web business management part1
TRANSCRIPT
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Business Management
Competing in theMarketplace
Ernie Cadotte
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Learning Strategy
Business war games are a form of combative
training where participants pit their business skills
against those of formidable opponents under the
watchful eye of a training coach.
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Learning Strategy:Learn by Doing
Participants learn about all aspects of business by
managing a simulated business.
TheMarketplace scenario follows the life cycle
of a new product.
Business decisions are introduced as they becomerelevant in the evolution of the product.
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Key Benefits
Develop teamwork across functions & locations.
Promote better decision making by helping
participants see how their decisions can affectthe performance of others & the organization as
a whole.
Facilitate learning of important businessconcepts, principles and ways of thinking.
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Key Benefits
Discover how important it is to use market
data and competitive signals to adjust the
strategic plan and more tightly focusbusiness tactics.
Build confidence through knowledge and
experience.
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How is the business war
game conducted?
Teams are placed in a war game scenario -
starting up and running a new business venture.
The opposition is played out by competing
teams.
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Business Team Market
Opponent
Opponent
Opponent
Opponent
Objective is to profitably capture
a dominant market position
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Business Teams
Each team member
assumes a tactical area of
responsibility.
MarketingFinance
ResearchProductionOverall Leadership
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How conducted?
Business team receives information on currentsituation.
Current situation is evaluated, strategy
formulated and tactics set in placed.
Tactical decisions are fed into theMarketplace
simulator, along with decisions of opponents.
Results of decisions are fed back to business
team.
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How conducted?
The business team can acquire information onwhat is happening in the marketplace through:
customer reaction to market decisions
competitor actions
Current situation is evaluated, strategy
formulated, and tactics are set in place. Tactical decisions are again fed into the
Marketplace simulator.
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Game Scenario
You and your business partners have decided to
enter the international microcomputer industry.
The microcomputer industry is in its
introductory stage of the product life cycle.
Several other international firms are entering
the market at the same time.
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Game Scenario
Your business strategy will be tightly focused ondirect sales to business customers.
You will not sell to the home market or through
retail stores.
You will sell through company-owned sales offices
in major metropolitan markets around the world.
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Marketplace isavailable via
Netscape and
Internet Explorer.
Go to:
marketplace6.com
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The step-by-step
process that walks
you through the
information and
decisions.
The softwarecontrols your
progression to
reduce your
uncertainty and tohelp you see the
logic of the
marketing process.
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Be sure to readthe directions
on how to use
theMarketplacesoftware.
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Sales Offices
ParisBerlin
Rome
London
Beijing
Shanghai
Guangzho
Tianjin
Curitiba
Rio de Janeiro
Sao Paulo
Belo Horizonte
Montreal
Toronto
Calgary
Vancouver
New York
Atlanta
Chicago
Los Angeles
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Market Segments(Market Structure)
Price
Performance
Cost Cutter
WorkHorse
Traveler
Innovator
Mercedes
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Chronology of Events
Q1: Organize the team, name the company
and contract for a survey of potentialcustomers.
Q2: Analyze market information, establish
strategic direction and set up shop (build
plant, design brands and set up sales offices).
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Chronology of Events
Q3: Test-market brands, prices, ad copy,
media campaigns, sales staffing. Determine
production schedule for each brand.
Q4: Study end user feedback, competition,
and financial performance and make
adjustments in strategy.
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Chronology of Events
Q5: Prepare a two-year business plan.
Present business plan and financial request to
venture capitalists and negotiate equity
investment.
Q5Q8: Initiate international roll-outcampaign.
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Chronology of Events
Q9: Prepare report to the Board regarding
second year performance
deviations from planjustification for departures
analysis of current market
plan for future
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Equity Financing (Q1-Q4)
The initial capitalization is 4,000,000 which is being
invested by the executive team in 1,000,000 increments
over the first 4 quarters.
The executive team owns 100% of the company.
Forty thousand shares of stock will be issued to the
executive team in exchange for their 4,000,000.
The initial stock value is 100 per share.
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Equity Financing (Q5)
At the end of the first year of business, the executive
team will have the opportunity to request up to
5,000,000 from a venture capitalist.
The venture capitalist will expect an outline of the
strategic plan for the second year in business;
including target markets, geographic expansion,R&D, plant expansion, etc.
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Debt Financing (Q5 and beyond)
The bank will extend a line of credit to the executive
team equal to one and a half times the firm's equity
position in the previous quarter.
