You are on page 1of 49

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 terms 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

independent not substitutes not complements

SONITES

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 jointly by Marketing Dept and R&D Dept)

The Sonite market is already developed, each product has 6 product characteristics Weight
(10 20)

Design
(3-10)

Volume
(20-100)

Kg

Index

dm3
Max. Frequency
(5 50)

Power
(5-100)

Base Cost
(min. 10)

kHz

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
(5-100)

Max. Frequency
(5-20)

Diameter
(10-100)

kHz mm

Design
(3-10)

Weight
(10-100)

Base Cost
(min. 10)

Index

Kg

It is easy to recognize the origin of the brands from their names

S
Product Type: S=Sonite V=Vodite

I
Company marketing the brand:

Freely chosen letters or numbers

A, E, I, ...

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

Department Stores

Mass Merchandisers

These stores are usually small, geographically close to customers, has high level of service and technical support. Not many different product categories, but broad lines for each category.

Has wide product assortment. Provide extensive customer service but lower technical support than SS.

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 panel Distribution panel Semantic scales Multi-dimensional scaling (MDS)

Industry benchmarking Market forecast Competitive advertising Competitive sales force Advertising experiment Sales force experiment Conjoint 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
QP (1-20%) QP Requested production level QP (1+20%)

Production

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 Specialty Stores Average Retail Price Distrib. Margin Average Selling Price Department Stores Mass Merchandisers

$100 $40 $ 60

$100 $ 30 $ 70

$90 $ 27 $ 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 periods performance
Advertising expenditures

Advertising

Advertising research expenditures


Operating cost

for each brand

Budget

Sales force

Hiring & training cost Firing cost

R&D

Development budget

for each project

Market Research

Sonite and Vodite study costs

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 panel: 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 panel: 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. Conjoint 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

You might also like