Industrial Technological Products: Key Influences on Buying, Selling and Market Growth


An ISR Technology, management & business growth study


CONTENTS

1. Introduction and overview

2. Technological product selling points:general

3. The business-economic benefits of new technologies

4. Pay-offs from industrial technological investments

5. Technology and labour cost reduction

6. Summary of obstacles to selling and market growth (1): general

7. Summary of obstacles to selling and market growth (2): specific industries

1. Introduction and overview

Effective marketing and good sales are essential to the growth of technology-supplying businesses. Meanwhile, purchasing and successfully utilizing cost-effective new technologies facilitates business-economic expansion and profitability generally. This article – an edited extract from Engineering firms: A Survey of Factors Affecting Their Growth & Performance, published by Industrial Systems Research – summarizes key business-economic and related factors affecting the buying, selling, and market growth of industrial technological products.

The article looks at technological product selling points in general before turning to specific major potential benefits to firms of buying particular pieces of capital equipment. It examines pay-offs from industrial technological investments. It considers the often-controversial subject of labour cost reductions. Finally, it summarizes the main obstacles to industrial technological products selling and market growth. On this last score, the article lists typical causes of low demand, prices, and profit margins on sales in various industries and markets.

The “how to” literature on the marketing of industrial technological products is, of course, huge.

Marketing analysts have paid considerable attention to the nature and cost-effectiveness of particular industrial advertizing and distribution methods. There have been attempts to calculate general optimum sizes for sales budgets. There are numerous case studies of the efficacy or otherwise of the marketing techniques of particular companies and media advertizers (etc.).

It is important for industrial technological products marketers to have at least some of the answers to such questions as:

  • How much marketing money should be spent – and on what, where, and when?
  • What are the best formats for marketing literature?
  • How valuable is after-sales servicing as a marketing tool?
  • How useful actually is the internet for marketing purposes?

However, marketing is not an exact science and there are no precise formulas for sales success. Moreover, while such things as getting the advertizing spend and sales techniques right are important, they are far from being sufficient to achieve sustained product-market growth and profitability in engineering (etc.). As well as general marketing techniques and distribution methods, industrial technology suppliers have to consider all the major specific business-economic and related factors affecting sales of their particular products.

2. Technological product selling points: general

The main basic selling points of industrial technological products are much the same as those of other durable goods. There are obviously big differences between the average household and industrial customer in terms of the size of their technology spending and the kinds of equipment they install. However, both household durable goods consumers and industrial buyers of capital equipment typically look for products that are:

  • low priced and good value for money;
  • cheap and easy to operate;
  • supported by quick, flexible, and low cost delivery, installation, and after-sales servicing;
  • well designed with aesthetic appeal;
  • built out of high quality materials to high manufacturing standards and technically reliable; and
  • functionally capable – i.e., well able to perform the intended tasks.

Product price and quality are major considerations for both household and business customers. However, financial-economic criteria are not aways and everywhere paramount.

A range of important macro-economic and wider socio-cultural factors and secular trends affects markets for technological products.Consider for example the historically high and rising level of external paid employment of married women. This has greatly increased the importance of labour-time saving as a selling point where domestic appliances are concerned. Likewise, secular increases in housing-space costs and environmental awareness have resulted in increased buying and selling of domestic appliances on the basis of such features as compactness/space saving, low energy inputs, and raw materials saving.

3. The business-economic benefits of new technologies

As far as buyers of industrial technologies are concerned, it is crucially important that plant and equipment reliably perform the production, materials handing, and communications (etc.) tasks for which they are designed and that they generate real cost-savings and other benefits to the businesses that install them.

In marketing capital products to industrial customers, various business-economic benefits may be emphasized. Suppliers may seek to convince customers that the purchase or lease of a particular piece of kit will result in:

  • significant savings on the costs of labour, capital, raw materials, energy, and other inputs – and thus increased price competitiveness and higher sales and revenues/profits;
  • generally enhanced production control, flexibility, and integration of manufacturing, marketing, and related operations;
  • capacities to accurately rotate stock, improve space and machine utilization, reduce inventories, consistently produce and deliver to schedule, and produce economically in greater variety and at lower volume – achieved for example through automation or the installation of computers to control equipment, extract and transmit data to workstations, allocate tooling to machines, monitor stock levels and turnover, and quickly and easily update data;
  • increased speeds of production and delivery, reduced work-in-progress and inventories, and greater responsiveness to customer-market requirements – achieved for examplethrough the introduction of machine tools with higher spindle speeds and more powerful motors, faster automatic tool changing, improved cutting edges for longer tool life and/or automatic adjustment for wear and tear, or the capacity for 24-hour day running; and/or
  • enhanced quality control and assurance and capacity to produce higher-specification products generally –i.e., products that are produced with few if any faulty joints, cracks, circuit tracks, or missing/incorrect/reversed components (etc.), products that are otherwise manufactured with higher levels of precision, greater tolerances, more durability, or finer finishes, and products that are generally more capable in technical-functional terms.

