientific and technical marketing Banking marketing Insurance marketing Agricultural marketing Customs marketing Investment marketing

Features of marketing Sells industrial products to intermediate consumers Promotes scientific and technical products, including new technologies, patents, and industrial designs Sells banking products Provides insurance services Sells agricultural goods, works, and services Sells customs services Finds low risk and attractive objects for investments

The Evolution of Marketing Classifications

Information marketing Healthcare marketing Education marketing Culture marketing Travel marketing Political marketing

Table 3-9. Continued Sells information products to consumers Finds consumers for treatment and recovery plans Provides services for training, advanced training, and retraining Provides services by public and private cultural institutions Provides tourism services Promotes the interests and views of political organizations and movements

Table 3-10. Classifications of marketing by product element Type of marketing Marketing of industrial goods Marketing of consumer goods Marketing of industrial works Marketing of consumer works Marketing of industrial services Marketing of consumer services

Features of marketing Production and sale of goods for production to intermediate consumers Production and sale of goods for consumption to end users Sale and execution of works for production to intermediate customers Sale and execution of works for consumption to end users Sale and provision of services for production to intermediate clients Sale and provision of services for consumption to end users

Table 3-11. Classifications of marketing by objects of activity Type of marketing Organization marketing

Person marketing (ego marketing) Place marketing

Idea marketing

Features of marketing Activities to create, maintain, or change the target audience’s behavior and/or attitudes towards specific organizations Activities to create, maintain, or change the target audience’s behavior and/or attitudes towards specific people Activities to create, maintain, or change the target audience’s behavior and/or attitudes towards specific places Activities to create, carry out, and monitor the implementation of programs based on a public idea or movement

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Event marketing

Marketing of goods, works, and services

Chapter Three Table 3-11. Continued Activities to create, maintain, or change the target audience’s behavior and/or attitudes towards specific events Activities to meet consumer demand for goods, works, and services

Table 3-12. Classifications of marketing by product demand Type of marketing Marketing of daily demand products Marketing of preselection products Marketing of special demand products Marketing of passive demand products

Features of demand Provides permanent, impulse, and emergency demand for products Enables to meet demand by comparing similar and different products Sells unique products without significant effect of prices Sells non-urgent demand products that require additional marketing efforts

Table 3-13. Classifications of marketing by the product’s consumption duration Type of marketing Marketing of durable goods Marketing of short-term goods Marketing of works Marketing of services

Features of marketing Sells material objects that can withstand repeated use (for example, production facilities) Sells material objects that are consumed during one or several cycles of use (for example, fuel) Provides activities that change the market value of the object and which can be accumulated Provides activities that do not change the market value of the object and which cannot be accumulated

Table 3-14. Classifications of marketing by type of service Marketing of services Marketing of production services Marketing of distribution services

Service examples Engineering, leasing, and maintenance of equipment and machinery Commerce, transport, and communications

The Evolution of Marketing Classifications

Marketing of consumer services Marketing of public services Marketing of professional services

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Table 3-14. Continued Tourism, municipal services, and household services Television, radio broadcasting, education, culture, and healthcare Banking, insurance, financial, consulting, and advertising services

Table 3-15. Classifications of marketing by area of application Marketing by area Export marketing Import marketing Internal marketing

Features of application This takes place when selling products abroad This takes place when buying products abroad for subsequent sale in one’s own country This takes place when selling products within one’s own country

These classifications of marketing take into account the opinions of many authors, including marketing theorists, academics, and practitioners. The above tables are far from exhaustive. Theorists should expand, refine, and correct these classifications when they discover new types of marketing.

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Practical tips Readers can also supplement marketing classifications by type of professional activity. See some examples below: Ɣ Professional sports are a profitable business. Using sports marketing tools and techniques, football clubs are looking for highly efficient players and are willing to pay multi-millions for their transfer. Sports trainers are interested in working with talented teenagers. Marketing enables trainers to find and grow future Olympic champions. Ɣ Transport marketing covers the marketing of passenger transport and the marketing of cargo transport (by vehicle type). Service providers carry out transportation using airplanes, railroad wagons/cisterns, buses, trucks, sea/river vessels, and so on. Passengers and cargoes also move in space, underground, and under water. Ɣ Lawyers use legal marketing when looking for wealthy clients. They will represent and defend the interests of their clients in court. Notaries use marketing tools to attract and increase the number of clients who need notary services, such as the registration of wills, sales transactions, and marriage contracts. Please describe below what new types of professional marketing could be discovered in the future.

The Evolution of Marketing Classifications

Definitions of concepts Ɣ Scientific systematization is an integral system of interrelated elements that enables researchers to structure knowledge, refine existing results, and obtain missing or insufficiently studied elements of the system. Ɣ The general marketing of goods, works, and services is a system of three interrelated elements: the marketing of goods, the marketing of works, and the marketing of services. Ɣ Human labor is an expenditure of human energy that creates market value and which is the main unifying factor for the manufacture of goods, the execution of works, and the provision of services. Ɣ The execution of works and provision of services are applied activities requiring the presence of processed or serviced objects. Ɣ Non-substantial objects of works are material objects that need a substantial medium to be processed and delivered to the customer. Ɣ Non-contact works are works that the contractor executes on the customer’s object, which is in contrast to contact works that are executed on the customer’s body and/or mind. Ɣ Basic marketing concepts include the following: improvement of production; improvement of the product; intensification of commercial efforts; product marketing; social and ethical marketing; and relationship marketing. Ɣ Product marketing concepts include the following: the marketing of goods; the marketing of services; the marketing of goods and services; the marketing of works; and the marketing of goods, works, and services. Ɣ The criteria for classifying marketing types are as follows: the type of market demand, the goal of the activity, the methods of the activity, the breadth of the task, the level of the task, the degree of market coverage, the market niche, the industry affiliation, the product element, the marketing object, the demand stability, the duration of product consumption, and so on.

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Questions for discussion and testing 1. Why have scientists developed classifications of marketing? 2. What comparison criteria do theorists use to classify types of marketing? 3. What is the essence of a systematic approach to the study of phenomena? 4. What is the difference between (1) substantial goods and nonsubstantial goods, and (2) contact services and non-contact services? 5. List the stages of marketing theory’s development. 6. How did marketing theory evolve based on an understanding of the “product?” 7. List the types of marketing based on the classification by its methods. 8. How is marketing classified according to the breadth and importance of the tasks to be solved? 9. How does the structure of the economy affect the marketing classification? 10. List the types of marketing according to their objects. 11. What are the current trends in marketing theory and practice?

CHAPTER FOUR GOODS, WORKS, AND SERVICES AS ELEMENTS OF A PRODUCT

Overview

In this chapter, readers will recall the concept of human labor products and the concept of economic benefits for market exchange. We will become familiar with interpreting the term “works” as an activity that changes the market value of processed objects. Also, readers will find out that goods, works, and services are equal elements of a product. We will list the features of wellknown industrial marketing and consider new trends in the development of marketing. In the existing regulatory and legal documents, including classifiers of activities, we will find references to the concept of “works.” As an example, readers will learn about the goods, works, and services of a company’s marketing department.

Work is a product of human labor As economics has shown us, human labor is a source of social wealth. According to the labor theory of value, the result of labor is the product. The social division of labor is the manufacture of products for exchange. The exchange of products between manufacturers is the most important task of marketing. Therefore, in order to find consumers for their products, marketing specialists must offer their products in the marketplace. When the market and the market-driven economy appeared, sellers were not very interested in what element of the product they were selling. At the first stage of the development of market relations in the premarketing period, people used non-specialized primitive sales tools. They

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believed that goods were sold in the marketplace. The goods were products of human labor intended for exchange. When people constructed temples or built ships according to the orders of kings, no one thought that these were contracts for executing works on state orders. Artists from a traveling circus in medieval Europe offered entertainment services, and notaries provided notary services to people. As we can see, since ancient times, people sold three elements of human labor products (that is, goods, works, and services). In other words, the pre-marketing product already consisted of goods, works, and services. This textbook is focused on marketing activities in the field of sales and executing works for consumers. At the same time, the diversity and quite often mutual inconsistency of the existing definitions of marketing concepts creates difficulties when trying to understand the positions of marketing theorists and marketing practitioners. In order to show these unsolved problems, we will consider new definitions of well-known and new marketing concepts. One of the existing marketing concepts defines marketing as an activity that satisfies needs through exchange. This definition means that it is necessary for the market supply to match the market demand. It is well known that the objects of market exchange are the products of human activity (barter transactions) or products and their cash equivalents (traditional or monetary transactions). The products of human labor are finished goods as a result of production activities, and works and services are processes of activity. The execution of works and provision of services are applied activities because they need the presence of an object. Contractors/providers process or maintain these objects accordingly.

Economic benefit for exchange The basic concept of economic benefit that people intend to use for market exchange can involve a human labor product. In general, these concepts do not match. The market price of the product, which the manufacturer determines according to the usefulness of the product (based on the theory of marginalism), can exceed, be equal to, or less than its market value. Thus, the issues accumulated in the field of economics and management create the need to study the marketing of works and their constituent elements. In this textbook, the author does this using the example of two representative firms: a construction company and a ship repair yard. Previously, researchers divided the entire concept of a “product” into two elements: goods and services. “As a result of applying our analysis,

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we have divided the “product” into three elements: goods, works, and services. After this, we studied parts of the phenomenon separately” (source: https://www.emeraldinsight.com/journal/jbim/28/8). Using synthesis, we will combine these separate parts and then consider the object as a whole at the highest level (that is, as a product of abstract labor).

An interpretation of the concept of a “product” The product is the first element in the marketing mix of goods (the 4Ps model) and the marketing mix of services (the 7Ps model), where it covers “goods” and “services.” We can also include “works” in the concept of a “product,” because the works executed are the products of human labor. The product as the first letter “P” in the marketing mix is a concept that consists of three elements: goods, works, and services. The previous understanding of this system only considers two elements: goods and services. The discrepancy between the theory of marketing and marketing practice in the execution of works is a problem. It is more difficult to sell future works than available goods. Consumers familiarize themselves with user instructions for the proper use of goods, but they are not interested in the technologies or designs that the producer used in the manufacture of these goods. Nevertheless, a feature of the marketing of works is the customer influence on the execution of works. Moreover, the marketing department must submit a project with a timeline for the works’ execution to be approved by the customer. Such a project does not relate to the provision of services (for example, cleaning, washing, drying, connecting, or delivering) that the provider performs according to maintenance and exploitation procedures. The classification of substantial goods and non-substantial goods is conditional because each commodity includes both parts. Non-substantial goods need a substantial medium (for example, a novel in an e-book) and each substantial commodity includes non-substantial components (that is, a brand and an image). When a firm manufactures goods, design is an internal factor that the company does not discuss with the buyer. However, “the design is a topic of discussion between the customer and the executor in the marketing of works” (source: https://www.emerald insight.com/journal/jbim/28/8).

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Developing the marketing concept As we have already noted, works are an element of the product and a form of generalized human activity that creates market value, or which changes or liquidates the market value of the customers’ objects as a result of the manufacture, repair, renewal, modernization, re-equipment, or liquidation of these objects. The ability to change the market value of processed objects is the main feature of works as a type of activity. Marketing as a dynamic activity requires clarification of concepts, techniques, and tools. The definition of marketing is a scientific and practical concept which, according to various criteria, has thousands of variants; however, the development of marketing definitions continues. Scientific research at the beginning of this century was aimed at developing an understanding of economics and management techniques; therefore, a new marketing paradigm that theorists and practitioners will unanimously accept needs to be found. The situational approach, which supplemented the process and system approaches to management theory at the end of the last century, cannot fully satisfy the new requirements of marketing practice. The management paradigm of the 21st century provides the ability to act in an ever changing business environment and the need for both managers and companies to constantly learn. As Philip Kotler noted, marketing is no longer in the best condition, and this is not just in theory but also in practice. “Wild” marketing, which manipulates the needs of customers, achieves the opposite result and it is destructive for the company in the long term. Industrial marketing, which has been specially developed for industrial companies, operates with goods as marketing objects that have already been manufactured. As a result, the marketing department solves the problem of selling finished products and returning the money that has been spent. Also, as a result of studying the characteristics of services that enable selling technically complex goods, marketing theorists proposed the creation of multifunctional marketing departments for goods, works, and services in companies. These departments should combine the marketing of goods, the marketing of works, and the marketing of services in their activities. The system approach represents a holistic phenomenon in the form of a set of elements between which certain interactions occur. If we apply a system approach, then, in the process of improving the marketing classification, we can consider marketing as a system of three interacting elements: the marketing of goods, the marketing of works, and the marketing of services.

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We obtained this result using economic theory, particularly, the labor theory of value (according to William Petty, Adam Smith, David Ricardo, Karl Marx, and others); the theory of marginalism (according to Karl Menger, Eugen Böhm-Bawerk, Friedrich Wieser, and others); and the theory of neoclassical synthesis (according to John Hicks, Alfred Marshall, Paul A. Samuelson, and others). At the core of the manufacture of goods, the execution of works, and the provision of services is one unifying factor, namely, human labor, which creates market value.

Features of industrial marketing Scientists have found that the situation in the marketing of industrial goods, works, and services is characterized by low price elasticity, a high degree of market concentration, the use of direct sales techniques, shorter distribution channels, and other features. Industrial companies use industrial marketing to produce industrial products for sale. Industrial marketing is focused on the specifics of making decisions on the procurement of industrial products by the consumer firm’s professional representatives. Scientists have studied the main aspects of the preparation of commercial offers; registration of applications and orders; holding auctions for purchasing industrial goods, works, and services; and so on. Industrial marketing is a process of forming a portfolio of orders (an order book) for companies selling industrial goods, works, and services. Specialists use the marketing of relationships in industrial markets. Many marketing-oriented companies deviate from the classic distribution of functions among the firm’s subdivisions. At the same time, marketing specialists perform a part of the “not inherent” production functions. They do this in order to better harmonize the supply of goods, works, and services with consumer demands. We will carry out a forecast of the market conditions for goods, works, and services on the basis of publications by marketing theorists and marketing practitioners’ tips. In this regard, marketing researchers note that the difficulties of strategic forecasting include the neglect of important factors due to the complexity of their quantitative calculation and the rejection of “bad” forecasts. The researchers believe that if they predict a loss, then the forecast needs to be “improved.” The objectivity of the research is reduced due to the uncritical extrapolation of the market situation. To overcome this, companies need a specialized marketing audit.

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New trends in marketing A new trend is the integration of marketing and logistics in manufacturing companies. Researchers must increase the richness of marketing information by assessing the quality of information and reducing risks. Researchers can use the development and application of economic and mathematical models to optimize a company’s marketing activities. Theorists have developed interactive marketing communications using the Internet and dynamic models of complex communication efforts, which show the effect of synergy. The cooperation of competitors (as subcontractors) has received a new impetus with the development of horizontal and vertical production integration when executing large and complex orders for works. Researchers have also accumulated new data that indicates existing marketing theory’s lack of compliance with current marketing practices. This circumstance requires marketing science to go beyond the established concepts and tools from the last century.

Mentioning works in activity classifiers The company’s volume of sales includes revenue generated by the sale of the products, that is, goods, works, and services. At the same time, until now, the international system of accounting and statistical observation standards did not allow “works” to be considered as a separate element in the company’s product. For example, the National Classifier of Ukraine (source: https://www. profiwins.com.ua) calls “services” a widespread type of works: the “repair” of objects. See below for examples: 33 Repair and installation of machinery and equipment 33.1 Repair and maintenance of finished metal products, machinery, and equipment 33.11 Repair and maintenance of finished metal products 33.12 Repair and maintenance of machinery and equipment for industrial use 33.13 Repair and maintenance of electronic and optical equipment 33.14 Repair and maintenance of electrical equipment 33.15 Repair and maintenance of ships and boats 33.16 Repair and maintenance of aircraft and spacecraft 33.17 Repair and maintenance of other vehicles

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In most countries there are national classifiers of goods and classifiers of services. However, there is no classifier of works in any country. Perhaps, thanks to the efforts of this textbook readers, the marketing of works will receive regulatory support in every country, including a system of accounting and statistical observation standards. The United Kingdom Standard Industrial Classification of Economic Activities (SIC) lists a significant number of works items. We have given an example of these works in Appendix A. Many countries have adopted national legislation that regulates their government’s procurement of goods, works, and services. However, these documents mix the concept of “services” with works. In the best case, these documents contain a list of types of works, but they do not apply the classification characteristic of works: that is, the change in the market value of the processed objects. This circumstance complicates the activity in the field of the marketing of works and requires efforts by marketing specialists to change international and national regulations. Thus, the marketing of works is the third element of the general marketing of goods, works, and services instead of the existing concept of the marketing of goods and services. The product of human labor as a complex mix of goods, works, and services that form the source of the company’s revenue. A marketing department’s use of techniques and tools from the general marketing of goods, works, and services contributes to the diversification of a multi-product company’s activities and increases their sustainability in an unstable market environment.

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Practical tips We will now consider which products can create the conditions for intrapreneurship and extrapreneurship: Ɣ Intrapreneurship is the internal entrepreneurial activity of the company’s divisions, which provides for the exchange of products (that is, goods, works, and services) with other divisions acting as internal partners for generating profits. Ɣ Extrapreneurship is the external entrepreneurial activity of the firm’s divisions, which provides for the exchange of products (that is, goods, works, and services) with external partners, including other firms. Ɣ The works executed by the marketing department covers the development (that is, the compilation, calculation, and approval) of preliminary, additional, and final repair specifications; reports on the results of marketing research; projects for creating marketing strategies and tactics for third-party customers; and so on. Ɣ The services of the marketing department include meeting and accommodating customers’ delegations; organizing and conducting negotiations and banquets; organizing a cultural program for the company’s guests; and transporting third-party customers’ cargoes. Ɣ The goods that a marketing department can offer for sale include raw materials and processed materials, as well as components and spare parts for manufacturing and repairing objects. The department purchases these goods at low prices, stores them in the company’s warehouse, and sells them at higher prices to external buyers.

Goods, Works, and Services as Elements of a Product

Definitions of concepts Ɣ Products from human labor are manufactured objects in the form of goods as a result of production activities; processed or serviced objects are a result of the execution of works or the provision of services as processes of production activities. Ɣ Economic benefit is a product of human labor that the producer intends to exchange in the market. Products of human labor are the result of production activities (goods) or the very process of production activities (works and services). Ɣ Works and services are processes and applied activities that the contractor carries out for the customer’s object (non-contact works and non-contact services) or for the consumer’s body and/or mind (contact works and contact services). Ɣ Goods are material objects (substantial or non-substantial objects) that are the result of the manufacturing process. The results of the execution of works or provision of services are the customer’s processed objects or the client’s serviced objects. Ɣ Works are activities that change the market value of processed objects, and services are activities that do not change the market value of serviced objects. Ɣ Industrial marketing is a type of marketing that aims to meet the market demand for goods, works, and services for intermediate buyers. Ɣ Intermediate buyers are members of the industrial market who use the purchased goods, works, and services to produce their own products. Ɣ The intermediate buyer sells his own products to the next intermediate buyer in the industrial market of goods, works, and services or to the end consumer in the consumer market of goods, works, and services. Ɣ Goods, works, or services are listed in a national or international regulatory document (classifier), which contains the names of goods, works, or services arranged in a certain (for example, alphabetical) order. They are assigned a special code according to the industry they are from or how important they are for the economy.

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Questions for discussion and testing 1. What is the “matter” of market exchange in the marketing of works? 2. Why are goods the result of activities, while works and services are the processes of activities? 3. Are “economic benefit” and “product of human labor” equivalent concepts in marketing? 4. What is a marketing paradigm and what are the new directions of its development? 5. What is the difference between the marketing of industrial products and the marketing of consumer products? 6. What are the main differences between goods, works, and services as elements of a product? 7. How does the requirement to be environmentally friendly affect the quality of goods, works, and services? 8. What is the impact of the company’s image, reputation, and corporate culture on its product? 9. Is it possible to cooperate with competitors that produce the same products? 10. Why do marketing practitioners need national classifiers of works?

CHAPTER FIVE THE MARKETING OF WORKS: BASIC CONCEPTS AND DEFINITIONS

Overview In this chapter, readers will learn about the prerequisites for the scientific discovery of the marketing of works and its conceptual basis. We will study the common features and differences between works and services as applied activities. We will also consider project production, discrete production, and process production in terms of works. Readers will become familiar with the process of justifying the marketing of works and learn about the results of an expert survey of marketing top managers engaged in ship repairs in south-eastern Europe. Based on the concept of works from regulatory documents, the author will formulate the basic concepts for the subsequent study of the marketing of works.

Background to the scientific discovery of the marketing of works “In the world’s scientific and practical literature there are no references to the marketing of works, except for [this textbook and] the publications by its author” (source: https://www.emeraldinsight.com/journal/jbim/28/8). In order to study this concept further, we first need to become familiar with the basic definitions and concepts of the marketing of works. This will enable us to consciously approach the material in the textbook. The marketing of works is not a tree that has grown up in emptiness and from scratch. Thanks to the efforts of several generations of marketing theorists, academics, and practitioners, we have a solid foundation of the

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concepts and definitions on which it is built. Therefore, readers of this textbook will be able to use the knowledge and skills they have gained from other books on the marketing of goods and services. This means that we do not have to repeat well-known marketing concepts in this textbook and can, instead, focus on the conceptual differences between the marketing of works and other types of marketing. Marketing practitioners use the marketing of works when they search for, receive, and execute works orders. The concept of industrial services is close to that of works. Nevertheless, marketing researchers do not distinguish “works” (which is a part of services) from “services.” Researchers have not paid attention to services that can change the market value of objects. Such an approach does not distinguish works from true services. In the marketing of goods, the manufacturer (almost) never discusses the design of future goods with consumers. This is an internal affair for the company. In the marketing of services, a provider usually realizes services according to certain rules and instructions. “He services or maintains an object, but does not alter it or its market value” (source: https://www.emeraldinsight.com/journal/jbim/28/8). Figuratively speaking, the concepts of industrial marketing and industrial services gave rise to the concept of the marketing of works. We need dozens of articles to prove the existence of such a comprehensive area as the marketing of works. When scientists discovered the marketing of services, it took several years to integrate it into science, practice, and education. In the 1980s, the American Marketing Association organized a series of conferences and symposia dedicated to the study of the marketing of services (source: https://www.ama.org). Scientists initially divided the marketing of products into two parts (the marketing of goods and the marketing of services). Later, scientists created the concept of the general marketing of goods and services. We must do the same in order to fully recognize the marketing of works as an essential element of the general marketing of goods, works, and services.

Works as an applied activity Despite the existence of the concepts of goods, works, and services in many countries of the world, including the European Union, this textbook uses the generally accepted notion of works and services to overcome the difficulties associated with these definitions. This definition identifies them as a process: an activity that the contractor performs on the

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customer’s object (for non-contact works and services) or on the consumer’s body and/or mind (for contact works and services). Accordingly, commodity is a material (substantial or non-substantial) object that is the result of its manufacturing process. Since works and services are activities, the result of executing works or providing services are processed or serviced objects; therefore, works and services are applied activities that need the presence of an object. Assuming the existence of works on the basis of modern research, we distinguish works on the manufacture of objects to order and works on the liquidation of objects under the order. The contractor executes works to repair (overcoming an object’s physical deterioration), to modernize (overcoming moral deterioration of the second kind, that is, obsolescence), and to re-equip (overcoming structural deterioration). In the process of studying the marketing of works, we will periodically return to these basic statements.

The conceptual basics of the marketing of works As previously mentioned, in the early 1980s, the American Marketing Association (AMA) introduced the concept of the marketing of goods and services, which is the topic of this textbook. The advantage of this concept is its construction of general marketing as a system of two elements (that is, the marketing of goods and the marketing of services). Moreover, according to this concept, the “product” consists of two parts (i.e., goods and services). We expanded the concept by adding a new part (that is, works) to the concept of a “product.” The concept of industrial services is the next basic idea (source: https://www.emeraldinsight.com/journal/jbim/28/8) in this textbook. We divided the basic concept of services into two parts: the concept of true services and the concept of works as an activity that changes the market value of processed objects, including their manufacture and liquidation. The concept of abstract labor gives us the opportunity to consider goods, works, and services as equal products of labor that can generate revenue. Moreover, current legislation in many developed countries considers goods, works, and services as sources of a firm’s taxable income. In theory, the problem of defining the concepts of “work” and “service” was not resolved until 2010, because the categories of works and services were considered completely identical. Therefore, in order to define the concept of “work,” we will apply the following criteria: works are activities that change the market value of processed objects, and services are activities that do not change the value of objects. The

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customer’s costs for executing works “flow” into the market value of the processed object, and the client’s costs for providing services do not materialize in the object. These criteria also enable marketing specialists to overcome the theoretical uncertainty when classifying activities that create or liquidate an object at the request of a consumer. Such activities are works that increase the market value of objects from zero or reduce the initial market value of objects to zero, respectively. Previously, the concept of a hybrid offering provided for only two elements of the product, that is, “goods” and “services.” This concept does not take into account the third element of the product, namely, “works.” Thus, theorists ignored the types of hybrid offerings that were used in practice, but not jet theoretically identified. The main problem was the lack of attention from scientists to market activities, the purpose of which is the sale of works. As a result, marketing theorists mainly focused on the issues of selling manufactured goods and searching for buyers. Meanwhile, an important achievement was the separation of services into industrial services and domestic services, as well as a consideration of joint creativity of producers and consumers: that is, the “marketing of joint creativity.” However, scientists have made serious conceptual errors. For example, dividing goods and services into material and non-material items contradicts the provisions of physics, which considers the existence of matter in two forms: “substance” and “energy field.” Therefore, dividing goods transforms them into “substantial” goods and “non-substantial” goods. Marketing practitioners have found that they must complement the provision of services by selling goods, and when selling goods, they must also provide related services. As a result, the benefits of merging these two forms—the marketing of goods and the marketing of services—increase the sales of both goods and services. However, the tangibility or intangibility of services does not bring them closer to goods as marketing products due to differences in their physical characteristics. The marketing of “material services” does not bring them closer to the marketing of goods. Services that involve the operation and maintenance of facilities are accompanied by changes in the market value of these facilities due to their physical, moral, and/or structural deterioration. The duration of operation and the condition of the facility affects the intensity of its deterioration. But these factors are not a direct result of the provision of services. For example, production equipment loses its efficiency due to natural processes, even when it is idle.

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Differences between works and services in regulatory documents In marketing theory, the concept of general marketing of goods and services was created at the end of the last century in the United States as a result of dividing the concept of a product into its two constituent elements (that is, goods and services). Marketing practitioners have proven the applicability of this concept. At the same time, scientists did not take the next step towards widening the concept of general marketing; perhaps because works and services are treated as the same activity in the regulatory and legislative documents of the United States and Canada. Therefore, there are various publications on increasing the productivity of services in these countries, although the reference should be made to the productivity of works. However, in the European regulatory framework and practice, marketing managers use the concepts of goods, works, and services as elements of a product. In this textbook, the theoretical views on the structure of marketing are revised and the definitions of existing marketing concepts are refined taking into account the views of national marketing associations. At the same time, it does not abolish or disprove the accumulated scientific and practical knowledge in the field of marketing. Instead, it aims to develop and improve the theory and practice of marketing activities for the sale of works, rather than just goods and services. Moreover, the concept of the marketing of services has become a conceptual prerequisite for the concept of the marketing of works due to the organizational similarity of these activities. Nevertheless, the purpose of this textbook is not only to identify and present the marketing of works as an independent scientific and practical field, but to also justify the differences between the marketing of works and the marketing of services. Therefore, the concept of the project form of works organization is a useful tool that has been successfully implemented in company activities since the middle of the last century. Authors, such as Alexander Y. Andrianov, Sergey V. Valdaytsev, and Paul V. Vorobyev (source: https://spbu.pure.elsevier.com), use the concepts of supply and demand in the markets of goods, works, and services in the definitions of marketing and trade secrets. Marketing activities in the market of works is the marketing of works, is it not?

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Works as a product of human activity: a reminder The concept of a product of human labor as a source of revenue (which includes manufactured goods, performed works, and rendered services) is the theoretical basis for studying the characteristics of the marketing of works. Works together with goods and services involve the marketing concept of the product and an element of the marketing mix. Let us now consider the complex definition of the concept of “works.” Works are a source of revenue for the executor. They are a type of human labor that applies activities to a customer’s object and that creates, changes, or liquidates market value of the object as a result of its manufacture, repair, renewal, modernization, or re-equipment without transferring ownership of this object from the customer to the contractor. The ability to change the market value of a processed object is the basis of the conceptual difference between works and services. Services, along with goods and works, create the marketing concept of the product as an element of the marketing mix. We will now revise the concept of services. Services are a source of revenue for the service provider. They are a type of human labor that applies activities to a client’s object and that maintains, uses, and operates it without changing its market value and without transferring ownership of this object from the client to the service provider. This textbook focuses on the study of the marketing of works, rather than a special study of the works themselves. There are definitions of works in many countries’ economic, regulatory, and legislative documents. For example, the Civil Code of Ukraine (source: http://zakon.rada.gov.ua) states that, The parties may enter into a contract for the manufacture, processing, recycling, or repair of a thing or for executing other work with the transfer of its result to the customer.

In order to properly apply the legal framework, according to the Pension Fund of Ukraine, “it is necessary to clearly distinguish between the concepts of works and services” (source: https://www.pfu.gov.ua). This means that the features of a service are the lack of ownership of the result, the inseparability of the service from a thing or a recipient, the synchronicity of providing and receiving, the inability to accumulate, and the consumption of the service while the provider renders it. In addition, the “matter” of the contractual relationship is creating thing and processing, recycling, and repair of the existing thing. We will add reference to works that involve liquidating things, such as demolition

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of production facilities, recycling old ships for scrap, dismantling decommissioned agricultural machinery, recycling obsolete or nonoperating computers, and so on, to this definition. The Economic Code of Ukraine (source: http://kodeksy.com.ua) determines that, Economic activity is the activity of business entities in the area of social production; the purpose of which is manufacturing and selling products, executing works, or providing services of a value-added character that have price certainty.

In a general sense, manufactured goods, works executed, and services rendered are products of human activity. As Roget's 21st Century Thesaurus (Philip Lief Group) points out, the word “product” (source: https://www.thesaurus.com) in English means “article of trade,” “fruit,” “goods,” “commodity,” “ware,” “merchandise,” and “stock.” Indeed, this is a broad concept that encompasses the concepts of “goods” and “services.” Theorists must add the concept of “works” as a constituent element to the general concept of “product” because executed works are also a product of human activity. Moreover, in some countries, legal documents define the main activities of industrial companies as operations related to the production or sale of products (goods, works, and services).

Project, discrete, and process productions In order to analyze marketing activities, scientists proposed the concepts of discrete production and continuous production. These ideas are suitable for orders that are fulfilled under contracts, due to their discrete nature of production. There are a number of production classifications offered by leading marketing and consulting companies. Scientists have reduced this to three main types of production: project production, discrete production, and process production. Discrete production covers the production of vehicles, facilities, electronics, computers, industrial and consumer equipment, and so on. In the course of project production, specialists design an object to order, develop technological documentation, and manufacture the object using the project method. In the case of discrete production, marketing managers draw up an order during negotiations with the customer. Marketing specialists carry out preliminary planning and must take many factors into account,

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including the firm’s production capabilities, orders executed, and orders that are currently being negotiated with other customers. Process or continuous production takes place in metallurgical, chemical, and oil industries, as well as other sectors of the economy. The concept of marketing of works went through three stages in the development process: (1) understanding it as an independent marketing of discrete orders; (2) presenting it as an integral part of the marketing of services that changes the value of objects; and (3) defining it as one of three equal and interdependent areas of the general marketing of goods, works, and services.

Proof that the marketing of works exists This textbook offers a study of one of the new types of marketing, that is, the marketing of works. This type of marketing has existed since the emergence of a market-driven economy. The author will now provide “multi-step proof of the existence of the marketing of works” (source: https://www.emeraldinsight.com/journal/jbim/28/8). Step 1: sources of revenue from activities. The main sources of revenue for an industrial company are the manufacture and sale of goods, the sale and execution of works, and the sale and provision of services. According to the accounting documentation, the sales of goods, works, and services are sources of revenue for the company. In order to justify the existence of the “marketing of works,” it is reasonable to use an analogy, since there are three sources of revenue from the sale of goods, works, and services. Marketing practitioners use the marketing of goods to generate revenue from purchasers. They use the marketing of services to get money from clients. These activities form the marketing of goods and services. Marketing practitioners must use the marketing of works in order to sell works. This activity helps them to find customers, receive orders, and execute works. The sale of works is the third basic source of revenue for companies. Step 2: elements of abstract labor. Goods, works, and services are products of abstract labor. Marketing practitioners use the marketing of goods to meet the demand for goods. Marketing managers use the marketing of services to meet clients’ needs for services. Finally, marketing practitioners must apply the marketing of works to meet the consumers’ needs in the execution of works. Works are the result of the executors’ activities, which includes the manufacture, repair, modernization, re-equipment, conversion, or liquidation of the customer’s objects. These results are consistent with the labor theory of value. There is one common

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cause of the manufacture of goods, the execution of works, and the provision of services (i.e., productive labor that creates products). In this textbook, we understand the concept of labor to be the expenditure of a person’s physical, mental, and intellectual energy. Step 3: structural elements of the general market. When researchers study and analyze the general market, they divide it into specialized markets (i.e., the market of goods, the market of works, or the market of services). As a result of market segmentation, marketing practitioners consider target groups to be consumers of goods, consumers of works, and consumers of services. According to the commonly accepted definition, marketing is an activity in the markets. Therefore, when researchers acknowledge the existing market of works, they must also acknowledge the existence of activity in the market of works. This activity includes research of market, searching for customers, sales of works, and receiving payment. We can call these activities “the marketing of works.” Therefore, “marketing in the market of works” is an element of activity in the market of goods, works, and services. Step 4: part of the product in the marketing mix. The first element of the marketing mix is the “product.” This is the market value that marketing managers offer for exchange in the market. Initially, the concept of “products” coincided with the concept of “goods.” In the 1970s, the concept of marketing of services appeared, and the “product” began to include “goods” and “services.” Ten years later, the concept of marketing of goods and services emerged. As a result of the separation of works from services, the concept of “product” in the marketing mix must include three components (that is, “goods,” “works,” and “services”). Because marketing practitioners can control goods, works, and services, these components act as the basis for types of marketing. Step 5: functional differences between services and works. There are many distinctions between marketing activities in the provision of services and execution of works, which are due to their nature. Works can change the market value of objects, but services cannot. The provider renders services on the basis of instructions and prescriptions. Firms execute works on the basis of projects and designs. The executor must agree the project of works with the customer. However, the service provider is not obliged to agree the regulations for the services with the client. The client pays for services based on tariffs approved by the provider, which are usually not negotiable. In the marketing of works, the characteristics of the works (that is, prices, volume, and schedule) are a matter of negotiations between the executor and the customer.

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Step 6: framework of legislation in force. According to the first part of item No. 837 of the Civil Code of Ukraine, “one party to the contract of work, namely the contractor, engages to execute the defined work on the order of the other party to the contract, namely the customer. The customer engages to accept and pay for the work fulfilled” (source: http://kodeksy. com.ua). A letter from the Pension Fund of Ukraine dated September 1, 2006 demarcated the concepts of works and services. “Features of services include the absence of ownership of the result, inseparability from the thing or the recipient, the synchronicity of providing and obtaining, the impossibility of storing the services, and the consumption of services while they are provided” (source: https://www.pfu.gov.ua). In the first part of item No. 3 of the Economic Code of Ukraine, it is determined that economic activity is intended for the manufacture and sale of goods, the execution of works, or the provision of services.

Results from interviewing marketing experts: an example We interviewed 24 top marketing managers at shipyards in the Black Sea region. Their roles involve searching for customers and engaging in executing contracts. The group of respondents included marketing vicepresidents, marketing directors, and management from the shipyards’ marketing departments. “The purpose of the interview was to elicit their opinions about the real applications of the marketing of goods and services for ship repairs” (source: https://www.emeraldinsight.com/journal/jbim/ 28/8). Almost unanimously (79.17 percent), they stated that many results of the classic marketing of goods are not applicable to the shipyard’s activities. Also, many top marketing managers (66.67 percent) consider the marketing of services as only a partially applicable concept in the field of ship repairs. 91.67 percent of respondents believe that there is a need to develop another marketing concept for ship repair works. Because the shipyard’s main activities are repair works, including the renewal, modernization, and re-equipment of vessels, the new marketing concept should be “the marketing of works.” In order to study the applicability of this theory in industrial companies executing contracts for ship repairs, we conducted interviews during visits to the region and field meetings with marketing managers. Interviews were also held during business hours and informal meetings at specialized exhibitions dedicated to shipbuilding, ship repair, and ship management. We filled out 26 questionnaires based on an exchange of

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opinions with marketing managers. However, we have excluded two forms due to incompleteness and inaccuracy. Therefore, we used 24 forms for further processing. During the interview, the interviewer asked the respondents five questions and offered different answers in the questionnaire. We did not exert any pressure on the experts or manipulate them. Readers should learn to conduct expert surveys using these practical examples. The first question asked, “What do you consider to be the main goal of marketing activities at the shipyard?” The experts had the opportunity to choose between two different answers. Most respondents (66.67 percent) stated that it was obtaining profitable orders for ship repair and searching for solvent customers (16.67 percent). Also, 8.33 percent of experts emphasized the stability of incoming cash flow. Only 4.17 percent of respondents noted the need to increase their market share and ensure the work of the shipyard’s staff. Therefore, the main goal of marketing practitioners is profitable works orders. The second question asked, “How many percent are the following sources of income in your shipyard’s total revenue?” By the ratio of answers we found that repair, modernization, and re-equipment works make up 80.83 percent of the total revenue on average. The service of objects located in the shipyard’s water area, docks, and workshops is the second source of income (22.50 percent). Experts expressed the opinion that providing services to firms or people makes up 3.33 percent of their revenue, the manufacture and sale of goods 1.67 percent, and trading activity 0.83 percent (as related activities). The totals exceed 100 percent because the experts ticked two answers. The third question in the interview asked, “How can we use the marketing of goods to search for repair orders?” The analysis demonstrated that none of the respondents considered the marketing of goods to be fully suitable for shipyard activities. Most marketing managers (79.17 percent) are convinced that the marketing of goods is not appropriate for obtaining ship repair orders. Some respondents (from 4.17 percent to 12.50 percent) conceded that the marketing of goods is partially useful in the repair of vessels. The fourth question asked, “How can marketing specialists use the concept of the marketing of services in ship repairs?” Only 8.33 percent of experts considered the marketing of services to be fully acceptable in ship repairs. In addition, 12.50 percent of respondents were confident that they could predominantly use the marketing of services, and 12.50 percent noted that it is partially useful. Moreover, most experts (66.67 percent) believe that shipyards do not widely use the marketing of services. No one

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answered that the marketing of services is unsuitable for shipyard activities (as an extreme viewpoint). The overwhelming majority of experts (91.67 percent) expressed a common dissatisfaction with the applicability of existing marketing concepts for ship repairs. This was in answer to the fifth question: “Is it necessary to develop another marketing concept for ship repairs?” The remaining experts (8.34 percent) consider it an important goal to develop a marketing concept for obtaining orders for ship repairs. Nobody supported the view that there is no need to develop a marketing theory for the sale and execution of works. The interview showed that shipyards need a new type of marketing: the marketing of works.

The concept of works in regulatory documents Currently, legislation and accounting standards of many countries include sources of revenue, such as the manufacture and sale of goods, the sale and execution of works, and the sale and provision of services. Therefore, the emergence of the concept of marketing of works was inevitable as it has a scientific and practical basis. However, the United States’ legislative and regulatory documents cover the production and sale of goods, as well as the sale and provision of services, but works are not mentioned. For example, the main regulatory not-for-profit organization on accounting in the United States, the Financial Accounting Standards Board (FASB) notes in paragraph 83 (b) of the Statement of Financial Accounting Standards (SFAS) and Statement of Financial Accounting Concepts (SFAC) No. 5 (source: https://www.fasb.org) that An entity’s revenue-earning activities involve delivering or producing goods, rendering services, or other activities that combine its ongoing major or central operations and revenues are activities that earning when the entity has substantially accomplished what it entitling the benefits represented by the revenues.

Ukrainian legislation defines “other activities” as the execution of works. Also, we will consider International Public Sector Accounting Standard (IPSAS) 11 “Construction Contracts.” This standard was originally listed as the International Accounting Standard (IAS) 11 (revised in 1993) for construction contracts, which was published by the International Accounting Standards Board (IASB). We will now refer to excerpts from IAS 11 approved by the International Public Sector Accounting Standards Board (IPSASB). This standard provides the following definition (source: http://www.iasb.org):

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4. The … Contractor is an entity that performs construction work by a construction contract.

This phrase is a direct reference to works as an activity that the contractor performs. Thus, the production and sale of goods, the sale and execution of works, and the sale and provision of services are sources of cash revenue from operating activities. The International Accounting Standards Board has also published the International Accounting Standard IAS 7 approved by the International Public Sector Account Standards Board (source: http://www.ipsasb.org). The statement is provided below: 24. In some jurisdictions, governments or other public sector entities will proper or authorize funds to entities to finance the operations of an entity and no clear distinction is for those funds disposition between current activities, capital works, and contributed capital.

If we examine the “Revenue from Contracts with Customers” comments by the International Accounting Standards Board, we will find this definition in Step 5 (IN24): An entity transfers control of a good or service over time and, hence, satisfies a performance obligation and recognizes revenue over time if at least one of the following two criteria they meet: (a) the entity’s performance creates or enhances an asset (such as, work in progress) that the customer controls as [the contractor] creates or enhances the asset.

Here, the IASB explicitly notes that works create or enhance market value. There are two lines of marketing, that is, the marketing of goods and the marketing of services. For a long time after the scientific discovery of marketing of services, scholars and practitioners considered works as a part of services. They did not pay attention to the difference between the execution of works and the provision of services. “Nevertheless, lawyers and contractors understood that the works are not a part of services” (source: https://www.emeraldinsight.com/journal/jbim/28/8).

Basic definitions for studying the marketing of works Readers should remember the basic definitions that are needed to study the marketing of works. Marketing is an activity that meets market demand through exchange. The objects of exchange are products of human activity

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(barter transactions) or products and their cash equivalents (traditional or trade monetary transactions). Products of human labor are finished goods as a result of production activity, and works and services as processes of activity. The execution of works and provision of services are applied activities, because they require the presence of a processed or serviced object. The objects of marketing are products that manufacturers produce and sell to consumers; objects that contractors repair, modernize, re-equip, or liquidate for customers; and objects that providers serve, support, or maintain for clients. The matter of marketing is the activity of these participants in the market. Works and services are processes of activity that the contractor carries out on the customer’s object (for non-contact works and services) or on the consumer’s body and/or mind (for contact works and services). Goods are material objects (that is, substantial goods or nonsubstantial goods), which are the result of their manufacturing processes. Since works and services are activities, the results of executing works or rendering services are processed or serviced objects belonging to the consumer; it can also be the customer or client. The contractor sells the works and services to the consumer before performing them. Works are activities that change the market value of processed objects, and services are activities that do not change the market value of objects. The customer’s expenses for the works “flow” into the market value of the processed object, but the client’s expenses for the provision of services do not “flow” into the market value of the serviced object. The marketing of works is an activity that meets consumer demand for creating or changing the market value of objects in the process of their manufacture, repair, modernization, re-equipment, or liquidation. Marketing is an integrated approach to managing the production and sale of goods, works, or services; the purpose of which is to meet and influence market demand in order to expand the sales of goods, works, and services. Works constitute the product (together with goods and services) as an element of the marketing mix and a source of revenue for the executor of works. It is a type of human labor and the applied activity on a customer’s object, which creates, changes, or liquidates its market value as a result of its production, repair, renewal, modernization, re-equipment, or liquidation without transferring ownership of the customer’s object to the contractor when executing works. Services constitute the product (together with goods and works) as an element of the marketing mix and a source of revenue for the service

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provider. It is a type of human labor and the applied activity on a client or a client’s object that maintains, uses, and operates it without changing its market value and without transferring ownership of the client’s object to the service provider during servicing this object. In the marketing of works, the object of promotion and advertising is the company itself, including its experience in fulfilling orders; its reputation; mastery of advanced technologies; high-performance equipment; qualified specialists; copyrights, licenses, and patents; and so on.

Practical tips We will now consider some important features when calculating the value of contracts in the marketing of works: Ɣ The marketing of works is the activity of harmonizing the supply and demand for works in accordance with orders. Ɣ The contractor sells works based on their preliminary specifications, and the customer accepts the completed works according to the final specifications. Ɣ The contractor makes changes to the composition and scope of works by developing specifications for both added and withdrawn works. The specification of added works increases the final value of the contract, while the specification of withdrawn works reduces its final value. Ɣ The contractor calculates the scope of works in accordance with standard labor input (in standard hours) and at unit prices: for example, £ per kilogram, £ per meter, £ per square meter, £ per cubic meter, £ per millimeter of diameter, £ per unit, £ per piece, and £ per operation. Ɣ The contractor determines the standard labor input required for executing works on the basis of reference books on the time standards for labor operations. The contractor refines the labor input using several factors, including the complexity ratio, the batch size coefficient, and so on. Ɣ The average cost of one standard hour for the company’s specialists is calculated by the average tariff rate of the main production worker, which includes general production and general business expenses (that is, overhead expenses) in accordance with the special order of the company chief executive officer (CEO) or director.

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Definitions of concepts Ɣ A scientific discovery is the result of a scientific search for new knowledge, when its authors discovered and confirmed the truth and novelty of this knowledge, and the authorship of these researchers is recognized throughout the world. Ɣ The “marketing of works” is an activity that meets consumer demand for creating or changing the market value of objects in the process of their manufacture, repair, modernization, reequipment, or liquidation. Ɣ “Works” constitute the product (together with goods and services) as an element of the marketing mix and a source of revenue for the executor of works. It is a type of human labor and the applied activity on a customer’s object, which creates, changes, or liquidates its market value as a result of its production, repair, renewal, modernization, re-equipment, or liquidation without transferring ownership of this object from the customer to the contractor during the execution of works. Ɣ “Services” constitute the product (together with goods and works) as an element of the marketing mix and a source of revenue for the service provider. It is a type of human labor and the applied activity on a client or a client’s object that maintains, uses, and operates it without changing its market value and without transferring ownership of the client’s object from the client to the service provider during servicing this object. Ɣ Discrete production means to fulfill orders with fixed start and end dates, if the result of this activity is a finished product in the form of a manufactured, processed, or serviced object. Ɣ The “factor” is the driving force of any phenomenon, and managing the factor helps to achieve the goals of the activity. Ɣ The company’s main activity provides the bulk of its income from the production and/or sale of its products (that is, goods, works, and services) in accordance with the company’s specialization in the market.

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Questions for discussion and testing 1. Applied activity assumes the existence of an object. What does this mean? 2. Explain why customers need to renew, modernize, or re-equip facilities? 3. What does the physical, moral, and structural deterioration of an object mean? 4. Which types of activities (works or services) change the market value of objects? 5. Explain why the liquidation of objects is type of a work. 6. What is the result of supplementing sold goods with services or works? 7. What is a marketing mix and why do marketing specialists need it? 8. Describe works and services separately as elements of a product. 9. What is the difference between discrete production and process production when performing works? 10. What factors can scientists use to prove existence of the marketing of works? 11. What is the difference between the European and North American practices of identifying works and services?

CHAPTER SIX MANUFACTURING, RENEWAL, MODERNIZATION, RE-EQUIPMENT, AND LIQUIDATION

Overview In this chapter, readers will learn that contractors execute works by renewing, modernizing, or re-equipping facilities to overcome their physical, moral, or structural deterioration. We will study the main groups of works and learn about the changes in a processed object’s market value. The object’s life cycle during its operation and repair will clearly show how its market value is changed. It is useful for marketing specialists to consider sources of funding and estimate the cost of future repairs to the customers’ production facilities. We will consider the contractor’s obligation to perform all the works ordered by the customer, as well as the features of the liquidation of objects to order. Additionally, readers will consider some examples centered on the reequipment of real objects.

Physical, moral, and structural deterioration The physical deterioration of a production facility is a worsening of its characteristics due to the gradual transfer of its value to the product as a result of its operation or due to equipment deterioration caused by idle time without use. According to the generally accepted classification, the contractor compensates for the physical deterioration of the customer’s object through a process called “overhaul.” In this case, the market value will not

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reach the object’s initial market value due to its moral deterioration (obsolescence). The moral deterioration is premature obsolescence of objects, which eventually terminates their physical operation. The moral deterioration of production facilities is caused either by the appearance of cheaper production capacities (moral deterioration of the first kind) or by the appearance of more productive means of labor (moral deterioration of the second kind). The structural deterioration of objects is a result of macroeconomic cycles (that is, structural crises), when a change in the structure of demand requires an adequate change in the structure of supply; that is when objects, even those that are not physically and morally worn out (new objects), irrevocably lose their market value. At the same time, there is no need to produce and consume a whole class of goods, works, or services. For example, with the advent of digital photography, people no longer need to chemically process photographic films. Similarly, DVD players replaced VCRs (video recorders), MP4 players replaced DVD players, and smartphones replaced MP4 players in amateur video recordings. This process will continue.

Renewal, modernization, and re-equipment Renewal is a type of work where the contractor restores the object’s initial working capacity along with its market value. During the repair period, the contractor overcomes the object’s physical deterioration. However, its market value will not be able to reach its original value due to obsolescence. Modernization means restoring an object’s working capacity and initial market value. Modernization overcomes the object’s physical and moral deterioration (of the second kind). Re-equipment (see Appendix B) is a change in an object’s functional purpose and capabilities, which overcomes its structural deterioration. Structural deterioration occurs when the demand for the object’s functions decreases or disappears due to changes in consumer need. Repairs are not enough to renew or modernize the object when it suffers from structural deterioration.

The main groups of works and their production cycles We can reduce the variety of works executed by companies to five main groups:

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Ɣ Manufacture (creation) of the object of marketing to order Ɣ Renewal (repair) of the object of marketing to order Ɣ Modernization (upgrade) of the object of marketing to order Ɣ Re-equipment (conversion) of the object of marketing to order Ɣ Liquidation (elimination) of the object of marketing to order

Fig. 6-1. The production cycle stages in the marketing of works

7. Delivery of works to the customer

6. Drafting of documents

5. Execution of works

4. Accumulation of resources

3. Sale of works

2. Partnership

1. Marketing

Contractors execute these groups of works according to customer orders and form a labor product that marketing managers sell in the market of works. Moreover, when a consumer places an order to manufacture an object at his expense it is fundamentally different from the production of objects for sale by manufacturers of goods. The liquidation of a customer’s object is a responsible activity, which usually requires special licenses and permits. These activities include the demolition of old buildings via directed explosions, the disposal of nuclear waste via burial, cleaning up oil spills in the ocean using bacterial enzymes, and so on. Production cycles for the manufacture of goods and the execution of works differ. The standard production cycle for goods includes the following stages: (1) partnerships, (2) the accumulation of production resources, (3) the manufacture of goods, (4) the accumulation of finished goods, (5) marketing, and (6) sales. The marketing of works puts the stages of marketing and sales in the first and third positions, that is, the production cycle is as follows (Fig. 6-1):

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This sequence of the production cycle stages is due to the virtual (nonexistent) nature of the works when marketing specialists begin to sell them.

Changes in the market value of processed objects The processes of creating, changing, or liquidating the current market value VOcurr of an object as a result of executing works (in the form of conditional straight lines) are shown in Fig. 6-2. VOcurr 1 2

VOinit

3 VOzero

4

0

t

Fig 6-2. Changes in the market value of objects when executing works We used the following symbols in Fig. 6-2: Ɣ Increase in the market value of the repaired object (1) Ɣ Creation of market value through the manufacture of the object (2) Ɣ Reduction of the market value of the object (3) Ɣ Liquidation of the object (4) We used the following parameters in Fig. 6-2: VOcurr = current market value of the object being processed, £ VOinit = initial market value of the processed object, £ VOzero = zero market value of the processed object, £ t = current time of works on the object being processed, days

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In practice, changes in the market value of objects when works are performed occur in curved lines, which depend on their intensity. Marketing also involves finding customers who need their objects liquidated. Because their market value changes these activities are known as works. For example, the demolition of an old workshop building or scrapping a decommissioned lathe refers to the liquidation of objects, which means their market value is reduced to zero: VOzero = 0 at the point of their liquidation. Materials and dismantled equipment have a residual value, but are no longer a building or a machine. In contrast to providing services which facilitate an object’s operation but which do not increase its market value, repair works can change an object’s market value. Until recently, specialists included repair works in the services category. However, studies have shown that these are two different types of activities, and the marketing of services is separate from the marketing of works.

Additional information about structural deterioration and re-equipment The aim of repair works is to overcome the deterioration of machinery, equipment, and vehicles, etc. because they are the customer’s main production assets. The structural deterioration of equipment can occur when part or all of the production facility remains idle or is under-used. The main reason for this is the shortage or absence of market demand for the works that the contractor can execute using these production facilities. Therefore, the decline or disappearance of the market demand for executing certain works is the cause of structural deterioration. As a result, the company must abandon unnecessary equipment, even if it is not physically worn out and morally obsolete, and buy the equipment necessary to execute works that meet market demand. Structural changes in the economy influence the processes occurring in the labor market. Structural deterioration also affects human resources, which means that workers with unnecessary specialties cannot find employers and must be retrained in other areas. In addition, these macroeconomic cycles create a situation where there is no need to execute and consume a whole class (nomenclature) of works. As a result, new production facilities—not even worn ones—lose their market value. Since the 1974-1975 global economic crisis, scientists have started to consider the concept of structural crises created by a market-driven economy. Accordingly, specialists use the concept of the “structural

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deterioration of equipment” to show the effect of the cyclical changes in the structure of supply and demand on objects and facilities. For example, the demand for manufacturing metal hulls of ships using riveting almost disappeared (with the exception of aircraft construction). Instead, workers now use gas or electric welding. Workers no longer use manual methods to clean the surfaces of rolled metal; manual brushing has been replaced by mechanized or automated cleaning methods using jets of abrasive and water to remove rust and mastic layers from metal surfaces. Indeed, the repair of steam engines, electric typewriters, programming devices on paper (cards or tapes), and the like have all disappeared from the market of works. In the construction industry, specialists have forgotten about the use of ceramic tiles for roofs of new buildings, the installation of candelabra instead of electric lamps, the use of hand hoists instead of cranes, and so on. Therefore, re-equipment is a change in an object’s functional purpose and capabilities, which compensates for its structural deterioration when, as a result of changes in the consumption structure, the demand for its functions drops or disappears, and the repair process is not able to restore or modernize the object. An example of changing a facility’s functional purpose as a response to market demand is the conversion of a sanitary vessel (medical services) into a floating casino (entertainment services). Re-equipment of a floating store (retail) into a floating hotel made it possible to redirect its activities towards the growing demand for hospitality services (tourist accommodation).

The life cycle of an object’s operation and repairs The life cycle of an object is made up of a chain between the operation time Toper, the renewal (repair) time Trenw, and the modernization time Tmodr (without taking into account idle time). The dynamics of change in the object’s current market value VOcurr during the process of its operation (including repairs) are presented in Fig. 6-3.

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VOcurr

2

1

VOinit 4

0

Ɍoper 1.1 Ɍrenw 1.1

Ɍoper 1.2 Ɍrenw 1.2

3

Ɍoper 1.3 Ɍmodr 1.3

Ɍoper 2.1

t

Ɍrenw 2.1

Fig. 6-3. A facility’s operation and repair life cycle In Fig. 6-3, we used the following notations: VOinit = initial market value of the object, £ t = current time of the object’s life cycle, years Toper = time of operation between repairs, years Trenw = period of renewal between the periods of operation, years Tmodr = period of modernization between the periods of operation, years In Fig. 6-3, we have shown the following stages of an object’s life cycle: Ɣ Period of the accumulation of moral deterioration (1) Ɣ Period of the accumulation of physical deterioration (2) Ɣ Period of the object’s modernization (3) Ɣ Period of the object’s renewal (4) The customer and the contractor calculate the preliminary amount of repairs based on the object’s level of physical deterioration. According to the object’s level of obsolescence, the parties can also compute the expected amount of modernization with the duration Tmodr of works. Typically, an object’s deterioration will be uneven as some systems and devices wear out faster than others during operation. Its moral deterioration will also be uneven; this is when part of the facility’s equipment becomes obsolete. Workers create new market value through the production of machines; compensate for physical deterioration

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through renewal; and compensate for moral deterioration through modernization. Re-equipment changes an object’s purpose, which is affected by its structural deterioration. At the same time, workers create new and/or additional market value through the facility’s production, renewal, modernization, and re-equipment using developed projects that have design and technological documentation. From the repair company’s point of view, marketing practitioners must use tools and techniques of the marketing of works to look for and receive orders for the renewal, modernization, or re-equipment of the customers’ production facilities or objects.

Sources of financing and terms for repairing objects Depreciation charges intended to overcome the physical, moral, or structural deterioration of a production company’s facilities are a source of income for repair firms from the sale of their works, services, and goods to this production company. If there is a lack of depreciation charges, then, instead of buying new production equipment, companies can order a partial re-equipment of their workshops, metal-cutting machines, process plants, and so on. This is a cost-effective way to develop a company. For example, according to the Register of Shipping requirements, surveyors inspect a cargo vessel for class confirmation every 5 years; additionally, every 2 or 3 years the vessel undergoes intermediate repair in a dock. As a rule, after major repairs (to confirm the class), the shipowner uses the vessel for 3 years, followed by a relatively short period (on average one month) of intermediate repair in a dock. After this repair, the owner will use this ship for another 2 years and then send her for further relativity large overhaul within about 2 months.

A contract’s expected scope and cost The customer and the contractor calculate the preliminary volume of the ship repair during the negotiation process (taking into account the comments of the Register of Shipping). Once they know the degree of the vessel’s physical and moral deterioration, the parties can also calculate the expected amount of modernization required, as well as the duration Tmodr of the works. The amount of the shipowner’s expenses for the repair of his vessel exceeds the cost of the contract with the shipyard due to the cost of

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moving the vessel to the repair base, paying salaries to the crew during repairs, reimbursing the superintendent’s travel expenses, and so on. The expected cost of the repair contract CRrenw can be calculated using the following formula (6-1): CRrenw

RD phys ˜ VOinit

(6-1)

where CRrenw = cost of renewal repair of the object, £ RDphys = coefficient of the object’s physical deterioration The cost of the contract to modernize the vessel CRmodr (excluding changes in the cost of the replaced on-board equipment and systems) can be calculated using the following formula (6-2): CRm odr

RDmorl ˜ VOinit

(6-2)

where CRmodr = cost of modernization of the object, £ RDmorl = coefficient of the object’s moral deterioration If the shipyard is modernizing the vessel without an initial renewal, then the total cost of repairs should be reduced by the cost of unnecessary repairs of the equipment and systems that were dismantled during the modernization process. In addition, the shipyard should take into account their deterioration and increase the cost of repairs based on the value of the new equipment to be installed. Does this seem strange? Why do we have to repair equipment that will be removed from the ship? We assumed that the physical and moral deterioration of the equipment and the vessel as a whole occurs in the same way (6-3): CMR6

RD

phys

 RDmorl ˜ VOinit  RD phys  RDmorl ˜ VOEinit  VNEinit

(6-3)

where CMRȈ = total cost of works for the object’s modernization and renewal, £ VOEinit = initial market value of the old dismantled equipment, £ VNEinit = initial market value of the new installed equipment, £ After transformation, the dependence (6-3) takes the form (6-4):

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CMR6

RD

phys

 RDmorl ˜ VOinit  VOEinit  VNEinit

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(6-4)

We can calculate the cost of an object’s conversion and re-equipment CRconv using the formula (6-5): CRconv

RDconv ˜ VAOinit

(6-5)

where CRconv = cost of an object’s conversion and re-equipment, £ RDconv = coefficient of an object’s conversion and re-equipment VAOinit = initial market value of an analogous object, £ The schedule of regular repairs for each vessel is clearly defined, and the Register of Shipping requires its strict implementation (in exceptional cases, the delay can take up to 3 months with the Register’s consent). Therefore, the marketing department’s specialists will be able to calculate the vessel’s expected cost for repair CRrenw and modernization CRmodr by understanding the dynamics of change in its market value due to its physical and moral deterioration. Since, under normal operating conditions, a vessel’s physical deterioration occurs faster than its moral deterioration, then RDphys > RDmorl. We will calculate the total deterioration of the ship as the sum of both the physical and moral deteriorations. As a rule, a ship will wear out unevenly: some systems and devices wear out faster during operation than others. Moral deterioration is also uneven. For example, with the advent of new ship equipment, the old items become obsolete. We can calculate a ship’s degree of moral deterioration by taking into account the typical service life after launch. For example, the service life of up to 50 percent of the moral deterioration of a vessel (that is, RDmorl = 0.5) is t = 12 years.

Obligation to fulfill works under contract The share of costs for components and spare parts during modernization is usually large. Raw materials and ready-to-use materials make up a large part of the repair costs. Re-equipment involves a significant replacement of on-board equipment and systems, as well as additional costs for the development and approval of unique design and technological documentation.

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The company engaged in the repair and re-equipment of vessels is not able to arbitrarily change the composition and scope of works executed due to production and technological requirements. Unlike a beauty salon, which is able to change the composition of the services provided depending on demand, the contractor must fulfill all the works stated in the preliminary repair specifications, regardless of his desire to do so. The executing company signs a contract for all of the works and is responsible for their high-quality and fast execution, and for the subcontractors involved. As a result, shipowners prefer to repair their vessels in wellequipped shipyards, which have extensive experience and qualified specialists. This is true for any sector of the economy. In general, the shipyard’s marketing department implements all three types of marketing: the marketing of works, the marketing of services, and the marketing of goods. In the vessel’s repair budget, the total value of the contract consists of the costs associated with the execution of works and the provision of services, as well as the purchase of raw materials, readyto-use materials, components, energy, and so on. Often, shipyard marketing specialists apply the “cost-plus” pricing strategy, which also takes into account the market supply and demand ratio, the intensity of competition, the contractor-customer relationship, and other factors.

Execution of orders for the liquidation of objects Part of the marketing of works involves searching for orders to liquidate objects. Since this activity changes an object’s market value, it is associated with the marketing of works. For example, the demolition of an existing building or cutting a ship into scrap are works that liquidate objects, which reduces their value to zero: VOfinl = 0. This is shown in Fig. 6-4, where: VOfinl = final market value of the liquidated object after its liquidation, £ tliqd = date of the object’s liquidation, years.

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VOfinl

VOMfinl VOEfinl

0

tliqd

t

Fig. 6-4. Changes in an object’s value, as well as the value of the leftover materials and dismantled equipment following liquidation At the same time, the leftover materials and dismantled equipment have a certain market value, but are no longer a building or vessel (6-6): VOM finl  VOE finl ! 0

(6-6)

where VOMfinl = final market value of materials leftover from the object’s liquidation, £ VOEfinl = final market value of equipment dismantled as a result of the object’s liquidation, £ The customer and the contractor must also take into account the expenses generated by the disposal of leftover materials and dismantled equipment when they are calculating the cost of liquidation, if the customer does not plan to receive income from the sale of these materials and equipment. These works are usually entrusted to specialized firms that have the appropriate licenses and permits. Therefore, we have represented the variety of works that marketing specialists offer in the market. This covers the manufacture of objects to order, and the renewal, modernization, re-equipment, and liquidation of customers’ objects.

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Practical tips Let us now consider examples from a ship repair yard and a construction company that modernize and re-equip objects. First example: when a 1970s oil tanker with single-skin hull plating needed to be renewed, there was no need to change the original design when replacing the outer-skin sections of its hull plating. In order to comply with the current stringent requirements to prevent the leakage of oil and oil products, the shipyard modernized the vessel and made its hull with double skin, for which the design bureau made changes to the tanker’s design. It was also necessary to modernize the ship’s survivability monitoring system, the crew safety and rescue equipment, and so on. Second example: due to the change in the structure of the market demand for oil shipments, it was more profitable for the shipowner to transport liquefied gas. In order to do this, it is advisable to turn the oil tanker into a gas carrier vessel, which requires a radical conversion. The shipyard reequipped the vessel on the basis of a work project approved by the supervisory authority, the Register of Shipping. The shipyard installed most of the specialized equipment and systems that enabled the old ship to comply with her new purpose. Third example: the owners closed the plant, where they produced pumps that remove water from coal mines. The plant was located in the city center. Therefore, the city’s authorities recommended that the owners either demolish the empty buildings of production shops, or find a new way to use them. An investor proposed to re-equip the workshops by creating a hypermarket with an entertainment and leisure infrastructure. As a result, beautiful spacious buildings adorn this now lively area in the city, which have created a center of leisure and communication for all of the city’s residents. Fourth example: a family of hereditary owners cannot maintain their own Renaissance mansion. Therefore, they decided to re-equip the building with a change in its purpose, namely, to transform it into a museum of the Middle Ages. With the help of a grant received from the government, the owners created a historical museum to teach schoolchildren and students, for the reconstruction of knight tournaments by members of the historical club, for solemn events, and the like. As a result of the conversion, the old mansion began to provide its owners with a significant income.

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Definitions of concepts Ɣ The physical deterioration of an object means a worsening of its characteristics or a loss of working capacity due to its operation as a production facility or idle time under the influence of adverse environmental factors. Ɣ The moral deterioration is the premature obsolescence of a production facility due to a cheaper reproduction of capacities (that is, moral deterioration of the first kind) or the use of more productive means of labor (that is, moral deterioration of the second kind). Ɣ The structural deterioration is a result of a structural crisis when the structure of demand for the functions performed by an object ceases to coincide with the structure of supply; as a result, a physically and morally not worn out object irrevocably loses its market value. Ɣ Renewal is a work when a contractor restores the object’s initial operational capacity through repair and thereby compensates for its physical deterioration. Ɣ Modernization is the restoration of an object’s operational capacity and market value to its original level. The contractor is compensating for both the object’s physical and moral deterioration. Ɣ Re-equipment is a change in an object’s functional purpose in order to compensate for its structural deterioration when the demand for its functions decreases or disappears due to changes in the consumption structure. Ɣ An object’s life cycle is a chain of periods of its operation, idle time, repair, and modernization. Ɣ The liquidation of an object means work when its market value decreases to zero and it ceases to exist.

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Questions for discussion and testing 1. What is the difference between production cycles for goods and works? 2. What is object renewal and what does it result for the customer of works? 3. When and why does the executing company modernize an object? 4. Why does the contractor need project (design) documentation for the re-equipment of a facility? 5. How does the physical, moral, and structural deterioration of objects create demand in the marketing of works? 6. How does an object’s market value change during its operation and repair? 7. Describe the features and causes of structural deterioration. 8. Is it possible to calculate the expected cost of repairing an object by its degree of deterioration? 9. Give examples of outdated works that have disappeared from practice. 10. Can the executing company change the composition of works under contract at its discretion? 11. How does the cost of leftover materials and dismantled equipment change when the contractor liquidates an object?

CHAPTER SEVEN ENVIRONMENT AND SWOT ANALYSIS IN THE MARKETING OF WORKS

Overview In this chapter, we will look at the elements and levels of a company’s marketing environment, the structure of its microenvironment, and the macroenvironmental factors that affect it. The author will define the concepts of market donors and market acceptors. Also, readers will become familiar with the dynamic form of the well-known SWOT analysis matrix. The topic of study will be developmental stability and the ability to adapt to external changes. We will also consider the life cycle of the technologies used in executing works. Understanding companies as open systems (a term from the theory of management) also takes place in the marketing of works. Readers will consider the impact of locating a firm’s production facilities on the execution of works.

The elements and levels in a marketing environment Companies (executing works on orders) operate in the market environment that people have created on planet Earth. This marketing environment includes two elements: a marketing microenvironment and a marketing macroenvironment. Each environment has two levels: domestic (national) and international (as well as global). The company’s marketing microenvironment includes market members directly related to the company and its opportunities for selling products (that is, goods, works, and services). This environment includes elements such as buyers, sellers, competitors, investors, general contractors, and subcontractors, as well as

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non-governmental organizations and state institutions. The company’s marketing microenvironment determines the market’s spatial structure. The firm’s marketing macroenvironment includes several factors that affect the firm; these can be economic, political, legal, regulatory, social, interethnic, demographic, technological, and global. The firm’s marketing macroenvironment has two levels: the domestic level (execution of works in its own country) and the international level (execution of works in another country, i.e. the export of works). Executing works in our country for a foreign customer is also called the export of works.

The structure of the marketing microenvironment The marketing of works is applied in the firm’s marketing microenvironment, by the elements of which we can build a coordinate system in the market space. The market space exists in the conditions of the company’s marketing macroenvironment. The macroenvironment includes factors that influence the course of market time. Market members who directly affect a company represent its microenvironment. This influence is manifested by the fact that this company receives money from some market participants. In this case, there is an incoming cash (financial) flow. On the contrary, this company pays money to other market members (that is, the company has an outgoing cash flow). Thus, market participants create the firm’s microenvironment in the market space. We can attribute market participants to market donors or market acceptors, taking into account the direction of their interaction. Market donors are participants in the marketing microenvironment; a firm receives an incoming cash flow from them, including payments for the firm’s goods, works, and services. Market acceptors are participants in the marketing microenvironment; the firm sends them outgoing cash flow, including payments for the acceptors’ goods, works, and services. With this in mind, we can group all participants in the firm’s marketing microenvironment into the following pairs: Ɣ Market donors (customers for executing works) and market acceptors (suppliers of resources for executing works) Ɣ Market donors (general contractors for executing works) and market acceptors (subcontractors for executing works) Ɣ Market donors (investors and business partners) and market acceptors (competitors) Ɣ Market donors or market acceptors (state institutions) and market acceptors or market donors (non-governmental organizations)

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We have shown these groups of participants in the marketing microenvironment in Table 7-1. Table 7-1. Participants in a firm’s marketing microenvironment No. 1. 2. 3. 4.

