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Repositioning your brands: Advertising

Advertising in Markstrat is mainly used to build brand awareness and to inform customers about products' physical characteristics, but it can also be used to reposition a brand. Using advertising to reposition a product is a four-step process: -Identify your desired position on the perceptual map or on the semantic scales' chart -Enter the coordinates identified in the previous step in the perceptual objectives for the brand when making Marketing Mix decisions, -Allocate an advertising media budget for the brand, to buy media space and time, and an advertising research budget -Indicate how you want to allocate your advertising budget across consumer segments

research and development: online queries

An online query provides you with an estimate of the budget required to complete a project. You may order an online query only when the project is fully specified, i.e. when you have entered the physical characteristics and the requested base cost, unless you have specified that you want to develop the project at the minimum base cost. Main advantage is that info is provided immediately. Main drawback is that their results are usually overestimated by 15%

Repositioning strategies: What conditions require repositioning?

Changing segment needs, price pressure, new target segments, competitor entry

Sonite Market: Market Segments

Explorers, Shoppers, Professionals, High Earners, Savers

Channel Discounts

However, mass merchandisers and online stores use promotions or special offers to sell products. On average, these promotions are equivalent to a discount rate of 10% off the list price for mass merchandisers and 5% for online stores. F

Professionals

Individuals in this segment may use Sonite products for both personal and professional reasons. Consequently, they are looking for high quality, high-performance and easy-to-use products. They can afford expensive products and often view price as an indication of quality.

Monitoring decisions: Budget tool

It also calculates your expenditures in the four main cost categories: advertising, commercial team, research & development and market research. Finally, it shows your Deviation from budget, which should always be positive or equal to 0, unless you have been authorized by your instructor to exceed your budget

Monitoring decisions: Errors and warning tool

It shows a list of errors and warnings generated by the simulation upon analysis of your decisions. Errors indicate corrections that should be made because of inconsistent decisions while warnings draw attention to possible problems. In these instances, you should check your decisions carefully to make sure that all entries are correct. Typical errors include negative deviation from budget or missing marketing mix or commercial team decisions for newly launched brands. Typical warnings include drastic changes in your decisions or completed R&D projects that have not been used to upgrade a brand.

Inventory Disposal Cost

Loss incurred when selling inventory to a trading company because of a product upgrade. Units in inventory x Unit transfer cost x Inventory disposal cost in % (given in the market news report)

Production Adjustment

Markstrat will adjust your production plan automatically by up to 20% no matter whether increase or decrease.

Cost of Goods Sold

Number of units sold x Unit transfer cost. The transfer cost is equal to the base cost of the underlying R&D project minus the productivity gains.

Price increases or decreases

Price increases or decreases greater than 30% in one period are highly discouraged as they often result in negative market reactions. On one hand, an excessive price increase is usually not accepted by consumers who may react strongly and stop purchasing the brand. On the other hand, an excessive price decrease will result in a proportional cut in the distributors' margin and your commercial team may have a hard time finding distributors for the brand.

Sonite Market: Product characteristics

Processing Power, Display size, Design Index, Battery Life, Features

Unit Cost

The Base Cost is the unit cost that you have chosen when designing your project in the R&D decisions. The base cost is adjusted every year with inflation

research and development: projected allocated budget

The Marketing department must allocate a budget to cover the project expenses. These expenses include the cost of developing the prototype and all the costs related to the transition from R&D to production, i.e. ensuring that large quantities of identical units can be economically and reliably produced. If the budget allocated by Marketing to the project is equal to or higher than the budget required for completion, then the project will be successfully completed and available during the following period. If the allocated budget is much lower than the budget required for completion, the project will not be successfully completed. In this case, you have the choice to complete the project in the following period by allocating the amount required by R&D in the annual report, or shelve the project, i.e. put it aside until you have sufficient funds to complete it.

Commercial Team: Costs

The cost of your commercial team is proportional to the number of allocated FTEs (Full-Time-Equivalent the equivalent of one person working full-time for one period.) plus the hiring or firing costs in case you have extended or decreased its size.

Research and development: Product characteristics

The physical characteristics of the project must be given along with the five most important attributes described in the sections "Sonite Products" and "Vodite Products". The values entered must within the feasible ranges and in the relevant unit; for instance, Battery Life should be between 24 and 96 hours.

