FINAL REPORTTeam A Federica Merli Valentina Salvini Filippo Vescovo Khader Alsadi November 2011 University Of Pavia In November 2011. R&D decisions and Financial decisions.com Khader Alsadi khader. Our decisions for the second part has affected our results which led to a huge decrease both in market share and net contribution. Research and Development.Team A Introduction Advanced Marketing course taught by Prof.Simulation Report . In this report we decided to divide our Markstrat experience into 3 milestones according to our performance during the simulation and for each of these milestones we highlighted the context. Stéphane Ganassali provided us with the opportunity to participate in Markstrat Simulations.it Filippo Vescovo filippo. sales force. Our team decided to recover our position. we as Team A and other 5 teams were asked to practice our marketing strategy and management skills in the Markstrat world. marketing mix. Birgit Hagen and Prof.merli. financial and market performance . Our first milestone was characterised by best results compared to our competitors. We decided to divide our report in this way because we think this is the best way to describe our track during this enjoyable journey.it Valentina Salvini [email protected]@gmail. Team A is: Federica Merli fede.87@hotmail. During the simulation we had 10 different periods in which we asked each of these to take different types of decisions regarding Marketing mix . Brand Portfolio and Market research studies. thanks to better marketing decisions.com 1 . strategy.alsady@gmail. we were able to compete with the first 2 competitors. Research & Development Pag. Our Strategy 3.Team A Summary CHAPTER 1 – The Great Illusion (Period 0 to Period 3) 1. 7 Pag. 5 Pag. The Marketing Mix Recap 2.5.1.3. Our strategy 1. 5 Pag. Our Strategy 2. 19 Key learning points & Conclusions 2 . The Context 1. 3 Pag.3.1.2. 13 CHAPTER 3– The Resurrection (Period 8 to Period 10) 3. Financial & Market performances 3. 15 Pag. The Marketing Mix Recap 1. Financial & Market performances 2. Evolution of the simulation during period 1 to 3 1. Marketing Mix Recap 3. 17 Pag. Research & Development Pag.2. Research & Development Pag. 14 Pag. 8 CHAPTER 2 – Hard Times for Team A (Period 4 to Period 7) 2. Financial & Market performances 1.2.1 Context & Evolution of the Markets 2. 10 Pag.4. Context & Evolution of the Markets 3.5. 9 Pag.3.Simulation Report . 10 Pag. 4 Pag.4.4. 18 Pag.5. 12 Pag. 15 Pag.6. like Buffs they are quite price sensitive.Simulation Report .Buffs: people in this segment are very interested in Sonite products and they are extremely knowledgeable about Sonite technology. sales and all with two Sonite brands in the market (with the same characteristics).1. 3 . They can afford expensive products and often view price as an indication of quality. They are geographically close to their customers and can provide a high level of service and technical support. Our products were: SAMA and SALT.Professionals: they are looking for high quality. Sonite and Vodite consumers purchase in the following three distribution channels: . They are quite price sensitive and they demand high performance products. Each one represents different customers preferences and purchasing behaviours.Team A CHAPTER 1 – The Great Illusion (Period 0 to Period 3) 1.High-earners: this group of people have an high income so they can purchase relatively expensive products and their purchase is partially motivated by social status. high performance. and usually they are looking for cheap. . . . The Sonite market is composed of five customers segment. low-performance products with average convenience.Singles: they demand average level of both performance and convenience in Sonite product.Specialty stores – These stores are usually small and do not belong to organized chains. The Context At the beginning of the simulation all the six competitive firms started from the same level of market share. . .Others: this segments includes all consumers who do not belong to any of the above group. the first three periods saw good performance by our group and group O.Team A .Department stores – Department stores are characterized by the wide product assortment they offer. 1. 4 .These stores operate on a low-price. As concerning the competitive environment. Evolution of the simulation during period 1 to 3 During these three periods we observed some changes of the Sonite market in relation to the segment size and growth rate as the Market forecast report suggested (see Figure). both in terms of market shares (21% and 19% respectively). . For SAMA we focused on Singles and Others while for SALT on High earners and Professionals.2.Mass merchandisers . high volume basis and try to minimize overheads. We concentrated our attention on the 4 segments with the best growth within the next 5 periods.Simulation Report . and Net contribution ($ 30+M and $40+M). but their technological expertise is lower than that of specialty stores. 