BSG Quiz 1

True

Branded footwear sales to individuals at the company's website (which were 15% of total branded sales in each geographic region in Year 10) are projected to rise by 1 percentage point annually to 25% of total branded sales in each region by Year 20.

The first occurs when footwear is shipped from a facility in one region to distribution warehouses in a different region (where local currencies are different from that in which the footwear was produced). The second exchange rate adjustment occurs when the local currency the company receives in payment from local retailers and online buyers over the course of a year in Europe-Africa (where all sales transactions are tied to the €), Latin America (where all sales are tied to the Brazilian real), and Asia-Pacific (where all sales are tied to the Sing$) must be converted to US$ for financial reporting purposes—the company's financial statements are always reported in US$.

All footwear companies are subject to exchange rate adjustments at two different points in their business.

True

All footwear companies began with the same market shares in each of the four geographic market regions— North America, Europe-Africa, Asia-Pacific, and Latin America. Your company is selling over 8 million pairs annually. In the just-completed year, your company had revenues of $432.6 million and net earnings of $40 million, equal to $2.00 per share of common stock. The company is in sound financial condition, is performing well, and its brand is well-regarded. Your company's board of directors has charged you with developing a winning competitive strategy—one that capitalizes on continuing consumer interest in athletic footwear, keeps the company in the ranks of the industry leaders, and increases the company's earnings year-after-year.

price (the average wholesale price in the case of branded pairs sold by footwear retailers and the average online price in the case of pairs purchased online), S/Q ratings, and the number of models/styles offered.

As a general rule, the three most important competitive factors affecting buyer brand preferences, pairs sold, and market shares are

True

As the spread between the highest-priced company and the lowest-priced company becomes smaller and smaller, the weaker is the unit sales/market share impact of price differences and the greater the role of differences on other competitive factors in causing the sales and market shares of some companies in the region to differ from those of other companies. Indeed, in the rare instance that all companies should happen to charge the same wholesale price to retailers in a region and the same online price at their websites, then price becomes a total competitive nonfactor and has zero impact on buyer appeal for one brand versus another—in such cases, 100% of the regional sales and market share differences among company rivals stem directly from differences on the other 12 competitive factors. Therefore, how much price matters in determining a company's unit sales/market share in a region is not a fixed amount but rather is an amount that varies from "big" (when price differences are also "big) to "small" (when prices differences are "small") to "zero" (when the prices of rivals are identical).

the Asia-Pacific region and North America.

At the beginning of Year 11, the company has production facilities to make athletic footwear in:

True; 8; weighted average; 0.3-star; annually

Based on where each facility's output is shipped, S/Q ratings are calculated for each company in each geographic region where its shoes are available for sale. Companies thus have as many as ___ S/Q quality ratings—one each for branded and private-label pairs offered for sale in North America, Europe- Africa, Asia-Pacific, and Latin America. A company's S/Q rating in each market segment is a _________________ of the S/Q ratings at the production facilities from which the pairs were shipped, adjusted up or down for the S/Q ratings of unsold pairs from the prior year. The IFF's S/Q rating formula calls for a __________ reduction in the S/Q rating on all unsold branded pairs carried over in inventory to the following year since they represent last year's styles. Ratings are updated ____________.

True

Company operations are patterned after those of an athletic footwear company that produces its shoes at company-operated facilities rather than outsourcing production to contract manufacturers. Cause-effect relationships and revenue-cost-profit relationships are based on sound business and economic principles and closely mirror the competitive functioning of the real-world athletic footwear market.

True

Competition among rival athletic footwear companies centers around 13 factors that affect each company's branded footwear sales volumes and market shares in each of the four geographic market regions.

price, styling, and purpose; no-frills, budget-priced shoes; premium prices for top-of-the-line quality, special high-tech features, or trendy styling; general wear; many models and below-average prices; limited number of styles

Consumer demand for athletic footwear is diverse in terms of ____________________ for which athletic footwear is worn. Many buyers are satisfied with _______________________ while some are quite willing to pay __________________________________. The biggest market segment consists of customers who buy athletic shoes for _________________, but there are sizable buyer segments for specialty shoes designed expressly for walking, jogging, training, aerobics, basketball, tennis, golf, soccer, bowling, and so on. The diversity of buyer demand gives manufacturers room to pursue a variety of strategies—from competing across-the-board with __________________________ to making a _______________________ for buyers willing to pay premium prices for top-of-the-line quality.

