The Markstrat - Week 2 - Pr 3y4mb
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Overview of Markstrat World and Business Game Practice
PARIS – BOSTON www.stratxsimulations.com
Markstrat is a simulation designed to focus on strategic marketing issues Understanding customer needs Long-term perspective Marketing as a profit center Competitive environment Marketing strategy is based on segmentation, positioning, and resource allocation... marketing mix decisions are secondary You and your team have to: • Target selected segments and position your products in a highly competitive market • Interface with the R&D department to design and develop new products • Prepare the launch of new products, improve, maintain or withdraw existing ones • Make marketing mix decisions
The Markstrat World Managing your firm Getting started
The Markstrat World: A large territory with a highly developed economy The Markstrat World Population: 250 million inhabitants Currency: Markstrat Dollar ($) Both inflation and GNP growth are fairly stable, no major political, social or economic event It roughly behaves like most markets. In the Markstart world, many companies manufacture and market consumer durable goods. These goods are comparable to electronic products as well as office equipment, cars, books and other consumer durable goods. With most scenarios, each firm starts in a different situation in of product specification, target customer groups, brand awareness levels, market share, distribution coverage, profitability, R&D expertise. No firm has a relative advantage over the others and initially has many characteritics in common. The intial brand porfolio of all companies is comprised of 2 brands.
Each firm can compete in TWO product markets
Maximum: 5 brands/firms marketed at a time
SONITES
•
independent
•
not substitutes
•
not complements
VODITES
SONITE PRODUCTS
At the beginning of the simulation, all rival firms market 2 Sonite brands. Sonite existed for several years, market has gron quite consistently A Sonite is a complex piece of equipment made up of several components with 5 most important physical characteristics and base cost. The base cost is an initial production batch of 100,000 units (decided tly by Marketing Dept and R&D Dept)
The Sonite market is already developed, each product has 6 product characteristics Weight
Design
Volume
(10 – 20)
(3-10)
(20-100)
Kg
Index
dm3 Max. Frequency
Power
Base Cost
(5 – 50)
(5-100)
(min. 10)
kHz
W
VODITE PRODUCTS New type of electronic product migh emerge, called Vodite. Industry experts predict this is a products of the future Vodite products will satisfy entirely different needs from that of Sonite products The demand for the 2 products will be completely independent. They are not complementary or substitution for each other. Although Sonite and Vodie technologies are similar, all firms have to engage substantial R&D resources to develop their first Vodite product An investment of about 10 million dollars may be required for each Vodite brand.
Vodites will also have 6 physical characteristics, but the market is yet untapped Autonomy
Max. Frequency
Diameter
(5-100)
(5-20)
(10-100)
m
kHz mm
Design
Weight
Base Cost
(3-10)
(10-100)
(min. 10)
Index
Kg
It is easy to recognize the origin of the brands from their names
S
I
Product Type:
Company marketing the brand:
S=Sonite V=Vodite
A, E, I, ...
B
I
Freely chosen letters or numbers
Sonite customers have traditionally been classified into 5 segments……
SINGLES (Si) PROFESSIONALS (Pr) BUFFS (Bf) HIGH EARNERS (Hi) OTHERS (Ot)
...whereas initial studies for Vodites have pointed to a different segmentation scheme
Typical segment size evolution over time Sales
Followers
Early Adopters
Innovators
Time
Sonite & Vodite customers can choose to purchase through 3 distinct Distribution Channels
Specialty Stores
These stores are usually small, geographically close to customers, has high level of service and technical . Not many different product categories, but broad lines for each category.
Department Stores
Has wide product assortment. Provide extensive customer service but lower technical than SS.
Mass Merchandisers
Operate on low-price, high-volume basis and try to minimize overheads. Level of service offered is lower than these other two. Carry many different product categories, but not deep at each product line.
