Markstrat

Market Budget

The budget for each period is linked to the success of the firm. They equal 40% of the net contribution generated in the previous period. In some cases, there is a maximum level of resources that are relocated to help maximize ROI at the corporate level. Budgets for each period are typically between $7,000,000 and $20,000,000. PLEASE use all your budget! The funds are NOT rolled over from period to period so you will lose the money if you do not use it.

Feedback Coach

This report provides you with a list of feedback messages that have been generated by the simulation based on your firm and brand situations. This report is aimed at helping identify some critical issues within your decisions and results. It is a nice complement to your own analysis, but certainly not a substitute. Make sure to spend a good part of your decision time to review and analyze your report and your market studies.

Communication

Within each period you should determine advertising budget allocated to each brand. The budget will be used to purchase media space and time. You must specify the budget allocated in advertising research. This budget helps improve the quality of your message. Firms averagely devote 7% of their communication to advertising research. Research is useful when you introduce a new product or want to reposition an existing one. With these instances, you are recommended to increase the range between 5% to 20%. Advertising helps with brand awareness while research helps with intention to purchase.

•Your commercial team is responsible for obtaining and entering orders, and for supporting distributors

•Visiting stores, distributors and wholesalers •Enrolling customers in trade programs •Helping stores organize and conducting promotions •Taking orders and handling out of stock situations •Participating in trade shows

Consumer survey

● The consumer survey provides information on: (1) the level of brand awareness (2) brand purchase intentions (3) shopping habits.

Sonite Product

All firms start with two Sonite brands in the market. Since the introduction of the first Sonite, the Sonite market has shown steady growth for the past several years. The market is established and has brands at different price points and feature differentiation. It is predicted that there will be growth in the Sonite market for the next five years. Frances' hint: Consumer orientation, consumer orientation, consumer orientation. Avoid an upstream mind set. Evaluate product features in terms of what is valuable downstream- to your target market. A product rated 8 on design scale is not necessarily better than one rated four on the same scale.

Introduce a new brand

Completed R&D projects can also be used to introduce new brands. A coherent advertising campaign will have to be implemented at the same time to inform consumers about these changes.

Brand portfolio

•Maintained. No brand portfolio operation has been conducted on this brand. Hence, you will market the same product as in the previous period. •Modified. This brand will be based on a new R&D project as of the decision period. It means that a different product, e.g. one more powerful or with a longer battery life, will be marketed under this brand name. •Launched. This brand is a new one that will be marketed for the first time next period. •Withdrawn. This brand will no longer be marketed as of the beginning of the decision period. From this form, you may modify or withdraw one of your existing brands or launch a new one. You may also undo any of your previous decisions.

Ordering Market Research Studies

Frances' hint: These are very helpful in making marketing strategy and Strategic Marketing decisions and when in doubt order more rather than less research. Also, there is value in experimentation.

Conjoint analysis

It is important to note that the level with the highest utility is not necessarily the ideal level, as given in the semantic scales or MDS studies. For instance, in Figure 34, the ideal price may be anywhere between $140 and $294.

Industry Newsletter

This report provides you with general and financial data on the industry, on competitors and marketed brands. Each firm receives the same report and it consists of three or four section. The four section depends on the availability of the Vodite Brands. ● The stock market and key performance indicators - This section provides comparative charts with various financial and marketing performance indicators such as market shares, sales, contributions, stock price indices and return on investment ratios. All numbers are given in absolute values and show the percentage change from the previous period. ● Information on the Sonite market - This section details the physical characteristics and price of all marketed Sonite products, and it indicates which brands have been recently improved upon or introduced. It also provides the market shares (in units and in dollar value), the volume sold and the retail sales of all Sonite products. Volume and retail sales are given in absolute values and show the percentage change from the previous period. ● Information on the Vodite market - The same data as above is provided for any Vodite products on the market.