Transfer cost

The price paid by Marketing to Production, it incorporates all costs associated with this high level of flexibility, including depreciation and fixed costs.

Consumer Survey: Shopping habit

The shopping habit data represent, for each of the three channels, the proportion of individuals who would choose that channel when shopping for a Sonite or a Vodite product

Shoppers

They have a good knowledge of marketed brands and do extensive product comparison. They look for products with a high quality -price ratio and average levels of both performance and convenience. Like Explorers, they use Sonite products for personal purposes and are quite price-sensitive.

Design index

This characteristic does not relate to the product esthetic but to the type of raw materials used, to the number of components, to the aspect of its various components (position, size ...). Therefore, a product rated 8 on the design scale is not better or easier-to-use than one rated 4 on the same scale

Processing Power

This characteristic measures the speed of the internal processor. is critical for applications using extensive graphics or doing a lot of calculations. It also drives the ability of the Sonite product to process multiple tasks simultaneously. given in gigaflops (billions of floating point operations per second), a standard and respected measure that takes several factors into account: number of "cores", internal memory size, frequency, etc.

High earners

This group is characterized by high incomes, using Sonite products on a private basis. Studies show that they usually buy fairly expensive products which they can afford, and that their purchase is partially motivated by social status. Although they tend to use their Sonites less than the average consumer, they demand performance and convenience from the products

Features

This is the total number of features offered by the Sonite product. These features can be hardware related, such as the ability to connect various devices to your Sonite product, or software related. There are a minimum number of core features that each Sonite product must offer. Additional ones are nice to have that may be of interest to some consumers.

Savers

This segment includes all consumers who are cautious in the way they spend their money. Although this segment is the largest and is composed of several sub-groups, most customers have similar needs. They are looking for cheap, low-performance products with average convenience. Experts believe that the penetration of this segment is not as high as the other segments. Consequently, its future growth rate could exceed forecasts.

Inventory Holding Cost

Units produced in excess are kept in inventory, and inventory-holding costs are charged to the Marketing department until these units are sold. Units in inventory x Unit transfer cost x Inventory holding cost in % (given in the market news report).

Repositioning your brands: research and development

Using R&D to reposition a product or to introduce a new one is a four-step process: • Identify the desired position on the perceptual map or on the semantic scales chart. • Estimate the physical characteristics that correspond to this desired position (as explained in section VI.3). • Develop an R&D project with the physical characteristics calculated above. This is done in cooperation with the R&D department as explained in section III.8. • Introduce a new brand or modifying an existing one. Completed R&D projects can be used to reposition existing brands by modifying the physical characteristics that are the basis of consumers' perceptions. They can also be used to introduce new brands. In both cases, a coherent advertising campaign will have to be implemented at the same time to inform consumers about these changes.

research and development: feasibility studies

When specifying a new R&D project, you have the choice to allocate a budget to it or to order a feasibility study. A feasibility study costs $100,000 and takes one period to complete. The information is provided in the next period within the R&D section of the company results; it includes the minimum base cost at which the product can realistically be manufactured, and the budget required to guarantee its completion at the currently requested base cost. The main advantages of feasibility studies are their low cost and the accuracy of the information provided. Their main drawback is the time it takes to get this information: a full period.

Economic environment: Inflation

You operate in an economy that currently has an average ________ rate of 2%. _______ affects the production, advertising, commercial and market research costs of your company. It is unlikely that __________ will reach much higher levels in the future. Should this be the case, the government may decide to impose price control on all brands.

Commercial team: Shopping Habits

Your commercial efforts are not aligned with the shopping habits of your consumers.

Perceptual objectives

allow you to reposition the brand, i.e. to change consumers' perceptions of the brand. This enables you to convey a perceptual message and emphasize, for instance, that a given brand is very powerful or that another one has a very large display and many features

Commercial team: Hiring and Firing costs

are calculated as a percentage of the FTE cost, as indicated in the newsletter. This cost includes the salary of the person plus additional expenses such as company car, medical/dental care, etc. It also includes a sales budget that commercial people can use in activities or tools aimed at increasing sales, such as trade programs, catalogs, permanent or temporary POS materials, gifts, etc.

awarness

figures represent the proportion of individuals who have unaided recall of a brand name. This is obtained by asking respondents a question such as: "What Sonite brands do you know?" and allowing them to list several brands.