1. Others and Singles with SAMA. In the meanwhile. The two couple of segments (as can be seen in the figure here) had similar characteristics in terms of Power and Price.6%. we decided to give up the Buffs segment because it was the one that was decreasing in the next 5 years. Now let’s consider the products one by one. In this part of the simulation our team had a relatively comfortable position with a large budget. For this reason. in order to improve products’ characteristics (period 2). while in period 3 it registered an increase for the segment Single from 16. To reach the ideal value that best satisfy our target consumer we decided to reposition SAMA and SALT through: R&D project (PSAM2.4. In period 2 we noticed the possibility to enlarge our brand portfolio in the Vodite Market. the performance was quite stable in the first two periods. during the first three periods was chosen to target two segments at the same moment: Others and Singles. in period 2 we started an R&D project in order to create the first Vodite (available in period 4).6% overall (Sonite market). with SALT. We decided to increase our production according to the optimistic growth of the market forecast. the two most relevant characteristics to consumers. Adjust the sales force according to shopping habits and so we increased the forces in Specialty Stores for SALT and in Mass Merchandisers for SAMA. but with each of our product we decided to target two segment at the same moment. increase the advertising budget and focus the budget more on target segments. and from 7 to 9. Expecting a rise in sales. most of the growth came from SALT product. passing from $16 M of period 0 to $34 M in period 3. The result was so to target Hi-earns. both of them dynamic groups with growth rates between 20% and 30% each year. As regarding the market share. SAMA). PSALT2). which registered higher volumes sold and higher margins than SAMA. both in terms of time and of budget.Simulation Report .Team A 1.7 to 26. and Pros. 5 . with no competitors and high growth rates in the future.3 Our strategy Our main objectives in this initial part were to create our own brand awareness and to increase the level of our sales. and large revenue due to the good performance in the Sonite market. that seemed attractive because it was a so-called “Blue-ocean” market. SAMA (performance rating: B+) SAMA. Clearly. to a certain extent. Financial & Market performances In the first three period. This decision was made because: It was not possible to develop new products for each segments. we observed a +213% in the revenues. due to the increase in the selling for the product SALT (and. At the beginning our team decided not to focus only on one segment. 690 5.261 6. The error here was to work only on those two characteristics and not on its producing cost: with 1 M more invested on the R&D project. while in the third. with a resulting in a big jump in terms of COGS. the production cost raised from 58 to 70. we can take a look at the graphic here. As regarding the Market shares.562 82.947 151.138 -1.890 5.650 6.126 U $ $ K$ 71. Said this. 6 .000 74 -5.140 3. in order to cut away our competitors and secure the segments of Others and Singles.033 96. the product became the Hi-earns first product of the market with a share of 30.000 58 -5.399 -2.Simulation Report . from period 2 to period 3. If in period 1 SAMA was sold at 163 to the distributor.350 8.064 194 (b) 130 12. b) In period 2 we decided to decrease the selling cost for SAMA from 250 to 200.3%.500 4.535 243 163 13. SAMA Periods Sales Units sold Average retail price (final consumer) Average selling price (distributors) Revenues Production Units produced Average unit transfer cost Cost of goods sold Contribution before marketing Marketing Advertising expenditures + Sales force Contribution after marketing K$ K$ -1. the production cost could have been decreased in order to increase the profit margin. We can notice a substantial equilibrium in the first two periods.250 80.621 150.000 70 (a) -10. our company started the R&D project PSAM2 in order to upgrade the product. the same cannot be said in terms of its profitability.000 65 -5. the same cannot be said for its profitability. making its physical characteristics more suitable to the two segments. working on design and power. SALT (performance rating: A-) SALT was the product that was targeting Pros’ and Hi-Earns’ segments (with annual growth rates between 14 and 20% during the first three periods). The result then resulted the opposite: as can be seen in the production cost per unit.970 -2.955 193 131 19. Even if the move worked in terms of market share. And this fact is linked to two clear reasons.320 244 162 11. marked with red in the table.491 U $ K$ K$ 80. which were also the most price-sensitive. inventory (<10% of units sold for all three periods) and sales forces resulted appropriated. This phenomenon can be explained both with advertising policies and price policies (the price was increased).553 9.737 Unit 0 1 2 3 a) During the second period. where there are represented the market shares of SALT for three segments. in period 2 the value shrinked to 130. with a decrease in margins.414 97.Team A Even if in the market share SAMA performed quite well. Simulation Report . with a net contribution that grew during all the periods and passing from $16 M in period 0 to $28 M in period 3 (+175%) and a doubling in units sold.350 -4.Team A For what concerns the profitability.820 U $ K$ U K$ 97. 