Transcript Slide 1

M A RKETING
M G T.
S I M U LA T I ON
Week 4
M A RKETING
M G T.
S I M U LA T I ON
M A RKETING
M G T.
S I M U LA T I ON
Most Basic Principle
Guiding Your Decisions:
Increase
Demand for Product
• will it
• Decrease Cost
of Mfgg Product
M A RKETING
M G T.
Increase Product Demand
Driven by Effective Mgt of 4 P’s
S I M U LA T I ON
• Product Mgt.
– Introducing new brands, Repositioning
/ killing old brands
• Promotional Mgt.
– Optimizing Segment & Media Vehicle
budget allocations
• Distribution Mgt.
– Optimizing Outside & Inside Salesforce size & segment allocations &
– Manufacturer-Rep support / Distributor
relationship building allocations
• Pricing– Competitive pricing & Fine-tune A/R
M A RKETING
M G T.
Decrease Mfgg Costs
S I M U LA T I ON
Effective Mgt of two other P’s:
• People
– Investments in HR,TQM & PI
• Plant
– Investments in automation
& capacity mgt.
M A RKETING
M G T.
Increase Demand
S I M U LA T I ON
• Driven by
Effective
Mgt of 4
P’s
M A RKETING
M G T.
Product Mgt. Options
S I M U LA T I ON
For every product you
market-you have 3
options-
• Improve it-
• Reposition it –
to compete in another
segment
• Kill it- sell off capacityreinvest recovered capital
Reposition
to
increase demand in current
segment
M A RKETING
M G T.
S I M U LA T I ON
Consequences:
Improving a product…
PRO’s:
• Should increase
sales & market
share
• Rightsizing
capacity– if too high-frees capital
for investment
– If too low- forestalls
stockouts
Con’s:
• Proffering a betterprice, design and/or
higher awarenessaccessibility- costs
$$$
• High Tech segments
can take 2+ years• Increases SG&A
budgets & thus
squeezes margins…
M A RKETING
M G T.
S I M U LA T I ON
Questions need to answer if
plan on improving a product…
1. What are your limits -How
much can you cut price?
Increase R&D…
Promotion… Sales Budget?
2. Competitor movesimproving existing brands in
seg. and/or introducing new
brands in seg.
M A RKETING
M G T.
S I M U LA T I ON
Variation on Improving… Can
Reposition
Can allow product to age
gracefully and ride the
life cycle
Can redirect trajectory of
brand position into
adjacent segment
M A RKETING
M G T.
S I M U LA T I ON
Questions need to answer if
plan on repositioning a
product…
1. How long will it take?
2. Material & labor cost
implications?
3. Impact on products in
segment entering?
Leaving?
In final analysis–
You Could decide to
Kill
M A RKETING
M G T.
S I M U LA T I ON
M A RKETING
M G T.
S I M U LA T I ON
Questions need to answer if plan
on Killing a product…
1. How many products do you plan
to have overall?
2. Going to add a replacement in
this or another segment?
3. Kill immediately-or phase out?
4. Other options- Improve?
Reposition?
5. How will competitors react?
M A RKETING
M G T.
S I M U LA T I ON
Consequences:
Killing a product…
1) Makes it difficult
maintain Overall Market
Share
– Even if Niche strategyshould increase share in
selected niche(s) to offset
loss in abandoned
segments…
• Investors-like to see Co.
maintain overall starting
share….
M A RKETING
M G T.
S I M U LA T I ON
Consequences:
Killing a product…
If not replaced:
2) Hands over Market
Share to competitors
3) Removes strategic
opportunity for
distribution $$
efficiencies….
M A RKETING
M G T.
S I M U LA T I ON
Segment Consequences:
Killing a product…
• LOW TECH Segments:
Kill the Cash Cow
– In opening years 2/3’s volume &
profit from Low & traditional
sectors
• HIGH TECH Segments:
Difficult to re-enter, could take
up to 3 years to launch new
prdt.
M A RKETING
M G T.
S I M U LA T I ON
Your & Your Competitors
Product Mgt. Decisions
Impact nature, magnitude
& arena of Competition
Must monitor & anticipate
what, where & when…
products repositioned,
killed, introduced
M A RKETING
M G T.