4. Pay-offs from industrial technological investments

On the subject of financial returns to firms from industrial technological investment purchases, there tend to be interesting and significant cross-national differences. For example, expected payback periods for new machine tools and other equipment in Britain tend to be significantly shorter (around three years) and amortization periods significantly longer (around 14 years on average) than in Japan.

Manufacturers seeking to simplify operations,reduce and eliminate waste, or enhance communications (etc.) may calculate that they would achieve far bigger benefits at lower cost from organizational change or other, non-technological improvements than from new technology.

However, industrial technology has typically and traditionally been sold on the basis that significant cost savings will accrue from its use. In practice, investments in new manufacturing technology can and often do yield significant direct benefits to firms in the form of labour and other variable production cost reductions. They can also yield other, more general and indirect benefits such as increased production flexibility and the ability to produce better products and achieve more reliable delivery. The realization of the latter may have far more positive overall effects on firms’ competitiveness and sales/profits than (say) technology-induced direct labour cost savings in particular areas.

Nonetheless, precisely calculating and forecasting the financial cost-benefit impact of such things as production flexibility-enhancing automatic machine tools can be quite problematical.

5. Technology and labour cost reduction

Historically, labour cost saving has been a major motive for introducing and utilizing advanced production technologies.

The labour productivity enhancing and cost savings effects of automation in modern industry should not be over-exaggerated. Nowadays, labour costs typically only amount to 5-15% of total manufacturing costs. Even when the costs of payroll taxes (say 10%), absenteeism (say 5%), and human error-caused reject rates (say 5%) are added to wage costs, total labour costs in modern manufacturing industry tend not to exceed about 15%. Labour costs are usually far exceeded by other costs even in comparatively labour intensive manufacturing industries. Moreover, direct variable costs as a whole (labour costs plus the costs of such things as materials and energy) only come to around 30% of total manufacturing costs. Fixed costs amount to about 70% of the average manufacturing firm’s total costs.

However, manual product assembly – one of the most labour intensive kinds of manufacturing work – is still commonplace in smaller firms and in firms generally that produce one-off, small batch, and relatively differentiated products. Some three-quarters of engineering and other manufacturing firms in Western industrial countries fall into these categories.

Manual assembly labour costs typically amount to around 20-25% of the total labour costs of capital goods manufacturers. Assembly and other production operative jobs often require fairly high levels of aptitude and dexterity, but are also often quite repetitive and boring. Thus apart from the comparatively high cost of wage bills, firms frequently encounter problems of attracting, motivating, and retaining labour. Not surprisingly, firms with high labour costs and turnover problems in industries ranging from automobiles to domestic appliance manufacturing have been especially big buyers of (e.g.) automatic machine tools, production and materials handling robots with fairly high levels of dexterity and sensory capabilities, and manufacturing-controlling computers and software. These technologies have brought important labour saving and other benefits in areas as varied as assembly, welding, continuous machining and loading/unloading, and product-and-tool changing. They have also allowed the performance of new tasks that are beyond the capabilities of humans (e.g. advanced microelectronics circuit testing) and the safe performance of many dangerous, dirty, and noisy old tasks – e.g. mining, spray painting, and hot liquid metal handling.

6. Summary of obstacles to selling and market growth (1): general

Major general obstacles to industrial technological product sales, purchasing, and market growth are:

