BA exam 1 new notes

If the current optimum price for the Low End Segment is $15.50 in year 3, what will the optimum price be in year 6?

$14.00 Changes by $0.50 each year.

Assuming that there are no other changes to its financials, if Chester company's inventory turnover ratio is consistently increasing over time, which of the following changes to its financials are likely to occur?

Sales revenues should increase.

Erie company has 500 units of capacity for their traditional product, EMU, and buys one point of automation. If Erie company's current labor cost per unit of EMU is $10, and Erie sells 1,000 units per year of EMU, what is the payback period for this investment?

2 years

Awareness and Accessibility

After product leaves the factory and enters the marketplace Score will be affected by: 1. Awareness level of the product's awareness, percentage of people who know about your product a. Built over time by the product's promotion budget (fund advertising and PR campaigns) 2. Accessibility the number of customers who can easily interact with your company a. Built over time by the products sales budget (fund salespeople and distribution systems to service customers within the products market segment) 3. Similar products with HIGHER awareness and accessibility will score better than those with lower percentages.

Stock Outs and Seller's Market

When a product generates high demand but runs out of inventory (stock out) - Company loses sales as customers turn to its competitors - If demand exceeds the supply of products available for sale, a seller's market emerges - In seller's market, customer will accept low-scoring products (desperate customers with no alternative) such as buying product inside the rough cut, product priced $4.99 above range, product with MTBF 4,999 below the range. Tactical mistakes in a seller's market 1. If you price your product at $4.99 above last round, forgetting that price ranges fall by $.50 each round Demand falls to zero Should have priced it $4.49 above range 2. When company increases price, customer survey score falls below the products in the rough cut areas becomes more attractive than other product 3. Fails to add capacity for the next round, or competitors exits a segment, creates opportunity for the remaining companies ** Your company must have at least 1 product and cannot have more than 8.

If you pursue a broad cost leader strategy in Capsim, which of the following statements is true?

You will increase automation levels to improve margins.

Assuming that there are no other changes to its financials, if Baldwin company's fixed costs are declining but its contribution margin is constant (remains unchanged), you can conclude that:

Baldwin company's ROS will increase over time their EPS will increase over time and their ROA will increase over time.

Performas

Projections for the upcoming years. (Help you envision the impact of your pending decisions and sales forecasts)

Annual Reports

Results from the previous year (Help you analyze last years results)

In Marketing, R&D address:

1. Positioning of each product inside a market segment on perceptual map. 2. Number of products in each segment. 3. Age of your products. 4. Reliability (MTBF rating) of each product.

Age Score

- Age criteria does not have a rough cut, product cannot be too young or too old to be considered for purchase - Cutting-edge technology prefers newer products (1.5 years or less) - Proven technology Seek older designs (Preference 2 years or more) Customer Survey score drives demand for your product in a segment. Your demand in any month is your score divided by the sum of the scores Your Score / (sum of your score + competitors scores) = Ex. Calculate the December market share percentage for team Andrew's. Your customer survey score for Andrew was 30. Baldwin: 32, Chester: 17, Erie: 25. - 30 / (30+32+17+25)= 30/104= 28.8% 29% Accounts Receivables "Credit Policy" - 90 days no reduction to the base score - 60 days score is reduced .7% - 30 days score is reduced 7% - 0 days reduces the score by 40%

Pricing Sensors

- Appeal falls to zero when prices go $5.00 above or below the expected price range - Price drives the product's contribution to profit margin, dropping the price increases appeal but reduces profit per unit o Segment price ranges fall at a rate of $.50 per year

Marketing

- Drums up interest in the company's products or services through a mix of activities o Advertising, public relations and salesmanship - Concerned with the last 3 P's Price, Place and Promotion o Sales forecasting

MTBF

- Each segment sets a 5,000 hour range for Mean Time Before Failure - The number of hours a project is expected to operate before it malfunctions, customers prefer products towards the top of the range. - As MTBF increases, the score increases. Customers are indifferent to MTBF above the segment range 1. MTBF Rough Cut a. Products with MTBF 1000 hours below the segment guideline lost 20% of their customer survey score, for every 1,000 hours below the guideline, on down to 4,999. b. At 5,000 hours below the range, demand for the product falls to zero 2. MTBF Fine Cut a. The customer survey score improves as MTBF increases, however material costs increase $.30 for every additional 1,000 hours of reliability. Customers ignore reliability above the expected range.

Print Score

- Every segment has a $10.00 price range. Customers prefer products toward the bottom of the range. Price ranges in all segments drop $.50 per year. - Segments that demand higher performance and smaller sizes Willing to pay a higher price 1. Price Rough Cut a. Sensors priced $5 above or below the segment guidelines will not be considered for purchase. (products fail the price rough cut) b. Sensors priced $1 above or below guidelines will lose about $2% of their customer survey score for each dollar above or below, up to $4.99 2. Price Fine Cut a. Prices follow a classic economic demand curve, as price goes down, the price score goes up.