Market donors Customers for executing works General contractors for executing works Investors and business partners State institutions

Market acceptors Suppliers of resources for executing works Subcontractors for executing works Competitors for executing works Non-governmental organizations

These four groups of market participants (donors and acceptors) create the marketing microenvironment of the company executing works.

The marketing macroenvironment A firm’s marketing macroenvironment in the market of works includes the following factors: economic, political, legal, regulatory, technological, social, interethnic, demographic, migration, and environmental factors, under which influence this firm operates. The company’s macroenvironment has two levels: the domestic level (corresponding to the execution of works in its country) and the international level (corresponding to the execution of works in another country, that is, the export of works). Executing works in the contractor’s country for a foreign customer is also an export of works. Conditions in the company’s marketing macroenvironment directly affect the organization of works. Executing works at production facilities and in the contractor’s country requires less effort and involves lower costs than organizing and carrying out works abroad. In order to execute works in another territory, it is necessary to organize the delivery of production facilities and technological equipment to this place, as well as components, raw materials, and ready-to-use materials. The company-contractor must create conditions for its employees’ work, leisure, and daily life. It is necessary to deliver workers and specialists to the place of works execution, and then return them after completing works or organize shifts for the workers and specialists. The contractor must connect his equipment to power sources: electricity, water, compressed air, natural gas, steam, and so on. All these actions are directly

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dependent on the factors that take place in the firm’s marketing macroenvironment.

The dynamic matrix in the SWOT analysis A feature of the marketing of works is the need for marketing specialists to know all the details of the production process for a SWOT analysis of their company. This enables them to find out the advantages and disadvantages of their company’s activities, as well as to identify its opportunities and threats. The dynamic nature of the work activity requires the use of a dynamic matrix in the SWOT analysis, rather than the widely accepted static matrix. The four elements of the matrix—“strengths,” “weaknesses,” “opportunities,” and “threats”—are continuously changing characteristics and their trends need to be studied. Table 7-2 presents an example of a dynamic SWOT matrix, which examines the strengths and weaknesses of a firm executing works. Table 7-2. Dynamic SWOT matrix of the company executing works: strengths and weaknesses

Increase

Weaknesses (W) Increasing weaknesses (IW) Deterioration of the firm’s production facilities Dismissal of qualified personnel from the firm Reduction of the firm’s working capital Reducing weaknesses (RW) Updating the main production equipment The company’s staff development Increasing the company’s working capital Reduction

Reduction

Increase

Strengths (S) Increasing strengths (IS) Improving the quality of works Expansion of the nomenclature of works The introduction of innovative technologies Reducing strengths (RS) Decrease in the quality of works executed Reduction of the nomenclature of works Obsolete work technologies

Similarly, it is necessary to consider the third and fourth elements of the matrix. Table 7-3 presents an example of a dynamic SWOT matrix that shows the opportunities and threats of the executing company.

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Table 7-3. Dynamic SWOT matrix of the company executing works: opportunities and threats

Increase

Emergence of lobbyists in the government Increasing demand for the company’s works Reducing opportunities (RO) Depriving the company of tax privileges Departure of the firm’s lobbyists from the government Decline in demand for works of the company

Threats (T) Increasing threats (IT) Emergence of the economic crisis Departure of suppliers of quality materials Emergence of dangerous competitors in the market Reducing threats (RT) Cessation of the economic crisis Increasing the number of suppliers of quality materials Departure of dangerous competitors from the market Reduction

Reduction

Increase

Opportunities (O) Increasing opportunities (IO) Obtaining tax benefits

As a result, for the SWOT analysis, we get the sum of two matrices (7-1): SWOTincr  SWOTredc

SWOTtotal

(7-1)

where SWOTincr = matrix for increasing the characteristics of the SWOT analysis SWOTredc = matrix for reducing the characteristics of the SWOT analysis SWOTtotal = total matrix of the SWOT analysis The author invites the readers of this textbook to compile the total dynamic SWOT matrix for the company executing works.

Stability of development and adaptation to changes The stability of the company’s development depends on the trends of its market advantages and disadvantages, as well as opportunities and threats. Important factors for the company’s stable development are its ability to adapt and the stability of economic indicators. To ensure the company’s development, the marketing department must solve a number of tasks, including ensuring a steady flow of money from the sale of goods, the execution of works, and the provision of services to customers. As we know, innovative development is the result of mastering innovation to obtain, for example, economic, social, scientific, technical,

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and environmental improvements. Creating a new product is always associated with risk but, if successful, it can open up the possibility of sustainable growth. As Philip Kotler noted in Marketing Essentials, 40 percent of proposed novelties fail in the household goods market, 20 percent in the industrial goods market, and about 18 percent in the services market (source: https://www.archive.org/details/internetarchivebooks). To solve the dilemma facing the firm (innovations are necessary for the development of the firm but the chances of success are low), it is necessary to ensure the firm’s innovative orientation by adapting it to work with novelties. An important aspect of the company’s strategic development is its approach to innovation. The company can develop its own new products, imitate other companies’ successful novelties, or use passive tactics. However, researchers note that the product may be technically innovative and, at the same time, not show signs of novelty in the market if it meets the same needs and has the same target group of customers as before. An important direction of the company’s advantages growth is using information systems to optimize business processes. Information systems are sources of such a positive economic effect: Ɣ Increasing labor productivity and reducing the laboriousness of works Ɣ Saving on production resources and selling surplus resources Ɣ Improving the quality of works and reducing the time taken to fulfill orders Ɣ Optimization of production and sales processes using information systems The modern team environment, which allows for operational interactions between top managers and specialists, strengthens the company’s advantages and mitigates its weaknesses; it also expands market opportunities and compensates for threats. One of the most important criteria for the effectiveness of innovation is to reduce the costs of manufacturing goods, executing works, and rendering services. In this case, it is necessary to make sure the triangle of “time, price, and quality” is balanced. If one indicator improves, the other two tend to deteriorate. An attempt to improve both indicators simultaneously leads to a significant deterioration in the third indicator.

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The life cycle of work execution technologies We will apply the concept of the technology life cycle by comparing it with the goods life cycle. We know that technology passes through the following stages: design, application, growth, maturity, and obsolescence. The level of application of the latest high-performance technologies that are at the stage of growth or maturity of their life cycle, determines the level of competition among companies from one sector of the economy in the region. Taking into account this definition, the level of introduction of new technologies LNTappl is the ratio between the total amount of works executed on technologies that are at the stages of growth and maturity, and the amount of all works based on all technologies (7-2): LNTappl

AWnew AWtotal

(7-2)

where LNTappl = level of application of new technologies AWnew = amount of works executed during a period of time using new technologies, £ AWtotal = total amount of all works executed in the firm for a period of time, £ The development or acquisition of the latest technologies and equipment are important factors for increasing the overall competitiveness of the company executing the works.

The firm as an open system in the market of works Since any company is an open system that interacts with the external environment, if it is completely isolated from the external environment it will be destroyed. A firm consumes resources (financial, material, labor, and information resources) from the market environment, and in return supplies its products (goods, works, and services) to the external environment. In addition to products, the company pays taxes and non-tax payments to the state. The state and society create conditions that are favorable or unfavorable for the company’s activities. These marketing macroenvironment factors are as follows: economic, political, legal, social, demographic, and ethnic among the others.

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Marketing specialists analyze the advantages and disadvantages, as well as opportunities and threats for their company, considering them in both microenvironment and macroenvironment. It is important not only to assess the current situation, but also to find trends that help to predict future changes. This enables the company to adapt to the rapidly changing conditions of the modern market environment in a timely manner.

The company location and place of works execution In the marketing of works, the term “place” also means the location of the company in a certain territory. For example, shipyards in ice-free areas, at the intersection of navigable waterways and in convenient protected bays, have competitive advantages. Another important advantage is being situated on a deep-water quay (embankment), which enables it to repair vessels of various types, displacements, and sizes. At the same time, carrying out repair works at the location of a vessel in navigation or in a foreign port requires additional costs from the shipyard. For a construction company, the “place” depends less on the construction site; however, the company must supply every construction site with utilities, including electricity, natural gas, water, sewerage system, and convenient traffic interchanges. At the same time, it is important that all energy resources have a reserve of capacity for the operation of a new facility that the company will build. Otherwise, the construction company must spend time and money constructing a transformer substation, gas collector, additional water pipe (plumbing), and new wastewater treatment plants. Thus, the place of works execution plays an important role in the activities of many companies that fulfill works orders.

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Practical tips Top managers of a small but ambitious construction company decided to become the number one company in their city. Ɣ Marketing specialists studied the firm’s microenvironment and found five strong competitors and seven weak companies that could be added through mergers and acquisitions. Ɣ Customers, subcontractors, and investors arrived with the affiliated firms. Local trade unions offered their support because they were interested in creating new jobs in the city. Local authorities helped obtain contracts to repair school and hospital buildings, improve city parks, and construct roads. Ɣ The company’s marketers were surprised to find out that their firm’s SWOT matrix had changed. The company had become stronger and had fewer weaknesses. New opportunities appeared and some threats disappeared. The study of development trends has shown that the company is moving towards its desired goal: i.e., it is becoming a leader in the local construction market. Ɣ The compilation of SWOT matrices for the remaining three competitors enabled the company’s specialists to find opportunities to further increase their market share. The ability to neutralize their competitors’ market advantages while, at the same time, narrowing their capabilities has become a key force in achieving the firm’s goal. Ɣ Understanding the conditions and forces acting in the company’s macroenvironment (such as economic, political, social, legal, and demographic factors) made it possible to develop an effective marketing strategy, which was supported by adequate marketing tactics. Ɣ Over the course of three years, a small construction company has become a large universal company capable of building and repairing any residential and non-residential buildings in its region. Therefore, the city’s antitrust (antimonopoly) agency has blocked the company’s actions to monopolize the local construction market. Experts from the antitrust agency have determined that this company has become the number one firm in the city. Therefore, if a company seeks to become a leader in its market, it should not try to monopolize the market.

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Definitions of concepts Ɣ The firm’s marketing microenvironment is a complex mix of market participants that directly influence its activity. This environment also determines the market’s spatial structure. Ɣ Elements of the company’s marketing microenvironment are buyers, suppliers, competitors, investors, general contractors, subcontractors, state institutions, and non-governmental organizations. Ɣ The firm’s marketing macroenvironment determines the velocity of market time, and this environment is a complex set of forces which affects the firm. Ɣ The marketing macroenvironment includes the following factors: economic, political, legislative, regulatory, social, demographic, and others. Ɣ The domestic level of the firm’s marketing macroenvironment means executing works in its home country. Ɣ The international and global levels of the firm’s marketing macroenvironment means executing works in other countries, that is, the export of works. Ɣ Market donors are participants in the marketing microenvironment; they provide the firm with an incoming cash (financial) flow, including payments for goods, works, and services. Ɣ Market acceptors are participants in the marketing microenvironment; the firm sends them outgoing cash flow as payment for goods, works, and services. Ɣ The SWOT analysis’ dynamic matrix is a table that indicates changes in trends that will affect the firm’s strengths, weaknesses, opportunities, and threats. Ɣ Innovation is the result of the firm’s development of new material and information resources in order to obtain economic, social, scientific, technical, environmental, and other effects.

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Questions for discussion and testing 1. Which participants make up the company’s marketing microenvironment? 2. Who are market donors and market acceptors? Give examples. 3. What are the main factors that create the company’s marketing macroenvironment? 4. What is the difference between executing works in the company’s own territory and in the customer’s territory? 5. Do marketing specialists need to know the specifics of their firm’s production processes? 6. How do marketers calculate order values for domestic and foreign customers? 7. What factors can we consider in the SWOT analysis? 8. What is the difference between the static and dynamic matrices in the SWOT analysis? 9. What is the company’s innovative development? 10. How can you evaluate the implementation of new technologies in the company?

CHAPTER EIGHT THE COMPETITIVENESS OF THE COMPANY’S WORKS AND RESOURCES

Overview The competitiveness of both a company and its works are the matter for study in this chapter. The company is an open system that absorbs resources from the external environment and, after using and processing these resources in the internal environment, it sells its product in the market’s external environment. In order to receive a large income from the sale, this product (including works) must have a high degree of competitiveness. Since resources are needed to execute competitive works, this chapter discusses a firm’s resource competitiveness and the life cycle of the resources used. In particular, we will consider the competitiveness of the company’s production processes and personnel. We will examine a firm’s objective and subjective competitive abilities, as well as its life cycle in accordance with total competitiveness. Readers will also learn how to draft commercial offers and calculate the “cost-duration” of contracts.

A company’s competitiveness We will consider the competitiveness of works and the factors that contribute to a company’s ability to be competitive in the market of works. We will also study the effect of changes in the competitiveness of the resources on a company’s competitiveness during its life cycle. The company is an open system that absorbs resources from the external environment and, after using and processing these resources in its internal environment, the firm sells its product in the market’s external environment. The difference in the total revenue from the sale of the

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product and the total cost of the resources used is the company’s profit (or loss). In order for a company to receive a large income from the sale of a product, the product must have a high degree of competitiveness in the market. Since the product consists of three elements, we are talking about the competitiveness of goods, the competitiveness of works, and the competitiveness of services. This textbook is about the marketing of works; therefore, in this chapter, we will mainly cover the competitiveness of works. In order for a company to be able to produce competitive products, it must find and involve competitive resources in production; namely competitive material, financial, labor, and information resources. This chapter discusses the competitiveness of these resources, because all of these resources are needed to execute competitive works. There are concepts for a commodity’s life cycle and a company’s life cycle, depending on the amount of income over time. The competitiveness of a company, resources, and products is also a parameter that changes over time. Therefore, we will study the competitiveness life cycles of a company, its resources, and its works, depending on time. An executing company must be competitive to succeed in the market of works and be able to realize its strategic goals despite opposition from competitors. In the marketing of goods and services, researchers pay a great deal of attention to the concept of competitiveness in the goods and services markets, as this ensures a firm’s survival. A firm’s competitiveness is a multifaceted concept, which encompasses the competitiveness of both the resources used and the products sold. Many researchers have studied competitiveness issues, such as Leonid V. Baumgarten, Thomas Berger, John E. Gamble, Isabella S. Kano, Margaret A. Peteraf, Michael E. Porter, A.J. Strickland III, and Arthur A. Thompson. Currently, many theorists believe that a company’s competitiveness is based on multiple factors, including, Ɣ Improving the welfare of consumers and producers Ɣ Increasing the quality of the goods, works, and services produced Ɣ Producing goods, works, and services at minimal cost Ɣ Improving the market situation Ɣ Increasing the competitiveness of its products Ɣ Developing marketing activities Ɣ Increasing resistance to competitors Ɣ Improving resource efficiency

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Marketing theorists also state that competition in the economy means the rivalry of market participants for the best realization of their economic interests. The competitiveness of a company’s works on orders is a complex economic indicator that reflects the contractor’s ability to successfully compete with other executors of these works. The contractor must offer potential customers better quality, more economical, more productive, more innovative, more environmentally friendly, and better resourced works than anyone else. Analogously, a company’s competitiveness in terms of resources lies in its ability to effectively attract, as well as use and develop, the best material, financial, information, and labor resources. This helps the company to achieve strategic goals throughout its life cycle, depending on changes in the level of resource competitiveness. We define the level of competition in the market segment as the ratio between the total production capacity of all the contractors and the potential capacity of the market in a given period.

Components of the competitiveness of works The main part of the international standards for total quality management adopted by the International Organization for Standardization (source: https://www.iso.org) is quality control rules at all stages of production, that is, the quality control of works is an important element of their competitiveness. Other components of the competitiveness of works are as follows: Ɣ Level of unit price for each type of work Ɣ Level of the productivity of works in time Ɣ Level of environmental safety for the applied technologies Ɣ Execution of unique or innovative works For example, a space research agency has signed a contract with a national government to perform works in a low Earth orbit and is ordering a rocketbuilding company to create a rocket for a research satellite launch. In turn, in order to ensure high quality when manufacturing a fuel tank for the first stage accelerator (rocket booster), this company must execute the plasma cutting of heat-resistant stainless steel sheets. However, in order to carry out such a technological process, the rocket-building company orders the machine-tool plant to manufacture a robotic center for automatic plasma cutting. To manufacture such a

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production center, the plant itself must perform complex works with high quality. All participants in this chain must be highly competitive in their field of activity to receive such orders for works. The competitiveness factor for works FFCw is an element of the competitiveness index for all company’s products FFCprod, which includes its goods, works, and services (8-1): FFC prod

f FFC g , FFCw , FFCs

(8-1)

where FFCprod = index of competitiveness for all company’s products FFCg = factor of competitiveness for goods FFCw = factor of competitiveness for works FFCs = factor of competitiveness for services In addition, the factor of competitiveness for a firm’s works FFCw is a complex mix of particular factors of competitiveness (8-2): FFCw

f FFCwresr , FFCwqual , FFCwprice , FFCwoutp , FFCwecol , FFCwinnov (8-2)

where FFCw resr = factor of competitiveness for the firm’s works in terms of resource richness FFCw qual = factor of competitiveness for the firm’s works in terms of the quality FFCw price = factor of competitiveness for the firm’s works in terms of the unit prices FFCw outp = factor of competitiveness for the firm’s works in terms of labor productivity FFCw ecol = factor of competitiveness for the firm’s works in terms of compliance with environmental requirements FFCw innov = factor of competitiveness for the firm’s works in terms of innovative characteristics Marketing specialists must calculate each of the above factors for the firm’s competitiveness compared to the average values of these parameters in the industry. Moreover, the supply of resources depends on the access of the firm to working capital funds, for example, in order to start a contract without advance payments from the customer. The quality of works indicates their compliance with the requirements of quality standards. Competitiveness of unit prices for works means lower prices in

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comparison with competitors without compromising the contractor’s own profitability. Competitiveness in terms of labor productivity enables us to shorten the duration of a contract and “legally steal” orders from competitors. Low environmental competitiveness may lead to the prohibition of certain polluting or hazardous works. The application of new technologies and products in comparison with the average market level determines a company’s level of innovative competitiveness.

Commercial offers for the execution of works A commercial offer for the execution of works is a document in paper or electronic form that the applicant develops in response to the customer’s request. Marketing specialists present the commercial offer on the company’s letterhead in the form of a business letter. The applicant must use an impersonal form when addressing a potential customer in the commercial offer. At the beginning of the text, the author should provide a link to the outgoing number and the date of the customer’s request. Below is a brief description of the works and the object to be processed; the author must also indicate the registration number if it is available. The main part of the commercial offer covers the following: Ɣ Preliminary cost of works, including the amount of value-added tax Ɣ Preliminary duration of works in calendar days (weekends and national holidays are included) Ɣ The advance payment required, which ranges from 25 to 50 percent Ɣ The applicant’s consent to provide the customer with a deferral of the last payment (usually no more than one calendar month) Ɣ Confirmation of the warranty period for the fulfilled works (6 calendar months), as well as used materials and installed components (12 calendar months) In the last part of the commercial offer, the applicant notes that the contractor included all his expenses, such as the cost of basic and additional wages, energy, raw materials, components, ready-to-use materials, travel expenses, taxes, non-tax payments, and so on, in the preliminary valuation. A mandatory annex to the commercial offer is a preliminary specification of the works. This specification includes the main part, that is, the “works” and the materials and components to be used. These

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materials and components are “goods” that the contractor sells to the customer. In addition, a separate part of the specification is the “services” that support the execution of these works. For non-government orders, the executor draws up the preliminary specification using his price-list for works and services. This preliminary specification has the following columns: Ɣ The sequence number of the work or service Ɣ Name of the object’s mechanism or system to be processed Ɣ Name of the work or service Ɣ Measurement unit for the work or service Ɣ Scope of the work or service Ɣ Unit price of the work or service Ɣ Cost of the works or services (this is found by multiplying the unit price by the scope of works or services) The contractor calculates the preliminary specification for government orders using the unit rate of the standard hour for the main production worker, which has been approved by the company’s CEO (chief executive officer). This specification includes the following columns: Ɣ The sequence number of the work or service Ɣ Name of the object’s mechanism or system to be processed Ɣ Name of the work or service Ɣ Measurement unit for the work or service Ɣ Scope of the work or service Ɣ Normative laboriousness (labor input) required for the work or service Ɣ Name of the regulatory document that confirms the laboriousness Ɣ Cost of the works or services (this is found by multiplying the scope of the works or services by the normative laboriousness and by the unit rate of the standard hour) The preliminary specification for the government order should also include the following columns: Ɣ Name of the components or materials for each work or service Ɣ Measurement unit for the component or material Ɣ Volume of the component or material Ɣ Unit price of the component or material

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Ɣ Cost of the components or materials (this is found by multiplying the unit price by the volume of components or materials) The last column of the preliminary specification is the total cost of the works, services, components, and materials for each specification line. If the executor wants to provide explanations, he may add a column of notes. In the preliminary specification, the executor summarizes the cost of works, services, and goods (components and materials) for each specification line. He does not include value-added tax in this amount. Further, the developers of the preliminary specification calculate the amount of tax based on the current rate of each country’s value-added tax. The last line of the preliminary specification indicates the total cost of the works, services, components, and materials, as well as the amount of value-added tax. Therefore, marketing specialists prepare a commercial offer for the execution of works based on either their company’s standards or standards of a particular country. The company’s top managers should appoint technology experts to the marketing department for standardization and evaluation of the works. They calculate the cost of works in two ways: Ɣ Using the standard hour cost, which has been established by order of the company’s chief executive officer (usually for government orders) Ɣ Using the unit prices for works in accordance with the company’s current price-list (for non-government orders).

Size of a contract’s “cost-duration” By analogy with the well-known concept of isoquants with the same product output and consumption of various combinations of resources, we will use the characteristic of equal contract sizes (“cost-duration”) for the execution of works (Fig. 8-1). This is a comprehensive indicator of the competitiveness of the executing companies’ commercial offers for participation in auctions. In contrast to the sale of finished goods, the time of the execution of works—depending on their productivity—is an important factor for their competitiveness in the market of works (in addition to the prices).

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CCi Ⱥ

ȼ

CCA CCB

0

CDA

CDB

CDi

Fig. 8-1. A map of equal sizes of the contracts’ “cost-duration” We can calculate the size CSi of the i-th contract using the following formula (8-3): CS i

CCi ˜ CDi

(8-3)

where CSi = size of the i-th contract for executing works, £·day CCi = cost of the i-th contract for executing works, £ CDi = duration of the i-th contract for executing works, days The criterion for finding the optimal solution for the customer is to reduce the offered size of the contract’s “cost-duration”: CSi ĺ min. Therefore, for the customer, the contractor’s commercial offer is more competitive if its point in the “cost-duration” coordinate system lies on the line nearest to the origin of CCi and CDi coordinates (that is, point “0”).

Life cycle of resource competitiveness Applying the life cycle concept to control the competitiveness of the resources used by a company, as well as the competitiveness indicator of the works executed, allows this company to win auctions and obtain profitable orders. The company’s competitiveness indicator is a function

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of time. In turn, the level of a company’s competitiveness depends on the stage of its life cycle (that is, appearance, growth, maturity, or decline). We can examine a company’s life cycle in relation to the competitiveness of its resources (see Fig. 8-2). For this, we use an analogy with the well-known concept of a firm’s life cycle which is dependent on the volume of its income and the level of its competitiveness (FRCcurr). FRCcurr

1

FRCmax 3

4 FRCinit

2

FRCmin 0

t

Fig. 8-2. The life cycle of a company’s resource competitiveness Fig. 8-2 uses the following notations: FRCcurr = factor for the current level of the company’s resource competitiveness FRCmax = factor for the maximum level of resource competitiveness FRCinit = factor for the initial level of resource competitiveness FRCmin = factor for the minimum level of resource competitiveness Fig. 8-2 shows the changes in the level of competitiveness as follows: Ɣ Initial growth and further decline in the competitiveness of the company’s material resources (1) Ɣ Initial invariability and further decline in the competitiveness of the company’s financial resources (2) Ɣ Initial and subsequent growth of the competitiveness of the company’s information resources (3)

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Ɣ Initial decline and then increase in the competitiveness of the company’s labor resources (4) At the same time, the composition of the company’s competitiveness indicators may vary depending on the industry, research objectives, and the like. The initial competitiveness of the firm’s resources is because an innovative entrepreneurial idea necessarily exists when a firm is created and the resources used (material, financial, information, and labor) are usually in demand. This fact reflects the competitiveness of the resources used. A further effective combination of these resources, as it is an entrepreneurial function, creates the firm’s competitiveness as a system of elements that demonstrates its resource competitiveness as a whole. A company’s life cycle, depending on its resources’ competitiveness, differs from the company’s life cycle in terms of revenue. Already at the beginning of the company’s activity, its resource competitiveness is greater than zero. Fig. 8-2 depicts various options for changing the level of a company’s resource competitiveness during its life cycle. For example, the initial growth of competitiveness in terms of a company’s material resources (1) occurred due to the construction of new buildings and the purchase of new equipment and tools, etc. But later, due to aging and deterioration, the firm’s competitiveness in terms of its resources began to steadily decline. Variant 2 reflects a situation when money and other financial resources invested by the company’s founders, including securities and deposit bank accounts, are gradually spent without sufficient replenishment, which leads to the leaching of current assets and a decrease in competitiveness. Fig. 8-2 (3) illustrates the development of a situation resulting from the constant growth of competitiveness in the company’s information resources. This is due to the firm’s acquisition or development of new technologies, licenses, patents, and so on. Situation 4 reflects fundamental changes in the company’s personnel policy during its life cycle, as the replacement of existing staff with highly qualified, energetic, and responsible new employees has increased the competitiveness of its labor resources. We used theories centered on a company’s resources to study life cycles resulting from resource competitiveness. This includes works by the following authors: Jay B. Barney, John E. Gamble, Robert M. Grant, Gary Hamel, Edith E.T. Penrose, Margaret A. Peteraf, Michael E. Porter, Coimbatore K. Prahalad, Birger Wernerfelt, and Arthur A. Thompson.

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A firm’s resource competitiveness is the basis for the competitiveness of its products, that is, goods, works, and services. Moreover, each type of resource (material, financial, information, and labor resources) affects the competitiveness of the company’s products, as well as the competitiveness of its other available resources. Increasing a firm’s competitiveness in terms of its financial resources (for example, accumulating deposit money, obtaining loans, receiving investments, and issuing securities) enables the firm to develop or acquire the latest technologies, patents, and licenses (i.e., information resources). A company often needs to upgrade its production facilities (that is, its material resources) and dispose of obsolete equipment in order to introduce innovative technologies. The operation of new equipment using new technologies requires the next step to improve a firm’s competitiveness. Namely, its personnel need to receive advanced training or retraining. Perhaps a company may even have to hire new highly qualified specialists. This will increase the level of competitiveness in terms of a firm’s labor resources.

A firm’s competitiveness in terms of its resources In order to achieve greater competitiveness in terms of resources, a firm must ensure their integrated development. Moreover, recent studies have shown that the intensity of changes in the competitive environment makes any long-term competitive advantage short term. Therefore, the company must continuously create new competitive advantages. This means that, in order to increase its competitiveness, a firm needs to focus on financial recovery, improving its image, introducing innovations, and other organizational items. We will use the following definition in order to understand this concept more clearly: the competitiveness of a company’s resources is its ability to effectively involve, use, and develop material, financial, information, and labor resources to achieve market goals. Controlling the dynamics of change in a firm’s competitiveness during its life cycle is one of the marketing management’s most important functions. Improving the company’s total competitiveness is an integrated result of the increase in certain indicators, including the competitiveness of material, financial, information, and labor resources.

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The competitiveness of company personnel The marketing of works (like the marketing of services) applies a marketing mix that also includes the following elements: “personnel” and “process.” This means that it is necessary to research the indicators of a company’s competitiveness in terms of its personnel and production processes. We study the competitiveness of personnel not only in the labor market (external staff), but also within the firm’s labor resources (internal staff). The level of staff competitiveness also determines their company’s competitiveness. The share (in the total personnel number) of employees able to occupy higher positions, which require more responsibility, qualifications, salaries, and status, etc., reflects the personnel’s level of internal competitiveness. Employees with a high level of competitiveness (“people-engines”) are more mobile and more likely to go to a competing firm. To keep these employees in the company, top managers need to make additional efforts and have access to the resources to do this. Therefore, investment in human resources is increasing. An effective method of staff assessment is the certification of managers and specialists. The company should train and retrain its employees to increase their competitiveness in terms of labor resources. It is not by chance that leading managers and specialists place their diplomas and certificates on their office walls. The firm’s competitiveness and survival depend on its staff. By implementing the principles of personnel marketing, companies compete with each other as employers to become the most attractive option for potential and current employees. We can determine a company’s competitiveness using the ABC ranking for company personnel. The ABC ranking is also applied to assess the liquidity of commodity stocks in the marketing of goods. Group A staff have a high level of skills, efficiency, initiative, and creativity. These specialists are highly competitive in the labor market. Typically, recruiting companies select such professionals based on orders from employers. The company’s competitiveness grows with an increase in the share of Group A specialists in the total number of its employees. Vice versa, a large proportion of uncompetitive personnel (“peoplebrakes”) in Group C will lead to bankruptcy when the company becomes an outsider in the market. The staff in Group B corresponds to the average level in the labor market (i.e., “personnel ballast”). A significant number of this type of employee stabilizes the company; however, they do not enable the company to become a market leader. We can use formula (8-4)

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to calculate the level of the company’s staff competitiveness FPCABC based on the ABC ranking: FPC ABC

QPA QPC

(8-4)

where FPCABC = factor of the company’s staff competitiveness according to the ABC ranking QPA = number of the company’s employees in Group A, persons QPC = number of the company’s employees in Group C, persons From formula (8-4), it follows that the factor of a company’s staff competitiveness, which is determined by the ABC ranking, increases when more employees are in Group A but it decreases when there is a greater number of employees in Group C. When there is a complete reduction in “people-brakes,” the company has a chance to become the most competitive in terms of personnel. However, in practice, there is a permanent relocation of personnel from Group B to Group A and from Group B to Group C. The accuracy of classifying employees into members of Group A or Group C during the certification process determines the likelihood of accurately calculating a company’s personnel competitiveness factor based on the ABC ranking.

Objective and subjective competitiveness Customer representatives should be interested in a small company, which can have a competitive advantage in the market. The ability to meet the personal needs of a customer company’s decision-makers is often crucial, unlike the ability to meet the customer’s corporate interests. Consequently, the next factor in competitiveness in the market of works is meeting the demands of the customer’s individual decision-makers. One of the features of B-to-B marketing (business-to-business), which distinguishes it from B-to-C marketing (business-to-consumer), is that the buyer and the decision-maker do not necessarily match. If the needs of the decision-makers coincide with the customer company’s corporate needs as a whole, there is “compliance with an objective demand.” If there is no correlation with the customer company’s interests, there is a “subjective demand.” This circumstance greatly complicates the executing company’s marketing activities. If the executing

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company has a high level of objective competitiveness in the market but cannot satisfy the subjective requests of the customer company’s top managers, this contractor may lose the order. In other words, the executing company has insufficient subjective competitiveness. The buyer of the goods can always check the quality and functioning of the purchased products. These characteristics already confirm the levels of qualifications and competitiveness of the manufacturer’s personnel. In the marketing of works and services, this statement still needs proof. At the same time, the level of competitiveness of frontline personnel (who are in a direct contact with customers) can reveal the level of competitiveness of a company’s managers and specialists. The marketing of works and the marketing of services are characterized by closer contact between representatives of the contractor and the customer. If the established interpersonal relationships are centered on trust, respect, and efficiency, this means that the employees contribute to their company’s competitiveness. As a result, its database of existing and potential customers will continually grow. This type of company has more opportunities to receive orders, unlike executors with a low level of interpersonal communication. We can consider the subjective factor FFCcomn to be the ratio of the number of positive and total interpersonal business relations between employees from two companies, that is, the contractor and the customer (8-5): FFCcomn

QPposit

(8-5)

QPtotal

where FFCcomn = factor of the firm’s competitiveness due to its employees use of interpersonal communication QPposit = number of managers and specialists able to establish positive business relations with the customer’s company representatives, persons QPtotal = total number of staff, persons.

The competitiveness of production processes The production process is the execution of the scope of works stipulated in the contract between the customer and the contractor. Unlike traditional marketing, which can offer unique products to the consumer, these works are usually strictly regulated by the standards and contracts in force in the marketing of works.

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Therefore, “process competitiveness” means the exact execution of the scope and nomenclature of works required by the customer (which involves a complete match in the supply and demand for the works), in relation to the cyclical nature of demand. The more the nomenclature of works can be fulfilled by the executing company in a required period and to a certain quality, the higher its competitiveness in the market. We can calculate the scope of works executed using the company’s production capacity. The diverse composition of the main and auxiliary production facilities increases the company’s competitiveness. Large and well-equipped companies have competitive advantages over small firms that do not have their own production base and must rent production facilities and hire additional staff. The level of competitiveness of small firms compared to large companies is calculated by analogy with the competitiveness of goods. The “process” element of the marketing mix takes into account the technologies and production equipment used. High-performance business processes used in basic works are an important factor in terms of a company’s competitiveness. A firm’s competitiveness determines the competitiveness of its goods manufactured, works executed, and services provided. Advanced technology means optimal labor productivity, high quality products, and adherence to technological discipline. A customer in the works market is always interested in the technical characteristics of the executing company’s production equipment. During pre-contractual preparation, the customer’s technical experts usually visit the executing company, where they examine many of the factors relevant to making decision about the potential contract. These factors include the contractor’s reliability and reputation, the technological processes used, and their commitment to deadlines and quality assurance. It is common practice to check employees’ work when considering placing an order. The customer studies the activities of the production division, quality control department, and so on. An important feature of national and international quality standards is not only the control of the final results of the works, but also of all elements of production, including compliance with technological norms and quality standards. A certificate of compliance with the international system of quality standards is evidence of a high level of competitiveness. We can estimate the company’s level of competitiveness in terms of its main and auxiliary production equipment based on the degree of its deterioration. Marketing specialists group production facilities and technological equipment according to the degree of their physical and

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moral deterioration in order to calculate the level of a firm’s competitiveness (see Table 8-1). Table 8-1. Degrees of deterioration of a company’s production facilities No.

Degree of deterioration

1. 2. 3. 4. 5.

New Slightly worn-out Quite worn-out Very worn-out Needs replacing

Percentage of deterioration 0–10 11–20 21–50 51–90 91–100

Age of equipment Up to 2 years From 3 to 5 years From 6 to 10 years From 11 to 15 years Over 16 years

Marketing specialists calculate the degree of deterioration by the intensity of operation, the methodology for calculating wear, and the timeliness and quality of preventive or current repairs, etc. The deterioration characteristics depend on the industry in which the company operates. Approaches to determining the level of equipment competitiveness differ in industrialized countries, countries with economies in transition, and developing countries. If a company from an industrialized country replaces construction or metalworking equipment after 4 years of operation and sells it to another company from a country with an economy in transition, this firm considers the purchased equipment to be new and will plan to use it for at least 10– 15 years. In order to determine a company’s average level of competitiveness in terms of its main production equipment’s degree of deterioration, marketing specialists must compare the equipment’s deterioration factor with the average for the industry or region (8-6): FDCequip

1  RED firm

(8-6)

1  REDindustry

where FDCequip = factor of the firm’s competitiveness in terms of its main production equipment’s level of deterioration REDfirm = average degree of deterioration of the firm’s main production equipment REDindustry = average degree of deterioration of the main production equipment in a region or sector of the economy

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In certain countries, some plants use metal-cutting machines that are more than 30 years old. This is typical for the production of agricultural machinery, ship repairs, and rolling stock for railroads. The metallurgical industry also has a long service life for its main production facilities. However, specialists from a developing country consider this to be quite competitive.

A company’s life cycle in terms of its total competitiveness We will calculate a company’s total competitiveness FFCȈ as the sum of particular competitiveness factors based on their level of importance (8-7): FFC6

¦ FSC

j

(8-7)

˜ PF j

j

where FFCȈ = factor of the firm’s total competitiveness FSCj = particular factor in the firm’s competitiveness PFj = indicator of the importance of the j-th particular factor in the firm’s competitiveness j = serial number of the particular factor in the firm’s competitiveness, j= 1… m The factor of the company’s total competitiveness is a function of time. A firm’s level of competitiveness changes depending on the stage of its life cycle in the market (creation, growth, maturity, or decline). We will consider a company’s life cycle in terms of its competitiveness in Fig. 8-3. FFCȈ FFCmax FFCinit FFCmin

0

tmax tmin Fig. 8-3. The life cycle of a company’s competitiveness

t

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Where FFCȈ = factor of the company’s current level of total competitiveness FFCmax = factor of the company’s maximum level of total competitiveness FFCinit = factor of the company’s initial level of total competitiveness FFCmin = factor of the company’s minimum level of total competitiveness t = lifetime of the company, months tmax = time of occurrence for the company’s maximum level of total competitiveness, months tmin = time of occurrence for the company’s minimum level of total competitiveness, months The effective combination of material, financial, labor, and information resources is one of the most important entrepreneurial functions because it generates greater competitiveness for the firm. However, the company’s initial competitiveness may not increase and may even reduce to zero. Fig. 8-4 presents the case of a firm that initially lost its competitiveness, but it reversed the negative trend through drastic measures and entered a state of accelerated growth. This situation is generally the result of financial recovery, the replacement of the top management tier, or a change in the firm’s ownership. FFCȈ FFCmax

FFCinit

FFCmin

0

tmin

tmax

t

Fig, 8-4. A firm’s life cycle when it has overcome an initial decline in competitiveness In Fig. 8-5, we can see the life cycle of a firm that could not increase its initial total competitiveness and subsequently lost its competitiveness. The

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management team’s passive policy and the fact that no radical measures were taken to save the company led to a drop in competitiveness to zero and the company had to be shut down. FFCȈ

FFCinit

0

tmax

tmin

t

Fig. 8-5. The life cycle of a company that has lost its initial competitiveness Marketing specialists calculate a company’s competitiveness using a variety of factors. Competitive personnel, technological processes, and production equipment indicate the level of their total competitiveness in the market. The internal competitiveness of a company’s personnel depends on its employees’ career success and performance. The main production equipment’s degree of deterioration directly affects its competitiveness. The introduction of new technologies will increase a firm’s competitive ability. Meeting standards and regulations through quality works provides an important competitive advantage for the company. An increase in the number of successful and competitive firms in all sectors of the economy will also ensure an increase in the entire country’s competitiveness.

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Practical tips Let us now consider an example of the competitiveness of cleaning works that are executed before painting the metal surfaces of a ship’s hull. Ɣ The company determines the quality of works based on the degree of thoroughness and completeness of cleaning the surface from biological fouling, corrosion products, and old paint residue. Specialists carry out the work using various cleaning methods: mechanical and mechanized cleaning; shot blasting and abrasive blasting; and hydroabrasive and hydrodynamic cleaning. Ɣ The level of mechanization, automation, and technological intensity of the cleaning affects the productivity of executing works. Specialists ensure the highest labor productivity when using shot blasting and abrasive blasting. Mechanical methods are the least productive way to clean surfaces. Ɣ Hydrodynamic and hydroabrasive cleaning methods are the most environmentally friendly. Workers wash away dirt and abrasives with water, preventing them from entering the air. But dry abrasive blasting is the most polluting method. This activity creates a cloud of dust from the destroyed abrasive. Abrasives are usually slag from metallurgical production, which is toxic waste. Neutralization of this waste is expensive. Ɣ The safety of cleaning methods depends on the harmful factors that affect workers’ health. The abrasive blasting method is the most dangerous because it causes pulmonary diseases, especially when it uses quartz river sand. The use of mechanized cleaning brushes leads to vibration disease. Even less hazardous hydroabrasive and hydrodynamic cleaning methods require working protective equipment, including helmets, special suits, and non-slip boots. Ɣ The cost-effectiveness of the cleaning works depends on the cost of the required consumables (spray gun, abrasive, water, etc.) and the process equipment’s operation modes. The most inexpensive methods are based on mechanical cleaning. The most expensive methods are shot blasting, which requires the purchase, removal, and regeneration of metal shot. In addition, spare parts and auxiliary materials are expensive, especially for hydrodynamic cleaning equipment with a working pressure of 2,500 bars.

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For example, when conducting an auction, the customer must select the key indicators of the works’ competitiveness: short contract execution time at a high price or a low price for a longer contract period. So, Participant A proposed an execution period of CDȺ = 90 days with a contract cost of ɋCȺ = £1,800,000. Participant B offered a correspondingly lower cost (ɋCȼ = £1,400,000), but with a longer contract duration (CDȼ = 130 days). When we apply the complex indicator of “cost-duration” for the contract size by multiplying the indicators CCi and CDi for both participants, we get ɋCȺ · CDȺ = 162,000,000 £·day, and ɋCȼ · CDȼ = 182,000,000 £·day. This means there is an inequality: ɋSȺ < ɋSȼ. Thus, the commercial offer of Participant A is a more competitive proposal in terms of the size of the contract’s “cost-duration” than that of Participant B, despite the high cost. The winner of the tender should be Participant A.

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Definitions of concepts Ɣ Competition is the rivalry between market participants for the best realization of their economic interests. Ɣ Competitiveness of works is the contractor’s ability to successfully compete in the market by offering works that are more cost-effective, productive, innovative, and environmentally friendly, as well as safer and better in quality than those of its competitors. Ɣ Resource competitiveness is a company’s ability to effectively engage, use, and develop material, financial, information, and labor resources to achieve its market goals. Ɣ A commercial offer for executing works is a document in paper or electronic form that the applicant develops in response to a customer’s request for works, which contains information about the order’s cost, duration, and conditions. Ɣ Competitive adaptability of a company is its ability to get the maximum number of good contracts despite negative changes in the marketing environment, opposition from competitors, the occurrence of a force majeure, and staff mistakes, etc. Ɣ The size of a contract’s “cost-duration” is an indicator of the competitiveness of a commercial offer, which is found by multiplying the cost of the contract by its duration of execution. Ɣ Life cycle of a firm’s resource competitiveness is an economic concept that reflects changes in the competitiveness of its material, financial, labor, and information resources over time. Ɣ The ABC ranking is a method of calculating the level of a firm’s labor resources competitiveness by categorizing its personnel in groups with high ”A”, medium “B”, and low “C” competitive abilities. Ɣ Competitiveness of the production process is the exact execution of the scope and nomenclature of the works required by the customer. At the same time, the more types of works that the contractor is able to execute in a given time and at a certain quality, the greater its competitiveness in the market.

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Questions for discussion and testing 1. What are the key factors of competitiveness? 2. Discuss the definition of the “competitiveness of works.” 3. Explain what is meant by the “resource competitiveness of a company.” 4. List the main factors of competitiveness for executed works. 5. How do you calculate the size of a contract’s “cost-duration?” Now draw a map to show contracts of equal sizes. 6. Draw a graph of a company’s life cycle based on its resource competitiveness. 7. List a company’s main resource groups. 8. How do you calculate a company’s “factor of internal and external staff competitiveness?” 9. Is it possible to use the ABC ranking to calculate the level of a company’s personnel competitiveness? How do you do this? 10. How do you assess the competitiveness of a firm’s main production facilities? 11. How does a company’s competitiveness change depending on its life cycle?

CHAPTER NINE THE MARKETING OF WORKS: PROJECT MANAGEMENT AND CONTROL

Overview In this chapter, readers will learn whether marketing specialists must understand the works executed by their company. It will become clear that project organization of works is a key tool for the marketing of works, and that it differs from the project used in the marketing of goods. We will analyze which project factors can be controlled by marketing specialists and which cannot. Readers will learn how to calculate the marketing department’s degree of independence and how to maneuver the company’s resources when planning the execution of works orders in space and time. We will consider the example of a ship repair yard to examine these points.

Do we need to know how the specialists execute works? Do marketing specialists need to know how the works they sell are actually executed? The seller of goods, such as a food processor, must explain to the buyer how to use the product safely, show how the processor works, and list the functions that this kitchen device performs. At the same time, both the buyer and the seller are not interested in how the producer manufactured a food processor’s electric motor, gear reducer, or circuit breaker. For example, the producer may manufacture gears using casting, stamping, or milling technologies. The producer can also carry out the final assembly of the food processor manually or via a robotic assembly line.

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We do not usually need to know how the producer made the commodity in order to sell it. On the contrary, in the marketing of works, marketing managers sell exactly their firm’s works. The works are a product in the form of an activity; therefore, the customer will pay close attention to the works and their implementation. For example, the customer will be interested in how the executing company organizes these works, how it will fulfill the contract terms, how it will ensure quality, how it will utilize technology, how its staff will be trained, and so on.

The project as a form of organizing works The concept of the “project of works” (which is one of the most effective and widely used forms of the organization of works) is useful when studying the features of the marketing of works. At the same time, it does not matter whether the firm calls its activities “implementing projects” or “acting on the basis of a contract,” because the essential project factors remain the same for the execution of works. According to the generally accepted definition, a project is a temporary activity, which includes the following factors: start and end dates, project goals, composition and scope of works, project budget, project participants, the participants’ rights and responsibilities, project conditions, and project implementation plan (source: https://www.pmi.org). Firms execute works in the form of a project that the contractor may organizationally define—or does not define—as a project of works. The contractor executes the works on the basis of a written or verbal contract. The contractor operated using the customer’s money, and not his own funds (which, in the marketing of goods, would be compensated via the sale of goods). The works aim to change the market value of the customer’s property through manufacturing, repairing, restoring, modernizing, reequipping, processing, or liquidating. The concept of the “project” determines the method of organizing and executing the works needed to complete it. The customer pays money for executed works as a product of labor, but not the project as a method of works execution. The customer wants to attain the project’s goals. The project executor’s goal is revenue acquisition. Works, like goods and services, are a source of revenue for the executor. “The firm sells these future works the way a manufacturer sells his available goods or a provider sells his future services to the purchaser of goods, works, or services” (source: https://www.emeraldinsight.com/journal/jbim/28/8).

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The project is a key tool in the marketing of works Organization and execution of works in the project form is one of the key tools for the marketing of works. The reasons for this are listed below: Ɣ The project is an effective form of organizing works that are limited in terms of time, objectives, resources, budget, participants, composition, and scope according to a contract with an external customer. Ɣ Marketing specialists from the executing company act as customer representatives when working with other departments in their firm during the project and, when contacting an external customer they act as the contractor’s representatives. Ɣ Marketing specialists are granted the rights and responsibilities to manage and control certain project factors as elements of the marketing mix. Ɣ It is necessary for marketing specialists to manage and monitor the project implementation in order to coordinate the interests of the involved parties and to apply measures to overcome deviations and disagreements between them. As a rule, specialists carry out activities in the marketing of works on the basis of a contract for the execution of works (Appendix C). This type of contract provides for the start and end dates for all the works, including each stage of their execution and delivery according to the timeline in the contract’s appendix. Marketing specialists indicate the total amount of works in the contract’s preliminary specification of works. Terms of payment, as a rule, provide a prepayment to start works under the contract with subsequent stage-by-stage payments. Marketing specialists are important participants when the negotiating parties do not reach an agreement. According to the law, changing the terms of the contract is only possible with a mutual agreement from the contractor and the customer. Therefore, the project for executing works on the order of an external consumer is a key marketing tool that is influenced by the company’s external marketing environment.

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Features of projects in the marketing of goods and in the marketing of works Unlike a project for executing works based on an order, a project of producing goods (for the next sale) is a document that is internally approved by the manufacturer of the goods according to the marketing department’s recommendations. Marketing experts research the state and trends of the market for these goods and, as an “internal customer,” represent the potential buyers’ requirements. The project for producing goods (despite its indirect dependence on market influence) is not an external factor affecting a manufacturing company’s internal environment. This project does not require external coordination and approval by potential buyers. The result of marketing activities is the sale of a product (goods, works, and services) and the receipt of revenue generated by its sale. In the execution of works, marketing specialists are not only involved in selling future works but also they participate in executing and delivering these works to the customer, as well as receiving final payments. However, this textbook does not specifically study making payments for goods, works, or services. The marketing department manages the payment terms by involving the company’s financial, legal, and security departments. At the same time, marketing specialists are primarily responsible for ensuring the buyer, customer, or client pays for their goods, works, or services because it was the marketing specialists who found them. This responsibility means that they must have the appropriate rights and authority to check and control the payment process. In general, project managers organize and control a project implementation. In order to analyze the role of marketing specialists when obtaining and executing projects, it is necessary to take into account that the implementation of a project of works relates to the production sphere, while marketing activity relates to the circulation sphere. Therefore, marketing managers cannot replace project managers. Let us consider the main factors of the project’s concept, which are a powerful tool for the marketing of works.

The project’s start and end dates The contractor’s marketing specialists manage and control period of the project implementation during negotiations with a potential customer in order to evenly distribute the firm’s production loading. The contractor

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may offer the customer an earlier or later start date of the contract based on the recommendations of marketers, who will take into account the availability of unused production capacities and resources of the executor. Similarly, marketing specialists may move deadlines for executing works if other orders are expected, by the beginning of which previous contracts must be completed first. In addition, marketing specialists also need to manage the time that an order will take because unrealistic deadlines could mean that the project’s objectives will not be met and the finished project will be delivered late. Allocating too much time to a project is also an issue because this means that the company’s resources are not being used efficiently. Therefore, marketing managers need to control the timing of the execution of works.

The project’s objectives The customer of works determines the project’s objectives. As a rule, the contractor does not give instructions to the customer regarding these goals. Moreover, it is important for the contractor to fully execute the contract signed with the customer and to receive all payments in accordance with this contract. At the same time, it may be that the customer’s goal was not fully achieved or was only partially successful. Sometimes a project that is successful for the contractor is not equally so for the customer. In this case, the customer will refuse the contract and further cooperation will become problematic. However, there are exceptions to the rule. Sometimes the customer may ask the contractor to develop a technical task for works or clarify the project’s objectives on the grounds that the executing company’s marketing specialists can better understand the customer’s market than the customer himself. In this case, the recommendations of marketing experts will save the customer from mistakes and unnecessary expenses. If mistakes are made when setting the project’s objectives or there are changes in the market situation—which makes the initial goals ineffective for the customer—the contractor’s marketing specialists must agree and approve the necessary project adjustments with the customer.

The project’s composition and scope of works The executing company has the right to offer any works to the market, but the firm’s capabilities and the needs of potential customers can limit its activities.

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As a result of studying demand in the marketplace of works, marketing specialists can manage and control the list of works by nomenclature and assortment as a constituent element of their company’s product. In the marketing of works, the composition and scope of works refer to the generally accepted concept of a “product,” which usually includes goods, works, and services.

The project’s budget The composition of works (i.e., nomenclature and assortment) and the scope of works (in natural units) form the project’s budget. In the marketing of works, negotiations between the parties are mainly focused on the unit price of each work that the contractor sells to the customer. The concept of “price of work” (or “unit price of work”) in the marketing of works applies to all the features of price management, which are the same as in the marketing of goods and services. For example, a buyer has the right to a price discount on large orders for works. When a consumer pays in advance, the marketing department can sell goods and services at reduced prices, and deferred payments or sales based on credit can lead to increased prices. This fact is also true for the marketing of works. Thus, the “price” tool in the marketing of goods, works, and services corresponds to the project’s budget as an element of the marketing mix.

Parties to the project The project participants are always the customer and the contractor (general contractor), but they can also involve investors, subcontractors, and other participants. Is the list of project participants an element that the marketing managers control? The answer is somewhat yes; this is because they find and recommend customers to their company. However, marketing specialists cannot manage customers (i.e., the buyers of their goods, works, or services). Similarly, they cannot control the activities of investors or subcontractors (when the general contractor invites subcontractors to participate in the project). Nevertheless, marketing specialists can control their own staff (the “people” element) during the project’s implementation.

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The rights and responsibilities of the project’s participants These factors of the project relate to the legal sphere and, therefore, the company’s lawyers control the participants’ rights and responsibilities within the limits established by the legislation. In the course of negotiations, marketing specialists can exert formal or informal influence on the customer, which the contractor can write down in the “rights and responsibilities of the parties” section of the contract. However, the absence of provisions for the parties’ rights or responsibilities may render the contract null and void due to legal requirements for its structure. To some extent, marketing managers can influence the contract’s bonuses or penalties within the limits of the current legislation.

The conditions of the project When forming a project and before signing a contract for the execution of works, the parties formulate certain conditions that all participants must accept. These conditions may apply to all components of the project, including its organizational, production, financial, and legal aspects. The fulfillment of these conditions is very important for the success of the project. Nevertheless, the marketing department should only provide marketing support to this project. The contractor’s purpose is to accurately fulfill the contract and receive all the payments due; however, it is the marketing specialists’ responsibility to make it happen. This is because they find the customers, check their reputation and solvency, and then invite them to sign a contract with their company. Therefore, marketing specialists must manage the terms of payment when signing and executing the contract, as well as ensure the receipt of prepayment and payments for all completed and accepted stages of the contract. They are also responsible for receiving all premiums from the customer and paying all penalties by the contractor himself if he is at fault.

The project implementation plan The organizational plan is the responsibility of project managers, while marketing specialists are responsible for implementing their marketing support section of the project. In general, the marketing department develops marketing plans, coordinates and approves these plans, and ensures their implementation.

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However, although the plan depends on the influence of the external environment, it acts as an internal document for the executing company. This environmental factor is not controlled by marketing specialists. Moreover, substituting project managers with marketing specialists reduces the effectiveness of the company’s marketing activities.

The marketing department’s level of independence In companies executing works, there is a tendency for the marketing department to become an increasingly independent division in the company due to its increased level of responsibility and scope of functions. A change in its level of autonomy balances its powers and responsibilities; it also helps to avoid extremes, such as full responsibility with minimal powers or minimal responsibility with broad powers. We can calculate the total number of decisions QDtotal that marketing managers make using the following formula (9-1): QDtotal

QDindep  QDcoord  QDapprv

(9-1)

where QDtotal = total number of decisions made by marketing department managers for the period, pieces QDindep = number of independent decisions made by marketing department managers for the period, pieces QDcoord = number of coordinated decisions made by marketing department managers for the period, pieces QDapprv = number of approved decisions made by marketing department managers for the period, pieces The marketing department’s independence coefficient IRDmarkt is the ratio between the number of independently made decisions and the total number of decisions made by the marketing management. We can calculate it using the following formula (9-2): IRDmarkt

QDindep

(9-2)

QDtotal

where IRDmarkt = independence coefficient of the company’s marketing department.

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With an increase in the independence coefficient IRDmarkt from 0.25 to 0.50, the marketing department (lead by the chief) transforms into a more independent administration, which should be managed by the deputy director for marketing. From the point of view of budgeting, this unit receives the status of a revenue center. With an increase in the independence coefficient from 0.51 to 0.75, for example, the marketing department transforms into an autonomous division (lead by a marketing director). As a rule, the marketing director has significant powers, including the authority to sign contracts by proxy. The limit of his/her financial authority is approximately £0.5–1.0 million. The marketing division, when acting as a center of financial responsibility, can also receive the status of a profit center. If the independence coefficient is more than 0.75 but below 1, the marketing division transforms into a relatively independent firm, such as a subsidiary or marketing firm in a holding company. The marketing division becomes a “firm within the firm.”

Maneuvering resources in the execution of works The stable obtainment of orders means that the firm will avoid any downtime from underutilization of its production capacity. However, if the previous object has been under repair for too long, the repair schedule for the next objects will be broken. In this case, the contractor must replace or rearrange the objects that are being repaired, as well as maneuver his resources to fill production facilities. There is a risk of losing orders for signed contracts when customers will not wait for their turn. The firm must maneuver its production, financial, labor, and other resources during downtime or when it obtains a large order. The expansion or reduction of the amount of IR resources involved during the period TI is known as resource maneuverability. The factor of the maneuverability FRM of resources is (9-3) FRM

IR TI

where FRM = factor of maneuverability of production resources, £/day IR = increase or decrease in the amount of resources RF involved in production, £ TI = time interval for resource maneuvering, days

(9-3)

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The processes for increasing and decreasing the amount RF of resources involved in production (as a function of time t) are shown in Fig. 9-1: RF

IR

0

ɌI

t

Fig. 9-1. Increasing and decreasing resources to fulfill contracts For example, customer representatives often track the time spent by the executing company’s employees; they are interested in why the supplier was late in delivering concrete to the construction site; they find out who instructed the welders to replace the metal sheet on the vessel’s hull outer skin without the approval of the Register of Shipping; and so on. Thus, the marketing efforts optimize the company’s production program, thereby ensuring stable and efficient management of production facilities and human resources of technologically related general contractors and subcontractors. An important condition is the contractor’s responsibility for the activities taking place in all divisions (including subcontractors). This is necessary because the failure of repair or construction works can disrupt the execution of projects that are controlled by the marketing department.

Practical tips Marketing specialists must take into account the specifics of production when obtaining works orders. Two examples are given below: Ɣ According to the contract, the vessel must arrive at the shipyard for repair within 6 days. The contractor must clean the vessel’s hull, which has an area of 8,200m2. In order to quickly complete this task

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in 3 days, the general contractor should engage subcontractors and rent equipment with a production capacity of at least 600m2/day. The marketing department has 8 days to prepare for the start of the works. The factor of average resource maneuverability for cleaning works is FRM = 600/8 = 75m2/day2. Ɣ The shipyard has three floating docks, which have lengths of 100m, 150m, and 200m along the keel path. The shipowner asked the marketing department to take two ships, which are 95m and 145m long, for repair at the docks. Contracts for these vessels must be signed within 2 days, or the shipowner must receive a reasonable refusal. The shipyard needs to start working on both ships in 2 weeks, and the duration of the contracts must not exceed 6 weeks. After the repairs are completed, both ships must arrive on the cargo transportation line at a good time as any delay could lead to heavy fines for the shipowner. The production situation at the shipyard is as follows. The 100m dock will be unloaded within a week. The 200m dock, which is comparatively more expensive, is now empty, but after 3 weeks a profitable order (a vessel with a length of 195m) will need to be accepted. The 150m dock is now busy, but the shipyard will unload it in 4 weeks. For the repair of both proposed vessels, the shipyard’s marketing specialists need to change the start and end dates of the contract, as well as the intensity of its execution. The 100m dock cannot be left empty for a week, while waiting for the production loading. Therefore, it would be advisable to start repairing the 95m vessel early. Starting repairs early will reduce the intensity needed when performing the larger works (within 7 weeks). However, if it is possible to persuade the shipowner to postpone the start of repairs on the 145m ship for 4 weeks, when the 150m dock will be empty, then the marketing managers will not lose a large profitable order for the 200m dock. As a result, the time taken to repair of the 145m vessel will be reduced from 6 to 4 weeks. The increased works intensity means that more production and labor resources, including subcontractors, need to be engaged.

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Definitions of concepts Ɣ The project is a temporary purposeful activity with limited resources, and its characteristics are as follows: start and end dates, objectives, composition and scope of works, budget, parties, the rights and responsibilities of participants, project conditions, and implementation plan. Ɣ The contractor executes works in the form of a project of works on the basis of a contract, for the customer’s money, and with the aim of changing the market value of the customer’s property by manufacturing, repairing, renewing, modernizing, re-equipping, processing, or liquidating an object. Ɣ The independence coefficient for the firm’s marketing department is the number of independent decisions made by the head of the department divided by the total number of decisions (which were made independently, plus which were coordinated, and plus which were approved by the company’s management). Ɣ Resource maneuverability is the ability of a company to increase or decrease the volume of resources over a certain period, depending on the changing market situation. Ɣ Positive resource maneuverability is the additional involvement of the firm’s resources over a certain period of time. Ɣ Negative resource maneuverability is the disposal of the firm’s excess resources over a certain period of time.

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Questions for discussion and testing 1. Define what is meant by “project of execution of works” and list its main factors. 2. What arguments confirm the usefulness of the project’s form in the marketing of works? 3. Why does the project for manufacturing goods only need internal approval in the firm? 4. Should marketing specialists monitor the execution and delivery of works to the customer? 5. Why are marketing specialists responsible for receiving payments from customers for works performed? 6. How and for what purpose do marketing specialists manage start dates, end dates, and the duration of contracts? 7. Can the marketing department control the customer’s objectives, actions, rights, and responsibilities? 8. What elements of the marketing mix correspond to the composition and scope of works, the project’s budget, and the project’s executors? 9. To what extent can marketing specialists manage the project’s conditions? 10. How do you calculate the marketing department’s independence coefficient? 11. Why and when should a company maneuver its resources and/or involve external resources?

CHAPTER TEN MARKETING RESEARCH IN THE MARKET OF WORKS

Overview In this chapter, we will find out who needs marketing research and why. Readers will learn when it is profitable to engage external researchers and how to position their company in the market. We will demonstrate how to perform both external marketing research and an internal marketing audit of the company. We will pay special attention to the effectiveness of marketing research. In addition, readers will learn about the results of research in the marketing of works. At the end of the chapter, there is an example of disadvantages in terms of a specific firm’s marketing activities, which were identified during an internal marketing audit.

Who needs marketing research and why? Marketing research is one of the most important activities for any company that produces goods, works, or services and receives income from sales. However, market research by itself is not the ultimate goal of marketing specialists. Marketing is an applied science for a specific result, which is expressed by the amount of revenue generated by the sale of products (goods, works, and services). The firm’s marketing microenvironment (which includes participants who influence the firm) allows us to build a system of “market space coordinates” in order to position the market members. At the same time, the firm operates in the marketing macroenvironment, which includes factors that influence the course of market time. In other words, the firm’s

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marketing microenvironment determines the spatial structure of the market, and the marketing macroenvironment affects the course of market time. But what does this all mean? First, the manufacturer of goods must research the structure of demand in the market. He designs and manufactures goods at his own expense. Then he finds purchasers and, as a result of sales, returns the money he has spent to the firm. If the manufacturer’s marketing specialists have made a mistake when determining the structure of demand or the volume of goods, he will sell the goods at a loss or even not sell them at all. Executors of works and providers of services also research demand in the market. After this, they find customers mainly using database marketing. “Executors receive payment or guarantee of payment from customers based on the terms of their contract. They only begin to execute works or render services after receiving this money or guarantee of payment” (source: https://www.emeraldinsight.com/journal/jbim/28/8). An independent marketing firm cannot engage in “abstract” theoretical research without an internal or external order or, in other words, “for future use.” By order of the company’s managers, specialists can conduct marketing research to advertise their company or sell ready-made research reports to potential consumers who are interested in the current market situation. An example of this type of research would be a report on the trends (research topic) in housing construction in a particular city or country; this would be of interest to construction firms, development companies, and private or corporate investors. Researchers develop reports on a specific market segment on the initiative and at the cost of the marketing firm. By definition, these studies are non-substantial goods that the firm delivers using a physical medium, such as a laser CD/DVD, USB flash drive, or stapled sheets of paper. The marketing firm can sell the report like any commodity or “put it on the shelf” without any indemnity. As a result, the marketing firm cannot be compensated for the money spent on marketing research. Another situation occurs when a marketing firm receives an order from a manufacturing company for research in the field of agricultural machinery sales, for example. This type of contract refers to a group of works orders. Why is this so? The marketing firm is acting on the initiative and for the money of the customer, who runs a tractor plant. This marketing research is a process, rather than a finished product. The tractor plant initially owns this research report because the plant pays money for it. Upon completion of the works, the marketing firm submits the report and

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does not sell it to the customer. In this case, the transfer of ownership does not take place. In addition, the marketing firm carries out research based on the task that the customer formulates. As a result, marketing research has all the characteristics of a product, since it is a source of revenue. Moreover, individual marketing research is not a service because, in the process of research, marketing specialists extract, analyze, and remake information that has a market value. In contrast, the main activity of a cleaning company, which provides cleanliness in the office, does not create market value, as it only maintains a sanitary condition and a comfortable environment for marketing specialists.

When is it more profitable to hire your own marketing researchers? Medium and large companies operating in the market of works have the opportunity to hire their own experts to complete marketing research. This has its advantages. The company’s researchers specialize in the nomenclature of works performed by the company, they know the specifics of the industry and existing market members, and they can correctly apply the relevant legislative and regulatory acts. If the annual costs of marketing research by third-party firms CMRouts exceed the annual salaries of the marketing research specialists SSSown, it will be more profitable for the company to hire several of its employees. In this case, the inequality (10-1) will be as follows: CMRouts ! SSS own

(10-1)

where CMRouts = costs for marketing research by third-party firms, £/year SSSown = salaries for the company’s own marketing specialists, £/year The application of the marketing of works is impossible without marketing research completed in the target market for works. The seller of works studies demand but the buyer of works researches supply. They both study their competitors and partners; they also look for investors and avoid unfriendly mergers and acquisitions.

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Positioning the firm in the market A firm that operates in the local or regional market of works should “know the face” of almost all of its competitors. In addition, it should be able to easily find stronger and weaker competitors and partners. By completing a survey of experts, drawing up SWOT matrices, and using other tools, the firm can position itself in the market of works. In order to do this, the marketing department accurately lines up the rating series of other market members. If the number of companies that are interested in the firm does not exceed 100, the marketing department can determine its closest competitors, buyers, and suppliers according to generally accepted evaluation criteria. When studying the national market of works, the number of market members covers hundreds and thousands of the firms, which differ in many respects. Therefore, researchers are forced to limit the scope of the search, using several of the company’s most important indicators. These indicators could include the nomenclature and assortment of works executed, the size of the firm, the number of employees, and the technologies used. At the same time, marketing specialists select firms that are most similar to their own company. The limitations are the ability to access information and the period of time required for quantitative and qualitative data processing. Researching the markets of works in other countries involves studying the behavior of their participants. The marketing department will face many obstacles, some of which cannot overcome without involving local partners, when completing works. Foreign partners are more aware of their national markets and can provide fairly accurate and timely information. As a result, marketing specialists can build adequate rating matrices for a multitude of market participants, including competitors, customers, suppliers, investors, general contractors, subcontractors, and so on. The rapid globalization has forced many large multinational corporations to research global markets that stretch around the world. And with each new level of research, the number of participants, the factors involved, and the complexity of managing these factors increase. The company’s marketing microenvironment and macroenvironment are becoming less and less predictable, and the speed of market processes is accelerating. It is becoming increasingly difficult to extract information, which is also becoming increasingly expensive. Marketing specialists can choose to use inexpensive, but not always adequate, secondary marketing information or conduct their own “field” research to obtain more accurate primary marketing information. The researchers compile a database of

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consumers using the obtained marketing information. This is necessary for the practical application of the marketing of works.

How do you start marketing research? The company’s marketing director has appointed you as a marketing researcher and commissioned you to study the market of repair works for residential buildings in your city. You recently got a job in a repair and construction company and want to prove yourself as a good specialist. First, you should position your company in the target market and study the company’s existing advertising brochures and current price-lists, as well as become acquainted with the estimates and specifications of works and services under previously completed contracts. You need to talk with the company’s experienced specialists. As a result, you will learn about your company’s strengths and weaknesses, as well as its opportunities and threats. A small SWOT analysis (strengths, weaknesses, opportunities, and threats) will enable you to see the target market segment, narrow the search range, save time and effort, and fulfill the task successfully and efficiently. If, in the course of market research, you see emerging opportunities for developing new market segments or vacant market niches, your proposals will show the breadth of your search and your desire to contribute to your company’s development. Nevertheless, the main result of your marketing research will be data that can ensure the sales of works using existing technologies, equipment, personnel, and specializations within the company’s financial capacity. In order to do this, you also need to investigate your competitors’ pricing policies by compiling comparative tables of the “unit prices” for the same works and services according to the example given in Table 10-1.

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Table 10-1. Example of a comparison of unit prices for competitors’ works and services

1. 1.1

Works Installation and fixing column reinforcement Filling floors with concrete up to 40 mm thick Services Transportation of windows and doors Obtaining construction permits …

1.2

2. 2.1

2.2

Unit price, £ Alpha Beta System System

Average Gamma unit System price, £

Quantity

Name of works and services

Unit of measur.

