Markstrat Simulation

Consumer Panel

+500 consumers, buying behaviour represents market - provides market share by consumer segment & industry sales in product category - represent people who have purchased a given brand during simulated period

feasibility study

- 100,000$, takes 1 period - includes minimum base cost & budget required to guarantee its completion at currently requested base cost + low cost & accuracy of information - time

Sonite customers

- Explorers (Ex) - Professionals (Pr) - Shoppers (Sh) - High Earners (Hi) - Savers (Sa)

High earners

- High income level - Demand performance and convenience - Purchase expensive products (motivated by social status)

Vodite Customers

- Innovators (in) - Early Adopters (Ad) - Followers (Fo)

Vodite characteristics

- Resolution - Energy efficiency - Carbon Footprint - Connectivity - Apps

Online stores

- Shoppers buy a lot online - high convenience, almost unlimited choice - easily comparable (features/ prices) - likely to become more important - 30% distributor margin

Distribution Channels

- Speciality stores - Mass Merchandisers - Online Stores

Advertising

- build awareness for brand names & make consuer familiar with characteristics & price of product - develop demand for whole marketsize & growth rate - size & growth rate of consumer segment is influenced by amount spent in advertising by entire indstry - spending more will most likely increase distribution coverage & create barrier to entry

Savers

- cautious spenders - largest segment - cheap, low performance with average convenience

Company dashboard

- company info only - SPI, Rev, Earnings b4 tax, total market share, brand rev, bran cont.

market forcast

- estimates of the expected market size in one period and in 5 periods (total and by segment) - for vodite, estimates are based on interviews of potential customers. hence, less accurate and somewhat optimistic

Advertising research (budget)

- for creative work, media selection, other activities by advertising agencies that improve quality & persuasive power of message - for repositioning a brand

Shoppers

- good knowledge of marketed brands - do extensive product comparison - high quality - price ration - average level of performance & convenience - personal use, price sensitive

Explorers

- high level of interest in Sonites - knowledgeable about tech & other characteristcs - among first to use Sonites - demand high performing products, less concerned about convenience - price sensitive (buy for personal use, limited income)

Followers

- last to adopt, influenced by In and Ad - only buy after a large group has tried it - Income below average

Mass Merchandiser

- low-price/ high volume basis, minimize overhead - low level of service - many different categories, but only a few units - distribute cheaper, low-performance products - no Vodites in beginning due to lack of techn expertise & service - 30% distributor margin

Sonite charcter - processing power

- measures speed of internal processor - high processing power neccessary for apps using extensive graphics/ doing a lot of calculations - drives ability to process mutliple tasks simultaneously - given in gigaflops (billions of floating point operations per sec)

Professionals

- personal & professional use - high quality, high performance, easy-to-use products - high income, view price as sign of quality

How can you lower manufacturing costs?

- produce more units of same product (15% less per doubled production) - launch cost reduction R&D project (same character but lower base cost)

How to price

- recommended retail price must be set so that the selling price is higher than transfer cost - speciality stores usually respect RRP, mass merchandiseres may reduce 10&, online shops by 5% - price increase/ decrease greater than 30% will lead to negative market reactions

Sonite character - display size

- size of screen in inches - drives ability to display higher quality images/ videos/ display more information to user at given time

Speciality Stores

- small, dont belong to chains - geographically close to customers & provide high level of service & techn support - carry broad product line for each category (incl most expensive/ best performing product) - likely to be distribution channel for Vodites - 40% distributor margin

industry dashboard

- stock market data (SPI), retail sales, market shares by brand (not segment), top selling brands, etc.

Advertising media (budget)

- to purchase media space & time - to increase/ maintain awareness

Sonite character - design index

- type of raw materials used (wood, plastic, metal,...) - number if components - aspect of its various components (position, size,...)

Early adopters

- will adopt before majority - high influence on other consumers (tend to be opinion leaders) - help advertising the new product to other potentials

Innovators

- will be first users - tend to be adventurous & willing to take risk - will be largest at beginning but has small % of potential customers - average income

How do you reposition a brand?

1. Conduct Semantic or MDS study 2. Adjust characteristics to ideal points (find brand thats already close & copy OR use semantic scales/ multidimensional scaling)

Using semantic scales to reposition a brand

1. plot desired coordinate on vertical axis 2. follow horizonzal line until you intersect the green curve 3. follow vertical line starting at the point of intersection 4. read physical characteristc corresponding to desired position

Semantic scales

600 people, derives brand perceptions, ideal value along each scale, ideal value evolution, brand maps & ship between brand attributes/ perceptions GOAL: get closer to ideal point of targeted segment USE: to design R&D projects

Amount of marketing budget

= 40% of net contribution from previous period (there is a max and min) - between 7 & 20 million $ - if you overspend: Finance will cut expenses starting with advertising

Inventory disposal loss

= D% of value of inventory at beginning of period

Vodite - Connectivity

= ability of product to connect to varying networks/ databases as well as the speed of connection - index between 3-10 (higher = can connect to a network in almost any situation and to exchange data at a fast pace)

Base cost

= cost at which each unit will be produced (based on an initial production batch of 100,000 units) - is decided by Marketing (margin & profitability) & R&D (product feasibility)

Vodite - Energy efficiency

= efficient energy use (using less energy to provide the same performance) - the higher the less electricity is used - measured in billion computations per watt-hour (bC/Wh)

Online query

= estimate of budget required to complete a project - can only be orded when physical characters & requested base cost is entered + information provided immediately - usually over-estimated by as much as 15% - not more than 5 queries can be made per period

