1

IntroductionIntroduction

“I hear and I forget. I see and I remember. I do and I understand.”

Confucius

2

DecisionsDecisions

You make decisions given competitor past, current and future decisions

You are responsible for the firm’s decisions Decisions should be an adventure, not a

chore

3

Firm Operation Firm Operation

Keep a record of all decisions made and results. This record will come in handy when you prepare your marketing and advertising plans in a few weeks. It will help you prepare your Director Memo at the end of the semester. A hardcover lab notebook works great for this purpose.

4

BudgetingBudgeting

Each firm must submit budget using Excel to reproduce the information contained on the Financial Summary/Pro Forma form in the appendix of The Marketing Game

5

The Role of the Marketing Game The Role of the Marketing Game

The Game offers unique learning advantages, compared to other learning approaches (like reading texts and articles, lectures, guest speakers, case analysis and presentation, projects) because it:

Is dynamic, like most business situations.

Brings the competitive aspects of marketing to life.

Highlights the need for integrative planning based on qualitative and quantitative analysis of the market environment.

6

OverviewOverview

You take over marketing management responsibilities for your firm. Must satisfy customers and earn profits

Focus is on marketing strategy planning. Requires integration of all strategy decisions. Requires attention to competitive environment. Considers short term and long term perspectives. Features ongoing, rapid feedback.

7

The ProcessThe Process

Analysis of market situation/opportunities Planning and budgeting Make marketing plan DECISIONS!!! Submit plan decisions The marketing game! simulation Company reports returned to firms

8

Industry EnvironmentIndustry Environment

Market growth

Technological environmentNo major innovations expectedYearly revision cycle

Competitive environmentType of competition depends on firms’ decisions

9

Six Key Product-Market SegmentsSix Key Product-Market Segments

HarriedAssistants

HomeUsers

High-techManagers

ModernStudents Professional

Creators

ConcernedParents

Segments have different needs, preferences, situations, sizes, growth rates.Segments have different needs, preferences, situations, sizes, growth rates.

10

Distribution ChannelsDistribution Channels

HarriedAssistants

HomeUsers

High-techManagers

ModernStudents Professional

Creators

ConcernedParents

Firm 1 Firm 2 Firm 3

Channel 1Traditional

Dealers

Channel 2DiscountDealers

Firm 4

Firms reach customersthrough full-servicedealers and Internet/mail-order discount dealers.

Firms reach customersthrough full-servicedealers and Internet/mail-order discount dealers.

Different segments have different shopping preferences.

Different segments have different shopping preferences.

11

Product 1: Voice Recognition Device (VRD)Product 1: Voice Recognition Device (VRD)

Key ProductFeatures

Error Protection (1-10)

Number of Special Commands (5-20)

Ability to Customize (1-10)

12

R&D for Product Modifications: Computing CostsR&D for Product Modifications: Computing Costs

Feature Cost to Decrease Cost to Increase

Special Commands (5-20) $0 $8,000*(change)2

Error Protection (1-10) $0 $5,000*(change)2

Ease of Learning (1-10) $3,000*change $3,000*(change)2

Example

Feature

Last period’s product

This period’s product Change Cost to Change

Special Commands 6 8 +2 $8,000*2*2=$32,000

Error Protection 4 3 -1 $0

Ease of Learning 3 5 +2 $3,000*2*2=$12,000

Total modification costs: $44,000

Note: R&D for product changes is more expensive if you have to make big changes in a short period of time…

13

Product 2: Digital Vocal Communicator (DVC)Product 2: Digital Vocal Communicator (DVC)

Key ProductFeatures

Similarity of Commands (1-10)

Number of Tasks (1-10)

Ease of Learning (1-10)

Level 3

14

Types of AdvertisingTypes of Advertising

Pioneering Direct competitive Indirect competitive Reminder Corporate (Institutional)

15

Expanded Marketing Responsibilities (Level 3)Expanded Marketing Responsibilities (Level 3)

2 PRODUCTs Features (and R&D for product modifications) PRICE Wholesale price in each channel

for each product

PLACE Distribution intensity by channel, product

PROMOTION-Advertising $ Spending for each product

Type for each product-Personal selling Number of sales reps in each channel

Percent non-selling time in each channelCommission rate

-Sales promotion $ Spending per channel, productCUSTOMER SERVICE $ SpendingMARKET RESEARCH 7 reports may be purchasedDemand forecast/production order Number of units for each product

16

Response Functions and Marketing SpendingResponse Functions and Marketing Spending

Sales

Marketing Spending

ThresholdLevel

SaturationLevel

Spending too little may have little effect, but spending too much just increases costs and reduces profit.

17

Marketing Budget Items (Level 2 and 3)Marketing Budget Items (Level 2 and 3)

R&D product modification costs Sales force salaries and severance pay Advertising expense Customer service expense Sales Promotion Expense Market research reports expense

BUDGET FOR FIRST PERIOD: $984k

18

Discretionary BudgetDiscretionary Budget

Policy on initial discretionary budget. Unspent money carries to future periods and

earns interest. “When it’s gone, it’s gone.” Policy on special budget requests.

19

Computing PricesComputing Prices

Computing Retail Prices from Wholesale Prices:Expected Retail Price = Wholesale price/(1-% Markup)

Example: Wholesale price = $105Channel 1 Retail Price = ($105/(1-.50)) = $210

Channel 2 Retail Price = ($105)/(1-.35) = $161.54

Computing Wholesale Prices from Desired Retail

Prices:Wholesale Price = Retail Price (1 - % Markup)

Example: Desired Retail Price = $190 Channel 1 Wholesale Price = $190/(1-.50) = $95.00

Channel 2 Wholesale Price = $190/(1-.35) = $123.50

20

Retail Prices Charged Final ConsumersRetail Prices Charged Final Consumers

The retail price set by a dealer depends on:

The wholesale price in the dealer’s channel.

