StratSim Marketing

1. StratSimMarketing The Marketing Strategy Simulation

2. StratSimMarketing Ties It All Together: • Marketing • Product Development • Manufacturing • Finance • HR Integrated Long-Term Market-focused

3. StratSim Environment • Based on the Automobile Industry • Two Markets: Consumer & Fleet (B2B) • Consumer market of 150 million people • B2B market of numerous fleet contracts • Currently, low GDP and inflation growth rates • Demand sensitive to GDP, interest rates, and decisions that you make as an industry • Maximum of 10 yearly decisions

4. StratSim Environment The Products: Cars & Trucks • Principle Characteristics • Vehicle Class • Size • Engine / Performance • Interior • Styling • Safety • Quality …and Price

5. (H)ybrid & (D)elivery StratSim Environment • 7 Product Classes with Existing Vehicles: (E)conomy, (F)amily, (S)ports, (L)uxury, (M)inivan, (U)tility, and (T)ruck • Plus two potential new classes if developed:

6. StratSim Environment • Competitors: 5 Firms (A-E) • Each firm has 3 vehicles on the market • Amazing Cars (A) • Best Motor Works (B) • Cool Cars (C) • Driven Motor Co. (D) • Efficient Motors (E) •  Alec (E)*, Alfa (F), Awesome (U) •  Beaut (L), Boffo (F), Buzzy (S) • Cafav (F), Camini (M), Climax (L) • Defy (F), Delite (E), Detonka (T) • Evan (M), Estruck (T), Euro (U) • The firms have different strengths and weaknesses and are uniquely positioned in the market * Corresponds to Product Class

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

8. Industry Overview

9. Consumer Market • 5 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

10. Consumer Market Purchase Process • Customers have different needs and expectations with regard to vehicle characteristics • Customer ”consideration set” based on product class, size, and MSRP

11. Consumer Market Purchase 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 • Customers weigh this bundle of goods against the price charged

12. B2B Market (optional) • New Opportunity in “Fleet” Sales (Currently no sales in this market) • Direct sales to: • Rental car companies (6) (e.g. Hertz) • Delivery fleets (7) (e.g. FedEx) • Other (8) • Some may accept current vehicle offerings; others may require a customized product • All are national accounts and require a direct sales force to serve the market • Contracts awarded only to those companies who meet requirements • Contracts awarded by a Decision-Making Unit (DMU).

13. B2B Market (optional) • Direct Sales Force secures invitation to bid on contract and influences DMUs • Unit sales awarded to qualifying vehicles/firms based on the following rules: • Guaranteed contract amount if your firm meets the contract requirements • Double that quantity if your firm is chosen as preferred supplier • Example: Rental Company has a contract for 30K economy cars. If you qualify and produce enough, you will sell 30K of your economy vehicle. If you are preferred supplier, you will sell 60K units.

14. B2B Market (optional) • Adds potentially lucrative target markets to the environment, but requires additional management time and resources • Make sure you meet minimum requirements • Consider impact on margins and production • Think about synergies (or not) between B2B customers and consumer customers

15. Decisions • Technology • Concept Creation • Product Development • Consumer Marketing • B2B Marketing (optional) • Manufacturing • Distribution • Licensing (optional) • Finance Integrated Long-Term Market-Focused

16. 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: Firm A’s technology profile is 4, 5, 4, 5, meaning that 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

17. Click here to change your technology capabilities Technology

18. 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.

19. 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).

20. Product Development • 4 General Approaches: • Minor Upgrade: Based on existing product, uses 1 center for 1 decision period, impacts results when advanced (immediate) • Major Upgrade: Based on existing product, uses 1 center for 2 decision periods, impacts results in 1 year • New Product, Same Class: Based on concept, uses 1 center for 2 decision periods, impacts results in 1 year • New Product, New Class: Based on concept, uses 1 center for 3 decision periods, impacts results in 2 years

21. Product Development Product Development Timelines (Exhibit on page 12 in manual)

22. Product Development • Example: • If, in the 1st decision period, a firm initiates a minor upgrade and a new product in a new class… • …and if, in the following period, the firm would like to initiate two more upgrades, the firm would have to choose among the following: • Build a new development center in the 1st decision period so they would have 3 operational centers in the following period • Only choose one upgrade (because the new product would occupy one center) • Choose to discontinue development of the new product to free a development center.

