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TEAM -A MARKSTRAT SIMULATION REPORT TEAM A Unal Omer CALISKAN Alp CIBILI June 3rd, 2011 1 Contents OVERALL STRATEGY ............................................................................................................ 3 A) A-1) OBJECTIVES & GOALS ......................................................................................................... 3 A-2) RESOURCES ........................................................................................................................... 6 4C ANALYSIS ........................................................................................................................... 6 B) B-1) COMPANY ................................................................................................................................ 6 B-2) CUSTOMER ............................................................................................................................. 7 B-3) COLLABORATORS ............................................................................................................... 11 B-4) COMPETITORS ..................................................................................................................... 12 C) PERIOD SYNOPSIS .............................................................................................................. 13 C-1) DECISIONS OF PERIOD-1 ................................................................................................. 14 C-2) DECISIONS OF PERIOD-2 ................................................................................................. 15 C-3) DECISIONS OF PERIOD-3 ................................................................................................. 16 C-4) DECISIONS OF PERIOD-4 ................................................................................................. 17 C-5) DECISIONS OF PERIOD-5 ................................................................................................. 18 C-6) DECISIONS OF PERIOD-6 ................................................................................................. 19 D) CONCLUSION ........................................................................................................................ 21 D-1) LEARNING EXPERIENCE ................................................................................................... 21 D-2) MISTAKES .............................................................................................................................. 21 E) APPENDICES ......................................................................................................................... 22 2 A) OVERALL STRATEGY At the beginning of the game, we knew that we had to increase net contribution of our team in order to have higher budget for our future marketing and R&D activities. In order to increase net contribution: We had to be good at forecasting the future needs and perceptions of the targeted segments. In other words, we had to be good at R&D. We had to forecast the evaluation of the needs of the segments in the upcoming 2 periods, since the newly produced projects could be available in two periods of time. We had to increase the share of our team in both Vodite and Sonite markets. We had to evaluate each segment in terms of forecasted value and number of competitors. The segments which were growing in terms of value (roughly all segments except the Buffs), were going to be our targets during the simulation. We had to be the pioneer of Vodite market in order to get advantage of being the first comer. In addition, we knew that we had to increase our market share by using the following strategic rules: We had to keep track of the MDS evaluation of our targeted customer segments. We had to be good at reaching the targeted segment with the distribution of our sales force. We knew that we should not have tried to market same brand for 2 different segments unless the MDS values of each segment were very close to each other. We had to define our competitor(s) for each of our brands and to keep an eye on each of the competitors in terms of their investments and advertisement budget distribution. o Competitor was defined on brand basis for each period. Competitor was the brand which allocated the largest (or second largest if we are the provider of the largest marketing budget) marketing budget for our targeted segment in the previous period. o In order to increase our market share, we had to have higher marketing budget spending when compared with the competitor’s brand. o In order to protect our market share, we had to have at least the same marketing budget spending when compared with the competitor’s brand. A-1) OBJECTIVES & GOALS OBJECTIVES that should be achieved between the beginning of Period-1 and the end of Period-3: 1. Increase the budget of marketing department (a.k.a. Net Contribution). 3 Reason: We evaluated our current situation and found that in order to be competitive, we had to have funds for our future actions. Therefore we set the main objective as to increase the budget of the marketing department. 2. Our brand “SAMA” must stay as the market leader of “Others” segment until the end of period-3. Reason: We saw that our brand, SAMA, was the major revenue generator and this brand was majorly favored by the “Others” segment. In order to serve the first objective, we had to protect our revenue generating brand. 3. Become the pioneer of the Vodite market. Reason: The Sonite Market was highly segmented and all of the competitors were either dominating 1 or 2 different segments. However the Vodite market was not explored by any of the teams yet. In addition, the Vodite market was initially created by one segment which was called the “Innovators”. Being the first team to enter the Vodite market would help us to get the funds we needed. 