1.100 148 (B) -26.895 27.348 156.000 121 -18. The average increase was 8.591 135. - - 7 .005 177.5. Place: we focused on “Mass merchandiser” since our segments shown high level of purchasing in this distribution channel. but during other periods.154 177. SALT resulted in much better performances than ones of SAMA.479 -3. The second is similar to the error made for SAMA. The main reason was that the market forecast showed a relevant growth.550 21. With the developing of the R&D project PSAL2. the level of production have been forecasted quite well.170 45 33.278 156.724 -3. in order to increase the Net contribution. The first (A on the table) is due to a too low level of production during period 2 (we did not dimensioned the level properly).069 95 25. In period 3. The Marketing Mix Recap SAMA Production: the team decided to increase the production in all the three periods. Price: the price was maintained at the same level just the first period and in the following two periods the team decided to decrease the price (from 250 to 200) in order to compete with other brands focused on the same segments.200 134 -18.055 508 334 59. the increase of the price increased the margin.5%.095 492 320 50.394 493 321 31.390 28.400 161 -15.680 6 15.100 12. increased).111 493 321 43. in order to reach the targeted segments.180 Unit 0 1 2 3 Anyway. Promotion: the advertising budget was increased both for media and research. especially in Singles’ and Others’ segments. we focused only on characteristics without taking into account the production price: a bigger investment could have bring higher profits in the period 3 and followings.010 U $ $ K$ 97. SALT Periods Sales Units sold Average retail price (final consumer) Average selling price (distributors) Revenues Production Units produced Average unit transfer cost Cost of goods sold Units in inventory Contribution before marketing Marketing Advertising expenditures + Sales force Contribution after marketing K$ K$ -3. while did not affected at all the market shares (Hi-earners instead. two little mistakes could have been avoided during the period. with low inventory cost.850 0 (A) 31.271 135. they were not able to fulfill all the orders of the brand. Price: the starting price was much more higher than SAMA’s price and it was settled at 500. Promotion: the advertising budget was increased both for media and research. We also started an R&D project for developing our first Vodite product in period 2 and we finished it in period 3. they provided higher technical support.6. Since we targeted “Professionals” and “High earners”. that could have decreased with some more investments). Moreover. since our segments shown high level of purchasing in these distribution channels. Regarding this project. We decided to increase a little (from 500 to 515 in the period 3). which are less price-sensitive in comparison to the other segments. and MaxFreq & Power (SALT). Max Frequency and Design.Simulation Report . This was due to the fact that despite all the efforts made by the Production department.6 M$ in this project and this amount of money was very low to create a good product. and turned out to be a good plus (except of the production cost. We invest only 4. in order to reach the targeted segments. Prototypes were ready for the following periods. Research & Development In period 2 we decided to upgrade our Sonite product with project PSAM2 and PSAL2 in order to better answer to consumers’ needs.Team A SALT Production: the team decided to increase the production in all the three periods as in the case of SAMA. The average increase was much higher than SAMA. In particular. - - 1. 8 . Place: we focused mainly on “Specialty stores” and secondary on “Department stores”. the prototype resulted weak in terms of Autonomy. especially in terms of Design & Power (SAMA). we did not have a precise idea of what was the best solution to satisfy the Vodite Market’s consumers. we did not expect a negative reaction for the increase in price. since it was 47%. Because they perceive more risk in buying new products. resulting in stunning performances both in terms of market shares (35% by period 7) and Net contribution (>$100 M.In particular. especially in period 4 and 5.Team A CHAPTER 2 – Hard Times for Group A (Period 4 to Period 7) 2. team O and E stole to our group relevant part of market shares in the market. Thanks to more clever marketing policies. team O made a very good work. but from period 4 to period 7 our