No.

m

1

14.40

19.00

18.50

17.30

m2

1

28.50

30.25

31.10

29.95

tÂkm

1

2.44

2.30

2.52

2.42

set

1

880.00

960.00

1,250.00

1,030.00

…

You must define your company’s position in the market (that is, leader, average participant, or outsider). You should also identify your most dangerous competitor and the size of its market share; this should then be compared with your firm’s market share. You must calculate the production capacity of participants in the city market for repair and construction works and services, taking into account the recommendations of this textbook. As a rule, the repair of houses and apartments has a complex character. The contractor repeats the works and services in each estimate or specification, so you will need to combine them into groups for a comprehensive repair of houses and apartments. When you find out your competitors’ data, you should then study the next element of the firm’s marketing microenvironment: its customers. By specifying keywords, you can use search engines on the Internet in order to find potential customers’ websites and announcements. In addition, you will find news and inquiries posted by customers on electronic platforms, where they hold electronic auctions for the purchase of goods, works, and services. To do this, you will need to be accredited on the electronic auction website and create a personal account for your company with a login, password, and scanned copies of the company’s registration documents. You must obtain an electronic key certificate from a certification

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authority to provide a secure electronic/digital signature. The usual carrier for such a key is a USB flash drive. In addition, some information can be found in traditional reference books, news feeds, and various documents of customer associations. You can try to find similar research reports in the Internet archives of specialized agencies. The information in these reports is often outdated or refers to another industry, but the layout of the report will be useful to you as an example. Perhaps someday you will receive your Researcher ID and become a subscriber of the ResearchGate social network or a similar community! Besides the nomenclature of works, unit prices, and market capacity, the research report will need to describe the current market trends in the city and your country or even in the world. This will enable you to forecast changes in market indicators for a year and for three years. Since secondary marketing information is not enough for a highquality report, you should also conduct your own “field” research. When marketing goods, you can go shopping and see the goods on the shelves but it is much more complicated in the marketing of works. You can find some primary marketing information by engaging in industrial intelligence. For example, you can call yourself a representative of a customer who is interested in executing repair works. In this case, the competing company’s marketing department will inform you of which nomenclature and assortment of works are performed, their unit prices for works and services, the technologies and equipment used, and so on. They will need to note the availability of their firm’s highly qualified specialists. They will also list clients who can recommend their company. Naturally, you cannot ask questions about a competing firm’s revenues, profits, or development plans. Some of this information can be found through city/country statistics or open access reports of public joint stock companies (corporations). Lobbying groups in local municipalities can also help to characterize the firms that they are protecting.

Internal marketing audits Finding, attracting, and retaining customers are key functions in the marketing of works. The activities of the marketing department do not only cover external research, as they also extend to other equally important functions, including analysis, planning, organization, communication, integration, production, pricing, distribution, sales, and control. We will study these functions in this textbook.

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At a ship repair yard or construction company, marketing specialists conduct marketing audits as internal research to find strengths and weaknesses, as well as new threats and opportunities for their firm. This will encourage them to develop an action plan to improve their company’s activities. Firms in the field of the marketing of works, as a rule, do not have stable public and private orders; therefore, they need to find the production loading on their own. Marketing researchers must identify the conditions, methods, and features of their competitors’ actions when searching for customers, signing contracts, executing works, receiving payments, and so on. At the same time, it is better to learn from your competitors’ mistakes than from your own!

The effectiveness of marketing research in the market of works The result of marketing research should be a steady flow of orders for the manufacture of new objects; renovation, modernization, or re-equipment of existing objects; as well as the liquidation of the customer’s objects. These will be the orders and customers that the marketing department found when researching the target market. The stable obtainment of orders is the absence of company downtime; this is when the next orders begin before the fulfillment of previous orders. When a stable flow of orders is reached, the following condition is satisfied t endi ! t starti 1 , where: tend i = end time of the previous i-th order, day tstart i+1 = start time of the next i+1 order, day As a result, the time interval between the works orders is as follows (10-2): TIO

t starti1  tendi

(10-2)

where TIO = time interval between orders for works, days. Thus, with a stable receipt of orders, the time interval between them will be equal to TIO t starti 1  tendi  0 . When there is an unstable receipt of orders, there will be time gaps between the end dates of previous orders and the start dates of the next ones. The inequality t endi  t starti 1 shows the instability of receiving orders with time gaps.

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In this case, the time interval between orders is equal to TIO t starti 1  tendi ! 0 . This is known as idle time without contracts. When downtime takes place, the company must maneuver its production facilities, as well as its financial and labor resources. For example, the company can reduce labor costs by using unpaid leave for its employees, its technological equipment may be leased out on a short-term basis, and money may be temporarily withdrawn from bank deposit accounts. At a time when the firm is idle, marketing specialists should increase the intensity of their research. The marketing department will face reproaches from production (and other) departments if marketers are not constantly looking for orders. The pressure from the company’s top management on the marketing team will also increase. Every marketing manager and specialist must learn to act under this type of pressure.

Stability of receiving discrete orders Do you think it is better to have a lot of small works orders or a few large ones? Large discrete orders mean utilization of the company’s production capacity for at least one calendar month. The volume of this order will exceed the company’s average revenue for one calendar month. Serial discrete orders for works are contracts where the end time of the previous order for works tend i coincides with the start time of the next order tstart i+1 that is, t starti1 { t endi or the time gap between orders for works does not exceed the average duration of one order ODaver (10-3): (t starti 1  tendi ) d ODaver

where tend i = end time of the previous i-th order for works, day tstart i+1 = start time of the next i+1 order for works, day ODaver = average duration of discrete order for works, days Serial discrete orders for works are illustrated in Fig. 10-1:

(10-3)

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i-th order i+1 order

0

t tend i

tstart i+1

Fig. 10-1. Serial discrete orders for works Unstable discrete orders for works mean there is a time gap between the end of the previous order and the start of the next order (10-4), which exceeds the average duration of one discrete order (Fig. 10-2): (10-4)

(t starti1  t endi ) ! ODaver i-th order i+1 order

0

t tend i

tstart i+1

Fig. 10-2. Unstable discrete orders for works The durable period of time required to receive and execute large discrete orders means that marketing departments must complete a significant amount of research and reliably predict the development of many markets that affect the company’s economic prospects. There are volatile markets for raw materials, energy, components, technologies, equipment, tools, labor, and other resources. At the same time, the executing company’s marketing department must convince the customer of the accuracy of their calculations and forecasts when negotiating the price of a long-term contract. This is not the case for shortterm orders. Therefore, marketing research of the executing company in the market of works is distinguished by the concreteness of its results. We evaluate

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the effectiveness of marketing research in terms of the total amount of contracts signed by the firm based on the results of the research completed. Research in the market of goods should answer the following question: “What and how much should be produced for sale?” However, research in the market of works should answer a different question: “What works should we sell in order to execute them in the future?”

Practical tips We will now consider the following example. A marketing department developed 88 commercial offers (for executing works) for 6 months and received 26 contracts. The marketing effectiveness was 29.5 percent. In order to assess the economic efficiency of marketing activities, it is necessary to take into account the instability of incoming orders during a certain period. The “coefficient of stability” is the ratio of the company’s minimum monthly revenue to the maximum amount of revenue for a month in a year. For example, the result was £1,446,500/£2,566,600 = 0.564. The coefficient is less than the recommended value of 0.7. Therefore, the total (cumulative) amount of orders for the year more adequately reflects the actual implementation of the annual revenue plan. As a result of internal marketing research (that is, the internal marketing audit), the researchers found the following disadvantages in the firm’s marketing activities (Table 10-2): Table 10-2. Disadvantages in the firm’s marketing activities No. 1. 2. 3.

4. 5.

Disadvantages in marketing activities Marketing managers are not covering the target segments of the market of works, including all known potential customers. The company’s agent network is slowly expanding. The activities of company representatives are ineffective. Marketing managers do not always send commercial offers to customers in a timely manner and rarely adjust offers based on the market situation. The quality of developing commercial offers for the manufacture and repair of objects is low. Failures and difficulties in relations with customs have arisen when developing the supporting documentation for orders from foreign consumers.

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6.

7.

8. 9. 10.

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Table 10-2. Continued Marketing specialists do not determine the break-even threshold for each work and service, which means that it is difficult to make economically justified decisions when negotiating with customers and participating in tenders. Insufficient working capital and high interest rates for bank loans make it impossible to start fulfilling orders without receiving advance payments. The lack of a sufficient reserve of raw materials, processed materials, and spare parts does not allow accepting urgent orders. Cost overruns often occur when executing orders for the repair of objects. The company does not integrate into international cooperation, which negatively affects its production loading.

According to the results of the internal marketing audit, the marketing department should draw up an action plan to eliminate the revealed disadvantages. .

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Definitions of concepts Ɣ Marketing research is the activity of marketers, which is aimed at obtaining timely and correct information about the current situation and development trends of target markets for goods, works, and services. Ɣ Primary marketing information is a set of data that marketing researchers receive directly from consumers. Its advantages are accuracy and adequacy. Its disadvantages are the high cost and long searching and processing times. Ɣ Secondary marketing information is a set of data that marketing researchers find in reports by other authors. Its advantages are low cost and quick data acquisition. Its disadvantages are obsolete data and frequent inconsistency with the research topic. Ɣ Specialists conduct marketing research in the market space (that is, in the company’s micro- and macroenvironment) and during market time (its velocity depends on the processes taking place in the economy). Ɣ Marketing research conducted on the basis of a paid order creates or changes the market value of information as an object of works. Ɣ Research topics in the market of works involve the ratio of supply and demand, the nomenclature and assortment of works, unit prices for works, characteristics of competitors, works market capacity, trends in developing sectors of the economy, and so on. Ɣ Marketing research in the market of works should generate a steady flow of profitable orders corresponding to the company’s production capacity. Ɣ Marketing specialists conduct marketing audits as internal research to find strengths and weaknesses, as well as new threats and opportunities for their company.

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Questions for discussion and testing 1. What is the purpose of marketing research in the market of goods, works, and services? 2. How does the marketing microenvironment determine the structure of the “market space?” 3. What is the difference between internal and external marketing research orders? 4. When is marketing research a product (that is, goods or works)? 5. How do you calculate whether to engage third-party marketing researchers? 6. Why is it necessary to compare unit prices for your firm’s works and that of your competitors? 7. List the main sources of primary and secondary marketing information. 8. How do you organize commercial intelligence to obtain information for marketing research? 9. Is the main task of marketing research to find customers and orders for works? Why? 10. Is the criterion for effective marketing research a steady flow of works orders? 11. How do you divide products into goods, works, and services when conducting research?

CHAPTER ELEVEN INFORMATION SYSTEMS AND CUSTOMER DATABASES

Overview

In this chapter, readers will become familiar with the structure of information systems and how to obtain and use marketing information in their activities. We will learn how to narrow a search field, as well as how to save time and money when obtaining data and achieving cost recovery. Readers will also find out how to calculate key information indicators, including secrecy, accuracy, and urgency. Readers will learn the value of loyal customers. We will highlight the basic issues surrounding creating and maintaining a customer database in the marketing of works. We will also examine the “personalization of activity” and contact schedules with potential customers. An example of a customer database will be given at the end of the chapter.

Information systems in the marketing of works Information resources are one of four types of resources controlled by marketing specialists. A famous saying states that “who owns the information, owns the market.” And this is not an exaggeration. In the marketing of works, management of the information system and customer databases is one of the marketing department’s most important functions. In practice, the information system in the marketing of works includes information sources and information transmission channels, as well as techniques for data search, accumulation, sorting, analysis, use, clarification, protection, and so on.

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The contractor mainly develops marketing information to find customers. Primary marketing information enables him to obtain prompt and adequate data as a result of direct “field” market research. This is an expensive and time consuming way. Secondary marketing information is cheaper because researchers obtain it from ready-made resources, such as Internet web pages, journals, reports, and reviews from other authors. Its disadvantages are incomplete compliance with the industry specificity and the nomenclature of works researched; in addition, the data obtained is often no longer relevant.

Organizing activities using marketing information It is necessary to clarify and protect information, overcome distortions, organize feedback, and perform other tasks (see Fig. 11-1). Marketing information has the following purposes and functions: Ɣ Requesting an information search Ɣ Searching for primary marketing information Ɣ Searching for secondary marketing information Ɣ Overcoming noise and interference Ɣ Collecting and accumulating data Ɣ Sorting and analyzing information Ɣ Checking and protecting data Ɣ Writing reports and draft decisions Ɣ Submitting items for consideration Ɣ Managing decisionmaking Ɣ Writing and analyzing sales reports Ɣ Organizing unbiased feedback Ɣ Drafting marketing decisions Ɣ Providing feedback The main purpose for processing marketing information is to enable the company’s top managers to make the correct decisions.

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Requesting an information search

Primary marketing information

Secondary marketing information

Overcoming noise and interference

Collecting and accumulating data

Promotion in the marketplace and sale of goods

Execution of works and provision of services

Organizing unbiased feedback

Submitting items for consideration

Design and manufacture of goods

Promotion and sale of works and services

Drafting marketing decisions

Sorting and analyzing information

Writing and analyzing sales reports

Managing decisionmaking

Accumulating production resources

Checking and protecting data

Writing reports and draft decisions

Feedback

Fig. 11-1. Block diagram showing the collection, processing, and application of information

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Narrowing the search field of information The contractor’s marketing department should narrow the search field to reduce the cost of finding information about planned orders and potential customers. For example, marketing specialists can segment objects according to the selection criteria, such as geometrical dimensions, gravitational mass, time period, and amount of funding. A ship repair yard considers all vessels to be potential objects; however, their length and weight should not exceed the length of the ship repair dock keel and the maximum permissible lifting capacity of the dock, respectively. Otherwise, a large ship will not fit in size or the floating dock will sink due to the ship’s excessive weight. However, too small objects will not provide the necessary economic efficiency, because the resources spent on repairing smaller or larger ships are not significantly different. The below polygon shows the information search field—the target market segment—of the executing company (Fig. 11-2). LV 5

LVmax 2

6

3 1

LVmin

4

0

MVmin

MVmax

MV

Field of admissible values

Fig. 11-2. The field of admissible values for sought works order characteristics Fig. 11-2 uses the following notations:

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LV = overall vessel length, meters LVmax = maximum vessel length, meters LVmin = minimum vessel length, meters MV = vessel docking mass, tons MVmax = maximum vessel docking mass, tons MVmin = minimum vessel docking mass, tons Fig. 11-2 shows the range of admissible values for the main search criteria for ship repair works orders. Vessel No. 1 (smallest) and Vessel No. 2 (largest) are in the range of admissible values. Ship No. 3 is too small in mass for repair in the dock, and Ship No. 4 is too small in length, while Vessel No. 5 is too long and Vessel No. 6 is too heavy. Restricting the search criteria enables marketing managers to narrow the boundaries for the required marketing information and achieve savings in terms of resources (time and money). The cost of searching for, obtaining, or purchasing information varies depending on the industry, as well as its volume, urgency, novelty, and accuracy.

The volume and cost of marketing information We can measure the volume of information by the size of its content. The cost of information depends on the unit price of information and the volume of content, as well as its clarifying coefficients: urgency, secrecy, and accuracy. We will calculate the cost of information CMI using the following formula (11-1): CMI

Curgen ˜ Csec r ˜ Caccur PMI ˜ VMI

(11-1)

where CMI = costs of obtaining marketing information, £ Curgen = coefficient of information urgency Csecr = coefficient of information secrecy Caccur = coefficient of information accuracy PMI = unit price for marketing information, £/printed sheet VMI = volume of marketing information, printed sheets Usually, marketing specialists measure the volume of information by the number of conditional printed sheets containing about 40 thousand characters without spaces.

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Cost effectiveness of marketing information Researchers must cover the cost of marketing information (acquisition expenses) with revenue generated by using this information for marketing purposes. Information about competitors’ high-performance methods to promote works to the market should give a tangible increase in sales of the company’s product; this additional profit POmi could then recoup the costs of obtaining the information. In other words, inequalities (11-2) and (11-3) will be as follows: (11-2)

RMI ! CMI POmi

RMI  CMI ! 0

(11-3)

where RMI = company revenue generated using the obtained marketing information, £ POmi = company profit generated using the obtained marketing information, £ Thus, the marketing department can control the economic effect of the acquisition of information resources.

The secrecy of information Marketing specialists can find the secrecy coefficient values for the received information Csecr in Table 11-1. Other companies may use different names to describe the levels of confidentiality. Table 11-1. Coefficients for information secrecy No. 1. 2. 3. 4. 5.

Level of confidentiality Open access For administrative use Confidential Strictly confidential Extremely important

Value of the coefficient Csecr 1.0 1.1 1.3 1.5 2.0

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We will learn how to protect trade secrets in Chapter Twelve of the textbook.

The accuracy of information Specialists can calculate the reliability of the marketing information by the volume of accurate data within the total volume of information. They can measure this characteristic as a percentage. Researchers can use the data in Table 11-2 to calculate the coefficient of information accuracy Caccur. Table 11-2. Characteristics of information accuracy No.

Level of information accuracy

1. 2. 3. 4.

Accurate Fairly correct Insufficiently correct Inaccurate

Reliable information, % 96–100 67–95 34–66 5–33

Value of the coefficient Caccur 1.0 0.8 0.5 0.1

Marketing specialists cannot use information that is rated lower than 67 percent.

The urgency of information Many companies that develop new markets for works need urgent information to overcome difficulties in their activities and study their competitors’ counteractions. This requires most accurate and secret information; however, companies are willing to pay large sums to obtain it quickly. Indicators of information urgency are shown in Table 11-3. Table 11-3. Indicators of information urgency No. 1. 2. 3. 4.

Level of information urgency Not urgent Urgent Extremely urgent Needed yesterday

Value of the coefficient Curgen 1.0 1.5 2.0 3.0 and more

The coefficient for information urgency Curgen shows that the payments for prompt information can be significant.

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The more carefully managers plan to obtain information in advance, the less their company will have to spend on it.

Loyal customers are key capital of a firm Over the course of several years (or even decades) of impeccable work, a company will make a profit, create a positive reputation, and accumulate a customer database. An army of loyal customers is a great force that can advertise the company for free during its heyday and support it during difficult times. For example, loyal customers may sign a contract for executing works and pay 100 percent of the advance to the executing company or provide an interest-free cash loan, which will be paid by a fulfilled order sometime in the future. Marketers are aware of other examples when a company’s impeccable reputation in the long term becomes its invaluable capital. Therefore, the creation, accumulation, and careful management of a customer database is one of the marketing department’s most important functions in the market of works, where they sell promises based on the feedback and recommendations of their loyal customers.

Creating and maintaining a customer database It is convenient to use spreadsheets, such as Microsoft Excel or Apple Numbers, to maintain a database of customers. There are many useful programs that help marketing specialists to collect, update, sort, cut, and print information in the required form. A database will be incomplete if it only contains the smallest sets of data. The developer must supplement the customer database with a contact schedule. Marketing managers should draw up this schedule for planning and recording contacts with existing and potential customers. This document records the date, the participants in negotiations, the agreements reached, the terms for future contact, specific actions for each of the parties, customer suggestions, unsolved problems, and so on. Often, an executing firm’s top managers want to establish direct friendly contacts with the owners and CEOs of the customer’s company. The author has provided an example of a customer database in the “Practical tips” section below (see Table 11-5).

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Customer contact schedules The marketing department’s activities will become chaotic and unpredictable without a schedule of contacts with customers. Moreover, a lack of coordination between marketing managers could lead to the customer becoming irritated with the contractor intrusiveness. A sample schedule is shown in Table 11-4.

Issues discussed

Agreements reached

Next contact date

Unsolved problems

Mr ---Mrs --Dr ----

-------------------

----------------

11/12/---02/03/---04/05/----

-------------------

-------------------

Result of the contact

Participants in negotiations

10/10/---11/11/---12/12/----

Participantsÿ actions

Date of contact

Table 11-4. Sample customer contact schedule

-------------------

Ship repair yards or construction companies search for orders themselves using customer databases and contact schedules. Instability in terms of receiving orders for works or a lack of production loading creates serious financial and staff problems for companies. Therefore, these firms consider marketing efforts to be a key activity to ensure their development and survival in a competitive market environment.

Personalization of contacts The marketing of works does not always allow us to average the results of activities over a certain period or to carry out statistical data processing. Marketing in the ship repair and house construction industries focuses on finding and receiving orders from well-known customers in the oligopolistic market in the face of opposition from well-known competitors. Marketing specialists concretize their activities in accordance with specific orders and customers. The repair of commercial vessels is a technically and organizationally complex activity. Obtaining orders for ship repairs depends on many subjective and random factors that cannot be accurately planned. At the same time, the supervisory authorities’ requirements determine the duration and scope of the repairs. This enhances market predictability.

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Direct contacts with the shipowner’s specific representatives can help to protect the order from failure. The construction of residential and non-residential buildings is also a complex activity. The developer’s plans may become blocked for several reasons, including lack of land rights and his own funds, resistance from competitors and the public, lack of electric capacity and water supply networks, as well as because of investors’ refusal to cooperate. Therefore, it is important to establish personal friendly contact and trust with representatives of local authorities, supervisory institutions, bona fide investors, government agencies, and non-governmental organizations.

Information for making the right decisions Research methods and techniques in the market of works are of great interest to managers and specialists working in the ship repair and house construction industries. Today, many managers make decisions intuitively based on their previous experience and their competitors’ behavior. The marketing department is responsible for ensuring the company’s survival and future prosperity, because its well-being depends, among other things, on the ability of marketers to quickly find accurate information. Researchers apply the criterion of sales gross profitability when analyzing a company’s activities. They base this calculation on the ratio between the gross profit generated by sales and the amount of revenue for a certain period. However, this indicator depends on the whole company’s effectiveness, and not only on its marketing activities. An analysis of a company’s accounts will reveal the degree of its customers’ solvency and loyalty. This characteristic also depends on the impact on the company’s debtors to repay the debt for the goods, works, and services delivered to them. In addition to sales gross profitability, we can use the market activity coefficient to determine the marketing system’s effectiveness; this is the ratio between the revenue generated by the sale of products (goods, works, and services) and the value of the firm’s assets. Also, macroeconomic instability in the region of potential customers strongly affects the effectiveness of marketing. At the same time, macroeconomic ups and downs have a greater effect on manufacturing durable capital (industrial) goods in the B-to-B markets than short-term consumption goods in the B-to-C markets. When determining the production program, it is necessary to know not only the volume of demand, but also the factors affecting its structure for each element of product (goods, works, and services).

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The marketing department should strive to increase the company’s overall profitability, production volumes, profitability of orders, the company’s share in the market, stability in obtaining orders, and the number of loyal customers to achieve the company’s goals. The effective use of information resources based on a marketing information system is one of the key conditions for the successful operation of executing firms in the market of works.

Practical tips Table 11-5 shows an example of a customer database. Table 11-5. An example of a customer database No. 1. 1.1. 1.2. 1.3. 1.4. 1.5. 1.6. 1.7. 1.8. 1.9. 2. 2.1. 2.2. 2.3. 2.4. 2.5. 2.6. 2.7. 2.8. 2.9. 2.10. 3. 3.1. 3.2. 3.3.

Data Customer company Company name Registration address Mailing address Telephone/Fax Mobile phone E-mail address Website Social media pages Corporate messenger Head of the company Position First, middle, and last names Title Personal phone number Personal email address Social media profiles Date of birth Hobbies, interests, and preferences Family members Pet Deputy head Position First, middle, and last names Title

Information

Sail of ---------------------------------------------------------@---------.com https://www.----------.uk --------------------------Director John ------- ------Dr (Ph.D.) [email protected] --------------11/11/19-Tennis and horse riding Wife, son, and daughter Cat Deputy Director George ------- ------Mr

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3.4.

Table 11-5. Continued Influence on decision making

3.5. 3.6. 3.7. 3.8. 3.9.

Personal phone number Personal email address Social media profiles Date of birth Interests, hobbies, and preferences

4. 4.1. 4.2. 4.3. 4.4.

The contact person Position of the contact person First, middle, and last names Title Influence on decision making

4.5. 4.6. 4.7. 4.8. 4.9. 5. 5.1. 5.2. 5.3. 5.4. 5.5. 5.6. 5.7. 5.8. 5.9. 6. 6.1. 6.2. 6.3. 6.4. 6.5. 6.6. 6.7. 6.8. 6.9. 6.10.

Personal phone number Personal email address Social media profiles Date of birth Hobbies, interests, and preferences Contact log Date of the last contact Issue discussed Result of the discussion Participants What should the customer do? What should the contractor do? Unsolved problems Date of the next contact Participants in the next contact Order and cooperation history Name of the last order Cost of the last order Payment for the last order Advance payment Start and end dates Duration of the order Warranty obligations Customer satisfaction Degree of customer loyalty Willingness to cooperate

167

The main influence on the decision maker [email protected] -------------10/10/19-Hunting and numismatics Head of department Mary -------- -------Mrs Minor influence on the decision maker [email protected] --------------12/12/19-Cycling and floriculture 11/11/20-Construction of the hotel Consensus Directors Technical task Draft contract Cost of the contract 12/12/20-Deputy Directors Hotel ------------£ ---------------10/10/20-30 percent 12/12/20-- to 10/10/20-34 months 12 months Satisfied Very loyal Ready to cooperate

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Definitions of concepts Ɣ The marketing information system is a complex set of elements that includes sources and channels of information flow; it also has rules for searching, accumulating, sorting, analyzing, using, correcting, and protecting information. Marketing specialists use this information to search for works orders. Ɣ The field of marketing information search is the area of acceptable values that are limited by the characteristics of the objects being processed and the parameters of the company’s corresponding production facilities. Narrowing the search field saves time and resources when obtaining works orders. Ɣ The cost of marketing information depends on the unit price of information, the volume of content, and its urgency, secrecy, and accuracy. Ɣ Secrecy of marketing information reflects the inaccessibility of the data it contains to many market participants, including competitors. The loss of secret information causes significant harm to its owner. Ɣ Accuracy of marketing information means the reliability of the data it contains. Accurate information enables managers to make the right decisions. Ɣ Urgency of marketing information means obtaining the necessary data in a short time. Rapid acquisition of information allows the firm to take advantage of unexpectedly emerging market opportunities or avoid sudden market threats. Ɣ The customer database is a confidential document that includes information about customers and directly affects the firm’s ability to receive contracts for works.

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Questions for discussion and testing 1. What problems does marketing information help to solve in the marketing of works? 2. List the main stages of working with marketing information. 3. How does narrowing the search field reduce the cost of obtaining marketing information? 4. What are the limiting search criteria when looking for information in the market of works? 5. How can specialists measure the volume of marketing information? 6. How do urgency, secrecy, and accuracy of data affect the cost of information? 7. Why should the marketing department maintain a database of both its own clients and its competitors’ customers? 8. List the basic information that should be held about customers in the database. 9. What is the customer contact schedule and how is it drawn up? 10. What information about the contractor should the customer’s letter of recommendation contain? 11. How can you assess potential customers’ solvency in the marketing of works?

CHAPTER TWELVE TRADE SECRETS AND THE PROTECTION OF INFORMATION IN THE MARKETING OF WORKS

Overview In this chapter, readers will find definitions for trade secrets and the market value of information. We will be able to discern information that constitutes a firm’s trade secrets. Also, we will determine the amount of lost profits from a lack of advertising, as well as losses due to the disclosure of the company’s secrets in the market of works. Readers will become familiar with the procedure for calculating the effectiveness of advertising and the danger of leaking data about the company, as well as the requirements for establishing the degree of confidentiality. We will learn to protect company trade secrets and to counter spying activities by competitors. Readers will know that the company’s main trade secrets are in its marketing department, which operates in the market of works.

The market value of information In previous chapters, we learned how to find, accumulate, verify, and use marketing information. There are two other important conditions for success in the marketing of works: obtaining another company’s information resources and protecting your own company’s information from damage and theft. Marketing information can be of great value for the firm’s competitors in the market of works.

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This means that the marketing department should pay special attention to keeping the company’s trade secrets secure and preventing information leaks. Under the conditions of market competition, marketing counterintelligence is an important prerequisite for victory. One of the peculiarities of the orders for works in the ship repair or house construction industries is the amounts of such contracts, which are often millions of pounds sterling. These types of large orders are sought after by competitors and will encourage them to start a war to possess your trade secrets.

Information that constitutes a trade secret According to the well-known definition, a trade secret is information that brings significant revenue to its owner, as well as significant losses when it is lost or stolen by a competitor. In the marketing of works, information that constitutes a trade secret includes the following: Ɣ Customer data: company names; phone numbers; addresses (legal, postal, and electronic); and the first, last, and middle names of top managers Ɣ Composition, scope, and amount of works under contract Ɣ Details of completed projects, design and technological documentation, licenses, patents, and so on Ɣ Lists of suppliers of equipment, components, and materials for the performance of works In contrast to the marketing of goods, where marketing specialists advertise goods (i.e. finished products) without revealing their production secrets, in the marketing of works, marketing specialists must advertise the company itself. This means that they often inform customers and competitors about the advantages of their technology, equipment, materials, and employees. Where are the limits for such types of advertising, and will it involve disclosing trade secrets? How do you correlate the need to disclose company secrets in advertising and to preserve this information in order to avoid leaking trade secrets?

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Balancing advertising and preventing the disclosure of a company’s secrets We will now consider how to balance the protection of a company’s trade secrets with the need to advertise (Fig. 12-1):

1

Advertising

Trade secrets

2

Advertising

Trade secrets

0

Iɋinsuff

Iɋ Iɋexcess Balance

Fig. 12-1. Balancing a company’s trade secrets and advertising In Fig. 12-1, we used the following notations: Iɋexcess = excessive information content about the company in advertising, printed sheets Iɋinsuff = insufficient information content about the company in advertising, printed sheets Fig. 12-1 presents two variants for a company’s volume of advertising and the volume of its trade secrets. Pay attention to the following information: Ɣ The company is overly open (1): the volume of information in advertising Iɋexcess exceeds the balance of advertising and secrecy and, as a result, information constituting a trade secret gets to the company’s competitors. Ɣ The company is too closed (2): the volume of trade secrets exceeds the volume of advertising and, as a result, customers do not have

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enough information Iɋinsuff about the company, and the company does not receive orders. In the first case, the company suffers losses and, in the second case, the company misses out on profits.

The volume and value of information available Marketing specialists measure the volume of information about a company in terms of its trade secrets or advertisements by using printed characters, words, or printed sheets. Specialists calculate the amount of losses due to an excessive volume of information (trade secrets) in the company’s advertising in monetary units (£). They also compute the amount of lost profits from the insufficient volume of information in the company’s advertising in monetary units (£), respectively. We define the effectiveness of advertising AE as the amount of revenue RE generated by advertising, which is divided by the volume of information ICadver about the company in the advertisement. We calculate it using the following formula (12-1): AE

RE ICadver

(12-1)

where AE = effectiveness of the company’s advertising, £/printed sheet RE = amount of revenue generated by advertising during the placement period, £ ICadver = volume of advertising information about the firm, printed sheets The danger of a trade secrets leak DL is the amount of damage resulting from leaking the trade secrets divided by the volume of confidential information about the company, using the following formula (12-2): DL

SL ICconfid

where DL = danger of leaking a company’s trade secrets, £/printed sheet SL = amount of damage resulting from the trade secrets leak, £

(12-2)

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ICconfid = volume of confidential information containing the company’s trade secrets, printed sheets We calculate the amount of lost profits PL from insufficient information in the company’s advertising using the following formula (12-3): AE ˜ ICinsuff

PL

(12-3)

where PL = amount of the lost profits from insufficient advertising, £. We calculate the amount of losses LR due to excessive information in the company’s advertising (thereby inadvertently leaking trade secrets) using the following formula (12-4): LR

DL ˜ ICexcess

(12-4)

where LR = amount of the resulting loss from excessive advertising, £. Thus, the effectiveness of the company’s advertising increases as a result of the growth in the amount of benefits received from advertising, which is referred to the volume of advertising content. We measure advertising content in printed sheets that contain the advertisement’s text.

The degree of confidentiality for information about the company Specialists can use the data in Table 12-1 to determine the importance of information constituting a trade secret. Table 12-1. The degree of confidentiality of information No. 1.

2.

The degree of User level confidentiality For administrative Executors use

The type of confidential information

Confidential

Lists of customers and subcontractors, value of contracts, new technologies, and cost structure.

Mid-level managers

Regulations of activity, lists of employees, sales volumes for the period, and lists of suppliers.

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3.

4.

Strictly confidential

Extremely important

Table 12-1. Continued Top managers Marketing tactics, order book, financial

Head and owners of the company

reports, contracts in the negotiation and signing stages, and special arrangements with customers and subcontractors. Strategic plans, investment areas, target markets, government lobbies, and the amount and distribution of profits.

In each company, the list of confidential information may differ from the above data.

How should we protect trade secrets? On the special order of the company’s director (or chief executive officer), the security department determines a list of the company’s financial and marketing activities which make up its trade secrets. All marketing personnel must be familiar with the order. With each marketing department employee, the company’s security service draws up an additional agreement to the main employment contract, which details the employee’s disciplinary, administrative, or criminal liability when intentionally or unintentionally disclosing information that constitutes a trade secrets. The firm’s director (or CEO) entrusts the responsibility for determining a document’s degree of confidentiality to its developer. The storage conditions must correspond to the document’s degree of confidentiality. Marketing specialists store confidential paper documents “for administrative use” in lockable cabinets and office desks, as well as electronically in password-protected computers. Marketing managers store paper documents with a degree of secrecy “confidential” in metal safes and electronically in password-protected computers in separate folders, which are protected by additional access passwords. Top managers store documents with a degree of secrecy “strictly confidential” on paper in fireproof personal safes and electronically in password-protected computers, which are locked in their offices. The owners and the head of the company must store documents that are considered to be “extremely important” on paper in fireproof safes and at their own risk. They should not store “extremely important” confidential documents in electronic form, and they must destroy these electronic files after the documents have been drawn up and signed on paper.

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The local computer network administrator is obliged to limit access to file sharing on the company’s computers. The administrator must provide protection against external threats and unauthorized access to confidential information by installing periodically updated antivirus programs, monitoring the network for spyware and malware, informing users about the danger of opening attachments in suspicious messages, and so on. To protect information from e-mail hacking, we must archive the transferred documents in a ZIP file and set a password. The password must be communicated to the recipient of the documents using another source; for example, via SMS, MMS, WhatsApp, Viber, or another instant messenger. In the marketing department, employees cannot reuse sheets of documents that contain trade secrets. Employees must destroy such paper documents, as well as records that contain signatures, the company’s seal, and special service stamps, such as “Paid” or “Copy is true.” We should pay special attention to the actions of marketing department’s employees who are interested in information that is not intended for them or who have recently resigned in order to keep trade secrets secure in these circumstances. Marketing in the field of works is a highly specialized activity. Therefore, employees who leave the company are more likely to remain in this field and find employment in a competing company. When leaving, an employee could try to take a “marketing dowry” with him/her: that is, information constituting a trade secret. Usually, employees accumulate information in advance of their resignation, and it is not always possible to prevent this type of information theft. Therefore, it is important to prevent trade secrets from being leaked in the future. It is advisable to take simple security measures, which include changing all passwords and paying special attention to your employees’ behavior.

How to fight your competitor’s spies? In addition, commercial spies can permanently work in your company. They are often disgruntled employees who have access to the firm’s trade secrets and who are not satisfied with their salary or working conditions. Competitors can introduce a non-resident to your company, such as a new employee who will be able to access confidential information as quickly as possible. Thus, the marketing department of the company executing the works must have its own information security (including cybersecurity)

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specialists, who can ensure the safety of trade secrets. Their role must significantly differ from activities that are focused on maintaining the physical safety of the company’s personnel and property. At the same time, top managers must find a balance between trusting the company’s employees and maintaining a reasonable level of vigilance to ensure that confidential information is protected.

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Practical tips The head of the supply department in a construction company was interested in potential orders for the construction of industrial and residential buildings. The marketing department had participated in tenders and prepared for negotiations with regard to this. The head of the department explained that he was interested because he needed to prepare for the upcoming purchase of building materials and finished structures for these objects. Marketing specialists helped him to become acquainted with commercial offers for the construction of buildings, the creation of infrastructure facilities, landscape design, and the installation of playgrounds and sports grounds. This was in violation of the security instructions surrounding compliance with the “secrecy” regime. For unexplained reasons, a competitor received a contract to construct a workshop building to manufacture electronic equipment. The municipality commissioned the competing firm to improve the city’s recreation and entertainment areas. Since the head of the supply department was a mid-level manager, he only had access to “confidential” and “for administrative use” materials. This manager received unauthorized access to information with a degree of “strictly confidential” via data from marketing specialists that revealed information about expected contracts and potential customers. The cost of leaking confidential information for this company was DL = £500,000 per printed sheet. The volume of the stolen information (that is, the commercial offer and project documentation), which was calculated by the volume of the “strictly confidential” document, was ICconfid = 1.5 printed sheets. This equals 40,000 Â 1.5 = 60,000 characters without spaces. Marketing specialists calculate the amount of losses caused by leaking trade secrets (SL) using the formula: SL = DL Â ICconfid = 500,000 Â 1.5 = £750,000 The spy received a reward of 3 percent of the competitor’s income for the secret information given to the competitor. The fee was 750,000 Â 3/100 = £22,500. With a salary rate of £4,500 a month, the head of the supply department received an amount equal to five months’ salary. The fact that the spy acquired a new car aroused suspicion and enabled the company’s security department to expose him.

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Definitions of concepts Ɣ Trade secrets are a concept that reflects the confidentiality of information whose use enables the owner to increase revenue and reduce costs in the current market situation, provided that the trade secret does not become known to competitors. Ɣ The danger of leaking a trade secret is the amount of damage caused by the leak divided by the volume of lost confidential information about the company. Ɣ The effectiveness of advertising is determined by the amount of revenue received from the advertisement, divided by the volume of information about the company provided in this advertisement. Ɣ A company is overly open when the volume of information in advertising exceeds the balance of advertising and secrecy and, as a result, information constituting a trade secret gets to the company’s competitors. Ɣ The degree of confidentiality of information is a concept that depends on the amount of possible damage from the loss of information. The degree of data confidentiality includes “for administrative use,” “confidential,” “strictly confidential,” and “extremely important.” Ɣ A commercial resident spy is a company employee, who is hired by a competitor to conduct commercial intelligence. Ɣ A commercial non-resident spy is an employee of a competing company, who conducts paid commercial intelligence in another firm without being an employee of this firm.

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Questions for discussion and testing 1. What is the definition of a “trade secret” in the market of works? 2. List the basic information that relates to a company’s trade secrets in the market of works. 3. Why are marketing specialists forced to give detailed information about their firm in advertising? 4. How can you achieve the sufficiency of advertising without disclosing your company’s trade secrets? 5. Explain how specialists can calculate the cost-effectiveness of efforts to promote their works in the market. 6. How do you identify the danger of a trade secrets leak for a company? 7. What are the lost profits from insufficient advertising and the losses from trade secrets leaking? 8. List the levels of confidentiality with regard to trade secrets. 9. Which employees of the company must sign an agreement to ensure their compliance with regard to maintaining trade secrets? 10. How should paper and electronic documents be stored based on the degree of their confidentiality? 11. How to counter the commercial espionage of competitors in the company’s marketing department?

CHAPTER THIRTEEN MARKETS OF WORKS: SEGMENTATION AND RANKING

Overview In this chapter, readers will learn about the peculiarities of market segmentation according to the nomenclature of works and the technologies used, as well as the ranking market participants based on their rating numbers. We will build a market space coordinate system and list some measures that restrict access to markets. Readers will learn how to build the coordinate axes of a multidimensional market space, which take into account the degree of customer loyalty and competitor hostility. We will present the market of goods, works, and services as a social and economic system. In addition, readers will find a method to calculate the level of competition among market participants in order to segment the market by this criterion.

The segmentation of the market of works Specialists should apply well-known marketing tools and techniques in the marketing of works, including segmenting the market and ranking its participants. Market segmentation enables us to reduce our efforts and increase our marketing impact on the target audience. The segmentation of the market of works is the process of grouping potential customers according to their reaction to marketing messages. During segmentation, the following key criteria are applied: territory, nomenclature of works, volume of orders, applied technologies, customer solvency, and so on. The results of segmentation enable us to rank customers, assign them their rating numbers, and place these customers along rating coordinate axes in accordance with their rating numbers. Ranking customers allows

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us to rationally allocate the company’s resources (material, financial, labor, and information) when obtaining orders and filling the order book (portfolio of works). Marketing specialists can segment potential customers according to territories using the following criteria: domestic or foreign; local, regional, national, or global; rural or urban; highlands or lowlands; and so on. Marketing researchers can also segment customers according to sectors of the economy: machine-building, capital construction, energy, agriculture, and so on. In turn, they can divide the machine-building (mechanical engineering) segment into the following subcategories, for example: Ɣ Transport engineering: aircraft manufacturing, rocket production, automobile industry, shipbuilding, and railroad carriage manufacturing Ɣ Mechanical engineering products: machine tools, conveyors, robots, welding systems, and painting chambers Ɣ Agricultural machine-building: tractors, combines, and feeders Table 13-1 shows market segmentation by the nomenclature of works and the technologies used. Table 13-1. Market segmentation according to the nomenclature of works and technologies used in mechanical engineering No. 1.

Nomenclature of works Cutting

2.

Cleaning

3.

Painting

4. 5.

Bending Welding

6.

Casting

7. 8. 9. 10. 11.

Assembly Disassembly Installation Dismantling Adjustment

Features of the technology used Milling, guillotine, gas, plasma, stamping, punching, etc. Manual, mechanized, abrasive, hydrodynamic, chemical, etc. Hand painting, air spraying, airless spraying, thermoplastic coating, two-component coating, etc. Mechanical, automatic, pipes, profiles, sheets, etc. Gas, electric (automatic and semi-automatic), in an inert environment, under a layer of flux, etc. Under pressure, in chill molds, on wax models, by extrusion, etc. Manual, robotic, automated, etc. Manual, mechanized, non-destructive, etc. Manual, robotic, automated, etc. Manual, mechanized, non-destructive, etc. Manual, automatic, etc.

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Segmentation by type of works covers the manufacture, renewal, modernization, re-equipment, and liquidation of objects. Nomenclature of works includes the following: cutting, cleaning, painting, bending, welding, casting, assembly, dismantling, installation, adjustment, milling, turning, and drilling. The author has provided a classification of works for mechanical engineering. The nomenclature of works for agriculture (for example, crop production) is shown in Table 13-2. Table 13-2. Market segmentation according to the nomenclature of works and technologies used in crop production No. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11.

Nomenclature of works Reclamation Fertilizing Drainage Watering Plowing Sowing Harrowing Harvesting Threshing Drying Storage in grain elevator

Features of the technology used Restoration of soil fertility The use of aviation and drones Drain pipe laying Drip irrigation Tractor plowing Trailed or self-propelled seeders Trailed harrows Harvester technology Harvester technology Drying grain before using a grain elevator Drying, mixing, and treatment against pests

Companies execute the following works in the housing construction (monolithic-frame housing construction), which are shown in Table 13-3. Table 13-3. Market segmentation according to the nomenclature of works and technologies used in housing construction No. 1. 2. 3. 4. 5. 6.

Nomenclature of works Layout the plot Smoothing the site Excavation Formwork Laying concrete under the foundation Installing and binding column reinforcement

Features of the technology used Laser marking technologies Using bulldozers and graders to smooth Digging with excavators Manufacturing and installing mechanized formwork Pumping concrete from a concrete mixer Mechanically installing and manually binding the reinforcement

184

7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17.

Chapter Thirteen Table 13-3. Continued Pouring concrete columns Pumping concrete from a concrete mixer Stacking and binding floor Mechanically installing and manually binding the reinforcement reinforcement Pouring concrete on floors Pumping concrete from a concrete mixer Mechanized feeding and laying bricks Filling the walls with bricks manually Installing a roof with Mechanically lifting roof structures and waterproofing manually installing waterproofing Manufacturing windows Automated (robotic) manufacturing and doors Installing windows and Mechanized lifting and installation doors Filling floors Pumping concrete from a concrete mixer Wall and ceiling coverings Mechanized installation of panels Finishing walls and Mechanized application of protective and ceilings decorative coatings Arranging floors Laying parquet, laminate, linoleum, etc.

In practice, marketing specialists segment the market of works for ship repair, agriculture, and construction by groups of works, taking into account the subcontractors’ existing specialization. Usually, a few large companies will execute all the listed works. However, a narrow specialization in only one or two works dramatically reduces the firm’s chances of receiving complex orders. Therefore, market segmentation is not carried out for every individual work and it, instead, focuses on groups of technologically related works.

Ranking participants in the market of works Ranking participants in a company’s marketing microenvironment allows us to accurately place every company in the market space relative to others. Rating agencies (Standard & Poor’s, Moody’s, Fitch Group, ARC Ratings, Bloomberg LP, DBRS Limited, CARE Ratings, Fortune, etc.) annually calculate rating numbers and create rating lists (TOP-50, TOP-100, TOP500, etc.) of market participants. We can use spatial coordinate axes to create a multidimensional market rating space where we place customers, suppliers, competitors, investors, state institutions, and non-governmental organizations (operating in this market) along these axes based on rating numbers. At the same time, marketing specialists can arrange the rating series of the customers according to the following criteria:

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Ɣ Customer solvency Ɣ Stability of orders Ɣ Complexity of the works ordered Ɣ Friendly relations Ɣ Willingness to make concessions (and the like) Similarly, we can rank the company’s subcontractors according to the following criteria: Ɣ Price level and labor productivity Ɣ Quality and timeliness of work Ɣ Specialization in the market Ɣ Willingness to assist in an emergency (and so on) Rating agencies periodically compile lists of companies that are leaders in a particular industry, using their own methods and ranking criteria. Marketing specialists only need to use a simplified method of calculating rating numbers to rank, e.g., their customers and subcontractors.

Restrictions in the markets The main difficulty in modern works markets is the practice of dumping prices. Despite their participation in the World Trade Organization, most world leaders, including the United States, China, and other countries have created preferential conditions for their own companies. According to the World Bank, countries with economies in transition use the following as protectionist measures (source: http://www.worldbank.org): subsidies (31 percent), import duties (49 percent), import bans (9 percent), and nontariff measures (11 percent). Developed countries mainly use subsidies and other measures to support domestic producers. Receiving orders for the execution of works (including the manufacture, renewal, modernization, re-equipment, or liquidation of objects) depends on many subjective and random factors. These factors do not allow marketing activities to be properly planned. Therefore, the integration of product marketing and production management is necessary in the marketing of works. The integration of marketing and design, like the integration of marketing and technology, helps to effectively overcome market restrictions. Marketing managers should cooperate with designers when developing new types of works, as well as with technology experts when developing new processes for executing them.

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Since many markets of works are oligopolistic in nature, new executors must overcome other market constraints, including high barriers to entry into these markets. National antitrust committees, chambers of commerce, business associations, and others can be state and nongovernmental partners of such firms.

The market’s spatial coordinate system Actually, the market of works includes the company’s marketing microenvironment, which is where the market’s multidimensional spatial coordinate system is located. This coordinate system is under the not entirely predictable impact of the company’s marketing macroenvironment. The macroenvironment includes, e.g., natural, political, economic, technological, social, cultural, and demographic factors that can accelerate or slow down market time. The company’s marketing microenvironment forms the market’s spatial structure. The marketing macroenvironment influences the course of market time. As a result of the impact of the marketing macroenvironment, participants find themselves in unequal conditions, so that firms close to the authorities are in more favorable conditions (because of lobbying their interests), while others are in unprivileged business conditions. Participants’ different rights can lead to unequal access to resources, opportunities to receive orders and do business, and so on. A differentiated state policy creates favorable conditions for privileged participants in the legal market of works, and this policy creates unfavorable conditions for other market participants, which forces them to enter the illegal market. Liberalization of tax policies contributes to the migration of business from the “shadow” market to the legal one. The political factors of the marketing macroenvironment are a consequence of, for example, a party of exporters or importers coming into power. As a result, the national economy in the global market will be predominantly a financial acceptor (the party of exporters in power) or a financial donor (the party of importers in power). Fig. 13-1 presents the three-dimensional spatial coordinate system of a multi-product firm-seller (manufacturer of goods, executor of works, and service provider). Due to the peculiarities of market specialization, this company occupies different rating levels along the axes of the “goodsworks-services” coordinate system. At the same time, owing to the seasonality of demand and supply, market instability, and the impact of macroeconomic cycles, market participants oscillate with different

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amplitudes along the “goods-works-services” axes of the market coordinate system, where they are located. Goods Seller in the market of goods

5

4

3

2

1 Works Seller in the market of works

Services

Seller in the market of services

Fig. 13-1. The company-seller’s spatial coordinate system in the goods, works, and services markets Fig. 13-2 shows a three-dimensional coordinate system with market segmentation by products (“goods-works-services”) in relation to a multiproduct company (that is, buyer of goods, customer of works, and client of services), which has different rating numbers along the “goods-worksservices” axes. When researching the markets of goods, works, and services, the marketing department places its company on each axis in accordance with the rating numbers relative to the market leader at the point of origin, which has a rating number “1”. A multi-product company operates in all three areas of the market, namely, the production and sale of goods, the search for customers and execution of works, and the search for clients and provision of services.

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Goods Buyer in the market of goods

5

4

3

2

1 Works

Buyer in the market of works Services

Buyer in the market of services

Fig. 13-2. The company-buyer’s spatial coordinate system in the goods, works, and services markets Such universalism (i.e. diversification) in terms of products significantly expands the company’s market opportunities to generate cash flows from various sources.

Customer loyalty and competitor hostility We can relatively easily “lure” our competitors’ insufficiently loyal customers to our company; these customers are weakly “tied” to competitors and will be placed at the end of the ranking with a large market distance from our company in the market space. At the same time, marketing managers should ensure that the most valuable customers and suppliers are at the shortest market distance from their company. A functioning company is an open system that absorbs and emits cash flows. The firm, as a market acceptor, absorbs cash flows from buyers of goods, customers of works, and clients of services. However, as a market donor, the firm emits cash flows to purchase goods, as well as to order works and services.

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Let us consider the following concepts. The levels of the company’s microenvironment correspond to the degree of their partners’ loyalty or their competitors’ hostility (see Table 13-4). Table 13-4. The degree of partner loyalty and competitor hostility Level of the company’s microenvironment First Second Third Fourth

Degree of partner loyalty

Degree of competitor hostility

Highly loyal Fairly loyal Moderately loyal Low loyal

Extremely hostile Very hostile Moderately hostile Slightly hostile

State institutions in each company’s marketing microenvironment act in one of the following two ways: Ɣ As market donors through government orders, subsidies, and subventions Ɣ As market acceptors by collecting taxes, fees, and duties for the state’s budget Non-governmental organizations act in a similar way when they buy goods as a donor or collect contributions as an acceptor. A “ring” of loyal private firms usually surrounds state and local governments. These firms have access to public resources and constitute the nearest market microenvironment for parliament, cabinet, or municipality. However, because of the limited number of places near the sources of public resources, private firms constantly have to compete for power and spheres of influence.

Constructing the market space’s coordinate axes Marketers should apply the following rules when constructing the market space’s coordinate axes. They must measure the distance along the first (abscissa) axis to the right of the market coordinate system’s origin for suppliers and to the left for buyers (in the direction of cash flow from donors to acceptors). Next, marketers measure the distance forwards along the second (applicate) axis for competitors and backwards for investors (in the direction of cash flow from donors to acceptors). At the same time, the

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company’s management should check the dynamics of change in the market distance for each buyer, supplier, competitor, and investor. The estrangement of a buyer or supplier from the company is a huge loss, especially if they move to a competitor. Such a buyer prefers a competitor and rarely turns to the previous company. From the viewpoint of the seller, however, this buyer has moved away from the seller in his own multidimensional market system. Besides, when marketing specialists choose a market leader (No. 1) as their base company, they build a market space relative to that leader as the center of the market spatial coordinate system. They then place market acceptors (suppliers, executors, and providers) according to their rating numbers on the abscissa (axis) to the right of the base company. Conversely, market donors (buyers, customers, and clients) are placed to the left according to their ranking. The direction of the axis coincides with the direction of cash flow from left to right (see Fig. 13-3). Rgens

+ Subcontractors

– Investors

Buyers

–

+ Rbuys

1

Suppliers

+

–

Rinvc

General contractors

Competitors

Fig. 13-3. Orthogonal coordinate system of the market space The company’s subcontractors are located upwards in proportion to their rating numbers along the third (ordinate) axis, and general contractors are placed downwards in accordance with their rating numbers. The direction of the axis corresponds to the movement of the cash flow from the general

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contractors: the firm receives money from them and transfers it to subcontractors along the technological integration chain. The second (applicate) axis of the market space’s coordinate system covers the competitors’ ratings (forwards) and ratings of the firm’s investors, such as commercial banks, investment companies, and mutual funds (backwards). The cash flow is moving forward because we believe that the company is spending money fighting its competitors. The distances along the rating axes are measured in special units of the length of the market space, namely, “rating rates.” The coordinates of the market space in terms of “rating rates” (as the rating distance) are as follows (see Fig. 13-3): Rbuys = market length along the “buyers-suppliers” coordinate axis, rating rates Rinvc = market width along the “investors-competitors” coordinate axis, rating rates Rgens = market depth along the “general contractors-subcontractors” coordinate axis, rating rates.

The market as a socio-economic system A market is an evolving socio-economic system in which the interaction of its members takes place in relation to the exchange of human labor products, that is, goods, works, services, and their cash equivalents. The main functions of the market are (1) mediation, (2) pricing, (3) regulation, (4) coordination, and (5) information. In theory and in practice, the classification of markets is based on the following criteria: Ɣ Market territory: markets are local, regional, national, and global Ɣ Level of economic freedom: markets are free, partially regulated, and fully regulated Ɣ Market participants: markets for consumers, manufacturers, resellers, state institutions, and non-governmental organizations Ɣ Products exchanged: markets for goods, works, and services (industrial and consumer; that is, B-to-B and B-to-C) Ɣ Nomenclature and assortment of products exchanged: closed, saturated, and mixed markets Ɣ Supply and demand balance: equilibrium, deficit, and surplus markets Ɣ Degree of concentration: markets have a high, medium, or low concentration

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Ɣ Compliance with legislation: legal, semi-legal, and illegal markets (and so on) Market activities take place in the market space that people create. This space has both physical and socio-economic nature. Rating distances between market participants determine the length, width, and depth of the market space. “Rating rates” are relative units for measuring market distance that enable us to unify the market’s spatial characteristics. When we say “companies that are close to us according to the market characteristics,” it means that these firms are close to us in the “market space,” even though they may be located in thousands of kilometers away from us on the globe. The market is a socio-economic system based on a set of market donors and acceptors, where interactions take place in the form of buying and selling goods, works, and services using their cash equivalents in the existing conditions—natural, political, economic, social, cultural, demographic, and others—in a specific market space during a certain period of market time.

Market segmentation based on participant competition One of the criteria for segmenting the markets of works is the level of competition between participants. The level of competition in the market segment LKM is the ratio (13-1) between the contractors’ total production capacity (13-2) for the execution of works TPCȈ and the market’s potential capacity CMW at a given time: LKM

TPC6 CMW

TPC6

¦ PCF

(13-1)

i

(13-2)

i

where LKM = level of competition in the market segment TPCȈ = total production capacity of the executors of works, £/day CMW = potential capacity of the market of works in a given region and at a given time, £/day PCFi = production capacity of the i-th company, £/day

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A company’s production capacity is its maximum possible output of a product (goods, works, and services) of a certain quality, nomenclature, and assortment, which can be produced per unit of working time through the effective use of its material, financial, information, and labor resources. Marketing specialists should segment the market of works into categories, which reflect the firm’s competitors and their production capacities. The latter is one of the most important criteria. In order to visualize the segments of the market of works, it is necessary to build a market rating system with spatial coordinates. Pairs of market participants should be placed within it; these include the company’s “buyers and suppliers,” “general contractors and subcontractors,” “investors and competitors,” as well as “state institutions and non-governmental organizations.” In the marketing of works, market segmentation is a more multifaceted process than in the traditional marketing of goods. The generally accepted process of market segmentation only includes groups of buyers that react in the same way to the seller’s marketing messages.

Practical tips First example: the rating matrix of market participants is presented in Table 13-5.

1. 2. 3. 4. … …

Alpha Beta Gamma Delta … Omega

2 7 15 63 … 94

Eagle Dove Sparrow Albatross … Gull

3 12 27 44 … 100

Competitor Name

Mars Jupiter Neptune Pluto … Sirius

1 5 9 13 … 87

Investor Name

North South West East … Monsoon

Ranking

Supplier Name

Ranking

Buyer Name

Ranking

No.

Ranking

Table 13-5. Rating matrix of market participants

5 10 26 37 … 92

Second example: the total capacity to replace ship steel structures daily in the city’s shipyards exceeds TPCȈ = 25 ton/day, while the actual market capacity (the need to replace the steel structures of all the vessels arriving at the same time) is less than CMW = 20 ton/day.

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Therefore, the level of competition is LKM = 25/20 = 1.25. A value of LKM > 2 corresponds to a highly competitive market. The ship repair market is a competitive oligopoly with high entry barriers. Every shipyard must have expensive docks, repair embankments, production workshops with specialized equipment, and so on. Current research in this market is primarily aimed at retaining existing customers and finding new ones. The features of the market of works are its territorial segmentation, high sensitivity to market changes, local nature of works, technological specifics, and the high degree of works differentiation. Competition in the market of works is intense. Third example: at the beginning of this century, the total number of objects for repair in the regional market (South-Eastern Europe) exceeded 7.8 thousand vessels. For a large shipyard, the potential number of objects, minus the Romanian, Turkish, and Greek segments of the market, was equal to 4.6 thousand ships, excluding vessels of more than 290m in length. The Greek segment occupied the largest share in the target market, based on its volume of 59.8 percent of vessels. The Cyprus segment was 14.9 percent, the Turkish market segment was 12.1 percent, the Ukrainian segment was 4.8 percent, the Romanian segment was 4.7 percent, the Russian market segment was 2.1 percent, and the Bulgarian segment was 1.6 percent. It is recommended to visualize the target market’s structure in the form of a pie chart, which shows the results of market segmentation.

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Definitions of concepts Ɣ The segmentation of the market of works is a process of grouping customers according to the following criteria: territory, economy sector, nomenclature of works, technology used, scope of works, customer solvency, and so on. Ɣ Ranking market participants is a method of structuring the market space within the framework of the company’s marketing microenvironment. Marketing specialists rank market members based on the rating numbers of buyers, suppliers, competitors, investors, general contractors, subcontractors, non-governmental organizations, and state institutions. Ɣ The rating system of market spatial coordinates is a concept that describes the market’s spatial structure by positioning its participants along the coordinate axes according to their rating numbers relative to the market leader, which is assigned the number “1”. Ɣ The market is a socio-economic system based on the groups of market donors and market acceptors, where interactions take place in the form of buying and selling goods, works, and services using their cash equivalents in the existing conditions— natural, political, economic, social, cultural, demographic, and others—in a specific market space during a certain period of market time. Ɣ A company’s production capacity is its maximum possible output of a product (goods, works, and services) of a certain quality, nomenclature, and assortment, which can be produced per unit of working time through the effective use of its material, financial, information, and labor resources.

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Questions for discussion and testing 1. What is the “segmentation of the market of works” and what is it for? 2. How do marketing specialists rank customers of works using rating numbers? 3. What are the differences between segmentation of the market of works by territories, industries, and types of works? 4. Do marketing specialists need to understand the technological features of their company’s works? 5. How does government policy divide firms into privileged and unprivileged categories? 6. How do you build a rating system of coordinates in the goods, works, and services markets? 7. How do the degrees of partner loyalty and competitor hostility affect their positions on the market coordinate axes? 8. What is the rating coordinate system for participants in the company’s microenvironment? 9. List the coordinates of the three-dimensional rating space in the marketing of works. 10. Define what is meant by “markets” and list the variants for classifying them. 11. What is the executing firm’s production capacity and how do you calculate the level of competition in the market segment?

CHAPTER FOURTEEN THE MARKETING VECTOR: PRODUCT AND MARKETING SPECIALIZATION

Overview In this chapter, readers will learn about the mysterious “marketing vector” that everyone is talking about, but which has not been understood until now. Readers will become acquainted with the prerequisites for the vector representation of the general marketing of goods, works, and services. We will also learn the practical meaning of the vector’s modulus, tilt angles, projections, and planes in its coordinate system. We will explain the differences between a multi-product company’s “marketing specialization” and its “product specialization” in the goods, works, and services markets. At the end of the chapter, readers will find an example of how to calculate the marketing department’s performance indicators in the markets of products.

Prerequisites for creating a marketing vector representation We will consider the vector representation of general marketing, which combines the marketing of goods, the marketing of works, and the marketing of services. In order to do this, we will visualize the marketing coordinate axes, as well as conceptualize the marketing vector and its projection on the marketing coordinate axis. We will also study formulas for positioning the marketing vector in the market space. In practice, most companies’ marketing departments implement all three types of marketing. This requires collaboration with other

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departments of their firms. As a result, marketing specialists view general marketing as a system of three elements that complement each other, i.e., the marketing of goods, works, and services. These three parameters define the three-dimensional vector.

The marketing vector of goods, works, and services We will consider a concept of the marketing vector of goods, works, and services in a three-dimensional orthogonal coordinate system. Taking into account the presence of three sources of revenue generated by the company’s operating activities—manufacturing goods, executing works, and rendering services—we can present these marketing directions as axes of a three-dimensional coordinate system (Fig. 14-1) that defines a vector, which is called the “marketing vector of goods, works, and services.” Marketing costs for promoting goods to the market

g MVg

MV

MVw

MVs w

0 s Marketing costs for promoting services to the market

Marketing costs for promoting works to the market

Fig. 14-1. The marketing vector in a three-dimensional coordinate system We measure the marketing costs for promoting goods, works, and services in pounds sterling (Fig. 14-1). The vector will tilt towards the corresponding cost axis for selling goods, works, or services; the vector’s orientation makes it possible to

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visualize the company’s marketing specialization. If we represent the three specified marketing directions as segments on each axis (g, w, and s) of a three-dimensional orthogonal coordinate system, then we will define the marketing vector MV according to Fig. 14-1.

The projection of the marketing vector as the cost of selling products The projection of the marketing vector on the axes of the marketing coordinate system is equal to the cost of promoting goods to the market MVg, the cost of promoting works to the market MVw, and the cost of promoting services to the market MVs. These concepts represent the necessary expenses when selling goods, works, and services in the market. These expenses are the company’s distribution costs because the total labor costs are presented in cash form with overhead costs when selling the company’s products. We can conditionally accept the distribution of financial, material, and information resources for promoting goods, works, and services to the marketplace in proportion to the labor costs of marketing employees (that is, “marketing efforts”). We can calculate the cost of marketing activities for the promotion of goods to the market (i.e., the modulus of vector MVg) via the generally accepted practice of determining the cost of labor when selling goods and then by multiplying the “unit price of marketing efforts” by the “scope of marketing efforts” according to the following equation (14-1): MVg

UPg ˜ QE g

(14-1)

where MVg = projection of the marketing vector on the “g” axis of marketing costs for promoting goods, £ UPg = unit price of marketing efforts to sell goods, £/standard hour QEg = scope of marketing efforts to promote goods to the market, standard hours We can interpret the unit price of marketing activities as the cost of marketing specialist’s labor for a standard hour. For industrial goods, the labor input required increases because highly qualified buyers make decisions about the purchase of goods based on rational factors. Therefore, greater marketing efforts are needed to sell production facilities.

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Similarly, we define marketing costs (that is, the marketing vector modulus MVw) as the costs of selling the works (promoting the works to the market) according to the following equation (14-2): MVw

(14-2)

UPw ˜ QE w

where MVw = projection of the marketing vector on the “w” axis of marketing costs for promoting works, £ UPw = unit price of marketing efforts to sell works, £/standard hour QEw = scope of marketing efforts to promote works to the market, standard hours Marketing costs for promoting services to the market (i.e., the vector modulus MVs) are calculated in a similar way to the costs of selling services (14-3): MVs

(14-3)

UPs ˜ QEs

where MVs = projection of the marketing vector on the “s” axis of marketing costs for promoting services, £ UPs = unit price of marketing efforts to sell services, £/standard hour QEs = scope of marketing efforts to promote services to the market, standard hours.

The modulus of the marketing vector as the total cost of sales The total cost of marketing activities to promote goods, works, and services in the marketplace can be found using modulus MV of the marketing vector (in pounds sterling), which we calculate from its projections along the g, w, and s axes according to the following formula (14-4):

MV

2

2

MVg  MVw  MVs

2

(14-4)

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Formula (14-4) illustrates that marketing specialists, regardless of the product they sell (goods, works, and/or services), use the common resources of the firm’s marketing department. These costs cover not only labor resources, but also financial, material, and information resources. These cost items include the following: Ɣ Labor input of marketing activities Ɣ Marketing communications: advertising, sales promotion, public relations, personal sales, etc. Ɣ Information resources, including print and Internet sources Ɣ Office equipment, rooms, stationery, communications, and transport Ɣ Physical protection and cybersecurity Since the marketing department’s capabilities and resources are usually limited, the marketing vector tilts in the direction of marketing, which should receive the most attention and money. We can find the type of marketing activity from the marketing vector projection using Table 14-1. Table 14-1. Types of marketing activities according to the marketing vector No. 1. 2. 3.

Condition MVw = MVs = 0 MVs = MVg = 0 MVg = MVw = 0

Result MV = MVg MV = MVw MV = MVs

Type of marketing The marketing of goods The marketing of works The marketing of services

MVg

MVg MVgw ȕ

Ȗ MVw

Į

MVw

MVws

MVsg MVs

MVs Fig. 14-2. The marketing vector projection for the three marketing coordinate system planes

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We can also find the marketing vector MV in tilt angles Į, ȕ, and Ȗ on each axis of the projections MVg, MVw, and MVs in the corresponding planes “goods-works,” “works-services,” and “services-goods” of the coordinate system in which we define the vectors MVgw, MVws, and MVsg (Fig. 14-2). These two-dimensional vectors are used to describe the sales of the corresponding pairs of products.

The planes of the marketing coordinate system The planes of the marketing coordinate system have the following practical meaning. The “works-to-goods” plane (MVg, MVw) shows the interdependence between marketing efforts when works are executed for goods, such as, the manufacture, repair, modernization, re-equipment, or liquidation of goods. This interaction has the following direction: MVw ĺ MVg. On the contrary, goods (buildings, facilities, equipment, rigging, tools, overalls, etc.) are required to execute works. Therefore, the opposite direction of interaction is MVg ĺ MVw (“goods-to-works”). The “services-to-works” plane (MVw, MVs) shows that executing works is impossible without providing related services, such as, connecting and supplying energy (electricity, water, natural gas, compressed air, etc.), cargo transportation, developing documents, and transferring payments. Therefore, this marketing interaction is oriented in the following direction: MVs ĺ MVw (we use vector modulus). The opposite direction occurs when developing or improving services: MVw ĺ MVs, that is, “works-to-services.” In this case, the contractor creates some value (executes works) and, in accordance with the contract for developing a new service (for example, a logistics route), the customer (logistics company) pays the cost of creating this service to the contractor (consulting company). The “services-to-goods” plane (MVs, MVg) defines marketing activities that cover rendering services for the pre-sale preparation of goods, after-sales service, and maintenance of goods during their operation (for example, refueling, washing, and delivery). This marketing interaction has the following direction: MVs ĺ MVg. The opposite direction, MVg ĺ MVs (“goods-to-services”), refers to goods for rendering services; this means buildings, structures, rigging, tools, transport, etc., which are necessary for providing contact or noncontact services. For example, contact services include hairdressing services, and non-contact services include customs clearance services.

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A company’s marketing specialization in the goods, works, and services markets We can find the firm’s marketing specialization in the marketing planes by comparing the values of the tilt angles Į, ȕ, and Ȗ. We will calculate these angles using formulas (14-5), (14-6), and (14-7), which are applied in trigonometry to find the main values of an arctangent:

D

arctg ( MVg MVw )

(14-5)

E

arctg ( MVw MVs )

(14-6)

J

arctg ( MVs MVg )

(14-7)

where Į = tilt angle of the projection of the marketing vector MVgw in the “goods-works” plane to the “w” axis of the cost of efforts to sell works, radians ȕ = tilt angle of the projection of the marketing vector MVws in the “works-service” plane to the “s” axis of the cost of efforts to sell services, radians Ȗ = tilt angle of the projection of the marketing vector MVsg in the “services-goods” plane to the “g” axis of the cost of efforts to sell goods, radians When comparing the angles Į, ȕ, and Ȗ, the values of which are less than zero, we should reject the ones that make no economic sense. The analysis of the correlation of marketing efforts enables the company’s top management to pursue a more reasonable marketing policy. An integrated approach to selling goods, executing works, and providing services to overcome their limitations contributes to greater customer satisfaction and increases the company’s competitiveness in the market. Also, a comparison of the angles Į, ȕ, and Ȗ, as well as an analysis of the ratio of costs for marketing activities in three areas, enables the company’s top management to find their marketing specialization using the planes of marketing coordinate system. We must note that the concept of a company’s “marketing specialization” is significantly different from the generally accepted concept of “product specialization.”