True

Conversely, the closer to the all-company regional average is a company's price or S/Q rating or brand reputation or number of models (and so on) the smaller is the weighting/impact of that factor in accounting for why that company's regional unit sales/market share is above/below the region's all-company unit sales/market share averages. When a company's competitive effort on each of the relevant competitive factors in the wholesale or internet market segments for branded footwear approximates the all-company averages in a region, then its resulting unit sales volume/market share in those two segments will also approximate the region's all-company sales/market share averages.

True

Each decision period in BSG represents a year. The company you will be running began operations 10 years ago, and the first set of decision entries you and your co-managers will make is for Year 11.

1) helping curb reject rates associated with defective workmanship, (2) helping improve S/Q ratings for both branded and private-label footwear, (3) curtailing materials waste and potentially lowering material costs at the facility by as much as 20% annually, and (4) increasing worker productivity.

Expenditures for best practices training have four highly positive benefits in all facilities:

a facility in the Asia-Pacific and a facility in North America, each with sufficient footwear-making equipment to currently produce 4.8 million pairs with full use of overtime.

Going into Year 11, the company's production facilities to make athletic footwear consisted of

1) new equipment enables better quality control, thus increasing the S/Q rating of the pairs produced by 0.5 stars; 2) new equipment operates at higher speeds, such that worker productivity is increased by 500 pairs per year; and 3) the added quality control capabilities of new equipment reduces the reject rates on the pairs produced by 20%; full 0.5-star higher S/Q rating, workforce productivity 500 pairs per year higher, and a 20% lower reject rate than in a facility installed with 100%-refurnished equipment

New equipment has three beneficial operating features not available with refurbished equipment: ___________________. Since these benefits apply only to pairs produced with new equipment, the size of these three benefits is proportional to the percentage of new equipment installed at a facility. All other things being equal, a facility with 100%-new equipment will produce footwear with a __________________________________________. If a facility is equipped with 50% new and 50% refurbished equipment, then the benefits of new equipment would be a 0.25-star increase in the S/Q rating, a 250-pair increase in worker productivity, and a 10% reduction in the reject rate.

15%; 25%; True

Online sales of branded footwear have been growing steadily and now account for _____ of total branded sales in each geographic region; this percentage is expected to grow by 1% annually, reaching _____ of total branded sales by Year 20. However, the management teams at all companies have the discretion to place greater/lesser emphasis on promoting online sales and thus may end up with online sales that are above/below the industry average.

North America: 5-7% Europe-Africa: 5-7% Asia-Pacific: 9-11% Latin America: 9-11% Worldwide: 7-9%

Projected growth in buyer demand for Y11-15 branded shoes:

North America: 10-12% Europe-Africa: 10-12% Asia-Pacific: 12-14% Latin America: 12-14% Worldwide: 11-13%

Projected growth in buyer demand for Y11-15 private-label shoes:

North America: 3-5% Europe-Africa: 3-5% Asia-Pacific: 7-9% Latin America: 7-9% Worldwide: 5-7%

Projected growth in buyer demand for Y16-20 branded shoes:

North America: 8-10% Europe-Africa: 8-10% Asia-Pacific: 10-12% Latin America: 10-12% Worldwide: 9-11%

Projected growth in buyer demand for Y16-20 private-label shoes:

True

Retail markups over the wholesale prices of footwear manufacturers can run anywhere from 40% at discount chains to as high as 100% at premium retailers. Thus, a pair of shoes wholesaling for $50 usually retails for between $70 and $100.

attractive pricing, advertising, mail-in rebates, contracting with celebrities to endorse its brand, building a stronger brand image and reputation with buyers, providing merchandising and promotional support to retailers stocking its brand, good delivery times on shipments to retailers, and using search engine ads to draw online shoppers to its website.

