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The Marketing Game Introduction

The Marketing Game Introduction

Dr. Gerald SmithMK-719

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OverviewOverview

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.

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The ProcessThe 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

NextDecision

period

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Industry EnvironmentIndustry Environment

Market growth

Technological environmentNo major innovations expectedYearly revision cycle

Competitive environmentType of competition depends on firms’ decisions

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Distribution ChannelsDistribution 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.

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

Different segments have different shopping preferences.

Different segments have different shopping preferences.

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Past Sales By Market SegmentPast Sales By Market Segment

0

5000

10000

15000

20000

25000

0 1 2 3

Year

Assistants

Managers

Students

Home

Creators

Parents

For Voice Recognition Device

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Competitor AnalysisCompetitor Analysis

Estimate competitor’s net contribution Analyze past strategies & likely changes. Evaluate positioning and target segments.

? XX

X

?

?X

1 2 3 4

Firms

1

2

3

4

5

6

Segments

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Expanded Marketing Responsibilities (Level 2)Expanded Marketing Responsibilities (Level 2)

PRODUCT Features (and R&D for product modifications) PRICE Wholesale price in each channel

PLACE Distribution intensity in each channel

PROMOTION

-Advertising $ Spending

Type

-Personal selling Number of sales reps in each channel

Percent non-selling time

Commission rate

-Sales promotion $ Spending per Channel

CUSTOMER SERVICE $ Spending

MARKET RESEARCH 7 Reports May be PurchasedDemand Forecast/Production order Number of Units

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Response Functions and Marketing SpendingResponse 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.

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Marketing Budget Items (Level 2 and 3)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

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Retail Prices Charged Final ConsumersRetail 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.

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Computing PricesComputing 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

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A “Good” Wholesale PriceA “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.

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R&D for Product Modifications: Computing CostsR&D for Product Modifications: Computing Costs

Feature 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…

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Industry Sales ReportIndustry Sales Report

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

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Product Features and Prices ReportProduct Features and Prices Report

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

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Market Activity Report (Level 2)Market Activity Report (Level 2)

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

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Market Research Reports (Level 2)Market Research Reports (Level 2)

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

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TMGPlan SoftwareTMGPlan SoftwareEasy to use for preparing and evaluating plans, managing reports

Select directory

Select directory

Enter Plan

Decisions

Enter Plan

DecisionsEvaluate spending and profit forecast

Evaluate spending and profit forecast

View, print, and manage

password protected reports

View, print, and manage

password protected reports

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Market Share by Segment ReportMarket Share by Segment Report

Brand

Firm 1Firm 2Firm 3Firm 4

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?

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Market Share by Channel ReportMarket Share by Channel Report

Brand

Firm 1Firm 2Firm 3Firm 4

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

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Consumer Preference StudyConsumer Preference Study

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?

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

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Marketing Effectiveness ReportMarketing Effectiveness Report

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

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Detailed Sales AnalysisDetailed Sales Analysis

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?

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Detailed Sales AnalysisDetailed Sales Analysis

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?

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Customer Shopping HabitsCustomer Shopping Habits

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

?

?

?

?

?

?

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Product Positioning ReportProduct Positioning Report

Brand

Firm 1Firm 2Firm 3Firm 4

1

????

2

????

3

???

?

4

????

5

????

6

????

Segment

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