Summary of the Markstrat World
Technology
Market Growth
Economic Environment
The Markstrat World Managing your firm Getting started
Your objective in managing your company is to maximize your Stock Price Index
You will have to decide the overall direction of the company, regarding: • Product portfolio strategy • Segmentation and positioning strategy • Marketing mix strategy
You will have to optimize: • • • • •
Market share Sales growth Net contribution Cumulative net contribution R & D investments
….but the main objective is to LEARN!
You will need to do a certain amount of analysis, before setting a strategic direction for your firm
Data
Strategic Options
Information
Research studies provide market data, it is up to you to prioritize, digest & interpret them
Consumer survey Consumer Distribution Semantic scales Multi-dimensional scaling (MDS)
Industry benchmarking Market forecast Competitive advertising Competitive sales force Advertising experiment Sales force experiment Cont analysis
Once your strategy is clear, you should make a number of tactical decisions each year
Production planning Inventory disposal Pricing Mass communication Sales force & distribution Market research
PRODUCTION Each period, you are responsible for submitting a production plan for each of your marketed brands. In case of unsuccessful brand, you can decrease the inventory or sell all or part of it to a trading company at some cost/loss. You are completely free to increase or decrease the production planning of a given product, without any penalty. The units produced are charged to the Marketing Dept only when they are sold to distributors. The price paid to production is called the transfer cost. Inventory-holding costs are charged to Marketing Dept in case units produced are excessive to be kept in inventory. The transfer cost of a given product increases with inflation.
Production Department adjustment Your production department will automatically adjust production levels (+ or -) 20% against your plan
Market demand
Inventory build-up
Lost sales
(assuming zero inventory level)
Number of Units
Production
QP (1-20%)
QP Requested production level
QP (1+20%)
Comparing purchase intent with market share can give you a feel for the size of "lost sales."
Purchase Intent
Market Share
Lost Sales
Competitors “Order-book” Lost to industry
PRICING
In Markstrat, you must set the recommended retail price for each marketed brand The retail price is the list price for customers The average selling price is the price at which you sell your product to distrbutors. It varies according to distribution channel because of different margins. Notice that mass merchandisers use promotions or special offers to sell products to a discount rate of 10% off the list price. Dumping is strictly forbidden in Markstrat world, so the selling price must be higher than its transfer cost. Price increase or decrease greater than 30% in one period are highly discouraged.
Pricing in Markstrat is fixed once a year
Recommended Retail Price = $100
Average Retail Price Distrib. Margin Average Selling Price
Specialty Stores
Department Stores
Mass Merchandisers
$100
$100
$90
$40
$ 30
$ 27
$ 60
$ 70
$ 63
COMMUNICATION
You should determine the advertising budget allocated to each brand. The budget is used to: • Purchase media space and time (advertising media). This includes buying media space and time. • Do advertising research (advertising research). This includes creative work, media selection and other activities to make sure the quality of your message. • Companies devoted on average 7% of their total communication expenditures to advertising research. • You need to specify which segments to be targeted with your advertising • You finally must decide perceptual advertising objectives for each brand.
SALES FORCE
Your sales force is organized in 3 groups Each group is specialized to focus on the stores of a single distribution channel Marketing Dept must specify the number of salespeople in each group Salespeople may be reallocated from one channel to the other at no cost. But hiring or firing costs will be charged to your department when the total number of salespeople increases or decreases.
ORDERING MARKET RESEARCH STUDIES
One of your decisions will be to order market research studies. All studies are ordered at the beginning of a period. The results are delivered with your annual report at the end of the period. A maximum of 23 different studies may be ordered each period.
RESEARCH & DEVELOPMENT
Making R&D decisions is a crucial task The Marketing Dept must specify the desired characteristics for the new or improved product, including the target transfer cost. You must also allocate a budget to each project
MARKETING BUDGET
Your marketing budget is linked to the success of the department, being equal to 40% of the net contribution in the previous period. In general, your budget for each period will be between $ 7,000,000 and 20,000,000. You will work within this given budget.
