stratsim marketing introduction. stratsim marketing content 2 in this computer simulation, your team...

StratSimMarketingIntroduction

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StratSimMarketing ContentIn this computer simulation, your team will take over the management of one of five automobile manufacturing companies for up to 10 simulated years and make decisions in the areas of:

• Marketing

• Product Development

• Manufacturing

• Finance

• Human Resources

Integrated long-term market-focused strategy.

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StratSim Environment• Based on the Automobile Industry.• One Market: Consumer• Consumer market of 150 million people.• Currently, low GDP and inflation growth rates.• Demand sensitive to GDP, interest rates, and decisions that you

make as an industry.• Maximum of 6 yearly decision periods.

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StratSim EnvironmentThe Products: Cars & TrucksPrinciple Characteristics

Vehicle ClassSizeEngine / PerformanceInterior StylingSafetyQuality…and Price

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StratSim Environment7 Product Classes with Existing Vehicles:

(E)conomy(F)amily(S)ports(L)uxury

(M)inivan(U)tility(T)ruck

Plus two potential new classes if developed:(A)EVs (D)elivery*

* B2B only.

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StratSim Environment• Competitors: 5 Firms (A-E)• Each firm has 3 vehicles on the market.

• The firms have different strengths and weaknesses and are uniquely positioned in the market.

* Corresponds to Product Class.

Amazing Cars ( A ) . . . . . . . . . . . ALFA ( F )*, ALEC ( E ), AWESOME ( U ) Best Motor Works ( B ). . . . . . . . BOFFO ( F ), BEAUT ( L ), BUZZY ( S ) Cool Cars ( C ). . . . . . . . . . . . . . . CAFAV ( F), CAMINI ( M ), CLIMAX ( L ) Driven Motor Co. ( D ) . . . . . . . . .DEFY ( F ), DELITE ( E ), DETONKA ( T ) Efficient Motors ( E ) . . . . . . . . . .EFIZZ ( F ), ESTRUCK ( T ), EURO ( U )

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StratSim Environment• Competitors: 5 Firms (A-E)• Starting positions on several key performance measures:

MANUF. SALES( B$ )

MARKET SHARE

( $ )

NET INCOME

( B$ )

STOCKPRICE

( $ )

FIRM A 20.5 23.7% 1.8 51FIRM B 12.9 14.9% 1.8 50FIRM C 13.7 15.8% 1.7 51FIRM D 19.3 22.4% 1.7 50FIRM E 20.1 23.2% 1.7 50

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Industry OverviewCLASS POSITION SEGMENTS VEHICLES EXAMPLE

Economy SmallerLow Price 1, 2 Alec, Delite

Family Mid SizeMid Price 2, 4 Alfa, Boffo, Cafav, Defy,

Efizz

Luxury LargerExpensive 4, 5 Beaut, Climax

Sports Mid SizeMid Price 3 Buzzy

Minivan LargerMid Price 2 Camini

Utility LargerMid-High Price 3, 5 Euro, Awesome

Truck Mid-Large Size Mid Price 1, 3 Detonka, Estruck

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Consumer Market5 consumer segments (1–5) with different needs and class preferences.

Customer = Intersection of segment and class(e.g., 1T is a value seeker who wants a truck)

Segments: Value Seekers (1) Families (2) Singles (3) High Income (4) Enterprisers (5)

Customers: 1E, 1T 2E, 2F, 2M 3S, 3T, 3U 4F, 4L 5L, 5U

…New customers may emerge!

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Consumer MarketPurchase Process

• Customers have different needs and expectations with regard to vehicle characteristics.• Customer "consideration set"

based on product class, size, and MSRP.

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Consumer MarketPurchase Process

• Customers prefer a particular size vehicle.• Customers prefer a specific engine size due to the trade-off

between performance and fuel economy.• Customers prefer better (more) Interior, Styling, Safety, and Quality

("ISSQ").• Customers weigh this bundle of goods against the price charged.

Hints: Customers may have certain "hot buttons" or attributes that are particularly important to them, and some customers may be more Price sensitive than others.

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Decisions Overview• Technology• Product Development• Consumer Marketing• B2B Marketing (optional)• Manufacturing• Distribution• Licensing (optional)• Finance

Integrated Long-Term Market-Focused.

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Technology• Each firm has an overall technology capability with regard to Interior, Styling, Safety, and Quality that can be improved through investment in technology.• For Example: If firm A’s technology profile is 4, 5, 4, 5, it can

develop and/or upgrade vehicles to these maximum specifications.• A firm with greater technology capability can produce vehicles with

better features in these areas AND produce vehicles with the same features at lower per unit cost.• Weigh benefit against cost of investment.