Your performance will be assessed each year on:

•Your business results - sales, market share gain and improved profit - are combined in a Share Price Index (SPI)

Competitive advertising estimates

● Competitive advertising estimates - This study estimates the total advertising expenditures for each competitive brand by segment. This study also provides an estimate of the communication messages used by competitive brands in their advertising. Finally, it estimates the quality and design of the advertising copy, which depends on how much was spent on advertising research.

Pricing Planning

Price is very important component to each product. You are allowed to recommended pricing for retail for each brand and product. As a firm you must create a pricing plan to effectively strategize your price against other brands. Specialty and department store follow the recommended retail prices. However, mass merchandiser uses promotions or special offers to sell products usually 10% off. Frances' hint: It's not encouraged to increase or decrease prices by 30% in one period. This can lead to negative market results. If changed correctly, price can affect perceptions; semantic scales.

Salesforce experiment

● The sales force experiment predicts the increased distribution coverage and market share for each of your brands if the number of salespeople had been increased. An increase in contribution for a given brand shows that you would have benefited from allocating more salespeople to this brand.

Market forecast -

● This study estimates the expected size in units and the growth rate of each segment for the next period as well as in five years. These estimates are based on the current market situation and assume that no substantial changes such as brand introductions or significant price increases or decreases will take place in the future. Consequently changing depending on your firm and your competitors, the resulting market size will either be higher or lower.

Marketing Strategy: Positioning and Repositioning Strategies

Repositioning can be achieved by advertising or by research & development (R&D). Although consumers' perceptions are linked to the brand's physical characteristics (based on R&D), they can be slightly influenced by communication. But the repositioning effect is limited; this is especially true when the brand awareness level is high, because a brand with which consumers are extremely familiar is more difficult to reposition. Beyond a certain level, brand repositioning can no longer be done by advertising alone. At this point one must complete an R&D project with physical characteristics matching consumers' needs, and then upgrade the brand. R&D projects will take at least one period to complete, while repositioning through advertising has an immediate effect. Frances's hint: Price is very important in the Sonite Market; manufacturers should expect pressure from consumer to lower prices. For the Vodite Market: When there is no competition in a market a firm might be serving a consumer a product that is not exactly what they need. Once a competitor is introduced a new brand might fit their needs better. When these situations occur, your brand must reposition to adapt to the new environmental condition.

Production Planning

You must create a production plan for your firm. This plan will help you to strategize your decisions throughout the period. If you don't strategize a plan you might be under and lose sales or be over in production and have leftovers. In a period, the actual production level for each brand is automatically adjusted to the demand of the product. The adjustment is +/- 20%.

Advertising experiment

● This study estimates the effects of increasing your advertising budget by a given percentage. It projects brand awareness and market share for each of your brands.

Semantic Scales & Multidimensional scaling

Markstrat provides two market research studies to assess consumers needs and to estimate how brands are perceived: the semantic scales and multidimensional scaling studies. ● Semantic scales - describes how consumer perceive the marketed brands. Consumers are asked to rate from a scale of 1 to 7. You are given the perceived rating of your brand and the ideal one for the segment and you can determine if your brand fits the consumer's needs in that segment. You can see if you are positioned ideally. ● Multidimensional scale - shows you a two-dimensional map showing similarities and difference between brands. Consumers are asked to rate pairs of marketed brands. Then formulas are applied to build the two-dimensional map and show brands closer together are similar and further apart are different. ●

Vodite Product

product. No Vodite brands are available at the beginning of the simulation for the first two periods. Vodite products satisfy other needs than those of the Sonite product. They are completely independent of each other, one will not replace the other. Your decision to engage in R&D to develop your first Vodite product will be influenced by many factors including your performance in the Sonite market, plans for a Sonite brand portfolio, the resources available to you, and your firm's growth strategy (market leader, follower, fast follower?). Beginning the third period *Every firm can ask Prof. Venkatraman for a one-time budget increase of 10 million dollars to fund R&D projects. * Whether or not your firm decides to do this is your decision.