Let’s assume……
S I M U LA T I ON
• LOW
END: 0-1 product killed.. 0-1
repositioned or introduced
• TRADITIONAL: 3-6 repositioned
from High…0-1 killed…1-2 introduced
• SIZE: 0-1 killed, 0-1 repositioned to
Traditional, 1-2 introduced
• PERFORMANCE: 1-2 killed, 0-1
repositioned to Traditional, 0-1
introduced
• HIGH: 1-3 killed or repositioned to
Traditional, 1-3 new products arrive in
rounds 2 or 3
M A RKETING
Round 3- Forecast
M G T.
nature, magnitude & arena of Competition
S I M U LA T I ON
• LOW
END: 6 products=rivalry
unchanged
• TRADITIONAL: 9 products,
w/ 3 repositioned= increased
competition
6
9
7
4
6
• SIZE: 7 products, w/ 2 new=
increased competition
• PERFORMANCE: 4
products, w/ 1 new= reduced
competition
• HIGH: 6 products, w/ 2 new=
increased competition
M A RKETING
M G T.
-Given Round 3 Scenario-
S I M U LA T I ON
How should adjust your production capacities?
Traditional
Round 01st shift
Capacity
1800
Round 3Unit
Demand
1068
Low End
1400
2081
High End
900
668
Performance 600
823
Size
469
600
M A RKETING
M G T.
Optimal levels of capacity?
S I M U LA T I ON
M A RKETING
M G T.
S I M U LA T I ON
Optimal levels of
automation?
M A RKETING
M G T.
S I M U LA T I ON
Once have optimal levels of
capacity–
Need to have most efficient
levels of production costs
M A RKETING
M G T.
S I M U LA T I ON
How to have most efficient levels of
production costs
 Reduce Material costs
• Proffer minimal/optimal level
MTBF
• TQM/Sustainability Initiatives
• Process Management Initiatives
 Reduce Labor costs
• TQM & PI Initiatives
• Increase automation
• Invest in employee recruitment
& training
• Utilize 2nd shift
?
• Increases length
R&D on product
line-–makes repositioning take
longer
• Incur employee
separation costs
• w/ maximum
expenditures can
realize 18%
improvement in
productivity in 6
years!
M A RKETING
M G T.
S I M U LA T I ON
Why run 2nd shift –when
labor costs 50% higher?
M A RKETING
M G T.
S I M U LA T I ON
Why run 2nd shift –when
labor costs 50% higher?
Answer by using your proformas:
1- On production spreadsheet
build at capacity- if have 1000
units – build 1000 units
2-On Marketing displayFORECAST 1000 UNITS
3.-ON Proforma Income
statement- note NET MARGIN –
THE BIQ Q: If we double sales will
we double our net margin?– Will we make
less because labor costs are 50% higher
for 2nd shift?
M A RKETING
M G T.
S I M U LA T I ON
Why run 2nd shift –when
labor costs 50% higher?
Answer by using your proformas:
1- On production spreadsheet
double output-run full 2nd shift
2-On Marketing display- double
forecast
3.-ON Proforma Income
statement- NET MARGIN –will
more than double
THE BIQ Ar: When run 1 shift-
must pay all fixed costs- 2nd shift
gets a free ride---only has to pay
labor premium…
M A RKETING
M G T.
S I M U LA T I ON
Now that that you are producing-in the most efficient manner-- a
“perfectly designed” product
• need to
make sure
“maximum #”
consumers
are aware of
it & can
“easily” buy
it…
M A RKETING
M G T.
Moving Product
S I M U LA T I ON
Message Weight &
Media Planning
 Breadth, Depth &
Heft of Distribution
Network
 Optimal Pricing &
Credit Terms
M A RKETING
M G T.
S I M U LA T I ON
Advertising/Promo Budget
Drives Awareness
Increases in Promotion Budget have
diminishing returns. The first
$1,500,000 buys 36% awareness;
Spending another $1,500,000 (for a
total of $3,000,000) buys approximately
50%. The second $1,500,000 buys only
14% more awareness.
-- a $1,500,000 promotion budget would
add 36% to the starting awareness, for
a total awareness of 69% (33% + 36% =
69%).
Advanced Marketing: The Marketing Budget Detail screen allows companies to allocate their Promo
Budget among five different media channels. Projections of the upcoming round's awareness display in a
bar chart at the bottom of the spreadsheet screen.