Some ways the company strives to enhance its sales volume and competitive standing against rivals are:

True

Suppliers offer two grades of materials: standard and superior.

The Five Factors that Impact Both Internet Sales and Wholesale Sales of Branded Footwear: 1) S/Q rating 2) Number of Models/Styles 3) Brand Advertising 4) Appeal of Celebrities Endorsing the Company's Brand 5) Image and Brand Reputation The Five Factors that Impact Only Wholesale Sales of Branded Footwear to Retailers: 1) Average Wholesale Price for Branded Footwear Sold to Retailers 2) The Numbers of Retail Outlets Carrying the Company's Brand 3) The Number of Weeks It Takes to Deliver Orders to Retailers 4) Support Offered to Retailers in Merchandising and Promoting the Company's Brand 5) Mail-in Rebates The Three Competitive Factors that Impact Only Internet Sales of Branded Footwear: 1) Average Retail Price Charged at Each Company's Regional Websites 2) Search Engine Advertising 3) Free Shipping on Online Purchases

The Competitive Factors That Drive Branded Footwear Sales and Market Share:

The size of the incentive payment per non-defective pair produced; Spending for TQM/Six Sigma quality control efforts; Best practices training; The number of models/styles comprising the company's product line; The use of new equipment (as opposed to refurbished equipment even if the refurbished equipment has been recently purchased); and Whether Production Improvement Option A has been installed. This option reduces the reject rate at a production facility by 50%.

The Factors that Determine Reject Rates:

True

The Federation's ratings of each company's shoe styling and quality in each market segment are often the subject of newspaper and magazine articles. Market research confirms that many consumers are well informed about the S/Q ratings and consider them in deciding which brand to buy.

True

The IFF obtains the needed data annually from all footwear companies, compares the styling and quality of models and brands on the market, and rates the styling/quality of shoes produced at each facility of each company.

(1) current-year spending per footwear model for new features and styling, (2) the percentage of superior materials used, (3) current-year expenditures for Total Quality Management (TQM) and/or Six Sigma quality control programs, (4) cumulative expenditures for TQM/Six Sigma quality control efforts (to reflect learning and experience curve effects), and (5) current-year and cumulative expenditures to train workers in using the best practices to assemble athletic footwear.

The IFF's S/Q rating is a function of five factors:

dollar size

The _____________ of the compensation package paid to production workers (base pay, incentive pay, and fringe benefits) relative to the regional average directly affects worker productivity (the number of workers needed to produce the desired number of branded pairs) and the percentage of pairs rejected due to defects in workmanship.

new styling and performance features; number of models/styles

The company can enhance its footwear with ____________________________ on an annual basis and can also increase/decrease the ______________________________ in its product lineup.

True

The competitive advantages/disadvantages associated with differences in the number of weeks it takes to deliver retailer orders, the sizes of mail-in rebates, and the comparative amounts of support provided to retailers in merchandising and promoting their respective brands weigh the least heavily in determining buyer brand preferences and each company's regional unit sales and market share.

pricing, styling and product quality (as mirrored in competitors' S/Q ratings), the breadth of product selection (the number of models/styles buyers have to choose from), celebrity endorsements, advertising, brand image and reputation, the comparative sizes of the footwear retailer networks, the amount of merchandising and promotional support provided to footwear retailers, mail-in rebates, the speed at which rivals deliver orders to retailers, and sales efforts at company websites.

The efforts of footwear companies to attract buyers and compete effectively with rival brands revolve around 11 factors:

current and cumulative spending for TQM/Six Sigma quality control programs and expenditures for styling/features per model.

The factors that affect a company's S/Q rating by the International Footwear Federation include:

how much emphasis is placed on incentive compensation (as measured by the percentage of the company's total compensation package accounted for by incentive pay) and the amount the company spends annually per worker for best practice training.

The factors that affect worker productivity include

sharply higher prices and/or eroding footwear quality/performance and/or greatly diminished marketing and competitive efforts industry-wide.

