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Design To Market Integrating Conceptiual
Design To Market Integrating Conceptiual
Design-to-Market:
Integrating Conceptual
Design and Marketing
Andreas Vollerthun*
Technical University of Munich, Institute of Astronautics, Boltzmannstrasse 15, 85748 Garching, Germany
INTEGRATING CONCEPTUAL DESIGN AND MARKETING
ABSTRACT
This article presents an approach to integrate conceptual design and marketing by using a
systems engineering approach. A methodology is applied that has successfully linked conceptual design with cost modeling to now also integrate marketing considerations. By combining technical product models and cost models with a market model in one integrated
model, an added value is generated: Systems engineers can analyze entire business cases.
The paper describes how the market model works, shows the interfaces to conceptual design
and cost modeling, and discusses the integration into the overall design process. The full
model is applied to the development of the European satellite navigation system Galileo.
Development teams can easily change parameters in the design and analyze the effects of
these changes on, for example, market revenues. To quantify differences among design
alternatives, two approaches are considered: (a) a measure of effectiveness (market robustness) and (b) cash-flow curves to model, simulate, and evaluate entire business cases. 2002
Wiley Periodicals, Inc. Syst Eng 5: 315326, 2002
Key words: conceptual design; product model; cost model; market model; market robustness;
business case; cash flow analysis; model based systems engineering
* E-mail: A.Vollerthun@Lrt.mw.tum.de.
Systems Engineering, Vol. 5, No. 4, 2002
2002 Wiley Periodicals, Inc.
315
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VOLLERTHUN
Element Market Size: Evaluates the economical attractiveness of the identified market segments and determines market potential and
market volume numbers for each of them.
Element Competitors: Knowing about valuable market segments alone is not enough; it has
also to be taken into consideration what (potential) competitors products and prices are like.
Element Price Formation: The question why
or why not a customer purchases a certain product
is a result of many different factors. One of the
most important ones is the price. The element
Price Formation considers aspects that influence the determination of a products price such
as cost for development, competitors prices, and
price readiness of customers.
Element Customer Behavior: Depending on
various influences from other elements and also
the environment, a customers decision for a
product is modeled in this element. Individual
decisions are aggregated to quantify the behavior
of the identified market segments.
The individual elements are now introduced in more
detail and their interrelations to other elements are
identified. The market model was developed with two
levels of resolution (A and B) as shown in Figure 3.
Level B has more parameters than Level A, but, for
illustration, the methods and examples within this paper
are implemented at Level A.
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To analyze the identified market segments, a portfolio analysis is performed. The produced portfolios are
used to display the different requirements versus each
other and to visualize where promising market segments lie. Using an interrelation to the conceptual design model, it is possible to map the current design into
the portfolios in order to see which ones can be penetrated and which not. Two types of portfolios are generated. On the one hand, portfolios are used, where the
bubble size indicates the number of applications that
have the same requirements and that lie at the same
point in the requirements space. On the other hand,
the pure number of applications is not meaningful when
it comes to quantifying the companies economical success. Therefore, the element Market Segmentation is
linked with the element Market Size that provides
information on the market volume of the different market segments. An example of the portfolio that results
from the segmentation process and the combination
with numbers for the market volume is shown in Figure
6. Two technical parameters (Accuracy and Time-toAlarm) are displayed versus each other. The position of
the market segments is defined by the customer requirements. The bubble size of each segment is proportional
to its market volume. Depending on the preferred design decision makers are able to quantify immediately
what the potential financial income will be for a certain
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VOLLERTHUN
Figure 6. Portfolio analysis of the market volume of selected satellite navigation applications [Color figure can be viewed in the
online issue, which is available at www.interscience.wiley.com.].
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Uik = i xijk .
j=1
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VOLLERTHUN
Figure 10. Integrated market model [Color figure can be viewed in the online issue, which is available at www.interscience.
wiley.com.].
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displays the forecasted revenues for a satellite navigation system versus the horizontal accuracy of the system
(any technical parameter can be selected). The curve
that is shown represents the increasing (from right to
left) revenues as the design improves (meaning the
more precise the navigation system can be). The curve
was generated by analyzing the accuracy requirements
of nearly 180 satellite navigation applications and related revenue forecasts [Dragon, 2000; Frost and Sullivan, 1998; Intex Management Services, 1998;
Vollerthun and Wieser, 1999]. Also visualized in Figure
11 are the performance characteristics of the existing
GPS system and of the conceptual design for the Galileo
system (each for open and controlled access services).
As can be seen, GPS can provide the highest accuracy.
Unfortunately, there is no guarantee that this signal is
available at all times. Considering guaranteed qualities
Figure 11 reveals that Galileo may have significant
advantages compared to GPS and could be able to
generate 8 billion EURO revenues per year.
Next to the integration of the market model with
conceptual design and cost estimation techniques it is
important to also integrate the presented method with
methods that are used in companies today. The follow-
Figure 11. Typical output of the combination of the market model with the conceptual design [Color figure can be viewed in the
online issue, which is available at www.interscience.wiley.com.].