Important: Investing in technology does not automatically improve the specifications of your products, only your ability to do so through upgrades.

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Technology

Cost of Investment and Estimated Benefit.

Click here to change your Technology Capabilities.

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Concept Creation• To introduce a new product, a firm must first develop

a product concept.

• A concept consists of all the vehicle specifications (class, size, engine, attributes).• Your firm will receive feedback on

the unit cost, development cost, and time to develop.• Your firm may also run a concept

test to see how a customer views your concept.

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Product Development• Product Development takes place in "Development Centers".• New products move from concept to development in one of the

centers.• Upgrades also take place in the centers.• Each firm starts with 2 development centers allowing concurrent

development on two products (new products or upgrades).• New development centers can be added over time up to a

maximum of five (one per period).

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Product Development4 General Approaches:• Minor Upgrade: Based on existing product, uses 1 center for 1 decision

period, prepare launch now (immediate impact after advance). Inventory disposed now. "tweak" – Max. change of 2 size, 5 HP, 1 other specs.

• Major Upgrade: Based on existing product, uses 1 center for 2 decision periods, prepare launch next decision (1 year). Inventory disposed next year. Max change of 10 size, 20 HP, 2 other specs + "tweak" next year

• New Product, Same Class: Based on concept, uses 1 center for 2 decision periods, prepare launch next decision (1 year).

• New Product, New Class: Based on concept, uses 1 center for 3 decision periods, prepare launch in two years. Use concept test for new products to measure "quality" of your offering.

Balance opportunities, speed to market, cost, and need for change.

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Product Development• To introduce a new product (new

brand name, not an upgrade), a firm must first develop a product concept.• A concept consists of all the vehicle

specifications (class, size, engine, attributes).• Your firm will receive feedback on the

unit cost, development cost, and time to develop.• Your firm may also run a concept test

to see how a customer views your concept.

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Product Development

Results for Period N1

Decisions for N+12

Results for Period N+1

Decisions for N+2

Results for Period N+2

Decisions for N+3 Results for Period N+3

Minor Upgrade

$100-$300 Millionin current year

Modify Specs In Dev. Center

Adjust Marketing MixAdjust Production (Inventory disposed)

In Market Results impacted.

(Including sales, retooling, inventory write-off)

In Market In Market

Major Upgrade

$250-$750 MillionSpread over 2 years

Modify SpecsIn Dev. Center

Build Add’l Capacity

Modify SpecsIn Dev. Center

Adjust Marketing MixAdjust Production

(Inventory disposed)

In MarketResults impacted.(Including sales,

retooling, inventory write-off)

In Market

New Product(Existing class)

$250-$1,500 Mill.

Spread over 2 years

Create ConceptName ProductModify SpecsIn Dev. Center

Build Add’l Capacity

Modify SpecsIn Dev. Center

Set Marketing MixSet Production

In MarketResults impacted. (Including sales,

retooling)In Market

New Product(New class)

$500-$2,500 Mill.

Spread over 3 years

Create ConceptName ProductModify SpecsIn Dev. Center

Modify SpecsIn Dev. Center

Build Add’l Capacity

Modify SpecsIn Dev. Center

Set Marketing MixSet Production

In MarketResults

impacted. Including sales,

retooling)

Licensing(Optional feature)

ImmediateNegotiate with

Licensor

Negotiation of terms oflicense, make and accept offer,enter marketing mix decisions

In MarketResults impacted by

license launch. Revenues to licensor. Re-enter terms of license (ore renegotiate)

In Market In Market

1 Period "N" is the period just completed for which you are now currently reviewing results; e.g.: Period 12 Period "N+1" is the period for which you are now making decisions. It is the period for which results will be created as the simulation is advanced after the current decisions are completed; e.g.: Period 2.

Product Development Timelines(From the StratSim Case)

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Product DevelopmentExample:• In the 1st decision period, a firm initiates a minor upgrade and

a new product in a new class…• If, in the following period, the firm thinks it will want to initiate

two more upgrades, what are its options? Build a new development center in the 1st decision period so they

would have 3 operational centers in the 2nd decision period. Only choose one upgrade in the 2nd period (because the new product

would occupy one development center). Choose to discontinue development of the new product to free a

development center.

Hints: Be sure to plan development time lines and development capacity.

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Product DevelopmentSample development screen showing an upgrade (Alfa), new product (Aphid), and a new development center:

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Consumer MarketingCorporate Level

• Budget set by region (North, South, East, West) to create general firm preference and support dealerships.• Public relations to create interest in firm developments.• Direct Mail to different consumer segments.

