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Introduction

Introduction. “I hear and I forget. I see and I remember. I do and I understand.” Confucius. Decisions. You make decisions given competitor past, current and future decisions You are responsible for the firm’s decisions Decisions should be an adventure, not a chore. Firm Operation.

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Introduction

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  1. Introduction “I hear and I forget. I see and I remember. I do and I understand.” Confucius 1

  2. Decisions • You make decisions given competitor past, current and future decisions • You are responsible for the firm’s decisions • Decisions should be an adventure, not a chore 2

  3. Firm Operation • Keep a record of all decisions made and results. This record will come in handy when you prepare your marketing and advertising plans in a few weeks. It will help you prepare your Director Memo at the end of the semester. A hardcover lab notebook works great for this purpose. 3

  4. Budgeting • Each firm must submit budget using Excel to reproduce the information contained on the Financial Summary/Pro Forma form in the appendix of The Marketing Game 4

  5. The Role of the Marketing Game • The Game offers unique learning advantages, compared to other learning approaches (like reading texts and articles, lectures, guest speakers, case analysis and presentation, projects) because it: • Is dynamic, like most business situations. • Brings the competitive aspects of marketing to life. • Highlights the need for integrative planning based on qualitative and quantitative analysis of the market environment. 5

  6. Overview • You take over marketing management responsibilities for your firm. • Must satisfy customers 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. 6

  7. 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 7

  8. Industry Environment • Market growth • Technological environment • No major innovations expected • Yearly revision cycle • Competitive environment • Type of competition depends on firms’ decisions 8

  9. High-tech Managers Modern Students Concerned Parents Professional Creators Harried Assistants Home Users Segments have different needs, preferences, situations, sizes, growth rates. Six Key Product-Market Segments 9

  10. High-tech Managers Modern Students Concerned Parents Professional Creators Harried Assistants Home Users Distribution Channels Firm 1 Firm 2 Firm 3 Firm 4 Firms reach customers through full-service dealers and Internet/mail-order discount dealers. Channel 1 Traditional Dealers Channel 2 Discount Dealers Different segments have different shopping preferences. 10

  11. Product 1: Voice Recognition Device (VRD) Number of Special Commands (5-20) Key Product Features Error Protection (1-10) Ability to Customize (1-10) 11

  12. R&D for Product Modifications: Computing Costs Note: R&D for product changes is more expensive if you have to make big changes in a short period of time… 12

  13. Level 3 Product 2: Digital Vocal Communicator (DVC) Number of Tasks (1-10) Key Product Features Similarity of Commands (1-10) Ease of Learning (1-10) 13

  14. Types of Advertising • Pioneering • Direct competitive • Indirect competitive • Reminder • Corporate (Institutional) 14

  15. Expanded Marketing Responsibilities (Level 3) 2 PRODUCTs Features (and R&D for product modifications) PRICE Wholesale price in each channel 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, product CUSTOMER SERVICE $ Spending MARKET RESEARCH 7 reports may be purchased Demand forecast/ production order Number of units for each product 15

  16. Sales Saturation Level Threshold Level Marketing Spending Response Functions and Marketing Spending Spending too little may have little effect, but spending too much just increases costs and reduces profit. 16

  17. Marketing Budget Items (Level 2 and 3) • R&D product modification costs • Sales force salaries and severance pay • Advertising expense • Customer service expense • Sales Promotion Expense • Market research reports expense BUDGET FOR FIRST PERIOD: $984k 17

  18. Discretionary Budget • Policy on initial discretionary budget. • Unspent money carries to future periods and earns interest. • “When it’s gone, it’s gone.” • Policy on special budget requests. 18

  19. Computing Prices Computing Retail Prices from Wholesale Prices: Expected Retail Price = Wholesale price/(1-% Markup) Example: Wholesale price = $105 Channel 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 19

  20. 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. 20

  21. 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. 21

  22. Competitor Analysis • Estimate competitor’s net contribution • Analyze past strategies & likely changes. • Evaluate positioning and target segments. Firms 1 2 3 4 1 2 3 4 5 6 X ? X X Segments ? X ? 22

  23. Industry Sales Report 23

  24. Product Features and Prices Report Error protect- ion 3 3 3 3 Ease of learning 3 3 3 3 Retail price channel 1 $190.00 $190.00 $190.00 $190.00 Retail price channel 2 $146.15 $146.15 $146.15 $146.15 Brand of VRD Firm 1 Firm 2 Firm 3 Firm 4 Special commands 8 8 8 8 24

  25. Market Activity Report (Level 2) Adv. Dollars Adv. Type Sales Promotion Channel 1 Channel 2 No. Sales Reps Channel 1 Channel 2 Commission Customer Service Firm 1 $250,000 $0 $0 10 10 5% $92,500 Firm 2 $250,000 $0 $0 10 10 5% $92,500 Firm 3 $250,000 $0 $0 10 10 5% $92,500 Firm 4 $250,000 $0 $0 10 10 5% $92,500 25

  26. Market Research Reports (Level 3) • 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 26

  27. Market Share by Segment Report Segment 4 0.250 0.250 0.250 0.250 10,240 Brand Firm 1 Firm 2 Firm 3 Firm 4 Total Sales (units) 1 0.250 0.250 0.250 0.250 20,028 2 0.250 0.250 0.250 0.250 15,084 3 0.250 0.250 0.250 0.250 25,104 5 0.250 0.250 0.250 0.250 22,056 6 0.250 0.250 0.250 0.250 8,092 Who’s selling to whom? Who’s buying what? What is each firm achieving? Which segments are buying? 27

  28. Market Share by Channel Report Brand Firm 1 Firm 2 Firm 3 Firm 4 Total Sales (units) Channel 1 0.250 0.250 0.250 0.250 56,296 Channel 2 0.250 0.250 0.250 0.250 44,308 What’s selling where? Who’s buying what? 28

  29. Consumer Preference Study Price Range low low high high high low Special Commands 10-13 7-10 10-13 12-15 13-16 5-8 Error Protection 2-4 2-4 6-8 2-4 6-8 2-4 Ease of Learning 1-3 6-8 6-8 4-6 2-4 7-9 Segment Students Home Assistants Creators Managers Parents What kind of product would a segment prefer? What reference price seems typical for the segment? How are segments similar and different? 29

  30. Competitors with lower Index 0 0 0 0 0 Competitors with equal or higher Index 3 3 3 3 3 Marketing Effectiveness Report Brand Awareness Customer 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”) Index 0.550 100% 100% 100% 1.00 .500 100% 1.00 .500 30

  31. Detailed Sales Analysis Segment 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 Unit sales by segment and channel Are you reaching your target? 31

  32. Customer Shopping Habits Segment Students Home Assistants Creators Managers Parents Percent of Shopping in Channel 2 ? ? ? ? ? ? Percent of Shopping in Channel 1 ? ? ? ? ? ? Who shops where? How do shopping patterns match distribution focus? 32

  33. Product Positioning Report Segment 3 ? ? ? ? 5 ? ? ? ? 6 ? ? ? ? Brand Firm 1 Firm 2 Firm 3 Firm 4 1 ? ? ? ? 2 ? ? ? ? 4 ? ? ? ? Which brands are closest to which segments? Which segments have no close brands? 33

  34. The Marketing Game 34

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