competitors developed others product that made the competitive environment more complex.These individuals represent the bulk of potential consumers. they adopt a product innovation only after a large number of consumers have tried it. Early adopters (Ad) – Consumers in this segment will not adopt Vodite products as quickly as innovators but will certainly do so before a majority of people have accepted the new technology. decrease in Buffs and substantial stability for the other segments.1. it represents only a small percentage of total potential consumers. This resulted in a loss of market shares. Context & Evolution of the Markets Sonite The Sonite market evolution during the central part of the simulation was the following: rise in Others. As regarding our company’s situation. As we can see from the graph the only market segment that increased significantly was the Others segment that was satisfy by our SAMA. Let’s take a look at its segments. Although this segment will probably be the largest one in the early days. putting us from the 1st position of period 3 to the 3rd position in period 7. compared to an averafe of $20 M performed by other teams). registering loss both in market share and net profit contribution: something did changed.Simulation Report . Vodite The central part of simulation saw also the born of the Vodite market. Followers (Fo) . at the beginning of period 4 we founded our position dramatically changed. 9 . Innovators (In) – These consumers will be the first users of Vodite products. but this point will be better explained in the next paragraph. Losses in market shares meant also loss in net contribution. our expensive and best product.2. leaving our VARA at weak market shares. Our main competitor (firm O). As it will be explained later. 2. launched its first Vodite product much better than our VARA and they reached almost 98% of market share in Vodite Market in the first year. VARA. group E with its VERI. with the launch of VARA product by our group and VOA1 by group O. especially during period 7. Our Strategy Due to our bad performance in period 4. our weak performances turned out in lower budgets. In period 5 we had low budget due to our bad result of previous period and so we were forced to reduce the production of SAMA and especially VARA. united with better marketing policies. two new competitors entered. period after periods. mostly used for the improvement of our Vodite product. Market Shares: from 20% (2nd position) to 12% (4th position) between same periods. contributed to a remarkable recover for our Sonite’s product. Overall.Team A Vodite market officially started in period 4. so thanks to a loan of 4M$ in period 6 we were able to start an R&D project in order to improve VARA and create a competitive product with better characteristics. created in order to perfectly fit the preferences of Singles’ segment that was the segment with highest forecast of growth in the next years. which was a very bad and so hard-to-sell product. Period 4. and so we had to ask a loan of $4 M. They performed much better than us. In period 6. our main objective was to try to re-launch our products and to gain position in market share and net profit. The big. while in period 7 – thanks to extra-budget coming from outside – a little advertisement-led recover did happened. We focused SALT. in the central part of the simulation (period 4 to period 7) our company did not performed well. we thought this product focusing on the followers segment. the bad characteristics of our product were putting it completely out of the market. 2. 5 and 6 registered losses both in terms of market share and net contribution. on the Hi-earners segment that was composed by people willing to spend an extra budget for a good product. Those two injections.3. We started also to identify our perceptual objectives to clarify our advertising intention to our customers. The lowest peak was reached in the 6th period. and the results are clear when we look at the financial side. Financial & Market performances As already introduced. The objective was to regain a good position in Vodite market. Our financials have been saved in period 6 by a $ 4M loan (used to re-launch successfully our Sonite and upgrade our VARA) and in period 7 by an external “surprise bonus” of $5 M. 10 . In Sonite market we had loss in market share because our product were not able to cover the actual requests of the market segment so we decided to upgrade our SAMA for Others and to develop a new product SAFA.Simulation Report . and group and VYBI by group Y. when we ended with a very low budget. We had utilized the semantic scale and especially the MDS as a source of insight into the similarities and differences of the 3 target segment . and for us disappointing numbers are the followings: Total Net Contribution: from $31 M to $8 M between period 3 and period 6. As regarding market shares. it reached in the second year the 23% of Single segment. that we could