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Consumer MarketingProduct Level: Advertising and Promotion

• Advertising budget to build and maintain awareness.• Advertising theme (performance, interior, style, safety, quality) to

appeal to target segment’s "hot button".• Promotion budget to help spur sales during slow periods used for

rebates, special financing, attractive leases, etc.

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Consumer MarketingProduct Level: Pricing

• MSRP = Manufacturer’s Suggested Retail Price used to position vehicle, set expected price in mind of consumer and dealership.• Dealer Discount = % discount off MSRP to dealer

MSRP - discount = Actual revenues to your firm

• Actual selling price to consumer (retail price) determined by dealer.

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Consumer Marketing

Consumer Marketing Decision Screen

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ManufacturingCapacity

• Total vehicle production must be less than capacity or incur over-capacity charges.• Capacity may be increased, but takes one year before available

and costs $$$.• Plant investment is depreciated over 10 years.• Maximum increase (or decrease) in a year is 50% of current

capacity.

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ManufacturingProduction

• Set production based on YOUR sales forecasts and inventory levels.• Retooling costs for initial or increased production.• Remember there is a cost to dispose of inventory of old vehicles

if upgraded (minor or major).• Set flexible production (+/- 10%).

Adjusts production if > 120 days or insufficient to meet orders.

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Manufacturing

Note over-capacity( 1845 > 1800 ) and resulting charge…

…and Alfa inventory write-off (upgrade).

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Distribution• Dealerships make the actual sale to consumer.• Set up on a regional basis (North, South, East, West).• Can open or close dealerships (max of 10% change each year and

takes 1 year to open/close).• Dealer ratings (1-100 scale) indicate customer experience at

dealership, impacted by:Profitability and product offerings. Training, education and support.Dealer discounts and servicing.

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Distribution

Note Coverage( = established / full)

…and 20 new dealerships started.

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FinanceUses of cash (long-term investment decisions):

• Technology, product development, capacity, retooling, advertising, distribution, repurchase of bonds and stock, repayment of loans.

Sources of cash:• Operations, selling bonds and stock, short-term borrowing.• Use Pro-Forma to see likely impact on cash position based on

YOUR forecasts and decisions.

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Finance

Click here to issue bonds and stock.

• To repurchase stock, enter a negative value ($).• Bonds are callable after

three years.

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Financial Performance• Financial Statements

income statement, balance sheetscash flow• Stock price and bond ratings• Use Pro-Forma reports to see

likely impact on performance based on YOUR forecasts and decisions.

Actual Results Will Vary.

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Internal ReportsInternal Analysis:

• Performance Summary• Income Statement• Balance Sheet• Cash Flow Statement• Product Contribution• Marketing• Distribution• Manufacturing

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Market ReportsMarket Analysis:

• Industry News• Economy• Vehicle Classes• Regional Sales• Consumer Segments• Consumer Customers• New Customers• B2B Segments*• B2B Contracts

* B2B reports are optional and will be displayed only if selected.

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Competition ReportsCompetitive Analysis:

• Products• Market Share• Technology• Marketing Communications• Distribution• Manufacturing• Financials

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Tools and ResearchTools Available:

• Vehicle Sales by Customer($)• Focus Groups ($)• Concept Test ($)• Competitive Mapping ($)• Perceptual Mapping ($)• Test Market ($)• Conjoint Analysis• Portfolio Analysis

Note: Tools available will vary based on customization selected.

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Decisions Menu• Technology• Product Development• Consumer Marketing• B2B Marketing (optional)• Distribution• Licensing (optional)• Manufacturing• Financing• Decision Summary

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Decision SummaryCheck your decisions on the Decision Summary screen (Decisions menu) before the simulation is advanced to the next period.

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Decision AnalysisCheck Decision Alerts! on the Decision Analysis menu before the simulation is advanced to check for warning messages before your decision deadline.Use the Pro-forma to enter your forecasts and help you to determine your best course of action.

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StratSim Logistics• All decisions are saved on the server, so you must

be online.

• Everyone on the same team shares ONE decision file, so when one person makes a change, the whole team makes that change. In addition, when one team member purchases a tool, the whole team purchases the tool. In other words, organize your decision process!• It is recommended that you print out decision summary and pro-

forma income statement when your team is done entering its decisions.• Decisions must be completed on time.• Results will be available at beginning of next meeting time.

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Final Considerations• Your strategy drives your decisions – make sure

you have one!• Focus on how to best serve your target markets through a total

offering – product, marketing, service, and price.• Importance of team organization – HR.• Manage your margins – understand financial implications of

decisions. Understand fixed and variable costs. Long term vs. short term. Make wise investments. Use the Pro-Forma for insights BEFORE finalizing decisions.

• Try new approaches – apply concepts – experiment – have fun!