The customary markup used in the channel.

The portion of any sales promotion “deals” that the dealer passes along to consumers as a price reduction.

21

A “Good” Wholesale PriceA “Good” Wholesale Price

Should cover the unit cost of the product (given its features).

Should result in a retail price that will appeal to target consumers.

Should result in a profit margin that will contribute to other expenses and profit.

22

Competitor AnalysisCompetitor Analysis

Estimate competitor’s net contribution Analyze past strategies & likely changes. Evaluate positioning and target segments.

? XX

X

?

?X

1 2 3 4

Firms

1

2

3

4

5

6

Seg

men

ts

23

Industry Sales ReportIndustry Sales Report

Brand Unit Sales Share (units) $ Sales (retail)

Firm 1 25,151 .250 $4,292,964

Firm 2 25,151 .250 $4,292,964

Firm 3 25,151 .250 $4,292,964

Firm 4 25,151 .250 $4,292,964

Total 100,604 $17,171,854

Channel Unit Sales Dollars Sales

1 56,296 $10,696.240

2 44,308 $6,475,614

24

Product Features and Prices ReportProduct Features and Prices Report

Brandof

VRD

Firm 1Firm 2Firm 3Firm 4

Specialcommands

8888

Errorprotect-

ion

3333

Ease of

learning

3333

Retailprice

channel 1

$190.00$190.00$190.00$190.00

Retailprice

channel2

$146.15$146.15$146.15$146.15

25

Market Activity Report (Level 2)Market Activity Report (Level 2)

Adv. DollarsAdv. Type

Sales Promotion Channel 1 Channel 2

No. Sales Reps Channel 1 Channel 2CommissionCustomer Service

Firm 1

$250,000

$0$0

10105%$92,500

Firm 2

$250,000

$0$0

10105%$92,500

Firm 3

$250,000

$0$0

10105%$92,500

Firm 4

$250,000

$0$0

10105%$92,500

26

Market Research Reports (Level 3)Market Research Reports (Level 3)

1. Market share by segment (all brands) 2. Market share by channel (all brands) 3. Consumer preference study 4. Marketing effectiveness report 5. Sales by segment by channel (own brand) 6. Consumer shopping habits study 7. Product positioning report

Note: separate reports are available for each product,Except for the consumer shopping habits studyNote: separate reports are available for each product,Except for the consumer shopping habits study

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Market Share by Segment ReportMarket Share by Segment Report

Brand

Firm 1Firm 2Firm 3Firm 4

Total Sales(units)

1

0.2500.2500.2500.250

20,028

2

0.2500.2500.2500.250

15,084

3

0.2500.2500.2500.250

25,104

4

0.2500.2500.2500.250

10,240

5

0.2500.2500.2500.250

22,056

6

0.2500.2500.2500.250

8,092

Segment

Who’s selling to whom?Who’s buying what? What is each firm achieving?Which segments are buying?

28

Market Share by Channel ReportMarket Share by Channel Report

Brand

Firm 1Firm 2Firm 3Firm 4

Total Sales(units)

Channel 1

0.2500.2500.2500.250

56,296

What’s selling where?Who’s buying what?

Channel 2

0.2500.2500.2500.250

44,308

29

Consumer Preference StudyConsumer Preference Study

Segment

Students

Home

Assistants

Creators

Managers

Parents

SpecialCommands

10-13

7-10

10-13

12-15

13-16

5-8

ErrorProtection

2-4

2-4

6-8

2-4

6-8

2-4

Ease ofLearning

1-3

6-8

6-8

4-6

2-4

7-9

PriceRange

low

low

high

high

high

low

What kind of product would a segment prefer?What reference price seems typical for the segment?How are segments similar and different?

What kind of product would a segment prefer?What reference price seems typical for the segment?How are segments similar and different?

30

Marketing Effectiveness ReportMarketing Effectiveness Report

Brand AwarenessCustomer Service Consumer Group Rating Industry Average Rating

Channel 1: Sales Rep Workload Dealer Satisfaction Channel Strength (“Push”)

Channel 2: Sales Rep Workload Dealer Satisfaction Channel Strength (“Push”)

Index0.550

100%100%

100%1.00.500

100%1.00.500

Competitorswith lower

Index0

00

00

Competitorswith equal orhigher Index

3

33

33

31

Detailed Sales AnalysisDetailed Sales Analysis

Firm

Channel 1

Channel 2

1

896

5,269

2

1,109

3,337

3

5,602

1,396

4

1,808

1,196

5

4,363

1,865

6

1,086

1,074

Segment

Unit sales by segment and channelAre you reaching your target?

32

Customer Shopping HabitsCustomer Shopping Habits

Segment

Students

Home

Assistants

Creators

Managers

Parents

Percent of Shopping

in Channel 1

?

?

?

?

?

?

Who shops where?How do shopping patterns match distribution focus?

Percent of Shopping

in Channel 2

?

?

?

?

?

?

33

Product Positioning ReportProduct Positioning Report

Brand

Firm 1Firm 2Firm 3Firm 4

1

????

2

????

3

???

?

4

????

5

????

6

????

Segment

Which brands are closest to which segments?Which segments have no close brands?

34

The Marketing Game