Markstrat makes the Marketing Influence Model come alive: with particular focus on Marketing strategy and Strategic Marketing. You and your team members will have to:

● Explicitly articulate the marketing strategy for your firm: identify target market segments and position your brands in highly competitive markets, ● Build a brand portfolio ● Make marketing mix decisions including pricing, advertising budget, channel allocations, and product specifications for each brand in your portfolio, ● Develop a Strategic marketing plan for your firm: Prepare the launch of new products, improve, maintain, or withdraw existing ones, ● Work with the R&D department to design and develop new products, ● Coordinate with the production department to specify production planning, ● Decide on the size and priorities of your sales force, ● Order market research studies that provide up-to-date information for decision making.

Industry benchmarking

● The benchmarking report compiles general information from annual reports about each of the Markstrat competitors. The same data is provided in a common format for all firms in such a way that would allow you to compare competitive performance. The data provided includes sales, production costs, marketing expenditures, and other expenses.

Firm Report

Your firm report is only accessible by you and your firm. The firm report is made up of five sections: ● Firm results: This section provides various financial and marketing performance indicators like market shares, sales, contributions, stock price index and returns on investment ratios. ● Brand results: This section provides a chart of contribution by brand. ● Research & Development results: This section provides the list of all R&D projects launched in the previous periods and provides the following details for each project. ● Cumulative results: Cumulative results on sales, production, and marketing are provided in this section. It includes cumulative data since period 0, for all of the brands introduced and marketed since that time. ● Decision summary: This section recalls all the decisions made by your team at the beginning of the current period: brand management, sales force management, R&D projects, and the market research studies purchased.

Distribution panel

● The distribution panel gives information on the total sales in units in each distribution channel; the relative size of each channel; and the market shares, based on units sold, for each brand in each channel. A second chart provides the distribution coverage for each brand in each channel, i.e. the percentage of stores carrying a given brand.

Multidimensional scaling of brand similarities and preferences

● This is one of the most important studies that can be purchased. It provides a map showing the similarities and differences between marketed brands on three different dimensions. Two brands close to one another on the map are perceived as being similar. Inversely, two brands located in different quadrants are perceived as being significantly different.

Competitive sales force estimates

● This study estimates the number of salespeople allocated to each competitive brand, by distribution channel, and in total. It also provides the average sales force size by brand and by the firm, in total and for each channel.

Consumer panel

● This study provides the total unit sales for each segment; the relative size of each segment; and the market shares, based on units sold, for each brand in each segment.

Vodite Customers

● Innovators (In) - These consumers will be the first users of Vodite products. People in this segment tend to be adventurous and are willing to try new ideas at some risk. Are the largest segment when products first introduced but then represent small percentage as time goes on. ● Early adopters (Ad) - Consumers in this segment will not adopt Vodite products as quickly as innovators but will certainly do so before a majority of people have accepted the new technology. Early adopters tend to be opinion leaders and helpful in 'advertising' the new product to other potential buyers. ● Followers (Fo) - These individuals represent the bulk of potential consumers. Because they perceive more risk in buying new products, they adopt a product innovation only after a large number of consumers have tried it.

Research and Development

When creating a new product marketing department must provide the physical characteristics of the desired product. Each of the five attributes (Weight, Design, Volume, Maximum Frequency, and Power) must be specified, and the levels must be within the feasible range. The Marketing department must also provide the target manufacturing unit cost of the desired product. You initially need to specify the transfer cost (base cost) of the first 100,000 units of the new product. Base costs have no upper limit. With a higher base cost, the R&D department will have more flexibility in finding the appropriate materials and manufacturing processes. Meaning that it will be easier to develop and less expensive in terms of the total development budget. Each period your department must allocate money to each project to cover expenses. R&D is there to help you develop a prototype of your desired product, and necessary to find potential suppliers and set up manufacturing processes. When the project is completed, the production department is ready to produce the first units of the product at the transfer cost specified in the R&D report, assuming a first production batch of 100,000 units.