Each firm receives a marketing budget for the coming period The budget amount is based on the previous period’s performance Advertising expenditures
Budget
Advertising
Advertising research expenditures
for each brand
Operating cost
Sales force
Hiring & training cost Firing cost
R&D
Development budget
Market Research
Sonite and Vodite study costs
for each project
UNDERSTANDING YOUR ANNUAL REPORT
INDUSTRY NEWSLETTER This provides general and financial data on the industry, on the competing firms and on marketed brands. All firms have access to the same Industry Newsletter Stock market and key performance indicators: charts with various indicators such as: market shares, sales, contribution, stock price indices and return on investment ratios. Economic variables and costs: the evolution of economic variables such as the inflation rate and GNP growth rate and various costs like salespeople, inventory cost, etc. Information on Sonite market: physical characteristics and price of all marketed Sonite products and indicates which brands have been recently improved or introduced. Also provides market shares, volume sold and retail sales of all Sonite products.
UNDERSTANDING YOUR ANNUAL REPORT
COMPANY REPORT This provides confidential company information. You and your team are the only ones who have access to the information disclosed in your Company Report. This includes: • • • • •
Company results Brand results Research & Development results Cumulative results Decision summary
Brand results
Company performance
MARKET RESEARCH STUDIES
Industry benchmarking: general information from annual reports about each of the Markstrat competitors. Consumer survey: provides information on • Level of brand awareness (consumers in each segment who can recall a given brand name) • Brand purchase intentions (consumers in each segment who intended to buy a given brand) • Shopping habits (consumers who prefer to shop in a given distribution channel)
Consumer : total unit sales for each segment, the relative size of each segment, market shares, based on unit sold for each brand in each segment. Distribution : total sales in units in each distribution channel, relative size of each channel, market shares for each brand in each channel
MARKET RESEARCH STUDIES Semantic scales: respondents are asked to rate each brand along each physical characteristics on a scale from 1 to 7. it provides the importance of each characteristic, or the weight each characteristic holds in the buying decision. Multidimensional scaling of brand similarities and preferences: • One of the most important studies that may be purchased by your team. • It provides a map showing similarities and differences between marketed brands on three different dimensions.
Market forecast: this study estimates the expected size in units and the growth rate of each segment for next period and in 5 years time. Competitive advertising estimates: estimates the total advertising expenditures for each competitive brand by segment. Competitive sales force estimates: estimates the number of salespeople allocated to each brand and provides average sales force size by brand and by firm
MARKET RESEARCH STUDIES
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. Sales force experiment: the sales force experiment predicts the increased distribution coverage and market share for each of your brands. Cont analysis: it provides the utilities – the real number between from 0 to 1 for each of the 4 most important characteristics for each segment, higher to 1 indicates high consumer preference.
The simulation starts at the end of the initial period
.
.
The new management (you!) make decisions for the next period
The decisions for the first period are limited in scope
Your team can get familiar with Markstrat • • • • •
Gather information Do not make any major changes in your firm's operation Do not introduce new brands, modify or withdraw existing ones Do not start R&D projects Do not give perceptual objectives for advertising
Organize yourselves and manage the group process
Time pressure Information overload
Conflicting opinions
The Markstrat World Managing your firm Getting started
When you return to your team room, the Main Menu will be on your screen
Click here to access session information
You can access all the decisions on the main screen to make decisions for the next period
The decisions you will make
Marketing Mix decisions should be entered for each brand Switch from Sonites to Vodites
You are making decisions for the brand SAMA
The sales force is organized by channel type to meet the specific needs of the channels
Click on the assistant to help you allocate to sales forces automatically
Buying market research studies will help you make sound decisions
The cost of each study appears as you make your selections
You can monitor the status of your decisions at any time
Don't forget to transfer your decisions to your instructor by closing the session
You can close your session by clicking on Interface/Close Markstrat Session or just click here
On your marks, get set, GO!