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A company’s product specialization in the goods, works, and services markets Marketing practitioners can find a company’s “product specialization” using the ratio for their sales volumes of goods, works, and services over a certain period. However, a company’s “marketing specialization” depends on the ratio of the costs of marketing activities when promoting their goods, works, or services. For example, according to the “product specialization,” the company is predominantly a manufacturer of goods but, according to its new strategy, the marketing costs for promoting new services significantly exceeds those of promoting goods. In this case, the “marketing specialization” is in the service sector. In the future, sales of services could exceed sales of goods; this means that the firm’s “product specialization” and “marketing specialization” will coincide. Marketing specialists emphasize the need to diversify production, taking into account the modern economy’s instability. As a result, a multiproduct (diversified) company will produce goods, execute works, and provide services. In the science of marketing, the concepts of “marketer’s marketing specialization,” “vector of advertising and marketing,” “marketing vector of public administration,” and “marketing vector” can also refer to other things than the sale of goods, works, and services. However, our understanding is different. The marketing vector is a vector that takes place in a threedimensional orthogonal coordinate system, on whose axes the costs of promoting goods, works, and services to the market are indicated. Its modulus determines the total cost of marketing activities, which takes the synergy effect into account. The vector’s orientation corresponds to the company’s marketing specialization. Marketing specialization means the predominance of costs for marketing activities to promote one of the constituent elements of a product—goods, works, or services—in the total amount of the company’s expenses. The orientation of the marketing vector in the marketing coordinate system illustrates the “marketing specialization.” In order to find a firm’s marketing specialization, it is necessary to compare the value of the marketing vector MV projection on the axis of marketing costs for selling goods, works, and services with the value of the vector’s modulus. We can solve this task by comparing the value of the angle ʌ/4 (0.7854 radians) with the tilt angle Į of the marketing vector MV to the marketing axis of works, with the tilt angle ȕ of the vector to the

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marketing axis of services, and with the tilt angle Ȗ of the vector to the marketing axis of goods. If Į < ʌ/4, then the firm’s marketing specialization is promoting works in the “goods-works” marketing plane. With ȕ < ʌ/4, the company’s activity specializes in promoting services in the “works-services” plane. For Ȗ < ʌ/4, it focuses on promoting goods in the “services-goods” plane. As a result, the marketing department’s “product specialization” in the broadest sense means marketing activity based on a product’s three elements: goods, works, and services. We can find a firm’s product specialization using the ratio between its goods, works, and services sales over a certain period. A multi-product company is a company that operates in all three product markets: the manufacture and sale of goods, the search for customers and execution of works, and the search for clients and provision of services. A company’s marketing specialization depends on the ratio of the costs of marketing activities to promote its goods, works, and services in relation to the total cost of its marketing activities. There is a mutual influence between the three elements of the general marketing of goods, works, and services. This is the basis of the vector representation of marketing. The orientation of the marketing vector of goods, works, and services in a three-dimensional orthogonal coordinate system enables marketing practitioners to determine a company’s marketing specialization. It also allows managers to efficiently distribute resources for the sale of goods, works, and services, as well as save them due to the synergy effect from the simultaneous implementation of the three marketing directions.

Practical tips Table 14-2 provides an example of the labor input per month for the promotion of goods, works, and services for each type of activity. The unit price of marketing activity includes salaries of marketing employees, overhead expenses attributed to the wages fund of the main production workers, taxes to the state budget, and contributions to state extrabudgetary funds. The cost of material, financial, and information resources is added to the cost of labor resources. Let us suppose that the unit price of marketing activity does not depend on the type of marketing and is £110 per standard hour. The nominal fund of the manager’s working time is 160 hours per month, which equates to a 40-hour working week.

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It is necessary to calculate the marketing costs for the month (that is, the modulus of the marketing vector MV); the number of functional managers for each type of marketing; and determine the firm’s marketing specialization. Readers can calculate the cost of marketing efforts by multiplying the unit price of marketing activity by the marketing managers’ labor input in accordance with Table 14-2. Table 14-2. The parameters of a company’s marketing activities Parameter Labor Cost of input, marketing standard activity, £ Type of hours marketing The 480 52,800 marketing of goods The 640 70,400 marketing of works The 320 35,200 marketing of services Total 1,440 158,400

Number of marketing employees, persons

The plane of Tangent The main marketing of the tilt value of the coordinate angle arctangent, system radian

3

Servicesgoods

0.667

Ȗ = 0.588

4

Goodsworks

0.750

Į = 0.643

2

Worksservices

2.000

ȕ = 1.107

9

–

–

–

The total number of functional marketing managers in the marketing department should not exceed 9. We will find the marketing vector modulus using formula (14-4). Substituting the values of the characteristics MVg, MVw, and MVs, we will obtain MV = £94,779. Therefore, the expenses are less than the total costs (£158,400), which corresponds to the activities of three independent departments for each type of marketing. The company has a marketing specialization in works, because the projection of the marketing vector on the axis of the costs for promoting works is the largest (£70,400). We can determine the marketing specialization for particular hybrid offerings (pairs of products) by comparing the values of the tilt angles Į, ȕ, and Ȗ in each marketing plane: “goods-works,” “works-services,” and “services-goods.” We calculated the angles Į, ȕ, and Ȗ, using the above formulas (14-5), (14-6), and (14-7) for the main values of the arctangent. As a result, the “services-goods” plane shows that the main activity is the sale of goods, while the provision of services performs an auxiliary function. In the “goods-works” plane, the main activity is searching for works orders, and the auxiliary is the delivery of related goods to customers.

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Definitions of concepts Ɣ The marketing vector of goods, works, and services is a vector characteristic in the three-dimensional coordinate system, which reflects the marketing costs of promoting a product’s three elements, that is, goods, works, and services. Ɣ The projections of the marketing vector on the axes of the marketing coordinate system are the costs of promoting and selling goods, works, and services, respectively. Ɣ The modulus of the marketing vector is the total marketing cost, which is equal to the unit labor cost of marketers, taking into account the cost of all resources for marketing, multiplied by the volume of labor input for promoting all of the products to the market. Ɣ A company’s marketing specialization is an activity that corresponds to the largest amount of marketing costs for promotion of goods, works, or services in relation to the total amount of its marketing costs over a certain period. Ɣ A company’s product specialization is an activity that corresponds to the largest volume of sales of goods, works, or services in relation to the total volume of product sales over a certain period. Ɣ The planes of the marketing coordinate system show the interrelation of marketing efforts to promote one element of a product (that is, goods, works, or services) with the help of another element of a product. Ɣ The tilt angle of the marketing vector to the axis of the marketing coordinate system is a means of visualizing a company’s marketing specialization in the promotion of goods, works, or services.

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Questions for discussion and testing 1. Define the marketing vector of goods, works, and services. 2. How do you build a marketing vector for a multi-product company in the market for goods, works, and services? 3. What is a company’s marketing specialization and how does it differ from its product specialization? 4. What is the economic meaning of the marketing vector modulus and its projections on the coordinate axes? 5. Explain the concept of the “unit price of marketing activities” when promoting products. 6. How can you calculate the marketing costs for the sale of goods, works, and services separately? 7. How does the tilt angle of the marketing vector to the coordinate axis show a company’s marketing specialization? 8. What is the practical meaning of the coordinate planes in which the two-dimensional marketing vectors are located? 9. Write the formulas for calculating the moduluss of both the 3D marketing vector and the 2D marketing vector. 10. What is the advantage of a multi-product company operating in the goods, works, and services markets?

CHAPTER FIFTEEN THE MARKETING OF GOODS, WORKS, AND SERVICES, AND SYNERGY IN SALES

Overview In this chapter, readers will agree that marketing specialists always sell several product elements and, at the same time, use general marketing of goods, works, and services for those sales. It will become clear that a ship repair yard or construction company’s price-lists contain prices not only for basic works but also for related services and goods. Moreover, the joint sale of two or three elements of the product will save on marketing costs as a result of the synergy effect. Here, we will learn how to calculate the synergy coefficient and the amount of reduction in marketing costs when selling two or three product elements together.

The reality of general marketing of goods, works, and services When studying the features of the marketing of works that distinguish it from the marketing of goods and services, we have become increasingly convinced that in practice there is no separate marketing of goods, separate marketing of works, or separate marketing of services. Although in general it can be said that any form of marketing may dominate, depending on the company’s marketing specialization. Nobody would suggest create three marketing departments in one company to separately promote the sale of goods, works, and services. It is too expensive to maintain three separate marketing departments. Moreover, it would be impossible to divide tasks, rights, and responsibilities between them.

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At the same time, product specialization within the marketing department is a habitual phenomenon. This means that specialists use the marketing department’s common resources. The key reason for the company’s success is the marketing team’s harmonious activities where all team members cooperate. We will now consider the marketing of goods, the marketing of works, and the marketing of services as elements of the general marketing of goods, works, and services. We will also use the following key definition: the marketing of goods, works, and services is a marketing system that sells three elements (goods, works, and services) of the product of abstract human labor.

The concept of general marketing of goods, works, and services The creators of the concept of service marketing have comprehensively analyzed the common features and differences between the marketing of services and the marketing of goods by their object, subject, and matter. Therefore, this textbook focuses on identifying common characteristics and differences between the marketing of works and the marketing of services. Also, the author is sure that readers have already studied the general principles of marketing, which enables him to avoid repeating well-known concepts. The marketing of goods, works, and services is an economic concept, which involves a system of three interrelated marketing directions that create sources of revenue for producers. It meets the effective demand of consumers for human labor products (goods, works, and services). The target audience for the marketing of works is customers who require the manufacture, renewal, modernization, re-equipment, or liquidation of objects. Along with the identical features of the provision of services and the execution of works—including the need to advertise the marketing subject and matter, the high level of risk to consumers compared to buyers of goods, and the impossibility to accumulate services and works—there are factors that enable researchers to separate these areas of activities in the marketing department. Production and consumption of the “matter of marketing” in the field of works are not simultaneous processes, unlike in the marketing of services. For example, the “consumption” of repair results for a passenger airplane, diesel locomotive, or cargo ship begins only after the resumption of the carriage of cargoes and passengers. The quality of works, unlike

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services, is not under the customer’s subjective influence, and the contractor can check the completed work using special tools and standard quality control methods. Nevertheless, the quality of works (even for certified welders) is different both subjectively and objectively. For example, these factors include emergency works, environmental conditions, exploitable equipment, and workers’ health. We cannot assert that a repair work will be as imperceptible as a rendered service. The contractor can confirm this by the painted surfaces of a bus body, functioning systems of a milling machine, or replaced pipelines of a tractor, for example. Unlike services, works are tangible, and marketing specialists can show them to the customer (with the exception of a small number of socalled “hidden works”). However, the customer may see these hidden works when, for example, metal surfaces—cleaned before painting—are not yet covered with a coat of enamel. Thus, each of the listed products has its own characteristics, which allow us to divide them into the categories of goods, works, and services. But they also have an important common property and source, i.e., human labor that creates social wealth.

Prices of works, services, and goods in a company’s price-list In order to execute works and render services to customers, a company’s marketing department must develop and periodically review (depending on the market situation) their price-list (Tables 15-1 and 15-2). The price-list for goods, works, and services is one of the most important marketing tools, which is used as the basis for negotiations with a potential customer. Table 15-1. A shipyard’s price-list for works and services (example) No.

1. 1.1. 1.2. 1.2.1. 1.2.2. 1.3. 1.4.

Name of works and services

Docking and berthing services Mooring/unmooring Docking tariff First/last day Intermediate day Electrical power: connection/disconnection Fresh water: connection/disconnection

Unit of measurement

Unit price, £

operation

300.00

day day operation operation

3,260.00 2,220.00 160.00 90.00

212

1.5. 2. 2.1. 2.2. 2.2.1. 2.2.2. 2.2.3. 2.3. 2.3.1. 2.3.2. 2.3.3. 3. 3.1. 3.2. 3.3. 4. 4.1. 4.2. 5. 5.1. 5.2. 6. 6.1. 6.2. 6.3. 7. 7.1. 7.2. 7.3. 8. 8.1. 8.2. 8.3.

Chapter Fifteen Table 15.1. Continued Fire water: connection/disconnection Dock works Manufacturing/dismantling a docking set Surface cleaning Hydrodynamic washing, 500 bar Hydrodynamic cleaning, 1,500 bar Hydrodynamic cleaning, 2,500 bar Surface painting First coat without the cost of paint Subsequent coats without the cost of paint Waterline application Renewal of steel constructions Renewal of plates for shell plating Renewal of frames for shell plating Restoration of welded seams Repair of bottom and sea valves Dismantling, onsite repair, assembly, and installation per 1 mm of diameter Dismantling, repair in the workshop, assembly, and installation per 1 mm of diameter Pipeline repair Renewal of the pipeline per 1 mm of diameter Pipeline repair per 1 mm of diameter Tail shaft repair Checking the shaft line alignment Clearance measurement of the tail shaft Dismantling, disassembly, assembly, and mounting the tail shaft Propeller repair Dismantling/mounting the propeller Cleaning and grinding the propeller Color detection of flaws in the propeller Steering gear repair Clearance measurement in the rudder bearings Dismantling/mounting the rudder pintle Dismantling/mounting the rudder blade

operation

150.00

set

6,500.00

m2 m2 m2

2.40 14.00 22.00

m2 m2 m

2.00 1.50 4.60

kg kg m

8.90 10.40 60.00

mm

2.20

mm

3.00

m m

3.90 2.70

operation operation set

1,180.00 650.00 5,690.00

unit unit unit

1,250.00 1,010.00 680.00

set piece piece

530.00 2,220.00 560.00

A construction company’s marketers must develop a similar price-list for its works (Table 15-2).

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Table 15-2. A construction company’s price-list for construction, installation, and finishing works (example) No. Name of works and services

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30. 31. 32. 33. 34. 35. 36. 37.

Construction of frame houses (foundation, overlap, box, and roof) Turnkey construction of prefabricated houses Construction of houses made of aerated concrete blocks (foundation, overlap, box, and roof) Turnkey construction of houses made of aerated concrete blocks Overhaul of houses and apartments Concreting floors up to 40 mm thick Laying ceramic tiles Laying mosaic tiles Laying linoleum or carpet Laying laminate Plastering walls with layers up to 20 mm Installation of drywall Wallpapering Installation of plastic skirting boards Masonry: gas concrete blocks Masonry: foam concrete blocks Masonry: red bricks Ceiling filler: 6 layers Painting the ceiling with emulsion paint Installation of plasterboard on the ceiling Ceiling wallpapering Cold and hot water pipe installation Installation of a water meter Installation of a whirlpool bath Installation of a shower booth Installation of a mixer Installation of a washing machine Wiring in a box Connecting a single-phase meter Installing automatic fuses Mounting electrics Mounting lamps Mounting roof trusses Edging a batten Roof insulation Mounting metal tiles Installation of a drainage system

Unit of measurement

Unit price, £

m2

300.00

m2 m2

580.00 480.00

m2

840.00

m2 m2 m2 m2 m2 m2 m2 m2 m2 m piece piece piece m2 m2 m2 m2 set unit unit unit unit unit m unit unit set set m2 m2 m2 m2 m

240.00 28.00 39.00 84.00 9.00 12.00 18.00 22.00 9.00 7.00 3.40 3.60 0.60 26.00 10.00 24.00 11.00 60.00 50.00 240.00 130.00 50.00 50.00 4.00 44.00 13.00 15.00 12.00 22.00 9.00 8.00 14.00 14.00

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When reviewing a construction company and a ship repair yard’s pricelists, we can clearly see the presence of works, as well as goods and services. The goods are components, building materials, raw materials, and energy. The shipyard’s price-list clearly shows the related services, and in the construction company’s price-list, the cost of related services is included in the prices for the works. Examples of services when executing construction and installation works include obtaining various permits and certificates, connecting fresh water and electricity supplies, and transporting cargo. Marketing specialists develop commercial offers and preliminary specifications for signing contracts with customers on the basis of pricelists for works, services, and goods. Depending on the scope of works, contractors can apply discounts on the prices specified in the list.

Reducing marketing costs based on the synergy effect We will receive economic benefits as a result of reducing marketing costs by optimizing them based on the synergy effect. We can calculate the sales cost savings using the marketing vector of goods, works, and services. If the efforts of marketing specialists are separate and there is no interaction, then we must calculate the costs without saving due to the lack of synergy. This situation is obviously a pessimistic scenario. The synergy coefficient is Csyner = 1. In joint activities for the sale of goods, works, and services, specialists can calculate the marketing vector modulus MV (that is, marketing costs) using the formula (14-4) given in Chapter Fourteen. When a company bears equal marketing costs for promoting goods, works, and services to the market, the following formula is used: MVg = MVw = MVs = MVi. Then the modulus of the marketing vector will be equal to

MV

3MV 2 i

3 ˜ MVi

(15-1)

Thus, savings in total marketing costs are achieved with the joint sale of goods, works, and services. Many scientists have pointed out the possibility of a synergy effect in the sale of products as a result of the diversification in a company’s production. In this case, the coefficient Csyner § 1.732 reflects the synergy in a multi-product company’s sales activity that sells goods, works, and services in equal volumes. In practice, this situation is rare and, to a large extent, is a benchmark for business owners in developing assignments for the company’s managers.

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The synergy effect means a reduction in marketing costs due to the sale of two or three elements of the company’s products (that is, goods, works, and services) at once. Savings appear as a result of sharing marketing resources rather than using resources individually for the separate sale of goods, works, and services. If a company only sells two products, such as goods and works, we can calculate the modulus of the marketing vector MVgw (the total marketing costs taking into account the synergy in the “goods-works” marketing plane) assuming that the costs of selling goods are equal to the costs of selling works: MVg = MVw = MVi. In other words (15-2),

MVgw

2MV 2 i

2 ˜ MVi

(15-2)

Since 2 § 1.414, the synergy coefficient is Csyner § 1.414. Based on the value of the coefficient, we can calculate the real savings (but not the identified savings in sales costs), assuming that the company manufactures goods for buyers and executes works for customers in approximately equal volumes. This is obviously an optimistic scenario.

The synergy coefficient in hybrid offerings of products When selling two products (a particular hybrid offering), such as “goods + works,” “works + services,” and “services + goods,” it is advisable to consider the value of the synergy coefficient, Csyner = 1.24 (which was calculated in classical physics). With separate sales of goods, works, and services, the calculated costs will be higher due to the lack of synergy. The use of hybrid offerings (which add value based on works) increases revenue from the sale of products (i.e., goods, works, and services). For example, repair companies—which execute works scheduled in contracts—often carry out additional works that the customers did not initially include in their specifications. The need for these works arises when implementing contracts. The manufacturer can revise the approved project (or design of the object) during the production of new goods, and can decide to carry out previously unspecified works. Thus, for the company, these additional works—in hybrid offerings—are a source of increased revenue, which is generated by sales. We made an optimistic forecast based on the assumption that the company sells hybrid offerings with additional works and, as a result, receives additional revenue at a rate of 10 percent. The pessimistic forecast

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corresponds to a situation when the executing company could not increase the net value of the contract. The best situation would lead to an increase in revenue of approximately 5 percent. For large companies, adding works to hybrid offerings brings an increase of millions of pounds sterling per annum. In addition to influencing the results of the company’s activities, marketing specialists should increase the economic efficiency of their work. For example, in order to analyze the effectiveness of marketing, managers can compare the costs of the firm’s marketing department with the corresponding fees for the services of an independent marketing agency that the firm would have to pay.

Practical tips An example: during the first half of the year, the marketing department independently found 9 works orders and, together with the company’s agents, obtained a further 5 orders. Annual marketing expenses amounted to £243,540, and the remuneration that the marketing department would receive for the contracts executed by the company was £354,085 (for six months). Thus, taking into account the commission (5 percent of the contract that was found and managed by the marketing department, and 2 percent of the contract that was managed only by the marketing department), marketers would receive an income that exceeded the department’s budget almost threefold. The above calculation confirmed the economic efficiency of the marketing department’s activity. Second example: the annual budget for marketing activities is £240,000 (excluding salaries and bonuses paid to marketing employees). Marketers use this budget to pay for the promotion of two elements of the company’s products. This includes, Ɣ Goods: supporting reinforced concrete structures (columns, beams, and wall blocks) Ɣ Works: installation, finishing, repair, assembling, and landscaping Specialists estimated the cost of promoting the reinforced concrete structures to be £100,000, while the cost of promoting the company’s works was £140,000. On the initiative of the marketing director, the two sectors selling the company’s goods and works are merged into one marketing department. As a result, it became possible to share common office space, trucks,

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telecommunications system, office equipment, security gadgets, databases, and other resources. It is necessary to find out how much was saved, taking into account the synergy effect. The maximum possible synergy coefficient for the “equal-cost” sales of two product elements is Csyner § 1.414. When promoting goods and works to the market, we must calculate the total costs using the formula for the marketing vector modulus (where MVs2 = 0):

MV

2 2 2 MVg  MVw  MVs = (100,0002 + 140,0002 + 0)0.5 =

= £172,046.50 Consequently, the total cost of promoting the goods and works of the construction company to the market is MV = £172,046.50. The sum of the maximum saving of the department’s resources in comparison with the assigned budget is (100,000.00 + 140,000.00) – 172,046.50 = £67,953.50.

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Definitions of concepts Ɣ The general marketing of goods, works, and services is a system of three interrelated types of marketing. It aims to generate revenue from the manufacture of goods, the execution of works, and the provision of services to meet the market demand of consumers for products through exchange. Ɣ The target audience for the marketing of works is customers for the manufacture, renewal, modernization, re-equipment, or liquidation of objects. Ɣ The price-list for goods, works, and services is a list of unit prices for the company’s products and a marketing tool that is used for advertising and calculating the value of a contract when negotiating with a customer. Ɣ The synergy effect in marketing activities is a phenomenon of saving costs due to the joint sale of several products, including goods, works, and services. Ɣ The source of cost savings in marketing is that a seller does not need to use all his resources to sell goods, works, and services separately. Ɣ The basis for stimulating marketing employees is the company’s cost savings, which arise due to the synergy effect of the joint sale of various products.

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Questions for discussion and testing 1. What is the key criterion for separating works and services as particular elements of the product? 2. When does the transfer of an object’s ownership take place in the marketing of goods and the marketing of works? 3. Define the concept of “work” as an element of the product and the concept of the “marketing of works” as an activity. 4. Explain the “marketing of services” according to the American Marketing Association’s definition. 5. Give the definition of the “general marketing of goods, works, and services.” 6. Who is the target audience for the marketing of works? Why? 7. Describe the structure of a company’s price-list for works and services. 8. How does synergy manifest in the marketing of goods, works, and services? 9. Specify the values of the synergy coefficient when selling two and three elements of the product in equal volumes. 10. How does the synergy effect save costs in the marketing of goods, works, and services?

CHAPTER SIXTEEN MARKET CAPACITY AND FILLING THE PORTFOLIO OF ORDERS

Overview In this chapter, we will consider the concept of works market capacity, as well as its sales potential in a certain territory and for a certain period. Readers will learn how specialization, cooperation, and competition in the market of works affect the ability to search for, obtain, and execute contracts. We will learn how to calculate the level of fullness of a firm’s portfolio of orders; the stability coefficient of fulfilling orders; the volume of effective (solvent) and potential demand; the number of orders that arose and disappeared; and so on. Also, readers will study the issues of using the contractor’s own production facilities and involving subcontractors to carry out large contracts. We will calculate the factor of planning an executing company’s activities.

Market capacity and sales potential of works In the marketing of goods and services, marketers refer to the concepts of “market capacity,” “sales potential,” and so on. They estimate the opportunities for generating revenue that objectively exist in a certain territory and during a certain period. These conditions are also used when assessing the potential for the sale of works, as well as when calculating the capacity of the market of works. Marketing specialists calculate the capacity of the market of works based on the total amount of orders from all potential customers that they can initiate and pay. With this in mind, we will compute the market capacity in market space and market time. But what does it mean?

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The sales potential of works in the market space The capacity of the market of works or the potential for the sale of works can be found by calculating the total volume of orders in monetary units that can be initiated and paid by potential customers. The market capacity is a parameter that we define in terms of market space and market time. The market space has two forms of existence: the physical market space and the market rating space. Physical space exists in the universe. A star called the Sun is located in our galaxy and it also holds our solar system. The planet Earth rotates in the solar system, and people carry out market activities on its territory. Marketing specialists measure the physical market space in meters, which are international units of spatial extent. The physical space is a threedimensional (3D) continuum and includes three spatial parameters: length, height, and width. Physical space is a real space, which is an objective phenomenon that always exists. Physical laws do not depend on the activities of people and they manifest, instead, in the physical interactions of substance and field, which form primary “matter.” The physical “market space” determines the territory where the markets for goods, works, and services are located. Marketing specialists have divided this space into local, regional, national, and global markets. The physical space enables us to measure or calculate the distance that resources and finished products cover during their manufacture, exchange, and consumption. Distance in the physical space affects logistics. Companies—that are close together in the physical market space—may be located in the same building, on the same street, or in the same city. The distance between the nearest market participants varies from a few meters to several kilometers. The market rating space is a virtual space. It refers to social and economic categories, and people create it artificially. The market rating space takes place on planet Earth within the market-driven economy in human society. The distances in this space are measured in special units of the market size: “rating rates.” Marketing specialists calculate the “rating distances” for different markets by using the rankings created by rating agencies for companies, organizations, and institutions relative to certain market leaders. At the same time, marketers assign a rating number “1” to the leader of the market for goods, works, or services. Small rating numbers correspond to strong (leading) market participants, and large ones correspond to weak members (outsiders).

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The rating approach enables us to build the coordinate axes of the market space according to rankings for the following pairs: “buyers + sellers,” “general contractors + subcontractors,” “investors + competitors,” “state institutions + non-governmental organizations,” and so on. The number of pairs of market participants determines the dimension of the rating space, that is, 2D, 3D, 4D, and the like. Close competitors in the rating space may occupy neighboring positions on the rating coordinate axis, but geographically they can be located thousands of kilometers away from each other and even in opposite parts of the globe.

The sales potential of works in market time In addition to space, the capacity of the market of works depends on a particular period of time. There are two types of time: physical time, which does not depend on human activity and obeys physical laws, and socio-economic time, which depends on people’s activities. For example, scientists believe that the flow of physical time can slow down near cosmic objects with a large gravitational mass but time can also accelerate as a result of quantum interactions. Similarly, socio-economic time can be slowed down or accelerated because people create and manage this time. The most important element of the socio-economic time is “market time.” Scientists have proven that living beings, including humans, can control the velocity of the flow of their biological time. Market time is accelerating in startups and innovative firms where staff quickly solves production problems. In these firms, the number of “people-engines” far exceeds the number of “people-brakes.” However, internal time is slowing down in ineffective companies that are losing their positions in the market. Here, the number of “people-brakes” exceeds the number of “people-engines.”

Calculating market capacity in space and time To calculate the capacity of the market for works, marketing specialists need to apply the following algorithm (Fig. 16-1):

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Identifying the territory of the market of works for calculating its capacity

Identifying the time period for calculating the capacity of the market of works

Determining the amount of sales of works by competitors under given conditions

Calculating the scope of deficit or excess of a given nomenclature of works

Calculating the potential capacity of the market for a given nomenclature of works

Refinement of the results of calculating the market capacity for effective demand

Search, obtain, and execution of orders for works according to effective demand

Fig. 16-1. The algorithm for calculating the capacity of the market of works in space and time The phrase “clarify the task” means to limit the period of obtaining potential orders (month, quarter, or year). As a result, the concept of an average monthly, quarterly, or annual capacity for the market of works arises. The demand for works is not a constant parameter because sometimes one type of works is needed and on other occasions this need disappears. There is no need for works for two reasons: if the contractor has completed the works or there are no customers for these works. The capacity of the market, based on the potential demand for works in the region for the analyzed period, is equal to the sum of the effective

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(solvent) demand for works and the “insolvent demand” for works over the period in question (16-1): SDW  IDW

CMW

(16-1)

where CMW = capacity of the market of works in the region for the period, £/year SDW = effective demand for works in the region for the period, £/year IDW = insolvent demand for works in the region for the period, £/year Over the course of a year, the market capacity is equal to the amount of works orders—both completed and pending—minus the amount of orders that disappeared without being fulfilled. The annual capacity of the market of works is the mathematical difference between them. Marketing specialists deal with solvent customers and only accumulate information about insolvent (potential) ones. These customers need works, but they have no money to pay for them, and they also cannot barter anything for these works. Further, we will consider only the effective demand for works over the course of one year. The total annual effective demand SDW for works is equal to the difference between the total arisen demand ADW for works and the total disappeared demand DDW for works that were found to be unnecessary this year, according to the following formula (16-2): SDW

ADW  DDW

(16-2)

where DDW = total disappeared demand for works, £/year. In turn, the total arisen demand for works for the year is calculated by the sum of the values of discrete orders for works (16-3): ADW

¦ ACO

i

i

where ADW = total arisen demand for works, £/year ACOi = amount of the i-th arisen discrete order for works, £/year i = 1…n = serial number of the arisen discrete orders for works

(16-3)

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We can also calculate the disappeared demand for works (without fulfillment for the year) using the sum of the values of unrealized discrete orders for works (16-4): DDW

¦ DCO

j

(16-4)

j

where DCOj = amount of the j-th disappeared discrete order for works, £/year j = 1…m = serial number of the unrealized discrete orders for works The amount of fulfilled discrete orders for previous period enables us to predict the market capacity of works (in space and time) by extrapolation. After the total capacity of the regional market of works is determined, the market is then segmented by the nomenclature of works. According to the social division of labor, each company specializes in certain sectors of the national economy, such as building houses or repairing ships.

Specialization and cooperation in the market of works In advertising messages, marketing specialists should indicate their company’s general specialization, the availability of specialized equipment, the types of new technologies used, the permits and licenses required to perform works, as well as the experience of their employees. Initially, the company will be able to penetrate the housing construction market (rather than industrial construction) or the repair of cargo ships (rather than passenger vessels). Conversely, a contractor’s narrow market specialization reduces his ability to obtain contracts and fill the order book. Receiving complex orders for the execution of works allows the company to fully and evenly load production facilities and control the intensity of executing parallel contracts. However, there are exceptions to the rule. General contractors can overcome the restrictions of a narrow market specialization by cooperating with many other subcontractors who specialize in different types of works. As a result, they can cover all the works of a large order. However, the general contractor must understand that he is responsible for the works performed by his subcontractors. In practice, involving subcontractors in the implementation of a complex order can be carried out in the form of vertical (technological) integration. If the complex order covers several similar objects, the general contractor can then distribute all the objects among the subcontractors by

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implementing horizontal (transverse) integration. The integration of market participants when fulfilling large orders means that large amounts of works can be executed. As a result, the amount of withdrawn works will be reduced and the amount of those performed will increase. Accordingly, the total capacity of the market of works in this region will increase. Therefore, the capacity of the market of works is not based on the potential demand for works, but only on the effective (solvent) demand. In addition, it is not only solvent customers that can cancel orders, as sometimes the contractor can withdraw from the process for valid reasons, or some orders do not find the contractor at all. Marketing practitioners must calculate the capacity of the market for works in a certain area and within a certain period of time. Consequently, market capacity depends on two factors, both market space and market time.

Searching and executing works orders Creating a portfolio of orders in the market of works has its own differences. The sphere of discrete orders, in contrast to mass production with its clear product specialization, refers to a type of activity where the contractor faces new challenges and problems that need non-standard solutions. Increased risk in the execution of discrete orders requires the contractor to continuously monitor the situation and take prompt action if necessary. Therefore, the contractor must include the cost of creating an insurance fund in the contract value for a discrete order. As a rule, customers do not agree to accumulate this type of fund at their own expense, so the contractor has to hide and redistribute it among other costs. To fulfill long-term discrete orders, marketing departments must forecast the development of many resource markets that can affect the financial and economic parameters of orders. These markets provide for the supply of raw materials, energy, finished materials, components, technologies, equipment, tools, labor, and other resources. Small shortterm orders may not take into account political, social, and economic trends in the development of regions or the global economy. A distinctive feature of the marketing of discrete orders for executing works is their predictive nature, which is when the executing company’s analytical department analyzes the dynamics of change in related markets and creates diagrams of the corresponding trends. At the same time, the marketing, financial, and analytical departments should confirm their calculations when negotiating with customers over the value of a long-

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term contract. This function is not typical for executors engaged in shortterm or serial orders. The gross profitability GPAmarkt of marketing activity is the ratio between gross profit POgross (which is generated by fulfilling orders in the analyzed period) and marketing expenses CFmarkt, direct losses DLI, and lost profits MPI in the absence of orders (16-5): GPAmarkt

POgross

CFmarkt  DLI  MPI

(16-5)

where GPAmarkt = gross profitability of the firm’s marketing activities POgross = gross profit generated by orders over a period of time, £ CFmarkt = marketing expenses over a period of time, £ DLI = direct losses during downtime, £ MPI = lost profits during downtime, £.

Competition for orders in the market of works According to economic theory, competition is the rivalry between subjects of economic activity for the best realization of their economic interests. Consequently, the level of a company’s competitiveness affects its ability to receive profitable and timely orders that meet its production capabilities. The spontaneity of market mechanisms does not allow marketing specialists to clearly plan contracts for the execution of works. Therefore, marketing departments must apply probability theory to identify the reality of obtaining orders. The portfolio of orders is the amount of orders received but not yet fulfilled. The number of orders actually obtained divided by the total number of potential orders determines the ability to fill the company’s business portfolio (order book). When the company’s business portfolio is filled with orders, it indicates a strong competitive position in the market. Besides, when a company has the ability to find and receive orders, this allows it to effectively overcome all the negative factors of the external environment and ensure its production loading. A firm’s competitiveness in terms of orders means its ability to obtain the largest amount of orders, despite any negative changes in the microand macroenvironment, opposition from competitors, unforeseeable circumstances, mistakes, and miscalculations.

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Fullness level of a company’s portfolio of orders A large company, as a rule, is able to achieve a high level of filling its order portfolio (FPO) if it has modern equipment, qualified personnel, and a good business reputation. We can use the following formula (16-6) to calculate this:

¦ AO ¦ AO

recevj

FPO

j

(16-6)

poteni

i

where FPO = indicator of the ability to fill the firm’s portfolio of orders AOrecevj = amount of the j-th order received over a period of time, £ AOpoteni = amount of the i-th potential order over a period of time, £ Therefore, not all orders find executors (even those that appeared within a year and were not canceled by the customer). However, deferred orders are also included in the market’s potential capacity. Executing companies show their volume of actual sales for the reporting period, usually a fiscal year. When calculating the capacity of the market of works in the region, marketing specialists should not include contracts that are fulfilled in other territories. To improve the company’s competitiveness in terms of its portfolio of potential orders, it is necessary to increase the company’s “competitiveness by orders.” This means the ability to obtain the largest amount of works orders, despite any negative changes within the market or the company.

Stability of the fulfillment of contracts The stability of the execution of contracts (SCF) indicates the contractor’s systematic compliance of contractual obligations during a certain period (e.g., a calendar year) in terms of time, scope, composition, and quality. The firm operates “stably” when it fulfills all contracts in full. We can calculate the stability coefficient using the following formula (16-7): SCF

QECsuccs QECtotal

(16-7)

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where SCF = stability coefficient of the firm’s contract fulfillment QECsuccs = number of contracts successfully executed over a period of time, pieces QECtotal = total number of contracts executed by the firm over a period of time, pieces.

Availability of the contractor’s own production facilities Most customers prefer to ship their vessels to large and well-equipped shipyards for repairs. We can calculate the availability coefficient of the contractor’s own production capacity PCRown j for each j-th work to decide whether to involve subcontractors (16-8): PCRownj

PCFownj

(16-8)

DPW j

where PCRown j = availability coefficient of the contractor’s own production capacity for executing the j-th work PCFown j = the company’s own production capacity for executing the j-th work, £/day DPWj = daily volume of the order for executing the j-th work, £/day For example, a company has received an order where it is necessary to replace 64 tons of steel structures (i.e., the j-th work) within 11 working days. The required daily output is DPWj = 5.8 ton/day (in natural units). The shipyard’s capacity will only cover PCFown j = 3.0 ton/day (in natural units). Therefore, the capacity availability coefficient for this contract (as a market share) is PCRown j = 3.0 / 5.8 = 0.52 (52 percent). The shipyard can fill the capacity shortage (48 percent) by using additional equipment or involving subcontractors. In the first case, all profits remain with the general contractor; however, the cost of re-equipment may not pay off. The second way is to engage subcontractors by transferring part of the order PCSj to them, along with a proportion of the profit generated by its execution. This variant does not require capital investment and is less risky (16-9): PCS j

DPW j  PCFownj

(16-9)

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where PCSj = subcontractor’s production capacity for the j-th work, £/day. In this contract, PCSj = 5.8 – 3.0 = 2.8 ton/day (in natural units).

Planned and random orders in the marketing of works The ratio of planned and random orders determines the degree of ability to plan, as well as the predictability of the company’s activities. The real volume of orders AOreal is equal to the sum of i-th planned orders AOplan i and j-th random orders AOrand j obtained during the analyzed period of time. We can represent it as the following equation (16-10): AOreal

¦ AO

plani

i

 ¦ AOrandj

(16-10)

j

where AOreal = amount of real orders received over a period of time, £ AOplan i = amount of the i-th planned order over a period of time, £ AOrand j = amount of the j-th random order over a period of time, £ We define the factor of planning for the firm’s activity PFO as a ratio between the sum of planned orders AOplan i and the total amount AOreal of real orders, that is, planned and random orders received by the company for a period of time (16-11):

¦ AO PFO

plani

i

(16-11)

AOreal

where PFO = factor of planning for the firm’s activities. Here, we can characterize the company’s planned activity using the value of PFO > 0.8. Unplanned activity corresponds to PFO < 0.5. Therefore, it is important for the marketing department to realize this opportunity in the form of contracts for executing works received by the company, and not just for calculating the market capacity. The criteria for evaluating marketing managers’ activities are as follows: filling the company’s portfolio with adequate orders, maximizing utilization of the production capacity, increasing the planning factor and the stability coefficient when obtaining contracts, and so on.

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Practical tips First example: the market capacity for the construction of office buildings in a city for one calendar year is £900 million. The number of construction orders is 100 pieces. The average value of the contract is £900,000,000 / 100 = £9,000,000. If the executing company occupies a 25 percent share in the market of construction and the market capacity is £900 million per year, we can calculate the company’s sales volume in this market: £900,000,000 Â 0.25 = £225,000,000 per year. Second example: the company does not produce goods but mainly executes works (85 percent of its sales) and provides related services (15 percent). Therefore, 85% + 15% makes a total amount of £225 million per year. This means that its share of works will be £225,000,000 Â 0.85 = £191,250,000 per year. Consequently, the capacity of the market of works (without services) in which the firm operates is equal to

SDW = £191,250,000 / 0.25 = £765,000,000 per year If customers cancel every tenth works order (10 percent) within a year, we can calculate the amount of works required by solvent customers to be

ADW = £765,000,000 Â 1.1 = £841,500,000 per year The cost of withdrawn works for the year was

DDW = £841,500,000 – £765,000,000 = £76,000,000 per year When we know the annual capacity of the market for works in the region, we can calculate the average monthly market capacity needed for the operational planning of the company’s activities:

SDW = £765,000,000 / 12 = £63,750,000 per month Third example: a day of idle time on a 150 meter-long dock costs £27,239,830.00 / 365 days, or £74,629.67 per day. Daily marketing costs reach £2,435,400.00 / 365 days, or £6,672.33 per day on average. The company did not receive a ship repair order for £1,278,070.00 (32 days’ worth of idle time); therefore, the lost profits were £39,939.69 per day.

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The shipyard generates a gross profit in the amount of £13,141,130.00 per annum (£36,003.10 per day). Accordingly, the gross profitability of the shipyard’s marketing activities for a certain period (one day) will be 29.7 percent:

GPAmarkt = £36,003.10 / (£74,629.67 + £6,672.33 + £39,939.69) = 0.297 Fourth example: for the first half of the analyzed year, the marketing department received planned orders for a total amount of AOplan = £63,926,380. The total volume of orders (including random sources) was AOreal = £99,825,100. Accordingly, the planning factor of the marketing activities was equal to

PFO = £63,926,380 / £99,825,100 = 0.64 The value of the planning factor indicates the company’s stable activity (PFO > 0.5), but this has not been well planned because PFO < 0.8.

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Definitions of concepts Ɣ The capacity of the market of works or the sales potential of works is the total cost of works orders that customers can initiate, accept, and pay for in this market over a certain period of time. Ɣ The potential capacity of the market of works in the region for a certain period of time is the sum of the effective demand and the insolvent demand for these works in this region for this period. Ɣ The capacity of the solvent market of works in the region for a certain period of time is equal to the sum of initiated orders (completed and pending orders) minus the sum of disappeared orders. Ɣ Arisen demand for works in the region for the year is the sum of the values of orders for works that have arisen during this time period. Ɣ The demand for works in the region that disappeared over the year is the sum of the values of unfulfilled orders for works. Ɣ The portfolio of orders is the sum of orders obtained but not yet completed on a certain date. Ɣ Factor of planning the firm’s activities is the ratio of the amount of planned orders to the total amount of orders, including planned and random orders over a period of time. Ɣ Stability of the fulfillment of orders is the systematic observance of the firm’s contractual obligations in terms of the duration, scope, composition, and quality of works over a certain period of time.

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Questions for discussion and testing 1. What does the “capacity of the market of works,” “market space,” and “market time” mean? 2. Why are there subjective categories of market space and market time? 3. What is the “rating approach” with regard to measuring market distances? 4. How does the “course of physical time” differ from the “course of socio-economic time?” 5. List the main stages when assessing the capacity of the market of works. 6. How does “insolvent demand” affect the capacity of the market of works? 7. Explain the concepts of “arisen demand for works” and “disappeared demand for works.” 8. What factors determine the executing company’s market specialization? 9. How can we calculate the gross profitability of marketing activities? 10. How do we compute the fullness level of a firm’s portfolio of orders and the stability coefficient of the firm’s contract fulfillment? 11. Give the formula for calculating the factor of planning for the company’s activities.

CHAPTER SEVENTEEN THE SPACE-TIME MATRIX FOR WORKS: PLANNING IN SPACE AND TIME

Overview In this chapter, readers will learn about the specific functions of specialists in the marketing of works, including the placement of orders in space and time. After taking the limiting parameters of production facilities and the maximum permissible intensity of works into account, the firm’s marketing and production departments compose and optimize the space-time matrix of the production loading. In large production facilities, the contractor can have several objects being processed simultaneously; however, for each of them the company needs to shorten or lengthen the contract duration to the average. Marketers can manage start and end dates for new contracts during negotiations with customers. Readers will also learn how to control the real and planned tension of orders for works to prevent downtime, and how to use boundary conditions and criteria to optimize production loading.

Placing works orders in space and time Once the marketing department has decided upon the first task (e.g., filled out its company’s portfolio of orders), then it needs to start solving the next, no less important task. Marketing specialists should optimally place potential contracts for works in space and time. But what does this mean? As a rule, a company will simultaneously perform several orders for works with different durations and volumes. The executor places the objects to be processed in the appropriate production facilities—for

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example, of a shipyard or a construction company—based on the facility’s size, carrying capacity, and nomenclature of executed works. The schedule for executing a contract corresponds with the period when a consumer’s object is located in a production facility or, on the contrary, when the facility is idle. Placing orders for works in the “market space” will mean locating them in the firm’s production facilities in a certain territory. Placing orders at “market time” will mean scheduling works to be executed and managing start and end dates for contracts. For example, the marketing department of a ship repair yard must ensure that the company’s production facilities are used optimally. Orders should not exceed the shipyard’s main production capacity in terms of the size and weight of ships, be fulfilled in the best period of time to avoid unproductive downtime, have an adequate composition of works and services, have the highest possible level of profitability, and so on. The problem faced by large companies—equipped with various production facilities—is the need to simultaneously execute several large orders. The constantly changing situation caused by the arrival of vessels for repair requires the prompt and adequate consideration of many factors when planning the company’s production loading. A company’s production capacity is the maximum possible output of products (goods, works, and services) of a given quality and nomenclature/assortment that the company can effectively produce during a certain period of time using all the company’s resources. The total cost of a ship’s repairs (in the preliminary specification) consists of costs associated with the execution of works, the provision of services, and the purchase of energy, raw and ready-to-use materials, and components, etc. The shipyard has price-lists that detail the cost of each commodity, work, and service. Marketing specialists apply the concepts of “unit cost” and “unit price” when repairing vessels. In addition, they can use the concept of “unit profit” for each type of work and service; this is the mathematical difference between the unit price and the unit cost of the work or service. For this optimization task, we have assumed that the company’s marketing department has achieved the maximum possible profit for each discrete order and for each work and service that form the price, and then must optimize the shipyard’s production loading in space and time.

Matrix for production facility characteristics Typically, marketers must re-solve an optimization problem of the production facilities loading, because the initial conditions for obtaining

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orders change periodically. They model the production loading using the principle of “what if?” Specialists periodically develop a spatial matrix for placing objects in limiting facilities: for example, in a shipyard’s dry or floating docks. Serial numbers of production facilities are j = 1 ... m. Serial numbers of orders executed under contracts are i = 1 ... n. Table 17-1 shows a sample of the spatial matrix for production facilities’ limiting parameters.

Facility number, j = 2

Facility number, j = 3

Facility number, j = 4

Facility number, j = 5

m m m m t m2 t/m2

Facility number, j = 1

Lj Bj Hj Dj Wj Sj wj

Unit of measurement

Limiting parameter of the production facility Gj

Table 17-1. Matrix of production facilities’ limiting parameters

290 40 16 11 60,000 9,300 6.45

220 30 12 9 40,000 5,300 7.55

160 20 9 8 20,000 2,500 8.00

120 18 9 8 15,000 1,700 8.82

90 16 8 7 10,000 1,100 9.09

Where Lj = limiting maximum length of the j-th production facility, exceeding the maximum length of the vessel intended for repair, meters Bj = limiting maximum breadth of the j-th production facility, exceeding the maximum breadth of the vessel intended for repair, meters Hj = limiting maximum height of the j-th production facility, meters Dj = limiting maximum depth of the j-th production facility, meters Wj = limiting maximum weight (mass) load of the j-th production facility, tons Sj = limiting maximum area of the j-th production facility, meters squared, m2 wj = Wj / Sj = limiting maximum specific weight (mass) load of the j-th production facility, ton/meter squared, t/m2 Taking into account the current practice, we assigned the first serial number to the production facility with the largest limiting parameters, and we assigned the last number to the one with the smallest parameters. One

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of the limiting conditions in the formulation of the optimization problem is the limit on the number of adequate orders (for a production facility). We consider an order with an object to be processed that does not exceed the production facility’s limiting parameters to be an “adequate order.” “Inadequately large orders” are when the objects to be processed exceed the production facility’s capabilities by at least one of the limiting parameters. “Inadequately small orders” allow placing two or more objects for processing at the same time in one production facility. Accordingly, the integer constraint applies to the number of adequate orders NAO = 1, inadequately large orders NIOlarge = 0, and inadequately small orders NIOsmall • 2. Here, we used the following notations:

NAO = number of adequate orders for the production facility, pieces NIOlarge = number of inadequately large orders for the production facility, pieces NIOsmall = number of inadequately small orders for the production facility, pieces.

Intensity of the revenue, costs, and profit generated by orders Let us use a general definition. The intensity of revenue received from an order by the executing company is the revenue from the order divided by the time it takes to generate that revenue. The intensity IROij of the revenue generated by the i-th order in the j-th production facility is defined as the revenue from the works order ROij divided by the time taken to generate this revenue tij (17-1): IROij

ROij tij

where IROij = intensity of revenue generated by the i-th order in the j-th production facility for the period of time, £/day ROij = revenue generated by the i-th order in the j-th facility, £ tij = current time of execution for the i-th order in the j-th production facility, days i = serial number of the works order, i = 1…n j = serial number of the production facility, j = 1…m

(17-1)

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In general, the intensity of the total costs for an order in a production facility is the total costs incurred by the executing firm for the order divided by the time it takes to realize those costs. The intensity ICOij of the costs for the i-th order in the j-th facility is the sum of fixed and variable costs incurred by the executing firm for the order COij divided by the time required for their realization tij (17-2): ICOij

COij

CO fixij  COvar ij

tij

tij

ICO fixij  ICOvar ij

(17-2)

where ICOij = intensity of total costs related to the i-th order in the j-th production facility for a period of time, £/day COij = total costs related to the i-th order in the j-th production facility, (COij = COfix ij + CO var ij), £ COfix ij = fixed costs related to the j-th production facility, £ COvar ij = variable costs related to the i-th order in the j-th facility, £ ICOfix ij = intensity of fixed costs related to the j-th production facility for a period of time, £/day ICOvar ij = intensity of variable costs related to the i-th order in the j-th production facility for a period of time, £/day tij = current lead time of the i-th order in the j-th facility, days As for the total costs, we assume that fixed costs in a short-term period do not depend on either the volume of production or on the time when the j-th facility is under production loading or in idle mode. In general, the intensity of the profit generated by the order in the production facility is the profit earned on the order by the contractor divided by the time period it takes to generate that profit. The intensity IPOij of the profit that the i-th order generates in the j-th facility is defined as the profit POij from the order divided by the time period spent on obtaining this profit tij (17-3): IPOij

POij

(17-3)

tij

where IPOij = intensity of profit generated by the i-th order in the j-th production facility for a period of time, £/day POij = profit generated by the i-th order in the j-th production facility, £

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The profit generated by the i-th order in the j-th production facility is equal to (17-4): POij

ROij  COij

(17-4)

We supplemented the task with the following condition: marketing specialists may not fulfill the requirement to optimize production facility loading to prevent loss of works orders and reduce downtime without orders that would be optimal for the production facilities in terms of all the characteristic limiting parameters. Depending on the situation, they can place relatively small orders in large production facilities. After we have distributed orders among the production facilities according to their characteristic parameters, we can develop a schedule for loading each facility for a certain period of time. The sequence rule of orders for the j-th facility means that the start of the next order will not occur until the end of the previous order and the completion of the preparatory-final procedures. If the planned dates—both early and late—for placing orders in the production facilities are not met, the planned space-time matrix for loading the facilities will be broken, and the contractor must solve the optimization task again. The tasks of this class can be solved using computer information systems. Optimization of a company’s production loading is a periodic process of developing and testing flexible space-time loading matrices. In this way, marketers perform the function of marketing control.

The space-time matrix for loading production facilities Marketing specialists must reduce the idle time OITij of their main production facilities after completing the i-th order and performing the “preparatory-final” procedures. The technologically necessary “preparatoryfinal” time PFTij for maintenance of the production facility before starting the i+1 order is not “unproductive” downtime in terms of planning the production loading. In practice, the space-time matrix of orders can be presented as a graph with alternating periods of absence and presence (lead time LTij) of i-th orders in j-th production facilities. When numbering the time intervals for executing orders, preparatory-final time, and idle time without orders, we must apply end-to-end numbering for i-th orders and for j-th facilities. Fig. 17-1 shows an example of the space-time matrix for loading a firm’s production facilities.

The Space-Time Matrix for Works: Planning in Space and Time j=1 j=2

LTij i=1 OITij

j=3

PFTij

j=4

LTij i=1 PFTij

j=5

PFTij LTij i=1

OITij

LTij i=2 PFTij

PFTij OITij

LTij i=1

PFTij OITij

LTij i=2 PFTij OITij

LTij i=1

PFTij

LTij i=2

LTij i=3 OITij

PFTij OITij

LTij i=2

PFTij PFTij

LTij i=2

OITij

241 PFTij

LTij i=3 PFTij OITij LTij i=3 LTij i=3

PFTij

TIij

Fig. 17-1. Space-time matrix for loading the firm’s production facilities This example demonstrates that the contractor provided the most efficient production loading for facility No. 4; however, production facility No. 3 is often left idle without orders. Fixed costs in a short-term period do not depend on the volume of production and the time spent. This feature of fixed costs also relates to idle time, which is when the volume of production is zero. The time chain for the j-th production facility is the facility’s “working time fund.” This includes the lead time LTij, of each i-th order, the preparatory-final time PFTij, and the superfluous idle time OITij due to a lack of orders (17-5): TI ij

¦ LT  ¦ PFT ¦ OIT ij

i

ij

i

ij

(17-5)

i

where TIij = working time fund of the j-th production facility, days LTij = lead time of the i-th order in the j-th production facility, days PFTij = preparatory-final time of the j-th production facility, days OITij = superfluous idle time of the j-th production facility, days.

Boundary conditions and criteria for optimizing production loading In order to optimize production loading of a company’s facilities for the specified period, the following boundary conditions must be observed: Ɣ The value of the total profit generated by each i-th order in each j-th production facility cannot be negative: POij • 0.

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Ɣ The maximum value of each characteristic parameter i of the order cannot exceed the value of each corresponding limiting parameter j of the production facility: Li d L j , Bi d B j , H i d H j , Di d D j , Wi d W j , S i d S j , wi d w j , etc.

We will formulate the optimization criteria for production loading as follows: Ɣ Superfluous idle time for production facilities must be reduced to zero: OITij ĺ 0. Ɣ The total profit generated by executing each i-th order in each j-th production facility should strive for the maximum amount: POij ĺ max. Ɣ In order to maximize using the production facilities capabilities, it is necessary to place orders so that each parameter of the i-th order does not exceed the maximum possible value of the limiting parameter of the j-th production facility, and the mathematical difference between them must tend to zero (17-6): 'Lij

L j  Li o 0

'Bij

B j  Bi o 0

'H ij

H j  Hi o 0

'Dij

D j  Di o 0

'Wij

W j  Wi o 0

'S ij

S j  Si o 0

'wij

w j  wi o 0

(17-6)

For example, the maximum production load of the j-th production facility is Wj = 10,000 tons. It is technically possible to assemble an object with a mass of Wi = 12,000 tons in this facility. However, violating the production facility’s operating mode will lead to its destruction because the object will crush its technological support. Improving the company’s production loading requires the optimal values to be obtained also for the intensity of each i-th order. This must take the productivity possibilities for each j-th facility into account:

IROij ĺ optimum, ICOij ĺ minimum, and IPOij ĺ maximum.

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The distribution in time of works intensity during order fulfillment Optimizing the use of a company’s production facilities also requires understanding the conditions of fulfilling contracts and receiving payments for them. In general, the intensity of revenue, costs, and profit is not constant over time. Their total values for the period of executing the i-th works order in the j-th production facility are defined as the area between the curve on the graph and the axis of the lead time for this order (see Fig. 17-2). Marketing managers must cooperate with the company’s production department to ensure that the order is fulfilled in a timely manner. Fig. 17-2 shows the optimal distribution of the intensity of works over time, which takes the developing “field of operations” at the start into account; this is then reduced to zero after the order is completed.

IROij

IROij

1

L

2

3

M

max

K

N

0

tstart i

tstart stage

tend stage

t tend i

Fig.17-2. Optimal distribution of the scope of works according to the order over time In Fig. 17-2, we used the following notations: IROij max = maximum intensity of revenue generated by the i-th order in the j-th production facility over a period of time, £/day tstart i = start date of executing the i-th order at the company, day

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tstart stage = date of completion for the “field of operations” preparation for the i-th order and transition to the execution of its main stage, day tend stage = date of completion for the i-th order’s main stage of works and transition to the last stage of works, day tend i = date of completion for all works of the i-th order and their delivery to the customer, day As a rule, the preparatory stage ends with the determination of the nomenclature and scope of all works, as well as the final coordinating the contract with the customer. The parties then sign additional agreements to the main contract and the leading specialists of the customer and the contractor hold a meeting (by mutual invitation). The daily intensity of works at the order’s main stage must reach an optimal value, and we can consider this to be constant in terms of volume. The optimal form for organizing works on order is a three-stage scheme.

IROij 1

IROij

max

IROij

opt

2

M

K 0

N

tstart i

tend stage

tend i

t

Fig. 17-3. The distribution of the scope of works over time for an order with a lag If the works in time are improperly organized, a two-stage scheme of distribution will appear. In an emergency scheme, the preparatory stage is characterized by a delay when developing the “field of operations,” which is when the intensity of works under the contract slowly increases. To master all the works, the contractor will have to use an emergency

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organization of works, which is when their daily intensity exceeds the optimal intensity IROij opt for this order, as shown in Fig. 17-3. If the contractor has excessive resources and an insufficient number of orders, another situation arises, which is when the general contractor and his subcontractors use forces that are too large to fulfill the order and the “field of operations” is too broad. In this case, the contractor “gives credit” to the customer by executing the works ahead of schedule (in advance), as shown in Fig. 17-4.

IROij

1

IROij

max

IROij

opt

L

K

2

N

0

tstart i

tstart stage

t tend i

Fig. 17-4. The distribution of the scope of works ahead of schedule Such distribution over time of the scope of works with a two-stage scheme may also be required to execute the maximum possible volume of works because the contractor is expecting other large orders. In the future, the contractor will withdraw most of the excess production capacities from this order and use them to fulfill forthcoming contracts.

Calculating the total revenue generated by an order using the intensity of works In general, we can find the revenue generated by an order using the area of the figure located between the curve of the change in the works intensity

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and the time axis. To simplify these calculations, we use the following approximation of the works intensity curve. The optimal three-stage time distribution of the intensity of works is represented by a trapezoid with vertices K, L, M, and N in Fig. 17-2. The total revenue ORij generated by the order can be calculated using the following formula (17-7): ROij

IROij max (t startstage  t starti ) / 2 

(17-7)

 IROij max (tendstage  t startstage )  IROij max (tendi  tendstage ) / 2

Formula (17-7) is converted into the following form (17-8): ROij

IROij max ˜ [(Tstarti  Tendi ) / 2  Tstage ]

(17-8)

where Tstart i = tstart stage – tstart i = starting period of works on the i-th order, days Tend i = tend i – tend stage = ending period of works on the i-th order, days T stage = tend stage – tstart stage = time period for the execution of the main works on the order, days The emergency two-stage distribution of the intensity of works over time can be illustrated by a triangle with vertices K, M, and N, as seen in Fig. 17-3. The total revenue generated by the order can be calculated using the following formula (17-9): ROij

IROij max (tendstage  t starti ) / 2  IROij max (tendi  tendstage ) / 2

(17-9)

Formula (17-9) is converted into the following form (17-10): ROij

IROij max ˜ Ti / 2

(17-10)

where Ti = tend i – tstart i = time period for execution of the i-th order, days. The two-stage distribution over time of the intensity of order fulfillment, inherent in its accelerated execution at the first stage, has been represented in the form of a triangle with vertices K, L, and N in Fig. 17-4. Revenue generated by the order can also be calculated using formula (17-10). This algorithm is useful for solving optimization tasks and enables the company’s marketing department to monitor a continuously changing

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market situation and find the best variants for placing orders in space and time when there are several production facilities.

Shortening and lengthening the duration of the contract If marketing specialists place several small orders in large facilities, then it will be necessary to manage the time needed for each contract. This means that it is required to shorten the time of long orders (from a set of orders) and to lengthen the contract duration for short-term ones. Simultaneously, the average lead time Ti aver when placing the i-th order for works in the j-th production facility must meet the following inequality: Ti min  Tiaver  Ti max . Here, we used the following notations:

Ti min = minimum contract time of the shortest i-th order, days Ti aver = average time for executing the i-th order placed in the production facility, days Ti max = maximum contract time of the longest i-th order, days

IROij

0

t

Ti aver Ti max

Fig. 17-5. Shortening the duration of the contract for an order in a production facility

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IROij

0

t

Ti min Ti aver

Fig. 17-6. Lengthening the duration of the contract for an order in a production facility Even if the contract duration is shortened or lengthened, the total amount of works and revenue generated by the orders will not change. This means that the area bounded by the line of revenue intensity and the coordinate axis t is constant (see Fig. 17-5 and Fig. 17-6). Here, we have conditionally shown the line of change in the intensity of works in the form of a straight line.

Real and planned tension of works orders We can apply the tension of orders by analogy with the norms of intensity over time and the standards of service; specialists use this concept when calculating the standardization of labor (norms of time). The order’s real tension is the ratio of the order’s real intensity to its normative intensity, which corresponds to the firm’s production capabilities. Let us consider the order’s real tension TNireal as the ratio between the real intensity of the order IROireal and its normative (standard) intensity IROinorm, which corresponds to the company’s real production capabilities (17-11): TN ireal

IROireal IROinorm

(17-11)

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where TNi real = real tension of the i-th order for works IROi real = real intensity of the i-th order, £/day IROi norm = normative intensity of the i-th order, £/day Accordingly, the planned tension TNi plan of the order for the signed contract can be calculated using the following formula (17-12): TN iplan

IROiplan

(17-12)

IROinorm

where TNi plan = planned tension of the i-th order for works IROi plan = planned intensity of the i-th order, £/day In addition, it is necessary to consider that in conditions of market instability the production loading plan is probabilistic in nature, and the contractor needs reserve variants in case there is a change to the ship’s arrival time. In this situation, the contractor may not always be able to sign the contract. At the same time, one should adhere to the principle that “overloading by orders is better than standing idle without work.” As a rule, no change in the contract duration is required when the planned tension of the contract TNi plan is not more than 1.1. An excess of the normative intensity can lead to a breakdown in the execution of the contract. However, a tension less than 0.7 from the normative characteristic is unprofitable due to insufficient use of the firm’s production capacity. The marketing department should carry out “marketing control” of the production facilities utilization for the execution of works.

Managing start and end dates of contracts The marketing department of the ship repair yard constantly ensures optimal utilization of its production facilities by obtaining works orders that meet the following criteria: they do not exceed the facilities’ carrying capacity, they prevent production downtime, they comply with the nomenclature of works, they provide high profitability, and so on. The situation with the arrival of ships at the shipyard for repairs is constantly changing for the following reasons: Ɣ Meteorological conditions Ɣ Breakdowns and accidents of ships

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Ɣ Vessels idle under loading or unloading Ɣ Changes in the repair schedule based on permits from the Register of Shipping Ɣ Absence or presence of cargo or passengers on ships (and so on) This requires prompt and adequate consideration of changes when planning the placement of orders. Marketing practitioners have an obligation to comply with contract deadlines and have to apply penalties if these are violated. Time is one of the contract’s variables, and the company’s marketing department can manage it by creating “time chains” for the arrival, repair, and departure of ships. For example, when waiting for an order to begin while the main production facility is still busy, marketers can place a vessel in a buffer facility and begin works that do not require the ship to be placed immediately in the main production facility. These include operations to inspect ship’s systems and mechanisms, detect defects, clarify preliminary repair specifications, and dismantle equipment for repair in workshops. If it is necessary to speed up the ship’s departure from the production facility so as not to lose the next vessel, time management can aid increase the works intensity. For this, the shipyard organizes continuous work throughout the day and expands the “field of operations” in order to involve as many specialists as possible (including subcontractors). Sometimes a customer will ask the contractor to extend his ship’s stay at the shipyard due to the lack of cargo or passengers for transportation, anticipating the beginning of the season, or the unavailability of vessel’s transport line. In such cases, the contractor may reduce the intensity of works on this object and gradually transfer personnel and equipment to other more intensive orders, or the contractor may offer the shipowner to place his vessel near a berth, pontoon, or pier for an additional fee. In these situations, the marketing department must demonstrate flexibility, adaptability, and continuity of planning. The availability of buffer facilities enables marketing managers to move the vessel under repair to this facility and return it, e.g., to the dock during the contract period. Marketers can develop a loading schedule for each production facility after the distribution of orders according to their characteristic parameters. The rule for drawing up a space-time matrix of orders for the j-th production facility assumes that the beginning of the next order should not take place before the end of the previous order, and the execution of the preparatory-final procedures to restore the facility’s operational ability should occur after the order is completed.

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We can arbitrarily choose the starting point on the time axis, but usually this coincides with the beginning of the planned month, quarter, or year. Marketing specialists should take into account that a production facility’s period of the preparatory-final time is often a constant value, and marketers can accept it according to the technological requirements of the production department. After distributing orders among the production facilities according to their characteristic parameters, marketing specialists compose the schedule (over time) for each facility. Marketers should place the objects to be processed in accordance with their start dates relative to the schedule starting point t0 (see Fig. 17-7). Production facility 1 Order 4 Order 1

tstart 1

tend 1

Order 2

tstart 2

tend 2

Order 3

tstart 3

tend 3

tstart 4

t0

tend 4 t

Production facility 2 Order 1

t0

tstart 1 tend 1

Order 2

tstart 2

tend 2 tstart 3

Order 3

tend 3

t

Fig. 17-7. Schedule for the use of production facilities relative to the starting point in time When the current and subsequent orders coincide in time, it will be necessary to postpone contract deadlines, shorten or lengthen orders in time, refuse unnecessary orders, or find additional ones to avoid downtime of the main production facilities. It is permissible to place orders in large production facilities if they are somewhat smaller than the facilities’

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characteristic parameters, and to form sets of several small orders to optimize the use of the company’s production facilities. The stability of fulfilling contracts is the result of the contractor’s systematic compliance with the contractual obligations in terms of the duration, scope, composition, and quality of works over a certain period of time. A firm that regularly and completely fulfills contracts is stable in its activities. We use the concept of the “stable obtainment of orders” when the company has no downtime and when subsequent orders start before previous orders have been fulfilled. The “unstable obtainment of orders” is characterized by gaps between the end dates of previous orders and the start dates of the next orders.

Practical tips First example: it is necessary to calculate a company’s real ability to fulfill the scope of works. If the value of the normative intensity is constant, the value IROi norm = £80,000.00 per day limits the daily revenue generated by a single order in a single production facility. An urgent order for the repair of an industrial complex for the amount of ROij = £1,600,000.00 from a solvent customer can theoretically be completed within Ti = 20 days. However, it is necessary to consider the specifics of the production workshops, which should spend time (Tstart i = 4 days) expanding the “field of operations” with obtaining the planned work productivity and then, before the end of the contract, reducing it within 3 days. From formula (17-8), we can find the mathematical dependence to calculate the required productivity. We can compute the productivity of all works using the period of time it will take to fulfill the main works:

Tstage = Ti – (Tstart i + Tend i) = 20 – (4 + 3) = 13 days IROi plan = ROij / [(Tstart i + Tend i) / 2+ Tstage] = = £1,600,000.00 / [(4 + 3 ) / 2+ 13] = £96,969.70 per day If the intensity of works over time is a constant value, we get IROi plan = £96,969.70 per day. This means that the firm must increase its normative productivity by 21.2 percent; therefore, the planned tension of the order TNi plan will correspond to formula (17-12): TN iplan

IROiplan IROinorm

= £96,969.70 / £80,000.00 = 1.21

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According to formula (17-10), the maximum intensity (assuming linearity) for an emergency two-stage distribution of the intensity of works will be IROi max = £160,000.00 per day:

IROi max = 2 · ROij / Ti = 2 · £1,600,000.00 / 20 = £160,000.00 per day Consequently, the planned tension of the order will be: TN iplan

IROimax IROinorm

= £160,000.00 / £80,000.00 = 2.0

In the case of an emergency organization of works, the executing company will violate deadline of the contract unless it uses additional resources, as well as the help of subcontractors. The “preparatory-final time” for the j-th production facility does not change after each i-th order. Since a company executes complex orders sequentially in several facilities, the lead time in one facility is usually less than the total duration of the entire complex order. The second example is presented in Table 17-2, which shows a company’s space-time matrix for production loading. Table 17-2. An example of a company’s space-time matrix for production loading

25 20 15 30 20

2 2 2 2 2

Start date of the next order tstart i+1

Time of order fulfillment LTij

30 62 79 117 154

Idle time of the facility OITij

Order completion date tend i

5 42 64 87 134

Preparatory-final time PFTij

tstart i

1 2 3 4 5

Order start date

Serial number of order i

The facility’s periods of use, days

10 0 6 15 0

42 64 87 134 156

This table shows how efficiently the working time fund of the company’s production facilities is used.

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Definitions of concepts Ɣ Adequate orders are orders where the parameters of the processing objects do not exceed the maximum parameters of the company’s production facilities. Ɣ Inadequately large objects have at least one of their limiting parameters exceeding the capabilities of the company’s production facilities. Ɣ Inadequately small objects can be placed in the number of 2 or more objects in the production facility as part of the production set. Ɣ The “intensity over time of the revenue” generated by an order in a production facility is the amount of revenue from the order divided by the period taken to generate it. Ɣ The “intensity over time of the order costs” in a production facility is the sum of the order costs divided by the period when these costs are incurred. Ɣ The “intensity over time of the profit” generated by an order in a production facility is the amount of profit from the order divided by the period taken to generate it. Ɣ The space-time matrix for the production loading of the company’s production facilities is a schedule based on the periods of processing objects in the facilities, periods of no production loading, and periods of preparatory-final time. Ɣ Boundary conditions provide a set of acceptable solutions, and optimization criteria enable specialists to find the best solutions for a company’s production loading. Ɣ The “planned tension of the order” is the planned intensity of the order according to the signed contract divided by the order’s normative intensity, which corresponds to the company’s production capabilities. Ɣ The “real tension of the order” is the real intensity of the order according to the contract being fulfilled divided by the order’s normative intensity, which corresponds to the company’s production capabilities.

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Questions for discussion and testing 1. What is the space-time matrix for placing objects to be processed in a company’s production facilities? 2. What are the criteria for optimizing the placement of objects to be processed in a firm’s production facilities? 3. How can you make a set of characteristic limiting parameters for a production facility? 4. How do specialists determine the maximum number of orders that they can simultaneously place in a production facility? 5. Which formulas are used to calculate the intensity over time for revenue, costs, and profit generated by an order? 6. Draw graphs showing the changes in the intensity of works under contract, which take into account expanding and narrowing the “field of operations.” 7. What are the periods of time included in the working time fund of production facilities? 8. List the boundary conditions and optimization criteria for the placement of processed objects in space and time. 9. When should marketing managers shorten the contract’s duration and when should they lengthen it? 10. How and why do marketers postpone or bring forward the start or end dates of contracts? 11. Explain the concepts of the “planned and normative intensity of the order” and the “planned and real tension of the order.”

CHAPTER EIGHTEEN HYBRID OFFERINGS: THE PROMOTION AND DISTRIBUTION OF WORKS

Overview In this chapter, readers will become acquainted with the concept of hybrid offerings. This is a set of several products, including works that add value to the hybrid offering and services that only maintain sales. Readers will see the difference between general and particular hybrid offerings, as well as the sequence of product placement (that is, goods, works, and services) in those offerings. We will consider examples of hybrid offerings from a ship repair yard and a construction company. In addition, readers will learn that, in the marketing of works, the object of promotion is the executing company itself. We will study the characteristics of marketing channels for promoting works and the features of marketing communications used, including advertising and public relations. Readers will become acquainted with the role of agents and brokers in the sale of works.

