Transcript No Slide Title

Market Driving Strategies
Markstrat Introduction
1
Markstrat Markets
Consumer durable products
– like consumer electronics
Two independent product markets
– existing product market: Sonites
– potential product market: Vodites
2
Your Objectives
Develop a profitable business
– Financial performance during the 8
decision periods
Profitability
Growth and growth trend
NPV of investment to buy firm
– Competitiveness beyond decision 8
Quality of brand portfolio
Growth potential
3
Your Decisions
Manage brand portfolio
– Market/segment entry and exit
– Positioning and repositioning
– New product development
For each brand in your portfolio
–
–
–
–
Production
Price
Advertising
Sales support
Limited budget to pay for marketing
(resource allocation)
4
How Is the Budget Determined?
budget for
period t
minimum
maximum
40%
net contribution
in period t-1
5
What Will Happen?
8 decisions - 4 phases
– decision 1
Limited in scope to help you familiarize with software,
team, etc.
Work with “inherited” starting position
– decisions 2 to 4
Develop and implement your own strategy
– decisions 5 to 8
Turnaround, continue to improve or stay ahead
Markets become much more competitive
– Markstrat reports / summary
Reflect on learning
6
Markstrat 3
Administration & Rules
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Process
MS3
P2
...
START
MS3
P1 MSPH
8
Process (e.g., Decision 2)
May 29, 2007, 14:00
– Download Markstrat file
from server to laptops
Until 15:30
– You are on your own to
plot your strategy and
work on your decision in
your team cubicle
– Computer and network
help: x5617
From 15:30
– I will be available to
answer your strategy (and
technical) questions
Decision is due by 17:00
– Submit decision
(You must submit decision
from only one computer)
Until 19:15
– Have a short team
meeting to discuss your
group and decision
processes, and ways to
improve them for future
decisions
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Things to Remember
Deadlines are enforced
– Penalty of $200,000 per minute for late
submissions
– Proceeds will go to other teams of industry
Budgets are given, do not overspend
– Program will cut spending automatically
– If we have to adjust your spending to avoid a
catastrophe, we will charge you for that
‘service’
Decisions are classes
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… One More Thing
Submitted decisions are final and cannot
be changed after the simulation has run
– Avoid entry errors - they can be costly
Understand what you enter in program
Someone enters, someone else checks input
Print hardcopy to check and as a record
– Do not ignore warning or error messages when
entering or submitting your decision
– I cannot complete incomplete decisions,
program assumes some default, which may
not always be best or what you wanted
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Markstrat 3
Environment
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Market Segments for Sonites
Singles
Professionals
Si
Pr
Buffs
High Earners
Hi
Others
Bu
Ot
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Technical Attributes of a Sonite
Weight
Kg
Design
Volume
Index
dm3
10 - 20
3 - 10
Max. Frequency
20 - 100
Power
Base Cost
W
kHz
$
5 - 50
7/21/2015
5 - 100
min. 10
14
Technical Attributes of a Vodite
Autonomy
m
5 - 100
Design
Index
Max. Frequency
kHz
5 - 20
Weight
Diameter
mm
10 - 100
Base Cost
g
$
3 - 10
7/21/2015
10 - 100
min. 10
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Market Segments for Vodites
sales
Typical segment size evolution over time
Followers
Early Adopters
Innovators
time
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Channels of Distribution
Specialty
Stores
Department
Stores
Mass
Merchandisers
Channels differ with respect to
organization, objectives, behavior, ...
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Channels of Distribution
Prices and Margins
Specialty Stores
Department
Stores
Mass
Merchandisers
Average
Retail Price
Distrib.
Margin
Recommended Retail Price = $ 100
Average
Selling Price
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Channels of Distribution
Prices and Margins
Specialty Stores
Department
Stores
Mass
Merchandisers
Average
Retail Price
$100
$100
$90
Distrib.