4. Create a Sonite brand which serves the needs of “High Earners” and “Professionals”. Reason: We saw that the Teams E and O had the largest “Net Contributions” and they were targeting the segments which had the largest wallet in the Sonite Market. Plus, the market forecast was showing that these segments were going to grow in future. So we decided to create a brand which could capture market share from both of these segments.1 OBJECTIVES that should be achieved between the beginning of Period-4 and the end of Period-6: By the end of the third period, we accomplished all the objectives of the first three periods and had the targeted net contribution and marketing department budget. The revenue was majorly being generated from our Vodite brand, VANA. We knew that the other teams would also enter the Vodite market and our market share would drop due to competition. The main objective for the second half of the simulation was to protect the net contribution budget of the team by investing into unexplored segments of both Vodite and Sonite markets. The objectives were: 1. Have one brand which targets only “Singles” segment. Reason: We saw that the “Singles” segment was growing in terms of size. Plus, the major share holder (Team I) of this segment was weak in terms of financials. So we decided that it would be profitable for us to introduce a brand which targeted only this segment. 2. Withdraw SALT from the market. Reason: In the beginning of the simulation, we decided that it would not be rational to spend money on this brand due to its low return of investment. In addition, we had already decided to enter the “Singles” segment with a new brand and withdrawing SALT which was mainly targeting the “Singles” seemed rational. 1 Later, we changed this objective and decided to aim only Professionals in the second half of the objectives. 4 3. Have one brand which targets only “Professionals” segment. Reason: Our brand, “SANA” was targeting both “Professionals” and “High Earners”. Plus the MDS values of these two segments were close to each other in the first half of the simulation. However the difference between the perceptions of each segment was becoming larger in the second half. Plus, “Professionals” were forecasted as a segment which would grow in size and value. Therefore we decided that repositioning SANA only for the “Professionals” would be good idea. 4. Have one brand which targets only “Followers” segment. Reason: The Vodite market was becoming highly competitive and different segments were emerging. One of those segments was the Followers which were requesting a brand with different product attributes. Therefore in order to stay competitive in the Vodite market, we decided to target this segment with a new brand. 5. Have one brand which targets only “Early Adopters” segment. Reason: The Vodite market was becoming highly competitive and different segments were emerging. One of these segments was the “Early Adopters”. Our brand VANA was designed for meeting the expectations of “Early Adopters” and “Innovators” because the needs and perceptions of these two segments were close each other in the early periods. With the coming periods, it was more visible that these two segments were having greater differences in terms of perceptions; therefore we needed to have a different brand just for “Early Adopters” segment. 6. Stay as the market leader of “Others” segment with brand, SAMA. Stay as the market leader of “Innovators” segment with brand, VANA. Reason: These two brands were the main revenue generators for our team and we decided hold these two brands. GOALS for the whole simulation: Since the beginning of the simulation, we knew that if we had enough money then we could be the market leader of both Sonite and Vodite because we were good at R&D and forecasting the need and perception evaluation of each customer segment. We decided to target the segments which were growing in terms of value in both of the markets in order to generate revenue as explained in the objectives. As the team goals we had the followings: Become the market leader of Sonite in terms of the number of units sold. Become the market leader of Vodite in terms of the number of units sold. Have highest stock price index among all teams. Have highest return of investment among all teams. 5 A-2) RESOURCES As resources we had the distribution channels, brands, market research studies, R&D capability to produce new brands and financial funds which would be gained through selling the brands. We used following Markstrat tools to decide on how to allocate our resources to reach the company goals. Decision to be taken Where we look at? How to decide? Production level of a brand = (Forecasted size of the targeted segment) * (Brand's Estimated Market Share percentage) - (Brand Number Production Level of Brand Market Forecast held in Inventory) Inventory In addition to this formula we can add a Consumer Panel-Market Shares tolerance of 20%. Semantic Scales Ideal Values R&D activity Regression Analysis of Semantic Scales Targeted segment's ideal semantic scale values of next 2 periods are calculated by the regression formula since the product will be available in two periods. To steal share we must outspend the Advertising Budget to be Competitive Intelligence on competitors for our targeted segment. To Allocated for a Brand Advertisement Expenditure preserve share, we have to match the advertisement spending of the competitor. Perceptual Objectives of Multi Dimensional Scales (MDS) If applicable use MDS vales otherwise use Brand Advertisement Semantic Scales semantic values. Sales Force Experiment Observe the net contribution effect of Number of Brands in the Market increasing the sales force for each brand. Number of Sales Force Allocate the number of sales forces for each Distribution of Sales Force Consumer Survey Shopping brand in each distribution channel by Habits) observing both consumer survey and the competitors sales force distribution. B) 4C ANALYSIS B-1) COMPANY Position of the Company: In the beginning of the simulation, Team-A penetrated only Sonite market with two brands SAMA and SALT. SAMA was targeting the “Others”. SALT was targeting both “Singles” and “Buffs”. The team was earning its revenue majorly from the SAMA; SALT was not providing a high return for the company. Strength of the Company: The team was the market leader for the “Other” segment. The company had good R&D and forecasting capabilities due to the academic background of the team members. 