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Marketing in Project Business

I. Characteristics and Marketing Features of Project Business

In contrast to product business, in project business the supplier's perspective changes from considering
anonymous markets to individual customers. Target groups for marketing measures are individual customers
or a small number of customers. A performance is marketed in project business whenever the performance
is a customer-specific hardware or hardware/software bundle for the production of further goods or services
that is delimited by its marketability. The hardware and software elements are largely produced in single-item
and small-batch production and are often assembled into functional units at the customer's site (cf. Working
Group "Marketing in der Investitionsgüterindustrie“ der Schmalenbach-Gesellschaft 1975, p.757; Arlt/
Backhaus 1977, p. 20; Engelhardt 1977, p. 3). International literature also refers to the marketing program as
Project Marketing (cf. Cova et al. 2002) or Systems Selling (cf. Mattsson 1973).
The performances marketed in project business are characterised on the one hand by the fact that there is
no temporal purchase connection to other performances (cf. for another view e.g. Skaates/Tikkanen, 2003
or Cova et al, 2002, pp.43). In contrast to marketing processes in system or integration business, a
performance marketed in project business does not determine, limit or - generally speaking - influence any
further purchasing processes on the part of the customer. On the other hand, products marketed in project
business are customised performances (projects) by the supplier. In contrast to product and system
business, the marketing process is carried out before the manufacturing process, since the customised nature
of the performance prevents production prior to marketing. First, the customer defines his demands, which
then initiate the corresponding processes in the manufacturer's value chain. This often requires coordination
with the customer during the various stages of the production process. Kleinaltenkamp describes this as
customer integration (cf. Kleinaltenkamp 1997 and 1995b; Kleinaltenkamp et al. 1996).
Performances characterised by these transaction features are often large industrial plants, e.g. refineries and
rolling mills, but also infrastructure facilities, e.g. from the energy, transport, telecommunications, water supply
and wastewater disposal sectors. However, even projects with a smaller value volume can fulfil the
characteristics of project business, e.g. handicraft services, advertising agency services, etc.
In general, project business is characterised by considerable risks for the parties involved due to its
customer-specific nature (cf. e.g. Remy, 1994; Cova et al 2002, pp.23). The general characteristics of project
business are summarised in the following example.

Case Study Trianel Ltd.

Trianel Ltd. is an association of municipal utilities established in 1999, which in 2009 included more than 40
municipal utilities from Germany, Austria and Switzerland. The company's objective is to enable municipal
electricity and gas suppliers to achieve an independent market position in the liberalised European energy
market. For this purpose, the company also constructs and operates its own power plants (see e.g. Figure
170). Since the early 2000s, the company has been examining and planning the construction of a new-coal-
fired power plant in Lünen. A net capacity of 750 megawatts was planned for the new power plant, which was
supposed to supplement the existing power plant there. This corresponds to the supply of up to 1.6 million
households.
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Various consortia of suppliers which comprised companies from different sectors in order to combine their
competences in certain areas were involved in the project until it was awarded. Siemens AG, for example,
worked on this project with the Japanese boiler manufacturer IHI and the Austrian company Austrian Energy
& Environment (AE&E). IHI, as a world leader in constructing correspondingly dimensioned tower boilers,
and AE&E, as a flue gas cleaning specialist, complement the range of services offered by Siemens AG, which
focuses primarily on supplying the steam turbine and generator, as well as the electrical and I&C systems, in
a useful way. Even though the consortium had already collaborated on other projects, the construction of the
Lünen power plant presented a special challenge, since various technical and customer-specific requirements
had to be taken into account.

Fig. 170: Aerial view of the coal-fired power plant under construction in Lünen, Source:
Trianel, 2014.
Since the customer, Trianel Ltd, is not a specialist in power plant construction but solely in power plant
operation, a turnkey construction of the plant was agreed with the consortium led by Siemens AG. Considering
the high technical complexity, the project participants expected the construction to take at least 4 years.
Both the Trianel Ltd. and the consortium of suppliers were fully aware from the beginning that the planned
project volume of € 1.4 billion could still vary during the construction period. For instance, various permissions
were still outstanding, some of which were only granted subject to conditions and led to a change in the
technical concept. The power plant was commissioned in spring 2014 after a planning and construction period
of about 5 years.
The characteristics of project business (individual customer reference of the transaction, no temporal
purchasing association) result in some typical marketing-relevant characteristics for project business (cf.
also Skaates/Tikkannen, 2003, pp.504.; Königshausen/Spannagel, 2004, pp. 126).
 Individual Production Based on the Order of a Customer
As plants are tailored individually to the customer by the supplier, the type and scope of the performance is
only determined during the acquisition process. This not only means that the marketing process takes place
before the manufacturing process, but also that there is hardly any comparability between different projects.
Therefore, marketing processes in project business are characterised by increased interaction complexity
between supplier and customer (in the case study "Trianel Ltd", the technical concept was developed in a
long-term process between the customer and the supplier consortium).
 Variability of the Scope of Supply and Contract Content
There are particular decision-making problems due to the fact that the scope of the contract changes during
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the entire acquisition phase and often even after the contract has been concluded between the customer and
the supplier. This planning risk is increased by the fact that, depending on the type of contract awarded and
the contract content, there may be several possible solutions for fulfilling the contract (uncertainty regarding
the contract content). Thus, it is possible that different existing solutions can be used in the context of a tender.
While in this case the problem of uncertainty can be taken into account by alternative planning for the individual
solution variants, considerable problems arise if there are no existing known technical solutions for the contract
problem and they must first be developed by the bidder (cf. e.g. Backhaus, 1980). In the above-mentioned
case study, for example, subsequent requirements may force the supplier to develop technical solutions to
meet the requirements.
 Know-How Gap
As performances marketed in project business do not have a temporal purchasing association and hence no
product-specific know-how is gradually acquired by the customer through successive procurement, there is
often a know-how gap between the supplier and the customer in project business. Customers try to reduce
this gap, in some cases by involving consulting engineers, so that the buying centre is enlarged, which also
changes the overall demand behaviour. In the case study "Trianel Ltd.", the network of municipal suppliers
did not have any comprehensive experience prior to the award of the contract, as the project was the first
baseload power plant to be operated exclusively by municipalities.