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VOLLERTHUN
3. BENEFITS
Cash Flow Analyses. As was pointed out in the Introduction, companies in space business today face the
problem that they have to compete on a commercial
market and that the methods they use are not perfectly
suited for this kind of environment. One main problem
is that the state is no longer the contractor, but a customer who wants the spacecraft builder to make the
required investment and sell services. Existing methods
are not able to answer questions related to business case
analyses in an appropriate short time and quality [Astrium, 2000]. The presented model was developed to
support these analyses, and it therefore consists of a
model to do the conceptual design, of a model that
relates this concept to the cost that it defines, and, third,
of a market model, determining what revenues can be
generated. By integrating these three dimensions into
one design methodology, integrated business case
analyses can be performed in a much more effective
way.
Figure 12. Design-to-market process for the application of the integrated product/cost/market model [Color figure can be viewed
in the online issue, which is available at www.interscience.wiley.com.].
One approach to evaluate a business case is to determine a cash-flow curve and the break-even point and to
derive a Return-on-Investment (see Fig. 12) for a potential financier. A cash flow curve consists of three main
elements: (a) a display of costs arising during the project time, (b) the corresponding financial commitments
of investors, and (c) the revenues generated by selling
products and/or services. Figure 13 shows the typical
results of a business case analysis by displaying, cost,
investment, and liquidity curves in the upper part and
combining those with market revenues (calculated in
the element Market Sizes) to determine the entire
cash-flow curve in the lower part of the diagram. Also
the effects of changes in any variable can be investigated in a quick manner. Sensitivity analyses with respect to taxes, inflation, exchange rates, etc. can be
analyzed as well as modifications in customer behavior
or other elements of the market model (see also Fig. 13).
Market Robustness. Given the focus of the paper,
a measure of effectiveness is introduced to quantify the
Market Robustness of various design alternatives in
different market segments (derived from Phadke
[1990]). For a considered design, Market Robustness
combines the economical attractiveness (e.g., market
volume) of a market segment with the prospect of the
current design to penetrate this segment (a corresponding portfolio is visualized in the upper right corner of
Fig. 16).
To evaluate the Market Robustness of a design alternative, two values have to be determined: The economi-
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a
b .
xRef yRef
RM,total =
i=1
xi xRef,i
.
xRef,i
Figure 13. Cash-flow analysis with the integrated business case model [Color figure can be viewed in the online issue, which is
available at www.interscience.wiley.com.].
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VOLLERTHUN
Figure 16. Implementation of the market model for Galileo [Color figure can be viewed in the online issue, which is available at
www.interscience.wiley.com.].
look at Figure 15, the reader could assume that the less
expensive product has a too low market share: This
effect results from the considered market segment,
which is an upper class market segment from the customer attributes point of view.
4. CONCLUSIONS
In Figure 16, the interdependencies among the elements
of the market model are summarized again using the
development of the European satellite navigation system Galileo as a reference. In a stepwise (see steps
112) approach in which the market is segmented with
respect to identified requirements, a competitors analysis is performed, as well as possible prices and customer
reactions are investigated. Combining market measures
and technical parameters within the parameter Market
Robustness, a measure of effectiveness is derived to
compare different design alternatives. This modelbased approach gives interdisciplinary product development teams a means to easily assess the outcome of
various design decisions.
Another, more cultural benefit results from the integration of engineering and marketing methods: The
emerging tool serves as a communication medium
between (traditionally separated) engineering and marketing departments. Information gaps can be closed by
this integration, and the design can be validated against
changing market situations in a much more efficient
way. The model helps systems engineers to focus product design more on markets. One aspect that the reader
has to keep in mind is that the model can be used by
engineers, but that the modeling of markets and especially customers behavior requires profound professional experience. Therefore, from the authors point of
view, it is mandatory that the marketing discipline be
integrated into (concurrent) design teams. Next to this
organizational integration, parametric models and their
interrelation with product and cost models will speed
up the design process and ensure a Design-to-Market.
This approach also contributes to an increased systematization in the concept design phases, and it enables more transparency to those who have to select
design features. The methodology can also be used to
analyze the determined market segments and their market volume with respect to potential niches. It can also
serve as a starting point to develop derivatives or to form
a platform concept that is the basis for a product family
[see, e.g., Gonzalez-Zugasti and Otto, 2000].
As part of a major technology development program
between industry and national research institutes (for
the development of future commercial satellite systems), the integrated model presented in this paper was
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ACKNOWLEDGMENTS
The author would like to acknowledge the many students at the Technical University of Munich who supported this work. A very special thank you to Dr. Robert
Shishko, who contributed a lot to this paper by giving
valuable feedback and ensuring good English readability.
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Andreas Vollerthun is currently CEO of the 3D Systems Engineering GmbH, a spin-off of the Technical
University of Munich (TUM), Germany. He received a Ph.D. from Technische Universitt Mnchen
(TUM) in Systems Engineering in 2001. He also received a Master of Engineering degree from the TUM
in aerospace engineering in 1997 after completing his master thesis at NASAs Jet Propulsion Laboratory
(Pasadena, CA, USA). His research and professional activities focus on the model driven design process
in interdisciplinary design teams and the significance of economical aspects in early design phases.
Andreas is a founding member of the German Chapter of INCOSE.