understand only on the next period. SAFA (performance rating: C+) SAFA was launched in period 5 with the intent of targeting the segment of Single. In period 5. After having understood the roots of our mistake. making it the first product for this group of consumer: a very satisfying result. both because the competition was not too high (competitors. We concentrated more the sales force in the specialty stores.1%. registering in period 4 a loss in terms of market share of 35. third positioned in the segment). This result is mainly due to our bad price management. This fact granted SALT to be the segment’s first product in the market. due to our competitors SIRO and SOLD. In period 6 we performed better. SAFA. also because of the low margins of the segment. SAMA (performance rating: C-) SAMA started very bad. when we launched the new version of SAMA we made a very big mistake and we underestimate the quantity of unit sold. that we considered potentially very profitable. SALT (performance rating: B+) SALT was the product that could make us survive during the central part of the simulation. Our reaction – as it will be explained in the R&D chapter – was to start a modification of the product in order to better target the segment of Others (which was. with shares between 35% and 23%. from 100k in the previous period). and a negative Net contribution. 2) we did not benefited from scaleeconomies. while in period 7 SAMA finally came back as one of the Others’ mass products (11. the biggest and most dynamic in Sonite market). but still not so good in terms of revenues (less than 7% of our company’s revenues). Exploiting its high margins and scale economies. which alone could not cover the cost of production: an important mistake mainly due to our inexperience. that stole us relevant part of the Others segment. during all the simulation). At the other side of the coin – instead – SAFA turned out to be a great delusion. where the margins are bigger. both because of market forecasts. concentrated more on the Other segment than Single. SAFA was launched with a retail price of $ 220.Simulation Report . and so low margins. we decided to put up some modifications: We increased the price from 220 to 260. covering – on average – more than 90% of our total revenues. in the long term. and we could steal some of the lost market share and avoiding negative Net contributions. we could make SALT a good source of revenues – between $31 M (period 4) and $21 M (in period 6). we suffered 2 bad effects: 1) we loss potential selling. in fact. and so revenues. resulting in high producing cost. those bad mistakes bring us to a loss – again – in market share. The success of SALT during periods 4 to 7 was mainly due to its good positioning among the segment of Hi-earners. registering weak performances in terms of revenues. By producing so few units (60k.6%. especially in terms of physical characteristics.Team A But let’s see now the performance product by product. during periods 5 to 7 performed well in terms of market share and bad in terms of net contribution. 11 . In fact. and so retailers were forced to sell it under-price. the price could have been raised until 280. because of lower budget in comparison to the previous periods. and eventually increased in later periods.4. Thanks to an increase in sales. Price: the team decided to maintained the same price for all the macro-period. in period 6 selling went down to the entering of new competitors. VARA during those periods was a total disaster. The result was a disastrous: just 2K units were sold. resulting in negative net contributions. using the money of a loan we received in period 6. compared to a retail price of (on average) 500. even before the marketing expenses. Weak performances were registered for the product also in terms of revenues: negative Net contributions in all the three periods.4% of the new-born Vodite market. and those few were also characterized by a price lower than production cost.Simulation Report . because it was the first product in Vodite market. Production units was dimensioned at 80K units. the team decided to increase again the production of the brand in period 6 (+260%) because on the previous year the demand was higher than what we produced before. Net contribution resulted in $1.Team A The result was that. In few words. 12 . corresponding to 1.3 M in period 7 (with selling lost in this period due to under-estimation of the production). Place: we focused on Mass merchandiser since our segments shown high level of purchasing in this distribution channel. These changes were mainly due to a lower budget caused by a high level of inventory in SAMA which was sold to a trading company with a disposal loss of K$178. 50% of the expected new-born market (we did know that one of our competitors was going to launch another Vodite in the same period). in period 5 we introduced the modified brand. mainly due to the growth in the Vodite market. between 370 and 400. 