 Discontinuity
“Project business is characterized by a high degree of discontinuity in economic relations between the
supplier and the customer. In fact, a customer from a developing nation who wants to be equipped, for
example, with a hydroelectric dam or a refinery will not buy the same type of equipment for many years to
come. In this case, unlike the repetitive sales of industrial services and products, we cannot consider
supplier/customer relations to be cultivated by frequent transactions.” (Cova et al , 2002, p.20). Consequently,
it is necessary that the focus of marketing efforts is on managing the interaction process in the context of a
single transaction.
 Cooperative Supplier Communities
The technical complexity of large industrial plants often prevents a supplier from providing all the partial
performances independently. This is why large-scale plants are often not built by individual suppliers but in
cooperation with several companies, possibly in the form of joint ventures, general contractors, consortia or
export consortia with various sub-forms. Negotiations on the organisation of the bidding consortia can extend
over the entire acquisition phase and pose particular coordination problems: The respective suppliers are not
entirely free in their actions once they have submitted their bids - possibly even earlier - as these must be
considered with regard to the interest of the other suppliers. In the case study "Trianel Ltd", for example,
Siemens AG, the Japanese IHI and the Austrian AE&E cooperated in a consortium under the leadership of
Siemens, which forced the participating companies to closely coordinate their project-specific commitment as
early as the acquisition process.
The necessity to cooperate with other companies in a consortium depends on the scope of performance that
the plant supplier in question can provide or is prepared to provide within the framework of a specific project.
In this context, companies active in project business can be assigned to different types of business models,
whereby they may well change their business model from project to project (cf. Zoller, 2001, pp.670, pp.681).
Here, a distinction must be made between core component suppliers and plant construction companies:
- Suppliers of Key Components are limited to the delivery, assembly and commissioning of the key
components they offer (e.g. turbines or generators in power plant construction). Moreover, only those services
are provided that directly relate to the key component supplied in each case. Coordinating tasks relating to the
entire plant are delegated, for example, to a consortium partner or general contractor.
- Furthermore, plant construction companies assume responsibility for the planning, completion,
assembly and commissioning of the entire plant. The individual plant components are either manufactured and
delivered by the company itself or by one or more key component suppliers. In addition, plant construction
companies often provide further services, such as maintaining the plant, training the operating staff and
arranging financing (cf. Grill-Kiefer 2000, p.126).
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Plant suppliers increasingly remain operators and/or co-owners of the plant for a limited or unlimited period
beyond the time of operational availability. This leads to the realisation of so-called operator models. Within
the framework of an operator model the client transfers the overall responsibility for a plant project to the
supplier.

Besides the construction phase, the contract period covers a significant part of the plant's operating phase. In
addition to the construction and operation of the plant, the plant supplier is responsible for financing the project.
The project is financed as an independent economic unit and is usually realised by a legally independent
project company in which the plant supplier often has a stake (cf. Hintze, 1998, p. 8).
The realisation of an operator model results in further advantages for the customer beyond the actual
realisation of the project: One of these is the technology transfer that results, for example, from the usual
training of local workers before the plant is handed over by the operator; public customers also benefit from
higher efficiency and cost-effectiveness in the private handling of the project (cf. Hess, 1992, p. 2). On the
other hand, the offer of an operator model can provide the plant supplier with numerous new sales markets.

II. Marketing in Project Business: A Phase-Specific Approach

1 The Phases

The special characteristics of project business, especially in the form of plant business, show that the
marketing process takes a relatively long time due to its complexity. It can be demonstrated that clearly
distinguishable (sub-)phases can be defined in which different marketing problems become virulent, so that
it makes sense to deal with marketing decisions in project business in a phase-specific manner.
Figure 171 shows the phase sequence of the project business (cf. Backhaus/Günter, 1976;
Königshausen/Spannagel, 2004, p. 128).

Inquiry/tender Commissioning Approval

Operation
Tender Customer
Advance Processing Warranty Service
preparation negotiations
inquiry

Tendering Commissioning End of warranty

perman 6 months up to 1 Ø 2 years up to 3ß

ent year years

Fig. 171: Phase diagram of plant marketing in project business

Source: Backhaus/Günter, 1976.