Hybrid offering as a set of products for sale As we pointed out earlier, marketing specialists rarely promote goods, works, and services separately to the market. In reality, sellers offer complex sets of two or three product elements. We call them “hybrid offerings.” In hybrid offerings, one product element helps sell another. This means that a company, which sells goods, accompanies usually them with additional services, and a service provider also offers additional

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goods. This ability to sell additional products allows the seller of goods and services to generate increased revenue. As a result, the hybrid offering will provide greater benefits for the buyer than if the seller offered these elements of product (that is, goods or services) separately. Hybrid offerings are combinations of goods and services, goods and works, works and services, or goods, works, and services. Together, these elements of a product can provide more benefit to the consumer unlike the separate sale of those goods, works, and services to that consumer. The inclusion of “works” element in traditional hybrid offerings makes it possible to diversify a company’s sources of revenue by diversifying its products, i.e., manufacturing goods, executing works, and providing services. “Industrial services” refers to the services that accompany sales of “industrial goods” in the B-to-B markets; these form the “goods and services” particular hybrid offering. These services provide, for example, pre-sale or after-sale technical support for lathes, welding sets, spray cabinets, and lifting cranes. “As an element of hybrid offerings, industrial services increase the sale of industrial goods but they do not change the market value of these industrial goods in the B-to-B markets” (source: https://www.emeraldinsight.com/journal/jbim/28/8). Generally, shipyards do not manufacture goods for sale. Therefore, the shipyards’ marketing departments cannot fully use the tools and techniques of the marketing of goods. However, shipyards draw up ship repair specifications when signing and fulfilling contracts. Their specialists provide related services. These services are a separate part of the specification (that is, “shipyard services”). As a rule, this part is worth no more than 20 percent of the contract’s value. What makes up the remaining 80 percent of the repair contract cost? This is the main part of the ship repair specifications, and marketers refer to it as “shipyard works.” During repairs, the shipyard installs a lot of materials and components on the ship. These items are goods that the shipyard sells to the customer. However, the works form the main part of the contract. That is why repair works bring in the lion’s share of the shipyard’s revenue. “If the production and sale of goods, as well as the sale and provision of services, are not the marketing department’s main activities, then they do not form the principal marketing lines” (source: https://www.emeraldinsight.com/journal/jbim/28/8).

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Works add value, while services maintain the hybrid offering The shipyard’s services and works create a new hybrid offering (“services + works”). In addition, the shipyard uses “works + goods” hybrid offering, as well as the well-known hybrid offering, “goods + services.” Repair companies apply three types of these hybrid offerings. Remember that, according to Venkatesh Shankar, Leonard L. Berry, and Thomas Dotzel, a hybrid offering is a combination of one or more goods and one or more services, thereby creating more customer benefits than if the goods and services were available separately. We will now propose a broader definition: hybrid offerings are combinations of goods and services; goods and works; works and services; and goods, works, and services. These create greater benefits for the customer and the supplier than if the goods, works, and services were available separately. “Works” can form elements of these new hybrid offerings in addition to the existing “goods + services” offerings. Pairs of products—“goods + works” and “works + services”—can form new particular hybrid offerings, as well as general hybrid offering: that is, “goods + works + services.” We must take into account that services within the framework of particular hybrid offering (“goods + services”) increase the offering’s market value as a whole, but services do not change the market value of goods. However, executed works in the particular “goods + works” hybrid offering increase the goods’ market value. Figuratively, we can say that the market value of services “stands near the goods” within “goods + services” offering, but the market value of works “flows into the goods” within “goods + works” particular hybrid offering. For example, we can sell a bookcase as a set of wooden boards and fastening parts. We wipe off the dust, draw up sales documentation, and deliver this set to our buyer’s home. Nevertheless, the set of wooden boards and fastening parts does not cost more because we will receive payment for our supplementary services. However, when we assemble the bookcase, we will have a finished product. The market value of our bookcase will be higher than the cost of the first set of wooden boards and fastenings, and the difference will be almost equal to the market value for assembling works. Thereby, we can say that the market value of works “flows into the goods” within this hybrid offering. So, to reiterate, we have wiped away the dust, drawn up sales documentation, and delivered this bookcase to our purchaser’s home. These services are an independent element of the extended hybrid offering

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of “goods + works + services.” “To realize this hybrid offering, we must also use widened marketing of goods, works, and services” (source: https://www.emeraldinsight.com/journal/jbim/28/8).

General and particular hybrid offerings Works are products like goods and services, and so they also create particular hybrid offerings: “goods + works” and “works + services.” Finally, three products create the general hybrid offering, “goods + works + services.” The well-known hybrid offering, “goods + services,” refers to marketing activities that include the provision of services, such as pre-sale technical support, after-sales service, and maintenance of goods during their operation (for example, fueling, charging, cleaning, washing, or delivery). The orientation of this interaction is “services” ĺ “goods” (services for goods). In the production of services, the reverse orientation of efforts, that is, “goods” ĺ “services” (goods for the provision of services), covers buildings, equipment, tools, and energy, which are necessary for producing and rendering non-contact or contact services to clients. In the industrial market, the “services + goods” hybrid offering means selling services with related goods (for example, connecting an electric cable as a service and selling an electric energy meter or fuse as a commodity). The “goods + works” hybrid offering indicates works for the production, repair, modernization, re-equipment, or liquidation of goods. The orientation of this interaction is “works” ĺ “goods” (works for goods). In the sales of works, such hybrid offerings signify, for example, the sale of a conveyor-type furnace with associated assembly, installation, and debugging as related works. However, goods (buildings, equipment, production tools, and the like) are necessary for executing works. The orientation of this interaction is, therefore, “goods” ĺ “works.” In industrial marketing, this means, for example, repairing a milling machine by replacing and selling (as a commodity) an electric motor or control panel. The “works + services” hybrid offering indicates that implementing works is impossible without the provision of related services, such as transportation, registration of documents, and supplying energy for executing works (for example, electrical energy, water, gas, steam, and compressed air). Therefore, the orientation of effort in industrial marketing is “services” ĺ “works” (i.e., services for works). There is a reverse orientation during, for example, the development of new services or the

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improvement of existing services: “works” ĺ “services.” When new services are developed, such as the optimization of logistical routes, the customer (logistic agency) pays for the executor’s (consulting company) works. Therefore, this wider understanding of the marketing of goods, works, and services has enabled us to conceptualize particular hybrid offerings (that is, “goods + works” and “works + services”). As a result, pairing these products in particular hybrid offerings may create greater benefits for both the customer and the supplier than if these product elements were available separately. “Moreover, we can combine all three products (i.e., goods, works, and services) into one hybrid offering. We can also propose the general hybrid offering “goods + works + services” for companies that manufacture goods, execute associated works, and provide related services” (source: https://www.emeraldinsight.com/journal/jbim/28/8).

Combinations of products in hybrid offerings In Table 18-1, the “+” sign between hybrid offering products indicates that the second (related) product is added to the first (goods, works, or services). Table 18-1. Combinations of products in hybrid offerings Main Additional products products +Goods +Works Goods

Combinations of products

“Goods+works+ services” General hybrid value-added offerings Works “Works+goods” “Works+services” “Works+goods+ _ Particular hybrid Particular hybrid services” value-added maintenance General hybrid offerings offerings value-added offerings Services “Services+goods” “Services+works” “Services+goods+ Particular hybrid Particular hybrid works” _ value-added value-added General hybrid offerings offerings value-added offerings _

“Goods+works” Particular hybrid value-added offerings

+Services “Goods+services” Particular hybrid maintenance offerings

Moreover, the sequence of these products in hybrid offerings is an important factor. Even in the general hybrid offering, “goods + works +

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services,” the sequence of the main and additional products shows the firm’s product specialization in the market. There are additional elements of particular and general hybrid offerings that can add market value to the main elements. “Goods” and “works” can be additional elements of “hybrid value-added offerings.” However, as an additional element of the hybrid offering, “services” cannot add market value to the main elements. “Services” is an additional product in “hybrid maintenance offerings.” “Two pairs of products (“goods + works” and “works + services”) create new particular hybrid offerings. Finally, all three products create the general hybrid offering “goods + works + services” (source: https://www. emeraldinsight.com/journal/jbim/28/8).

General hybrid offering of a ship repair yard A shipyard’s general hybrid offering has the structure of “works + services + goods.” For example, the shipyard sells works, services, and goods to a customer. As the main part of the ship repair specification (the shipyard’s main activity), the “works” include cleaning and painting the vessel’s surfaces, renewal of damaged metal constructions of the hull and superstructure, repair and replacement of pipelines and electric cables, and so on. The shipyard also repairs propellers, rudders, anchors, anchor chains, and deck machinery. The main and auxiliary engines, equipment, pneumatic and hydraulic systems, electric devices, navigation equipment, and life support systems are also objects that can be repaired or adjusted. The shipyard provides concomitant “services” (for example, towing, mooring, and moving the ship to a dock for repair). The shipyard also renders direct services for the vessel, such as garbage removal and ground connection at the dock, as well as supplying electric energy, fresh water, steam, and compressed air. The shipyard’s specialists install gangways and fire-prevention pipes, as well as draw up documentation for the shipowner. At the same time, the shipyard solves many issues with local authorities at the request of the ship’s crew. During ship repair, the shipyard installs and sells “goods” (that is, various materials, spare parts, and equipment) to the customer. These goods include steel plates, profile steel, pipes, electric cables, bushings, gaskets, screw bolts, nuts, lamps, switches, valves, pumps, enamels, lubricating oil, diesel generators, electric motors, echo sounders, computers, and so on. If the vessel is owned by a foreign customer, the shipyard is the exporter of the installed materials and components in the customs cargo declaration.

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Thus, “the shipyard’s general hybrid offering is much more complicated than the previously mentioned particular hybrid offering of “goods + services” from the bookcase store” (source: https://www.emerald insight.com/journal/jbim/28/8).

A construction company’s general hybrid offering The company’s main activities are construction, installation, roofing, adjusting, finishing, and other works. The marketing department forms the nomenclature and assortment of works (which are basis of the firm’s hybrid offering) according to the preliminary specifications for the construction or repair of real estate objects. The marketing department develops hybrid offerings in the form of commercial offers, which the department sends to customers (developers) when participating in auctions for the procurement of works. In the event that the customer and the contractor form a long-term cooperation, the current price level of works will no longer be a subject of discussion. As a result, a construction company often offers the same works to different customers at different prices. This is a feature of the marketing of works, which is referred to as the “personalization of customer contacts.” Large construction companies strive to create or buy their own production facilities for ready-mixed concrete and reinforced concrete building structures (columns, beams, slabs, and the like), as well as production facilities for various goods (for example, metallic, wooden, and plastic goods) to increase their profitability and sustainability. As a result, construction companies can propose hybrid offerings of works and goods. In addition, construction contractors provide the following related services: Ɣ Acquiring or sourcing a long-term lease of a land plot for construction Ɣ Preparing design documentation and clearance permits Ɣ Connecting consumers of electricity to the distribution substation Ɣ Connecting consumers of drinking water to the main water supply and providing sanitation Ɣ Connecting consumers of natural gas to the gas supply network Ɣ Transporting cargo by own trucks (and so on) The “turnkey” construction of a real estate object means selling the following general hybrid offering: “works + goods + services.” If the construction company does not have its own production of building

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materials and components, the customer asks the contractor to purchase them from another company. Here, the general hybrid offering takes the form, “works + services + goods.”

The company as an object for direct promotion In the marketing of works, the object of promotion and advertising is the company itself, including its experience, reputation, and technological equipment. At the same time, marketing specialists promote the company by displaying photos and videos of recently fulfilled works. Unlike services—the results of which are not tangible—when specialists advertise works they often have the opportunity to show completed works to a potential customer. The shipyard can show a repaired propeller, painted ship hull, replaced pipeline, or installed new equipment. Similarly, a construction company can prove its competitiveness and availability of production capabilities in the form of a constructed building. In addition to objective factors that increase an executing company’s competitiveness, it is advisable to use a subjective factor, such as feedback from satisfied customers. This means that the executing company can confirm the subjective recommendations of customers with objective documents from supervisory authorities, such as the Register of Shipping (for repairing ships) or the Building Control Body and the Bureau of Architectural Control (for building construction), etc. Also, the firm’s marketing department directly promotes works to the market. To do this, it will post advertisements about the firm’s activities on its website, on partner sites, and in industry and regional online directories and catalogs. To a lesser extent, marketing specialists also use print advertising media, including professional magazines and catalogs, such as Yellow Pages catalogs. It is still useful to advertise the firm’s works in local newspapers. Nevertheless, advertising in national newspapers is used less. Marketing specialists rarely use television and radio to promote works to the B-to-C markets and, especially, to the B-to-B markets. They also only occasionally use reminiscent advertisements in the parties’ current correspondence when they need the delivery of original documents. However, the use of electronic auctions for state, municipal, public, and private customers is increasing. Indeed, this is a twenty-first century channel of marketing promotion. The customer’s requirements for the contractors in terms of experience in executing specified works, obtaining

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special permits and licenses, and availability of equipment and qualified personnel usually remove marketing intermediaries from this channel. In addition, the transparency and public control of electronic auctions increases the level of competition in the market of works. Auction participants can always find opportunities for monopoly collusion, deception, and other violations that the auction initiator must stop and make public. Promoting works to the market using direct sales techniques is an issue of the direct marketing of works and will be covered in Chapter Twenty-Two.

Marketing channels to promote works Unlike the marketing of goods, the channels for promoting works cannot include large and small wholesale depots, retail stores, and the like. Instead, these channels consist of the contractor and the customer, as well as intermediate links, such as brokers and agents. The executor cannot keep and accumulate works because they are an activity process (in contrast to goods, which are the result of an activity). The sale occurs before the implementation of the works. At the same time, a broker in the marketing of works acts on his own behalf, but at the cost of the contractor, who has instructed the broker to search for potential customers according to the brokerage agreement. An agent in the marketing of works acts on behalf of and at the cost of the contractor in accordance with the agency agreement. When marketing intermediaries find works orders, they tell their principals. Furthermore, as a rule, they organize negotiations between the executor’s authorized representatives and the potential customer. If the parties have completed a financial transaction under contract, the broker or agent will receive his commission. The marketing channels used to promote works to the domestic and foreign markets are shown in Fig. 18-1.

Representative office

Customers of works

265

Branch of the firm

Customers of works

Direct promotion of works

Company-executor of works

Domestic market

Foreign market

Hybrid Offerings: The Promotion and Distribution of Works

Broker

Agent

Direct promotion of works

Fig. 18-1. Marketing channels used to promote works to the market Brokers and agents always seek to protect their long-term interests; they do not want to be limited to a single commission for the first transaction and instead aim for repeat business. There will be a clause in the agency agreement, which states that the principal will continue to pay the agent a commission for each realized transaction (contract for works) with the customer that this agent found. This means the agent can block the principal from attempting to remove him from the “chain of contact” with the customer. Typically, the principal invites a broker when looking for works orders in another region or country. The broker should have a good reputation in his territory, an established cooperative relationship with local authorities, and knowledge of the local market for works according to the specialization of his principal, etc. The broker uses his own name in negotiations with potential customers, and participants of the regional or national market will take into account his opinion and recommendations. As shown in Fig. 18-1, the company executing the works can create geographically separate divisions; for example, in its own country the company can establish branches, and it can create representative offices abroad.

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Agents and brokers as authorized representatives In order to protect his interests, a broker usually tries to become the principal’s exclusive representative in his country. As a result, a works order cannot be received from this country without notifying the broker and paying him a commission. The contractor must pay the commission, even if he received the works order on his own or via the assistance of other marketing intermediaries. On the one hand, this situation is not entirely fair, since the exclusive broker did not directly participate in preparing the transaction. On the other, the broker brought the principal to his region, assisted in penetrating the market, and facilitated the principal’s activities in the political, economic, legal, and social environment of his country. Risking his reputation, the broker recommended this executor to his partners; took prompt measures to prevent and overcome conflicts between the executor and customers; created a positive image of the principal in society; and the like. The principal must reward these efforts. Since an agent advertises his principal (for example, the principal’s experience, technology, equipment, and specialists) when searching for works orders, it is more expedient to use agents in the principal’s country. The specific nomenclature of works affects how they are promoted by intermediaries in marketing channels. Participants in the promotion of works (the marketing department, agents, and brokers) must understand the specifics of their company’s works. Because how can they sell something they do not understand?

Sales of works in marketing channels The specific sales volume in the i-th marketing channel for promoting works SSVworks i can be calculated using the following formula (18-1): SSVworksi

SVworksi TSVworks

(18-1)

where SSVworks i = specific sales volume of works in the i-th marketing channel SVworks i = sales volume of works in the i-th marketing channel, £ TSVworks = total amount of works sales, £ We will denote the sales channels as follows:

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Ɣ Volume of direct sales (1) by the executing company’s marketing department SVworks 1 Ɣ A broker’s sales volume (2) as a market intermediary SVworks 2 Ɣ An agent’s sales volume (3) as a market intermediary SVworks 3 Ɣ Sales volume (4) based on direct customer requests for works SVworks 4 With this in mind, we can calculate the total sales volume for all works marketing channels as follows (18-2): TSVworks

SVworks1  SVworks 2  SVworks 3  SVworks 4

(18-2)

Moreover, the promotion of works to the market includes generally accepted marketing activities, such as public relations and advertising.

Advertising and public relations in the market of works Typically, marketing specialists advertise works using traditional media. For example, electronic media includes websites on the Internet, direct emailing, advertising in blogs and posts, lines in electronic catalogs, distributing promotional laser discs and USB flash drives, and the like. As a rule, marketers put the object being processed at the center of their advertising campaign, e.g., a completed building or renovated ship. In addition, they can indicate the unit prices for several basic works. Also, marketing specialists will briefly describe their latest technologies, the advantages of their equipment, and their employees’ experience and skills, along with other information. When advertising works, it is advisable to include references from customers, such as well-known companies, who can provide a positive recommendation. Marketing specialists can advertise works in the B-to-C market on television and radio. However, this type of advertising is rarely used for the B-to-B markets. Low-cost and high-speed e-mail advertising is increasingly replacing courier mailing and distribution of paper/plastic flyers, booklets, promotional price-lists, and calendars. However, methods of protection against spam, hacking, and computer viruses severely limit the effectiveness of automated or robotic mailings. E-mail operators should immediately remove spam without opening the messages and attachments. Only an experienced user can prevent spam and select useful data and messages. Marketing specialists use transport advertising more often for goods than works. The firm executing works will usually place outdoor

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advertising on billboards and banners in front of its production site. This type of advertising mainly indicates how potential customers can reach the company. The customer of works only uses advertising sporadically. Usually, the customer finds a contractor for a specific order. Customer announcements invite interested executors to participate in an auction for the execution of works. Customers usually know firms that can fulfill their orders, carrying out their own marketing of works. The problem may be that this company has a workload full of other, more profitable orders. In this case, there is usually a strong competition between customers for the best executors of works, and advertising messages (or appeals) will not be enough, so they should also use direct marketing techniques. PR (public relations) is an effective method of promoting the company’s works to the market. Another important publicity tool is the company’s mission statement. This is a document that details the company’s social attitudes, purpose, and destination. Generally, this document does not, for example, show a construction company’s desire to receive the largest degree of profit from its works, but it instead focuses on the company’s aim to provide people with comfortable and safe housing, to make families happy in their homes, and so on. Therefore, marketing specialists actually promote their company to the market of works using attributes such as long-term experience, quality of resources, staff qualifications, and positive reputation. Hybrid offerings enable a company to provide a complex product. As a result, the repaired ship or the constructed building will be made fully ready for operation. The ability to fulfill complex orders—with goods, works, and services— provides an important competitive advantage.

Practical tips The first example of a hybrid offering of works, goods, and services describes the construction of an open-air tennis court with a ground coating. A general hybrid offering has the following structure: “works + goods + services.” “Works.” The main element in this hybrid offering is the works executed by the construction company. The construction company offers individual consumers and corporate customers the following works: Ɣ Land plot planning and laying the foundation of a tennis court

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Ɣ Equipping the drainage system with rainwater sewers Ɣ Laying a three-layer coating (rubble, sand, and a “tennisit” coating) Ɣ Installing game racks, as well as mounting and adjusting the gaming net Ɣ Manufacturing, installing, and painting the derrick and waste basket Ɣ Marking tennis court using fluorescent enamels Ɣ Laying and routing the pipes and hoses of the playground’s irrigation system Ɣ Installing poles and luminaires with lamps, as well as mounting and connecting lighting Ɣ Manufacturing and installing benches for players and spectators Ɣ Assembling a fence and installing fence posts, meshes, and gates Ɣ Manufacturing and installing cabinets for inventory and “tennisit” coating “Goods.” When building a “turnkey” tennis court, the construction company must purchase the necessary materials and component parts for resale to the customer: Ɣ Rubble, sand, and material for the playing surface (“tennisit”) Ɣ Ready-mixed concrete and paintwork materials (enamel and solvent) Ɣ Pipes, valves, taps, and hoses with nozzles for watering the coating Ɣ Racks with a tension device and gaming net Ɣ Poles, lamps, electric cables, circuit breakers, and switches Ɣ Armchairs and benches for players and spectators, as well as a tower for the judge Ɣ Pipes for fence posts, metal mesh, gates, and locks Ɣ Equipment for maintaining the tennis court (harrow, rake, brooms, brushes, etc.) “Services.” The construction company provides or obtains the following services when constructing a tennis court: Ɣ Issuing permits and approval documentation Ɣ Adaptation of a typical tennis court project to the built-up area Ɣ Transportation for the delivery of materials and equipment Ɣ Meeting and negotiating with customers Ɣ Drawing up service documentation for a tennis court (and so on)

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Therefore, the company supplements its main product (construction works) with related products (goods). The sale of goods brings additional revenue and increases the value of a hybrid offering of works and goods. The related services provided by the company do not increase the market value of the hybrid offering but without them it would be impossible to sell the construction of the tennis court. Marketing specialists should know all this! The second example is when a marketing department periodically compiles a table of construction and repair works to track the effectiveness of promotion channels: marketing department SVworks 1, brokers SVworks 2, agents SVworks 3, and representative offices SVworks 4 (see Table 18-2). Table 18-2. An example of sales using four promotion channels for construction, installation, finishing, and repair works Sales period I quarter II quarter III quarter IV quarter Year

Sales through promotion channels

Total

SVworks 1

SVworks 2

SVworks 3

SVworks 4

TSVworks

£ million 15.07 20.66 24.25 14.51 74.49

£ million 9.67 13.53 19.88 8.40 51.48

£ million 7.98 10.40 14.37 7.21 39.96

£ million 5.64 7.32 10.83 5.02 28.81

£ million 38.36 51.91 69.33 35.14 194.74

Analysis of the structure and dynamics of sales enables specialists to calculate the effectiveness of each marketing channel. It also allows them to promote works to the market and make decisions that encourage sales growth in general. In this example, the marketing department’s activities provided the largest volume of sales. Its share in direct sales was 39.3 percent of the total. Intermediaries, that is, brokers and agents, provided 25.2 percent and 20.8 percent of the total sales, respectively. Orders obtained directly from customers and the company’s separate divisions provided the smallest portion (14.7 percent). This means that the company needs to improve the effectiveness of advertising and PR, as well as optimize the structure of its geographically separate divisions. Sales volumes also have a strong seasonal character. For example, sales of works in the fall-winter period account for only 37.7 percent of all sales for the year.

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Definitions of concepts Ɣ Hybrid offerings are combinations of goods and services, goods and works, works and services; they are also goods, works, and services that increase the seller’s revenue and customer satisfaction in comparison with separate sales of goods, works, and services. Ɣ Works are a value-adding element of hybrid offering. Ɣ Services are a maintenance element of hybrid offering. Ɣ The general hybrid offering of products is a hybrid offering that includes three types of product elements: goods, works, and services. Ɣ A particular hybrid offering of products is a hybrid offering that includes two types of product elements: goods and works, works and services, or services and goods. Ɣ The company executing works is the main object to be promoted in the marketing of works. Ɣ Marketing channels for promoting works cover the contractor and the customer, as well as intermediate components, including brokers and agents. Ɣ An agent in the market of works acts on behalf of his principal and at his principal’s expense. Ɣ A broker in the market of works acts on his own behalf but at his principal’s expense. Ɣ An exclusive representative in a certain territory receives a commission from his principal, even if the principal has obtained the contract directly or through other intermediaries acting in the territory of that exclusive representative’s responsibility.

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Questions for discussion and testing 1. Define the concept of hybrid offerings with reference to goods, works, and services. 2. What is the difference between “value-added hybrid offerings” and “maintenance hybrid offerings?” 3. List the types of particular hybrid offerings based on sequence of their products. 4. What is the meaning of the following hybrid offerings: “goods for works,” “works for services,” and “services for goods?” 5. When do marketing specialists make up the following hybrid offerings: “works for goods,” “services for works,” and “goods for services?” 6. What does the “+” sign mean in the hybrid offering spelling? 7. Which elements of hybrid offerings increase the market value of goods, and which elements do not? 8. What components do marketing channels include to promote works? 9. What is the difference between the actions of an agent and a broker when promoting works to the market? 10. Write the formula for calculating the sales specific volume in the marketing channel. 11. List the differences between advertising of works and advertising of goods.

CHAPTER NINETEEN PRICING POLICIES, STRATEGIES, AND TACTICS IN THE WORKS MARKET Overview In this chapter, readers will become acquainted with a firm’s pricing and marketing policies, as well as strategies and tactics in the market of works. Changes in a firm’s strategy and tactics depend on the stage of its life cycle and the market situation. Readers will learn how the marketing department should adhere to the established pricing policy using the example of ship repair and housing construction. We will define contracts’ variable and non-variable parameters and pay attention to the features of longterm contract pricing. Readers will see the difference between absolutely and relatively profitable or unprofitable orders. We will also show how advances and deferrals of payments, bonuses, and penalties affect the cost and timing of contracts, and so on.

Marketing policies in the market of works Specialists use “policies,” “strategies,” and “tactics” in marketing. Indeed, these are effective tools that marketing specialists can apply in their activities. These foundational concepts, which were originally developed for the marketing of goods and services, are fully applicable to the marketing of works. We use the multifaceted concept of “policy” to define the norms and rules of activity in many situations that arise in a company. For example, the personnel policy sets the rules for the company’s staff management including selection, career planning, and training. The financial policy determines the principles for receipt and accumulation of incoming financial flows and distribution of outgoing cash flows.

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The firm’s marketing policy includes several important elements, such as sales policy, product policy, and pricing policy. We will consider the features of the pricing policy that is used in the market of works. Pricing policy is a complex set of principles, rules, and regulations; it is mandatory for the company’s employees to adhere to this policy in various situations related to the formation and application of prices. The company’s owners and top managers develop this policy based on their goals and interests. Pricing policy in the market of works covers interrelated elements, including the pricing process. We can calculate prices in the following ways: Ɣ Based on the cost of the works executed plus profit Ɣ Based on the current average market price level Ɣ Using a discount system that depends on the scope of the works Ɣ Using a deferred rate for a regular customer (and so on) In the works market, a firm can use a dumping pricing policy when it penetrates new market segments and crowds out competitors. This cannot be applied for a long period, as it is fraught with the risk of losses and bankruptcy. If the firm is a monopolist in its market segment, its pricing policy can establish high monopoly prices for works. A monopoly arises when not every company can execute technologically complex works that require the new or expensive equipment, highly qualified personnel, special licenses and permits, access to unique resources, and so on. State institutions suppress both monopoly and dumping pricing policies through their legislation in order to establish civilized rules for all market members. This is difficult to do if a monopoly has been created by applying administrative resources, that is, gaining privileges from local authorities or the government. A company may adopt a policy of following the market or industry leader. In this case, it sets its unit prices for the works based on those listed in the leader’s price-list. The company can also apply a system of discounts depending on the amount of orders, provision of deferred payments (when the contractor credits the customer), and so on. Average, or slightly lower than the average, market prices correspond to the firm’s survival policy. In this situation, the firm cannot offer its customers a competitive or unique product and so it must match the

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average price. This passive pricing policy will inevitably lead to the company lagging behind its competitors.

An executing firm’s strategy and tactics In Ancient Greek, “strategist” means “commander” and “strategy” means “the art of a commander.” Let us now consider Fig. 19-1. Marketing policy including the price policy Authors: owners of the company

Question: “What should be guided by?”

Answer: “Follow the principles, rules, and regulations.”

Marketing strategy Authors: top managers of the company

Marketing tactics Authors: mid-level managers of the company

Question: “What to do?”

Question: “How to do it?”

Answer: “Set and reach the goal.”

Answer: “Formulate and fulfill the tasks.”

Fig. 19-1. A company’s strategy and tactics in the works market The development strategy determines the main directions for the company’s growth; this is created at the highest management tier and it

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explains what must be done. Activity tactics formulate tasks to achieve a goal. The company’s middle level management develops the tactics, which must explain how tasks must be done. The company’s strategy determines where to go in terms of achieving its goals. The tactics says what tasks we need to complete in order to achieve this; it also specifies how quickly this should happen, what resources must be used, and so on. If the strategy incorrectly determines the direction in which the company should move towards its goals, even the correct tactical tasks will not rectify this mistake. The process of moving a company towards a goal is shown in Fig. 19-2.

Target parameter

The goal of the company

Trajectory of movement to the goal

0

t

Fig. 19-2. A company’s path towards its goal As target parameters, top managers can name the company’s market share in the national market of works, the amount of profit generated by the sale of products for a year, the amount of revenue received from the execution of works for a month, and so on. Top managers should limit the time taken to reach the desired target value and set a start date for the action plan. For example, a firm must achieve a market share of 4 percent in the national construction works market within 24 calendar months. The initial value of the target parameter is 2 percent of the market. This means that every year the company’s market share should increase by 1 percentage point. The marketing strategy primarily determines a sector of the economy and the nomenclature of works that the company will execute. After deciding on the company’s area of specialization, its strategy should next

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consider which territorial segments of the works market the company wants to focus on. Further, after researching the situation in the works market, marketing tactics should answer the following questions: Ɣ How should the company be positioned in the market? As executor of complex works or a highly specialized firm? Ɣ Can the company use its own technology or should this be franchised? Ɣ Which production equipment should the company buy? And should it buy new or used? Ɣ What kind of employees should the company hire? Highly skilled with a high salary or people with medium qualifications on a low salary? Ɣ Where should the company’s main production facilities be placed? In the city or in a rural area? Therefore, marketing tactics in the works market answer more than just marketing issues. The company’s tactics are the result of its marketing department’s multifunctional activities. Marketers must deal with issues that are not inherent in marketing activities. They act as a kind of “peopleengines” who improve production processes, increase productivity and quality of works, master new technologies, develop personnel, purchase new equipment, and so on.

Strategies and tactics depending on the company’s life cycle Different stages of the executing company’s life cycle require different strategies and tactics. At the first stage (emergence and formation), marketing specialists use a strategy of developing market niches, searching for their first customers, and keeping their company in the market. At the life cycle second stage (growth and development), the marketing department applies a strategy of following the market leader, expanding market share, finding new customers, and increasing sales. At the third stage (maturity and leadership), the firm should use a strategy of capturing the leading position in the market, crowding out and absorbing competitors, and retaining loyal customers. The fourth stage of the life cycle is often characterized by a decline and a reduction in the firm’s activities. The dominant strategy involves

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minimizing costs, finding new opportunities and market niches, selling surplus resources, searching for investments and loans, and the like. The fifth life cycle stage is a company recovery and this involves strategies for returning to the market, restoring customer relations, crowding outsiders out of the market, and so on (Fig. 19-3).

ROij Maturity and leadership Growth and development

Recovery and growth Decline and reduction

Emergence and formation

0

Stage 1

Stage 2

Stage 3

Stage 4

Stage 5

t

Fig. 19-3. An executing company’s life cycle stages and applied strategies The tactics used at each stage of the executing company’s life cycle should be consistent with the adopted strategies. For example, aggressive, uncompromising, and flexible tactics correspond to the strategy of penetrating the market and capturing market niches. Balanced, persistent, and cooperation-oriented tactics support the company’s strategy at the growth stage. During the maturity stage, the company uses the tactics of assurance, conservatism, and suppression of competitors. The decline stage requires the use of tactics that include compromise, cooperation, cautious optimism, and suppression of panic, as well as searching for new opportunities to recover and develop. It is necessary to compare the sales volumes of works by periods (quarters, half-years, or years) in order to detect the company’s transition from one stage of the life cycle to another. If the angle between the time coordinate axis and the straight line, which is tangent to the life cycle line at the control point has changed dramatically, we can talk about the onset of a turning point in the existing dynamics of the company’s development.

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If there is no significant change in the inclination angle of this tangent line, it should be assumed that the company is at the same stage of its life cycle.

Marketing tactics in the works market The tactics used in the market of works should include a respectful attitude to all customers, both regular and potential; cooperation with partners and competitors; promoting the firm and its products; and so on. Since the marketing department sells a future virtual product (that is, promises high-quality and timely execution of works) in the marketing of works, its tactics must contain elements of inspiration and the establishment of mutual understanding and relationships based on trust with consumers. When using certain tactics for selling works, it is necessary to consider customers’ peculiarities in the ȼ-to-ɋ (business to consumer) and ȼ-to-ȼ (business to business) markets of works. In the B-to-B market, the customer’s authorized representatives are experienced professionals who know their field; however, they are sometimes inclined to act in favor of personal—rather than corporate—interests. Vice versa, in the B-to-C market, end-users are not sufficiently aware of the specifics of the works, but sellers cannot always bribe them by offering price discounts because customers will be concerned about a corresponding decrease in quality. Marketing specialists should apply trust and inspiration tactics to their public relations, not just their direct customers. When specialists formulate the company’s mission, they must hide the firm’s strategy and tactics; instead, they need to focus on the company’s goals in terms of serving society and solving people’s problems. It is essential to show consumers specific and understandable tasks, while avoiding mentioning the company’s own interests. When a company experiences decline, the tactics of reducing staff numbers do not always correspond to the strategy of comprehensive cost savings. In this case, many owners and top managers rightly believe that this tactic will undermine its employees’ trust in their company. The working team—which has been formed over many years—will disintegrate, and its recovery will take more time than a period of difficulties in the company will last. However, the customers of works are less protected economically than the executors who fulfill orders on request and at the expense of their customers. Therefore, customers are less confident in positive forecasts and more prone to panic and rumors circulating in the market of works.

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Customers need more guarantees. Additional guarantees from the executor of works include the following: Ɣ Licenses and patents for the right to execute works Ɣ Certificates of both conformity and recognition of the ability to execute works Ɣ Declarations that there are no violations of current legislation and regulatory requirements Ɣ Certificates of experience in the fulfillment of similar orders and the availability of production facilities and qualified personnel Ɣ Lists of completed contracts, as well as positive feedback and recommendations from regular customers (and so on) Besides this, state-owner customers often demand a pledge of money from their suppliers of works when submitting an application for participation in an auction. After the auction is completed, the state customers require a pledge of money from the winner as a guarantee to fulfill the contract. Applicants of the auction who have not won but have not been disqualified either, will then recover their money pledge. Later, the customer will return the money pledge to the winner of the auction under the condition that the contract is successfully fulfilled.

How does the marketing department pursue a pricing policy? The marketing department develops price-lists for the execution of works that indicate their nomenclature and assortment, unit prices, and price discounts depending on the scope of work, etc. An additional fee is charged for urgent and complex works. With the assistance of lawyers, marketing specialists develop standard contracts for the execution of works, as well as the provision of related services and the supply of goods (e.g., materials and components). After calculating the cost of works, the customer’s technical assignment becomes a preliminary specification of the works. This specification, once agreed by the customer and the contractor, will be Appendix No. 1 to the contract for executing works. Since the share of works will be about 80 percent of the total cost of the preliminary specification, the focus must be on selling works. As a rule, the customer pays the most attention to bargaining for the unit prices of works, while neglecting services and goods. This enables marketers to provide the customer with price discounts on works without lowering

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prices for services and goods but, on the contrary, increasing them. As a result, it is possible to achieve sufficient profitability of the order. If the company is without orders for a long time (more than one calendar month), then marketers will need to change the tactics used when searching for orders. If the idle period exceeds three calendar months, it will force the company’s top management to revise their current marketing strategy. In the event that downtime has exceeded six months or more, it will be necessary to adopt a special reorganization program that creates fundamental changes in the company, including changes in management, basic strategy, and used tactics. Price discounts for basic works (which are controlled by the customer) are accompanied by an increase in prices for other works and services to ensure the necessary profitability of the order. The customer pays less attention to these prices. The contractor may issue extra charges for non-essential works and services in advance because a price increase is practically impossible during negotiations. After signing the contract, marketing managers can redistribute money to equalize the average profitability for all types of works and services. Pricing management enables marketers to tackle a range of marketing tactics challenges. If the contractor cannot accept the order for any reason, but does not want to spoil the relationship with a regular customer, it is advisable to deliberately inflate prices UɊWi for each i-th work in comparison with the average level UɊWi aver (i.e., UPWi ! UPWiaver ) without providing any discounts ɊDWi during negotiations (19-1). This means that the contractor does not directly refuse the order, but forces the customer to look for another company to fulfill it: PDWi

UPWistart  UPWiend

0

(19-1)

where UɊWi = unit price for the contractor’s i-th work, £ UɊWi aver = average unit price for the i-th work in the industry, £ PDWi = the contractor’s price discount for the i-th work provided to the customer, £ UɊW i start = starting unit price for the i-th work, £ UɊW i end = final unit price for the i-th work, £ Sometimes the contractor can receive extra profit as a result of speculative actions. These include increases in the unit prices for works not provided for in the previously approved preliminary specification. Executing unique works that require less laboriousness will be profitable. The use of

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inexpensive materials and components purchased previously at low prices will also be beneficial. The general contractor may put pressure on subcontractors, and take advantage of their difficult financial situation, to lower the prices of their works and services. It also enables us to compensate for losses incurred due to incorrect pricing that is in favor of the customer, which is due to the marketing department making a mistake. The contractor’s unit prices depend on the scope of works and services performed and the number of goods sold. As a rule, the price-list sets the price range for specific volumes of works. The larger the order, the greater discount the contractor can provide to the customer. Therefore, it is inexpedient to offer the lowest prices in the hope of a large order when preparing a commercial offer for a preliminary specification where the customer did not indicate the scope of works. Another danger arises when, for example, a shipyard’s customer initially offers a significant amount of works and, after the ship arrives for repairs, refuses most of them with a request to keep the previously agreed low unit prices. Therefore, the marketing department must write prices down in the commercial offer along with the scope of works. Activities in the field of discrete orders are characterized by the irregularity of receiving orders for the manufacture of large objects, the execution of large volumes of works, and the provision of expensive services. As a result, companies are either overloaded or idle. Overloading is easy to overcome if the general contractor invites the appropriate number of specialized subcontractors, hires more staff, and rents additional equipment. Survival in idle time is more difficult because of the lack of incomes. In this case, the contractor accumulates debts as he still needs to maintain fixed assets, pay taxes and wages, and so on. This also creates social tension within the company. Taking short-term bank loans to replenish working capital when the incoming cash flow is absent leads to the accumulation of debts. The firm must then use its next credit to repay the previous loan; this means that the creditors’ trust will fall and credit conditions will become more unprofitable, etc. Who is to blame for this? The marketing department, of course. At least, according to the company’s top management. When there are no financial institutions willing to lend to the company, it will collapse and the courts will declare the debtor bankrupt. Often when there are no orders, the company’s marketing department is held responsible for this. It is not always taken into account that the company’s goods, works, or services are not in demand due to their low quality or inflated prices.

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Changing strategies and tactics depending on the market situation If circumstances indicate the need to develop a new marketing strategy and use other marketing tactics, it is need also to consider the competitive environment in which the firm operates. As a rule, regional and national markets of works are oligopolistic in nature, and the executing company’s marketing specialists must know their customers and competitors personally. We can use different marketing tactics for different market segments that unite homogeneous groups of potential customers within the framework of a marketing strategy at this stage of the company’s life cycle. At the same time, it is advisable to limit tactical efforts to the closest groups of potential customers, suppliers, competitors, investors, general contractors, and subcontractors within the market space (but not the physical space!) to save resources. Marketing specialists can draw up a map of strategies and tactics for the relevant market segments (Table 19-1). Table 19-1. Map of a company’s strategies and tactics Strategies Tactics Increasing, enlargement, expansion, etc. Decreasing, reduction, narrowing, etc.

Development strategy Enlarge volumes Increase productivity -----------------

Market capture strategy Expand advertising ---------

Market retention strategy Widen the nomenclature ---------

Reduce prices ---------

Acquisition of competitors ---------

Survival strategy Search for new markets Expansion of lending Save on costs Reduce staff

Marketing specialists will draw up a map of marketing strategies and tactics, which gives a detailed description of the name, nature, scope, and period of action for each of the tactics used in each marketing strategy. According to this map, a firm’s managers are more likely to use tactics that center on increasing, enlargement, and expansion in conjunction with all market strategies in most market segments. Vice versa, they are less likely to use tactics of decreasing, reduction, and narrowing.

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Pricing in ship repair and housing construction Repairing ships and constructing buildings are technically and organizationally complex types of production activities. Marketing specialists form their unit prices for works according to the principles of their company’s pricing policy in force. Usually, the cost of production forms the basis of the price. The main elements that form the cost of production for a ship repair yard or a construction company are as follows: Ɣ Wages of the main production workers Ɣ Salaries of auxiliary production workers Ɣ Salaries of managers and specialists Ɣ Depreciation of buildings, structures, and equipment Ɣ Leasing buildings, structures, and equipment Ɣ Consumption of electricity, water, and natural gas Ɣ Buying fuel and oil for transport and technological equipment Ɣ Occupational safety and health, environmental protection, and insurance costs Ɣ Repairing buildings, structures, and equipment Ɣ Buying tools and household appliances Ɣ Payment of property taxes Ɣ Payment for communication services, mail, Internet, and others Ɣ Expenses for the maintenance of buildings, structures, and equipment Ɣ Office expenses Ɣ Information support costs Ɣ Survey costs for the company, facilities, and equipment (and so on) Marketing specialists can get this and other data from their firm’s accounting department. They can calculate the total cost of the works by adding non-production costs for marketing, advertising, sales, and so on to the volume of production costs. Then, using the “cost-plus” pricing, marketers should add the total profit to the total cost of the works. The size of the planned profit is usually 15–25 percent. Marketing specialists calculate unit prices for each group (i.e., nomenclature) of works that the firm executes. They divide each nomenclature of works into subgroups (i.e., assortment). Expenses divided by the scope of works in natural terms that have been executed for a particular period—usually for a quarter of the year—gives the value of the unit price for each unit work (excluding value-added tax).

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The marketing specialists can then form a price-list for their works. They write down the unit prices of works without value-added tax in the price-list and the specifications. Marketers can calculate the tax amount after summing up the value of all works and write it down in the penultimate line of the specification. They then indicate the full value of all works in the last line of the specification, including the value-added tax. The second method for calculating unit prices for works is via the cost of one standard hour in the firm. Marketing specialists can find this amount from their firm’s economic department. It is necessary to consider that the cost of one standard hour includes the average wage rate of the main production workers, general production costs, contributions to social insurance, general business expenses, transportation costs, purchasing expenses, profit, and value-added tax. The third basic method for determining unit prices of works is the calculation of average market prices in the firm’s field of activity. This needs to reflect the execution of works in a certain area, at a certain time (season of the year), in favorable or unfavorable market conditions, and so on. Marketers determine the unit prices of works, including dumping or speculatively inflated prices, depending on the specific situation in their company’s marketing microenvironment and macroenvironment. Negotiations preceding the signing of a works contract require the parties to coordinate prices for works, services, and goods in a multi-stage process. Large firms that are market leaders develop price-lists based on their own structure of the production costs. Market outsiders prefer to use the leaders’ ready-made price-lists and then apply lower base rates. However, this pricing policy does not enable outsiders to achieve a high level of competitiveness in the industry. When preparing negotiations with customers, pricing specialists should provide economically reasonable prices for each item of the specification. If the customer insists on applying price discounts during the negotiations, the contractor needs to know the price reduction limit so as not to disrupt negotiations and not lose a lucrative contract. Therefore, it is advisable to find the lowest price level when developing or refine the price-list. It is unacceptable to reduce prices below this level in order to avoid losses. Marketing managers should ensure that the minimum price still allows them to create a profit; often, for example, the lowest price has a 15 percent profit and the optimal price has 25 percent. Specialists can offer their maximum prices, which can reach 30 percent profit, in order to start negotiations. Often, the contractor will have to drop this price and give the

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customer a discount of between 5 to 15 percentage points. Nevertheless, not only low prices are an attractive factor for the customer. Customers are also concerned about the works’ quality and timeliness, and they will check the contractor’s reliability and reputation. When the parties sign a contract, some ship repair yards or construction companies try to increase its value by enlarging the scope of the works and applying higher prices for additional works. If the customer insists on lowering prices only for certain works and services, the contractor may agree to discounts, while increasing prices for other items. This is easy to do for labor-intensive works requiring highly skilled workers (repairing engines, electrical and hydraulic equipment, electronic devices, engineering networks, and the like). Material-intensive and energy-intensive works and services, as a rule, do not provide an opportunity to significantly reduce prices. A firm’s price level also depends on the activities of its other departments, including procurement, personnel, equipment maintenance, and so on. The customer’s representatives monitor the price level and the daily output for some of the basic works and services that constitute the largest part of the order. For example, in ship repair these works include cleaning and painting the hull; replacing steel structures; repairing pipelines, valves, mechanical devices, and electrical equipment; and overhauling the main and auxiliary engines. In building construction, a lot of expensive works is performed, for example, installing reinforced concrete columns and ceilings, masonry of wall blocks, mounting pipelines and cables, adjusting equipment, designing and finishing premises, and the like. The price discount in the negotiation process before signing the contract is primarily provided by the contractor for his own non-materialintensive works and services. If it is possible to reduce prices at the expense of subcontractors, the marketing department sacrifices the outsourced subcontractors’ profits. A subcontractor, who is idle in the absence of a production loading, will agree to contract terms that are unfavourable to him by giving discounts. If subcontractors are a part of a holding company, the marketing department may resort to using administrative and disciplinary pressure on those subcontractors from the company’s top management.

The variable and non-variable parameters of the works contract We can use the contract’s variable and non-variable parameters to analyse the results of negotiations between the contractor and the customer.

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During negotiations, the marketing department can manage the variable parameters of the contract, including prices, the start and end dates, and so on. To a lesser extent, marketing specialists can influence non-variable parameters, such as the composition of works and the technologies used. As a rule, non-variable parameters of orders do not depend on the customer or the contractor, and are not a topic of discussion during negotiations. The value of non-variable parameters can vary by no more than 10 percent from the initial figure. Variable parameters can vary by more than 10 percent. In particular, the unit prices for executing works, such as replacing steel structures of a ship’s hull, are largely dependent on the selling prices for rolled metal products, including steel sheets and profiles. Similarly, cleaning and painting metal surfaces, which are usually determined by the consumption of materials (water, abrasive, enamels, solvents, and others), are non-variable works. However, during the negotiations the contractor can make significant price concessions for works associated with the repair of equipment, excluding the cost of the components replaced and the materials used. The balance of compromise reached between the customer and the contractor when signing the contract should not lead to a worse financial position for the contractor. Nevertheless, the contractor is often ready to reduce prices for the contract’s variable parameters according to the customer’s wishes.

Using the compounding procedure for long-term discrete orders Why is the pricing policy for large discrete orders different from those for small orders? Large discrete orders last for at least one year. The revenue generated by these orders exceeds the company’s average for a specified period. In fact, large orders are similar to investment projects, and marketing specialists control them with project management techniques. In addition, due to their long duration, which is calculated in years, we need to recalculate the main project’s indicators with a discount rate. For example, we must supplement contracts for constructing a cottage town, for monitoring the region’s outdoor advertising market, or for implementing an IT-product with a schedule for the customer’s phased payments. However, the real value of these payments actually decreases from year to year. Therefore, the marketing department must use the compounding procedure to increase the incoming cash flow from a long-term discrete

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order using the well-known formula (19-2) when calculating the planned revenue by stages of the contract (for the case when r = constant): n

FV

¦ P ˜ (1  r )

(19-2)

t

t

t

where FV = total future value of the incoming cash flow from the contract according to the schedule, £ Pt = revenue received from executing the order in the t-th year, £ n = number of years planned for executing the contract, years t = serial number of the current year of executing the order, t = 1… n r = discount rate depending on the year of executing the contract We can take a discount rate equal to the central/national bank refinancing rate, predicting changes that could occur in the future, as well as the expected rates of inflation. Therefore, we can calculate the long-term order’s profitability using the following well-known formula for working out the profitability index PI (19-3): n

¦ P ˜ (1  r )

t

¦E

t

t

PI

(19-3)

t n

t

˜ (1  r )

t

where PI = profitability index of the order (the order is profitable if PI > 1) Et = expenditures, that is, the firm’s costs caused by executing the order in the t-th year, £ It should be borne in mind that the customer’s payments for the stages of works are in the nature of investments made in the object being manufactured or repaired.

Absolutely or relatively profitable or unprofitable orders Sometimes companies refuse to accept orders that, according to the calculations of their economists, are not able to fully pay off the firm’s fixed costs. They do this despite the fact that the order’s economic

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characteristics are quite satisfactory, and the revenue from the order covers its variable costs. That means that the order will have internal profitability. The marketing department, together with the company’s financial and economic departments, should analyze the ratio of fixed costs, variable costs, and revenue generated by the order when deciding whether to take on an unprofitable order in the absence of other contracts. “Absolutely unprofitable orders” do not compensate for the company losses from downtime; but they even increase them due to the excessive variable costs caused by executing the order. The company cannot accept deliberately unprofitable orders for execution even in idle time caused by the lack of production loading. The next type of obviously unprofitable orders is when the profit generated by the contract cannot fully compensate for the company’s fixed costs during the order execution. We call these contracts “relatively unprofitable orders,” since they generate an internal profit from the order fulfillment (Pt – Et > 0), thereby reducing losses from downtime. The following formula reflects these orders: Pt  Et  Etfix . Here Et fix is the firm’s fixed costs assigned to this order, £. “Relatively profitable orders” are orders that can fully compensate for losses from company downtime due to their internal profits: Pt  Et | Etfix . “Absolutely profitable orders” are contracts that bring the company profit during their execution, regardless of the level of profitability for other parallel orders: Pt  Et ! Etfix . Marketing specialists can widen the nomenclature and scope of the works and services when fulfilling an order. It is advisable to agree the new scope of works at a higher price with the customer. In practice, it is possible to double the initial value of the order. However, abusing a customer’s dependence with an increase in price may lead to a negative result in the future, when the contractor could lose the customer forever. Another way to increase the profitability of large orders is to use personal relationships between representatives of the customer and the contractor. In this case, an attempt to increase the value of the order leads to the need to obtain the relevant consent of the customer’s specific top managers in exchange for a commission reward to them. An attempt to decrease the contract’s value and reduce the level of profitability is possible if the customer sent his own spy or hired a resident among the contractor’s employees.

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Coordinating stages of executing works and receiving payments The best order from the contractor’s point of view is one where he receives all of the payment without doing any work. The best order from the customer’s viewpoint means the timely receipt of a completed order without having to make a payment. But is this true? The ideal works contract for a civilized community considers both parties interests, thereby ensuring a steady cash flow from the customer to the contractor during the execution of the order (Fig. 19-4).

ROi

Bi

100% 2

1

0

100%

QWi

Fig. 19-4. The customer’s payments during the execution of the order by the contractor Fig. 19-4 uses the following notations:

ROi = the contractor’s revenue generated by the i-th order, £ QWi = scope of works according to the i-th order, £ In practice, OBi has the form of a stepped line that reflects the stages of executing works and providing services, and the corresponding receipt of payments ROi (Fig. 19-5).

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ROi Bi 100% 2

1

0

100%

QWi

Fig. 19-5. The customer’s phased payments during the staggered execution of the order by the contractor The set of points in Area 1 describes situations when the customer wins, which means the payment lags behind executing works and so the contractor has supplied the customer with credit. The set of points in Area 2 corresponds to cases when the contractor wins, which means the customer has paid before the start of the works stage.

How do bonuses and penalties affect a contract’s execution? Reducing stability of the order’s execution and applying the customer’s penalties will move point Bi downwards the OBi line. Prepayment and bonuses will move point Bi upwards; this increases the stability of the company’s activities (Fig. 19-6).

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ROi

Bi bonus Bi

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Fig. 19-6. Application of the customer’s bonuses and penalties upon execution of the order Fig. 19-6 uses the following notations:

Bi bonus = bonus for early completion of the i-th contract, £ Bi penl = penalty for late completion of the i-th contract, £ If payments are not received for the works executed and accepted by the customer, the executing company can ensure the sustainability of the production process and the implementation of the company’s development programs by obtaining credit. Incomplete execution of the scope of works for the order, which is when the customer has withdrawn part of the works, moves the current point Bi to the left; this means that the order’s profitability has been reduced. Overfulfillment of the scope of works, which is when the customer proposes additional works, moves point Bi to the right (Fig. 197). Fig. 19-7 uses the following notations:

Bi incom = incomplete execution of the scope of works for the i-th order due to withdrawn and uncompleted works, £ Bi over = overfulfillment of the scope of works for the i-th order due to additional works, £

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Non-compliance with the terms of the contract, the use of penalties, failure to pay in full under contracts, etc. increase the risk of the company’s financial instability. This type of risk (along with insolvency) is the main cause of bankruptcy. As a rule, banks are reluctant to provide loans to resolve their clients’ insolvency issues.

ROi

Bi

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Fig. 19-7. Change in the scope of works for an order compared to the planned scope of works Moreover, the targeted nature of loans implies the need for the borrower to use the bank’s resources exclusively for solving the problems determined by the terms of the loan agreement (for example, paying for goods, modernizing production, or developing new technologies). Improper use of credit by the borrower can lead to sanctions.

Practical tips First example: a shipyard has signed a contract with a foreign customer for the repair and re-equipment of 18 “river-sea” vessels for a period of 4 years totaling £47,880,000. On average, the shipyard planned cash receipts over t years: P1 = £14,364,000; P2 = £9,576,000; P3 = £19,152,000; and P4 = £4,788,000. The use of the compounding procedure will enable the company to prove an increase in the value of a long-term contract. Accordingly, the contract value will be equal (with r = 12 percent) to

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FV = 14,364,000 (1 + 0.12)1 + 9,576,000 (1 + 0.12)2 + +19,152,000 (1 + 0.12)3 + 4,788,000 (1 + 0.12)4 = £62,540,000 Consequently, the shipyard had the opportunity to sign a contract for the repair and re-equipment of ships with a total duration of 4 years for £62,540,000 (that is, 30.6 percent more). Second example: for the contractor to execute construction and installation works, the customer stipulated the following financial sanctions in the contract: Ɣ Payment of a fine worth 10 percent of the contract’s value for nonfulfillment or improper fulfillment of the contractor’s obligations Ɣ Payment of a penalty at a ratio of 1/300 of the refinancing rate established by the central bank, which is in force during the period of such delay, for each day of violation of the contract deadline The contractor did not complete the works, which cost £90,000, for a contract worth £9,800,000. Under the terms of the contract, the customer has the right to recover a fine of £980,000 from the contractor, which is 10.9 times higher than the value of the uncompleted works. Unlike a fine, the contractor will pay a penalty for the remaining amount of the uncompleted works (£90,000), which is not equal to the contract’s full value (£9,800,000). If the central bank’s refinancing rate is 6 percent per year, then the amount of the penalty per day under these conditions will be 1/300 Â 6/100 Â 90,000 = £18 per day. Thus, the less the amount of unfulfilled works remains according to the contract terms, the lower the penalty that the contractor will pay to the customer in case of default. Therefore, it is advisable for the executing company to deliver the completed works in stages. In addition, it enables the company to receive staggered payments under the contract from the customer.

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Definitions of concepts Ɣ A pricing policy is a set of rules and regulations, which are mandatory for company employees when forming and applying product prices. Ɣ A company’s strategy enables its employees to know what to do in any given situation. Strategies should be created by top management of the company. Ɣ A company’s tactics enable its employees to know how to accomplish their tasks. Tactics should be developed by mid-level management of the company. Ɣ Variable parameters of the contract can be managed by marketers, and these parameters can vary by more than 10 percent of the initial value. Ɣ Non-variable parameters of the order do not depend on the customer or the contractor and are not a topic of discussion during negotiations; the value of these parameters can vary by no more than 10 percent of the initial value. Ɣ The map of marketing strategies and tactics is a matrix where the tactics used correspond to the strategies adopted at each stage of the company’s life cycle. Ɣ Absolutely unprofitable orders for works do not compensate for the company’s losses from idle time, but even increase losses due to variable costs that arise during the execution of the order. Ɣ Relatively unprofitable orders generate internal profit and reduce losses from the company’s idle time, but their profit cannot fully compensate for the company’s fixed costs when executing these orders. Ɣ Relatively profitable orders are able to fully compensate for losses from the company’s downtime due to generating their internal profit. Ɣ Absolutely profitable orders create a profit during their fulfillment and offset the company’s fixed costs, regardless of the level of profitability from other simultaneously executed orders.

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Questions for discussion and testing 1. Define what is meant by a company’s pricing policy and list its main elements. 2. What are the main types of a firm’s price policies? 3. How do the strategies and tactics vary depending on the stage of the company’s life cycle? 4. What is the matrix of strategies and tactics? 5. Which of the following can be given a large discount: labor-intensive or material-intensive works? 6. Will the contract be worth more with a prepayment or with a deferred payment? Why? 7. What are the contract’s variable and non-variable parameters? 8. Do we need to apply the compounding procedure when calculating the value of long-term contracts? 9. What are absolutely unprofitable orders, relatively unprofitable orders, relatively profitable orders, and absolutely profitable orders? 10. How do you transform a relatively unprofitable order into a relatively profitable one? 11. Show graphically the impact of bonuses and penalties on the revenue and the scope of the works under contract.

CHAPTER TWENTY THE 9PS MODEL OF THE MARKETING MIX FOR WORKS

Overview In this chapter, readers will study the concept of marketing mix as a complex set of market-driven factors. We will highlight the history of the 4Ps model for goods and the 7Ps model for goods and services. Readers will learn how the general marketing of goods, works, and services has become the basis for an extended marketing mix model. We will divide the key elements of a project into groups of factors that marketing specialists can or cannot control. Readers will discover two new factors particular to the marketing of works: “period of time” and “payment terms.” This discovery allowed the author to create the 9Ps model to form a marketing mix for goods, works, and services. We will show an expanded image of marketing mixes for the marketing of goods; the marketing of goods and services; and the marketing of goods, works, and services.

The marketing mix as an effective marketing tool In order to increase efficiency in the market of works, marketing specialists should use a specialized marketing mix for the works. Marketing theorists have developed marketing mixes for practitioners to help them focus on the key levers of marketing management. This enables them to highlight their main focus, thereby allowing them to pay less attention to secondary factors. At the same time, the marketing department can save limited resources, including labor costs of employees. Of course, there are many factors that affect marketing activities in one way or another. However, when a marketing specialist gets an urgent

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request from a manager to sell a new product in a new market, he/she will not have much time to sort everything out. The specialist should, therefore, focus his/her main efforts on several of the most important items that make up the marketing mix.

The 4Ps and 7Ps models for the marketing mix The marketing of works provides an opportunity to revise the marketing mix concept. The marketing mix is based on the concept of the “mixer of ingredients” by James Culliton (1948) and was first proposed by the President of the American Marketing Association, Neil H. Borden, in 1953. The concept of combining factors that marketing specialists can control has evolved rapidly and gained widespread acceptance. Later, the marketing mix expanded to a complex set of 12 marketing factors. According to Neil H. Borden, marketing specialists are able to use the marketing mix to ensure the sale of a company’s products within existing market forces. Scientists have developed several models of the marketing mix, but the most accepted is the 4Ps model proposed in 1964 by E. Jerome McCarthy. This model introduced the following elements to marketing specialists: “product,” “price,” “place” (distribution), and “promotion” (to the market). All 4 elements began with the letter “P” and, as a result, the model became known as the 4Ps. This concept has become very popular as an example of the practical use of marketing theory. When the concept of the marketing of services was proposed by G. Lynn Shostack in 1977, it became necessary to revise the classic marketing mix model, which was originally developed for goods. In 1981, Bernard H. Booms and Mary Jo Bitner supplemented the marketing mix with three additional “Ps” and developed a broader concept of the marketing mix for services. This was 7Ps model, which added the following elements: “people,” “process,” and “physical evidence” (of providing a service). Despite criticism over widening the marketing mix, which was mainly focused on these new elements, most marketing researchers and practitioners agreed that the new marketing mix—the 7Ps model— corresponds to a new type of marketing: the marketing of services. Within the framework of the marketing of goods and services, marketing theorists have constantly tried to widen the marketing mix by adding new elements that begin with the letter “P”. In contrast to previous attempts to expand the composition of the marketing mix within the existing framework, which used only elements starting with the letter “P” in English, we used another approach. The study of works in terms of the

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marketing mix concept also enabled the development of the marketing of works.

The marketing of goods, works, and services as a basis for the 9Ps model An important feature of the marketing of works involves a specialized model of the marketing mix that centers on works, which the author created using the 4Ps model for goods and the 7Ps for services. Significant contributions to the creation and development of the marketing mix concept have been made by Mary Jo Bitner, Bernard H. Booms, Neil H. Borden, Gordon C. Bruner, Lee G. Chai, Efthymios Constantinides, James Culliton, Chekitan S. Dev, Albert W. Frey, Christian A. Grönroos, Robert F. Lauterborn, E. Jerome McCarthy, Mohammed Rafiq, Donald E. Schultz, and Walter van Waterschoot, among others. It was necessary to develop the concept of the marketing mix following the discovery of two new types of marketing—the marketing of works and the marketing of goods, works, and services. A company executes works for external customers in the form of a project of works, and it specifies these works in the relevant contract. Therefore, the concept of the project has become a source of new elements for this broader version of the marketing mix. It is well-known that the project key factors when organizing the works are the purpose of the project; the start and end dates; the period of its implementation; the composition and scope of works; the budget; the parties involved; the conditions of implementation, including payment terms; the rights and responsibilities of the participants; the organizational plan; and so on. The 7Ps marketing mix for services (in contrast to the 4Ps for goods) is generally applicable for the marketing of works, but the author has extended this model. A toolkit for the marketing of works is needed for the manufacture, repair, and liquidation of production facilities in the B-to-B market. This is also required for the production and repair of consumer objects in the B-to-C market. The effectiveness of marketing activities and the validity of marketing plans will increase when the marketing of works is correctly applied. Therefore, the marketing mix is a complex set of marketing tools, which are used by marketing specialists. These tools can help sell products in the market, depending on the current market forces. The 4Ps marketing mix for goods helps to control the following elements: “product,” “price,” “place,” and “promotion.” The 7Ps marketing mix for goods and services

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includes additional elements: “people,” “process,” and “physical evidence.” Next, we will learn about the broader 9Ps marketing mix for the marketing of goods, works, and services, which covers new elements: the eighth element is the “period of time” and the ninth is the “payment terms.”

The concept of the project as a source of new elements in the marketing mix We will now consider the project concept as a source of new elements for the marketing mix of works based on the following arguments: Ɣ A project is an effective form of organizing works that an external customer limits in terms of time, objectives, resources, budget, participants, composition, and scope of works according to his contract with the contractor. Ɣ In their relations with the subdivisions of their company, marketing specialists act as representatives of an external customer during the project implementation; but in their relations with an external customer, they are representatives of the contractor. Ɣ The rights and responsibilities associated with the project implementation process give marketing specialists the opportunity to manage and control project factors as elements of the marketing mix. Ɣ Marketing specialists need to control and monitor the project’s implementation in order to harmonize all of the parties’ interests and overcome deviations and disagreements. As a rule, marketers carry out activities in the marketing of works on the basis of a contract for executing works. This type of contract provides for the start and end dates of all works, including each stage of their execution and delivery according to the schedule (as an appendix to the contract). The parties need to calculate the total cost of works in the preliminary specification of works. Payment terms, as a rule, provide for an advance payment by the customer, as well as subsequent stage-by-stage payments. The role of marketing specialists is important if there is a disagreement between the parties when negotiating a contract. Changing the terms of the contract is only possible with the mutual consent of both the contractor and the customer. Therefore, the project of executing works

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on the order of an external consumer influences the executing company’s external marketing environment. Unlike the project for executing works according to an external order, the project for the manufacture of goods for subsequent sale is an exclusively internal document, which is approved by the manufacturer of the goods. The marketing department must study the situation and trends in the market for these goods and represent the requirements of their potential buyers as an “internal customer.” The project for the production of goods is not related to external factors that affect the company’s internal environment. Therefore, this project is not a subject of external coordination or the approval by potential buyers. The result of marketing activities is the sale of products (goods, works, and services) and the generation of revenue from sales. Marketing activities in the field of executing works include not only selling future works, but also participating marketers in their execution and delivery to the customer (as well as receiving the final payments). This textbook does not specifically address the procedures for payment for goods, works, or services. These issues are within the purview of the accounting and financial departments. The marketing department manages the payment terms by involving the company’s financial and legal departments, as well as their security services. At the same time, the firm’s top managers will make their marketing specialists responsible for collecting payments from customers that marketers have found. This responsibility requires the appropriate rights and authority to control this process. Generally, project managers organize, control, and check the project’s implementation. In order to analyze the role of marketing specialists when obtaining and executing projects, it is important to remember that fulfilling a project of works relates to the sphere of production; however, marketing activity belongs to the sphere of circulation. Therefore, marketing managers cannot replace project managers.

Project factors controlled by marketing specialists We will consider each project factor in terms of “possibility,” “necessity,” and “sufficiency” to include it in the marketing mix for works. Ɣ Start and end dates for the project. Marketing specialists can manage and control the project implementation period during negotiations with a potential customer in order to ensure a uniform production loading. At the same time, marketers may suggest to the customer’s representatives to

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move the start of the contract to an earlier or later date, taking into account the free or occupied production capacity and the available resources of the contractor. Marketing managers can also move the deadline for the works completion, if there are next orders before which previous contracts must be fulfilled. The marketing department must manage the duration of the order, because projects with limited timeframes are dangerous due to their violation of the project’s terms and the fact that it will be impossible to achieve the required objectives. Additionally, projects with a lengthy timeframe do not allow the firm to use its resources efficiently and fully. This is why marketing specialists control the works execution period. Since the proposals of marketers for organizing the project of works by time—fixed in the contract—are legally binding for all parties to the project, this circumstance is sufficient for the “period of time” to become one of the new elements of the marketing mix for works. Simultaneously, we met the desired formal requirement, that is, the name of the element begins with the letter “P”. Ɣ Composition and scope of works. This factor corresponds to the “product” element in the marketing mix. For the marketing of goods, these are nomenclature, assortment, and quantity of goods that the manufacturer offers for sale in the market. For the marketing of services, these are the services that the provider offers to clients. Undoubtedly, the executing company has the right to offer any type of works to the market, but its capabilities and the needs of potential customers usually limit this. As a result of studying demand in the works market, the executing company’s marketing specialists manage and control the list of works as a constituent part of the “product” element in the marketing mix. Thus, the composition and scope of works belong to the existing “product” concept of the marketing mix for goods, works, and services and, therefore, cannot form a new element. Ɣ Project budget. The composition and scope of works, as well as their prices, form the project’s budget. In the marketing of works, the parties negotiate the price of each work, commodity, and service that the contractor sells to the customer. The “price of work” (“unit price of work” or “price per unit work”) in the marketing of works covers all areas of price management and is a “price” element of the marketing mix within the same framework as in the marketing of goods and services. For example, the buyer has the right to receive a discount on the price when purchasing a larger volume of works and/or a greater batch of goods.

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When the consumer pays an advance, marketers may sell goods and services at reduced prices; they also have the right to raise the price of the product when there is a deferred payment or a sale based on credit. This is also true for the marketing of works. Thus, the “project budget” factor is already included in the “price” element of the marketing mix for goods, works, and services. Ɣ Project conditions. Before signing a contract for the execution of works, the parties formulate certain conditions for the project of works. These conditions could apply to any of the project’s components, including organizational, production, personnel, financial, and legal matters. Fulfillment of all these conditions is very important for achieving success; however, marketing specialists should only focus on providing marketing support. Since the contractor’s goal is to accurately fulfill the contract and receive all payments due, marketing specialists are responsible for receiving money from the customer. This is because marketers themselves find the customer, check his reputation and solvency, and invite him to enter into negotiations with the company. Therefore, marketing specialists can and must manage payment terms when signing and executing a contract. This includes, Ɣ The customer’s prepayment, which will be stipulated in the contract for executing works Ɣ Payment for each completed (by the contractor) and accepted (by the customer) stage of the contract Ɣ Receiving from the customer all premiums stipulated by the contract Ɣ Penalties owed by the contractor when he is at fault Payment terms do not relate to the “price” element of the marketing mix, because a similar component is intended for this, i.e., the “project budget.” Therefore, “payment terms” is an essential element of the marketing mix for works.