Battery life

how long can it operate

Advertising research

is about the creative work, media selection, or other activities conducted by advertising agencies, that improve the quality and the persuasive power of your message. Reposition and change consumer perceptions

Base cost

is also an important factor; this is the cost at which each unit will be produced, based on an initial production batch of 100,000 units. The base cost is decided jointly by the Marketing department - which is mainly concerned with margin and profitability- and by the R&D department -which is mainly concerned with product feasibility.

How is Marketing Budget Determined?

is linked to the success of the department, being equal to 40% of the net contribution generated in the previous period.

Advertising objectives

is to build awareness for brand names and to make consumer familiar with the characteristics and price of your product. Advertising is crucial for new brands, but is also important for brands that have been on the market for some years. Indeed, consumers tend to forget about a brand in the absence of advertising.

Advertising media

is used to purchase media space and time. Increase and maintain awarness

Research and development: project name

may have up to 8 characters. The first letter must be a 'P', as in "Project". The second one identifies the market of the product being developed: 'O' for a Sonite product and 'E' for a Vodite. The other characters may be chosen freely. We advise you to give meaningful names to your projects. For instance, POMOVE2 would be a Sonite project developed to upgrade brand MOVE and PE-INNOV would be a Vodite project developed to launch a new brand targeted at Innovators.

research and development: Desired Base cost

must be compatible with the expected brand profitability, taking all factors into account: price, distributor margin, production costs, marketing and sales expenses, etc.

Advertising budgets

must be entered each period in the Marketing Mix decision form. Both the advertising media and research budgets must be given in thousands of dollars. You must also indicate the proportion of the budget targeted to each segment. The percentages must add to 100%.

Recommended retail price

must set for each of your marketed brands each period. Is the list price for customers

Economic Environment: GNP

provides you with information about trends in the Markstrat economy. In the recent past, the overall economy has been growing at a rate of 4%.

Semantic sales: Ideal Points/Preferences

represent the needs of consumers in a given segment. They are calculated by averaging the individual responses of all respondents. As explained in the chapter introduction, consumer needs are likely to evolve over time. This may be due to changes in the environment, to new trends, or to new ways to use Sonites and Vodites products. Consumer needs are also influenced by the actions of competitors (for instance new products introductions and large scale advertising campaigns).

Market Share

represent the proportion of individuals who have purchased a given brand during the simulated period. The report gives the information for each brand currently on the market in total and by consumer segment

intentions

represent the proportion of individuals who would select a brand as their first choice, if they were buying within a year. This is obtained by asking respondents a question such as: "Do you intend to purchase a Vodite brand this period?" If the response is yes, then respondents are asked to indicate the brand of their choice.

Explorers

show a high level of interest in Sonites and other similar products. They are extremely knowledgeable about Sonite technology and the different characteristics of the existing brands. They demand high performance products, i.e. products with high processing power and/or large screens. They are less concerned with the convenience of the products (battery life, design or number of features) however they are quite price-sensitive, since they use Sonite products for their personal use and do not necessarily have high incomes.

Marketing Mix strategy

the day-to-day operational marketing decisions such as pricing, production, communication and distribution

Channel Margins

the difference between the price a manufacturer has on its product and the price a consumer is paying for that product. Differences between margins obtained by the stores in each of the three channels (Speciality Stores, Mass Merchandisers, Online Stores) are mainly due to differences in the level of service and volume sold. These margins are applied to retail prices and are approximately constant across brands for a given channel. In Markstrat, the distributor margins are 40% for specialty stores and 30% for the other ones.

Display size

the size of the screen

multidimensional scales

use to decide on your strategy. The MDS study is great for strategy because it provides a helicopter view of the entire competitive situation. Putting the two perceptual maps next to each other on the same page or screen will help you; find where to reposition your existing brands; where to launch new ones; and, last but not least, anticipate the moves of your competition. also for communication

semantic scales

use to study to design R&D projects, i.e. to determine the ideal level in each physical characteristic. This study is very much appropriate to do this because there is a one-to-one relation between the dimensions of the study and product physical characteristics.

Product portfolio strategy

which brands the company will develop and market

Segmentation and positioning strategies

which market segments will be targeted and how products will be positioned