  • lack of competitiveness of products in price and other terms;
  • technical shortcomings in particular items of hardware or software. These may result in failure of projected costs savings and increases in efficiency to materialize; frequent breakdowns in equipment and disruptions of scheduled services; difficulties in manually operating automatic equipment or in entering data into back-up computer systems; and inflexibility – e.g. inability to accept parts that the equipment is not programmed to accept;
  • lack of in-house expertise or familiarity with new technological products at senior management and other levels, on the part of customers and/or suppliers;
  • high costs and other difficulties in introducing and utilizing new plant and equipment – e.g. in acquiring new computing and other technical staff; training/retraining existing staff; or adapting organizational structures and procedures;
  • problems in effectively calculating the costs-benefits of new technologies, and the apparent better value for money of alternatives;
  • deficiencies in sales and marketing capabilities on the part of suppliers. Technological products may be low in price and offer customers good value for money. Delivery may also be efficient, warranties and customer service standards good, and the products of high quality and functionally high-performing (etc.). However, major obstacles to the growth of sales may exist in the form of (e.g.): lack of professionalism, adequate knowledge and experience, or performance incentives in marketing and related areas; poor sales and marketing forecasting/planning; and lack of effective integration or coordination between marketing, product design and development, production engineering, and other functions, resulting in slow product development, styling problems, and higher than necessary production costs (etc.);
  • general failures to diversify or develop new international and other markets for products. In mid-twentieth century Britain, a number of major electrical/electronics companies had largely grown and prospered by concentrating on UK domestic and Commonwealth markets – and especially on monopsonic state-sector defence and telecommunications markets. These factors presented such firms with problems in continuing to grow and prosper in an era of greatly increased international free trade; reduced defence spending; and increased competitive tendering for military and telecommunications supply contracts;
  • failure on the part of defence electronics companies to use their existing skills in project management, software, and systems integration to diversify out of the defence goods sector, and generalized deficiencies in civilian product marketing and selling skills;
  • general lack of pressure from customers and competitors for cost reductions and product innovations (etc.) – whether on the part of small-volume producers of specialized manufacturing equipment, large-scale producers of household technological products, office computer manufacturers, or suppliers of defence equipment;
  • company traditions of concentration on customer-and-engineering led research and development work, rather than the speculative creation of new products for new markets;
  • comparatively small local-national and regional markets, and other factors reducing the scope for long production runs and rapid sales to recoup high product development costs and reduce unit costs of production and distribution;
  • skill shortages and more expensive labour and other input costs than competitor firms in the same country or abroad – whether in basic high-volume product areas or higher value-added, higher technology, branded and improved quality, and high R&D and marketing spend areas (e.g. computers, specialized components, or advanced communications equipment);
  • low levels of automation and other factors in companies hampering such things as the reduction of production cycle times; the manufacturing of products with fewer defects and longer lifetimes; cost reductions; and the efficient and economical manufacture of high-specification customized products in a wide range of batch sizes;
  • over-valued national currencies, presenting problems in competing in price terms in international markets;
  • international trade and investment protectionism;
  • general market-economic obstacles to increased sales/prices/margins – e.g. high interest rates, taxation, and inflation; industrial-economic recession; or slow growth, high unemployment, and static or declining per capita real income and expenditure and savings/investment levels in countries; and
  • product maturity/market saturation, excess total capacity, and falling demand, prices, and profit margins in particular industries and markets.

7. Summary of obstacles to selling and market growth (2): specific industries

The precise causes of stagnant or falling demand, prices, and profit margins on sales in particular industrial markets might be:

  • slow growth in business and personal computer markets (peripheral hardware and software products);
  • reductions in defence budgets (defence electronic, aerospace,and other military and ancillary equipment);
  • high interest rates and consumer credit squeezes (household appliances);
  • increased business taxes and/or reduced tax allowances on investments (industrial plant and machinery generally);
  • declining demand for electronics-based products generally (semi-conductors and other components);
  • substantial past investment in conventional automatic assembly equipment whose costs companies are anxious to recoup before investing in new technology (surface mounting of electronics components on circuit boards);
  • combinations ofmarket saturation and the emergence of substitute technologies (robot spot welders in the automotive industry,which have also faced competition from new glueing and bonding techniques);
  • software deficiencies or under-development (computer-integrated manufacturing systems);
  • lack of availability of modular, flexible, and easily bought and sold off-the-shelf individual items of equipment (robot and vision systems);
  • slow growth in the motor vehicles, aerospace, and plant-processing industries (mechanical engineering products generally);
  • discriminatory national government procurement policies (utility-type plant and equipment);
  • tariffs, anti-dumping duties, export quotas, and other international trade barriers (basic or commodity-type domestic electrical appliances, machine tools, and office equipment);
  • secular reductions or stagnation in the amount of money spent by households on food (plant and machinery for producing and packaging bread, biscuits, chocolates, confectionery, and other processed foodstuffs);
  • coalmine closures (longwall and other cutting, conveying, etc. machinery);
  • reductions in energy demand and prices (oil, natural gas, and conventional and nuclear electric power generating plant and equipment);and
  • property market-price slumps (construction equipment).

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Further reading from Industrial Systems Research:

Engineering Firms: A Survey of Factors Affecting their Growth & Performance

 Thumbnail Engineering

 Technological Development in Industry: A Business-Economic Survey & Analysis

 Thumbnail Tech Dev

 ISR Publications Catalogue

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