6 Weakness of the Company: It was hard to reposition the SALT brand since it was not satisfying the needs of any specific segment. The company did not have enough funds for future marketing and R&D activities. Desired Future: As explained in the “Goals and Objectives” section, company wanted to be market leader of the Sonite and Vodite markets. By doing so, the company had to have higher budget and new product lines for growing valuable customer segments. At the end of the game, Company had 6 brands. For Sonite market; brands SAMA, SANA, SAKA were offered. For Vodite market; brands VANA, VAKA, VADA were offered. In addition, company successfully achieved its goal of being the market leader. B-2) CUSTOMER There are 2 markets in Marskstrat world, Sonite and Vodite. These markets are divided into several segments and each segment has different characteristics, needs and purchase decision making criteria. In order to decide which customer segments to target, we checked the market forecast for the segment’s future value. In order to decide which marketing strategy we will use, we used the help notes of Markstart simulation, Conjoint and MDS charts. The conjoint charts provided us the degree of importance that the selected segment was giving to the product attribute. Then we checked which MDS dimensions these physical attributes were influencing. As a result, we came up with following customer analysis for both markets: Sonite Market: This market is made of 5 customer segments. As shown in Figure B-1, the market evaluated during the simulation as below: Among those segments, Buffs and Professionals have been willing to pay higher prices for the products. Among those segments, only Buffs market size (the number of products units demanded) decreased. Among those segments, only Buffs and High Earners decreased the desired performance attributes for a product. 7 Buffs (Bu): Characteristics of the Buffs Marketing Strategy for Reaching Buffs Forecast on Segment Value Decision This segment is extremely According to Conjoint knowledgeable about Sonite technology. Analysis, they give highest They demand high performance importance to price then products. They are among to the first to power and then frequency. According to market Do not target use Sonite products. They are price According to MDS charts, forecast, this this segment sensitive consumers because they do not this segment has to be segment will due to have high income. They desire high targeted through Economy decrease in market decreasing performance. They use the products for and Performance size of units and market size of personal needs. dimensions. value. the segment. Singles (Si): Characteristics of Singles Marketing Strategy for Reaching Singles Forecast on Segment Value Decision They demand average level of According to Conjoint Analysis, they According to market Target this both performance and give highest importance to price then forecast, this segment with convenience in Sonite power and then frequency. segment will one brand products. This segment is price According to MDS charts, this segment increase in market which is sensitive. They use the has to be targeted through Economy size of units and designed for products for personal needs. and Performance dimensions. value. its needs. Forecast on Segment Value Decision Professionals (Pr): Characteristics of Professionals Marketing Strategy for Reaching Professionals This segment demands for high According to Conjoint Analysis, quality, high performance and easy to they give highest importance to According to market use products. They can afford price then power, then design. forecast, this expensive products and see price as According to MDS charts, this segment will an indication of quality. They use the segment has to be targeted increase in market products for both personal and through Economy and size of units and Target this professional reasons. Performance dimensions. value. segment. 8 High Earners (Hi): Characteristics of High Earners Marketing Strategy for Reaching High Earners Forecast on Segment Value Decision This segment has According to Conjoint high income. Their Analysis, they give highest According to market Target this segment purchase is partially importance to price then forecast this segment will cautiously. Introduce a motivated by their power, then design. increase in market size of product which targets this social status. They According to MDS charts, this units and value. However segment and also targets demand performance segment has to be targeted there is a risk that this the Professionals since the and convenience from through Economy and segment will request both segments have close Sonite products. cheaper products in future. MDS preferences. Performance dimensions. Others (Ot): Forecast on Segment Value Characteristics of Others This segment is the Marketing Strategy for Reaching Others largest one in the According to Conjoint Analysis, they Sonite market. The give highest importance to price We are already the customers in this then power, then maximum market leader of this segment look for Frequency. segment with our brand cheap, low- According to MDS charts, this SAMA. We should performance products segment has to be targeted through protect our place as the with average Economy and Performance This segment market leader of Others convenience. dimensions. will grow. segment. Decision Vodite Market: This market is made of 3 customer segments. As shown in Figure B-2, the market evaluated during the simulation as below: All of the segments decreased their will to pay higher prices for the products. All of the segments desired higher efficacy. Among those segments, only Innovators’ market size (the number of products units demanded) decreased. 