Marketing game

A Brief History of Marketing Strategy

James E. Coleman

CPA, CFP®, PhD

What this course is about:

Address 3 common expectations of employers of recent MBA’s Ability to work/manage teams Ability to evaluate and solve problems Ability to communicate solutions persuasively

Learn basic tools and techniques for analyzing markets & industries

Understand how to apply the marketing strategy development process across various settings

Marketing Strategy Development Process: The Search for Opportunities

External Market Environment

FOUR P’s

FOUR

C‘s

(Context)

Provides Marketing Strategy Development Practice

3rd edition

Overview

You take over marketing management responsibilities for your firm. Must satisfy customers to sell product and earn profits

Focus is on marketing strategy planning. Requires integration of all strategy decisions. Requires attention to competitive environment. Considers short term and long term perspectives. Features ongoing, rapid feedback.

The Process

Analysis of market situation/opportunities

Planning and budgeting

Make marketing plan DECISIONS!!!

Submit plan decisions

The marketing game! simulation

Company reports returned to firms

NextDecision

period

Industry Environment

Market growth

Traditional PLC applies, but subsidiary to strategy

Technological environment No major innovations expected Yearly revision cycle

Competitive environment Type of competition depends on firms’ decisions

Six Key Product-Market Segments

HarriedAssistants

HomeUsers

High-techManagers

ModernStudents Professional

Creators

ConcernedParents

Segments have different needs, preferences, situations, sizes, growth rates.

Past Sales By Market Segment

0

5000

10000

15000

20000

25000

0 1 2 3

Year

Assist ant s

Managers

St udent s

Home

Creat ors

Parent s

For Voice Recognition Device

Distribution Channels

HarriedAssistants

HomeUsers

High-techManagers

ModernStudents Professional

Creators

ConcernedParents

Firm 1 Firm 2 Firm 3

Channel 1Traditional

Dealers

Channel 2DiscountDealers

Firm 4

Firms reach customersthrough full-servicedealers and Internet/mail-order discount dealers.

Different segments have different shopping preferences.

Product 1: Voice Recognition Device (VRD)

Key ProductFeatures

Error Protection (1-10)

Number of Special Commands (5-20)

Ability to Customize (1-10)

R&D for Product Modifications: Computing Costs

Feature (Product 1) Cost to Decrease Cost to Increase

Special Commands (5-20) $0 $8,000*(change)2

Error Protection (1-10) $0 $5,000*(change)2

Ease of Learning (1-10) $3,000*change $3,000*(change)2

Example

Feature

Last period’s product

This period’s product Change Cost to Change

Special Commands 6 8 +2 $8,000*2*2=$32,000

Error Protection 4 3 -1 $0

Ease of Learning 3 5 +2 $3,000*2*2=$12,000

Total modification costs: $44,000

Note: R&D for product changes is more expensive if you have to make big changes in a short period of time…

Product 2 R&D costs follow the same pattern as Product 1 (shown above)

Product 2: Digital Vocal Communicator (DVC)

Key ProductFeatures

Similarity of Commands (1-10)

Number of Tasks (1-10)

Ease of Learning (1-10)

Level 3

Not necessarily cannibalistic of Product 1, but additional sales support is needed.

Types of Advertising

Pioneering Best for expanding market demand early in PLC

Direct competitive Best for stimulating current sales (reduced carryover)

Indirect competitive Best for building brand awareness & improves carryover

Reminder Improves ad effectiveness if brand awareness is high

Corporate (Institutional) Creates ‘halo’ effect for the other product (not useful for

single product situations)

Marketing Responsibilities (Level 3)

2 PRODUCTs Features (and R&D for product modifications) PRICE Wholesale price may differ in each channel

and for each product

PLACE Distribution intensity by channel, product

PROMOTION-Advertising $ Spending for each product

Type for each product-Personal selling Number of sales reps in each channel

Percent non-selling time in each channel Commission rate

-Sales promotion $ Spending per channel, productCUSTOMER SERVICE $ SpendingMARKET RESEARCH 7 reports may be purchasedDemand forecast/production order Number of units for each product

Production Economies of Scale

Unit production costs will decline as cumulative production increases, but this is not reflected in the pro forma estimates

72

75

78

81

84

87

90

93

96

99

102

0 100,000 200,000 300,000 400,000 500,000

Cumulative Units Produced

Pe

rce

nt

of

Ba

se

Un

it C

os

t

Response Functions and Marketing Spending

Sales

Marketing Spending

ThresholdLevel

SaturationLevel

Spending too little may have little effect, but spending too much just increases costs and reduces profit.

Marketing Budget Items (Level 2 and 3)

R&D product modification costs Sales force salaries and severance pay

NOT commissions (which come out of profits)

Advertising expense Customer service expense Sales Promotion Expense Market research reports expense

BUDGET FOR FIRST PERIOD: $984k

Use it or lose it!

Discretionary Budget

If you overspend your regular budget it is automatically deducted from this amount.

“When it’s gone, it’s gone.” If you overspend after it’s gone, it comes out

of your advertising budget. Unspent money carries to future periods and

earns interest.

