The Strategic Industrial Marketing Simulation · The Strategic Industrial Marketing Simulation Jean-Claude Larréché & David Weinstein INDUSTRATINDUSTRAT

The StrategicIndustrial Marketing

Simulation

Jean-Claude Larréché & David Weinstein

INDUSTRATINDUSTRAT

Presentation OutlinePresentation OutlineObjectives

Features of the INDUSTRAT world

Administrative structure of the INDUSTRAT firm

The simulation process

First period decisions

Objectives of INDUSTRATObjectives of INDUSTRAT

Review of strategic concepts

Application in an industrialmarketing context

Focus on prime industrialmarketing issues

Long term perspective

Marketing as a profit centre

Marketing strategy based on segmentation, positioning and portfolio approach

Marketing mix decisions secondary to strategic decisions

Competitive environment

Strategic Marketing

INDUSTRAT Features

INDUSTRAT Features

INDUSTRATFeatures

INDUSTRATFeatures

Industrial ContextProduct/non product needsChoice of macrosegmentation schemesMicrosegmentation - DMU conceptIndustrial adoption processCorporate communicationSalesforce managementTechnical supportDistinction between research and developmentLicensing and joint venturesMarket segmentation research

The Pedagogical ApproachThe Pedagogical Approach

A Simulated Environment

The Economic EnvironmentThe Economic Environment

Population: 250 million

Korex ProductsKorex ProductsResistance: Ohms (ΩΩ)Suspension: Micro-seconds (Msc)Frequency: Kilo-hertz (KHz)Density: Micro-grams per cubic (MGC)

millimeter

Liquid Powder Fibre Solid

Strategic Product Attributes

Non Strategic Product Attributes, e.g

Strategic Attributes

Convexity: Degrees (De)

Conductivity: Micro-Seconds (MSc)

Purity: Percent (%)

Maximum Energy: Micro Watts (MW)

Lomex ProductsLomex Products

The “Competition”The “Competition”

INDUSTRAT’s CompetitorsINDUSTRAT’s Competitors

Firm 1 Firm 2

Firm 3

Firm 4 Firm 5

KARR

KIRR

KERR

KORR KURR

The Economic EnvironmentThe Economic Environment

EASTCENTRALCENTRALWEST

Account SizeAccount Size

Small

Medium

Large

End-Product ApplicationsEnd-Product Applications

Communication Instrumentation Consumer Goods

Korex MarketMacrosegmentationKorex MarketMacrosegmentation

instrumentatio

n

communication

consumer

goods

large

medium

small

west

east

central

The Adoption ProcessThe Adoption ProcessAwareness Testing

Supplementary Supplier

Major Supplier

KARR

Purchasing Process DynamicsPurchasing Process Dynamics

Korex Market MicrosegmentationKorex Market MicrosegmentationGeneral Manager

Production Engineering Purchasing

Dynamics of the Purchasing ProcessDynamics of the Purchasing ProcessAwareness Testing Supplementary Major

General

Production

Purchasing

Engineering

0%

100%

Industry DynamicsIndustry DynamicsMarket growth

Competition

Technology

Economicenvironment

No new competitorsIntroduction of LomexCollaboration

No further scientific innovation expectedFour Korex technologiesOne Lomex technology

Growing GNPInflationAntritrust intervention

?Korex

Lomex

Direct Selling and DistributionDirect Selling and Distribution

Corporate Resource AllocationCorporate Resource AllocationCorporate Resource AllocationInternal Transactions

ProductionDept.

FinanceDept.

R&DDept.

SalesDept.

TechnicalDept.

CorporateMarketingDept.

ManufacturingCosts

InventoryHoldingCosts

R&DExpend-diture

SalesforceExpenditure Technical

Support CorporateCommunicationExpenses

MarketingExpenditureBudget

Marketing = Profit CenterNet MarketingContribution

MarketResearchFirm

SalesRevenues

AdvertisingExpenditure

PromotionalExpenditure

MarketResearch

LicensingFees

LicensingRevenues

ClientCompanies

AdvertisingAgency

PromotionalHouse

Licensors Licencees

External Transactions

Commission

Administrative StructureAdministrative Structure

Corporate Resource AllocationCorporate Resource Allocation

MarketingExpenditureBudget

Net MarketingContribution

Marketing = Profit Center

Administrative StructureAdministrative StructureInternal Transactions


ProductionDept.

FinanceDept.

R&DDept.

SalesDept.

TechnicalDept.

CorporateMarketingDept.

ManufacturingCosts

InventoryHoldingCosts

R&DExpend-diture

SalesforceExpenditure

TechnicalSupport Corporate

CommunicationExpensesCommissions

Administrative StructureAdministrative StructureExternal Transactions


MarketResearchFirm

SalesRevenues

AdvertisingExpenditure

PromotionalExpenditure

MarketResearch

LicensingFees

LicensingRevenues

ClientCompanies

AdvertisingAgency

PromotionalHouse

Licensors Licencees

Administrative StructureAdministrative StructureExternal Transactions

JointFunds

R&D ObsoleteInventorySales

Loans Loans Repayments+ Interest

PartnersExporters The Bank


External DocumentsExternal DocumentsCompany report

Financial resultsMarketing resultsSales and technical force MessagesResearch and developmentCumulative resultsnewsletter