9 Innovators (In): Characteristics of Innovators Marketing Strategy for Reaching Innovators Forecast on Segment Value Decision In the initial stage, there is not any Conjoint or MDS data that we can choose for marketing This segment will be strategy. Instead we have semantic scales the first users of given for the product attributes. In other Vodite products. words, in the early periods we use the They are willing to semantic scales for defining marketing This segment will entering the try new ideas at strategy then switch to MDS. be the largest in some risk. According to Conjoint Analysis, they give the early periods. the product They are not price highest importance to max frequency then But later the attributes sensitive. Their price then autonomy. According to MDS market size of must satisfy income level is charts, this segment has to be targeted this segment will the needs of above average. through Economy and Efficacy dimensions. decrease. this segment. When Vodite market, Early Adopters (Ad): Characteristics of Early Adopters Marketing Strategy for Reaching Early Adopters Forecast on Segment Value Decision When entering the In the initial stage there is no conjoint Vodite market, the and MDS values that we can choose product attributes must for marketing strategy. Instead we satisfy the needs of This segment will have semantic scales given for the this segment along adapt the Vodite product attributes. In other words, In This segment will with the innovators. products as fast as the early periods use the semantic be the second However the size and Innovators, however scales for defining marketing strategy largest in the purchasing power of they look for early periods. Innovators are much majority of people to According to Conjoint Analysis, they The segment is higher than those of accept the give highest importance to Max forecasted to Early Adopters. technology first. Frequency then Price then grow but at a Therefore design the This segment is the Autonomy. According to MDS charts, slower rate when initial product to meet then switch to MDS. opinion leader. They this segment has to be targeted compared with of majorly innovators have average through Economy and Efficacy Followers and secondarily Early income. dimensions. segment Adopters. 10 Followers (Fo): Characteristics of Followers Marketing Strategy for Reaching Followers When followers become large enough Forecast on Segment Value Decision to be an attractive customer segment, we would be able to use MDS and Conjoint Analysis tools to decide the marketing strategy. According to This segment will Conjoint Analysis, they give highest be the smallest in Target this They adopt a product importance to price then max frequency the early periods. segment with a only after a large then autonomy. According to MDS But it is going to separate brand number of consumers charts, this segment has to be targeted be largest as the which satisfies tried it. Their income simulation comes only the needs of to an end. followers. through Economy and Efficacy level is below average dimensions. B-3) COLLABORATORS The distributors of these two markets can be named as specialty stores, department store and mass merchandiser. The Market Research >> Consumer Survey >> Shopping Habits page gives us from where the consumer segments like to buy the brands. We had to allocate sales force to the favored distribution channels with respect to a brand and its targeted segment(s). In addition, by looking at the pricing policies of each distribution segment, the retail prices had to be decided carefully. The followings are the characteristics of the collaborators in the Markstrat world: Specialty Stores: The specially stores can be used for reaching the segments of Professionals, High Earners, Buffs, Innovators and Early Adopters since these segments need the technical expertise and service while making their purchase decision. Characteristics of Specialty Stores Pricing and Profit Margins These stores are small and do not belong to chains. They can provide high level of technical advice and service. They generally include the most expensive and high performance products. These stores are much likely to be preferred in the early periods The specialty stores' distribution of Vodite market due to their expertise in technology. margin is 40%. 11 Department Stores: The department stores can be used for reaching all of the segments. Plus the profit margin earned from sales in these stores is much higher when compared with mass merchandisers and specialty stores. Characteristics of Department Stores The department stores provide extensive customer service Pricing and Profit Margins but their technological expertise is lower than specialty The department stores' distribution stores. margin is 30%. Mass Merchandisers: This channel can be used for reaching Singles, Others and Followers segments. Characteristics of Mass Merchandisers Pricing and Profit Margins They operate on the low-price, high volume basis. The level of service is low. They often distribute the cheaper and low- The mass merchandisers’ distribution performance products. They lack the technical and service margin is 30%. But these stores apply expertise which prevents them from distributing Vodite additional 10% discount from the products in the early periods. recommended retail price of the brand. B-4) COMPETITORS We used the Market Research and Newsletter reports to predict the strategies of the competitors. Market Research>>Benchmarking reports can be used: To predict the future R&D projects of the competitors. For instance: if the R&D investment was between 5 and 10 million $ then we could assume that the competitor would be preparing a product for the Vodite market. “Research and Development expense” was used for this purpose. To predict the financial capability of the competitors to defend themselves in case of an attack. “Next period budget” was used for this purpose. To predict the risk tolerance of the competitors. We checked whether the teams were willing to take bank loans for future strategy implementation. “Interest paid” was used for this purpose. Newsletter>>Market reports can be used: To predict which segments the competitor was targeting with its brands. Brand Characteristics and Retail price was giving us the clue for this purpose. 