Vodite - Carbon footprint

= greenhouse gas emission - measured in CO2 released into atmosphere

inventory costs

= holding cost + disposal loss (loss incurred when selling inventory to a trading company bc of a product upgrade)

Vodite - Application progams/ Apps

= number of apps that can be set up & used with the product - allows user to customize the product and to adapt it to their own needs (few basics, many options)

Ideal points

= prefernces, needs of consumer in given segment - calculated by averaging individual responses of all respondents - interpolate where ideal points will be in future

Transfer cost

= price paid by marketing to Production (incl depreciation & fixed costs) - can be assumed to be reduced by 15% eacg time the cumulative production of a given product is doubled - if first production batch is lower than 100,000, transfer costs will be higher than project base cost

Vodite - resolution

= sharpness/ clarity of images processed - usually expressed in lines per milimeter (LPM), from 20 to 100

Naming Convention

= six characters first letter = brand second letter = O for Sonite/ E for Vodite rest = freely chosen

Consumer Survey

= survey questionnaire to 3,000 people - gives brand awareness, purchase intentions & shopping habit for each consumer - Brand awareness = unaided recall of brand name - purchase intentions = who would select a brand as their first choice if buying within a year - shopping habit = what channel do they buy in?

Sonite character - features

= total number of features offered - can be hard/ software related - minimum number of core features each product must offer - additionals are nice to have that may be of interest to some customers

Inventory holding costs

= units in inventory x average unit transfer cost x H%

Inventory Holding Cost

= units produced in excess, will be charged to Marketing department until units are sold - calculated as a % of transfer cost

Sonite characteristics

Processing Power Display Size Design Index Battery Life Features

Commercial Team

Responsible for obtaining and entering orders and for supporting distributors - organized by channels to better meet needs of distributors - main tasks: visit stores, distributors & wholesalers

Contribution before marketing (CBM)

Revenues - COGS - inventory costs

Conjoint analysis

calculate value/ utility attached by consumers to varying levels of physical characteristics &/ price - show people set of ficticious products (specific price & limited attributes) & asking them to sort these products by decreasing order of preference GOAL: maximize overall utility of brand USE: validate/invalidate findings of semantic & MDS studies

Share of voice

calculation of any one advertiser's brand expenditures relative to the overall spending in a category - should be greater than the one of direct competitor for successful new brand launch/ brand repositioning

What is a sonite?

complex piece of equipement made up of several components, primarily differentiated in terms of 5 physical characteristics

Distribution Panel

continous tracking of product sales to consumers based o info gathered at retail POS - from scanning cash registers with supplementary store audits (about 17,000 retail outlets) - provides market shares by channel for each brand

Minimum base cost

depends on the projects characteristics (the higher the level in each attribute the higher the minimal costs) ! will be expensive in terms of development budget

Industry information

economic variables (GNP, growth rate, inflation rate, inventory holding cost, commercial people, operating cost, hiring and firing cost)

Competitive advertising & commercial team estimates

estimates of advertising & commercial budgets spent by competitors

Industry benchmarking study

general information from annual reports about all competitors - same data is provided in common format for all companies

R&D budget

if set equal/ higher --> project will be completed if set too low --> not completed (either complete next period or shelve project)

Project allocated budget

includes cost of developing the prototype & all costs related to transition from R&D to production ! depends on: - how different new charct. are from existing ones will decrease over time as more projects are succesfully developed

R&D report

information on the R & D projects/activities during period period

Costs of upgrading sonite product

initally between few hundred thousand to 2 million $

Your objective

maximize the Share Price Index (SPI) of your divison

Costs of creating first Vodite product

minimum of 5 million $

Sonite character - battery life

number of hours during which the Sonite product can operate without being connected to the main power

R&D - cumulative & required allocated budget

only for uncompleted projects - cumulative = total budget allocated to project over time - required = budget needed to finish project

multi-dimensional scaling

perceptual maps (2 maps; economy x performance and economy x convenience), brand perceptions, ideal values and evolutions ! useful to position brands (relate 3 dimensions to most important physical characteristics of the category) GOAL: get closer to ideal point of targeted segment USE: to decide on strategy (put maps on same screen, find where to position existing brands, where to launch new)

Sales, Production & Inventory table

planned production vs actual production & inventory (in thousands)

Market & Brand contribution reports

provide financial elements for each marketed brand & consolidation of all brands by market

Advertising & Commercial Team Experiments

provides results of ad & commercial team experiments - advertising experiment = increasing ad budget in a selected regional market (project level of awareness & market share that would've been achieved if ad were increased nationally) - Commercial team experiment = increase size of commercial team in each channel in selected regional market

Financial Report

revenues, costs & profit information (company, market & brand level) P&L

What are Vodite Products?

satisfies entirely different needs, demand for sonite & vodite will be completely independent - will not be complementary & not substitute - market is anticipated to be attractive (right product at right cost?) - we will most likely be suppliers to Vodite

Share Price Index

several indicators including net contribution genereated, product market share, ability to grow the organization revenues & quality of projects

How do manufacturing costs develop over time?

tend to decrease due to experience effekt (increase in labor efficiency, improvement of methods / processes, use of different materials)

Benchmarking study

to anticipate whether competition will launch new brands

Unit Cost, COGS & Inventory holding cost chart

unit transfer cost per brand - current unit cost = cost of most recently produced units - average unit cost = since beginning - shows cost incurred for holding inventory

Production Report

units produced, units in inventory & production costs per brand

Market report

values shared by brand, unit shares by brand, brand characteristics