Marketing research studiesDecision form

Product managementSales force managementTechnical force managementCorporate marketingResearchDevelopmentLicensing outLicensing inMarket research studies

Internal DocumentsInternal DocumentsSales forecast

Input for budgeting

SegmentsE C W

Budgeting form

Forecast resulting from strategic planningP1 P2 P3 P4 P5 P6 P7

ObjectivesOutcomes

Strategic planning form

Objectives:UnderstandingMarketsMonitoringIdentifying threats& opportunitiesForecasting

Methodology:Analysis of Survey Data

Market Segmentation:None, Specified orStatistical Optimum

MarketResearchMarketResearch

Decisions for your First PeriodDecisions for your First Period

No market research available No R&D allowedNo licensing allowedAvoid radical changes FamiliarizationGather informationOrganize your team (pick a name)

Three hours per decision

Attention:Fines!!!

Technology research

Product development

Financial support

Collaboration

Additional Decisions for the Second Period

Additional Decisions for the Second Period

Feasible Ranges of Physical Characteristics

Feasible Ranges of Physical Characteristics

1 Resistance (ΩΩ)2 Suspension (MSc)3 Frequency (KHz)4 Density (MGC)

Min - Max----

KOREX

1 Convexity (DE)2 Conductivity (MSc)3 Purity (%)4 Maximum Energy (MW)

LOMEX----

Korex TechnologiesKorex Technologies

SUSPENSION

(MSc)

RESISTANCE (0)

Max.

Min.

Min. Max.Tech. limit

Korex TechnologiesKorex Technologies

SUSPENSION

(MSc)

RESISTANCE (0)

Max.

Min.

Min. Max.Tech. limit

Technology ResearchTechnology Research

Know How

Infrastructure

Gestation Period

Critical Mass

Minimum number of years

Minimum annual investment

Prototypeof

Related SystemsAdditional Investment

ResearchResearchTechnology

Cumulative investment

Years above minimum investment

Status

Minimum total investment

Proposed total investment

Minimum annual investment

ResearchResearch

0 5500 8000 0 130500 2 2 0 3

NO OK OK NO OK3351 5585 5585 8936 111706702 11170 11170 13404 167551117 1675 1675 2234 2234

TechnologyCumulative investYears above min invStatusMin total investProp total investMin annual invest

1 2 3 4 5

DevelopmentPrototype = First Development

Project

DevelopmentPrototype = First Development

ProjectName PLIA

Technology 5Cum. Expenditure 13050Status OK

Characteristic 1 17Characteristic 2 101Characteristic 3 43Characteristic 4 224Base cost 100

Research and DevelopmentProduct Development

Research and DevelopmentProduct Development

• Project name• Technology• Budget• 4 Physical characteristics• Production base cost

Period T: Project Specification:

Period T+1: Message fromDevelopment:

• Project status• Feasibility of base cost• Additional budget

necessary

Product DevelopmentBudget SpecificationProduct DevelopmentBudget Specification

“Feasibility” study

Fast experience

Technology

Various characteristics = different problems

Uncertainty

Minimum according to industry experts

Production CostsProduction CostsProduction(transfer cost)

Base cost specified to R&D

Cumulative Production



Actual Base Cost

New Base CostSpecified to R&D

Actual ManufacturingMethod

New ManufacturingMethod

ExperienceTransfer

SharedCost

TechnologyExperience



Actual Base Cost

New Base CostSpecified to R&D Actual Manufacturing

Method

New ManufacturingMethod

Development ProjectsDevelopment ProjectsModify existing KIDUIntroduce KIDA

Modify KIDU & introduce KIDA

Retain base cost

Tighten base cost

Relax base cost

Terminate project

Continue PKI33(same techand specs)

Complete

Incomplete

PKI33

Project name

Brand ModificationBrand Modification

Period TProduct KIDD

Period T + 1

Modified KIDD

Automatic payment to production department at transfer cost (exceptional loss)

KIDD

KIDD

KIDD

KIDD

KIDD

Loans are availableSee the “administrator”!!

Loans are availableSee the “administrator”!!

LoansLoans

For R&D only,line of credit,equal annual paymentsinterest on outstandingbalance

Loan Repayment ScheduleLoan Repayment ScheduleLoan 0 1900 4500 0 0 0 0 0 0 0Length 0 5 5 0 0 0 0 0 0 0Interest 0 10 10 0 0 0 0 0 0 0

Total zero one two three four five six seven eight nine

0 0 0 0 0 0 0 0 0 0 00 0 0 0 0 0 0 0 0 0 0

570 0 570 0 0 0 0 0 0 0 01882 0 532 1350 0 0 0 0 0 0 01754 0 494 1260 0 0 0 0 0 0 01626 0 456 1170 0 0 0 0 0 0 01498 0 418 1080 0 0 0 0 0 0 0990 0 0 990 0 0 0 0 0 0 0

Total Debt:6020

CollaborationCollaboration

¬ Negotiations

¬Outcome

¬ Terms

¬ Process

¬ Implementation

¬ Risk

Only within approved periods

Licensing and/or joint research

Royalties: historically 3%, but deregulated nowNegotiated annual minimum royaltiesOther fund transfers

Written contract and approval (arbitration in case of violation)

Compatible decisions entered by both parties

Government invalidates contract in case of antitrust action

Go!Go!