12 To predict until which price level the competitor would earn profit from its products. Base cost was used for this purpose. To see to which brands we lost our market share for a targeted segment or from which competitors we stole share. “Brand Sales and Market Shares” page was used for this comparison. Market Research>>Competitive Intelligence reports can be used: To predict which segments the competitor is targeting with its brands. The brand and distribution of the marketing spending among segments can be watched via the Competitive Advertising Expenditures page. The same page can be used to decide on the marketing budget of our brands according to our strategy. If strategy is to steal share, then our brand must have the highest marketing expenditure when compared with others. If strategy is to protect share, then the marketing expenditure should be matching with that of the competitor. Market Research>>Multi Dimensional and Semantic Scale Perception Maps reports can be used for making comparison between perceived values of our brands and those of competitors. By looking at such reports we evaluated our competitors and came up with following assumptions: Team E: The team has a strong financial status. They will not risk their funds for exploring the Vodite market. Most possibly, this team is going to be a follower when entering the Vodite market. They compete with Team O for the segments of Professionals and High Earners. Team I: The team has weak financial status. This team resembles to us in terms of financial and product lines. We think they will be one of first entrants of Vodite market since they will seek for higher financial status. Their products target Buff, Singles and Others. Team O: The team has moderate financial status. They compete with Team E for the segments of Professionals and High Earners. We think they will be one of first entrants of Vodite market since they will seek for higher financial status, however they may postpone their product introductions since they will need to allocate most of their budget to protect their Sonite market share against Team E. C) PERIOD SYNOPSIS Unless otherwise is stated the followings are true for each of the period decisions: The production levels of brands were decided as explained in Resources section (Section A-2). If the repositioning or new brand introduction was the marketing strategy then at least 20% of the brand’s advertisement budget was reserved for Advertising Research Budget. Otherwise 10-15% percent was reserved. 13 For Advertisement perceptional objectives; MDS dimensions of Economy and Performance were chosen for Sonite brands. MDS dimensions of Economy and Efficacy were chosen for Vodite brands. Estimations through Markstrat tools were done as explained in Strategy Section (Section A). The base cost and investment values for R&D projects are found through Online Query. Following figures shows the brand evaluations in their lifecycles: Figure C-1: Shows the product life cycle details for SAMA and its targeted segment. Figure C-2: Shows the product life cycle details for SALT and its targeted segment. Figure C-3: Shows the product life cycle details for SANA and its targeted segment. Figure C-4: Shows the product life cycle details for SAKA and its targeted segment. Figure C-5: Shows the product life cycle details for VANA and its targeted segment. Figure C-6: Shows the product life cycle details for VAKA and its targeted segment. Figure C-7: Shows the product life cycle details for VADA and its targeted segment. C-1) DECISIONS OF PERIOD-1 Initial Situation: We had 2 brands SAMA and SALT. SAMA was the market leader for the “Others” segment with 53.3% share. SALT had its largest share in “Singles” segment with 12.8% share. The company did not have enough funds to support future marketing activities. Plus return on money invested in SALT was very low. The main competitor for both of the brands was Team I. Actions Taken on Brands’ Marketing Mix and Sales Force Allocation: We decided our objectives for the first half. We determined not to produce SALT anymore for the period 1 since we had substantial amount of stocks for that brand that should have been diminished first. Our goal for the SAMA was to preserve the same market share for “Others” segment. Meaning that in addition to the retention of our existing customers, we were going to acquire the substantial portion of the new potential customers. Thus for the SAMA, the production level is adjusted with respect to the Others’ forecasted market growth rate. In terms of advertising decisions we had a difficult situation because we had limited budget. We allocated the same amount of budget that was spent in period 0 for the SAMA and SALT to preserve our positions. In our advertising efforts, we were sure that in order to enhance the impact of the ads, we had to be targeting one specific segment. Thus for the SAMA, we increased the percentage of the advertising efforts for the “Others” segment. While for the advertisements of SALT, we targeted “Singles” more drastically. 14 We allocated the sales force for each brand according the segments’ shopping habits as it was explained in the Consumer Shopping Habits window. Actions for R&D and Market Research: To compete in the Sonite market, we believed that we should have focused on the Market Expansion strategy. Besides from the “Others”, we had to enter to other growing and profitable segments. Moreover there was an emerging market called Vodite which would be a great opportunity for us if we were the pioneers. Thus in order to make future R&D projects and marketing strategies, we decided to collect all the market research data for Vodite and Sonite market. C-2) DECISIONS OF PERIOD-2 Initial Situation: At the beginning of the period, the instructor gave us additional 10 million $. We had 2 brands, SALT and SAMA. We could not empty the inventory of SALT and we lost share on SALT to our competitor, Team I. For SAMA we were able to increase the sales and market