Margin
$40
$30
$27
Average
Selling Price
$60
$70
$63
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Markstrat 3
Decisions
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Market Research
Segment size forecasts
Market share information
– By segment and channel
Information on customers
– Brand awareness & purchase intentions
– Shopping habits
– Brand preferences & perceptions
Market sensitivity to advertising and sales
force
Information on competition
– Financial performance
– Advertising spending & sales force size
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Pricing
You set the recommended retail price
– Your sales are based on your price to
distributors, which is 30% to 40% lower
depending on the channel
You are free to set whatever price
you want, except:
– You cannot price below your unit cost of
production*
– You cannot change the price of an existing
brand by more than +/- 30% from year to
year*
*computer will give you an error warning
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Advertising
Two decision variables influence the
effectiveness of your advertising
– Quantity – “big” budget for media
– Quality – advertising research for copy
development and control
5% to 20% of total ad budget - depending on how
new brand, ad campaign, complexity of message, …
Set target segments for advertising
– Allocation of brand budget to reach different
market segments
There is no corporate reputation or
corporate advertising
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Distribution
You determine the size of your
sales force size by channel
– Hiring, firing & training costs (computer
calculates cost)
For each channel, you determine the
sales effort for each brand
– Salespeople are all equally capable and readily
transferable
– There are no allocation restrictions from year to
year
Note: No sales support - no shelf space –
no sales!
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Production Planning
You set the units to be
produced for each brand by your
manufacturing department
Manufacturing flexibility
– Within a year: +/- 20%
– Unlimited flexibility from year to year
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Production Planning
Market
Demand
Number of
Units
Production
QR
(1-20%)
QR
QR
(1+20%)
Requested
Production
Level
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Production Planning
Market
Demand
Inventory
build-up
Number of
Units
Production
QR
(1-20%)
QR
QR
(1+20%)
Requested
Production
Level
27
Production Planning
Lost
sales
Market
Demand
(assuming zero
inventory level)
Number of
Units
Production
QR
(1-20%)
QR
QR
(1+20%)
Requested
Production
Level
28
Hint: Lost Sales
Purchase
Intent
-
Market
Share
»
Lost
Sales
competitors
“order-book”
shop around
lost to industry
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Production Cost = Transfer Cost
Average unit cost you have to pay to
the manufacturing department
(COGS)
– Depends on Base Cost, i.e., on the
product specs and the R&D effort
(process R&D)
– Decreases with cumulative production
volume (experience effect)
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Transfer Cost
Experience Curve:
average unit cost decreases at
15% for every doubling of
cumulative production
Average
Unit Cost
Transfer Cost:
determined by cumulative
production
$100
$85
$72
$61
50K
100K
200K
Cumulative
Production
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Transfer Costs
Experience Curve
C = C0(Q/Q0)b, b = -.234 (85%)
– C0: Base Cost
– Q0: 100K units
– Q: Cumulative Production Volume
– C: Average Production Cost
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Base Cost
Product characteristic that
– Indicates the average production cost
for the first 100K units
– Depends on R&D (process R&D)
– Increases with inflation over time
– Lower limit set by technology, which
changes over time, and product
attributes
– $10 is the computer limit
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Base Cost
Base Cost:
determines location of
experience curve
Average
Unit Cost
Indicates:
average unit (transfer)
cost for first 100K units
produced
$89
$80
$70
100K
Cumulative
Production
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Keys To Success
Superior product positioning
– New product development
– Advertising, pricing, distribution
Effective use of limited resources
Basis
– Understand the effect of your marketing
decisions
– Understand customer needs & behavior
– Anticipate competitors’ moves
– Manage information
– Organize your team
– Use consultant effectively
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First Decision
Marketing mix for two existing brands
– Price
– Advertising spending and target markets
– Sales force size and allocation to channels and
brands
– Production level
You cannot …
– Change the attributes of your two brands
– Reposition your brands (except through
pricing)
– Start new R&D projects
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Let’s Go and Do It!
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