Project factors that marketing specialists cannot control There are elements among the factors of the works project that the company’s marketing department cannot fully control. These include the following:

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Ɣ Project objectives. Researchers who study the marketing mix structure (for goods and services) believe that “purpose” is an element of the external environment and, therefore, under the control of marketing specialists. This statement is not true for the marketing of works. The customer defines and sets the goals in the field of works orders. The contractor, as a rule, does not tell the customer what goal should be reached as a result of the project. Moreover, it is important for the contractor to fulfill the contract and receive all payments stipulated therein. At the same time, there may be a situation when the goal defined by the customer was either not reached or was not fully achieved. A project that is successful from the contractor’s viewpoint will sometimes not be successful from the customer’s point of view. In this case, the customer will remain dissatisfied. As you remember from Chapter Nine, there are exceptions to this rule. Sometimes a customer may ask the contractor to develop a technical assignment (task) for the project and clarify its objectives, because the executing company’s marketing specialists may understand the customer’s market better. Therefore, using the marketers’ advice to clarify the project goals will save the customer from mistakes and unjustified expenses. In the event of errors when setting project objectives or changes in the market, which makes the initial goals ineffective for the customer, marketing specialists must make and approve the necessary adjustments to the project’s objectives. However, this situation very rarely occurs. Therefore, we cannot say that the project objective is an external marketing environment factor that can be managed by marketers. Ɣ Parties to the project. The project’s participants include the customer and the contractor (general contractor), as well as investors, subcontractors, and so on. Is the composition of project participants a factor that can be controlled by the executing company’s marketing department? To some extent, it can be because the marketing department finds the customers and recommends them to the company’s top management. However, marketing specialists cannot manage customers (that is, the buyers of their goods, works, or services). Similarly, they cannot control the activities of investors or subcontractors when the general contractor invites them to take part in the project. Despite the fact that the concept of “party” begins with the letter “P”, this factor cannot be considered to be a possible element of the marketing mix in the marketing of works because it is not under the control of marketing specialists. However, marketing managers control the executing company’s

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personnel, that is, the “people” element in the 7Ps model of marketing mix, when carrying out projects. Ɣ Rights and responsibilities of participants. These factors are in the legal sphere, and the company’s lawyers control them within the limits established by the legislation. During negotiations with the customer’s representatives, marketing specialists can have a formal or informal impact, which is reflected in the parties’ rights and responsibilities in the contract. However, if there are no provisions made in the contract for the parties’ rights or responsibilities, this may invalidate the contract due to non-compliance with the legal requirements regarding its structure. To some extent, marketers may influence the contract’s premiums or penalties, but this does not meet the requirements for the elements of the marketing mix. Hence, from the viewpoint of the marketing department, the concept of “rights and responsibilities” does not fully relate to the factors controlled by marketing managers. Ɣ Organizational plan. The organizational plan is under the purview of the project managers, and marketing specialists are responsible for implementing the section that provides marketing support for the project. In general, the marketing department develops and approves marketing plans and ensures that they are fulfilled. However, this plan acts as an internal document for the company (although it depends on the influence of the external environment) and it does not apply to the environmental factors controlled by marketing specialists. Thus, the project plan, although it meets the formal requirements, that is, it begins with the letter “P”, cannot enter the marketing mix as a new element.

New elements of the marketing mix for works The implementation of a works project involves the executing company’s production activity which, as a rule, is controlled by project managers. However, some factors are largely controlled by marketing managers. Three factors, namely “product,” “price,” and “people,” were proposed by theorists for the 7Ps marketing mix model for the marketing of goods and services. At the same time, two additional elements, the time period for executing the contract and the conditions for receiving payments from the customer, are under the control of marketing managers. The marketing department must control these elements because it has a responsibility to

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the company’s top management and marketers also need to keep the promises made to the customer. Due to the fact that rights are accompanied by responsibility, effective marketing activities require that the company’s management grant the necessary authority to the marketing department so that it can control these factors. Marketing specialists control the “period of time” by moving the start and end dates of the contract based on the execution of other orders already received or expected later. If the firm does not have enough resources, its marketers should try to agree a long-term contract with the customer and, vice versa, shorten the timeframe if they do not have enough orders for their production capacity. Of course, marketing specialists must take the opinion of the company’s production divisions into account. Before offering the company’s top manager to sign a contract with a customer, the marketing department should check the potential customer’s reputation and solvency. In case of problems with obtaining payments for the works performed and at the initiative of the financial department, marketing managers will have to convince and force the customer to pay the debt. Marketers must also go to court along with their company’s legal department in order to receive the money owed from an unscrupulous customer. This means that marketing managers must control the contract’s “payment terms.” An overview of the key factors of the project of works and the identification of the new elements in the marketing mix for the marketing of works can be found in Fig. 20-1 below.

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Organizational plan of the project

Rights and responsibilities

Project conditions

Parties to the project

Project budget

Composition and scope of works

Project period of time

Project objectives

Key factors of the project of works

People

Price

New elements of the marketing mix for works

Payment terms

Period of time

Product

Known elements of the marketing mix

Fig. 20-1. Existing and new elements of the marketing mix based on the project’s key factors If the contractor has a deficit of working capital, the marketing department should include an advance payment in the contract’s terms. If the customer refuses to make an advance payment (which is usually 25–30 percent of the total value of the contract), marketers must demonstrate that the executing company will be forced to provide credit to the customer at its own expense. As a result, the contractor will need to increase the value of the contract.

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An expanded image of marketing mixes for goods, services, and works Fig. 20-2 shows an expanded image of marketing mixes based on Philip Kotler’s ideas for the marketing of goods; the marketing of goods and services; and the marketing of goods, works, and services. They take into account the factors that make up the project of works, and can be controlled by the executing company’s marketing department. Marketing mixes for goods, services, and works

1P, 2P, 3P, 4P Goods

1P, 2P, 3P, 4P, 5P, 6P, 7P Services 1P, 2P, 3P, 4P, 5P, 6P, 7P, 8P, 9P Works

Fig. 20-2. Expanding the composition of the marketing mix elements for the marketing of goods, works, and services We have now studied the new elements of the 9Ps extended marketing mix model for goods, works, and services: the eighth element, “period of time,” and the ninth element, “payment terms,” based on the consideration of the project concept. Marketing practitioners can use the toolkit of the marketing of works in the industrial works market (that is, B-to-B) and consumer works market (that is, B-to-C). It is advisable to divide the activities of production companies and service firms into the execution of works and the provision of services. The effectiveness of these companies’ marketing activities will increase due to a clear specialization and the proper application of marketing techniques and tools.

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Practical tips The marketing mix used in the marketing of works has more elements and is more complex than in the marketing of services (7 elements) or goods (4 elements). There are many concepts whose name begins with the letter “P” in the dictionary. Scientists can develop a comprehensive model of the marketing mix with dozens of elements. However, in practice, it turns out that most of these parameters are not controlled by marketing managers, and often they are not even related to marketing activities. The advantage of marketing mix models is their brevity, which enables marketing practitioners to focus on 4, 7, or 9 elements. Concentrating efforts and resources on several factors gives impressive results; this includes sales growth. For example, the marketing department wants to expand sales of painting works for the exterior surfaces of residential buildings (including single-family homes and apartment buildings). Ɣ The “product” in the marketing of works is an activity that processes an object. The product in this example is painting works. By offering a product (i.e. works), marketing practitioners sell non-existent works as a promise to fulfill those works for the customer. However, the customer’s object is not for sale in the marketing of works. In the marketing of goods, the product coincides with the concept of the object. Nevertheless, in the marketing of works, the product and the object do not coincide. Ɣ The “price” is the result of the marketing specialists’ calculations in accordance with the company’s pricing policy, the current price-list, their competitors’ prices, the internal cost of production, and the established rate of profit, etc. For example, in order to penetrate a new market, such as high-tech finishing works, marketing specialists will use dumping prices. Monopolists can apply high prices even for poor quality works in agriculture. Ɣ The “place” includes the territory where the executor sells the works, and the territory where he executes them. It is important for the buyer where he purchases the goods and, to a lesser extent, he is interested in where the manufacturer produced them.

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For example, a European consumer orders a Japanese or South Korean car. The manufacturer produces the car on the other side of the globe and then transfers it to the customer. Then the customer uses it in Europe. In fact, the manufacturer sold the works for the production of this car in Europe. Ɣ The “promotion” in the marketing of works includes promoting the company itself to the market. The executor advertises his experience and reputation, the availability of resources (material, labor, information, etc.), customer recommendations, and so on. Promises of high-quality and timely fulfillment of works (in order to sell them) are not in themselves a product for promotion to the market. Therefore, the marketing department of the shipyard promotes its company using advertising, PR (public relations) methods, direct sales, and the like. Three additional elements of the marketing mix for services are applicable in the marketing of works: Ɣ The “people” (employees) executing the works are subject to control. Experienced, qualified, responsible, and motivated employees are able to fulfill works under the contract with high quality and on time. Marketing of personnel (HR marketing) is a key activity of the company, which helps to ensure its success in the market. The customers will always be interested in who will actually fulfill their orders. As a result, marketing managers control the personnel that will be involved in the project. Ɣ The “process” of executing works. The technologies applied, production equipment, compliance with environmental requirements, quality of works, and labor productivity, etc. are controlled factors. For example, when a manufacturer’s service engineers carry out routine repairs to a ship’s main engine, they use special equipment, methods, technologies, materials, and components, etc. Any violation of the repair process will lead to engine failure. Ɣ The “physical evidence” of fulfilling works. Representatives of both the customer and the contractor negotiate the completion and delivery of the works. They control the works’ scope, composition, and quality. For example, it is difficult to control the quality of laying foundation after the completion of a residential building. Therefore, the customer’s commission for the acceptance of works checks the fulfillment, quality,

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and scope of these works even before the start of constructing the first floor of this house. The marketing mix for works has two additional elements: Ɣ The “period of time” determines the start and end dates, as well as the duration of the contract. The period of time depends directly on the labor productivity, as well as on the intensity and tension of the works contract. In order to win a tender for works, the construction company must specify the minimum duration of the contract in its commercial offer. For example, a customer needs to urgently build a new production workshop to manufacture a new aircraft while there is market demand for such an airplane. Ɣ The “payment terms.” The contractor coordinates the terms of payment with the customer. The parties negotiate the terms and size of the advance payment, the phased (stage-by-stage) payments for works, the deferral of the final payment, the contractor’s penalties and premiums, etc. For example, if a shipyard has an acute shortage of working capital, marketing specialists must ensure that the customer pays an advance payment under the contract. It is advisable that this be at least 30 percent of the contract value.

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Definitions of concepts Ɣ The marketing mix is a complex set of marketing tools that marketers can control and that ensure the sale of the company’s products within the current market situation. Ɣ The 4Ps model of the marketing mix for goods is a complex set of elements that marketers can control: “product,” “price,” “place,” and “promotion.” The 7Ps model of the marketing mix for goods and services also includes additional elements: “people,” “process,” and “physical evidence” of service provision. Ɣ The 9Ps model of the marketing mix for goods, works, and services also covers the following additional elements of the marketing mix: “period of time” and “payment terms.” Ɣ The “period of time” determines the start and end dates, as well as the duration of the contract. The period of time depends directly on the labor productivity, as well as on the intensity and tension of the works contract. Ɣ The “payment terms” are coordinated between the customer and the contractor. The parties negotiate the terms and size of the advance payment, the phased (stage-by-stage) payments for works, the deferral of the final payment, the contractor’s penalties and premiums, etc. Ɣ The criteria for attributing factors to the marketing mix are as follows: they are factors of the external marketing environment; marketers can manage them; theorists develop them for sellers of goods, works, and services; and practitioners use them in the field of circulation. Ɣ The project of manufacturing goods for sale is a document of internal approval by the manufacturer of the goods, which is based on the recommendations of marketing specialists. Ɣ The project for executing works in accordance with an order is a document of external coordination between the contractor and the customer. The contractor’s external marketing environment directly affects this project.

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Questions for discussion and testing 1. What is a marketing mix and why do marketing specialists need it? 2. What are the elements of the marketing mix? You must refer to the 4Ps for goods, 7Ps for services, and 9Ps for works. 3. List the key factors of the project form of works organization. 4. Why is the “project” of works a conceptual basis for their marketing mix? 5. What are the “project of internal approval” for producing goods and the “project of external coordination” for executing works? 6. Why is the “period of time” for executing works an element of the marketing mix? 7. How can marketing specialists control “payment terms” as an element of the marketing mix? 8. Why are the “project objectives,” the “rights and responsibilities of participants,” and the “organizational plan of the project” unable to be elements of the marketing mix? 9. Justify that the composition and scope of works correspond to the “product,” the project budget corresponds to the “price,” and the project participants from the executor correspond to the “people” in the marketing mix. 10. How does the customer’s deferral or prepayment affect the value of the contract? 11. What is the difference between the marketing mix for industrial works in the B-to-B market and the marketing mix for consumer works in the B-to-C market?

CHAPTER TWENTY-ONE THE BARTER MARKETING OF WORKS AND THE EXCHANGE OF WORKS

Overview In this chapter, readers will learn about the role of barter transactions in marketing and the economy, and their ability to maintain financial liquidity during economic crises. We will focus on differences between the exchange of objects and products. Homogeneous and heterogeneous, as well as one-pass and multi-pass barter transactions will be considered. We will also find out who is the initiator and who is the respondent of the barter exchange. The author will explain the differences between work exchange and service exchange. Readers will learn how to ensure the exchanged products’ value equivalence and plan the timely exchange of processes, i.e., works and services. We will show the procedure for drawing up a “barter roadmap” for heterogeneous and multi-pass barter transactions.

The role of barter transactions in marketing Historically, the first transactions in the market were barter deals. At the same time, market participants exchanged a surplus of their products for other items they needed. When people began to use money as a means of payment, barter transactions faded into the background. Accordingly, marketing theorists, academics, and practitioners began to view barter as an obsolete form of market transactions. However, periodic declines in the liquidity of national economies during macroeconomic crises and the widespread development of electronic Internet marketing at the end of the last century have led to a

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second wave of barter transactions. In addition, bartering in the works and services markets is very different from the traditional barter in the goods market. The author has, therefore, supplemented the familiar concept of the “exchange of goods” with two new terms: the “exchange of works” and the “exchange of services.” Instead of the usual words, “buyer” and “seller,” the following terms have appeared: “initiator of a barter transaction” and “respondent of a barter transaction.” There are other new concepts involved in barter marketing, which we will study in this chapter. This includes works and services as business processes (unlike goods that are a result of business processes), which marketing practitioners cannot store and accumulate. This means that the sale of works and services has to occur before the executor or provider has fulfilled them. Barter is the exchange of goods, works, or services directly for other goods, works, or services without the use of money or other means of payment. Barter marketing of works is a type of barter marketing that provides the exchange of works for other products (that is, goods, works, or services) between work executors and other market members. Goods as a product of exchange have market independence and are separate (substantial or non-substantial) objects. Works and services are activities (processes) and do not have market independence, because they require for their execution a material object, which the executor manufactures, maintains, repairs, modernizes, re-equips, or liquidates. The parties to a barter transaction exchange their works through the temporary mutual transfer of their objects (existing or future). In contrast to the exchange of goods for goods, the exchange of works stretches over a period of time and depends on their productivity and quality, since these exchanged products (i.e., works) have their own market value.

The importance of barter in the current economy According to Robert B. Meyer (founder, publisher, and editor of BarterNews, the leading publication devoted to barter trade), the total amount of barter transactions in the world exceeds $3.7 trillion a year (source: http://www.barternews.com). This volume includes $2.0 trillion of barter transactions between countries and transnational corporations. The increase in the volume of barter transactions and the associated difficulties in terms of accounting and taxation are the reason why national governments and the World Trade Organization (WTO) pay close attention to them (source: https://www.wto.org).

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With the development of marketing activities for the exchange of goods, works, and services, the concept of barter marketing was widened in 2013 to include the “barter marketing of works” (source: https:// lib.sevsu.ru/xmlui/handle/123456789/6129). When exchanging goods, a real product is available, which can be directly exchanged for another real product. When works are offered for exchange, they are a future (virtual) product that does not exist at the time of exchange; this considerably complicates marketing activities. Researchers and practitioners have had a cyclical interest in barter over the years. At the end of the 1980s, “East-West” barter transactions increased, which caused a surge in scientific research and publications. At the beginning of this century, interest was revived thanks to the development of Internet barter (electronic barter). With every global financial crisis, there is a growing need for direct exchange of products without the use of cash and other financial instruments. The Global Offset and Countertrade Association (GOCA) notes that barter can play an important role in overcoming crises in the absence of financial liquidity (source: https://www.globaloffset.org). Nevertheless, the WTO and the International Monetary Fund (IMF) view barter as a duty-free trade that distorts the results of product exchanges (source: https://www.imf.org). Therefore, the prerequisites and opportunities for developing barter trade are the object of many researchers’ attention. The following authors have made significant contributions to the study of barter: Costas G. Alexandrides, Ross Anderson, Barbara L Bowers, David B. Brown, Richard Cooper, John P. Dickerson, Tore Ellingsen, Alexander M. Filinkov, Jean-Francois Hennart, George B. Kleiner, Kenneth M. Kletzer, Canice Prendergast, Monika Schnitzer, Günter G. Schulze, Lars A. Stole, Steve Williamson, and Randall Wright, among others.

Existing problems and ways of developing barter marketing Currently, there are a number of controversial marketing theory issues when classifying types of marketing, including barter marketing. Widening the existing concept of goods exchange with the exchange of works and the exchange of services required an expansion of the barter transaction classifications in the goods, works, and services markets. Therefore, we will study one-pass and multi-pass barter transactions, as well as the homogeneity and heterogeneity of barter products. We will learn to overcome difficulties when harmonizing the exchange of works in

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space and time, and we will also solve the problem of ensuring the cost equivalence of goods, works, and services. The virtual nature of future works generates concerns about their feasibility. Specialists engaged in the barter marketing of works face a crisis of trust from their target audience due to inaccurate notions about bartering. Despite the existence of regulatory documents that describe the differences between works and services (for taxation, legal practice, economic analysis, etc.) in many countries, not all barter theorists and practitioners consider works to be an independent product for exchange with goods, services, and other works. Barter is an effective tool that ensures the liquidity of financial flows during national and global shocks; it also prevents national economies from collapsing and facilitates a financial system’s recovery from a crisis. Direct exchange of products protects producers of goods, executors of works, and providers of services from non-payments during periods of hyperinflation and defaults. Using the well-known definition by USLegal, Inc. (source: https://www.uslegal.com), we can define the following: Barter is the exchange of goods, works, or services directly to other goods, works, or services without the use of money or any other similar unit of account or means of payment.

Products for exchange are also works that were not previously mentioned in this definition. Barter transactions may include the exchange of goods, works, and services. Moreover, homogeneous barter transactions involve the exchange of homogeneous products: goods for goods, works for works, and services for services. Heterogeneous barter transactions take place when exchanging various products: for example, goods for works, works for services, and services for goods. Barter considers goods to be material objects that meet demand through exchange. Works are activities that change the market value of objects. Services are activities that maintain objects without changing their market value. In classic sales transactions, the seller and the buyer determine the direction of movement for products and payments. In barter transactions, we distinguish participants according to the time they enter the market with their offers. The participant who first offers a product for exchange is the “initiator of a barter transaction,” and the participant who sent a response offer is the “respondent of a barter transaction.” Due to the difficulty of achieving full value equivalence of products, marketing practitioners do not always carry out barter transactions in their

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pure form. They use equalizing cash payments to cover the difference in the value of the exchanged products. If the supply and demand do not coincide at the first stage of a barter transaction, the initiator should look for a second consumer who needs the first consumer’s product and who will offer the necessary product to the initiator of the transaction. If there is a secondary mismatch of supply and demand, then the parties will need a third consumer’s product and so on, until the supply and demand coincide. This is a multi-pass barter transaction, which can become a “hybrid barter and money transaction” if there are equalizing cash payments involved. The classic marketing mix is currently undergoing significant changes with regard to barter marketing. So, let us consider the above issues in more detail.

Exchanging objects and products in barter transactions As we know, goods as a product of exchange have market independence, since they are material (substantial or non-substantial) objects. Works are a type of activity and have an applied nature because they need material objects for their execution. Producers manufacture, repair, process, modernize, re-equip, or liquidate these objects. They exchange works via the parties’ (participants to a barter transaction) temporary mutual transfer of their objects (existing or future). The contractor creates future objects in the process of executing works for their manufacture. Therefore, the customer’s object appears due to these works. Existing objects change during the execution of works or disappear as a result of liquidation. This means that the presence of real objects is essential for the exchange of works in a barter transaction. In contrast to the exchange of goods for goods, the exchange of works takes place over a longer period of time. According to the European Commission’s definition (source: https:// www.ec.europa.eu) goods, works, and services are elements of a firm’s product, which provides a source of revenue. It is necessary to take into account that the manufacturer (seller) of goods (as the exchanged objects) is generally their owner. In barter transactions, contractors do not own the objects they process. Exchanged products in this type of barter transaction are works that have their own market value. At the same time, the market value of the exchanged works “merges” with the market value of the processed objects, but the market value of the services does not transfer to the market value of the serviced objects. When studying barter transactions, we apply the well-known paradigm of

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the “double coincidence of desires,” which suggests that the participants’ desires (that is, the demand for exchanged products) should coincide. To do this, the company’s marketing department must coordinate its activities with the supply department. It is much more difficult activity— finding a consumer in the market with a product that the company needs— than selling a product and receiving payment from a buyer. Moreover, in the marketing of works, the promotion of future works is more difficult than the promotion of existing goods because marketing specialists are selling (or exchanging) promises to customers. Understanding works as a product of exchange gives a new impetus to the development of barter marketing. For example, Robert B. Meyer notes that labor and works are traditional matters of barter in agriculture, as parties will hand over equipment in exchange for executing land melioration or harvesting works. Barter has become a common practice in agriculture, where sellers exchange their goods for the services of these goods’ consumers. Similarly, the seller of goods can exchange them for works, and the contractor can exchange (execute) his works for the services provided, since goods, works, and services are equal products of human labor and have their own market value. When preparing a barter transaction for the exchange of works, the parties must draw up works specifications for their mutual execution and calculate the equivalent value. At the same time, the works’ urgency, uniqueness, and complexity affect the ability to obtain an equal value of products in barter transactions. Homogeneous works make it easier to achieve equivalence than works representing different types of activities. Transactions for the exchange of works are “countertrade contracts” or “contracts for the exchange of works” by analogy with the exchange of goods. Unlike the generally accepted agreement for executing works, a counter contract includes two preliminary specifications for the execution of works. If the contractor executes works on a movable object, the customer can deliver the object to the contractor’s company. This is generally relevant for locomotives, cars, aircraft, ships, and other vehicles. The execution of works on real estate objects requires transferring teams of specialists to the place of works. At the same time, the contractor incurs other expenses associated with relocating his employees. For example, costs arise during the installation, repair, or re-equipment of generating units for electric power stations; during the assembly, adjustment, or modernization of production conveyor lines; as well as when planting new bushes of technical grape varieties on plowed mountain slopes far from the winery. The pricing procedures when

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preparing and signing counter contracts are more complex because mutual discounts may reduce prices for works, services, and goods below the average market level.

Homogeneous and heterogeneous barter deals In general, the exchange of products includes three pairs of homogeneous products: “goods-goods,” “works-works,” and “services-services.” It also involves three pairs of heterogeneous products: “goods-works,” “worksservices,” and “services-goods.” The exchange of homogeneous products takes place through homogeneous barter transactions. Accordingly, “heterogeneous barter transactions involve the exchange of heterogeneous products” (source: https://lib.sevsu.ru/xmlui/handle/123456789/6129). Goods 1

Goods 2

Goods 1

Goods 2

Works 1

Works 2

Works 1

Works 2

Services 1

Services 2

Services 1

Services 2

Fig. 21-1. Homogeneous barter deals

Fig. 21-2. Heterogeneous barter deals

Fig. 21-1 and Fig. 22-2 show a comparison of homogeneous and heterogeneous barter transactions. In practice, the homogeneity or heterogeneity of barter deals is relative. So, goods are accompanied by the exchange of services (for example, preparation of documents, loading and unloading goods, transportation, insurance, security, accounting, etc.), as well as by the exchange of works (for example, packaging, repairing damaged goods, assembling complex equipment using components, etc.). In other words, there is an exchange of hybrid offerings. The social division of labor and narrow product specialization are no longer absolute factors in the growth of a company’s competitiveness in the context of dynamic changes in the global economy. In fact, a multiproduct firm that receives revenue from various sources (manufacture of goods, execution of works, and provision of services) is better adapted to the changing structure of market demand and is more able to resist the

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effects of structural economic crises. Multi-product firms have more abilities to meet counter-demands of participants in barter transactions. For example, a machine building plant can pay for the supply of components by marking, cutting, and priming steel billets for its supplier. A law firm may offer legal support and defense in court to a supplier in exchange for supplying office equipment. A car repair firm can re-equip a transport company’s trucks in exchange for transporting goods. Each exchange of these products constitutes a heterogeneous barter transaction.

One-pass and multi-pass barter deals If the participants are able to achieve complete coincidence of the mutual supply and demand for the exchanged products at the first stage, then such a barter transaction is known as a “one-pass barter deal.” If the demand and supply of the initiator and the respondent do not coincide, the participants should involve third parties. The number of additional participants determines the number of transactions for the exchange of products in a “multi-pass barter deal.” At the same time, both homogeneous and heterogeneous exchanges of products will be realized at each stage of the multi-pass transaction (Fig. 21-3).

Goods 1

Goods 2

1g 2g

Works 1

Works 2

3w Services 1

4w

6s

Services 2

5s

Fig. 21-3. Multi-pass barter deal In Fig. 21-3, graphs with arrows symbolize the supply and receipt of the exchanged products. The serial number of the graph denotes each stage of the transaction, and the alphabetic characters stand for the following: “g” for goods, “w” for works, and “s” for services.

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According to Fig. 21-3, exchanges No. 1, No. 3, and No. 5 are homogeneous barter deals and exchanges No. 2, No. 4, and No. 6 denote heterogeneous barter deals. A multi-pass barter transaction is completed if the last graph’s arrow coincides with the beginning of the first graph illustrating this deal. In Fig. 21-3, graphs No. 1 and No. 2 show the delivery of goods exchanged, graphs No. 3 and No. 4 show the exchange of works, and graphs No. 5 and No. 6 describe the supply of services for exchange. In this transaction, the parties only exchange products without the use of equalizing cash payments, which makes it a product barter deal. The initiator and the respondent try to complete a barter transaction with the least number of moves. However, if the financial system collapses, then a multi-pass barter transaction can meet the demands of a larger number of market members and, from the viewpoint of the national economy, is preferable. A powerful factor that contributes to the effective implementation of this type of barter transaction is electronic marketing (Internet marketing); it also gives the possibility of using electronic barter marketing.

Value equivalence of exchanged products in barter It is necessary to consider that, for a barter transaction, parties can accumulate goods in advance, but not the works. They must execute these works at a specified place and time. In order to achieve true cost equivalence, the parties to barter need to calculate the costs associated with the delivery and receipt of the exchanged products CBPdelivery. Often, the initiator of the transaction pays these expenses in full (21-1): VBPsupply  CBPdelivery

VBPdemand

(21-1)

where VBPsupply = value of the market supply, that is, the products supplied by the initiator of the barter transaction, £ CBPdelivery = costs for the mutual delivery of products by the initiator and the respondent of the barter transaction, £ VBPdemand = value of market demand, that is, the products delivered by the respondent of the barter transaction, £ If the respondent of the barter transaction repays all the costs for the mutual supply of products through barter, marketing practitioners must use the following formula (21-2):

The Barter Marketing of Works and the Exchange of Works

VBPsupply

VBPdemand  CBPdelivery

323

(21-2)

When both parties (the initiator and the respondent) pay the total costs in order to ensure the delivery of products in equal parts, formulas (21-1) and (21-2) will be reduced to the following accepted form (21-3): VBPsupply VBPdemand

(21-3)

In addition, barter deal participants should consider that the costs when supplying batches of different products of the same value are often unequal. For example, a payment transaction in goods is more expensive than payment in money. As already mentioned, payment for delivered goods through the execution of works or the provision of services creates additional difficulties, because it is impossible to perform a simple transfer or accumulate them in space and time. In fact, when executing works in barter transactions, each party pays money to third parties who are not direct participants in this exchange, but provide the supply of barter products. For example, participants usually need to make cash payments for the following: Ɣ Purchasing raw materials, ready-to-use materials, components, fuel, and energy Ɣ Maintaining production and auxiliary equipment Ɣ Wages of workers and salaries of specialists and managers Ɣ Telecommunications and transportation Ɣ Security, insurance, medical care (and so on) Therefore, the paradox of barter in the exchange of works is that each participant realizes internal cash transactions by paying for some of the internal contracts with his own executors. A participant can exchange his works for those of another participant in a barter deal when paying his own expenses for organizing these works. We can justify these transactions by referring to the difficulties in implementing currency payments between barter participants from different countries or trying to reduce taxes and fees through the resulting mutual discounts. The barter marketing of works is associated with the exchange of works for other products (goods, works, or services) between executors of works and other market participants. The concepts of works exchange and services exchange supplement the concept of goods exchange.

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If there is an initial mismatch in the supply and demand of exchanged products, participants should use a multi-pass barter deal. The participants in barter transactions must jointly share the expenses when exchanging products in space and time. The use of equalizing payments in cash makes it possible to ensure the equivalence of the exchanged products’ market value. In the barter of works, works are exchanged, not processed objects! Thus, the barter marketing of works is a kind of barter marketing of goods, works, and services. The three exchanged product elements give rise to several barter transactions. However, “ensuring the equivalence of barter deals with goods, works, and services is a difficult practical task” (source: https://lib.sevsu.ru/xmlui/handle/123456789/6129). Works and services as exchanged products are labor-consuming processes. They need to use all four types of resources: financial, material, labor, and information. Nevertheless, a basic knowledge of the barter marketing of goods, works, and services, as well as the use of modern commercial techniques, will enable marketing practitioners to expand their company’s market opportunities.

Developing a roadmap for barter transactions The company’s barter transactions affect the activities of both the marketing department and the supply department. The marketing department offers products (goods, works, and services) for sale through the exchange. The supply department receives the necessary products as a result of the exchange. In order to account for these exchange transactions, it is advisable to keep separate records of the movement of products with “acts of offsetting debts” between the two departments. This sets up the value equivalence of the outgoing and incoming product flows. The outgoing flow is regulated by their firm’s price-lists for goods, works, and services. For incoming product flows, the marketing and supply departments apply the supplier’s selling prices or indicative average market prices. At the same time, the outgoing flow of works will lag behind the incoming flow of finished goods for the duration of execution (see Fig. 214). Also, a similar time lag occurs when providing services in exchange for finished goods. This is true if the works or services were not started in advance (before the delivery of the goods for exchange). Only the exchange of finished goods can take place almost simultaneously. However, marketers should consider the time it takes to deliver these items to the other party.

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Works

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Services

Rgws Goods

0

Cgws

t

ǻTgw

Goods

ǻTsg

Fig. 21-4. Incoming and outgoing flows of goods, works, and services in barter transactions Fig. 21-4 uses the following notations: Rgws = revenue from the outgoing flow of goods, works, and services, £ Cgws = costs of the incoming flow of goods, works, and services, £ ǻTgw = late start of executing works to be exchanged for goods, days ǻTsg = early start of providing services to be exchanged for goods, days t = current time of barter transactions, days Shaded areas denote equalizing payments in cash when there is an incomplete equivalence in the exchanged products’ value (pounds sterling). Thus, the mismatch in time for incoming and outgoing flows of goods, works, and services creates the need to develop a schedule for their exchange. In addition, the volume and structure of the initiating company’s market supply may not coincide with the structure and volume of market demand for the respondent firm’s products. This creates the need to involve a third, fourth, or more participants in order to complete the barter transaction. As a result, the conditional (exchange) “tree” branches out and the barter transaction becomes more complicated. Lots of pairs of exchanged products and longer time periods require heterogeneous and multi-pass barter transactions. Marketers must carefully plan complex barter deals in terms of the volume and structure of the exchanged products, the duration of works and services, the place of transferring goods, executing works, or

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providing services, and so on. It is necessary to draw up a project roadmap to implement such a complex barter transaction. For clarity, this roadmap should be made up in the form of a table or a network schedule using computer planning tools (Table 21-1; see Practical tips). In the first column, we write down the number of steps for this multi-pass barter transaction. In the second column, from top to bottom, we list the exchanged products (goods, works, and services). And for each element of the product, we give a brief description, such as, Ɣ Goods (lathes, steel sheets, and spare parts, etc.) Ɣ Works (repairs and packaging, etc.) Ɣ Services (transportation and storage, etc.) In the third column of the table, we record the name of each participant in the supply transaction. Next, we indicate the unit of measurement and the quantity of each product. Knowing the product’s quantity and unit price means that we can calculate the equivalent value of each exchanged product in a barter transaction. If the barter products’ equivalence is not achieved at cost, it will be necessary to calculate the equalizing payments in monetary units. To calculate the implementation period for a barter transaction, it is necessary to know the productivity of execution for the works and services. Calculating the duration of the works or services enables marketing practitioners to plan the transfer of goods and the delivery and acceptance of executed works or rendered services in a timely manner. Goods consignment notes or cargo-transport waybills are documents confirming the transfer and receipt of goods. Marketing practitioners also sign “acts of delivery of works and services.” If the two parties that exchange products agree to equally distribute the costs of delivery and customs clearance, then they must calculate the equalizing payments using the difference in their equivalent costs. Otherwise, they will need to draw up a balance sheet for each participant and correct the difference using the equalizing payment in cash for the value of the exchanged products.

Practical tips First example: Table 21-1 shows a roadmap for a multi-pass barter deal with the exchange of heterogeneous products. In case of incomplete equivalence of the exchanged products’ market value (goods, works, and

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services) the parties to the transaction must cover the difference in value through equalizing payments in cash. We indicated the equalizing payment in favor of the supplier in Table 21-1 with a “–” sign (lines 1 and 4), and in favor of the recipient with a “+” sign (line 3). Table 21-1. Example of a roadmap for a multi-pass heterogeneous barter transaction No. Product for exchange

1. 2.

3. 4.

5.

Goods (Lathes) Services (Transportation and storage) Goods (Steel sheets) Works (Repairs and packaging) Goods (Spare parts) Total

Participant to the barter transaction

Cost of supply, VBPsupply, £

Cost of demand, VBPdemand, £

Equalizing Final payment delivery in cash, date CBPdelivery , £ –30,000 03/04/20--

Neptune --

300,000

270,000

Sirius --

270,000

270,000

0

03/11/20--

Pluto --

270,000

310,000

+40,000

03/18/20--

Jupiter --

310,000

300,000

–10,000

03/25/20--

Mars --

300,000

300,000

0

04/01/20--

1,450,000

1,450,000

0

04/01/20--

Second example: we will consider a heterogeneous barter transaction that operates with various products for exchange: goods, works, and services, as well as equalizing payments in cash. An oil company from Europe proposed the former Soviet Union’s government to create ammonia plants. The company assumed the following obligations: Ɣ Constructing production facilities (execution of works) Ɣ Developing and delivering documentation (provision of services) Ɣ Financing project (making payments) In exchange, the new plants should supply ammonia (goods), which they should be able to produce for 20 years. However, this heterogeneous multi-pass barter deal did not take place.

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Definitions of concepts Ɣ Barter is the exchange of goods, works, or services directly for other goods, works, or services without using financial means of payment. Ɣ Barter marketing of works is a kind of barter marketing that provides the exchange of works for other products (that is, goods, works, or services) between executors of the works and other market participants. Ɣ Homogeneous barter transactions take place when exchanging homogeneous products, that is, goods for goods, works for works, and services for services. Ɣ Heterogeneous barter transactions take place when exchanging heterogeneous products, that is, goods for works, works for services, and services for goods. Ɣ A product barter transaction is when the parties exchange products without the use of equalizing cash payments. Ɣ A one-pass barter transaction is when participants can achieve a coincidence of the mutual demand and supply of the exchanged products in only one stage. Ɣ A multi-pass barter transaction is when participants achieve a coincidence of the mutual supply and demand of the exchanged products as a result of several stages. Ɣ The initiator of the barter transaction is the participant who first proposed the exchange of products. Ɣ The respondent of the barter transaction is the participant who answered the initiator of the barter transaction. Ɣ Equalizing payments in cash ensure the equivalence of the exchanged products’ market value. Ɣ The barter roadmap is a marketing tool for planning a multi-pass barter deal with the exchange of heterogeneous products.

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Questions for discussion and testing 1. Explain how barter can help overcome the effects of financial crises. 2. Define the following concepts: “barter of goods,” “barter of works,” and “barter of services.” 3. What are homogeneous and heterogeneous barter deals? Give examples. 4. Who is the “initiator of the barter transaction” and who is the “respondent of the barter transaction?” 5. When does a one-pass barter deal take place? When does a multi-pass barter deal take place? 6. How will the parties to a barter transaction exchange objects to execute works? 7. Unlike the exchange of goods, the exchange of works takes place over a longer period of time. But what does this mean? 8. What is the equivalent market value of the works in the specifications of the exchanged works? 9. Describe the exchange of hybrid offerings in the barter marketing of works. 10. What are the costs for implementing mutual deliveries of products under a barter deal? 11. Why do marketing specialists need to equalize payments in a barter transaction?

CHAPTER TWENTY-TWO DIRECT MARKETING IN THE MARKET OF WORKS

Overview In this chapter, readers will learn about the specifics of applying direct marketing techniques to activities in the market of works. We will consider the existing channels of data transmission in marketing, as well as the practice of establishing direct contacts between the customer’s and the contractor’s representatives. Readers will be able to calculate the level of customer dissatisfaction with the contractor and examine changes in the interdependence of the contract parties. We will pay special attention to the use of “hospitality costs” in the marketing of works and examine their economic efficiency. Also, readers will become familiar with using informal methods of influencing potential customers’ representatives and other decision-makers.

Applying direct marketing in the market of works In the marketing of goods, the duration of the contact with the buyer is usually limited to the time of the purchase negotiations and the warranty period for the after-sales service. During the manufacture of goods, the seller and the buyer are sometimes not familiar with each other, with the exception of consumers loyal to the company. To increase sales, many marketing practitioners try to personalize their relationships with buyers using direct marketing techniques. The marketing of works implies an initial acquaintance and close contact between the customer and the contractor. This is due to the fact that the contractor carries out the sale of works before the start of their execution, and then the customer and the contractor communicate during

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the entire period of works. They will also maintain contact during the warranty period for works (if necessary). That is why direct marketing tools are essential in the marketing of works. Therefore, we will focus on the features and practices of direct marketing in the market of works. So, the most important distinguishing feature of direct marketing and its tools and techniques used in the market of works is the personalization of the relationship between the customer and the contractor. This enables marketing specialists to take into account the interests of each customer of works, sending invitations to specific people, first of all, top managers and owners of certain firms. Attention! A question! In the marketing of works, do marketing specialists need to know the technological features of their company’s works according to the product nomenclature? Where is the boundary between the engineering and marketing competencies of marketers? Just as the seller of a car or smartphone must inform the buyer about the basic technical and operational characteristics of his/her product, so the seller of works must know the main characteristics of his/her product (that is, the works that his/her company executes). When negotiating with representatives of the customer, each marketing specialist must perfectly understand the works executed by his/her company. The customer should be able to view the starting unit prices (without discounts) in the price-list. The unit prices for works indicated in the price-list should include a profit rate of, for example, 25 percent. This means that, in the course of bidding with the customer for the price of a specific work, marketing specialists can reduce the profit rate, e.g., by 10 percentage points. The remaining 15 percent will allow them to get enough profit from the order. The customer’s representative should easily find the name of the technology and equipment used for the works in the advertising brochure. As a rule, this is enough for the customer’s representative. If more questions arise, the marketing specialist should not look for answers at random. He/she needs to apologize to the customer and invite the relevant specialists to participate in the negotiations. Usually, companies that execute works prefer to narrowly specialize in a certain nomenclature of works, which makes direct marketing easier.

Direct contact of the contractor’s representatives with the customer It is necessary to accumulate information about regular customers in order to provide an individual approach. This includes understanding their needs,

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preferences, and opportunities, as well as congratulating them on national and professional holidays and on their company’s and top managers’ birthdays. It is very important that marketing specialists are not intrusive, so as not to get the opposite result; the worst case scenario is when a potential customer starts avoiding the contractor (and his representatives). Therefore, the frequency of reminders should be no more than once a quarter or biannually. Indirect reminders include sending messages about the company’s news, victories, and achievements. It is necessary to draw up a schedule and periodically review it in order to monitor the frequency and effectiveness of contacts with a potential customer. The schedule should also contain the following information: the customer’s name; telephone and mobile phone numbers; postal and electronic addresses; contact dates; name of the contact representative; progress achieved; and the time of the next contact. Separately, marketing specialists must record the data of decision-makers, their deputies (who influence decision-making), and specialists (who prepare these decisions). In the marketing of works, as a rule, the contractor prepares a draft contract and sends it to the customer for consideration and approval. The process of agreeing the contract’s text takes the form of negotiations between the parties and includes direct contact between the marketing department and the customer’s authorized representatives. Additionally, the parties must apply direct marketing techniques in the form of direct contact between the contractor’s and customer’s financial advisors (together with marketing specialists) when bidding for the value and duration of the contract, terms of payment, and so on. Direct contact between the two companies’ technologists will be necessary when coordinating technologies for executing the works and the composition of production equipment for these works. The companies’ lawyers will negotiate the essential terms of the contract because the rights, obligations, and responsibilities of each party need to be clear in order to avoid disputes and litigation. The production managers from both companies must agree on the technical assignment, preliminary specification, lists of materials and components, as well as the schedule for the contractor’s works at the customer’s object. This situation is typical for the marketing of works in the B-to-B (business-to-business) market. Negotiations on works orders take place between two groups of professionals who are well aware of this issue. It will be easier for the marketing department specialists to negotiate with non-professional customers if the company will execute works in the B-toC (business-to-consumer) market. Moreover, an inexperienced customer can involve specialists from another executing company to assist in

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developing the technical assignment and preliminary specification of the necessary works at his object. It will be more difficult for marketing specialists to prepare a contract if the potential customer involves specialists who are hired to monitor and supervise the works (superintendents) in the negotiations. Superintendents, as a rule, must adhere to the principal’s limited budget for executing the works. If the customer’s representative manages to save money without affecting the quality and timing of the works, then the customer will pay part of the received saving (from 10 to 30 percent) to the superintendent as an additional bonus.

Data transmission channels in the direct marketing of works In the direct marketing of works, marketing practitioners apply the following channels of information transmission (Table 22-1): Table 22-1. Data transmission channels in the marketing of works No.

Name of the channel

Advantages

Disadvantages

1.

Express mail

2.

Printed editions

High price and average speed High price and low speed

3.

Ground mail

Preservation of documents and delivery of originals Wide coverage of the area and storage of documents Average price and delivery of originals

4.

No longer applicable

No longer applicable

5.

Telegraph and teletype Landline phone

Average price and high speed of information transmission

6.

Airmail

Unable to deliver documents, danger of being overheard, and messages have to be saved High price and territorial restrictions

7.

Radio communication

8.

Television (TV)

High speed, able to deliver originals, and preserve documents Average price and high speed

Average price and high speed

Low speed. Preservation is not guaranteed

Unable to deliver documents, risk of hacking, and messages are not saved Inability to deliver documents, openness, and messages have to be saved

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Table 22-1. Continued Average price and high speed

9.

Facsimile

10.

Pneumatic mail

11.

E-mail and Internet

12.

Mobile connection

Preservation of documents and delivery of originals Low price, high speed, and large volumes of information Low price and high speed

13.

Social network

Low price and high speed

14.

Quantum mail

Instantaneous speed and unlimited territory

Only allows copies, only transmits a small volume of information, and information can suffer damage Limited action Only allows copies of documents and there is a risk of hacking Only allows copies of documents and there is a risk of hacking Only allows copies of documents and there is a risk of hacking High price and the need to develop technology

Thus, each channel of information transmission has its advantages and disadvantages, which must be considered by marketing practitioners.

Customer dissatisfaction with the contractor’s activities In conditions when the market is stable and there are strong ties between producers and consumers, an important task of marketing activities is to capture competitors’ customers and develop new market niches. One of the ways to do this is to use customer dissatisfaction with contractor blunders because this is when the partnership becomes unstable and vulnerable to external attacks. In this case, a certain “critical mass” FD of customer dissatisfaction is calculated as follows (22-1): FD

QOdisst QOtotal

(22-1)

where FD = factor of customer dissatisfaction with the contractor QOdisst = number of orders for the period, which do not satisfy the customer, pieces QO total = total number of orders that the contractor has executed for the customer during the period, pieces

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The growth of customer dissatisfaction factor FD reduces the stability of partnerships, creates a risk that the customer will leave the contractor, and reduces the opportunities for accelerated development of the company executing the works.

Interdependence of the customer and the contractor The degree of interdependence between the customer and the contractor plays an important role in a partnership in the field of large orders. At the first stage of contracting (preliminary negotiations before the start of the tender), the contractor completely depends on the customer (Fig. 22-1). As the parties reach an agreement, the contractor’s dependence on the customer reduces before the contract is signed, and the customer’s dependence on the contractor will, in turn, gradually grow. At the signing of the contract, the interdependence of the parties becomes equal. After the contract is signed, the customer’s dependence exceeds the contractor’s dependence, which increases as the contractor executes the works order and receives payments based on the contract. When the contractor has completed the contract before the final delivery of the finished object, the customer is entirely dependent on the contractor. The contractor’s dependence on the customer reduces to zero when the contractor has received all the payments from the customer.

IMD

Customer

1,0

Contractor

0,5

0

1

2

3

4

5

t

Fig. 22-1. Graphical interpretation of the interdependence of the customer and the contractor

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Therefore, as a rule, the customer must leave an installment of about 5 percent of the contract value to ensure the completion of works and services. The issuance of a quality assurance certificate by the contractor achieves the same purpose. The warranty certificate prolongs the interdependence of the contractor and the customer for one year or more. The IMD indicator determines the level of the contract parties’ interdependence. The indicator is equal to the ratio of the number of decisions made within a certain period of time, which depend on the other party to the contract NDdepn, to the total number of decisions NDtotal made by this party for this works order during this period (22-2): IMD

NDdepn

(22-2)

NDtotal

where IMD = indicator of interdependence of the parties to the contract NDdepn = number of decisions of one party to the contract, which depend on the other party viewpoint, pieces NDtotal = total number of decisions of one party to the contract that relate to the other party, pieces At the stage of pre-contractual contacts and negotiations (1), the indicator of interdependence of the contractor IMDcont exceeds the similar indicator of the customer IMDcust: IMDcont ! IMDcust . Here, we denoted the following:

IMDcont = indicator of the contractor’s dependence on the customer IMDcust = indicator of the customer’s dependence on the contractor Equality IMDcont

IMDcust takes place when the contract is signed by the customer and the contractor (2). After the transfer (3) of the customer’s advance payment to the contractor, inequality appears IMDcont  IMDcust .

During the warranty period (4-5), the following takes place: IMDcont ĺ 0 and IMDcust ĺ 1. Understanding the trends in the parties’ interdependence during the order execution enables the marketing department to achieve concessions from the customer in subsequent negotiations. Marketing specialists can turn an unprofitable order into a relatively profitable order, and turn a relatively profitable order into an absolutely profitable order for works. It is even possible to double the value of the contract. However, the abuse of

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the customer’s dependence on the contractor can lead to a negative result when the customer will go to a competitor. Thus, an important area of marketing activity is capturing other companies’ customers and seizing new market niches when market conditions are stable. One way is to use the customer’s dissatisfaction with the competitor’s mistakes and failures.

Using hospitality costs in the marketing of works We will consider the impact of hospitality costs on the ability of executing companies to receive and fulfill works orders. For this, we will show the necessity and expediency of using this tool. We will list the composition of hospitality costs and study their impact on reaching the breakeven point of the order (contract) for works. Also, readers will become acquainted with the recommendations for managing the contract parameters during negotiations with the customer’s representatives. When obtaining large orders in the B-to-B market, attitudes towards the essence and role of hospitality costs remain quite contradictory. Most theorists and practitioners consider hospitality costs as a small part of sales (business) expenses. Some experts call these costs a disguised form of corruption because the contractor gives a commission to the customer’s representatives for the purpose of obtaining contracts. These experts consider hospitality costs to be veiled money or gifts. However, marketing practitioners who invite and serve customer delegations note that there is a need to bear such expenses by companies executing orders for works. If you save on hospitality costs, you will lose orders. Moreover, the market for industrial goods, works, and services is more interesting for business in terms of sales capacity, profit potential, number of competitors, etc., than it is in the consumer market. At the same time, there are fewer participants in the B-to-B market, but they are larger than numerous participants in the B-to-C market. Marketing theorists do not sufficiently highlight the effectiveness of hospitality costs for obtaining orders, despite the fact that Ronald H. Coase proposed the concept of transaction costs, which includes negotiating and contracting costs. However, taking into account current practice, we attribute the following elements of expenses to hospitality costs: Ɣ Paying for the customer’s delegation travel to/from the executing company Ɣ Booking and paying for hotel accommodation of the customer’s delegation

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Ɣ Providing assistance with visas and permits for the customer’s representatives Ɣ Operating vehicles (cars, yachts, airplanes, etc.) provided to the customer Ɣ Paying the salary of the marketing specialists who accompany the customer’s representatives Ɣ Catering for the customer’s representatives in the company’s canteen Ɣ Holding lunches, banquets, and buffets for the customer’s delegations Ɣ Ensuring negotiations between the customer and the contractor Ɣ Implementing a cultural program for the delegation Ɣ Organizing leisure activities for the customer’s representatives according to their preferences Ɣ Gifting advertising and souvenir products to the customer’s representatives Ɣ Supplying protective equipment (for example, coveralls, boots, helmets, goggles, and gloves) Ɣ Providing communication facilities and office equipment (computers, telephones, fax machines, copiers, Internet, e-mail, etc.) In fact, the hospitality costs that contribute to obtaining an order are not limited to this list of direct costs. There are also hidden hospitality costs: Ɣ Granting the customer price discounts to win the auction Ɣ Providing the customer with a deferred payment for the works fulfilled Ɣ Paying remuneration to participants who contributed to obtaining the orders Ɣ Purchasing and delivering gifts to the customer’s representatives Ɣ Paying for works executed to subcontractors recommended by the customer Ɣ Purchasing materials and components from suppliers that the customer has recommended Ɣ Transferring part of the additional profit to key subcontractors upon their request These listed elements of the hospitality costs are just examples of the huge range of marketing tools used by practitioners.

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Economic effectiveness of applying hospitality costs Hospitality costs are an important factor that enables us to increase the effectiveness of the company’s marketing activities when executing orders for works. Nevertheless, the inefficient use of such costs can reduce profitability and, in some cases, lead to unprofitability. For the executing company, it is important to analyze the validity of the necessary costs when obtaining orders in the face of competition. Let us consider the concept of the hospitality factor HFi for obtaining the i-th order for works as a ratio of the increase in profit ǻPOi to the increase in the hospitality costs ǻHCi. According to this, the company achieved a growth in its profit (22-3): HFi

'POi 'HCi

(22-3)

where HFi = factor of the hospitality costs for obtaining the i-th order for works ǻPOi = increase in profit generated by the i-th order, £ ǻHCi = increase in the hospitality costs for the i-th order, £ Legislatively, there are restrictions on the share of the hospitality costs, which a company can attribute to the cost of production for a certain period. Expenses that exceed this amount should be covered by the company’s profits. With this in mind, the hospitality factor shows how the additional expenses for hospitality purposes lead to an increase in profits generated by the completed works orders. We will calculate the economic efficiency of the hospitality costs by analyzing the behavior of the breakeven point for each works order. In accordance with the terms of a certain contract, we know the total revenue received from the order ROi. The financial result (profit or loss) POi from executing this order for works is as follows (22-4): POi

ROi  (COifix  COi var )

(22-4)

where ROi = revenue generated by executing the i-th order for works, £ COi fix = fixed costs of the company that attributed to the i-th order (rent and maintenance of equipment, loan of office space, payment for utility services, administrative employees’ salaries, property tax, etc.), £

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COi var = variable costs that contributed to executing the i-th order (production workers’ wages, raw materials and ready-to-use materials, components, energy, transportation, etc.), £ COi = total costs that attributed to the i-th order for works, £ COi = COi fix + COi var Additional hospitality costs ǻHCi make it possible not only to sign the desired contract, but also to obtain price concessions from the customer’s representatives, as well as improve other essential conditions for fulfilling the contract. These concessions may also include earlier payments under the terms of the contract.

Controlling the position of the breakeven point The diagram of order fulfillment over time and receipt of revenues has a nonlinear (step-by-step) character. For the purposes of analyzing order profitability, through the profitability of products and the position of its breakeven point, we have assumed that the dependence would be linear. This assumption corresponds to the constant intensity of works and the regular receipt of revenues from the contract execution. The increase in variable costs COi var Ĺ, due to the increase in hospitality costs ǻHCi, moves the breakeven point of the order Ai bep to the right, which reflects a decrease in the order’s profitability (Fig. 22-2):

ROi

ROi Ai bep

COi fix + COi var COi fix

0

QWi start

QWi end

QWi

ǻQWi bep Fig. 22-2. Influence of the increase in the hospitality costs on the position of the breakeven point

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In Fig. 22-2, we used the following:

QWi = scope of the works for the i-th order according to the specification of works, £ QWi start = initial scope of the works for the i-th order according to the preliminary specification of works, £ QWi end = final scope of the works for the i-th order according to the final specification of works, £ ǻQWi bep = change in the scope of the works for the i-th order according to the position of the breakeven point, £ In this case, the increase in the hospitality costs ǻHCi is added to the total initial costs for the order COi start in accordance with the following formula (22-5): COiend

COistart  'HCi

(22-5)

Accordingly, the contractor will reach the breakeven point of this order later (or, possibly, he will not reach it at all) with a larger volume of the order QWi end than originally planned QWi start, by the value of ǻQWi bep (22-6): QWiend

QWistart  'QWibep

(22-6)

Not the best variant is a situation when an increase in the hospitality costs allows the contractor to receive an order at any cost, which may even lead to a drop in the profitability of the signed contract. A more acceptable variant is when the increase in the hospitality costs provides an increase in the revenue ROi generated by the works order (Fig. 22-3).

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ROi

ROi

Ai bep COi fix+COi var

COi fix

QWi end

0

QWi start

QWi

ǻQWi bep Fig. 22-3. Influence of the increase in hospitality costs and contract revenue on the position of the breakeven point Fig. 22-3 illustrates the situation when, as a result of the additional hospitality costs, the executing company’s marketing department achieves reciprocal concessions from the customer. This increases the revenue generated and, despite the growth of variable costs, moves the breakeven point Ai bep to the left. As a result, the company will achieve profitability with a smaller volume of output QWi end than previously planned; this will be by the following amount ǻQWi bep (22-7): QWiend

QWistart  'QWibep

(22-7)

The maximum permissible increase in the hospitality costs, ǻHCi, does not move the breakeven point of the order Ai bep. Therefore, in this case ǻQWi bep = 0. The initial amount of the order, QWi start, where profitability is achieved, is equal to the final amount QWi end, i.e. QWiend QWistart . The increase in revenue generated by the i-th works order ǻROi is equal to the increase in the hospitality costs ǻHCi: | 'ROi | | 'HCi | in absolute values. We have illustrated this situation in Fig. 22-4.

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ROi ROi Ai bep COi fix+COi var

COi fix

0

QWi bep

QWi

Fig. 22-4. The maximum possible increase in the hospitality costs depending on the growth of revenue from the contract Where QWi bep is the scope of works for the i-th order at the breakeven point according to the specification of works, £. Nevertheless, the contractor will have the best negotiation results with the customer when he receives a significant increase in the contract revenue without any significant hospitality costs. This is possible if the executing company has a positive business reputation, a high level of competitiveness, and customers are waiting for the opportunity to transfer their objects to this company for processing. Sometimes this happens in practice. The breakeven point moves to the left and the profitability of the works order increases (Fig. 22-5).

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ROi ROi Ai bep COi fix+COi var

COi fix

0

QWi end

QWi start

QWi

ǻQWi bep Fig. 22-5. The effect of increasing the order revenue on the breakeven point Marketing employees should be rewarded based on the increase in revenues and profits generated by the works contracts.

Informal methods of influencing customers in the marketing of works Using informal methods of influencing customers to obtain orders is more economically advantageous than applying standard marketing techniques, including non-personalized marketing actions stipulated in traditional marketing practices. Informal methods of influencing customers include a set of actions to manipulate someone’s subconscious and behavioral reactions. Among them there are potential customers’ representatives who make decisions or influence decision-making when signing contracts for the execution of works or the provision of services. The application of informal methods helps marketers solve the following tasks: Ɣ Reduce time and money expenses when obtaining orders for works and decrease the downtime of executing companies due to their insufficient production loading

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Ɣ Eliminate competition in certain market segments by establishing long-term partnerships between the customer and the contractor Ɣ Increase the volume of the executing company’s planned activities in order to reduce the risk of investing in the company’s future projects for technical re-equipment Ɣ Reduce the use of lawsuits to resolve disagreements and instead implement friendly negotiations between customers and executors The marketing of works takes into account the market transparency and significant personalization of the relationship between specialists and managers of both the customer and the contractor. In this regard, the role and amount of hospitality costs for companies entering new market segments may increase. At the same time, auctions lose the meaning of a tool for organizing a competition among executors. Nevertheless, the customer is interested in reducing both the costs and the time required to fulfill works orders. Leading companies strive for monopolization in a certain works market by obtaining subjective competitive advantages, rather than objective competitive advantages. Such a monopolization of the market for works remains outside the focus of antimonopoly (antitrust) committees and, as a rule, is not covered in the literature on traditional marketing. At the same time, the payment amount, that is, the commission from the contractor, for the customer’s managers (who make decisions) ranges from one to five percent of the order amount, depending on its volume. Informal methods of influencing the customer’s representatives are usually based on satisfying needs that are significant to them. Basic needs include everything related to money, material values, social realization, public recognition, hobbies, religious beliefs, and so on. During negotiations in an office or restaurant, marketing managers need to observe and listen to the customer carefully. For example, if the customer smiles broadly, but involuntarily crosses his arms over his chest or fastens his jacket, this means that he is now closed to your position and you can no longer speak with him frankly. If he rubs his nose, then it means he does not believe what you are saying. If the customer is in a gloomy mood, but unbuttons his jacket, loosens his tie, and sits more comfortably, then you have been heard and you have reached your goal. It is necessary to conduct an internal “debriefing” and exchange of views after negotiations in order to plan future contact with this partner. We must pay special attention to foreign customers who have come to us. Marketing managers are responsible for their comfort and safety in a

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foreign country. We must provide a staff member who can help them and is fluent in their language. It is very important that you personally meet foreign guests at the airport, train station, or sea/river port. Marketing managers should provide them with a good hotel and restaurant, and a bank for currency exchange (if necessary). You also need to transport customers around your city in a comfortable car. It is also important to group the customer’s owners, managers, and specialists in terms of their influence on decision-making. The following questions will help you to determine this quickly and accurately: Ɣ Who makes the final decisions? Ɣ How do they make the final decisions (for example, individually or collectively)? Ɣ Who influences decision-making? The marketing department often gives gifts on significant dates (the top manager’s birthday, the anniversary of the company’s foundation, a national holiday, and so on). You can use your company’s promotional materials, such as key chains, pens, business card holders, caps, shirts, suits, furniture, cars, yachts, and airplanes (with the company logo). If you are paying for the services or assistance of a customer representative, it is advisable to take into account the following recommendations. Marketing managers need to make sure that their company pays commission taxes and that the representative receives the amount of money he/she expects. Pay the commission only after the representative has completed the principal’s assignment. Do not rush to pay the representative an advance payment from the amount not yet received by the contractor under the contract. Besides, a good gift would be one that is intended for the customer’s hobby, such as hunting, fishing, collecting, or sports. The most effective gifts are not given when we need something and, outwardly, these gifts should not be related to the upcoming request. If a customer representative refuses to accept the gift, then marketing managers should not insist on accepting it. He/she may have a good reason for rejecting the gift now, but later that representative may gratefully receive it. An experienced specialist will determine who actually makes decisions in the company. If a formidable CEO has brought in an office manager (who behaves independently), then most likely the secretary makes decisions rather than the general manager. If a father or mother continues to influence a young CEO, then it will be necessary to establish close contact with them. However, in large corporations, it is not always

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easy to determine the chain of mutual influence. Marketing managers should obtain this information before starting negotiations from the customer’s company employee who knows the situation. It is certainly useful to cooperate with top managers who are engaged in financial affairs. As a rule, they can receive (and we must pay) commission fees up to 5 percent of the volume of the works order received with their participation. Sometimes it is safer to introduce our own agent into the company, but it is not always possible for him/her to immediately take the position of a trusted top manager. Congratulations on national holidays are an important factor in maintaining friendly relations with customers. But marketing managers must act very carefully when they are congratulating customers on religious holidays. If the customers are representatives of multinational companies and marketers do not know the ethnic composition of the delegation, then they cannot make statements about any ethnicity (because both positive and negative references can harm the contractor). Marketing managers should exclude jokes and slang when communicating with foreign partners, since at best they will not understand them. Dependence on the customer and the conscious use of informal methods does not mean that marketing specialists need to humiliate themselves and achieve their goals at any cost. After all, the “customer who is always right” is not always right. The contractor’s confident behavior will put everything in its place and will mean that he will receive respect. It is likely that his company will receive a contract from the “wrong customer.” When preparing to meet with potential customers, be sure to find out the names of all the delegation members and rehearse their correct pronunciation. In the course of negotiations, use the guest’s name more often because it sounds like the “best music” to everyone. Sometimes the customer prefers to be called by another name than the one indicated in his/her passport. Marketing managers should be aware of this in advance from informal sources of information. In addition, stock up on your own business cards. In many countries, aristocratic and scientific titles are of great importance; therefore, carefully read and correctly pronounce the first name, last name (surname), and title of the foreign interlocutor indicated on his/her business card. Informal methods are an important means of influencing customer representatives. Marketing departments need to use both formal and informal methods to solve their tasks and ensure the rhythmic flow of orders for works.

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To influence the customer’s representatives, it is necessary to have a complex of knowledge in the field of psychology, ethics, theatrical art, foreign languages, geography, political science, communication theory, jurisprudence, and so on. We need these skills to be able to apply marketing knowledge in each specific situation. Subconscious feelings, such as intuition, tact, humor, and empathy, influence the results of working with customers. The ability to manipulate customers is not only a science, but also an art that every successful marketing practitioner should master.

Practical tips First example: over the course of three years, a construction company received 8 orders to build low-rise residential buildings from a foreign residential real estate developer. The developer was pleased with the construction of the first three houses. The contractor built and put the fourth and fifth houses into operation, but failed to meet deadlines. He completed the following two orders with good results, and fulfilled the last order with insufficient quality. The contractor had QOdisst = 3 orders, and QOtotal= 8 orders. The customer’s dissatisfaction coefficient was FD = 3/8 = 0.375. The coefficient value should be FD = 0. If dissatisfaction exceeds a certain level (for example, every third or every second order is unsatisfactory: that is, FD > 0.33–0.50 or during the last period FD ĺ 1), then the developer’s loyalty will be exhausted. The relationship with the non-executive contractor will deteriorate and is likely to be terminated. Second example: when preparing a ship for repair, the managers of a shipping company make a number of decisions, including setting (1) the exact date of the start of repair, (2) the cost of repair, (3) the company’s representatives at the shipyard, (4) a list of their own component parts for repair, and (5) members of the ship’s crew for the period of repair. The shipowner independently made the decisions on points 3, 4, and 5, but his decisions on points 1 and 2 depend on the contractor. For this list of solutions is: IMDcust = 2/5 = 0.4. Consequently, the customer is less dependent on the contractor than the contractor is on the customer. Third example: the negotiations were not easy. The president of the foreign company was angry. He arrived at the shipyard hoping that his vessel would be repaired almost for free. However, it turned out that this contractor sets prices, which are normal for Europe, and refuses to give discounts.

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There was a difficult correspondence between the offices of the companies, and both parties did not want to make concessions. But, drawing up the customer’s documents, the marketing department specialists noticed that the birthday of the company’s president was the next day. The customer did not even remember this significant date but suddenly, at a dinner with the shipyard’s top managers, the shipowner was presented with a cake with candles, and everyone sang the song “Happy birthday to you.” The company’s president was amazed and immediately signed the contract. Unfortunately, he did not send the ship for repair. But marketers have achieved their goal, have not they? Fourth example: it is not always wise to demonstrate your knowledge if you know the customer’s native language. Thus, during negotiations with foreign customers, a marketing manager learned from the delegates’ conversations in their native language that they were willing to pay more than the previously agreed amount. As a result, it was possible to increase the contract value by almost 10 percent. With the order value of £30 million, this was a good result for marketers.

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Definitions of concepts Ɣ The personalization of the relationship between customers and contractors is a key factor in direct marketing that practitioners should use in the market of works. Ɣ Factor of customer dissatisfaction with the contractor’s activity can be found by dividing the number of unsatisfactorily fulfilled works orders by the total number of contracts received by the contractor from this customer. Ɣ The indicator of interdependence between the customer and the contractor is equal to the number of decisions that directly depend on the partner’s position divided by the total number of decisions made in relation to the partner during a certain period of time. Ɣ Hospitality costs are the expenses of the executor of works, which are used for obtaining new works orders and increasing the profitability of the contracts that the contractor is already fulfilling. Ɣ The breakeven point of the order corresponds to the volume of the contract for executing works, where the amount of revenue generated by this order is equal to the sum of fixed and variable costs of the contractor to execute this order. Ɣ Informal methods of influencing customers are a set of actions to manipulate the subconscious and behavioral reactions of the customer’s representatives who make decisions or influence decision-making when signing and implementing contracts for executing works, providing services, or selling goods.

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Questions for discussion and testing 1. What does “applying an individual approach to the customer” mean in the marketing of works? 2. What information should the schedule of contact with the customer contain? 3. What is the difference between contractor and customer contacts in the B-to-B and B-to-C markets? 4. List the information transfer channels that marketing practitioners use in the marketing of works. 5. How to calculate customer dissatisfaction with the contractor’s works? 6. Draw graphs of the changes in the mutual dependence of the contractor and the customer during the process of fulfilling orders. 7. What is the essence and significance of hospitality costs in the marketing of works? 8. What is the hospitality costs factor and the breakeven point of an order? 9. Give a graphical representation of how the hospitality costs affect the placement of the breakeven point of an order. 10. How should you group customer representatives according to their influence on decision-making? 11. Give a definition to the concept of “informal methods of influencing customers of works.”

CHAPTER TWENTY-THREE THE E-MARKETING OF WORKS AND ELECTRONIC DOCUMENT MANAGEMENT

Overview This chapter will reveal the importance of e-marketing in the modern economy. Readers will consider the use of Internet technologies to search for works orders and the role of mobile communications in the marketing of works. We will examine how negotiations are conducted between the customer and the contractor online. Readers will learn about the features of electronic document management in the marketing of works and the use of social networks for marketing communications. We will also study the cryptographic protection of electronic documents, participation in electronic (online) auctions for the procurement of works, and registration of the qualified advanced electronic and digital signatures, etc. We will examine the role of paper documents in Internet marketing. This textbook also covers the use of cryptocurrency and Blockchain technologies.

The importance of electronic marketing in the modern economy The rating agency Bloomberg LP (source: https://www.bloomberg.com) ranked the richest people in the world in 2018. It turned out that the first three positions of the ranking were taken by people whose success is directly related to electronic marketing. Indeed, the global Internet has become one of the most powerful marketing tools. Internet marketing has simplified, cheapened, and

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accelerated marketing processes. The Internet environment (online) also influences the marketing of works and the marketing of services. It is really easy to receive an application letter from a potential customer for executing works by e-mail; this also makes it possible to confirm our ability to fulfill an order. Marketing specialists should prepare a letter on the company’s letterhead indicating the date, the issue number of this outgoing letter, and with the top manager’s signature. The administrator can save a scanned copy of the message in a graphical “pdf” format, for example. We can attach this to a short cover letter (which we can download and save in the cloud for different mailboxes) and send it in one click. It takes just a few minutes of working time.

The beginning of the 21st century

Quantum storage devices Nano-drives Cloud storage Flash cards

End of the 20th century

Laser disks Hard magnetic floppy disks Soft magnetic floppy disks

Mid-20th century

Magnetic tapes Paper punched tapes Paper punched cards

Capacity and speed

Fig. 23-1. The evolution of external electronic storage devices

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This does not compare with sending letters by facsimile machine: the letter will either pass the first time, or not; the text is readable or unreadable; and so on. And if the specification of works is 40–60 pages, then sending the material by fax takes half a day. If we send the letter by courier, then we have to wait 3–4 days and, if we send the letter by regular mail, then we need to wait 1–2 weeks. This is the last century. And yet, if the addressee needs the original documents, he will have to wait. We can use high-speed airmail, but this option is not available everywhere. The current pace of doing business requires an almost instant circulation of documents. Therefore, marketing specialists use electronic document management (EDM). Readers can see the rapid evolution of external storage devices for electronic documents in Fig. 23-1.