2. where our segment-competitor SINO was located. VARA (performance rating: E) VARA was launched in period 4 with the highest expectations. and again. Promotion: the advertising budget was increased both for media and research. The change in price did not result in a lost in market share. Moreover. Probably.%). The result was that consumers were not buying VARA.5 M for the improvement of the product. The Marketing Mix Recap SAMA Production: the team decided to decrease a lot the production in period 5 (-64. Price: the price progressively decrease from 210 in period 4 to 200 in both periods 5 and 6. How this happened? The answer is clear and simply: our product was very bad. In the following period units sold increased to 27K. after 2 periods of negative performances. - SALT Production: the production was decreased a little in the fifth and sixth periods. that results to be low. nor it changed the perception of customers. and too low R&D investments were put on it. Vodite so registered low selling. and for this reason our team decided to invest $3. and production cost was around 400. Promotion: the advertising budget decreased because of a reallocation budget. Promotion: the team spent a little bit more in 5 period. in particular. since the market forecast shown a high growth level. Research & Development In period 4 we developed an R&D project (PSAM3) in order to improve and upgrade SAMA with the intention to better fit the Others’ segment. Place: we focused mainly on Specialty stores and secondary on Department stores. SAFA (introduced in period 5) Production: the starting level of production was fixed at 150 KU for both periods 5 and 6. we soon understood that our products’ characteristics were the main cause of its total failure. One year later.Team A Place: thanks to the sales force experiment. As regarding our VARA. giving us good performances in terms of market shares. Autonomy and Max Frequency as can be seen in table of comparison here. Thanks to this clever action. Due to budget constraints. we looked at the graph of “Ideal Values evolution” to have an idea of where were going the preferences of consumers in the following periods. Place: VARA’s sales allocation was distributed mainly between Department stores and Specialty stores. which was much higher than our main competitor VOA1. Price: in the first period the fixed price was 680.Simulation Report . the “Innovators”. since our segments shown high level of purchasing in these distribution channels. Then.created for Singles. it showed that it was not the right product that satisfied the need for that specific segment. 13 . VARA (introduced in period 4) Production: the team decided to start with 100 KU of units produced. For this reason. To choose the characteristics of the products. For this reason. the team decided to decrease the price (even if the base cost was very high) in order to reach a higher market share.5 M that the project worth. the budget decreased by -18%. we parallel decided to develop a new Product – SAFA . according to consumers’ habits research. This action was chosen according to our strategy which was to pass by a multi-targeting of the product (SAMA was targeting both Singles and Others at the beginning) to a focus only on Others’ segment. SAFA turned out to be a perfect answer for the segment Singles. After its first period.5. we had to ask a loan in order to face the cost of $3. launched in the same period. - 2. since it was a key step in the introduction in the market. the team understood that the sales force distribution was allocated in the right way. in period 6 we started an R&D in order to improve the product. Price: the price was fixed at 220 and the targeted segment was Singles. Promotion: the advertising budget was increased in the period 6 both for advertising media and research (+18%). 14 . while instead an increase was expected. In terms of competition. In the last period. The greater change that was observed during this period came essentially from our group A. our two markets were presenting similar dynamics. many brands folded. passing by 26 to 23. becoming a monopolist-like group.1.Simulation Report . While both Vodite and Sonite were increasing in terms of number of units sold at relevant rates.Team A CHAPTER 3– The Resurrection (Period 8 to Period 10) 3. In fact. the expanding of the market did not result in great competition: Group O increased its market shares until 50% of the total market (both in terms of Value and units sold)in the last period. only the first one was increasing also in terms of value. In period 8. Context & Evolution of the Markets In the last part of the simulation. relevant performances came by product VYBE of group Y. our new-modified-VARA was able to steal relevant shares to group O in the Vodite market. our main objective was so to market our new-modified VARA in order to increase our market share and net contribution. with no big competitors. as it we will see in the next paragraph. .Vodite market was more dynamic and less competitive (only 7 brands at the end of period 7) Considered that. our performance improved a lot. from $24 to $9 K.Simulation Report . As of SAMA and SALT. and so their performances went bad. due to budget constraints. we tried to anticipate the evolution of customer preferences by studying the “ideal value evolution graph”. 