Sonite Customers

● Explorers - People in this segment show a high level of interest in Sonites and other similar products as well as are the first to buy products. They are extremely knowledgeable about Sonite technology and the characteristics of the existing brands. ● Shoppers - They demand average levels of both performance and convenience in Sonite products. Like explorers, they use Sonite products for personal purposes and are quite price-sensitive. ● Professionals - Individuals in this segment may use Sonite products for both personal and professional reasons. As a consequence, they are looking for high quality, high-performance, and easy-to-use products. ● High earners - This group is characterized by their 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. Savers - This segment is the largest and is composed of several subgroups, most customers have similar needs. They are looking for cheap, low-performance products with average convenience

Semantic scales

● Semantic scales describe how consumers perceive the marketed brands. Respondents are asked to rate each brand along each physical on a scale from 1 to 7 according to the way they perceive the brand. For instance, a brand rated 2.3 on the Power scale is perceived as being less powerful than a brand rating 5.5 on the same scale. The study also provides the ideal ratings of each segment for each physical characteristic. Finally, it provides the importance of each characteristic, in other words, the weight each characteristic holds in the buying decision.

Distribution Channels

● Specialty stores - These stores are usually small and close to their customers. They provide a high level of service and technical support. They do not distribute many different product categories, Sonite products account for a large proportion of their sales. Most products are expensive and/or high-performance products. ● Department stores - Department stores are characterized by the wide product assortment they offer. They usually have a department carrying Sonites that provide extensive customer service, but their expertise is lower than that of specialty stores. ● Mass Merchandisers - These stores operate on a low-price, high-volume basis and try to minimize overheads. As a consequence, the level of service offered is lower than that of the two other channels. They often distribute the cheaper, low-performance products. Their lack of technical expertise and the low level of service may well prevent them from distributing Vodites in the early years.

Introducing a new brand

Choose the Launch a new brand button corresponding to the market in which you want to introduce the new brand. The form shown in Figure 41 will appear and guide you through the process of launching a brand.

Regression Based Tool

Markstrat uses regression analysis to predict future ideal point positions and to determine what would be the ideal product offering and price for a given segment. The quality of the data provided in this section depends on the competitive situation and on the number of marketed brands. Hence, the quality varies considerably with the industry, the market and/or with the selected period. These tools will help you with development of new products or repositioning your product. You can run this before spending money and time on a product that will not fit the needs of the consumers you are targeting.

4PS

Production The production plan must be entered in units. To help you make this decision, the form indicates how many units were sold in the previous period and how many units are held in inventory at the beginning of the period. Note that if you had modified the base project of the brand, these units will not be available. Price The price entered in this form is the recommended retail price or list price, i.e. the price paid by customers, except for consumers shopping in channels which practice a discount. The price must be given in dollars. The form indicates the price that was set in the previous period. Advertising The advertising media and research budgets must be entered in thousands of dollars. The form indicates what the total advertising budget of the brand was in the previous period. You must also indicate how you want to allocate these budgets across consumer segments. The percentages entered in the cells must sum to 100%, otherwise you will not be allowed to close the form and save your decisions. Perceptual objectives Perceptual objectives allow you to reposition the brand, i.e. to change consumers' perceptions of the brand. Read section VI.5 to learn more on repositioning brands through advertising. If your intent is just to raise awareness, simply select No objectives. Otherwise, you may specify your objectives in term of Semantic Scales or Multidimensional Scales. Objectives can be set on one or two dimensions. Select the dimensions on which you want to communicate in the Dimension 1 and Dimension 2 choice boxes. Finally, enter the desired level on each dimension in the Objective 1 and Objective 2 choice boxes. If you wish to focus on a single dimension, pick None in the Dimension 2 box.