share. We were aware of the fact that the decisions that we were going to take would be the turning point of the simulation for us. We had two alternatives that we could follow whether to bolster our marketing efforts in Sonite or separate the effort among Sonite and Vodite markets. There was a fierce competition going on in Sonite for each of the segments. Unless we had sufficient budget, stealing share in Sonite market from the competitors was almost impossible. We were sure that if we were going to enter different segments, then the market leaders and established brands of these segments would retaliate and drive us out of the market. Thus rather than applying frontal attack to any competitive brand in Sonite, we preferred a market where a competition did not exist. We believed that by being the first to enter to Vodite market would attain a competitive advantage to us. As a result of first mover advantages, we could conquer the market and influence the early adopters and the followers through the innovators. Actions Taken on Brands’ Marketing Mix and Sales Force Allocation: We decided not to produce any SALT since we would phase out the product in future. As our withdrawal strategy for SALT, we decreased its retail price to sell more. We decided to increase the production level of SAMA with respect to the “Others” forecasted growth rate. We did not allocate any advertising budget to SALT and directed the entire budget that was left from R&D expenditures to SAMA in order to protect the market share of that brand. Since all the market studies were available at this period, we directed our SAMA for Perceptual Objectives driven by the MDS Dimension values of Economy and Performance of the “Others” segment. The performance and economy were the two dimensions which “Other” segment really cares about as explained in 4C Section of this report. We directed our SALT for Perceptual Objectives driven by the MDS Dimensions of Economy and Convenience. The economy and performance are the two dimensions which “Buffs” and “Singles” segments really cares about as explained in 4C Section of this report. We allocated the sales force for each brand according the segments shopping habits as it was explained in the Consumer Shopping Habits window. 15 Actions for R&D and Market Research: We had the budget for R&D and market research data for estimations: We decided to make R&D for both Sonite and Vodite markets. In Sonite, we saw that the competitor’s product attributes (SIRO) were closer to the ideal values of the “Others” segment; therefore we had to modify the SAMA with a new project called PSAM2. Plus SIRO was applying a frontal attack to our SAMA brand, so PSAM2 was our Frontal Defense against that attack. We realized that the “High Earners” and “Professionals” were two growing segments and there was not any competitive product which was fitting right onto the preferred coordination of economy and performance in MDS perception map for those segments. Furthermore the MDS preferred values of these two segments were close to each other and each of these segments could be reached with the same distributional channels. We started a new Sonite R&D project called PSHEP. This product would be our Leapfrog Strategy since it would be offering a differentiated set of physical attributes mainly for Professionals. We estimated that same product would be attracting customers from High Earners. For satisfying the Vodite market, we initiated a R&D project called PVINA which would be our Pioneer Brand. Since Vodite is an emerging market, we could use only the estimated Semantic scales (Ideal Values) which were displayed in the Market Research Studies. In addition, there was not any available semantic regression study to formulate the ideal attribute specifications. By making the assumption that the semantic values were linear with the product attributes, we came up with the ideal product attributes for each Vodite segments as listed below: Autonomy Max Freq Diameter Design Weight Innovators 62 15 52 6 58 Adopters 70 13 42 7 50 Followers 43 10 62 7 65 From the list above as an R&D project, called PVINA, was created to satisfy mainly the needs of Innovators and secondarily the needs of Early Adopters. C-3) DECISIONS OF PERIOD-3 Initial Situation: The R&D projects that we invested in period 2 became available in the period 3. We had 3 new products; PSHEP and PSAM2 for Sonite market, PVINA for the Vodite market. We had limited budget for marketing expenditures. Actions Taken on Brands’ Marketing Mix and Sales Force Allocation: For SAMA: We allocated 100% of advertisement just for “Others”. The competitor of SAMA was found as SIRO. We modified SAMA with PSAM2 as our Frontal Defense strategy against SIRO and followed a repositioning strategy by using MDS dimensions of Economy and Performance. For SALT: We decided not to produce any SALT since we would phase out the product in future. 16 For SANA: We introduced SANA with PSHEP as a part of our Leapfrog Attack strategy against SEMI. We both observed the semantic scales regression tool, and also the semantic perceptual maps to determine the desired price for SANA. The estimated price had to be lower than those of our competitors in order to steal share. We came with the final price decision with regards to the MDS desires of the targeted segment which was the Professionals. For VANA: We introduced VANA with PVIMA as a part of being the pioneer of Vodite market. Due to the first mover advantages, we thought that we could successfully apply Skimming Strategy. We considered the base cost as our starting point of our pricing of VANA. We recognized that in some of the Sonite brands had almost 300% profit margin. So we come up with a price with cost-plus method for our new Vodite brand decided to have a profit margin as high as 400%. In our advertisement, we distributed the efforts of targeting the segments as 80% to innovators to 20% to early adopters. We allocated the sales force for each brand according the segments shopping habits as it was explained in the Consumer Shopping Habits window. We increased the