The factors that can drive away potential buyers and cause the growth in buyer demand to fall below the forecast amounts include

(1) you make adjustments in your company's prices, advertising, and other levels of competitive effort to sell footwear online and to footwear retailers and (2) you make changes in the assumed levels of competitive efforts of rivals (whether rivals, on average will raise/lower prices, advertising, etc., thus presenting your company with stronger/weaker competition than in the prior year).

The forecast of the approximate number of pairs that need to be produced is updated each time

7% -9% annually worldwide in Years 11-15 and 5%-7% annually worldwide in Years 16-20.

The market for branded athletic footwear is projected to grow

appeal of celebrities endorsing the various rival brands, brand advertising, search engine advertising, company image/brand reputation, the number of retail outlets stocking the company's brand of footwear, and free shipping.

The next most influential factors include the

(1) the company's market share of branded footwear sales in that region, (2) its regional S/Q rating for branded footwear, (3) the number of weeks it takes for retailers in the region to receive the pairs they have ordered, and (4) the degree of merchandising support that the company provides to regional retailers stocking its brand of footwear.

The number of retailers in a region desirous of carrying a company's brand in an upcoming year is based on four factors:

5-7% annually in the North America and Europe-Africa regions during the Year 11-Year 15 period, decreasing to 3-5% annually in these same two regions during the Year 16-Year 20 period.

The projected growth in buyer demand for branded athletic footwear is

1) The private-label segment is projected to grow a healthy 12% annually during Years 11-15 and a brisk 10% during Years 16-20. The growth in private label sales is being driven largely by the practice of multi-outlet chains to use lower-priced private-label goods to attract price-conscious consumers. Chain retailers that sell athletic footwear under their own label outsource the pairs they need from manufacturers on a competitive-bid basis. 2) Making private-label pairs for chain retailers allows a manufacturer to use production capability more efficiently. For example, a manufacturer selling only 9 million branded pairs but having production capability of 11 million pairs (13.2 million pairs with maximum use of overtime) can reduce overall costs per pair by utilizing some or all of its unused capability to produce private-label pairs.

The third channel—private-label sales to large chain store accounts—is attractive for two reasons:

True

The use of superior materials improves quality and performance, but shoes can be manufactured with any percentage combination of standard and superior materials.

Workforce Compensation & Training

This decision entry page includes six decision entry items for managing, compensating, and training production workers, and supervisory staff within each production facility.

True

Training production workers in the use of best practice procedures at each step of the manufacturing process has recently become important to minimizing the reject rates on pairs produced.

True

Users need to keep a watchful eye on the sizes of the exchange rate adjustments each year and understand what you can do to mitigate the adverse impacts and take advantage of the positive impacts of shifting exchange rates.

The S/Q rating; Number of Models/Styles; Brand Advertising (Note: not search engine advertising); Appeal of Celebrities Endorsing the Company's Brand; Image and Brand Reputation

What are the 5 competitive factors that impact both internet sales and wholesale sales of branded footwear?

Average Wholesale Price for Branded Footwear Sold to Retailers; The Numbers of Retail Outlets Carrying the Company's Brand; The Number of Weeks It Takes to Deliver Orders to Retailers; Support Offered to Retailers in Merchandising and Promoting the Company's Brand; and Mail-in Rebates

What are the five factors that impact only wholesale sales of branded footwear to retailers?

Average Retail Price Charged at Each Company's Regional Websites; Search Engine Advertising; and Free Shipping to Online Purchases

What are the three competitive factors that only impact internet sales of branded footwear?

Wholesale sales to independent footwear retailers who carry athletic footwear, Online sales to consumers at the company's website, and Private-label sales to large multi-outlet retailers of athletic footwear.

What are the three distribution channels athletic footwear makers have for accessing consumers of athletic footwear?

department stores, retail shoe and apparel stores, discount chains, sporting goods stores, and pro shops at golf and tennis clubs. (Worldwide, there are some 60,000 retail outlets for athletic footwear scattered across the world. North America and Europe-Africa each have 20,000 retail outlets selling athletic footwear, while Latin America and the Asia-Pacific each have 10,000 retail outlets for athletic footwear.)

What are the types of wholesale sales to independent footwear retailers carry athletic footwear in BSG?