The bank is highly risk adverse and will call in your
loan in part or whole if your debt capacity declines dueto unusual or extended losses.
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Special Financing Needs
The bank is intolerant of poor financialmanagement.
If a firm ends a quarter with a negative cashposition, the bank will contact a loan shark by the
name of Guido to obtain an emergency loan tocover the firm's checking account.
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Guidos Financing Terms
Guido requires repayment in the next quarter.
The emergency loan interest rate is a sliding scale which
begins at 10% per quarter and may go as high as 25%
per quarter.
For each 100 which Guido places in your checking
account, he will take one share of stock in your firm.
The issuing of stock to Guido causes a dilution of yourstock value and your share of the company.
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Bankruptcy
A firm is technically bankrupt if its cumulative losses
exceed its equity investment.
Bankruptcy occurs when the sum of the retainedearnings and the common and preferred stock is a
negative number.
Stated differently, the management has used up all of
the equity of the firm when the negative value of the
retained earnings exceeds the value of the common
and preferred stock.
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Performance Evaluation
Report to Board
Strategic thinking and tactical execution
Balanced Scorecard- cumulative score for
quarters 5 through 8
How well the company is prepared for the future
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Q1: Organize the Business
Name the company
Assign organizational responsibilities
Share personal learning goals
Establish team norms
Purchase survey of end users
Sell stock to executive team
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View Sample Decisions
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Learning Points for Quarter 1
Managing the team
Organizing the work Deciding what one wants from the learning
experience
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Quarter 2
Setting Up Shop
Establishing the Firms Strategic
Direction with a focus on brand
design considerations.
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Q2: Establish Strategic Direction
Analyze market information Establish strategic direction
select target segments
decide on competitive posture
Set up shop
design brands for target market segments
develop distribution strategy locate and build plant
open initial sales offices for test market
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Customers Buy Benefits,
Not Features
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Once you select
a segment, you
must design abrand to meet
the needs of the
segment.
What features would
make a computer more
attractive to the
Traveler segment?
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How far do you go in giving the
customers what they say they
want?
Is more speed, software applications,
memory, keys on the keyboard, etc.always valued?
Could more of some feature evenmake a customer unhappy?
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What is the elasticity of the
peanut?
Searching for the
Markets Response Function
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Suppose you could design the ideal
candy bar. How many peanuts
would you put in the candy bar tomake you the happiest?
None
A few?
A bunch?
A whole lot?
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Which Candy Bar has the
Most Peanuts?
Baby Ruth Snickers
Payday
Milky Way
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Which Candy Bar
Do You Like the Most?
Baby Ruth
Snickers
Payday
Milky Way
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What does your response
function look like for peanuts?
Is more always better?
Would your happiness increase withevery new peanut we added to the
candy bar?
Is there a limit?
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Number of Peanuts
Influence of peanuts on candy
bar enjoyment
None few lot whole bunch
Um-um good
Yuk
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What would be your response
function for the following?
Chocolate
Caramel Nougat
Coconut
Rice Peanut butter
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Here are a number of response
functions. Which one applies to
peanuts, chocolate, coconut, etc?
Hot
Cold
Less More
Hot
Cold
Less More
More is
always
better
More is good to a
point and then ceases
to add excitement
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A little is just
right, more only
takes away value
Cold
Hot
Less MoreLess
Hot
Cold
More
More adds
value to a point
& then takes
away value
Response Functions
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Hot
Cold
Less More
Little interest
until threshold
is crossed
Hot
Cold
Less More
Any amount is bad
Response Functions
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Hot
Cold
Less More
No reaction/indifferenceto having the feature
Response Functions
T k A PC S t
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Take Any PC Segment,
How Excited Will It
Become if You Provide.
More memory?
More functions on the keyboard?
More software?
More..?
Just like the candy bar ingredients, you must discover the
response function for each PC component.