number of sales person going to specialty stores since our new brands SANA and VANA would be sold through those channels. We gave the largest share of our advertisement budget to VANA then to SANA and least to SAMA. We knew that VANA and SANA had to have high advertisement expenditures for increasing brand awareness and repositioning. Actions for R&D and Market Research: We did not do any R&D activity and selectively ordered market research data to increase fund for advertising the brands. C-4) DECISIONS OF PERIOD-4 Initial Situation: We realized the success of our introduction of 2 new brands let us to boost our net contribution. With our VANA brand, we dominated Vodite market. The net contribution, we received from this market was generating more than 60% percent of our team’s total net contribution. Thus we managed to apply skimming strategy successfully. With our SANA brand, we managed to steal a substantial percent of the shares from the SOLD brand. We saw that Team I also entered to the Vodite market but they could not do decide correctly on the product attributes and price for their brand, VIDA. Lastly we realized that the entire first half of the objectives were successfully achieved so as the initial action we decided on the second half of the objectives. Actions Taken on Brands’ Marketing Mix and Sales Force Allocation: For SAMA: The competitor changed to SOBO and they were threatening our market share in “Others” with low prices and overwhelming advertising expenditure. As our Fortress Defense strategy, we decreased our retail price and increased our advertisement expenditure for the brand. For SALT: We decided not to produce any SALT product since we would phase out the product in future. 17 For SANA: We increased our retail price to a level which was matching the desired price value by the Professionals segment and lower than that of the competitor, SEMI. We continued our Frontal Attack by giving a higher advertising budget for the SANA when compared with SEMI. We aimed to steal more share. For VANA: We decreased the retail price of the brand in order to increase the market share. There was not any competitor which could match with the specifications of our brand. In addition, we increased our brand’s advertising budget. We hired more sales force due to increasing number of brand portfolio. Actions for R&D and Market Research: We knew that period 4 would be the last period for doing R&D activities because we would have only 2 more periods to have return from any R&D investments that could be done in period 4. We ordered all of the Market Research studies for both Sonite and Vodite markets. For SAMA: The competitor was changed to SOBO, we realized that the competitor had better matching of product attributes for the “Others” segment, therefore we decided a Fortress Defense by launching a R&D project called PSAM3. For SANA: The ideal MDS values for professionals and high earners were close to each other. The competitor SEMI went into a cost improvement but we decided not to launch any R&D project for this brand. For SAKA: We decided that “Singles” is a promising segment to target due to its forecasted market growth however there could be competition with Teams E and I. We started an R&D project which satisfied the needs of Singles and called the project as PSIN1. For VANA: We decided to introduce another R&D project named as PVOKA for satisfying the future needs of the Innovators. We thought that innovators would protect their market size in the upcoming periods and competition would be severe. In order to protect our share in Innovators, this new project would be introduced as our Fortress Defense strategy. Later we could use PVINA to target the Early Adopters since the product attributes of PVINA was fitting to the expectations of this segment. For VAKA: We decided we needed a new brand just for “Followers” segment of the Vodite market, because there was no competition for this segment and this segment would be the largest in the upcoming periods. As results, we decided to start the PVAKA project for our Market Expansion strategy in Vodite. C-5) DECISIONS OF PERIOD-5 Initial Situation: The R&D projects that we invested in period 4 became available in the period 5. We had 4 new products; PSIN1and PSAM3 for Sonite market, PVAKA and PVOKA for the Vodite market. 18 We had enough budget for our marketing activities and more competitors started to enter both Vodite and Sonite markets. Actions Taken on Brands’ Marketing Mix and Sales Force Allocation: For SAMA: We modified SAMA with the new project PSAM3. The competitor changed to SEEN. We saw that there were now 3 brands fighting for “Others” in addition to ours. In order to protect our market share and even to increase it, we had to allocate the highest advertising expenditure for “Others” when compared with the closest competitor, SEMI. We did not do any price discount in SAMA. For SALT: The contribution of the brand was close to zero in addition we had a new brand which could target “Singles”. Therefore at this period, we withdrew SALT from the market. For SANA: The MDS ideal values for “Professionals” and “High Earners” were getting apart. We set SANA to target 90% to “Professionals” and 10% to “High Earners”. In addition we cared to exceed the advertisement budget spending of our competitor in order to continue steal share. For SAKA: We introduced SAKA with PSIN1. We targeted only Singles with this product. Our competitor was SEDA. We decided to have the highest advertisement spending for Singles segment in order steal share. We decided on the price of SAKA after comparing the segment’s desired price level and competitor’s price level. For VANA: We decided to continue with PVINA. We did not change the project with PVOKA because the MDS values of Innovators and Early Adopters were still close and competition was not severe. In order to generate more profit, it would be better to stay with a more expensive brand in Vodite market. We continued to target 75% Innovators and 25% Early Adopters. The competitors VIDA and VENI were weak in terms of meeting the customers’ needs therefore we assumed that consumers would prefer our brand. However we omitted the possibility that new brands would emerge for this market in period-4 so this was our major mistake in this period. For VAKA: As a part of our Market Expansion strategy for Vodite market, we introduced VAKA with project PVAKA. We targeted only “Followers” with this brand and decided the retail price with respect to the price preference of the targeted segment. We hired more sales force due to increasing number of brand portfolio. Actions for R&D and Market Research: We did not do any R&D activity and ordered all market research data of both Markets. C-6) DECISIONS OF PERIOD-6 Initial Situation: The competition in both markets became very severe now every team had around 6 brands and targeting one segment for each brand. 