Industry Conditions Report

- Help you understand your customers - Customers fall into different groups, called market segments. Each segment is or the customer's primary requirements o Traditional o Low End o High End o Performance o Size - Lists market segment sales percentages and projected growth rates unique to your simulation - Customers employ different standards as they evaluate projects, considered the Four Buying Criteria o Price Inexpensive or advanced technology for a higher price? o Age Brand new technology or proven technology that has been around for years? o MTBF Mean Time Before Failure. Reliability measured in hours o Positioning Size and Performance (speed/sensitivity with which they respond to change in physical conditions) ♣ Perceptual Map- Tool to track the position of their products and those of their competitors. Performance is on the horizontal axis and Size is on the Vertical axis ♣ Each of the market segments has different positioning preferences. ♣ Low End is satisfied with inexpensive products that are large in size and slow performing & High End wants faster performing and smaller size ♣ Over time your customers expect products that are smaller and faster, this causes the segments to move or drift a little each month. Over the years, circle locations significantly change.

Positioning Score

- Must understand both what customers want and their boundaries, in terms of product's size and performance 1. Rough Cut Circle a. Dashed outer circle defines the outer limit of the segment, customers WILL NOT purchase a product outside this boundary, radius of 4.0 units b. In the rough cut, products are poorly positioning and have reduced customer survey scores. c. Just beyond the fine cut score drops 1%, half way through the rough score drops 50%, and almost at the dashed line scores drops 99% 2. Fine Cut Circle a. Solid inner circle defines the heart of the segment, customers prefer products within this circle, "make the fine cute", radius of 2.5 units b. For inexpensive technology, the ideal spot is to the upper left of the segment, where material costs are lower. c. For a cutting-edge technology, ideal spot is the lower right of the segment, where material costs are higher. 3. Ideal Spot a. Point is the heart of the segment. All other thing being equal, demand is highest.

Research and Development (R&D)

- Oversees invention and redesign, develops inventions needed to keep the company ahead of the competition - Responsible for the "product" portion of the 4 P's of Marketing - Invents new products and changes specifications for existing products - Changing size and/or performance repositions a product on the Perceptual Map o Improving performance & shrinking size moves product lower right

Project Management

- Perceptual map move at speeds ranging from 0.7 to 1.3 units each year o Longer the move on the map longer it takes R&D to complete a project - A six-month project costs $500,000 and a 1-year project costs $1,000,000

Promotion (Awareness)

- Promotion budget determines its level of awareness - ***New product generates 25% awareness without spending any money - Products awareness percentage reflects the number of customer who know about the product o From one year to the next, a third (33%) of those who knew about a product forget about it o Last years awareness - (33% * Last years awareness) = Starting Awareness If product ended last year with 50% awareness, this year it will start with an awareness of approx 33%. - Starting awareness + Additional awareness= New Awareness o 1,500,000 promotion budget would add 36% to the starting awareness for a total of (33+36)= 69%

Age

- When product is moved on the perceptual map, customer perceive the repositioned project as newer and improved, but not brand new. As compromise, customers cut the age in half. o Product is 4 years old, on the day of reposition; its age becomes 2 years. Ex. When a customer prefers an age of 2 years, and product approaches 3 year, they lost interest. By repositioning the product, age will drop from 3 years to 1.5 years, and customer becomes interested again.

In Production, R&D affects:

1. Cost of material 2. Purchase of new facilities to build new products 3. Automation levels a. (Higher automation level longer it takes to complete an R&D project) Changing Performance, Size and MTBF - Repositioning project moves an existing product from one location to another on the Perceptual map (usually down and right) - Repositioning requires a new size attribute and/or new performance attribute o Product must be made smaller (decrease in size) and better performing (increase in performance) More advanced positioning higher the material costs o Trailing edge of Low End fine cute low positioning costs of $1.00 o Leading edge of the High End fine cut highest positioning costs of $10.00 Reliability (MTBF) Costs - Reliability rating or MTBF, for an existing product can be adjusted up or down - Each 1,000 hours of reliability adds $.30 to the material cost o (20,000 * $.30) /1000= $6.00 o 20,000 hours of reliability = $6.00 reliability costs **Improving positioning and reliability will make a product more appealing to the customer, but will increase material costs!

According to the lecture, which of the following is a role of marketing?

Driving the creating of products that meet customers' needs.

The quick ratio does not include accounts that are difficult to liquidate. Which of the following accounts is not included in the quick ratio? a. Cash b. Accounts Receivable c. Inventory d. Accounts Payable

Inventory

Capstone Spreadsheet

Nerve center of your company where you formulate and finalize management decisions for every department.

According to the article "Clear Complete and Concise: Avoiding the Seven Deadly Sins of Analytical Writing", which of the following statements is true about good analytical writing?

The structure of the piece that conveys the author's judgement and recommendation rather than background information.

Capsim Manual Introduction

• In charge of a multimillion dollars company that manufactures sensors • Business-to-Business market • Government split a monopoly into identical competitors. Your financials were decent, but now your products are getting old, marketing efforts are falling short, production lines need revamping etc.

Capstone Courier

• Industry Newsletter, an extensive year-end report of the sensor industry. • Includes customer buying patterns, product positioning, public financial records and other information that will help you get ahead. "Knowledge is power" • Helps you evaluate your company's performance or analyze your competitors • Customer Survey Scores for each product can be found in the Courier's Segment Analysis page. The higher the score, the better the sales. Calculated every month because products age and positioning change a little each month. It reflects how well a product meets its segment's buying criteria o Customer Survey starts by evaluating each product against the buying criteria; next the assessments are weighted by the criteria's level of importance. (a well-positioned product in a segment where positioning is important with have a greater overall impact on its survey score)