S l h i ld
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Select components that yield
benefits for Travel PC segment
Rugged Micro- High Wireless 6-hour Low-profile, Compact Trackball Wrist rest
casement circuitry resolution modem battery built-in disk, keyboard mouse on keyboardflat LCD CD drives
display
Portability Use on road Connect to office Easy to use
M t l Di i li f M k t l
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Mental Discipline of Marketplace
Marketconditions
Marketingstrategy
Marketingtactics
Marketassessment
Marketobjectives
Marketperformance
Manufacturing
conditions
Manufacturing
strategy
Manufacturing
tactics
Manufacturing
assessment
Manufacturing
objectives
Manufacturing
performance
Environmental
Analysis
Business
Strategy
Feedback
Business
Performance
Assessment
of Business
Conditions BUSINES
SLEVEL
Strategy
Financialconditions
Financialtactics
Financialassessment
Financialobjectives
Financialperformance
Financialstrategy
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Learning Points for Quarter 2
Market opportunity analysis
Segmentation and target marketing
Strategic and tactical planning
Financial management
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Learning Points for Quarter 2
Game theory - competitive positioning
Brand design
linking product features to customer benefits
finding the customers response functions
Marketing & manufacturing tradeoff - satisfythe customer or run the most efficient factory
Financial liquidity - cash versus assets Logistics of plant location - production
versus shipping economies
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Quarter 3Go To Test Market
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Q3: Go to Test Market
The Goal is to Maximize
Learning and Not Profits
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Q3: Go to Test Market
Set selling prices
Develop advertising campaign
design 2 ads, one for each branddetermine number of placements per ad
Develop distribution strategy
hire sales force for quarteropen new sales offices for Q4
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Q3: Test Market
Schedule production
forecast demand by brand
run factory simulation, check numbers
Contract for market research on customers
and competition
Check pro forma financial statements - All
Y k t k t
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You are a market maker, not a
market taker
The market is not waiting for you to take their orders.
You must create the market
Sell brands that customers want and at a price they arewilling to pay
Locate sales offices where the largest number of customerscan be found
Inform and persuade customers to buy a PC through
advertising Hire sales people to go out and find customers and
persuade them to buy your PC
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How to Set Price?
Costs (production, marketing, overhead) Profit goals
What market will bear
Competition
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In the beginning, you will not be
able to price above your costs
There are many startup costs which will
exceed your revenues.
Your production volumes will be very low,
resulting in high per unit costs.
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No Early Profits
Money
0Time
Costs to setup
& grow the
business
+
Revenues will fall below costs
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Revenues will fall below costs
at outset of new business
Money
0
Time
Costs to setup
& grow the
business
Revenue
+
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Profits will come later
Profits
come
later
You are here
Profit Profits
0
Time
Costs to setup
& grow the
business
Revenue
+
-
Your goal is to speed up the
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Your goal is to speed up the
adoption rate
Demand
Time
introduction
growth
maturity
decline
You are here,
high costs-low demand
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What will the market bear?
You must discover the marketresponse function regarding price.
What is the markets price
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What is the market s price
response function?
Your
Demand
Your
Price
Elastic (demand drops fast
with increasing prices)
Inelastic
(price is not a big factor)
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Maybe it looks like this?
Your
Demand
Your
Price
Demand drops slowly with small
price increases and then drops
dramatically with larger priceincreases
A differential advantage can
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A differential advantage can
reduce price elasticity
Your
Demand
Price premium for your brand
Less Elastic
Elastic
Differential advantage
shifts demand curve and
reduces price elasticity
H ill th k t d t
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How will the market respond to
competitor prices?
Your
Demand
Competitors Price
Low competitor prices
will kill your demand
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How to create ads?
Low priceEasy to use
More productiveFast
Office applicationsPicture office workers
Most important
Order of priority
implies importance of
message to customer
Order of priority tells
the ad agency what to
stress in the ad
Your Ad
Least important
H h t i d?
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How much to say in an ad?What number of benefits?
Which response function is at work?
or
More is good to a
point and then ceases
to add excitement
Hot
Cold
Less More
Hot
Cold
Less More
More adds
value to a point
& then takesaway value
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How often do you advertise?
Your
Demand
Number of ads
Diminishing
returns
Too little
B t it l d d h t
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But it also depends on what
your competitors do.
Your
Demand
Competitors Advertising
Strong competitor
advertising
will steal away
your customers
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How many sales people?
YourDemand
Number of sales people
Too many
Diminishing
returns
Too few
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YourDemand
Number of sales people
Shift the response function
upwards with better brands,
prices, advertising, sales
force placement
The response function is dynamic!
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Learning Points for Quarter 3
Execution of a coherent strategy
Management of cash in the face of greatuncertainty
Learning to walk before you run
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Learning Points for Quarter 3
Marketing strategy - coordinating a host of tactics
Pricing - balancing costs, profit, what the market
will bear, and competition
Testing the market - discovering the markets
many response functions
Production - managing capacity, inventories, and
costs in light of demand goals