What is Market Engineering?

Apr 3, 2017 5:29:10 AM

Market engineering pursues the goal of making a market work as efficiently as possible. From the design to transaction process, this concept of addressing a market is useful for implementing new policies and proposing principles that keep company goals and approaches aligned. 


Integrated, Holistic View

Since the term "market" has been used in many different contexts that ranges from a store, to a chain, to a stock exchange, to even broader activity, a business must adopt a stricter definition. In order to understand market engineering, it helps to start with a solid definition of a market, which is as follows:

A market is a set of rules that structure how costs are set and information is exchanged in order for transactions to generate a desired profit.

The foundation for determining costs and pricing is deeply rooted in supply and demand conditions. Other factors that shape a market include the set of constraints determined by the marketer, survival strategies, an information processing system, business activity and a marketable service. 

Market engineering involves creating a conscious and well structured system of procedures for analyzing and re-engineering an efficient market that facilitates transactions. 

Elements to analyze 

  • market lifecycle
  • market engineering object
  • market engineering processes

Various activity that occurs within a market can be closely associated with lifestyle. The type of people who are attracted to a particular product or service may be connected based on their lifecycle choices. They may like adventure or convenience, which can be reflected in the product's benefits. The four phases of a product lifecycle are:

  1. emerging
  2. growth
  3. maturity
  4. decline

Market Lifecycle

New markets emerge outside of existing traditional markets, as a result of imaginative solutions to market problems not being served. Usually R&D and engineering are the focal points of this phase, as designing and testing shape the product and the marketing strategy. The product may not be profitable yet, regardless of high expectations.

Growth occurs from promotion and responding to market feedback about quality. It may attract new competitors who see openings in the market. During growth periods, a top concern may be refining IT systems and personnel. 

When competition escalates in the growth phase, it gives market participants many advantages. This stage attracts competitors on eBay, adding B2C and C2C players who affect the marketplace. Buyers now have online auction options to bid for the lowest prices. Meanwhile, sellers use the same platforms to try to sell at the highest prices. Such platforms help expand market choices. 

Maturity represents a streamlined product in its most efficient form. At this phase operators pay closer attention to costs and how to gain an edge over competitors. It's the period in which prices may fall due to increased competition trying to offer the best deals. It's at this stage that the market engineer must decide if the product needs to incorporate new features for survival in a crowded market.

Decline is a phase in which the product has run its course in serving a purpose. It may be surpassed in quality by other products or people have moved on to other concerns. The product may have only been envisioned to make a disruptive impact for a certain length of time. When the goal is to release a series of products, a short-term product can set up a long-term product. 

Some markets are regulated in a manner that only so many players  are allowed to compete, as in the licensing of radio and television broadcast stations. Other markets occur "naturally" with wide open opportunities and are not shaped or controlled as much by regulators.

Market Engineering Object

The most crucial elements of a market that can determine success are collectively known as the market engineering object. Viewing a static diagram that lists the most important components of a market is another way of understanding this model. The main components include:

  • Market Outcome Agent Behavior
  • Market Structure: microstructure, IT infrastructure, business structure
  • Transaction Elements
  • Socio-economic and Legal Conditions

A market engineer must design a transaction object that fits the expectations of the desired market outcome or performance. The engineer also designs the market structure, which includes all the details of how the business and technology work together. But the transaction object and the market structure are only instrumental for success and do not have a direct impact on the market outcome. Behavior of the market participants will determine what actually happens, making it challenging for the market engineer to see ahead of the curve. 

The socio-economic and legal environment is outside the control of the market engineer. Applicable laws determine much of the framework and context in which business planners must operate and plan for the future. 

Market Engineering Process

A more detailed model of the market lifecycle is needed to map out the market engineering process of a market institution. This process begins with an environmental analysis, which looks closer at transactions, participants, customers and market requirements. At this phase the market engineer must identify tools and methods that will allow the business to reach its goals using the most cost efficient methods. At this stage, tools and methods listed in the preliminary design are modified or omitted to reflect the most useful choices to help increase productivity and efficiency. 

Deciding on Methodologies

Methodologies are the part of market structure that determines systems that speed up productivity, leading to a more efficient operation. Choosing consistent methods helps save time in determining costs, work schedules and product quality. Rules and guidelines need to be set so that managers can train employees to perform with self-discipline, which yields better results.

Conclusion

The reason businesses should explore market engineering before rushing into a launch is that it will help them structure the business so that it fits into the market. This process answers questions about how transactions will be made and how other market components will work together. The key is to integrate multiple marketing concepts with attention paid to detail as far as research and design.

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References

Market Engineering: An Interdisciplinary Research Challenge (2007), by Christof Weinhardt and Henner Gimpel

Image: "Numbers and Finances" courtesy of SeniorLiving.org, Flickr (license: CC by 2.0)

 

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