15 . We tried to do that by increasing our advertisement budget and so the production volumes. 60000 50000 40000 30000 20000 10000 0 -10000 -20000 8 9 10 5k -10K 5K 9K 24K 16K 4K 11K 9K 19K 19K VARA SAFA SALT SAMA As it can be seen. It gave us an idea of how we had to modify our perceptual objectives in order to improve our advertisement. Financial & Market performances In the last three periods. SALT suffered from the increasing competition of SOHI and SELF.Team A 3. The decision to concentrate resources would have turned out to be quite profitable. we could not be able to give them the right quantity of budget for the marketing. At the beginning of period 10 we had an great budget so we decided to reposition all our brand through the advertisement and also through a better advertising research to create best quality message. the great part of our success was due to the stunning performance of our Vodite product VARA. will turn into success. while SALT decrease dramatically. Regarding the Sonite market. In particular. we saw potential in our SAFA. dived by product. Our Strategy In this last part we decided to focus our resources more on Vodite market because: Sonite market was much more competitive and with not so dynamic (“mature market”). The other increase came from the product SAFA. In the following graphs are represented the Net contribution in the three periods.3. that was targeting well the cluster of Singles. 3. This strategy. As regarding our positioning policies.2. especially in terms of profitability. But let’s see now the details product by product. and so bad positioning. and to understand it we can take a look at our competitors. with a decrease in selling price (assisted by a better and greater investment in terms of advertisement). Said this.Simulation Report . an objective failed due to weak marketing policies. Their basic margin between production cost and retail price were greater at the beginning (86. Better price-policy: both of our competitors decreased the price while we were maintaining it constant: it bring them more close to consumers in terms of economy and convenience.Team A SAMA (performance rating: D) SAMA bring us very low margins during all the last three periods. Could we make it better with this brand? The answer is yes. - Lost in market shares turned out to decrease deeply profitability and so. we can see that those two products were selling much more than us (<30% compared to 10%). How can be explained this big loss in market shares? Let’s see to whom we lost them: SELF and SOHI: the first went from 55 to 70%. Their better results came from: Better positioning through advertisement (they spent on average $ 800 more than us. we could have increased our revenues here with greater volumes of selling. SALT (performance rating: C+) SALT were the second disappointment of the last part of the simulation. mainly thanks to a better advertisement (product characteristics were more or less the same).8% among Hi-earners (2nd position) to just 6. and had registered better results. Net contribution. 16 . and so producing more: this let them decrease production cost with scale economies. compared to 89 and 99). it passed from $24 K of period 8 to $9 K in the last one. In terms of net contribution. scale economies would have maintained the product very profitable. SEMI and SOOT had been turned out to be more profitable than our SAMA because of 2 reasons: They were selling more (due to better positioning). In the table here there are values of SAMA and the two main competitors SEMI and SOLD in periods 8 and 9 (average values). we can observe that. while SOHI from 5 to 20% of Hi-earners segment.6% in period 10. First of all. passing from a market share of 21. In the end. and so low level of revenues. Surely. as can be seen in the table “communication dimension and message quality” that we purchased in period 9). the segment Others were the less profitable one in all the Sonite industry because of its state of maturity and so its low prices to consumers. even if our per-unit margins would have reduced. In terms of advertisement. In terms of price management.Team A SAFA (performance rating: B) SAFA. 3. mainly due to our inventory disposal loss which is the cost derived by the lost of old Vodites we had in inventory (without this negative line. and so we lost potential customers. Marketing Mix Recap SAMA Production: the level remained the same just in the period 7 and 8 (180KU).4. especially in terms of Power (68. Promotion: the main changes were represented by a completely cut on the advertising budget in period 9 (0K$) and an increased in