Respect the deadlines
PARIS – BOSTON www.stratxsimulations.com
Markstrat is a simulation designed to focus on strategic marketing issues Understanding customer needs Long-term perspective Marketing as a profit center Competitive environment Marketing strategy is based on segmentation, positioning, and resource allocation... marketing mix decisions are secondary You and your team have to: • Target selected segments and position your products in a highly competitive market • Interface with the R&D department to design and develop new products • Prepare the launch of new products, improve, maintain or withdraw existing ones • Make marketing mix decisions
The Markstrat World Managing your firm Getting started
The Markstrat World: A large territory with a highly developed economy The Markstrat World Population: 250 million inhabitants Currency: Markstrat Dollar ($) Both inflation and GNP growth are fairly stable, no major political, social or economic event It roughly behaves like most markets. In the Markstart world, many companies manufacture and market consumer durable goods. These goods are comparable to electronic products as well as office equipment, cars, books and other consumer durable goods. With most scenarios, each firm starts in a different situation in of product specification, target customer groups, brand awareness levels, market share, distribution coverage, profitability, R&D expertise. No firm has a relative advantage over the others and initially has many characteritics in common. The intial brand porfolio of all companies is comprised of 2 brands.
Each firm can compete in TWO product markets
Maximum: 5 brands/firms marketed at a time
SONITES
•
independent
•
not substitutes
•
not complements
VODITES
SONITE PRODUCTS
At the beginning of the simulation, all rival firms market 2 Sonite brands. Sonite existed for several years, market has gron quite consistently A Sonite is a complex piece of equipment made up of several components with 5 most important physical characteristics and base cost. The base cost is an initial production batch of 100,000 units (decided tly by Marketing Dept and R&D Dept)
The Sonite market is already developed, each product has 6 product characteristics Weight
Design
Volume
(10 – 20)
(3-10)
(20-100)
Kg
Index
dm3 Max. Frequency
Power
Base Cost
(5 – 50)
(5-100)
(min. 10)
kHz
W
VODITE PRODUCTS New type of electronic product migh emerge, called Vodite. Industry experts predict this is a products of the future Vodite products will satisfy entirely different needs from that of Sonite products The demand for the 2 products will be completely independent. They are not complementary or substitution for each other. Although Sonite and Vodie technologies are similar, all firms have to engage substantial R&D resources to develop their first Vodite product An investment of about 10 million dollars may be required for each Vodite brand.
Vodites will also have 6 physical characteristics, but the market is yet untapped Autonomy
Max. Frequency
Diameter
(5-100)
(5-20)
(10-100)
m
kHz mm
Design
Weight
Base Cost
(3-10)
(10-100)
(min. 10)
Index
Kg
It is easy to recognize the origin of the brands from their names
S
I
Product Type:
Company marketing the brand:
S=Sonite V=Vodite
A, E, I, ...
B
I
Freely chosen letters or numbers
Sonite customers have traditionally been classified into 5 segments……
SINGLES (Si) PROFESSIONALS (Pr) BUFFS (Bf) HIGH EARNERS (Hi) OTHERS (Ot)
...whereas initial studies for Vodites have pointed to a different segmentation scheme
Typical segment size evolution over time Sales
Followers
Early Adopters
Innovators
Time
Sonite & Vodite customers can choose to purchase through 3 distinct Distribution Channels
Specialty Stores
These stores are usually small, geographically close to customers, has high level of service and technical . Not many different product categories, but broad lines for each category.
Department Stores
Has wide product assortment. Provide extensive customer service but lower technical than SS.
Mass Merchandisers
Operate on low-price, high-volume basis and try to minimize overheads. Level of service offered is lower than these other two. Carry many different product categories, but not deep at each product line.