Positioning through Research and Development

Using R&D to reposition a brand or to introduce a new one is a four-step process: ● Identify the target position on the perceptual map or on the semantic scales' chart. ● Estimate the physical characteristics that correspond to this target position. This can be done in at least three different ways. ○ The best solution is to use one of the two charts plotting the relationships between physical attributes (power, weight... price) and semantic scales or coordinates on the perceptual map. These two charts are provided in the simulation, one with the semantic scales study, and the other with the MDS study. A simple graphical interpolation on the appropriate chart will let you calculate quite accurately which physical level is required to reach a given semantic scale or a given MDS position. ○ These charts may not be available when only a few brands are marketed. This is likely to be true in the early stages of the Vodite market. In this case, the best solution is to simply estimate the optimal physical characteristic for a given segment from the closest brand available in the market. For instance, on the map in Figure 31, brand SODU appears to have the appropriate Performance level for the Singles segment, and brand SAMA for Others segment. ○ The perceptual map is not available when no brands are marketed. However, you may still obtain information on segment needs from the semantic scales study. Consumers may indicate that they are looking for brands with a high autonomy, rated 5.5 on the 1 to 7 scale. Your best option is to assume that there exists a linear relationship between autonomy in meters and semantic scales, i.e. that the lowest autonomy (5 meters) would be rated 1, and that the highest autonomy (100 meters) would be rated 7. In this case, the conversion formulas are: ■ S = [(X-LB) / (UB-LB)] x 6+1 OR X = {[(S-1)/6] X (UB-LB)} + LB ○ where S is the target semantic scale, X is the corresponding physical level, and LB and UB are the lower and upper limits of the physical characteristics feasible range. In the previous example, the autonomy corresponding to 5.5 is ■ [(5.5-1) / 6] x (100-5) + 5= 76 (rounded to the nearest whole number) ○ This method, although imperfect, allows you to make approximations until more data becomes available over time. ● Develop an R&D project with the physical characteristics calculated above. This is done in cooperation with the R&D department as explained below.

The three studies semantic scales, multidimensional scaling and conjoint analysis give information on how to reposition a brand to provide more value to consumers. For the semantic scales and multidimensional scaling studies, your objective should be to get closer to the ideal point of the targeted segment. For the conjoint analysis study, your objective should be to maximize the overall utility of your brand.

•Use the Semantic Scales 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. •Use the MDS study 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 competitors. •Use the MDS study also for communication. The reason is twofold: (1) you will communicate on the dimensions that really matter to your customers: Economy, Performance, Convenience, ...; (2) You can reposition a brand along more physical characteristics by using MDS than by using Semantic Scales. •Use Conjoint Analysis to validate or invalidate the findings made with the other two studies. Will the new characteristics or price of my product maximize total utility? But be cautious: this study may be misleading because only four levels are tested along four dimensions. The optimal level for a given dimension is usually in between two of the four tested values, but you do not know where exactly.

Positioning with Advertising

● Identify the target position on the perceptual map or on the semantic scales' chart. ● Specify perceptual objectives for the brand when making Production, Price & Advertising decisions, as explained in the Marketing Mix Decisions chapter. You can choose to set perceptual objectives either on semantic scales or on MDS dimensions. For example, to reposition a brand closer to the Singles segment along dimensions Weight and Power, you must first try to estimate the future ideal positions of that segment on these two dimensions, by looking at the chart Ideal value evaluation in the semantic scales study; then you must select the two chosen dimensions and enter the coordinates of the point that you want to reach on the semantic scales' chart. A maximum of two dimensions may be specified to keep the message simple and effective. ● Allocate an advertising media budget for the brand to buy media space and time, and an advertising research budget. The effect of advertising research is two-fold. First, it makes your advertising campaign more effective, by a better selection of media and a better design of the advertising copy. Second, the repositioning impact will be higher in terms of reaching the perceptual objectives, although there will naturally be a limit as to how far and how fast advertising can change perceptions. ● Indicate the percentages allocated to the Targeted segments. The perceptual objectives must be consistent with targeted segments, but this decision alone is not sufficient to reposition a brand. Targeting specific segments is also done by selecting the most appropriate media to communicate the message.