Using the Internet to find works orders A company’s website has become such a well-used tool that its absence will put a customer on their guard. Experienced marketing specialists can determine a company’s level by its domain name. A paid secure domain is preferable to a free public domain, such as Yahoo or Google. What should an executing company’s website contain? Of course, the site cannot be filled in the same way as advertising goods using photos, price, capacity, speed, mass, size, and other parameters (as in online stores of mobile gadgets). First of all, website of the contractor needs to have information about the nomenclature of works executed. For example, marketing specialists will post a scanned copy of the license from the architectural supervision authority on a construction company’s website or certificates of recognition by the Register of Shipping (Lloyd, VERITAS, ABS, etc.) on a ship repair yard’s site. In the marketing of works, specialists advertise the company itself; this includes its advanced technologies, high-performance equipment, skilled personnel, years of experience, and other advantageous aspects. The company’s website will have links to information about previously fulfilled contracts. This information will include the name of the constructed or repaired object, the nomenclature of works, the duration of order, etc. The customers mentioned will generally be the largest and most famous in the industry. Marketing specialists may indicate the value of government contracts, but the value of private orders is a trade secret. Marketers provide a list of the company’s production capacities, illustrated with photographs of their technological machines and equipment. The presence of engineers and workers in the company’s workshops increases the customer’s confidence in the executing company. Photos and

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contact information for the company’s managers will facilitate online negotiations between the customer and the contractor. Augmented virtual reality technologies provide ample opportunities to familiarize potential customers with the company’s experience and the objects it processes. The use of a helmet or glasses will enable the contractor to demonstrate future objects using augmented virtual reality. The developer will be able to see the future real estate of a construction company on an empty plot of land, and the shipowner will be able to see the existing seaport and the arrival of the future cruise liner that will be built at the shipyard. Marketing specialists can initially ascertain the business reputation and solvency of a potential customer through an Internet search. In order to do this, they need to find the relevant online forums and become acquainted with customer reviews (taking into account possible posts and reposts of hired trolls). Typically, the oligopolistic market of works is personified by top managers of leading firms, and marketers need to know who these people are, including the details of their biographies. The sale of goods does not always imply a special relationship between the buyer and the seller. If there is a commodity that suits the buyer, then the buyer is not very interested in the seller’s personality. However, in the marketing of works, the relationship between the customer and the contractor plays an important role. The contractor cannot sign a contract without the customer’s trust, as well as receive the agreed payments for the execution and delivery of works. Therefore, marketing practitioners should carefully check any information they find on the World Wide Web. Do you think the top manager of a ship repair yard or construction company has time to spend a few hours on social networks? This is unlikely to be possible. Social networks (media platforms) such as Facebook, Instagram, Twitter, LinkedIn, or Google+ are focused on people’s personal interests rather than advertising works, services, or goods. Of course, small local companies can use this format to look for orders, such as repairing the roofs of houses in their city, laying electrical networks in their region, or manufacturing agricultural equipment for nearby farms. But this is more the exception than the rule.

Mobile tools and devices in the marketing of works Mobile instant messengers are becoming increasingly important in marketing communications; these include Skype, Zoom, WhatsApp, Facebook Messenger, Telegram, and Viber. These instant messengers

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enable marketing specialists to negotiate, send photos, videos, blogs, text messages, and scanned copies of documents, as well as build user communities based on interests or businesses. Specialized corporate instant messengers are becoming cheaper and more accessible. In 2020, corporate instant messengers included Slack (from Stewart Butterfield), Teams (from Microsoft), Hangouts Chat (from Google), and Chat (from Facebook). Corporate instant messengers are electronic tools that offer voice and video telecommunications to corporate clients; they can also exchange documents and text messages to aid the search for orders. Some firms force their employees to use their own devices to perform these tasks. However, many shipyards and construction companies supply marketing managers and specialists with corporate mobile devices and smartphones for communication. As a result, employees receive smartphones (with pay for calls), tablets and laptops (with pay for Internet traffic), and other mobile devices for marketing activities.

Search engines as online marketing tools It is much easier and faster to enter keywords into a search engine (e.g., Google, Bing, Baidu, Yahoo!, Yandex, Ask, DuckDuckGo, and Naver) to find a customer company’s website or use a professional forum to establish contacts with experts in your field of activity. However, marketing practitioners in the future should instead of social networks use specific companies’ websites for formal contacts. In order to quickly find an executor of the specific works, the customer must ensure the accuracy of the messages presented on his website, the description of his field of activities, and the list of works that need to be performed, and so on. Searching for information on the Internet could lead to the penetration of malicious virus programs onto a personal computer or the entire local network of a company. Viruses damage or destroy files in order to extort money, steal data, and create managerial and technological problems for company managers and specialists. To protect against viruses, marketing specialists must use periodically updated antivirus software, including TOTALAV (digital total protection), Panda (cloud technology), ESET (security tool for social networking), PCPROTECT (easy installation), Norton (personal firewall), McAfee (free support), AVG (well-known antivirus protection), and Rising Antivirus (free support). Do free antivirus programs protect well against computer viruses?

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Online negotiations between the customer and the contractor The customer’s next step after confirming the executor’s ability and readiness to fulfill the order for works will be to ascertain its duration and cost. To do this, some contractors (especially young companies) post promotional price-lists with unit prices of works on their websites. In doing so, they are hoping that the low prices will attract future customers and then, during the execution of the contract, they will raise their prices to match the rest of the industry’s prices. Executors of works with many years of experience and a good reputation prefer to act in a different way. They will ask the customer to send the technical assignment for executing works, the preliminary specification of the works, the project documentation for the works, etc., so they can calculate the preliminary cost of the contract. This means that the contractor will not try to increase the value of the contract using helpless arguments, such as “we did not know” or “you did not tell us.” In addition, copies of the future contract are sent by e-mail to enable the executor to accurately determine its duration, taking into account the scope of the works and his own productivity. However, the contractor may offer price discounts for a large order amount, which is always welcomed by the customer and increases the chances of selling future works. In many countries, there are national registers of unscrupulous partners that enable us to make inquiries about a potential customer’s reputation via the Internet. In addition, it is always useful to know about the history of his participation in litigations as a plaintiff or defendant. Declaring bankruptcy by the court and initiating enforcement proceedings completely exclude the possibility of cooperation. Nevertheless, marketing specialists must repeatedly check and recheck all the available information that circulates on the Internet. The process of selling works on the Internet takes place before signing the contract, which is when the customer and the contractor negotiate timing and prices. The customer can reduce or increase the scope and composition of works within the budget, if this is not limited by any supervisory authorities or project of works. Both companies’ lawyers will develop and discuss the wording of points in the draft contract online. They will mark points with which they disagree with red, and accepted wording will be highlighted in green. The customer and the contractor almost never sign a pre-printed contract using the parties’ protocol of disagreement, excluding some government contracts.

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When the parties have finally agreed and approved the contract electronically, then one of the parties (usually the contractor) will print it on paper. The firm’s CEO will sign each page (at the bottom) of the contract with his/her signature and put a special stamp on it. He/she will also sign the last sheet and certify the contract with the firm’s seal. A marketing specialist will then scan the signed document and send it in “pdf” format by e-mail to the other party. The customer will print a scanned copy of the contract, sign and stamp all pages, and then put the customer’s seal on the last sheet; a scanned copy of the contract will be returned to the contractor by e-mail. The exchange of signed copies of the contract may occur after the beginning of works and receiving an advance payment. Naturally, for this, the relations between the parties must be trusting. These documents cannot be falsified or invalidated. Unlike the draft contract, which specialists draw up using a text editor (for example, Microsoft Word or Apple Pages), it is advisable to develop the works specifications in spreadsheets (for example, Microsoft Excel or Apple Numbers). Here, it is possible to enter formulas and calculate costs. This greatly simplifies the preparation of the preliminary specification of works in various versions when negotiating the composition, scope, and prices. The preliminary specification of works is a part of the main contract. The following is a list of its mandatory attributes: Ɣ Item number in the specification Ɣ Title of work by the item Ɣ Physical dimension of the work (kilograms or tons; millimeters or square/cubic meters; pieces or sets; operations or actions, etc.) Ɣ Scope (physical volume) of the work Ɣ Unit price of work in the currency stated in the contract Ɣ Value of work based on multiplying the unit price of work by the physical volume of work The last column of the specification (“Notes”) performs an important function. It specifies, for example, which of the parties (the customer or the contractor) supplies the components or materials for the works, ensures the development and approval of the design/project documentation, pays for the tests and services provided by the supervisory authorities, and what the technologies and standards are used by the contractor when executing works. Clarifying all of the conditions enables the parties to avoid disputes and disagreements during the execution of the contract and, ultimately, maintain friendly relations.

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Similarly, marketers highlight any disputed items in the preliminary specification of works in red, and agreed lines in green. Yellow highlighting indicates that the contractor has questions about the item. For example, the scope of works might not be indicated, the list of works might not have enough detail, or the brand of equipment or assembly unit might not be specified. The parties draw up a preliminary specification, which is agreed by all participants in the same way as the main contract. An important advantage of e-mail is its archive of incoming and outgoing correspondence, which enables marketing specialists to accurately track both parties’ actions. In addition, the Internet promotes the contractor’s works using the following marketing communications: Ɣ Distributing advertisements (which may be recognized as spam) Ɣ PR (Public Relations) techniques Ɣ Direct marketing Ɣ Personal sales of the company’s regional representatives Electronic greeting cards, including those with animation, have become a popular way of sending business greetings on national and professional holidays, as well as on the company’s or its managers’ birthdays. The speed and low cost of forwarding messages via the Internet has made it one of the most commonly used tools of telecommunications in the marketing of works. Also, the Internet provides information through electronic newsletters, almanacs, research reports, and webinars, etc.

Electronic document management in the marketing of works An important advantage of electronic marketing of works is the ability to receive payments (prepayment, payment for a specific stage of works, and payment for all works executed) based on electronic documents. For this, the parties draw up and sign an act of completed works (or a certificate of completion), which indicates the scope and composition of works performed by the contractor and the amount of payment. Electronic banking (client-bank system) allows the customer to pay the contractor’s invoices using payment orders to the customer’s bank. Electronic documents have several important advantages over traditional paper documents. However, at some point, the parties to the contract will have to exchange the signed and certified originals of documents between themselves.

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Since the company’s e-mail contains trade secrets—list of customers, the contents of its order book, the cost of contracts, etc.—marketing managers must restrict access to electronic correspondence. The firm’s top managers should require authorized employees to periodically check the company’s electronic mailboxes, print out relevant electronic documents, keep records of incoming and outgoing emails, and so on. Even though the mailbox stores incoming and outgoing messages in its archive, it is recommended to save backup copies weekly on separate storage devices, such as laser disks or USB flash drives. Do not install the option to automatically delete incoming spam, since authorized specialists need to view and analyze it. Spam is often generated and sent out by special robots at the request of consumers who are looking for contractors of their orders. Besides, the marketing department itself can also send out spam when searching for customers. Marketing department must have scanned copies of the company’s registration documents in order to participate in electronic (private or state) auctions. The list and names of the registration documents vary depending on the country. But one of the most important elements of electronic document management is the simple or basic electronic signature (SES), the advanced electronic or digital signature (AES), or the qualified advanced electronic or digital signature (QES) of the firm’s head (e.g., the CEO) and authorized representatives of the company. A digital signature allows marketing managers to attach documents submitted by their company electronically. Using a signature key certificate for the digital signature provides cryptographic protection. A Qualified Trust Service Provider (QTSP) certification authority issues this certificate to the company and records it, as a rule, to a USB flash drive. The signature key is controlled by a Qualified Electronic Signature Creation Device (QSCD). The computer that marketing specialists use to carry out electronic document management (including participation in electronic auctions) is an automated workstation. IT specialists must install the latest version of browser (such as Safari, Internet Explorer, Opera Browser, Google Chrome, or Mozilla Firefox) and a special program that recognizes, reads, and verifies cryptographic information, including digital signatures, for example, VeraCrypt, BitLocker, LastPass, DiskCryptor, AxCrypt, and other encryption software tools that support Advanced Encryption Standard (AES). A company can accept cryptocurrencies equivalent to pounds sterling, euros, or U.S. dollars as payment for its works. Due to the virtual nature of cryptocurrency (Bitcoin Cash, Litecoin, Ethereum, Dash, Ripple, Tether,

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Libra, Monero, and the like), as well as the lack of material or financial security, using it requires continuous daily monitoring of the exchange rate in order to ensure a prompt response to any changes by buying or selling. In terms of sales, future works are virtual products; this means that the virtual currency somewhat simplifies the sale of works in comparison with the exchange for real goods or money. The certification provider issues a certificate for the electronic/digital signature key for a limited period (e.g., one year), which requires periodic re-registration. This can take about a week, so the marketing department must ensure that the key is updated in a timely manner.

Why do we need paper documents in e-marketing? If the company that performed the works has problems with their quality during the warranty period, the customer will send a claim, file a complaint, and/or begin the pre-trial settlement of the dispute. The company’s legal adviser or visiting lawyer will need to obtain these documents on paper (with signatures and seals), and they will limit the use of electronic document management in this process. Additionally, the company’s accounting department will not be content with electronic invoices, payment orders, certificates of works completion, basic contracts, additional agreements, and so on. Therefore, the marketing department should replace all copies with paper originals. Auditors, lawyers, and notaries work with originals or duly certified copies of documents on paper. Besides, the commercial, arbitration, appellate, and cassation courts will require documents executed on paper when considering disputes between the customer and the contractor. Table 23-1 summarizes the advantages and disadvantages of paper and electronic documents. Table 23-1. Advantages and disadvantages of paper and electronic documents Electronic document management 1. Advantages High speed mailing Inexpensive design Compact media Low cost replication

Paper document management 1. Advantages No electronic devices required Hard to forge Available and visible Authorities accept documents

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Table 23-1. Continued 2. Disadvantages Difficulty of working with and correcting Electronic devices required Slow speed mailing Danger of loss due to damage to Needs lockers and safes for storage storage media Needs protection against hacking Expensive copying 2. Disadvantages Susceptibility to distortion

Using the Internet for marketing of works has dramatically simplified and accelerated: the implementation of key activities to find customers for works; the clarification and coordination of large databases; the ability to draw up and sign contracts with several appendixes; the possibility to make changes and additions to the cost, scope, and duration of works; the acceptance and payment of works completed; and so on. Therefore, the global Internet and e-mail provide an inexpensive and fast tool for marketers. The ability to send and receive large volumes of information, as well as negotiate and draft contracts online, is an important advantage of electronic marketing.

Blockchain marketing as an element of Internet marketing Blockchain marketing has become a special field of electronic marketing, which uses decentralized databases where millions of users accumulate and store information about transactions in the network. The public nature of the blockchain does not allow users to arbitrarily adjust ongoing transactions, thereby countering corruption and ensuring transparent transactions. Miners confirm transactions and create new blocks in the blockchain. Its authors are teams of volunteer developers from around the world. This is also the case for Bitcoin Cash. We know Satoshi Nakamoto. Who do you think this is? Blockchain activities include the use of special cryptocurrencies for payments, such as Bitcoin Cash, Litecoin, Ethereum, Dash, Ripple, Tether, Libra, and Monero. Cryptocurrencies are an electronic form of money, which means that they are international (global) in nature and are not tied to any country or government. However, the lack of guarantees from the issuers of the currency and insufficient government control make cryptocurrencies vulnerable to fraud and speculators. Therefore, “Internet marketing of works,” “electronic marketing of works,” or “e-marketing of works” is currently becoming a highly effective type of marketing. Electronic sales of goods, works, and services occupy an increasingly strong position in the world’s markets. The virtual

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nature of the executing works made it possible to easily integrate the marketing of works into cyberspace. In each country, the techniques and tools used in the marketing of works vary depending on the applicable regulations and practices. The conditions for conducting electronic (online) auctions and the requirements for obtaining and using electronic or digital signatures also differ. Additionally, marketing specialists use various systems of cryptographic information protection. However, despite cyberattacks, malicious viruses, an abundance of spam, and sometimes unreliable information on the Internet, e-marketing is one of the key tools in the market of works.

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Practical tips The marketing of works in the field of ship repair is increasingly turning to Internet marketing. This is due to the following reasons: Ɣ The preliminary specification for ship repair works often undergoes many changes during the preparation of the contract. Marketing specialists exclude some of the works and clarify the scope for other ones. In the preliminary specification, new works often arise that require additional negotiations between the customer and the contractor regarding the supply of materials and components. Ɣ A feature of repair works is the lack of complete and accurate information about the upcoming repair at the initial stage. In order to accurately determine the required composition and volume of works, materials, and spare parts for the repair of ship machinery, equipment, and systems, the shipyard’s specialists must disassemble them, identify their faults/malfunctions, and develop defect-technological specifications for their repair. During the preliminary negotiations between the parties, the crew cannot always properly prepare the vessel for repair at the shipyard, as the shipowner has not yet taken this vessel out of service. Ɣ The specification of works has hundreds of titles, and the parties must agree on the price, timing, and volume for each work. If the customer and the contractor are located in different cities, regions, or countries, the distance between them becomes an obstacle to effective negotiations. Ɣ The Internet creates almost limitless opportunities for negotiations between the customer and the contractor. Online conferences provide the parties with audio and visual contact. Electronic documents are easily corrected and forwarded. For example, a ship’s chief mechanic can send digital photographs of damaged parts or corroded sections of the hull so that the shipyard can visualize the required repairs. Nevertheless, in the marketing of works, an important prerequisite for the customer’s final decision is his personal acquaintance and trust in the managers and specialists of the executing company.

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Definitions of concepts Ɣ Electronic marketing (e-marketing) of works is a type of marketing based on the use of electronic marketing tools and techniques that help practitioners find, receive, and fulfill orders for works. Ɣ The company’s website is a tool for promoting products in the goods, works, and services markets; it enables marketers to advertise their company, build relationships with customers, implement electronic document management, and so on. Ɣ Personal and corporate instant messengers are electronic tools that allow users to communicate (including voice and visual communication), as well as exchange photos, text messages, video blogs, scanned copies of documents, and so on. Ɣ Search engines are used as a tool for receiving orders by contractors; finding executors of works by customers; checking the reputation of companies; studying regulatory and legislative acts; obtaining information about competitors, technologies, and exhibitions; viewing news about current industry events; etc. Ɣ Internet (online) negotiations are a type of telecommunications, which includes the exchange of electronic messages between parties, sending scanned copies of documents, coordinating projects and signing contracts and additional agreements, etc. Ɣ E-mail is one of the key tools for electronic marketing of works, which provides prompt correspondence, sending advertising messages, conducting online negotiations, receiving urgent notifications, storing documents in archives, etc. Ɣ An electronic or digital signature is an important tool of electronic document management. A simple or basic electronic signature, an advanced electronic or digital signature, or a qualified advanced electronic or digital signature of the firm’s managers allows marketers to certify documents submitted by their company electronically. Using a signature key for the electronic or digital signature provides cryptographic protection. Ɣ Blockchain marketing is a type of e-marketing where the participants create decentralized databases. They accumulate and store information about the transactions of many users in this network. Miners confirm transactions and create new blocks on the blockchain. Here, cryptocurrencies are used for payments.

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Questions for discussion and testing 1. Compare the processing of correspondence in electronic, courier, surface, air, and fax mail. 2. List the stages of evolution for external electronic storage devices. 3. What content does a company’s website need and how does Internet advertising for famous companies differ from startups? 4. How could we use augmented virtual reality when presenting a company’s works? 5. What is the purpose of the “register of unscrupulous partners” and why is it worth studying the customer’s reputation and solvency? 6. What role do social networks play in promoting works to the market and how useful is spam? 7. How do you effectively use search engines on the Internet to find contractors or customers of works? 8. Describe the process of preparing and signing contractual documentation online. 9. How should marketing specialists ensure the security and confidentiality of electronic documents? 10. What should the marketing department implement in order to participate in electronic auctions? 11. What are the advantages and disadvantages of paper and electronic document management?

CHAPTER TWENTY-FOUR FEATURES OF THE MARKETING OF WORKS IN THE ECONOMY SECTORS

Overview In this chapter, readers will learn that works are products that marketers sell in every sector of the economy. We will consider the features of the execution and sale of works in the industry; construction; agriculture; transport; communications; healthcare; education; film and audio businesses; public administration; information technology; sports, recreation, and entertainment; beauty industry; and scientific research. It turns out that the marketing of works is already being applied in the newest sectors of the economy. In addition, readers will learn how a narrow technological specialization in one type of work allows firms to successfully operate in several sectors of the economy. We will also note the need to consider the seasonality of many types of works. Marketing in the jewelry business is also interesting.

Marketing specialists sell works in every sector of the economy The need to study and develop the marketing of goods, works, and services is confirmed by the fact that practitioners apply the marketing of works in all sectors of the economy in any country in the world. Works are an element of a hybrid offering of products (consisting of goods, works, and services). The fact that there are no works in the hybrid offerings of sold products does not mean that in reality there are no works. Perhaps, it just means that the practitioners did not find these works.

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Practically, marketers of executing companies in any sector of the economy apply techniques and tools from the marketing of works. Every national economy in the world includes industry, agriculture, construction, transport, communications, education, and healthcare, etc. Companies, organizations, and institutions in these sectors are target customers for executing various works. Here, finding, attracting, and retaining customers are the basic functions of marketing. As a rule, the industry marketing of works plays an important role in the fulfillment of individual orders for works, unlike the mass production of the same goods. Therefore, the marketing of works is a key marketing activity for the firm. Regardless of the economy sector, the contractor (executor of works) offers potential consumers the promise of high-quality, prompt, and costeffective fulfillment of contracts. This feature distinguishes marketing in residential and industrial construction, aircraft manufacturing, shipbuilding and ship repair, and land reclamation, among others. The marketing of works in agriculture has some differences, which are caused by the characteristics of agricultural land as an object. The implementation of works, such as melioration and fertilization, increases the land’s value. We may find that a firm’s labor resources are also an object that can change its market value (as well as material, financial, and information resources). Improving a patient’s health raises his/her value as an employee in the labor market. In the education system, such activities as training, advanced training, and retraining people (as marketing objects) give similar results. In show business, the commercial department of a film studio requires the implementation of works when creating a film, including script writing and filming. Marketing practitioners from a machine-building plant in the B-to-B market sell goods (for example, an excavator) to a construction company. What does this construction company buy? This company buys the opportunity, ability, and tool for digging trenches, laying cable routes, or building foundations. In other words, the excavator from the market of goods enters the market of works (but already as production equipment to generate income). For example, in the B-to-C market, a company sells a household toaster (as a commodity) in its own brand store. Does a housewife buy a toaster? Not really. She buys an opportunity and a tool for making toasts. Toasting bread is a work because it turns a slice of bread into toast (new quality). In the retail market, ready-made toasts are more expensive than the raw materials, that is, slices of bread. An agricultural firm grows and sells flowers. This firm’s marketing specialists operate in the market of goods. But the very activity of

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consulting customers and selling flowers to them is a service. Nevertheless, composing a bouquet, making a package, and tying a ribbon are works; are they not? In other words, we buy a hybrid offering that includes works. Based on this simple example, we can say that practically every marketer from any company in any sector of the economy applies the tools and techniques of the marketing of works in his/her activities.

The marketing of works in industry The structure of most developed countries’ economy includes such industries as mechanical engineering, metallurgy, chemical production, the manufacture of household appliances, and others. Finding, attracting, and retaining customers for executing works are the most important functions of the marketing of works in this case. As a rule, the marketing of works in industry takes place when performing large or unique orders, where mass production of the same goods is not possible. The lack of guarantee for sales (or stable demand for products) compels firms to avoid the risk of producing stocks of goods at their own expense. It is much safer to first find a consumer, receive a prepayment or a guarantee of payment, and than start manufacturing the product. For the manufacture of aircraft, helicopters, passenger or cargo ships, trams, space rockets, or satellites, companies first find customers using tools and techniques from the marketing of works and then they sign a contract for the execution of works, before finally beginning to design and manufacture the marketing objects (and spend the customer’s money). Thus, the contactor transfers the risks (in the industrial marketing of works) to the customer. In addition, the contractor does not need to credit the buyer with either his own money or borrowed cash resources. After signing a contract for the manufacture of a product and receiving an advance payment, the contractor is in a better situation (compared to the consumer) than the manufacturer of the goods for sale. Metallurgical plants carry out the manufacture of metal sheets and profiles (from certain steel grades) on the orders of specific consumers according to the standards of delivery by railroad wagons or freight trains. At the same time, wholesale metal firms collect orders and prepayments from companies (end consumers of rolled steel) and then send out large consolidated orders along with the prepayment to metallurgical plants. The plant then begins the process of smelting steel (for example, in a converter furnace) to make steel sheets of the required (standard) thickness, length, width, and rolling profile (corner, circle, channel, rail, etc.) that are

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formed from the produced smelting. These products are certified and provided with documents that confirm their quality and compliance with the requirements of standards. The marketing department delivers the products from its metallurgical plant (in the required nomenclature and assortment) to wholesale metal firms and large machine-building companies. The metallurgical plant’s marketers search for and retain customers for executing works on the production of rolled metal. As a rule, a refinery does not use its own working capital to buy crude oil, which it distills (in distillation columns) to create various fractions of hydrocarbons to make fuel oil for boilers, diesel fuel for ships, gasoline for cars, and kerosene for aircraft. Usually, the customers of these works are traders who operate in the markets of oil products. These circumstances influence the various parties’ behavior in the market of manufacturers in the fields of mechanical engineering, construction, chemical industry, ferrous metallurgy, and so on.

The marketing of works in building construction For example, a construction company builds a residential or office building on the basis of a specialized design bureau’s plan, but also at the initiative of an investment company, which will pay the costs and then subsequently sell a new object in the real estate market. As a rule, construction companies erect industrial buildings and structures according to unique designs based on the requirements of specific customers. How will installing a new set of furniture in an old apartment house affect its value? Firstly, the manager or owner of this building must pay for the works of specialists who will assemble the furniture. Secondly, the owner/manager will not know the economic effect of installing new furniture until he puts this house up for sale. Finally, when determining the house’s market value, a real estate agent will consider the increase in value due to the additional option (that is, new furniture in the old building). In most countries, many types of works that are executed to order require special licenses, permits, certificates of recognition, or certificates of accreditation. This drastically limits the number of members in a particular type of the market of works. Due to imperfect competition in the construction sector of the economy, there are oligopolistic markets with high barriers to entry for competitors and a limited number of contractors. Therefore, in the marketing of construction works, practitioners generally use traditional direct marketing techniques.

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The marketing of works in agriculture The marketing of works in agriculture has some features related to the object, namely, agricultural land. Many countries use the direct purchase and sale of such land, and specialists calculate its market value. The implementation of works for the reclamation, melioration, fertilization, etc., directly affects the market value of such land. Moreover, the search for and receipt of orders for these works, which are executed for third-party organizations, is a direct result of applying the marketing of works, even if the farmer and the executor of the works order are not aware of the existence of this type of marketing in agriculture. Small specialized companies carry out insecticide treatments for farms’ fields and gardens using radio-controlled or programmable unmanned aerial vehicles (drones). Due to the resulting protection from insects, the yield increases. Marketers apply direct marketing techniques and tools to find orders. They compile databases of potential customers, come to the place of work, and offer to execute the works. In animal husbandry, the works for the repair and adjustment of the existing automatic feed and drinking water supply lines require experienced and qualified specialists. Typically, repair companies execute such works based on orders from livestock firms. The marketing of works in this area is aimed at maintaining mutually beneficial relationships with regular customers. Works for organizing the drip irrigation of dry lands to cultivate berries and vegetables include the installation, assembly, and connection of drip irrigation systems. The result is a stable harvest with high yields regardless of weather conditions. In this area, the marketing of works is also aimed at obtaining orders for the restoration or modernization of these advanced irrigation systems. Works related to plowing fields are the concern of companies equipped with tractors and specialized attachments. As a result of the completed works, the plowed, irrigated, and cultivated land becomes ready for the introduction of wheat seeds. Marketing specialists need to find farms that do not have a full range of agricultural machinery. This is important not only for the opportunity to rent equipment, but also for selling the works that the company can perform using these machines. Thus, the marketing of works in agriculture is mainly a local activity, which is largely associated with specific areas of agricultural land, both in terms of crop production and livestock production.

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The marketing of works in the transport sector The transport sector provides services for the transportation of cargo and passengers using standard techniques of the marketing of services. Nevertheless, companies in this sector are also regular customers of the works, such as manufacture, repair, modernization, and re-equipment of various vehicles. In the absence of internal orders, marketing specialists of locomotive depots, car repair shops, shipyards of shipping companies, aircraft repair plants, etc., carry out the marketing of works to find and receive external orders (for third-party consumers). In the transport sectors of each country, there are special supervisory authorities that monitor the transport’s technical condition and compliance with the requirements for its regular repair and maintenance of a safe operating condition for cargo and passengers. Such regulatory bodies include aviation inspections, registers of shipping, and automobile inspections. These organizations become repair firms’ partners, as they force cargo and passenger carriers to quickly and completely repair their vehicles. Thanks to the supervisory authorities’ regulations, executing firms receive new orders for the renewal, modernization, or re-equipment of ships, aircraft, helicopters, buses, trucks, locomotives, and so on. A faulty car becomes the object of works for an auto repair company. Following a traffic accident, the car will dramatically lose its market value. The car owner will be able to sell it at almost initial market value after fixing the bodywork, replacing the broken headlights and bumpers, adjusting the camber, and repainting the body (full or partial) depending on the mileage and year of manufacture. The marketing of auto repair works is characterized by the need to receive numerous and relatively small orders. At the same time, marketing specialists segment the market by a car’s brand and prestige, by territory, by type of repair (engine, body, chassis, electrical equipment, fuel system, automation, on-board computer, autopilot, etc.), and so on.

The marketing of works in the field of communications Marketing in this area is focused on finding and receiving orders for the professional development of news programs for television and radio on the basis of outsourcing. Processing and correcting texts, photos, and videos is a relatively small but stable source of works orders. In addition, the source of income is the construction of new cable routes (electrical, fiber optic, quantum, and so on), as well as the repair or removal of existing cables. Also, mobile operators’ broadcasting towers

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and satellites for long-distance space communications (including the Internet) are also sources for orders in the marketing of works. Nevertheless, many television and radio companies hire their own specialists to fill the relevant positions in these media in order to develop high-quality information and entertainment products (programs).

The marketing of works in healthcare and education The object of marketing in healthcare and education differs from other objects in a very specific way. Considering the characteristics of each company’s core resources, as well as that of the economy as a whole, we can say that labor resources also undergo changes in value along with material, financial, and information resources. For example, restoring a patient’s health increases his/her value as an employee in the labor market. Training, advanced training, and retraining of a specialist (as an object of marketing) provide a similar result in the education system. When realizing the marketing of works in the field of healthcare, marketing specialists inform potential patients about the availability (in the clinic or hospital) of effective equipment; the latest treatment methods; highly qualified doctors and nurses; price discounts for surgeries, procedures, and medicines; and so on. In the field of higher and secondary education, all business schools, lyceums, colleges, institutes, academies, and universities compete for talented and responsible students. In their advertising messages, marketing specialists describe the advantages of their profile educational base; the qualifications of their teachers, lecturers, or professors; their graduates’ victories and achievements; the affordable nature of their campuses; the available housing and facilities (such as sports grounds, restaurants, shops, libraries, and parking lots); and so on. Links (including Internet links) to existing education licenses, government and public awards, accreditation of educational institutions, creation and development history, as well as their ranking and reputation are mandatory tools in this type of the marketing of works.

The marketing of works in advertising and consulting activities An advertising agency or consulting firm, in addition to providing relevant services, fulfills orders for producing intangible objects: business plans, original advertising layouts, marketing research, and so on. The specificity of the marketing of works in this area is usually characterized by a non-

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substantial nature of the marketing object. As a result of this, a substantial medium is required. Unlike a relatively inexpensive information storage medium, the nonsubstantial content of the product from an advertising or consulting agency has a high market value. Labor-intensive creative works also require expensive protection of copyright for the product transferred to the customer. Copyright protection will enable the customer of works to receive significant income from the use of such a product, thereby offsetting his initial expense. Often, executors of creative works seek to receive royalties as an extra payment for an order, depending on the project’s success. But the customer, not the contractor, bears the risk of failure of the product, which was paid for by the customer and delivered to him by the contractor.

The marketing of works in the film and audio industries The commercial department of the film studio (producer of the filming works, including script writing) must find a public or private customer. The parties sign a contract to produce a film, and the film company receives an advance payment before beginning work on shooting and editing the film. The timing of the film depends on the film company’s production capacity; the availability of its resources; the level of productivity and qualifications of the company’s employees; the organization of works on the set; and the weather conditions during field shooting of the film; as well as other factors. As a result, the product will either have a dizzying success, in addition, it will win an Oscar from the American Film Academy, or it will be released at a loss to the customer and receive negative reviews. Recording studios execute works by creating audio products to fulfill the orders of composers, singers, orchestras, sponsoring companies, and so on. For a record to go gold or platinum, the recording company must fulfill a challenging project to create a masterpiece that will make a decent profit for its creators, and the music community will admire it.

The marketing of works in the field of public administration In the field of public administration, concepts such as free public services or free public works (to popularize the country) are often used. Are the works and services provided by government officials (more precisely, hired civil servants) to citizens or companies free of charge? No. In fact,

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by paying taxes, fees, excise taxes, duties, and other payments (in favor of the state), citizens finance their country’s budget. In other words, taxpayers make an advance payment, which the state institutions will later return to taxpayers in the form of a “free certificate” on the state letterhead or a “free repair” of the sidewalk in their city. The marketing of works in the field of public administration is primarily aimed at obtaining prepayments for executing future works for the benefit of society. This function is mainly performed by the country’s tax service.

The marketing of works in the field of information technology Any company engaged in the development of software products (at the request of users) must find a customer, agree on the technical task for creating a program, receive payment and, after developing and debugging the computer program, send (but not sell) it to the customer. Along with this, in the field of information technology, sales of readymade software products include operating systems (Windows, Apple, Android, etc.), antivirus programs (TOTALAV, Panda, ESET, PCPROTECT, Norton, McAfee, AVG, and Rising Antivirus) and so on. In addition, the software company retains the exclusive copyright and sells licenses for the right to use its product. Also, creating computer games provides an almost inexhaustible source of orders. Indeed, games are a serious business that generates billions of dollars for their creators.

The marketing of works in the field of sports, recreation, and entertainment The organizers of the International Federation of Football Associations (Fédération Internationale de Football Association) World Cup will say that it is a hard work to host the championship (source: https://www.fifa. com). For example, it is necessary to give orders (works contracts) to executors for the development and production of advertising materials, the creation of the championship emblem, the development of original models of award cups and medals, the manufacture of these award cups and medals, the formation of a plan for placing sponsors’ banners, as well as the maintenance or creation of sports facilities (stadiums). Also, the organizers of the championship must give orders for executing works to create or restore grass cover of football fields, as well as applying or restoring field markings. Sports equipment and commentary

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booths at each stadium also need to be repaired before the beginning of the competition. The marketing of works in the field of outdoor activities is also focused on receiving orders; for example, contracts on the development and organization of routes for tourist groups. These works also include arranging and equipping sites for visiting, as well as finding, cleaning, and arranging wells and springs with drinking water, and so on. The marketing of works in the field of entertainment is focused on obtaining orders for the repair and adjustment of equipment for dance floors, discotheques, nightclubs, and many other places. An important area of works orders for cruise liners is the development and coordination of routes with guidebooks so that passengers can see certain tourist attractions. It is also necessary to develop programs of theme nights for the cruise participants. Contractors may repair and adjust the lighting and music equipment, as well as special effects systems. Marketing specialists must be mobile and persistent employees to receive such orders. They should develop creative commercial offers to participate in auctions so that they can obtain contracts for such nonroutine work. In promotional activities, marketing practitioners should refer to successfully completed orders and avoid price dumping.

The marketing of works in the beauty industry The activities of a beauty salon stylist are sometimes contact services and other times they are contact works. Accordingly, the manager of a beauty salon should use techniques from either the marketing of services or the marketing of works. For example, a housewife’s hairstyle and make-up do not change her market value, since the family loves her as a mother, a wife, and the mistress of the house. On the contrary, a film star with a stylish appearance will cost much more in the labor market. This will be reflected in an increase in royalties for her concerts, payments for her participation in films, income from the sale of her music DVDs, and so on.

The marketing of works in scientific research When a scientist receives a grant to conduct research on the behavior of rare butterflies on one of the islands in the Pacific Ocean, he/she must carry out the works and present the results in the form of a report. The substantial medium of the report (standard format writing paper) has a negligible market value. But the content of this report (non-

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substantial product) may be of great scientific value and even provide the author with a Nobel Prize in Biology. But the scientist did not even notice that, when searching for suitable grants and presenting research programs (with justification of costs), he/she submitted a commercial offer to the customer, which adhered to all the rules for the marketing of works in scientific activities.

Practitioners apply the marketing of works in the newest sectors of the economy The search for works orders using marketing tools and techniques is also carried out in the newest sectors of the economy, including the gene industry, nanotechnology, space tourism, cryptocurrency circulation, 3D printing of complex objects, and bacterial decomposition of plastic debris. At the same time, marketing practitioners are forced to work with objects, the properties of which are insufficiently studied, as well as with imperfect technologies for executing new works. However, this is a feature of the marketing of works that specialists of the company’s marketing department should know. They need to be familiar with the company’s customers; prices; equipment; technologies; materials and components for execution of works; etc. And this list is far from being exhaustive.

Technological specialization enables firms to work in many sectors of the economy Marketing specialists of the firm executing works for the application of anti-corrosion coatings on the surface of an offshore oil platform’s columns, decks, and superstructures, also use tools and techniques from the marketing of works. Marketers will find information when oil and gas companies need to repair their oil platforms. According to the well-known painting scheme of the object’s surface, they will form a commercial offer and send it to the customer for consideration. If the commercial offer is the best in terms of cost, duration, quality, and payment, their firm becomes the winner of the auction and signs a contract with the customer. Due to the specifics of the marketing of works, the marketing department monitors how the firm delivers equipment, specialists, twocomponent epoxy primers and enamels to the platform; how it executes painting works; how it meets deadlines; as well as how payments are received from the customer; etc. This occurs because marketing managers

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must take part in the delivery of completed works to the customer and ensure that all payments under the contract are received. The narrow specialization of companies in a certain nomenclature of works executed allows them to operate in various sectors of the economy. For example, if the specified company has universal cleaning and painting equipment (and skilled workers), then such a company can work in construction, transport, mechanical engineering, chemical production, mining, and many other industries.

The seasonal factor in the marketing of works The seasonal factor in marketing activities has its own specifics in each industry. First of all, this is true for agriculture and similar industries, including fishing, winemaking, and education. The marketing of works in construction is more active in spring and summer, but less active in winter. However, at latitudes close to the equator, this reason is not so significant. Universities, institutes, colleges, and schools begin to work with future applicants in the fall, that is, ten months before their introductory campaigns. Thus, the marketing of works in each sector of the economy has its own specifics in form. However, according to the techniques and tools used, this type of activity has a common content that unites it with the marketing of goods and the marketing of services.

Practical tips Let us consider the practice of applying the marketing of works in the economy’s jewelry subsector. For example, it is necessary to organize the sale of works for the manufacture of custom-made gold rings with diamonds. A large jewelry factory can form a group of marketing specialists to search for customers and sell works to them. Marketing specialists need to have color photographs and sketches of rings in order to carry out their activities. Often, jewelry customers would like to receive a unique decoration and are ready to offer jewelers their own drawings or provide a verbal description of the future product. Therefore, marketing practitioners must apply an individual approach to each customer and take into account his/her wishes, as well as the results of their co-creation. At the next stage, the works executor must evaluate the cost and the opportunity to realize the customer’s fantasies. Management of payments

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in the marketing of jewelry works requires an advance payment of about 50 percent of the cost from the customer. Then the jeweler needs to make a 3D model of the item and send it to the customer for approval. If the customer likes it, specialists may cast the ring in the metal, and then send it to assay laboratory for testing to confirm the gold hallmark. An equally important stage is processing, polishing, and fastening diamonds. The jeweler determines the number of carats in diamonds using special catalogs that take into account the shape of the diamond, as well as its cut, transparency, size, and mass. To communicate effectively with potential customers, marketing specialists must distinguish between the diamond’s shape, such as princess, marquise, oval, pear, heart, cushion, triangle, emerald, and radiant. When the product is ready, marketing managers negotiate the receipt of the last payment with the customer. Since this type of jewelry product is made to order and for the customer’s money, it is wholly owned by the customer and is not the property of the jewelry factory. Therefore, after receiving the last payment, the manufacturer transfers this object, but does not sell it to the customer as a commodity. An important competitive advantage of every jeweler is the shortened production time of ordered jewelry. Typically, for gold rings with diamonds, this period is only 10 days. A jewelry master who works alone (or with two or three assistants) appreciates his reputation very much and carries out the marketing of works himself. This master applies the tools and techniques of direct marketing, viral marketing, co-creation marketing, and so on. The warranty period for unique jewelry products is, as a rule, unlimited. This means that after completing the order, the contractor is still dependent on the customer.

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Definitions of concepts Ɣ The marketing of works in industry is a means of finding, obtaining, and fulfilling large or unique orders that cannot be performed in serial or mass volumes. Ɣ Receiving an advance payment from the customer or a bank guarantee of payment for the works is a method of reducing the financial risks of the contractor, which favorably distinguishes him from the manufacturer of the goods acting at his own expense. Ɣ The essence of the marketing of works in every sector of the economy is an invariable element, in contrast to the form of marketing activities, which depends on the specifics of each industry. Ɣ Regardless of the economy sector, the contractor (executor of works) offers potential consumers the promise of high-quality, prompt, and cost-effective fulfillment of contracts. Ɣ Seasonality is an important factor that affects the volume of orders for works throughout the year in most countries far from the Earth’s equator, including crop production, fishing, winemaking, construction, and education. Ɣ Technological specialization allows a firm to receive orders for executing works of the same nomenclature in various sectors of the economy.

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Questions for discussion and testing 1. Do marketing practitioners apply the marketing of works in all sectors of the economy? 2. List the key sectors of the economy in developed countries. 3. When do specialists use the marketing of works, rather than the marketing of goods? Give examples. 4. Why do some types of works compel contractors to have licenses, permits, certificates of recognition, and so on? 5. Compare the features of works in the metallurgical industry and agriculture. 6. What is the specificity of promoting works in healthcare, education, and science? 7. Do customers need works in the field of transport services? 8. How can you apply the marketing of works in the fields of sports, recreation, and entertainment, as well as in the film and audio industries? 9. What is the difference between executing works and providing services in the area of public administration? 10. When do software companies execute works, and when do they manufacture goods? 11. How does specialization by nomenclature of works enable companies to find orders in different sectors of the economy?

CHAPTER TWENTY-FIVE MARKETING DEPARTMENT ACTIVITIES IN THE MARKET OF WORKS

Overview We have dedicated this chapter to the activities of marketing department operating in the market of works. Readers will become familiar with various aspects, including evaluating the effectiveness of marketing, using the opportunities to influence a company’s business, and performing the functions of other departments by marketing managers and specialists. We will examine the marketing team’s life cycle (based on sales volumes) using graphs and calculation formulas. Readers will learn about the rotation of marketing managers and specialists, the consequences of psychological pressure on the marketing employees, periodic changes in the marketing team, and so on. At the end of the chapter, readers will become familiar with the use of progressive, regressive, and directly proportional scales to reward marketing employees with bonuses based on their performance.

Evaluating the effectiveness of marketing Organizing the marketing department’s current activities and monitoring the effectiveness of marketing managers and specialists are important practical issues. This division’s organizational structure is determined by the functions assigned to it. The marketing department’s balance of responsibility and authority depends on the attitude of the company’s top managers to marketing and their readiness to provide the best resources to this privileged department.

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The following scientists have studied the issues surrounding effectiveness of marketing: David A. Aaker, Tim Ambler, Gregory S. Carpenter, George S. Day, Peter Doyle, Mark K. Jensen, Vipin Kumar, Robert P. Leone, John A. Petersen, and Roland T. Rust, among others. Marketing department team goes through standard stages of life cycle, which are affected by both the company and its product. The effectiveness of marketing activities directly depends on the system of motivation and stimulation for specialists and managers in the marketing department. This chapter focuses on the specifics of this department’s activities itself. Stimulation (the use of incentives) is the application of external factors that make an employee work well. Motivation is the internal need and conviction of an employee to work well. The main focus of current research remains the effectiveness of marketing activities, including its techniques and tools. For example, practitioners can make a quantitative estimate of marketing’s economic efficiency using Hermann Simon’s concept of value-based-marketing, which aims to increase the value of a business as an indicator of its owners’ welfare. The concept of brand equity is important when studying the state of marketing activities. Brand equity is an additional asset that increases a business’ primary value. It is a combination of brand assets and associated liabilities, which have three main dimensions: brand value, brand strength, and brand description. However, brand equity measures only the efficiency of the company’s production and economic activities, rather than the effectiveness of marketing activities. Building a strong brand gives the company a competitive edge. Specialists evaluate the effectiveness of a company’s marketing activities in order to increase its competitiveness. Some European authors believe that a company’s sales are affected by the following marketing activities: Ɣ Maximizing sales using the market’s potential Ɣ Increasing the reliability of forecasts Ɣ More precise definition of the product’s market segment Ɣ Improving the accuracy of market balance level analysis (and so on) Nina K. Moiseyeva and Marina V. Konysheva suggest to measure marketing activity by its functions and general profitability indicators: market research, assortment policy, marketing activities, communication and strategic activities, etc.

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Most American practitioners argue that they should measure the effectiveness of marketing through sales and profit growth. These marketers traditionally hold seminars, webinars, and trainings under the auspices of the American Marketing Association (AMA). In addition, marketing practitioners can estimate the cost-effectiveness of marketing, but this is not a complete assessment. Malcolm McDonald believes that marketing specialists should use an empirical (based on testing statistical hypotheses) rather than a quantitative approach. This conclusion was based on the results of a study conducted in the United Kingdom, some other European countries, and the United States. This study analyzed the following areas: management’s attitude to marketing, organization of marketing, participation in the strategic planning process, the level of coordination and information exchange, and the practical implementation of marketing functions. They found that three components are essential to improve efficiency: better information systems, monitoring the effectiveness of marketing activities, and investment in staff development. Researchers also apply the criterion of sales profitability. They examine the following indicators: gross profitability from product sales (gross profit to sales revenue), net profitability (net profit to sales revenue), and so on. Analyzing the company’s receivables can tell about its customers’ solvency and loyalty. In addition to the profitability of sales, we can use the coefficient of market activity to evaluate the effectiveness of the marketing system through the ratio of the revenue generated by the sale of products (goods, works, and services) to the total value of the company’s assets.

How do marketing practitioners influence a firm’s business? Analysis and development of the most attractive strategic economic zones and management of their composition are important factors in increasing a company’s efficiency. Due to the strategic management of product and risk distribution, marketing managers improve the company’s portfolio of orders. The effectiveness of marketing is greatly influenced by macroeconomic instability in the region where potential customers are located. Experts on strategic development believe that it is not the strongest or the smartest firms that are able to survive, but those that are able to adapt to changes in the market environment.

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Practitioners diversify their production based on the market requirements and strategic marketing techniques. At the same time, anticrisis management researchers note that top management’s indifference to marketing and passive marketing policies often lead to bankruptcy. Marketing departments are becoming one of the most important elements of the company’s anti-crisis management system, which imposes great responsibility on them. The company’s top management requires marketing specialists to react adequately to the challenges caused by the crisis. Marketing department’s managers and specialists should perform the company’s vital functions, which often do not receive enough attention in stable conditions. Not all marketing teams are able to work successfully in a recession. The effective implementation of common tasks, including marketing research, advertising, and sales organization, is not enough in an economic crisis. Falling sales volumes inevitably require an analysis of the reasons, since a one-time intensification of marketing efforts with an increase in sales costs is ineffective. Psychological pressure on marketing employees causes changes in the structure of the marketing team’s life cycle. Marketing managers achieve a positive economic effect by using modern marketing techniques and tools to reduce expenses when jointly selling goods, works, and services. This also leads to an increase in revenue generated by fulfilling orders due to applying elements of hybrid offerings that add value to products. We will provide methods to evaluate the effectiveness of marketing activities based on sales volume and rational use of the marketing budget. Practitioners use various methods; however, this usually involves evaluating the ratio of the result of marketing activities to the cost of implementing the contract. Monitoring the profitability of orders is an important task for the company’s management and is not always the responsibility of the marketing department. Nevertheless, the department should carry out control at the stage of signing the contract, throughout the entire period of the order execution, as well as at the stage of its completion and delivery of the works result to the customer. Marketing activities, whose goal is to obtain large discrete orders, have a number of significant differences from those aimed at selling finished goods, providing short-term services, or executing short-term works, the duration of which does not exceed a month, quarter, or year. The marketing department’s responsibility for error-free operation is a key feature of the marketing of large discrete orders. The result of marketing failures is prolonged downtime of the company’s production

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capacities and labor resources, accumulation of losses and, ultimately, dismissal of personnel and bankruptcy of the company. Marketing activities in the field of large discrete orders are also characterized by fierce competition with the use, as a rule, of all permitted and unlawful means, which range from industrial espionage to bribery of specialists and the physical elimination of competing firms’ managers. Often, the managers of these companies are willing to put up with the high cost of obtaining large discrete orders, because the stakes are too high in such a game. Methods of planning and managing marketing costs for large discrete orders (that is, optimizing costs by reducing them) can give exactly the opposite result to the one desired, since saving tens of pounds sterling can lead to the loss of millions due to non-receipt of contracts. Marketing in this area is often shrouded in a “veil of secrecy” and is largely determined by the company’s internal corporate culture. A company’s organizational knowledge is usually reflected in corporate training materials and is not disclosed for common study.

Rotation of managers and specialists in the marketing department The frequency of the rotation of top managers FRtop m is higher than the FRmid m of mid-level managers. To a lesser extent, staff rotation also affects the level of specialists performing current functions (FRspec). Below, we present the corresponding formulas (25-1), (25-2), and (25-3): FRtopm

1 TRtopm

(25-1)

FRmidm

1 TRmidm

(25-2)

FRspec

1 TRspec

(25-3)

where FRtop m = frequency of rotation for top managers, year-1 FRmid m = frequency of rotation for mid-level managers, year-1 FRspec = frequency of rotation for specialists, year-1

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TRtop m = period of rotation for top managers, years TRmid m = period of rotation for mid-level managers, years TRspec = period of rotation for specialists, years In times of economic crisis, the rotation period for marketing top managers will be TRtop m = 1–2 years, which means that they are replaced every 18 months on average. This will be due to the increased expectations from the activities of new leaders and their quick “emotional and psychological burnout” during highly pressured conditions. Mid-level managers remain in the team longer, as their rotation period generally reaches TRmid m = 2–4 years. For specialists, depending on their level of qualifications and “indispensability,” the average rotation period may exceed 7 years: TRspec > 5–7 years. And, if the new top manager does not replace the work team, then his/her subordinates will need to adjust to this change. At the same time, the result can be either a complete rejection of the new boss by the subordinates and their dismissal, or his/her joining the existing marketing team without conflicts. Substituting the values of rotation into formulas (25-1), (25-2), and (25-3), we obtain, respectively, for top management, FRtop m = 1.00–0.50 year-1; for mid-level management, FRmid m = 0.50–0.25 year-1; and for marketing specialists, FRspec = 0.20–0.14 year-1. Taking into account the indicated values of staff rotation, the following inequalities are typical in practice: FRtop m > FRmid m > FRspec. This condition corresponds to the usual rotation of team members. If the rotation is the same, it means that the whole team has been replaced: FRtop m = FRmid m = FRspec. This situation reflects the company’s staffing problems and is fraught with a complete collapse of marketing activities, which can lead to bankruptcy. On average, the life cycle of a marketing team can reach 5–8 years during a macroeconomic recovery. The pre-crisis stage of stagnation shortens the cycle to 3–4 years. During the crisis period, the life cycle of a marketing team will reduce, for example, to 1–2 years; this means that a complete replacement of the team will occur simultaneously with the replacement of top management.

The marketing department’s life cycle The expectations of the company’s top management, caused by hiring new marketers during the crisis, are not always immediately confirmed. The result is the “emotional and psychological burnout” of these marketers.

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This is because they are not given enough time to understand the new situation, as the company requires immediate results. If the company has a divisional management structure and the marketing department is a center of financial responsibility, the new team is often not able to go through the regular formation stages. The firm’s top management ignores the objective need for the marketing team to reach the maturity stage when it will work with maximum efficiency. As a result, a working team’s normal life cycle (Fig. 25-1) will be deformed (Fig. 25-2). These figures use the following notations:

RM = revenue from marketing activities per month, £/month RM0 = revenue from marketing activities at the end of the marketing team’s formation stage, £/month RM1 = revenue from marketing activities at the end of the growth stage, per month, £/month RM2 = revenue from marketing activities at the end of the maturity stage, per month, £/month Arepl = the marketing team’s point of replacement

RM

Team building and development stage

Maturity stage

Arepl

RM2 RM1

RM0 0

tstart

t1

Life cycles of a team’s development

t2

tend Decline stage

Fig. 25-1. A marketing team’s normal life cycles

t

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RM

Team building and development stage

389

Maturity stage

RM2

Decline stage

RM1

Arepl

RM0 t

0

tstart t1 t2

tend

Life cycles of a team’s development

Fig. 25-2. A marketing team’s deformed life cycles The stages of building and developing a marketing team correspond to the period Tdev (25-4): Tdev

t1  t start

(25-4)

where Tdev = period of building and developing a marketing team, months tstart = start time of building a marketing team, months t1 = completion time of developing a marketing team, months The marketing team achieves maximum effectiveness at the maturity stage Tmatur (25-5): Tmatur

t 2  t1

(25-5)

where Tmatur = period of a marketing team’s maturity, months t2 = completion time of a marketing team’s maturity stage, months The period of decline Tdecl reflects the team’s disintegration, which is accompanied by staff rotation and the resignation of marketing employees (25-6):

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Tdecl

t end  t 2

(25-6)

where Tdecl = period of decline in a marketing team’s activities, months tend = end of the decline stage of a marketing team’s activities, months.

The psychological pressure on the marketing team Usually, during a period of macroeconomic crisis, the requirements for the marketing department increase. The department should quickly improve the company’s competitiveness in the market. A high level of requirements is often the cause of the severe pressure on marketing managers and specialists who must work super efficiently. Obtaining and fulfilling large discrete orders for companies executing works provides them with stable financing and production loading, which is very important in an environment of fierce competition and macroeconomic instability. Large (and long-term) discrete orders load the contractor’s production capacity for several months or even years. At the same time, the executing company faces a number of difficulties, which are associated with the need to unconditionally fulfill all of its contractual obligations. Therefore, the top management must pay increased attention to fulfilling these vital orders. This imposes a great responsibility on the marketing department to ensure that every order is received. During contract negotiations, marketing specialists convince the customer’s representatives that their company is the most worthy contender for execution of this order and will be able to provide high quality works while observing the stipulated requirements. Customers often give their orders not to specific firms, but to specific people whom they know and trust. Customers take into account the transparency of the market, the reputation of market members, and the personalization of the relationship between contractors and customers. As a result, having received a large order, marketing managers must personally take adequate measures to implement it and justify the customer’s confidence in them. However, the customer does not ask questions about the difficulties and failures of the company’s suppliers, workers, managers, financiers, or technologists. The activities of top managers should be consistent with their company’s good reputation in the industry and image of a bona fide partner. There is a paradox in that marketing department employees can perform some of the customer’s urgent tasks and requests easier and faster

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than other specialized departments. As a result, the company’s top managers often transfer the responsibility for executing a large order to their marketing specialists. Therefore, marketers are forced to really organize the fulfillment of this order. Do you think this is correct? In this case, it is advisable to grant the status of a financial responsibility center to the marketing department, and not only as a revenue center, but as a profit center! However, this increase in responsibility must correspond to an expansion of authority. Therefore, the company’s top managers should create such a marketing division that can independently solve most of the necessary tasks. Another feature of large orders is that the failure to fulfill contractual obligations entails penalties; these can be very large, which means that the contractor can make a big loss instead of profit. The flexibility and speed of implementing decisions inherent in a small commercial company becomes a model for organizing the activities of the marketing department itself. Often, the marketing department office is located outside the company’s closed production area for the convenience of customers.

Parameters of the marketing team’s life cycle If the revenue RM generated by sales is used as a KPI (Key Performance Indicator), equations for each stage of the marketing department’s life cycle will reveal the dynamics of the marketing team’s effectiveness. Besides this, we assume the approximation of the life cycle line by straight segments, that is, RMdev is the change in income at the team’s development (growth) stage (25-7). The RMmatu line is the change in revenue at the maturity stage (25-8). The RMdecl line is the drop in revenue during the decline stage (25-9): RM dev RM matur RM decl

RM 0  vdev ˜ t RM 1  vmatur ˜ t RM 2  vdecl ˜ t

where vdev = velocity of revenue growth at the development stage, £/month2 vmatur = velocity of revenue growth at the maturity stage, £/month2 vdecl = velocity of revenue reduction at the decline stage, £/month2

(25-7) (25-8) (25-9)

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This enables us to plan the growth of a new marketing team, check its results, and improve methods of employee motivation. Moreover, these formulas allow us to plan rotations or predict negative trends in the team’s life cycle. This is important for ensuring the stability of the staff. Interestingly, the intersection point Arepl (Fig. 25-1) of the decline line in the previous marketing team’s life cycle and the new team’s development line determines the deadline for replacing personnel. In addition, the new team must achieve higher values for key criteria during its life cycle (Fig. 25-3). This graph reflects the progressive growth of the life cycle (RM1 and RM2) when changing marketing teams.

RM

Team building and development stage

Maturity stage

RM2 Decline stage

RM1 Arepl

t

0

tstart

t1

t2

tend

Life cycles of a team’s development

Fig. 25-3. The progressive development of a marketing team’s life cycles Applying the KPI criterion to assess financial and economic performance enables the company’s decision-makers to check and analyze the marketing team’s compliance with its responsibilities and expectations of senior management. In addition, seasonal fluctuations in demand may affect the actual sales volume reached by the marketing department. For example, there are minimum sales made in construction, installation, and finishing works at the beginning of the calendar year. In the spring, there is a revival in the market of construction works, and sales volumes reach peak values in the summer. An increase in sales

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in the fall compensates for a slight decrease at the end of the summer. The drop in sales in late fall is offset by some growth at the beginning of winter. Therefore, it is necessary to take seasonality factor into account when evaluating the marketing department’s achievements.

Transferring the functions of other departments to the marketing team Some independence of the department allows marketing managers to organize the execution of large orders on the project principles. This is often used, e.g., for investment, production, construction, and research projects. If the contractor organizes the execution of large orders in accordance with the project principles, the marketing department should perform some functions of the company’s adjacent divisions. These functions include the following actions: Ɣ Contractual work and legal support Ɣ Record management and translation Ɣ Customs clearance Ɣ Computer and information support Ɣ Planning and economic provision Ɣ Rationing and remuneration of labor Ɣ Ensuring financial security under contracts Ɣ Design development Ɣ Technological preparation Ɣ Organizing contractual works Ɣ Supplying materials and technologies upon request Ɣ Accounting for energy consumption Ɣ Selecting personnel Ɣ Protection of the environment Ɣ Security and safety Ɣ Transportations and communications Ɣ Archival and office activities We can determine the scope of the performed functions by the laboriousness measured in standard hours. Performing extrinsic functions requires the involvement of relevant specialists with the possible creation of relevant groups in the marketing department. For example, a shipyard’s marketing department consists of groups for organizing and maintaining orders, technological preparation, and rationing works. Every manager,

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economist, or technologist should know how to estimate the cost of each work and apply the firm’s pricing principles in the marketing of works. The head of the marketing department entrusts the lawyers of his/her department with contractual work and legal support to ensure the rapidity of interaction with customers. This is because a company’s legal department often cannot communicate quickly and flexibly with customers and is not ready to work together with the company’s top management until midnight, as the marketing team often does. The company’s logistics department usually acts efficiently when organizing the planned works. In case of unforeseen difficulties, for example, with the delivery of materials and components, marketing specialists can independently research the market and find new suppliers faster than their colleagues in the logistics department. Moreover, the marketing department is directly interested in increasing the order’s profitability by reducing the cost of purchased materials and components. The marketing department’s specialists can calculate budgets for order fulfillment, negotiate prices and volumes of works according to price-lists with the customer, and provide discounts taking into account market conditions faster and more efficiently than their colleagues from the planning and economic department. The firm’s economists are often detached from the market situation and do not have the skills to negotiate prices and contract terms with the customer representatives. Consistently expanding the list of functions, the company’s top managers also transfer to the marketing department the functions of arranging auctions among subcontractors. As a result, the marketing department’s economists must also distribute the works and money among subcontractors. Clerical work in the marketing office is often very stressful because, during remote negotiations, a potential customer needs to immediately receive correspondence from the contractor. In addition, it is essential to negotiate contracts and provide information to foreign customers in their language. Technical and legal documents need to be translated accurately and quickly; correspondence, advertising, and information materials must also often be submitted in other languages. When working with large volumes of information (that marketing specialists receive, process, store, and transmit), it is essential to prevent its loss or damage. Activities with big databases need to have own IT specialists in the marketing department. These professionals must stop and overcome cyber attacks, eliminate the effects of virus damage, update computer hardware and software, and (regardless of the time of day) ensure the smooth operation of the marketing department.

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Marketing specialists should carry out customs clearance of foreign orders, since they directly negotiate the issues of contract execution with the customer’s representatives. If necessary, the contractor can engage customs brokers to fill in cargo customs declarations or store materials, components, and finished goods at a customs warehouse. Customs brokers are intermediaries with appropriate licenses and experience. Sometimes it is better to hire your own customs specialist. When marketing specialists show presentations to new potential customers, they will tell them about the company’s production facilities and technological equipment, as well as report on the main characteristics of these facilities and the technologies used. If the chief engineer or production director of the company does not participate in the presentation, then he/she will be replaced by marketers.

Motivation and stimulation of the marketing department employees When executing an important large order, the marketing department must act as a cohesive working team where each player strives for a common result and is ready to meet the consumer’s contractual requirements and wishes. This means that the labor motivation of marketing specialists should depend on the value of orders received or the profitability of contracts, which is more acceptable for the marketing department as a profit center in the company. The motivation of marketing managers and specialists is a method that encourages them to achieve the best results in their activities. This is an internal factor that enables to improve the company’s economic and social efficiency. Stimulation of marketing managers and specialists involves using external factors that influence the employees’ activities. These factors include the payment of bonuses, additional salaries, and other types of material remuneration to employees, depending on their performance. The amount of remuneration can be calculated using the bonus table, which is a document for official use. Depending on the type of table, the following formulas are applied: Ɣ Progressive scale of remuneration (25-10): Bbon

2 Bbon 0  POmarkt ˜ Fbon

(25-10)

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where Bbon = amount of the marketing team’s bonus, £ Bbon 0 = minimum initial amount of the bonus for marketers, £ Fbon = bonus coefficient for remuneration of marketers POmarkt = profit from the order obtained by the marketing team, £ We use the progressive scale of bonuses for relatively small but numerous orders, because the result depends on the amount of effort made by marketing managers and specialists. Ɣ We can apply the directly proportional scale when calculating the bonus table for orders with an average amount and duration, for example, from one to six calendar months (25-11): Bbon

(25-11)

Bbon 0  POmarkt ˜ Fbon

Ɣ The bonus table’s regressive scale is used when marketers find large orders with a long duration, that is, more than six months. At the same time, we should take into account the fact that relatively small efforts of marketing managers and specialists give great financial results. Therefore, we can limit the volume of remuneration to a reasonable amount at the discretion of the company’s top management (25-12): Bbon

0.5 Bbon 0  POmarkt ˜ Fbon

(25-12)

The marketing department is an object of external stimulation, which takes into account the profitability of orders and the distribution of functions between employees. Consequently, the amount of remuneration depends on the size of the profit received, which cannot be a commercial secret from marketing managers and specialists. For example, we can find the interest rate and the amount of remuneration using the scale in Table 25-1. Table 25-1. An example of a bonus payout table for incentivizing marketing employees Amount of profit POmarkt , £ Bonus percentage, % Amount of remuneration, £

Up to 20,000

2.5 Up to 500

From 20,001 to 40,000 2.0 Up to 800

From 40,001 to 80,000 1.5 Up to 1,200

From 80,001 to 160,000 1.1 Up to 1,760

From 160,001 to 320,000 0.7 Up to 2,240

More than 320,001 0.5 Over 2,241

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Three types of bonus table scales are presented in Fig. 25-4: (1) is a progressive scale, (2) is a directly proportional scale, and (3) is a regressive scale.

Bbon 2

1

3

Bbon 0

0

POmarkt

Fig. 25-4. Progressive, directly proportional, and regressive scales for bonus payments The head of the marketing department distributes this remuneration among his/her subordinates every month in accordance with the labor participation coefficient of each marketer in obtaining orders. The head indicates the amount of bonus in the decision-making protocol and, after approval by the company’s top management, sends it for payment. Thus, in order to consider marketing department’s current activities, we studied some aspects that are more relevant to organization management and business administration. However, these aspects are vital to activities in the marketing of works.

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Practical tips First example: some companies examine the quality of marketing. These companies operate in accordance with the European Standard EN 45012. They offer certification services to confirm that the clients’ marketing activities comply with the ISO 9000 series of the international standards. The approach used in the BS 5750, ISO 9000, and ES 29000 standards is aimed at ensuring the quality of both products and business processes. These companies evaluate the level of marketing according to thirtyfive standards, which are divided into three groups: customer orientation, marketing and sales plans, and management responsibility. This evaluation system enables them to give a real assessment of the effectiveness of a company’s marketing, despite its high financial and labor costs. Second example: the production company’s average monthly sales amounted to RM0 = £0.6 million before the new marketing team came. The formation of the company’s marketing department was completed within four months (t1 = 4 months), and the volume of sales at the end of formation stage reached RM1 = £4.0 million per month. Later, the working team perfected the skills and techniques of sales organization. By the fifteenth month (t2 = 15 months), its sales had reached their peak value of RM2 = £5.0 million per month. Further, a crisis arose in the marketing department for various reasons. These included some team members’ unrealized personal ambitions, internal conflicts within informal groups, and the departure of the most talented managers and specialists. The crisis caused a decline in the activity of the division, and by the twentieth month of the team’s work (tend = 20 months), sales fell to RMend = £1.0 million per month. Let us calculate the vdev, vmatur, and vdecl coefficients based on the previous equations (25-7), (25-8), and (25-9): RM dev RM matur RM decl

RM 0  vdev ˜ t RM 1  vmatur ˜ t RM 2  vdecl ˜ t

vdev = (RM1 – RM0) / (t1 – t0) = = (4.0 – 0.6) / (4 – 0) = £0.85 million per month2 vmatur = (RM2 – RM1) / (t2 – t1) = = (5.0 – 4.0) / (15 – 4) = £0.09 million per month2

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vdecl = (RMend – RM2) / (tend – t2) = = (1.0 – 5.0) / (20 – 15) = – £0.80 million per month2 Accordingly, equations (25-7), (25-8), and (25-9) for this particular case look like this:

RMdev = 0.6 + 0.85 t RMmatur = 4.0 + 0.09 t RMdecl = 5.0 – 0.80 t Third example: in order to check the marketing department’s activities, it is necessary to calculate the sales volume of RM for the seventh month of the team’s life cycle (t = 7 months), assuming that RM0 = £0.6 million per month.

RM = RM0 + vdev (t1 – t0) + vmatur (t – t1) = = 0.6 + 0.85 (4 – 0) + 0.09 (7 – 4) = £4.27 million per month Thus, taking the initial data into account, the new marketing team must achieve sales of £4.27 million per month. Marketing employees should be rewarded for exceeding this goal.

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Definitions of concepts Ɣ Diversification (expansion) of production is a way to increase a multi-product company’s stability in the markets of goods, works, and services. Ɣ The rotation period for marketing managers and specialists is the average period during which personnel work in the marketing department before being fired. Ɣ The normal life cycle of a marketing team is a sequence of the following stages: formation, development, maturity, decline, recovery, and (not always) disintegration. Ɣ The deformed life cycle of a marketing team is the result of undue pressure from the firm’s management; this leads to the disintegration of the marketing team before reaching maturity. Ɣ The replacement point for personnel on the life cycle graphs is the intersection point between the decline line of the previous marketing team’s life cycle and the development line of the new team’s life cycle. This point determines the deadline for replacing personnel in the marketing department. Ɣ The bonus table is the regulatory framework for calculating remuneration based on the results of marketing specialists activities. Ɣ The bonus table’s progressive scale is a tool for encouraging marketing employees to obtain small, short-term, but multiple orders, when the result depends on the volume of staff efforts. Ɣ The directly proportional scale of the bonus table is a tool for incentivizing employees, which is used when obtaining mediumterm orders with an average amount of works. Ɣ The bonus table’s regressive scale is a tool for encouraging marketing employees to obtain large orders with long lead times.

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Questions for discussion and testing 1. How do you determine the effectiveness of marketing techniques in order to increase business value or brand equity? 2. Is it possible to determine the effectiveness of marketing on the basis of sales results (revenue and profit growth)? 3. Is the return on marketing costs an indicator of effective marketing activities? 4. Draw the normal and deformed life cycles of marketing teams. 5. What causes the deformed life cycle of a marketing team? 6. How can we calculate the frequency of staff rotation in the marketing department? 7. How do you compute the velocity of change in sales for the marketing department? 8. Show graphically the point where the new marketing team should replace the previous one. 9. Why are the marketing department’s employees forced to substitute specialists from other departments of their company? 10. List the duties that marketing specialists have to perform instead of other departments. 11. Write the formulas to calculate the progressive, directly proportional, and regressive scales of the bonus table.