$1,500,000

Computing Prices

Computing Retail Prices from Wholesale Prices:Expected Retail Price = Wholesale price/(1-% Markup)

Example: Wholesale price = $105Channel 1 Retail Price = ($105/(1-.50)) = $210

Channel 2 Retail Price = ($105)/(1-.35) = $161.54

Computing Wholesale Prices from Desired Retail Prices:

Wholesale Price = Retail Price * (1 - % Markup)

Example: Desired Retail Price = $190 Channel 1 Wholesale Price = $190*(1-.50) = $95.00

Channel 2 Wholesale Price = $190*(1-.35) = $123.50

Retail Prices Charged Final Consumers

The retail price set by a dealer depends on:

The wholesale price in the dealer’s channel.

The customary markup used in the channel.

The portion of any sales promotion “deals” that the dealer passes along to consumers as a price reduction.

A “Good” Wholesale Price

Should cover the unit cost of the product (given its features).

Should result in a retail price that will appeal to target consumers.

Should result in a profit margin that will contribute to other expenses and profit.

Competitor Analysis

Review posted reports of industry results. Analyze past strategies & likely changes. Evaluate positioning and target segments.

? XX

X?

?X

1 2 3 4Firms

123456

Seg

men

ts

Industry Sales Report (Free)

Brand Unit Sales Share (units) $ Sales (retail)

Firm 1 25,151 .250 $4,292,964

Firm 2 25,151 .250 $4,292,964

Firm 3 25,151 .250 $4,292,964

Firm 4 25,151 .250 $4,292,964

Total 100,604 $17,171,854

Channel Unit Sales Dollars Sales

1 56,296 $10,696.240

2 44,308 $6,475,614

Product Features and Prices Report (Free)

Brandof

VRD

Firm 1Firm 2Firm 3Firm 4

Specialcommands

8888

Errorprotect-

ion

3333

Ease of

learning

3333

Retailprice

channel 1

$190.00$190.00$190.00$190.00

Retailprice

channel2

$146.15$146.15$146.15$146.15

Market Activity Report (Free)

Adv. DollarsAdv. Type

Sales Promotion Channel 1 Channel 2

No. Sales Reps Channel 1 Channel 2CommissionCustomer Service

Firm 1

$250,000

$0$0

10105%$92,500

Firm 2

$250,000

$0$0

10105%$92,500

Firm 3

$250,000

$0$0

10105%$92,500

Firm 4

$250,000

$0$0

10105%$92,500

Additional Market Research Reports (NOT Free)

1. Market share by segment (all brands) 2. Market share by channel (all brands) 3. Consumer preference study 4. Marketing effectiveness report 5. Sales by segment by channel (own brand) 6. Consumer shopping habits study 7. Product positioning report

Note: separate reports are available for each product,Except for the consumer shopping habits study

Market Share by Segment Report ($15,000)

Brand


Total Sales(units)

1

0.2500.2500.2500.250

20,028

2

0.2500.2500.2500.250

15,084

3

0.2500.2500.2500.250

25,104

4

0.2500.2500.2500.250

10,240

5

0.2500.2500.2500.250

22,056

6

0.2500.2500.2500.250

8,092

Segment

Who’s selling to whom?Who’s buying what? What is each firm achieving?Which segments are buying?

Market Share by Channel Report ($12,000)

Brand


Total Sales(units)

Channel 1

0.2500.2500.2500.250

56,296

What’s selling where?Who’s buying what?

Channel 2

0.2500.2500.2500.250

44,308

Consumer Preference Study ($30,000)

Segment

Students

Home

Assistants

Creators

Managers

Parents

SpecialCommands

10-13

7-10

10-13

12-15

13-16

5-8

ErrorProtection

2-4

2-4

6-8

2-4

6-8

2-4

Ease ofLearning

1-3

6-8

6-8

4-6

2-4

7-9

PriceRange

low

low

high

high

high

low

What kind of product would a segment prefer?What reference price seems typical for the segment?How are segments similar and different?

Marketing Effectiveness Report ($25,000 or $30,000 for both prod.)

Brand AwarenessCustomer Service Consumer Group Rating Industry Average Rating

Channel 1: Sales Rep Workload Dealer Satisfaction Channel Strength (“Push”)

Channel 2: Sales Rep Workload Dealer Satisfaction Channel Strength (“Push”)

Index0.550

100%100%

100%1.00.500

100%1.00.500

Competitorswith lower

Index0

00

00

Competitorswith equal orhigher Index

3

33

33

Detailed Sales Analysis ($15,000)

Firm

Channel 1

Channel 2

1

896

5,269

2

1,109

3,337

3

5,602

1,396

4

1,808

1,196

5

4,363

1,865

6

1,086

1,074

Segment

Unit sales by segment and channelAre you reaching your target?

Customer Shopping Habits ($7,000)

Segment

Students

Home

Assistants

Creators

Managers

Parents

Percent of Shopping

in Channel 1

?

?

?

?

?

?

Who shops where?How do shopping patterns match distribution focus?

Percent of Shopping

in Channel 2

?

?

?

?

?

?

Product Positioning Report ($30,000)

Brand


1

????

2

????

3

???

?

4

????

5

????

6

????

Segment

Which brands are closest to which segments?Which segments have no close brands?

Submitting Marketing Plans

Submitting marketing plans decisions Submit your decision plan files via email

no later than the due date and time per class calendar.

Each firm has a distinct industry and firm identification (e.g., A1, B3, etc.) Need to keep it straight!

Passwords and the TMGPlan software Remember password used to create Plan It is case sensitive (upper and lower case make a difference) Best to stick to one password!

Recommendations

Analyze the reports as you would analyze a case.

Make intentional changes. Find a balance in marketing research

spending. Be integrative--think carefully about how each

decision impacts each of the others. Have some fun!