SM91.87 Business Simulation

Part II

2

Your success in Markstrat will greatly depend on your ability to manage the development and positioning of brands

Positioning

R&D

Strategy

3

Customers make purchase decisions based on their perception of your brands

Their perception of brands

Your perception of brands

Technical quality

BrandA

BrandB

BrandC

BrandD

BrandC

BrandA

BrandBBrand

D

?

?

4

The "Perceptual Map" is a valuable tool for visualizing brand positioning

Perceptual Mapbased on MDS Study

Key

Perceptual positioningof brands

Segment ideal pointOt

Need 2

Need 1

+20

+20

-20

-20

SELF

PrHi

Bu

Si

Ot

SEMI

SONO

SOLD

SULI

SAMA

SUSI

SALT

SIBI

SIRO

5

There are two key ways to re-position brands in Markstrat

R & D

Advertising

PerceivedEconomy

PerceivedPerformance

6

Physical positioning involves matching brand characteristics to customer needs

EconomyEconomy PerformancePerformance ConvenienceConvenience

Customer NeedsCustomer Needs

SAMA

Pri

ce

Brand Characteristics

Max

. F

req

.

Po

wer

Des

ign

Vo

lum

e

Wei

gh

t

7

Positioning with advertising requires setting "Perceptual Objectives"

-20

PerceivedEconomy

Si10

0

20

-10

-20 -10 0 10 20

5

5

9

11

PerceivedPerformance

8

Your success will greatly depend on your ability to manage the development and positioning of brands

Positioning

R&D

Strategy

9

R&D success demands long-term thinking and the ability to identify evolving opportunities...

Changing segment

needs

Hi

New target

segments

Si

Pressure on

margins

Ot

Pr

Competitor entry

10

. . . and also requires working effectively with your R&D department

Provide sufficient budgets Set realistic expected

unit costs

R&D = Profit Center

Experience

Numberof Projects

Similarityof Projects

11

When doing R&D, keep in mind both positioning and economic factors

CBase Cost

(at 100K units of production)

Target margin Cost in other projects Project budget Impact of physical characteristics

Most important physicalcharacteristics

Weight Design VolumeMax.Freq. Power

SONITE

Market needs Competitive brands Feasible range Project budget

Positioning Factors Economic Factors

12

• Volume• Weight• Diameter

The HIGHER the requested

characteristicthe LOWER the

base cost

Basecost

Requested characteristic

Impact of physical characteristics on base cost

• Design• Max. Frequency• Power• Autonomy

The HIGHER the requested

characteristicthe HIGHER the

base cost

Basecost

Requested characteristic

13

The budget required to complete an R&D project is a function of several factors

accuracy

speed

feasibilitystudy

on-linequery

vs.

to find out more:

R&Dexperience

Requestedbasecost

Physicalcharacteristics

R&Dbudget requiredfor completion

14

There are two possible outcomes of any R&D project

Project submitted to R&D:

weight design volume max. freq. power

17 6 85 35 70

Minimum base cost is calculatedat an early stage in the project.

Minimum base cost = $110

Case ARequested Base Cost = $80

(requested base cost is below minimum, but the R&D will try to develop the project at the minimum base cost)

Budget required for completion = $ 800(at base cost = $ 110)

Case BRequested Base Cost = $130

Budget required for completion = $ 550(at base cost = $ 130)

Budget required for completion is also calculated at an early stage in the project

$ 1,000 $ 300 $ 1,000 $ 300

Project is available at base cost = 110

Project unsuccessfulProject is available at

base cost = 130Project unsuccessful

Case A2 Case B1 Case B2Case A1

Budget allocated by team for this period: Budget allocated by team for this period:

15

A completed R&D project may be used to modify existing brands and/or introduce new brands

Performance

Economy

Bu

Ot

SiHi

Pr

Old SAMA

New SAMAmore performance

New Brand"SAMY"

16

Bringing successful R&D projects onto the market may result in obsolete inventory

SAMA

SAMASAMA

SAMASAMA

Brandmodification(name kept)

Brandwithdrawal TRADING

COMPANY

TRADING COMPANY

I'll buy any product at a given % of its

transfer cost

Inventorydisposal

Obsolete inventory

SAMA

17

Cost reduction projects should be weighed against experience curve effects

B

Transfer cost

Cumulative production

A1

A

Current product (initial experience curve)

Cost reduced product(new experience curve)

100 KU 225 KU

Currenttransfer cost A1

Base cost A

Base cost B

18

The MDS study measures brand perception along three composite dimensions...

Weight Design Volume Max. Freq. Power Price

Economyslight slight slight moderate moderate strong

Performanceslight slight slight strong strong moderate

Conveniencemoderate strong moderate slight slight slight

Productcharac.

Compositedimensions

SONITE marketInfluence of brand characteristics on MDS dimensions in P0

Perceived Economy increases if Max. Freq.

increases

Perceived Economy increases if Price decreases

19

... which are more or less influenced by the various brand attributes

AutonomyMax. Freq.

Diameter Design Weight Price

Efficacyslight very strong slight moderate slight slight

Flexibilitystrong slight moderate slight moderate slight

Economyslight slight slight slight slight very strong

Productcharac.

Compositedimensions

Perceived Efficacyincreases if Max. Freq.

increases

Perceived Flexibility increases if Weight decreases

VODITE marketInfluence of brand characteristics on MDS dimensions in P0

20

New decisions introduced in Period 2:

1. Brand portfolio

2. Perceptual objectives (on semantic scales or MDS)

3. R&D

21

You can now extend your portfolio by introducing new brands ...

Click here to display the

completed R&D projects and their

features

22

... you can also modify existing brands

Select a new R&D project

Keep the same name

23

To convey the right message to the market, you can set perceptual objectives for each of your products

1Do you want to

communicate on the semantic scales or on the

MDS composite dimensions?

2On which dimensions

do you want to communicate?

3Input the coordinates of the point that you

want to reach on the map

24

You can initiate up to five R&D projects per period and per product type (five Sonite and five Vodite)

Click here to obtain an estimate of the minimum

base cost and budget required for completion

of this project

25

You now know everything.

From here on, it's down to your strategy...