23. Product Development Sample development screen showing an upgrade (Alfa), new product (Aphid), and a new development center:

24. Consumer Marketing • Corporate 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

25. Consumer Marketing • Product 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.

26. Consumer Marketing • Product Level: Pricing • MSRP = Manufacturer’s Suggested Retail Price used to position vehicle, set expected price • Dealer Discount - % discount to dealer • Actual selling price determined by dealer • MSRP - discount = Actual revenues to your firm

27. Consumer Marketing Consumer Marketing Decisions Screen

28. B2B Marketing (optional) • B2B Customers have requirements that must be met in order to obtain a contract: • Equal To or Below Maximum Price • Equal To or Above Minimum Specifications • Dealership Coverage in ALL regions • Specific Vehicle Class • Within Requested Size and Engine Ranges • Decision process is made by a “Decision-Making Unit” (DMU) consisting of: • Fleet Manager • Managing Director • Finance Director • Purchasing

29. B2B Marketing (optional) • Initial Period – Hire a Sales Force • Salespeople establish a relationship, secure invitations to bid on a contract, win the contract, and maintain an on-going relationship with the customer. Requires 4-8 salespeople PER CONTRACT. • Segment Level Decisions • Direct Sales Force (#) • Prioritize focus by DMU • Direct Mail ($) • Contract Level Decisions • Choose one vehicle for contract (must meet all requirements) • Set bid price (must be less than maximum)

30. Manufacturing Capacity • 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

31. Manufacturing • Production • 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 • Set flexible production (+/- 10%)

32. … and Alfa inventory write-off (upgrade) Manufacturing Note over-capacity (1845>1800) and resulting charge

33. 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

34. Note Coverage (= established / full) … and 20 new dealerships started Distribution

35. Licensing (optional) • One firm makes “offer” to another firm that specifies vehicle class, size, HP, and minimum specifications – The “licensee” • The firm that receives the offer must have a vehicle that meets the requirements and they must accept the offer – The “licensor” • Additional terms to be negotiated: • Price licensee pays per vehicle • Units purchased • Any additional fees • License is re-entered each period (even if you negotiate a long-term agreement) • Once licensor accepts the offer, it is a legally binding contract.

36. Finance • Uses 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

37. Click here to issue bonds and stock Finance To repurchase stock, enter a negative value ($) Bonds are callable after three years

38. Financial Performance • Financial Statements • (Income statement, • balance sheets, cash 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 **

39. Internal Reports Internal Analysis • Performance Summary • Income Statement • Balance Sheet • Cash Flow Statement • Product Contribution

40. Market Reports • Market Analysis • Industry News • Economy • Vehicle Classes • Regional Sales • Consumer Segments • Consumer Customers • New Customers • B2B Segments • B2B Contracts

41. Competition Reports • Competitive Analysis • Products • Market Share • Technology • Marketing • Communications • Distribution • Manufacturing • Financials

42. Tools and Research • Tools available • Vehicle Sales by Customer ($) • Focus Groups ($) • Concept Test ($) • Competitive Mapping ($) • Perceptual Mapping ($) • Test Market ($) • Conjoint Analysis ($) • Portfolio Analysis

43. Decisions Menu • Input Decisions • Technology • Concept Creation • Product Development • Consumer Marketing • B2B Marketing • Manufacturing • Distribution • Licensing • Financing • ProForma • Decision Summary

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

45. Simulation Process See Sections 3 and 4 of Manual

46. Login(Course Website) Go to www.interpretive.com/students First, login to your class website Login to your class site using your (assigned) user ID and password

47. From your class website, download the manual (pdf file) Order simulation here (one for each student) Access the simulation (download the software) Course Website Plus many other options – explore!

48. To enter StratSimMarketing, click on the Login button Then enter user ID and password and click OK Login (Simulation Software) From the Login page, download the software from our Internet site

49. Start-up includes helpful information (the briefing is a good place to start) Internal provides reports for your firm, such as financial statements and cash flow Toolscontains market and competitive research studies ($) Market contains information about general economic conditions and customers (free) Decisions is where your firm will enter and review decisions each period Competitionreports contain detailed information about your competitors (free) Menus (Navigation Index) Some reports are free; others must be purchased ($)

50. For example, the Internal menu includes your firm’s Income Statement report… …with Graph and History options… Report Options Within each report, use options such as the [Graph] and [History] buttons for additional analyses