When new products are invented, considered newsworthy events. Awareness is created w/ PR campaign. At
launch you automatically are charged a $250 thousand fee for marketing rollout and public relations. This fee
earns a new product a starting awareness of 50%
M A RKETING
M G T.
Sales Budget Drives Access
S I M U LA T I ON
• Like awareness, if your sales budgets
drop to zero, you lose one third of your
accessibility each year.
• Achieving 100% accessibility is
difficult. Companies must have at least
two products in the segment's fine cut.
• Each product experiences diminishing
returns at a sales budget of $3,000,000.
However, diminishing returns for the
overall segment is not reached until the
budgets total $4,500,000 (for example,
two products with sales budgets of
$2,250,000 each).
• Once 100% accessibility is reached,
you can scale back to around
$3,300,000 to maintain 100%.
M A RKETING
M G T.
S I M U LA T I ON
Fine tuning
your Promo,
Sales &
Pricing…
M A RKETING
M G T.
S I M U LA T I ON
Promo Budget
M A RKETING
M G T.
S I M U LA T I ON
Sales Budget
Time Allocations
Decide on how many
salespeople & Mfr
Reps will have:
• OUTSIDE
How much effort will be
focused on market
segments:
sales-meet face-to-face (cost $120K/each)
• INSIDE sales-works leads & operates website &
customer support systems (cost $50K/each)
• Distributors: push product (cost $100K/each)
M A RKETING
M G T.
Pricing / Credit terms
S I M U LA T I ON
A/R Lag: (in days) is the time between
customers receiving products & when they
are expected to pay for ‘em
• No credit - demand falls to~ 65% of normal.
• At 30 days - demand is 92%.
• At 60 days - demand is 98.5%
• At 120 days - demand is 100%.
The longer the lag, the more your cash is
tied up in receivables.
M A RKETING
End Game Strategy
M G T.
S I M U LA T I ON
M A RKETING
M G T.
S I M U LA T I ON
If Company well managed- no
need to take drastic actions
• Balance Sheet
– Current ratio= 2-2.5
– Leverage= 1.5-2.5
– Sales/Current assets=
3-5
• Income Statement
– Contribution Margin=
30%+
– ROS=5%+
•Production #’s
–Plant
Utilization=150%+
–Inventories= 1-90 days
•Income Statement
–Customer
satisfaction=40+
–Awareness=80%
–Accessibility=80%+
M A RKETING
M G T.
S I M U LA T I ON
End-Game Moves of a
Poorly Performing Company
• X-Large dividends &
Stock buy-backs
• Products killed & large
sell off of capacity
• R&D, Ad & sales budgets
slashed
• No plant investments
M A RKETING
M G T.
S I M U LA T I ON
End gaming is indicative
of BAD MGT-
• Can only occur if Co.
has unproductive
assets…
• Eliminate
unproductive
assets early & will
have no rational for
madness
M A RKETING
M G T.
S I M U LA T I ON
• Current ratio 2+
indicates no idle
assets
• Plant Utililization
150%+ - no plant to
liquidate
• Great products (w/
Cust. Survey Scores
40+) never Killed
M A RKETING
M G T.
S I M U LA T I ON
Rounds 6,7,8- should be
most profitable
Things you can do
w/ your $$$
Pay off Debt
Invest in growth
Buy-back stock
Pay dividends
Which most
often selected
but least
preferable to
do?
M A RKETING
M G T.
Reducing Leverage
S I M U LA T I ON
• Says to stockholders— “We can
think of nothing better to do
w/ $$ than save you interest
payments”
– More debt eliminated the greater
target you become for a
takeover..
• No reason not to maintain Co.
Financial Structure that got you
to position of high profitability…
M A RKETING
M G T.
S I M U LA T I ON
Net profit can only
be allocated in
one of two
directions:
• It is either paid
out to owners in
dividends
• or it is Retained
Earnings - to
grow the
company
Issue Dividends
Good Dividend Policy
For Example:
• Ideal Investment/ round = $1025M ( let take $20M)
• if profits=$30M & Shares = 2M…
you have EPS= $15/share
• If need $20M for investment – get
½ from LT-debt- need $10M from
Equity—leaves $20M in earnings…
• Could/should issue $10 Dividend
M A RKETING
M G T.
S I M U LA T I ON
Begin Practice
Round 1 decision
making….