Summary of the Markstrat World
Technology
Market Growth
Economic Environment
The Markstrat World Managing your firm Getting started
Your objective in managing your company is to maximize your Stock Price Index
You will have to decide the overall direction of the company, regarding: • Product portfolio strategy • Segmentation and positioning strategy • Marketing mix strategy
You will have to optimize: • • • • •
Market share Sales growth Net contribution Cumulative net contribution R & D investments
….but the main objective is to LEARN!
You will need to do a certain amount of analysis, before setting a strategic direction for your firm
Data
Strategic Options
Information
Research studies provide market data, it is up to you to prioritize, digest & interpret them
Consumer survey Consumer Distribution Semantic scales Multi-dimensional scaling (MDS)
Industry benchmarking Market forecast Competitive advertising Competitive sales force Advertising experiment Sales force experiment Cont analysis
Once your strategy is clear, you should make a number of tactical decisions each year
Production planning Inventory disposal Pricing Mass communication Sales force & distribution Market research
PRODUCTION Each period, you are responsible for submitting a production plan for each of your marketed brands. In case of unsuccessful brand, you can decrease the inventory or sell all or part of it to a trading company at some cost/loss. You are completely free to increase or decrease the production planning of a given product, without any penalty. The units produced are charged to the Marketing Dept only when they are sold to distributors. The price paid to production is called the transfer cost. Inventory-holding costs are charged to Marketing Dept in case units produced are excessive to be kept in inventory. The transfer cost of a given product increases with inflation.
Production Department adjustment Your production department will automatically adjust production levels (+ or -) 20% against your plan
Market demand
Inventory build-up
Lost sales
(assuming zero inventory level)
Number of Units
Production
QP (1-20%)
QP Requested production level
QP (1+20%)
Comparing purchase intent with market share can give you a feel for the size of "lost sales."
Purchase Intent
Market Share
Lost Sales
Competitors “Order-book” Lost to industry
PRICING
In Markstrat, you must set the recommended retail price for each marketed brand The retail price is the list price for customers The average selling price is the price at which you sell your product to distrbutors. It varies according to distribution channel because of different margins. Notice that mass merchandisers use promotions or special offers to sell products to a discount rate of 10% off the list price. Dumping is strictly forbidden in Markstrat world, so the selling price must be higher than its transfer cost. Price increase or decrease greater than 30% in one period are highly discouraged.
Pricing in Markstrat is fixed once a year
Recommended Retail Price = $100
Average Retail Price Distrib. Margin Average Selling Price
Specialty Stores
Department Stores
Mass Merchandisers
$100
$100
$90
$40
$ 30
$ 27
$ 60
$ 70
$ 63
COMMUNICATION
You should determine the advertising budget allocated to each brand. The budget is used to: • Purchase media space and time (advertising media). This includes buying media space and time. • Do advertising research (advertising research). This includes creative work, media selection and other activities to make sure the quality of your message. • Companies devoted on average 7% of their total communication expenditures to advertising research. • You need to specify which segments to be targeted with your advertising • You finally must decide perceptual advertising objectives for each brand.
SALES FORCE
Your sales force is organized in 3 groups Each group is specialized to focus on the stores of a single distribution channel Marketing Dept must specify the number of salespeople in each group Salespeople may be reallocated from one channel to the other at no cost. But hiring or firing costs will be charged to your department when the total number of salespeople increases or decreases.
ORDERING MARKET RESEARCH STUDIES
One of your decisions will be to order market research studies. All studies are ordered at the beginning of a period. The results are delivered with your annual report at the end of the period. A maximum of 23 different studies may be ordered each period.
RESEARCH & DEVELOPMENT
Making R&D decisions is a crucial task The Marketing Dept must specify the desired characteristics for the new or improved product, including the target transfer cost. You must also allocate a budget to each project
MARKETING BUDGET
Your marketing budget is linked to the success of the department, being equal to 40% of the net contribution in the previous period. In general, your budget for each period will be between $ 7,000,000 and 20,000,000. You will work within this given budget.