19 Actions Taken on Brands’ Marketing Mix and Sales Force Allocation: We were at the last decision period and in order to reach our goals we had to increase market share in the Sonite market and protect the Vodite market share. Therefore we followed a price discount in Vodite market and assured that our stocks of brands in Sonite market would meet the customer demand. For SAMA: In order to protect our market share and even to increase it, we had to allocate the highest advertising expenditure for “Other” in this product when compared with the closest competitor, SEMI. . For SANA: The MDS ideal values for “Professionals” and “High Earners” were getting apart. We set SANA to target 95% to “Professionals” and 5% to “High Earners”, in addition we cared to exceed the advertisement budget spending of our competitor in order to continue steal share. For SAKA: We saw that the brand contribution of SAKA was negative since we could not produce enough products to meet the customer demand. We readjusted our production level. Our competitor was SEDA. We decided to have the highest advertisement spending for Singles segment in order to steal share. For VANA: We modified VANA with PVOKA and targeted only Innovators. The Innovators segment got smaller towards the end of the simulation, therefore our inventory increased due to unsold brand. Plus a new competitor, VOLA, was stealing share from our brand. As a frontal defense we decreased the retail price of our brand. For VAKA: We targeted only “Followers” with this brand and we decreased retail price of the brand in order to increase the share. In addition we decreased the advertising expenditure and matched with the level of the competitor, VELI. For VADA: We introduced VADA with PVINA. We targeted only Early Adopters. Our competitor was VOLU so we overspent the competitor’s budget in order to get more share. We decided the price level of the product with respect to the desired amount in the Semantic Scales. We hired more sales force due to increasing number of brand portfolio. Actions for R&D and Market Research: We did not do any R&D activity and selectively ordered market research data. We thought we would need market research data for the presentation and report writing process of the simulation game. Later, we learned that being the only requester of Market Research improved our stock price index. 20 D) CONCLUSION During the simulation we successfully used our estimation and marketing strategies and accomplished our goals which were mentioned in the Section A-1 as shown in Figure D-1. Furthermore we realize our mistakes and learning experience as: D-1) LEARNING EXPERIENCE The lessons learned from the Markstrat simulation can be listed as: 1) The team which had the core competences of Speed and R&D wins. The team who enters the Vodite market with the right product attributes and prices eventually wins the game. 2) Being a pioneer, a company enjoys high profit/unit at growth stage but profit/unit decreases as market goes into shakeout and maturity stages. After the growth stage, the competitors (a.k.a. followers) started to enter the Vodite market and the price war and competition occurred. As a solution to this problem, we focused on profitable but unexplored segments in both in Vodite and Sonite markets. 3) The (value of a segment) is defined by the (profit/unit) multiplied with the (segment size in terms of unit number). 4) In the early periods of the simulation, we knew that we had to expand our product line and continuously improve our product attributes to match with the needs of the targeted segments. In order have the highest speed, we used R&D query instead of R&D feasibility reports. 5) We used Semantic Scales to decide on product attributes at R&D stage. In deciding perceptual values of the brands we used the Multi Dimensional Scales. D-2) MISTAKES We believe we should have targeted the “Singles” earlier because later the competition for this segment got severe. We should have created a separate brand just for “High Earner” since there was no brand which was fitting the needs and perceptions of this segment. We neglect the fact that being a pioneer does not mean we will always dominate market. Due to the competition in Vodite market, we lost share to our competitors. At some point we become emotional with Innovators segment and introduced a new product for this segment although they were shrinking in size and value. We should have known the time to leave the Innovators segments and focused on other opportunities. 21 E) APPENDICES Figure B-1: Evaluation of Sonite Market & Its Segments from Period-0 (P0) to Period-6 (P6) Figure B-2: Evaluation of Vodite Market & Its Segments from Period-0 (P0) to Period-6 (P6) 22 Figure C-1: Product Life Cycle Details of SAMA Figure C-2: Product Life Cycle Details of SALT 23 Figure C-3: Product Life Cycle Details of SANA Figure C-4: Product Life Cycle Details of SAKA 24 Figure C-5: Product Life Cycle Details of VANA Figure C-6: Product Life Cycle Details of VAKA 25 Figure C-6: Product Life Cycle Details of VADA Figure D-1: Goals Accomplished by Team-A (*) Become the market leader of both Sonite and Vodite in terms of the number of units sold. (*) Have highest stock price index and return of investment among all teams. 26