CHAPTER TWENTY-SIX THE INTERNATIONAL MARKETING OF WORKS AND THE EXPORT/IMPORT OF WORKS

Overview In this chapter, readers will familiarize themselves with the specifics of marketing activities in the international markets. We will consider the possibilities for companies to enter foreign markets and participate in auctions conducted by foreign customers. The author will emphasize the role and importance of foreign partners and the company’s representative offices abroad when receiving orders and organizing works in other countries. Readers will learn the following concepts: exporting country of works, importing country of works, and full or partial export of works. They will also learn about customs regimes involving the temporary import of objects and processing objects. We will consider the processes of moving financial, material, labor, and information resources by the exporting company of works across the border, as well as the use of local resources. Perhaps readers will be able to participate in the preparation of the General Agreement on Trade in Works under the patronage of the World Trade Organization.

The development of marketing in the international markets of works Marketing theorists, academics, and practitioners have different views on the current trends in the internationalization and globalization of world economic processes. Attempts to isolate the national economy from the

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world’s community due to the specifics of the international division of labor usually have a negative impact on a country’s socio-economic development. Marketing activities in the international market of works assumes that the realization of the export and import of works is the sale of a product in the form of a process. The export and import of goods is the result of the production activities. But the export and import of works are processes that are extended in time, unlike the export and import of goods. The international marketing of works is necessary in cases when public or private customers are looking for foreign contractors to execute works. For example, the national space agency (to send its satellite into orbit) orders a foreign company to manufacture a space launch vehicle (two-stage rocket) and launch it from the spaceport. Or the shipowner who decides which country he will send his vessel for repair. Or the investor who looks for countries with the most profitable and safe conditions for investing in residential real estate. In the above cases, contractors sign contracts with foreign customers, and the works are exported to another country. However, the initiative more often comes from the contractors themselves who are looking for foreign customers. Cooperation with foreign customers is much more difficult due to linguistic, legal, customs, banking, political, and other barriers. Besides, in the international marketing of works, the contractor can execute contracts both in the territory of the country that imports the works and in the territory of the country that exports the works.

Entering foreign markets for exporters of works In order to penetrate foreign markets, it is expedient for the executing firms to create their representative offices in the territory of other countries. Unlike the export of goods, the export of works is a process that is extended in time when executing works. Months and years will pass from the date of signing the contract until the day of signing the acceptance certificate. During this time, the political, economic, social, and other conditions in the country of the customer of works and in the country of the executor of works can change dramatically. Foreign representatives are well aware of the peculiarities of doing business and relations with the authorities. They have personal contacts with decision-makers in customer companies. If the works require the company’s specialists to go to another country, the representative office will take care of issuing the necessary documents (including invitations

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and visas), meeting and settling the managers and workers, and creating the necessary conditions for their work, life, and leisure. The country’s embassy, chamber of commerce (and industry), and partner companies can also assist the exporting company. Specialists in the marketing of works need to know how to sell their works in another country and how to receive payment. In the marketing of goods, everything is clear, that is, existing goods are moved across the border with a cargo customs declaration and payment of customs duties, placed for storage in another country, and then the seller (or manufacturer) of the goods sells them to buyers in another country. Income from the sale of goods in foreign currency is transferred through the correspondent bank to the goods’ country of origin and credited to the seller’s account in the national commercial bank. The works are a virtual product, and when an executor sells the works, that product does not exist yet. A non-existent product does not move across the border. However, in the world, executors of works sell their works abroad, and for this they receive money from abroad. To find out how an executor sells works to another country, let us consider the activities of marketing practitioners in the international market of works. We already know that marketing specialists must first find a potential customer for their works, and finding a customer in another country is difficult because of linguistic, economic, legal, political, and other barriers. Therefore, to carry out the marketing of works in another country, it is advisable to involve a local business partner or create a representative office with personnel from the country’s residents. Further, the executor of works must provide his foreign representatives with instructional and promotional materials about his company, including completed works, advanced technologies, production facilities, many years of experience, and personnel qualifications. Foreign representatives of the executing company begin initial negotiations with an interested customer and recommend a potential customer to the parent company when preparing the contract. If a foreign customer identifies a potential contractor through an open call for proposals or an electronic auction, the contractor must provide local representatives with proper authority to represent the foreign (parent) company. As a rule, the representative directly resolves issues of cost, duration, terms of payment, and scope of works under the future contract with the parent company.

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Participation in foreign auctions for the purchase of works Personal (face-to-face) or correspondence (absentee) auctions, which customers hold in other countries and do not prohibit non-residents from participating, are important sources of obtaining orders for works. At the same time, the bidders must meet the customer’s requirements regarding production capacity; qualified personnel; experience with similar orders; availability of licenses and permits; and so on. In order to organize the company’s participation in a foreign auction (in the absence of its own branch), an authorized representative of the company in this country (exclusive or non-exclusive broker or agent) must be involved. The representative provides marketers from the parent company with an invitation, transportation, and accommodation. The organizer of the face-to-face auction provides participants with accommodation in a small conference hall or meeting room. The organizer places comparative tables (compiled from preliminary offers) on the stands or displays them on the projector screen. In this case, the organizer compares the cost of the order, the duration of the order fulfillment, and the terms of payment by the customer under the contract. Also, the potential customer will consider other essential characteristics of the order. After the announcement of the participants’ preliminary offers, the customer invites the participants to take part in bidding. Trades are held in the form of an auction for reduction. The auction committee compares complex indicators, including the cost and duration of the contract. Usually the customer sets the payment terms together with the contractors. Electronic bidding process is carried out in the same way. Government customers usually require the winner of the auction to provide a pledge of money for the contract execution. If the contractor violates his obligations under the contract or even if he does not fulfill them correctly, then the customer has the right to withhold this money in whole or in part. In addition, in some European countries, government agencies use an automated risk indication system for government procurement auctions. All suspicious transactions are subject to special investigation. As a result of the risk indication, the state overcomes in the market of works and services: market monopolization, overstatement of purchase prices, transfer of the government orders to contractors who do not have the necessary licenses, and other violations. Non-state customers usually do not need a potential contractor’s cash collateral. Moreover, these companies will be willing to pay the contractor an advance at a rate of 25–30 percent or even 50 percent of the contract value, since they are interested in the fastest execution of their order. In

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the best case, government customers can pay an advance that does not exceed the guarantee amount under the contract provided by the contractor. After determining the winner of the auction, the organizers announce the results and draw up a protocol. In the future, based on the protocol, the customer and the contractor enter into an agreement (that is, sign a contract). Correspondence (absentee) auctions to determine the executors of orders for works are usually held by examining the applications of participants in documentary form, sent by mail. The envelope must indicate that it cannot be opened until a certain date and time. We considered the features of correspondence auctions in electronic form in Chapter Twenty-Three. Sometimes the lack of knowledge of the local language creates difficulties for foreign participants in auctions for purchasing works. In such cases, the foreign representative of the executing company should provide the marketers with the necessary assistance.

Moving across the border to execute works After signing a contract to execute works in another country, the executing company undertakes the following actions related to the movement of labor, material, and information resources across the border (at first by using its own financial resources and then compensating for this at the customer’s expense). When specialists from the company will make business trips to this country, they will require passports and visas. They also need health (medical) insurance and work permits from the national Ministry of Labor or Ministry of Employment. The customer organization may require the contractor to hire local workers to perform low-skilled works. The executing company then moves the production equipment to the country of works. At the same time, the company draws up customs declarations in the temporary import regime with the obligation to reexport production equipment. It is desirable to lease part of the equipment (especially transport) in the importing country. The company exports the components and materials necessary to execute works in the form of semi-finished products without the obligation of re-export. The contractor also issues a customs cargo declaration and pays export customs duties. The company may purchase a part of ready-touse materials and raw materials for the works in the importing country. Transportation of design and technological documentation to another country (for executing works) should not cause any special problems. It

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will usually be necessary to translate documents into a foreign language and obtain permission from local supervisory authorities for their use when executing and delivering works in this country. Top managers of the firm, who carry out the general management of the works execution, as a rule, periodically visit this country (with shortterm business trips) to check the works and negotiate (involving marketing specialists) with the customer, local authorities, and subcontractors. Thus, part of the contractor’s property is moved across the border following the regime of temporary import with an obligation to re-export and without processing (when executing works in a foreign country). And another part of the property is moved in the export regime without an obligation to re-export.

Full or partial export of works A full export of works takes place when a company executes works in the territory of the importing country of works, and all the necessary resources come from the exporting country. Fig. 26-1 shows a situation when the company imports all the resources from the exporting country. We call this situation the “full export of works.” In the case when the company buys part of the resources or leases them on the spot, a “partial export of works” occurs (Fig. 26-2). At the same time, the customs clearance of the contractor’s property takes place before the start of executing these works in the territory of the importing country or the exporting country. The importing country of works is interested in organizing new jobs for its citizens in its territory, as well as receiving investments and advanced technologies for creating new production capacities. Also, such a country seeks to sell materials and components of its own production to a foreign contractor. The contractor carries out the export of financial resources to execute works in another country in the regime of partial re-export, that is, the contractor receives money from a foreign customer in the regime of importing foreign or national currency, and then sends part of the received funds to the importing country of works to fulfill the contract. In addition, the customer and the contractor may use (for exchange or sale purposes) stocks, bonds, bills of exchange, and other securities. The contractor may hire personnel (labor resources) to carry out the works in a regime of the partial export, when leading qualified managers and specialists arrive in another country, and the contractor invites local residents for low-skilled works. Gradually, local workers master more

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complex production operations, and local managers oversee execution of these works. Examples of the introduction of foreign technologies are China and some countries of Southeast Asia. Exporting country of works

Money to pay for works

Managers to control works

Drawings and projects of works

Technologies of executing works

Component parts and materials

Production equipment

Production personnel

Payment for works

The border Works in progress

Importing country of works

Fig. 26-1. Full export of works executed in the importing country’s territory

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Exporting country of works

Managers to control works

Drawings and projects of works

Technologies of executing works

Component parts and materials

Production equipment

The border

Money to pay for works

Component parts and materials

Production personnel

Works in progress

Production equipment

Production personnel

Payment for works

Importing country of works Fig. 26-2. Partial export of works executed in the importing country’s territory With the full export of works, the executing company carries out the contract on site and uses exclusively imported resources. With the partial export of works, the company also involves local resources. The exported

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resources usually cover information resources (including design and technological documentation, specifications of works, services and components used, and raw materials and ready-to-use materials). In addition, the foreign contractor transfers the rights to use patents, licenses, franchises, and other tools. The material resources moved across the border under the regime of temporary import are as follows: Ɣ Production facilities and technological equipment Ɣ Spare parts, raw materials, and ready-to-use materials for the repair of production equipment Ɣ Tools and fittings for the execution of works Ɣ Special clothes and special footwear for workers Ɣ Living quarters and vans for workers (and so on) In the case of partial export, the contractor may receive part of the material resources for rent. Sometimes he can immediately buy these resources or make exchanges through barter.

The customs regime for processing a foreign customer’s object If the execution of works under a contract with a foreign customer takes place in the exporting country of works—which is typical for movable property, such as constructing an airplane or repairing a vessel for a foreign owner—then the customer applies the customs regime for processing the object. Such a regime presupposes the temporary importation of a foreign owner’s property with the obligation to re-export. However, under this customs regime, the market value of such property will change due to its repair, modernization, or re-equipment. When an object (for example, a repaired ship) crosses a border, customs must control the final specifications of the works executed (and the services rendered) and the final specifications of the components and materials used for the repair. This is due to the control of the receipt of foreign currency earnings to the country of the executing company. In this way, marketing specialists deal with all three elements of a product (that is, works, services, and goods) that make a profit for their firm. As a rule, many exporting countries pursue protectionist policies in relation to their companies operating abroad. For example, such firms are compensated for value-added tax; they are not required to sell foreign currency received as income under the contract from abroad; and so on.

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The sale of non-renewable resources (raw materials, ready-to-use materials, energy, fuels, and the like) is a less preferable activity than selling works and services abroad. This is because the works and services are renewable elements of the national product. The global community has already settled the issues of selling services abroad, but the problems of selling works abroad are still awaiting a solution. If the contractor executes works for a foreign customer in the territory of the exporting country, customs clearance of the contractor’s works, services, and goods occurs after the contract with the foreign customer has been completed, when the manufactured or processed object of the customer is preparing to cross the border (Fig. 26-3). Exporting country of works

Managers to control works

Drawings and projects of works

Technologies of executing works

Component parts and materials

Production equipment

Production personnel

Payment for works

Money to pay for works

Works in progress

The border Manufactured or processed objects

Importing country of works

Fig. 26-3. Full export of works executed in the exporting country’s territory

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Thus, in the international marketing of works, contractors can fulfill contracts both in the country that imports the works and in the country that exports them. The full export of works implies the use of only the contractor’s resources, and the partial export of works involves the use of some resources from the importing country.

Calculating the export coefficient of works The full or partial export of works differs in terms of a specific share of the cost of resources for executing works imported under customs rules for the temporary import of works and local resources involved by the exporter on the spot (26-1): C RWE

RWEimport

(26-1)

RWEimport  RWElocal

where CRWE = coefficient of the export of works RWEimport = cost of imported resources for executing works, £ RWElocal = cost of local resources for executing works, £ There is the full export of works if the coefficient is CRWE = 1. There is no export of works with CRWE = 0. Accordingly, the partial export of works takes place at the intermediate values of the coefficient 0 < CRWE < 1. In practice, the full export or absence of the export of works does not occur. Therefore, marketing practitioners indicate a significant export of works when 0.7 < CRWE < 1, or they talk about an insignificant export of works if 0 < CRWE < 0.3. Consequently, the coefficient of the export of works CRWE is the cost of the resources that the exporter of works moves to the importing country divided by the cost of all resources needed to execute these works, including local resources from the importing country. Thus, it is much more difficult to organize the export of works with their execution in the territory of another country than to realize a one-time sale of goods abroad. Therefore, specialists in the marketing of works should take into account the additional expenses of money, effort, and time for implementing foreign contracts when searching for foreign orders.

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The necessity of signing the General Agreement on Trade in Works Due to the existence of the marketing of services and the marketing of works, the author of this textbook proposed to develop the General Agreement on Trade in Works (GATW) as one of the legal instruments of the World Trade Organization, which would be similar to the existing General Agreement on Trade in Services (GATS). Executing works in another country increases its national wealth through, for example, the construction of a power plant or a gas pipeline. Goods are the result of the manufacturer’s activities and are his property until the goods are sold to the buyer, while works and services are activities aimed at processing or servicing the customer’s object. This object is not a commodity, and the contractor does not sell it, but instead returns it to the owner (i.e. the customer) after executing the works or providing the services. When analyzing contact works and services, it is necessary to consider whether the customer is a participant in the labor market because, as a result of the executed works, his/her value in the labor market as a specialist increases but, as a result of the services rendered, his/her value does not increase. Such a statement is true for the export of many types of works and services; for example, training foreign students in our domestic universities or treating foreign patients in our domestic hospitals. From the viewpoint of the international marketing of works, the industry’s production process involves executing a complex of works stipulated in a contract with a foreign customer. Unlike services, contractors execute works abroad in the form of an international project, regardless of whether the contractor calls this activity a “project” or not. This statement should also be reflected in the text of the proposed General Agreement on Trade in Works. The main goal of the international marketing of works for a production company is to obtain foreign orders for works, that is, to sell works abroad as a product. Unlike the marketing of goods, where a manufacturer sells an existing product, in the marketing of works, a contractor sells a promise to fulfill an order for works. Consequently, a customer in this market buys only a promise to fulfill his order. Marketing practitioners find it much harder to sell promises than existing goods, especially abroad. Therefore, in order to protect the interests of exporters and importers of works, readers of this textbook may propose their paragraphs and chapters in the text of the future General Agreement on Trade in Works.

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Practical tips For example, let us consider the export of works related to the construction of real estate in the territory of another country. A foreign company that has obtained a contract for constructing residential buildings in the city will move small-sized technological equipment across the border; however, bulldozers, excavators, graders, cranes, concrete mixers and other heavy equipment will need to be bought or leased in the country where the works will be carried out. The company does not need to start preparations for construction from scratch every time; in fact, it is often desirable to create a representative office or branch in that country. One of the tasks of the company’s foreign division will be winning local auctions for housing construction. The international marketing of works (which the marketing department of the construction company carries out) is aimed at ensuring a steady flow of construction orders from abroad. For example, the government of a foreign country has allocated budget funds for the construction of housing for civil servants. In each country, there are special laws that strictly regulate the rules for spending money from the budget. Written progress reports must also be completed. Often, non-resident contractors do not have access to government construction contracts. In this case, the construction company must register its subsidiary in that country. In addition, it is easier for resident firms to obtain licenses and permits for construction activities than for foreign companies. In some countries, licensing is often associated with corruption. The construction company has to confront these things. Besides, the customer may require the use of local materials and labor resources in the construction of housing, even if they are more expensive. When operating in another country, marketing practitioners face specific risks. These include opposition from local authorities, uncompromising position of trade unions in the struggle for jobs, prejudice of environmental services, hostility from political parties, and even sabotage by local competitors. Marketers should remember that locals love foreigners when they come to their country as tourists. But residents do not like foreign workers when they seize jobs and take money out of the country.

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Definitions of concepts Ɣ The international marketing of works is a type of marketing focused on the export of works to other countries or the import of works from other countries on the basis of international contracts under customs control, with the involvement of correspondent banks for currency transfer operations, and so on. Ɣ Works are virtual products that do not exist when they are being sold as promises to fulfill them. Non-existent works are not cargo that moves across the border during export or import. Ɣ When executing works in another country, part of the contractor’s property is moved across the border under the customs regime of temporary import with the obligation to reexport without processing, and part of the property is moved in the export regime without the obligation of re-export. Ɣ The customs regime for processing objects is the temporary import of a foreign customer’s movable property to execute works in the contractor’s country. When it is being re-exported, this object’s market value turns out to be changed due to the works fulfilled, the services rendered, and the newly installed materials and components. Ɣ Full export of works is the execution of these works in the territory of the importing country when all the necessary resources come from the exporting country. In this case, customs clearance takes place before the start of works. Ɣ The contractor uses partial export of works when he buys or receives part of the necessary resources for rent in the territory of the importing country. Ɣ The coefficient of the export of works is the cost of the resources that the exporter of works moves to the importing country divided by the cost of all resources needed to execute these works, including local resources from the importing country.

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Questions for discussion and testing 1. Give examples of when marketing practitioners need to use international marketing of works. 2. What is the role of a company’s foreign representative office? 3. What is the fundamental difference between the export of goods and the export of works? 4. How does the exporter transfer his resources to the territory of the importing country of works? 5. Indicate the types of customs regimes when transferring (1) equipment for the execution of works, (2) components and materials for works, and (3) an object for repair. 6. Explain the meaning of the following concepts: “importing country of works” and “exporting country of works.” 7. What is the difference between a full export of works and a partial export of works? 8. Draw a diagram showing the full export of works executed in the territory of the exporting country of works. 9. Give the formula for calculating the coefficient of the export of works. 10. Why does the contractor export financial resources under the customs regime of partial re-export when executing works? 11. Provide arguments confirming the need to sign the General Agreement on Trade in Works (GATW).

TOPICS FOR ESSAYS AND REVIEWS

1. The marketing of works as an element of the general marketing of goods, works, and services. 2. Development of marketing concepts from fragmentary marketing to integrated marketing. 3. The problem of selling virtual products in modern marketing. 4. The executing company of works as an object of advertising in the marketing of works. 5. Types and criteria of the modern classification of marketing activities. 6. New directions in the development of the marketing paradigm. 7. The economic benefit and product of human labor in the marketing of works. 8. Quality, safety, and environmental friendliness of industrial and consumer goods, works, and services. 9. Image, reputation, and corporate culture of the company. 10. Physical, moral, and structural deterioration of objects as a source of demand in the market of works. 11. Participants in the marketing microenvironment of the firm and the factors of its marketing macroenvironment. 12. Innovative developments for companies and mastering new technologies. 13. Competitiveness in the market of works. 14. Projects as a form of organizing the execution of works. 15. Carrying out marketing research in the B-to-B market of works and the B-to-C market of works. 16. Primary and secondary marketing information in the marketing of works. 17. The urgency, secrecy, and accuracy of marketing information. 18. Customer databases and contact schedules when searching for works orders. 19. Trade secrets and industrial espionage in the marketing of works. 20. Segmentation of the market of works and ranking of customers and contractors. 21. A rating coordinate system for a 3D model of the market space. 22. The company’s marketing vector of goods, works, and services. 23. The activities of multi-product firms in volatile markets.

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24. 25. 26. 27. 28. 29. 30. 31. 32. 33. 34. 35. 36. 37. 38. 39. 40. 41. 42. 43. 44.

Topics for Essays and Reviews

Synergy effect in the marketing of goods, works, and services. The capacity of the market of works in space and time. Optimization of the placement of processed objects in space and time. Time management in the execution of works contracts. Value-added products and maintenance products in hybrid offerings. The company’s pricing policy in the industrial and consumer markets of works. The company’s strategy and tactics depending on the stage of its life cycle. Models of the marketing mix for goods; for goods and services; and for goods, works, and services. The barter marketing of works as a special form of marketing. Transactions in the barter marketing of works and the value equivalence of exchanged products. Information channels, sources, and recipients in the marketing of works. Applying hospitality costs to obtain and manage orders for works. Opportunities created by augmented virtual reality for the presentation of the company’s works. Using Internet search engines and social networks when looking for orders in the marketing of works. Participation of the marketing department in electronic auctions for the purchase of works. Applying the marketing of works in the mechanical engineering sector of the economy. The specifics of the marketing of works in healthcare, education, and science. The life cycle of a marketing team based on changes in the volume of works sales. Personnel rotation of managers and specialists of the marketing department. The international marketing of works and the development of global cooperation. The export and import of works in the international marketing of works.

THEMES FOR ROLE-PLAYING GAMES IN PRACTICAL CLASSES

1. Presentation of a ship repair yard to the customers of works Two teams: (1) a group of marketing specialists (2) a group of shipowners Result: Advertising content and slideshow with presentation script 2. Meeting and receiving a delegation of foreign customers using hospitality costs Two teams: (1) a group of marketing specialists (2) a delegation of customers Result: Budget for hospitality costs when meeting and receiving customer delegation 3. Ensuring the export of construction and installation works to a neighboring country Two teams: (1) a group of marketing specialists (2) foreign representatives from the company Result: Roadmap for the export of construction and installation works 4. Remunerating marketing specialists using bonus tables based on the results of their activity Two teams: (1) the firm’s top managers (2) a group of marketing specialists Result: Amounts of remuneration for marketing specialists that are calculated using bonus tables 5. Composing particular and general hybrid offerings of goods, works, and services Three teams: (1) a group of sales of the goods (2) a group of sales of the works (3) a group of sales of the services Result: Particular and general hybrid offerings of products (that is, goods, works, and services)

420

Themes for Role-Playing Games in Practical Classes

6. Students develop their own definitions of marketing Three teams: (1) a group of students from Western University (2) a group of students from Eastern University (3) a group of students from Southern University Result: Several definitions of the concept of marketing, considering the three elements of the product 7. Development of a roadmap for heterogeneous and multi-pass barter transactions Six teams: (1) initiators of the exchange of goods (2) respondents of the exchange of goods (3) initiators of the exchange of works (4) respondents of the exchange of works (5) initiators of the exchange of services (6) respondents of the exchange of services Result: Roadmap for implementing a heterogeneous and multipass barter transaction 8. Safekeeping trade secrets and counteracting industrial espionage Three teams: (1) a group of marketing employees (2) the security service of the firm (3) a group of spies from competitors Result: The firm’s action plan to ensure confidentiality and detect spies 9. Research of the market of finishing works in residential real estate Three teams: (1) a group of questionnaire developers (2) a group of interviewers (3) a group of respondents Result: Processed questionnaires and report on the research findings 10. Marketing vector of costs for promoting goods, works, and services, as well as competition for resources Three teams: (1) a group of sales of the goods (2) a group of sales of the works (3) a group of sales of the services Result: The company’s marketing vector, product specialization, and marketing specialization

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11. Content development and website design for a house-building company Two teams: (1) a group of marketing specialists (2) a group of website developers Result: Original layout of the company’s website in paper and electronic form 12. Overcoming the decline in the activity of the marketing team Two teams: (1) top managers of the company (2) a group of marketing employees Result: Anti-crisis action plan approved by the company’s top management 13. Executing works and rendering services by a beauty salon Two teams: (1) a group of salon employees (2) a group of salon clients Result: Price-list for works and services of the salon with indication of usual and preferential tariffs 14. Ranking the company’s customers based on their rating numbers Two teams: (1) a group of marketing specialists (2) a group of customers Result: Criteria and methods of ranking, as well as ordinal rating numbers of customers 15. Compilation and coordination of the space-time matrix for the placement of processed objects Two teams: (1) a group of marketing specialists (2) production division of the company Result: Space-time matrix of placing objects coordinated with the company’s production division 16. Participation in an auction for the construction of single-family residential buildings Three teams: (1) representatives of the customer for construction (2) a group of marketing specialists (3) representatives of competitors Result: Comparative analysis of the cost and duration of works based on the commercial offers of the participants

APPENDICES

Appendix A UK Standard industrial classification of economic activities (SIC). Updated January 9, 2018. From: Companies House UK Standard industrial classification of economic activities (SIC). Condensed SIC list SIC Code 01640 02200 02300 03110 03120 05102 05200 06200 07100 07210 07290 08110 08910 08920 08930 10110 10120 10130 10200 10310 10611 10831

Description Seed processing for propagation Logging Gathering of wild growing non-wood products Marine fishing Freshwater fishing Open cast coal working Mining of lignite Extraction of natural gas Mining of iron ores Mining of uranium and thorium ores Mining of other non-ferrous metal ores Quarrying of ornamental and building stone, limestone, gypsum, chalk, and slate Mining of chemical and fertilizer minerals Extraction of peat Extraction of salt Processing and preserving of meat Processing and preserving of poultry meat Production of meat and poultry meat products Processing and preserving of fish, crustaceans, and molluscs Processing and preserving of potatoes Grain milling Tea processing

The Marketing of Works: A Textbook on General Marketing of Goods, Works, and Services

11010 13100 13200 13300 15110 16100 18110 19201 23120 23700 24310 24320 24330 24340 24460 24510 24520 24530 25500 25610 25620 30110 30120 33110 33120 33130 33140 33150 33160 33170 33190 33200 38210 38220

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Appendix A. Continued Distilling, rectifying, and blending of spirits Preparation and spinning of textile fibres Weaving of textiles Finishing of textiles Tanning and dressing of leather; dressing and dyeing of fur Sawmilling and planing of wood Printing of newspapers Mineral oil refining Shaping and processing of flat glass Cutting, shaping, and finishing of stone Cold drawing of bars Cold rolling of narrow strip Cold forming or folding Cold drawing of wire Processing of nuclear fuel Casting of iron Casting of steel Casting of light metals Forging, pressing, stamping, and roll-forming of metal; powder metallurgy Treatment and coating of metals Machining Building of ships and floating structures Building of pleasure and sporting boats Repair of fabricated metal products Repair of machinery Repair of electronic and optical equipment Repair of electrical equipment Repair and maintenance of ships and boats Repair and maintenance of aircraft and spacecraft Repair and maintenance of other transport equipment n.e.c. Repair of other equipment Installation of industrial machinery and equipment Treatment and disposal of non-hazardous waste Treatment and disposal of hazardous waste

Appendices

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38310 38320 41100 41201 41202 42110 42130 42210 42220 42910 42990 43110 43120 43130 43210 43220 43290 43310 43320 43330 43341 43342 43390 43910 43991 45200 58110 58120 58130 58141 58142 58210 58290 59112

Appendix A. Continued Dismantling of wrecks Recovery of sorted materials Development of building projects Construction of commercial buildings Construction of domestic buildings Construction of roads and motorways Construction of bridges and tunnels Construction of utility projects for fluids Construction of utility projects for electricity and telecommunications Construction of water projects Construction of other civil engineering projects n.e.c. Demolition Site preparation Test drilling and boring Electrical installation Plumbing; heat and air-conditioning installation Other construction installation Plastering Joinery installation Floor and wall covering Painting Glazing Other building completion and finishing Roofing activities Scaffold erection Maintenance and repair of motor vehicles Book publishing Publishing of directories and mailing lists Publishing of newspapers Publishing of learned journals Publishing of consumer and business journals and periodicals Publishing of computer games Other software publishing Video production activities

The Marketing of Works: A Textbook on General Marketing of Goods, Works, and Services

59200 62011 62012 63110 71121 74100 74201 74203 82920 95110 95120 95210 95220 95230 95240 95250 95290

Appendix A. Continued Sound recording and music publishing activities Ready-made interactive leisure and entertainment software development Business and domestic software development Data processing, hosting, and related activities Engineering design activities for industrial process and production Specialised design activities Portrait photographic activities Film processing Packaging activities Repair of computers and peripheral equipment Repair of communication equipment Repair of consumer electronics Repair of household appliances and home and garden equipment Repair of footwear and leather goods Repair of furniture and home furnishings Repair of watches, clocks, and jewellery Repair of personal and household goods n.e.c.

Source: https://www.gov.uk/government/publications/standard-industrialclassification-of-economic-activities-sic

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Appendices

Appendix B Logical scheme for the marketing of works and the marketing of goods, works, and services New concepts for the marketing of works and the marketing of goods, works, and services are as follows: Ɣ The marketing of works Ɣ The marketing of goods, works, and services Ɣ Barter marketing of works Ɣ Vector representation of marketing Ɣ Coordinate plane: “goods-works” Ɣ Coordinate plane: “works-services” Ɣ Coordinate plane: “services-goods” Ɣ Marketing specialization of the company Ɣ Marketing vector of goods, works, and services Ɣ Element of the marketing mix: “period of time” Ɣ Element of the marketing mix: “payment terms” Ɣ The 9Ps model of the marketing mix for goods, works, and services Ɣ Particular hybrid offering: “works + services” Ɣ Particular hybrid offering: “goods + works” Ɣ General hybrid offering: “goods + works + services” Ɣ Re-equipment for overcoming the structural deterioration of objects

The Marketing of Works: A Textbook on General Marketing of Goods, Works, and Services The marketing of products

Products

Goods The marketing of goods

The marketing of services Services

The marketing of goods and services

The marketing of works

The marketing of goods, works, and services

Works

Barter marketing of works

Vector representation of marketing

The 7Ps model for goods and services

Hybrid offering: “goods + services”

Coordinate plane: “goods-works”

Project of works execution

Product offering: “works”

Coordinate plane: “works-services”

Element of the mix: “period of time”

Coordinate plane: “services-goods”

Element of the mix: “payment terms”

Marketing vector of goods, works, and services

The 9Ps model of the marketing mix for goods, works, and services

Marketing specialization of the company

Overcoming the physical deterioration of objects

Overcoming the moral deterioration of objects

Overcoming the structural deterioration of objects

Particular hybrid offering: “works + services”

Particular hybrid offering: “goods + works”

General hybrid offering: “goods + works + services”

Works for the renewal of objects

Works for the modernization of objects

Works for the re-equipment of objects

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Appendices

Appendix C Example of a contract for the repair of a motor vessel CONTRACT No. ___ City of ___ Date: October 23rd , ___ Shipowner of ___ m/v, the company ___, hereinafter referred to as the “Customer,” being a legal entity under ___legislation, in the person of ___, acting on the basis of the Power of Attorney No. ___, dated October 21st, ___, on the one hand, and ___, being a legal entity under ___ legislation, hereinafter referred to as the “Contractor,” in the person of ___, acting on the basis of the Company’s Statute, on the other hand, together referred to as the “Parties,” have signed the Contract as follows: 1. SUBJECT OF THE CONTRACT 1.1. The Customer charges, and the Contractor takes up obligations to repair ___ m/v, flag of ___, hereinafter referred to as the “Vessel,” in the scope of works and services, stipulated in the Preliminary Repair Specification approved by the Parties, being an integral part of the Contract, as well as works accepted for execution in accordance with item 2.2 of the Contract. 1.2. The Customer undertakes to accept and pay for the executed works as per the Contract terms. 1.3. Repair of the Vessel shall be carried out in accordance with technical documentation for the Vessel, provided by the Customer, and in accordance with the requirements stipulated in the Preliminary Repair Specification. 2. REPAIR COST 2.1. The repair cost in conformity with the Preliminary Repair Specification is ___ (___ GBP only) including VAT (___ %) ___ (___ GBP only). 2.2. The cost, payment terms, and conditions of any work not included in the Preliminary Repair Specification, as well as works to be carried out upon the results of flaw detection shall be agreed upon in writing separately by the Parties’ representatives prior to commencement of such works. The cost and terms of execution of additional works are to be determined by the Parties on the basis of the offer submitted by the Contractor. The Customer has the right to set up additional works no later than within the first third of the Vessel’s repair period. 2.3. In the case of changes to the scope of the works due to the reasons indicated in the item 2.2 of the Contract, if the time required for the performance of the additional works exceeds the remaining repair period, the Parties shall agree upon prolongation of repair period of the Vessel by signing Additional Agreement as an integral part of the Contract, which stipulated cost, payment terms, and period of the additional works. 2.4. When actually executed scope of works and price of each work will be agreed by the Parties, the Contractor shall draw up the itemized Final Repair Specification and shall hand over it to the Customer in order for it to be verified. The final version of the Specification shall be signed by the Parties.

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3. REPAIR PERIOD OF TIME 3.1. According to the Preliminary Repair Specification repair works to be completed within ___ (___) calendar days, official state holidays of ___ excluded, provided favorable weather conditions for the execution of works (see item 9. of the Contract ”Force Majeure”). The last day of the aforementioned period (provided that force majeure did not take place) is considered to be the contractual date of signing of the Vessel Re-Delivery Protocol. 3.2. The date of commencement of repairs is the first full day of the Vessel’s stay in the Contractor’s yard, which shall be confirmed by the Vessel Delivery Protocol. 3.3. The date of signing the Vessel Re-Delivery Protocol by the Parties’ representatives is considered to be the date of for the repair completion. At the moment of signing the Protocol, all repair works and tests must be completed and all defects and deficiencies found in the repaired parts during tests must be eliminated. 3.4. The date of accommodation of the Vessel in floating dock (approx.) is October 24th –26th, ___. 4. PAYMENT TERMS 4.1. The Customer shall pay the Contractor the following installments by bank transfer to the Contractor’s settlement account: • 50% (fifty percent) of the Vessel’s repair cost, according to the item 2.1. of the Contract, must be paid within two bank days after signing the Vessel Delivery Protocol by the Parties and submission of the original invoice by the Contractor to the Customer; • 100% (hundred percent) of the additional works cost, which have not included into the Preliminary Repair Specification, must be paid within two bank days after the Parties have signed the Additional Agreement and submission of the original invoice by the Contractor to the Customer; • The final payment shall be paid after signing the Vessel Re-Delivery Protocol by the Parties and submission of the original invoice by the Contractor to the Customer before sailing of the Vessel. Payments shall be effected in GBP. Excluding VAT (___ %), the amount is free from any additional taxes and dues. 4.2. The Customer shall notify the Contractor of each payment by e-mail or facsimile, indicating the amount payable, the number of the Payment Order and the date of payment. 4.3. The bank’s commission charges for payments to the Contractor’s bank are to be paid by the Customer. 5. REPAIR MANAGEMENT AND SUPERVISION 6. GUARANTEES 7. INSURANCE 8. FIRE SAFETY 9. FORCE MAJEURE 10. RESPONSIBILITY OF THE PARTIES 11. GENERAL TERMS 12. THE PARTIES’ LEGAL ADDRESSES AND DETAILS

INDEX

A ABC ranking of company personnel, 117, 118, 127 Absolutely profitable order for works, 288, 289, 295 Absolutely unprofitable order for works, 26, 288, 289, 295 Accuracy of marketing information, 160, 162, 168 Adaptability of a company to changes, 99, 100, 127 Additional product in hybrid offering, 256, 257, 260, 261 Additional works, 77, 286, 292 Adequate order, 238, 254 Advance payment from the customer, 110, 300, 303, 307, 380, 405 Advertising in the marketing of works, 25, 77, 172–174, 267, 268 Agent in the market of works, 264– 267, 271 Anti-crisis management, 385 Applied activity, 17, 51, 54, 64, 65, 76, 78, 318 Arisen demand for works, 224, 233 Arisen discrete order, 224 Assortment of works, 134, 145, 148, 154, 195, 244, 284 Auction for the purchase of works, 112, 262, 268, 280, 376, 377, 394, 405, 406 Augmented virtual reality, 13, 355 Authorized representative, 264, 266, 279 Availability coefficient of the production capacity, 229 Average time for executing orders in the production facility, 247

Marketing channel for promoting works, 264–267, 271 Marketing classifications, 34–49, 51, 316 Marketing communications, 7, 58, 201, 355, 356, 359 Marketing concepts, 6, 12, 17, 21– 23, 51, 56, 64–66 Marketing control of a firm’s business, 5, 28, 240, 249, 300– 302, 305, 306, 384–386 Marketing coordinate axis, 186, 187, 189, 191, 197–205, 207 Marketing coordinate system, 5, 142, 186–191, 198–205, 207 Marketing costs/efforts for promoting goods, works, and services, 198–203, 207, 214–216, 218, 385, 386 Marketing firm/department goods, 143 Marketing firm/department services, 42, 60 Marketing firm/department works, 60, 143, 144 Marketing functions, 2, 5, 9, 11, 25– 30, 57, 136, 137, 163, 277, 384, 393–395 Marketing information, 7, 100, 144, 154, 156–166, 168, 170, 171, 354, 355, 365 Marketing macroenvironment, 95– 98, 104, 142, 143, 145, 186 Marketing microenvironment, 95– 97, 104, 142, 143, 145, 186, 195 Marketing mix, 5, 21, 55, 71, 76, 78, 297–308, 312 Marketing mix 4Ps model for goods, 5, 55, 298, 299, 308, 312

The Marketing of Works: A Textbook on General Marketing of Goods, Works, and Services B Balancing trade secrets and advertising, 172 Barter, 76, 314–326, 328 Barter marketing of works, 5, 315– 317, 323, 324, 328, 427 Basic works and services, 267, 286 Blockchain marketing, 7, 44, 362, 363, 365 Bonus table for remuneration of marketers, 395–397, 400 Bonuses/premiums provided by the customer, 135, 291–292, 312 Boundary conditions for production loading, 241, 242, 254 Breakeven point of the order, 340– 344, 350 Broker in the market of works, 264– 267, 271 B-to-B (business to business) market, 165, 191, 257, 267, 279, 299, 308, 332 B-to-C (business to consumer) market, 165, 191, 267, 279, 299, 308, 332 Budget of the project, 134, 300, 302, 307 Buyer, 17, 20, 95, 104, 145, 187– 193, 195, 222, 257, 302 C Capacity of the market of works, 192, 220–226, 233 Cash payments for equalizing the exchanged products, 322–324, 328 Center of financial responsibility, 388, 391 Change in an object’s functional purpose, 85, 93 Change in the market value, 20, 21, 32, 48, 56, 61, 75, 76, 83–87, 89– 91, 93 Channel for promoting works to the market, 263–268, 271 Channel of information transmission, 156, 333, 334

Marketing mix 7Ps model for goods and services, 5, 55, 298, 299, 305, 308, 312 Marketing mix 9Ps model for goods, works, and services, 5, 14, 299, 300, 308, 312 Marketing of consumer works, 47, 279, 299, 308, 332 Marketing of goods, 2, 3, 36, 37, 47, 48, 51, 64, 70, 75, 201, 209, 427 Marketing of goods and services, 2, 4, 6, 36, 37, 51, 64, 70, 298, 427 Marketing of goods, works, and services, 4–6, 10, 12, 21, 22, 32, 35–37, 48, 51, 59, 209, 210, 218, 260, 299, 427 Marketing of industrial works, 47, 57, 279, 299, 308, 332, 380 Marketing of services, 2, 3, 8, 21, 32, 36–38, 47, 48, 51, 64, 70, 75, 201, 209, 298, 427 Marketing of works, 1–5, 9–12, 15, 21, 22, 25, 30, 32, 35–37, 47, 48, 51, 59, 64, 70, 75–77, 201, 209, 218, 230, 299, 380, 427 Marketing paradigm, 10, 11, 17, 56 Marketing plane, 201–205, 207 Marketing policy, 5, 203, 273–275, 383, 385 Marketing research, 3, 142–150, 154 Marketing research as a commodity, 143 Marketing research as a work, 143, 144, 154 Marketing specialization of a firm, 5, 14, 203–205, 207 Marketing tool/technique, 3–5, 12, 17, 41, 59, 87, 181, 211, 218, 297, 299, 308, 312, 363, 365, 377, 385 Marketing vector, 5, 14, 197–205, 207, 214, 215 Material-intensive works and services, 27, 286 Matrix of production facilities’ parameters/loading, 236–241, 254

431

432 Classifications of marketing, 4, 34– 49, 51 Classifications of services, 39, 40, 58, 59, 61 Client of services, 20, 21, 32, 76–78, 187–190 Coefficient of the export of works, 412, 415 Commercial offer for executing works, 25–27, 110–113, 127, 214, 262, 282, 405 Commercial spy, 176, 177, 179 Common resources of the marketing department, 201, 210 Competition in the market segment, 108, 127, 192, 193, 227, 264 Competitiveness in terms of production equipment deterioration, 120–122 Competitiveness of a company, 106–108, 122–124 Competitiveness of a company’s resources, 25, 108, 113–116, 127 Competitiveness of company personnel, 117–119, 127 Competitiveness of production processes, 119–120, 127 Competitiveness of works, 106–110, 127 Competitor, 58, 95–97, 104, 145, 176, 188–192, 195, 222, 278, 279 Composition of works, 130, 133, 134, 171, 302, 307, 359 Compounding procedure for longterm orders, 287, 288 Conditions of a project, 130, 135, 140, 303, 307 Confidentiality of information, 173– 175, 179 Consumer, 20, 22, 24, 47, 61, 76, 191, 210, 279, 330 Contact services, 20, 36, 61, 65, 76, 413 Contact works, 51, 61, 65, 76, 413

Index Matter of marketing, 21–24, 32, 35, 36, 76, 210 Measurement unit for the component or material, 111, 326 Measurement unit for the work or service, 111, 147, 211–213, 326 Messenger, 7, 176, 355, 356, 365 Mobile devices/communications in marketing, 6, 7, 11, 355, 356 Modernization of an object, 6, 14, 36, 81, 82, 85–89, 93, 427 Modulus of the marketing vector, 199, 200, 202, 204, 207, 214, 215 Moral deterioration of an object, 80, 81, 86–89, 93, 427 Moral deterioration of the first kind, 81, 93 Moral deterioration of the second kind, 81, 93 Motivation of marketing employees, 383, 392, 395 Movement of resources across the border, 406–410, 412, 415 Multi-pass barter transaction, 316, 318, 321, 322, 325, 326, 328 Multi-product firm-buyer, 187, 188, 321 Multi-product firm-seller, 6, 59, 186, 187, 204, 205, 214, 321, 400 N Narrow technological specialization in the nomenclature of works, 184, 225, 320, 377, 378, 380 Nomenclature of works, 84, 120, 134, 145, 148, 154, 181–184, 193, 195, 223, 225, 236, 276, 284, 378 Non-contact services, 20, 36, 61, 65, 76 Non-contact works, 51, 61, 65, 76 Non-governmental organization, 96, 97, 104, 165, 184, 189, 191, 193, 195, 222 Non-substantial objects/goods, 13, 17, 32, 35, 36, 51, 61, 66, 76, 143 Non-variable parameter of the contract, 286, 287, 295

The Marketing of Works: A Textbook on General Marketing of Goods, Works, and Services Contract for works execution, 87– 90, 131, 135, 285–287, 357, 358, 428, 429 Contractor, 17, 20–22, 32, 75–77, 140, 285, 286, 304, 312 Control of the project factors by marketers, 131, 300–303 Cooperation in the market of works, 58, 225, 226, 278 Coordination of marketing and supply in the company, 319 Corporate culture, 10, 17, 386 Corporate instant messenger, 356, 365 Cost effectiveness of marketing information, 161 Cost of an order/contract for works, 87–89, 110–113, 239, 254 Cost of marketing information, 160, 161, 168 Cost of works, services, or goods, 110–112 Costs for the exchange of products, 322–324 Costs of promoting products to the market, 198–201, 203–205, 207 Creating the market value, 82, 83 Criteria for classifying marketing, 35, 36, 51 Criteria for optimizing production loading, 241–242, 249–251 Cryptocurrency, 7, 360–362 Cryptographic protection, 360, 361, 365 Current market value of the processed object, 83–87 Current time of works, 83, 243–248, 251 Customer contact schedule, 164 Customer database, 7, 119, 163, 166–168 Customer dissatisfaction with the contractor, 334, 335, 337, 350 Customer of works, 3–8, 20–30, 32, 51, 75–78, 96, 97, 145, 163, 164, 185–188, 210, 277, 285, 303, 312

Normal life cycle of the marketing team, 388, 391, 392, 400 Normative intensity of the order, 28, 248, 249, 254 O Object of marketing, 13, 20–25, 32, 35, 36, 75, 76, 210, 318, 319, 324 Objective competitiveness of the executing firm, 118, 119 Objective demand of decisionmakers, 118 Objectives/goals of the works project, 130–133, 140, 300, 304, 307 Obligation to fulfill works, 89, 90, 428 One-pass barter transaction, 316, 321, 328 Open system in the market, 101, 102, 106, 188 Opportunities of a company, 98, 99, 104, 146, 149, 154 Optimization of placing orders in market time, 14, 235, 236, 240, 242, 249, 254 Optimization of placing orders in the market space, 14, 235, 236, 240, 242, 249, 254 Order for works, 5, 14, 26–30, 149– 151, 224–230, 236–252, 286–293, 295, 337–344, 395–397 Orientation of the marketing vector in the coordinate system, 5, 198, 204, 205 Ownership (property) of the marketing object, 20, 21, 32, 318, 413 P Paper documents in marketing, 6, 175, 176, 361, 362 Parameters of the marketing team’s life cycle, 14, 388–393, 400 Parent company, 404, 405 Partial export of works, 407–410, 412, 415

433

434 Customer solvency, 185, 224 Customs regime for processing object, 410–412, 415 Customs regime of export, 407–412, 415 Customs regime of temporary import, 407, 410, 412, 415 D Danger of leaking trade secrets, 171–175, 179 Data transmission channels, 333, 334 Database of customers, 7, 11, 163, 166–168 Deformed life cycle of a marketing team, 388, 389, 400 Degree of confidentiality of information, 174–176, 179 Dependence of tactics on the firm’s strategy, 277, 278, 281, 283, 295 Dependence of the strategy on the firm’s life cycle, 277, 278, 283, 295 Differences between marketing specialization and product specialization, 5, 203–205, 207 Differences between the marketing of works and the marketing of goods, 2, 20–25, 32, 36, 48 Differences between the marketing of works and the marketing of services, 20–25, 32, 36, 48 Direct contact with the customer, 164, 165, 330–333 Direct losses during downtime/idle period, 149, 227, 386 Direct marketing of works, 165, 330–333, 350 Direction of interaction in the marketing plane, 202, 207 Directly proportional scale for bonus table, 396, 397, 400 Disappeared demand for works, 223–225, 233 Disappeared orders for works, 225, 233

Index Participants/parties to the project, 130, 131, 134, 135, 140, 300, 304–307 Particular hybrid offering, 6, 215, 258–261, 271 Partner, 96, 97, 145, 189, 279, 390, 404 Payment terms in a project, 131, 132, 135 Payment terms in the marketing mix, 5, 14, 300, 303, 305–308, 312 Penalties applied by the customer, 135, 291–293, 312, 391 “People-brakes,” 117, 118, 222 “People-engines,” 117, 222, 277 Period of rotation for marketers, 387, 400 Period of the object’s modernization, 85, 86 Period of the object’s renewal, 85, 86 Period of time in the marketing mix, 5, 14, 300–302, 305–308, 312 Personalization of contacts, 28, 164, 165, 262, 330, 331, 345, 350 “Personnel ballast,” 117 Physical deterioration of an object, 80, 81, 86–89, 93, 427 Place of works execution, 102, 319, 403, 407–413, 415 Placing works orders in space and time, 235–238, 240, 241, 247– 252, 254 Plane of the marketing coordinate system, 201–205, 207 Planned intensity of the order, 28, 249, 254 Planned orders for works, 230, 233 Planned tension of the order, 249, 254 Pledge of money for the contract execution, 280, 405 Portfolio of orders (order book), 30, 57, 182, 225–228, 230, 233, 235

The Marketing of Works: A Textbook on General Marketing of Goods, Works, and Services Discount rate, 27, 285–288 Discrete order, 150, 151, 224–227, 287, 288, 385, 386, 390, 391 Discrete production, 69, 70, 78 Dissatisfaction of the customer, 334, 335, 337, 350 Distribution in time of works intensity, 243–248, 254 Diversification of production, 188, 385, 400 Duration of the works/project, 27, 29, 132, 301, 302, 307, 312, 330 Dynamic matrix in the SWOT analysis, 98, 99, 104, 145, 146 E Economic benefit for exchange, 54, 61 Effective/solvent demand for works, 32, 210, 223, 224, 226, 233 Effectiveness of advertising, 173, 174, 179, 267, 268 Effectiveness of hospitality costs, 337, 339, 340, 350 Effectiveness of marketing, 7, 216, 308, 382–386, 391–393 Effectiveness of marketing research, 144, 149–152, 154 Electronic auction for the purchase of works, 147, 263, 264, 360, 363 Electronic contract for works execution, 357–359, 365 Electronic/digital signature, 148, 360, 361, 365 Electronic document management, 6, 354, 359–362, 365 Electronic marketing (e-marketing), 6, 7, 44, 322, 352–363, 365 Electronic platform for auctions, 147 Electronic specification of works, 357–359 Element of a marketing microenvironment, 95–97, 104, 146, 147, 189 Element of a marketing mix, 21, 71, 75, 78, 298–303, 305–308, 312

Positioning a firm in the market, 145–148, 186–188, 195, 277 Preliminary specification, 110–112, 131, 214, 250, 262, 280–282, 300, 319, 357–359 Preparatory-final time, 240, 241, 250, 254 Price discount for works, 26, 27, 134, 214, 280–282, 285, 286, 394 Price-list for goods, works, and services, 26, 111, 112, 211–214, 218, 274, 280, 285 Pricing policy/strategy, 26, 90, 274, 275, 280–282, 284–286, 295 Primary marketing information, 145, 148, 154, 157 Process production, 69, 70 Product, 2–8, 17, 32, 54, 55, 59, 61, 65, 68, 69, 75, 76, 78, 130, 199, 210, 260, 271, 318–326 Product barter transaction, 5, 32, 75, 318–324, 328 Product specialization of a firm, 5, 203–205, 207, 261, 320 Production capacity, 27, 120, 192, 193, 195, 227–230, 235, 236, 405 Production cycle for goods, 82 Production cycle for works, 81–83 Production facilities, 14, 25, 120– 122, 137, 168, 225, 229, 235–242, 247–252, 254, 354 Production loading, 14, 26, 28, 227, 236, 237, 239–242, 254, 286, 289 Profit center, 137, 391, 395 Profit generated by an order, 238– 242, 254, 396 Profitability index of the long-term order, 288 Profitability of marketing activities, 227, 383, 384 Progressive scale for bonus table, 395–397, 400 Project factor, 28, 130, 299–308, 312

435

436 Elements of the production and nonproduction costs, 284–286, 295, 337–340 E-mail, 7, 176, 353, 357–362, 365 End date of a project/contract, 29, 78, 130–133, 140, 149–151, 243– 246, 249–252, 312 Energy-intensive works and services, 27, 286 Equivalence of exchanged products in barter, 317–319, 322–326, 328 Exchange of real/available goods, 54, 55, 316–319 Exchange of virtual/future works, 5, 55, 316–319 Exchanging objects in barter of works, 315, 318, 319, 324 Exclusive representative of the principal, 266, 271, 405 Executing works for the sale of goods, 202, 203, 205, 207 Executing works for the sale of services, 202, 203, 205, 207 Executing works in another country, 403, 406–410, 412, 415 Execution of works, 6, 17, 25, 29, 51, 61, 70, 74, 78, 96, 210, 226, 279, 415 Executor of works, 19–22, 25, 32, 76, 78, 186, 403, 404 Experience in fulfilling orders, 77, 280, 405 Export of works, 96, 97, 104, 403, 407–413, 415 Exporter of works, 403, 404, 413, 415 Exporting country of works, 403, 407–411, 415 External electronic storage devices, 353, 354, 360–362 Extrapreneurship, 60 F Factor of customer dissatisfaction with the contractor, 334, 335, 337, 350

Index Project for executing works, 13, 17, 28, 29, 55, 130–136, 140, 300– 307, 312 Project for manufacturing goods, 29, 132, 301, 312 Project implementation/ organizational plan, 130, 132, 135, 136, 140, 299, 300, 305, 307 Project production, 69, 70, 130–132 Projection of the marketing vector, 197–202, 207 Promotion of works to the market, 6, 26, 77, 263–267, 271, 279, 359 Protection of trade secrets, 170–172, 175–177, 179, 360 Provider of services, 19–22, 24, 32, 76, 78, 186 Provision of services, 21, 24, 29, 51, 61, 70, 71, 75, 78, 147, 210, 211 Psychological pressure on marketers, 14, 150, 385, 387, 390, 391, 400 Public relations in the marketing of works, 267, 268, 279, 359 Q Quality control of works, 108–110, 120, 210, 211 Quality of works, 107–110, 120, 127, 210, 211 R Random orders for works, 230, 233 Ranking participants in the market of works, 181, 184, 185, 188, 190, 195, 221, 222 Rating agency, 184, 185, 352 Rating coordinate axes of the market space, 181, 186–191, 195, 221 “Rating rate,” 191, 192, 221 Rating space, 184, 186–191, 195, 221 Real intensity of the order, 248, 249, 254 Real tension of the order, 248, 249, 254 Reducing the firm’s opportunities, 99

The Marketing of Works: A Textbook on General Marketing of Goods, Works, and Services Factor of planning the firm’s activities, 230, 233 Factor of the hospitality costs, 339, 340 Factor of the marketing macroenvironment, 78, 96–98, 104, 185, 186 Field of marketing information search, 159, 160, 168 “Field of operations,” 243–245, 250 Final market value of the processed object, 90, 91 Final specification of the works, 410 Financial/cash flow, 96, 104, 189– 191, 287 Fixed costs related to the production facility, 26, 239, 288, 289, 295 Flow of goods, works, and services, 324, 325 Foreign contractor, 403, 407, 410 Foreign customer, 96, 403, 404, 407, 410, 411, 413, 415 Foreign/international market for exporter of works, 403, 404 Foreign representative, 403–406 Frequency of rotation for marketers, 386, 387 Full export of works, 407–412, 415 Fullness of a company’s portfolio of orders, 228 Functions/activities of the marketing department, 2, 9, 25–30, 57, 136, 137, 393–395 Future value of the incoming cash flow from the contract, 287, 288 G General Agreement on Trade in Works, 413 General contractor, 95–97, 104, 138, 145, 190–193, 195, 222, 225, 283, 303 General hybrid offering, 6, 258–263, 271 General marketing of goods, works, and services, 6, 10, 21, 32, 51, 59, 197, 209–211, 217

Reducing the firm’s strengths, 98 Reducing the firm’s threats, 99 Reducing the firm’s weaknesses, 98 Re-equipment of an object, 6, 14, 36, 81, 82, 84–89, 93, 427 Re-export of financial resources, 407 Re-export of production equipment, 406, 407, 410, 415 Register of unscrupulous partners, 357 Regressive scale for bonus table, 396, 397, 400 Relatively profitable order for works, 15, 288, 289, 295 Relatively unprofitable order for works, 15, 26, 288, 289, 295 Rendering services for the sale of goods, 202, 203, 205, 207 Rendering services for the sale of works, 202, 203, 205, 207 Renewal/repair of an object, 6, 14, 36, 39, 40, 81, 82, 85–89, 93, 427 Replacement point of personnel on the life cycle graphs, 392, 400 Representative office of the firm abroad, 265, 266, 403–406 Reputation of the company, 17, 27, 77, 135, 266, 286, 306, 390 Research report, 143, 144, 148, 154 Research topic, 7, 8, 143, 154 Resource, 9, 17, 106–109, 113–116, 127, 195, 201, 226, 406–412, 415 Resource maneuverability, 137, 138, 140, 150 Respondent of a barter transaction, 315, 317, 322, 323, 328 Responsibilities of the project’s participants, 130, 135, 140, 305, 307 Responsibility of the marketing department, 11, 28, 131, 132, 305, 306, 385, 390, 391 Restrictions in the market, 185, 186 Result of the marketing research, 30, 32, 142-144, 149–152, 154, 277

437

438 Goods, 2, 17, 55, 61, 76, 214, 318, 319, 412, 413 H Harmonizing the exchange of works in space and time, 316, 317, 324– 326 Heterogeneous barter transaction, 316, 317, 320–322, 325, 328 “Hidden works,” 211 History of marketing development, 37–39 Homogeneous barter transaction, 316, 317, 319–322, 328 Horizontal production integration, 58, 226 Hospitality costs, 14, 337–344, 350 Hostility of competitors, 188, 189 Human labor, 17, 32, 51, 53, 54, 57, 59, 61, 70, 76, 78, 210, 211, 319 Hybrid barter and money transaction, 318 Hybrid maintenance offering, 258, 260, 261, 271 Hybrid offering “goods + works,” 6, 215, 258–261, 271 Hybrid offering “goods + works + services,” 6, 258–263, 271 Hybrid offering of products, 6, 8, 29, 66, 215, 216, 256–258, 271 Hybrid offering “services + goods,” 6, 66, 215, 258–261, 271 Hybrid offering “works + services,” 6, 215, 258–261, 271 Hybrid value-added offering, 215, 258, 260, 261, 271 I Idle time/downtime, 12, 26, 80, 84, 93, 137, 149, 150, 227, 236, 240– 242, 249, 281, 295 Image of the company, 10, 17 Import of works, 403, 412, 415 Importing country of works, 403, 407–412, 415 Inadequately large object, 238, 254 Inadequately small object, 238, 254

Index Revenue center, 137, 391 Revenue from marketing activities, 388, 389, 391–393 Revenue generated by an order, 238, 240, 243–246, 248, 254 Rights of the project’s participants, 130, 135, 140, 305, 307 Risk indication system for procurement auctions, 405 Risks in the marketing of works, 22, 24, 210, 230, 293, 380, 384 Roadmap for a multi-pass heterogeneous barter transaction, 324–326, 328 Role of barter in marketing and economy, 5, 314–317, 322 Rotation of marketing managers and specialists, 386, 387, 400 S Sales of goods for executing works, 202, 203, 205, 207 Sales of goods for rendering services, 202, 203, 205, 207 Sales of goods, works, and services, 13, 17, 75, 142, 214 Sales of works, 2, 30, 82, 83, 146, 266, 267, 279, 315, 404, 415 Sales potential of works in market time, 220, 222, 233 Sales potential of works in the market space, 220–222, 233 Schedule for loading production facilities, 236, 240, 250, 251, 254 Scientific discovery, 2, 15, 38, 63, 64, 78 Scientific systematization, 34, 38, 51 Scope of marketing efforts, 199, 200, 207 Scope of the work or service, 26, 87, 111, 133, 243–245, 282, 289–293, 302, 341, 358 Search engine in e-marketing, 147, 356, 365 Search field of marketing information, 159, 160, 168

The Marketing of Works: A Textbook on General Marketing of Goods, Works, and Services Increase in profit generated by the order, 339, 342–344 Increase in revenue/amount of the order, 339, 341–344 Increase in the hospitality costs for the order, 339–343 Increase in the market value of the object, 83, 84, 86, 87 Increasing the firm’s opportunities, 99 Increasing the firm’s strengths, 98 Increasing the firm’s threats, 99 Increasing the firm’s weaknesses, 98 Independence of the marketing department, 136, 137, 140, 391, 393 Indicator of interdependence of the parties to the contract, 335–337, 350 Industrial marketing, 2, 7, 46, 57, 61, 64 Informal methods of influencing customers, 344–348, 350 Information constituting trade secrets, 161, 162, 168, 170–177, 179 Information system in the marketing of works, 100, 156, 157, 168 Initial market value of the processed object, 81, 83, 86, 88, 89 Initiator of a barter transaction, 315, 317, 322, 323, 325, 328 Innovation, 7, 100, 104, 108, 109, 127 Insolvent demand for works, 224, 233 Intensity of works on order, 28, 29, 243–246, 248, 249, 254 Intensity over time of the costs, 238, 239, 242, 243, 254 Intensity over time of the profit, 238, 239, 242, 243, 254 Intensity over time of the revenue, 238, 242, 243, 254 Interdependence of the customer and the contractor, 335–337, 350

Seasonality in the marketing of works, 378, 380, 392, 393 Secondary marketing information, 145, 148, 154, 157 Secrecy of marketing information, 160–162, 168, 174–176 Sector/branch of the economy, 2, 39, 46, 47, 154, 225, 367–378, 380 Segmentation of the market of works, 2, 181–188, 192, 193, 195, 225 Seller, 20, 53, 95, 187, 190, 222, 256, 317–319 Sequence of the products in hybrid offering, 259–263 Serial orders for works, 150, 151 Services, 2, 21, 36, 38, 39, 54, 61, 68, 76, 78, 214, 271, 317, 413 Share of a firm in the market (market share), 147, 166, 229, 276, 277 Shortening the duration of the contract/project, 247, 248, 302, 306 Size of a contract’s “cost-duration,” 112, 113, 127, 405 Social/international division of labor, 53, 225, 320, 403 Social network, 6, 7, 11, 355 Solvency of a potential customer, 135, 165, 224, 306, 355 Source of financing an object’s repair, 87 Source of revenue, 14, 17, 21, 35, 70, 75, 78, 144, 198, 210, 318 Space-time matrix for loading production facilities, 14, 240, 241, 250, 254 Spam by e-mail, 267, 359, 360, 363 Specialization in the market of works, 30, 184, 225, 226, 276, 377, 378, 380 Specific sales volume in the marketing channel, 266, 267 Stability of the firm’s development/ activities, 99, 100, 252

439

440 Intermediate buyer, 41, 61 Internal marketing audits, 148, 149, 154 International market of works, 402– 404 International marketing of works, 6, 12, 46, 403, 412, 413, 415 Internet advertising a company, 7, 354, 355, 359 Internet/electronic barter, 316 Internet/online negotiations, 355, 357–359, 362, 365 Interviewing experts, 72-74, 146 Intrapreneurship, 60 Investor, 95–97, 104, 145, 165, 189– 193, 195, 222, 283, 304, 403 Isoquants of equal contract sizes, 112, 113 J Joint sale of several products, 6, 13, 214, 215, 218 K Knowledge of their product by marketers, 129, 130 L Labor costs of marketers/marketing efforts, 199–203, 207, 297 Labor-intensive works and services, 27, 286 Labor/works productivity, 100, 108– 110, 112, 120, 127 Laboriousness, 100, 111, 281, 393 Lead time of orders in the production facility, 240, 241, 243, 247 Leaking trade secrets, 171–174, 176, 179 Lengthening the duration of the contract/project, 247, 248, 302, 306 Levels in the marketing environment, 95, 96, 104 Life cycle of a firm in terms of its competitiveness/revenue, 106, 107, 116, 122–124, 277–279

Index Stability of the fulfillment of contracts, 228, 229, 233, 252 Stable obtainment of orders, 30, 149–151, 252 Stages of executing works, 290, 291 Stages of receiving payments, 290, 291 Standard hour, 77, 111, 112, 199, 200, 285, 393 Start date of a project/contract, 29, 78, 130–133, 140, 149–151, 243– 246, 249–252, 312 State institution, 96, 97, 104, 184, 189, 191, 193, 195, 222, 274 Stimulation of marketing employees, 218, 383, 395, 396 Strategy of a firm executing works, 5, 8, 273, 275–279, 283, 295 Strengths of a company, 98, 104, 146, 149, 154 Structural deterioration, 14, 80, 81, 84–87, 93, 427 Subcontractor, 95–97, 104, 138, 145, 190–193, 195, 222, 225, 229, 283, 286, 304 Subject of marketing, 19, 22, 23, 32, 210 Subjective competitiveness of the executing firm, 118, 119 Subjective demand of decisionmakers, 118, 119 Substantial objects/goods, 13, 17, 32, 35, 36, 51, 61, 66, 76 Supplier, 96, 97, 104, 145, 184, 190–193, 195, 283 SWOT analysis, 98, 99, 104, 145, 146 Synergy coefficient, 214–216 Synergy effect, 6, 58, 205, 214–216, 218 T Tactics of a firm executing works, 5, 273, 275–280, 283, 295 Tangibility of works, 24, 211 Target audience for the marketing of works, 210, 218, 317

The Marketing of Works: A Textbook on General Marketing of Goods, Works, and Services Life cycle of a firm’s resource competitiveness, 107, 108, 113– 116, 127 Life cycle of a marketing team, 14, 383, 385, 387–393, 400 Life cycle of an object, 85, 86, 93 Life cycle of technology, 101, 115, 116 Limiting parameter of the production facility, 237, 238, 242, 254 Liquidation of an object, 6, 24, 25, 36, 66, 70, 82–84, 90, 91, 93 Location/position of the company, 102, 186–192, 195 Long-term/large contract, 151, 226, 227, 287, 288, 390, 391 Loyalty of partners and customers, 7, 163, 165, 188, 189 M Main activity of the company, 72, 78, 257, 261, 262 Main product in hybrid offering, 260, 261 Maintenance element of hybrid offering, 260, 261, 271 Manufacture of an object to order, 6, 22, 30, 32, 36, 65, 78, 82, 83 Manufacture/production of goods, 3, 20, 51, 71, 75, 215, 312 Manufacturer of goods, 13, 19–22, 32, 64, 76, 143, 186, 191, 215, 312, 318, 404, 413 Map of strategies and tactics of the company, 283, 295 Market, 2, 71, 189–192, 195 Market acceptor, 96, 97, 104, 189, 190, 192, 195 Market capacity of works, 220–226, 233 Market demand, 17, 40, 43, 44, 48, 51, 54, 61, 75, 81, 120, 144, 191, 319, 328 Market donor, 96, 97, 104, 189, 190, 192, 195 Market exchange, 32, 314–320, 328

Target market, 144, 146, 149, 154 Target parameter, 276 Technical task of the customer, 29, 133, 304 Tension of the works order, 28, 248, 249, 254 Threats of a company, 98, 99, 104, 146, 149, 154 Three-stage scheme for organizing works on order, 243, 244, 246 Tilt angle of the marketing vector, 201–205, 207 Time gap between orders, 149–151 Time management of the contract/ order, 29, 246–252, 300–302, 429 Total costs related to the order in the production facility, 238–240 Trade secrets, 162, 168, 171–177, 179, 354, 360 Transferring additional functions to the marketing team, 9, 393–395 Transferring ownership of objects, 20, 21, 32, 76–78, 143 Two-stage scheme for organizing works on order, 244–247 U Unit cost of the work, 236 Unit price of information, 160, 168 Unit price (or cost) of marketing efforts, 199, 200, 207 Unit price of the work/service, 26, 27, 111, 112, 134, 146, 147, 211– 214, 218, 236, 274, 280–285, 302, 357, 358 Unit profit of the work, 236 Unstable obtainment of orders, 151, 252 Urgency of marketing information, 160, 162, 163, 168 V Value-added tax, 112, 284, 285, 410 Value-adding element of hybrid offering, 6, 8, 260, 261, 271 Variable costs related to the order in the production facility, 239, 289, 295

441

442 Market intermediary, 264–267, 271 Market leader, 147, 185, 190, 195, 274, 285 Market niche, 46, 51, 146, 277, 337 Market of goods, works, and services, 6, 9, 19, 32, 61, 71, 187, 188, 195, 203–205 Market of works, 5, 9, 15, 35, 71, 82, 144, 162, 186, 195, 220, 225– 227, 402, 403 Market space/structure, 96, 104, 154, 186–191, 195, 220–222, 226, 236, 240, 241 Market supply, 54, 57, 81, 120, 144, 191, 319, 328 Market time, 96, 154, 186, 195, 220, 222, 226–230, 233, 236, 240, 241 Market value of an object, 3, 13, 17, 20, 25, 30, 32, 48, 51, 56, 61, 75– 78, 83–91, 93, 154, 258, 261, 318 Market value of information, 144, 170 Marketing, 7–8, 11–13, 17, 22, 23, 36, 43–49, 54, 56, 75, 76, 142

Index Variable parameter of the contract, 286, 287, 295 Velocity of change in revenue, 391, 392 Velocity of market time, 104, 154, 222 Vertical production integration, 58, 225 Virtual nature of works, 83, 279, 316, 361, 404, 415 Volume of marketing information, 160, 162, 168, 172–174, 179 W Warranty for the fulfilled works, 2, 110, 336, 361 Weaknesses of a company, 98, 104, 146, 149, 154 Website of a company, 147, 354, 365 Withdrawn works/orders, 77, 226, 292 Working time fund of the production facility, 241 Works, 3, 4, 17, 21, 29, 39, 54, 58, 61, 64, 68, 74, 75, 78, 211, 271, 318, 319, 415

Goods

Works Marketing Services