Each firm receives a marketing budget for the coming period The budget amount is based on the previous period’s performance Advertising expenditures
Budget
Advertising
Advertising research expenditures
for each brand
Operating cost
Sales force
Hiring & training cost Firing cost
R&D
Development budget
Market Research
Sonite and Vodite study costs
for each project
UNDERSTANDING YOUR ANNUAL REPORT
INDUSTRY NEWSLETTER This provides general and financial data on the industry, on the competing firms and on marketed brands. All firms have access to the same Industry Newsletter Stock market and key performance indicators: charts with various indicators such as: market shares, sales, contribution, stock price indices and return on investment ratios. Economic variables and costs: the evolution of economic variables such as the inflation rate and GNP growth rate and various costs like salespeople, inventory cost, etc. Information on Sonite market: physical characteristics and price of all marketed Sonite products and indicates which brands have been recently improved or introduced. Also provides market shares, volume sold and retail sales of all Sonite products.
UNDERSTANDING YOUR ANNUAL REPORT
COMPANY REPORT This provides confidential company information. You and your team are the only ones who have access to the information disclosed in your Company Report. This includes: • • • • •
Company results Brand results Research & Development results Cumulative results Decision summary
Brand results
Company performance
MARKET RESEARCH STUDIES
Industry benchmarking: general information from annual reports about each of the Markstrat competitors. Consumer survey: provides information on • Level of brand awareness (consumers in each segment who can recall a given brand name) • Brand purchase intentions (consumers in each segment who intended to buy a given brand) • Shopping habits (consumers who prefer to shop in a given distribution channel)
Consumer : total unit sales for each segment, the relative size of each segment, market shares, based on unit sold for each brand in each segment. Distribution : total sales in units in each distribution channel, relative size of each channel, market shares for each brand in each channel
MARKET RESEARCH STUDIES Semantic scales: respondents are asked to rate each brand along each physical characteristics on a scale from 1 to 7. it provides the importance of each characteristic, or the weight each characteristic holds in the buying decision. Multidimensional scaling of brand similarities and preferences: • One of the most important studies that may be purchased by your team. • It provides a map showing similarities and differences between marketed brands on three different dimensions.
Market forecast: this study estimates the expected size in units and the growth rate of each segment for next period and in 5 years time. Competitive advertising estimates: estimates the total advertising expenditures for each competitive brand by segment. Competitive sales force estimates: estimates the number of salespeople allocated to each brand and provides average sales force size by brand and by firm
MARKET RESEARCH STUDIES
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. Sales force experiment: the sales force experiment predicts the increased distribution coverage and market share for each of your brands. Cont analysis: it provides the utilities – the real number between from 0 to 1 for each of the 4 most important characteristics for each segment, higher to 1 indicates high consumer preference.
The simulation starts at the end of the initial period
.
.
The new management (you!) make decisions for the next period
The decisions for the first period are limited in scope
Your team can get familiar with Markstrat • • • • •
Gather information Do not make any major changes in your firm's operation Do not introduce new brands, modify or withdraw existing ones Do not start R&D projects Do not give perceptual objectives for advertising
Organize yourselves and manage the group process
Time pressure Information overload
Conflicting opinions
The Markstrat World Managing your firm Getting started
When you return to your team room, the Main Menu will be on your screen
Click here to access session information
You can access all the decisions on the main screen to make decisions for the next period
The decisions you will make
Marketing Mix decisions should be entered for each brand Switch from Sonites to Vodites
You are making decisions for the brand SAMA
The sales force is organized by channel type to meet the specific needs of the channels
Click on the assistant to help you allocate to sales forces automatically
Buying market research studies will help you make sound decisions
The cost of each study appears as you make your selections
You can monitor the status of your decisions at any time
Don't forget to transfer your decisions to your instructor by closing the session
You can close your session by clicking on Interface/Close Markstrat Session or just click here
On your marks, get set, GO!
Respect the deadlines
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