Annual base pay increases; How much emphasis is placed on incentive compensation (as measured by the percentage of the company's total compensation package accounted for by incentive pay); The total annual compensation of workers relative to industry-average compensation levels in the geographic region; The amount the company spends annually per worker on best practices training; The number of models workers must assemble at a given facility; Higher supervisor salaries relative to the regional average; A smaller ratio of production workers to supervisors; The use of new equipment (as opposed to refurbished equipment even if the refurbished equipment has been recently purchased); and Whether Production Improvement Option D has been installed at the facility. This option increases worker productivity by 50%.

What factors affect worker productivity?

independent footwear retailers

What is all manufacturers' traditional primary distribution channel for selling branded footwear?

The YX Footwear Industry Report, Competitive Intelligence Reports, and Company Operating Reports, along with the Player's Guide.

What provide you with full information on where things stand going into Year 11?

On the Corporate Lobby page.

Where can you view the YX Footwear Industry Report, Competitive Intelligence Reports, and Company Operating Reports?

in the Footwear Industry Report, the Competitive Intelligence Report, and the Company Operating Reports

Where is detailed information and feedback provided that give essential information about each company's performance, assorted industry outcomes, updated forecasts of total buyer demand for athletic footwear for each geographic region, your company's competitive standing versus rivals, and other statistics that enable you to determine what actions to take to improve your company's performance in upcoming decision rounds?

Search engine advertising

Which of the following is not one of the 5 competitive factors that impact both Internet Sales and Wholesale Sales of branded footwear?

The biggest possible competitive advantage a company can achieve in a given region's Internet Segment is to offer free shipping and thereby capture the biggest number of pairs sold and the biggest market share of any company in that region's Internet Segment.

Which of the following statements about the impact of a company's competitive efforts in a region on its regional market share and number of branded pairs sold is false?

The S/Q rating of pairs being produced and the percentage use of superior materials.

Which one of the following does not affect the reject rates at a company's production facilities?

The number of consumers that live in the region

Which one of the following is not a factor in determining a company's unit sales and market share of branded footwear in a particular geographic region?

sizes of the differentials

While it is true that some competitive factors affect the brand choices of buyers more than others, what matters most in determining sales and market shares is the ______________________ on each competitive factor. Big differences on a less influential competitive factor (like the number of weeks in which orders are delivered to retailers) can end up having a bigger sales/market share impact than very small/insignificant differences on more influential competitive factors (like price, S/Q rating, and advertising).

Partly because selling online gives the company access to consumers not living close to retailers carrying the company's brand and partly because growing numbers of consumers like the convenience of shopping online.

Why do all footwear manufacturers operate websites to display and actively merchandise their models and styles?

True

You and your co-managers will make decisions each period relating to branded and private-label footwear production (up to 11 entries for each production facility), the addition of facility space and production equipment and production improvement options (up to 8 entries for each facility), workforce compensation and training (6 entries for each facility), shipping and distribution center operations (5 entries per geographic region), footwear pricing and marketing (up to 9 entries per region), contract offers to celebrities to endorse your footwear brand (2 entries per available celebrity), corporate social responsibility and citizenship (up to 8 entries), and the financing of company operations (up to 8 entries). Plus, there are 10 entries for each region pertaining to assumptions about the actions of competitors that factor directly into the forecasts of your company's unit sales, revenues, and market share in each of the four geographic regions. In addition, there are import tariffs and annual changes in exchange rates to consider, and shareholder expectations to satisfy.

Corporate Lobby

Your company's ______________________ web page is the "gateway" to all BSG activities—the menu along the left side of the page provides access to everything that is available. Plus, the __________________ shows the latest interest rates, exchange rate impacts, and industry scoreboard.

The Business Strategy Game

enables you and your co-managers to apply what you have learned in business school and to practice making reasoned, businesslike decisions aimed at improving your company's overall performance.

The Business Strategy Game (BSG)

is an online exercise, modeled to reflect the real-world character of the globally competitive athletic footwear industry and structured so that you run a company in head-to-head competition against companies run by other class members.