period 10 (2500K$) since the budget was available thanks to an increase in the net contribution in the previous period. Our success in this segment was the characteristics of SAFA. Place: we focused on “Mass merchandiser” and “Department stores”. merits go to the R&D department that created an ad-hoc product for the segment. we registered a poor performance (see market research studies of period 9). consolidating its first position among the segment of Singles. In period 8 we introduced the new model of VARA (based on the R&D project PVAR1). which was much better than our competitors. it passed from 22% of Period 7 to 31% in the last period. rather than Followers. while in period 9 it was decreased (50KU) and finally in period 10 it was increased a lot (300KU). and the results came: units sold passed by 7 to 111K and market share from 1. on average $ 500 below SOLD and SUSI volumes. which was the second most relevant characteristic after price. mainly due to low budget. compared to 40 and 50). The result came surprisingly with the increase of the sales among the cluster of Early Adopters. Despite those numbers. In the last part it became instead our biggest success. - 17 . SAFA have probably been the brand that we better managed.Simulation Report . In terms of market shares. VARA would have turned out in a Net contribution of $3 K. the Net contribution turned out to be negative. VARA (performance rating: B+) VARA was our biggest disappointment in the central part of the simulation. we did not lost any market share. turned out to be a good success. with an increase of market share from 15% to 24%. Period 9 was a consolidation of the previous success: units sold from 111 K to 248 K.5% to 15%. Net contribution resulted in $19 K. compared to the other two Sonite products. Price: the price was maintained the same for all the four periods. since the targeted segment was price-sensitive ( “Others”). In this sense. A bad mark goes instead to the dimensioning of the volumes to be produced: in period 8 the production resulted in being too low. even if we offered the highest price among our segment-competitors SOLD and SUSI. by knowing that the simulation was going to end soon. Price: the price was fixed at 260 for the four periods.Simulation Report . because the available budget was addressed to the brand with lower brand awareness. - 3. to 550 in the remaining periods. because of the success of this brand on the targeted segment (“Singles”). but it was decreased during the last period from 515 to 450. Promotion: the team decreased the expenditure on advertising media and there was a focus on the advertising research. we preferred to concentrate our means in order to improve market shares and net contribution rather than create products that would have been available for periods after the end of the simulation. Research & Development In the last part of the simulation we just had one R&D project. Place: we focused on “Specialty stores” and “Department stores”. Promotion: the advertising budget was constantly increased in all the periods because we observed that our product was one of the best in terms of quality. Price: the team decided to maintained the same price for the first three periods. VARA Production: the production constantly increased in all the periods. since we introduced a modified brand in period 8 which met the need of both Followers (95% targeted) and Early Adopters (5% targeted). Price: in order to satisfy segment’s needs and to compete with other 8 Vodite’s products the team decided to decrease the price from 600.Team A SALT Production: the production was almost at the same levels for all the periods (130KU). This decision was due to the fact that. that we made in the last period. since the team decided to focus on “High Earners”. Place: the sales forces were distributed mainly in Department stores and Mass merchandiser. SAFA Production: the level of production constantly increasing. Promotion: the advertising budget was increased both for media and research. in order to have a good quality of the message.5. Place: the sales forces were distributed in all the three distribution channels with no significant difference. 18 . in the first two periods. we have not always done the right choice. Study well the manual before the start! Some points have been understood by us only in the central part of the simulation. In general our team is very satisfied and proud to have take part to this simulation. was very bad and very far from the customers preferences. if you believe in your project! Our company was performing very bad in the central part of the simulation. With a loan of $4 M we could develop an R&D to improve our Vodite: it resulted in a great success. like ours. but our great mistake was in the Vodite R&D project. group O could do that. also by dividing the team in sub-parts (i. Don’t invest too low in your first Vodite ( at least $ 8-10 M)! We made the mistake to create a weak Vodite and so our performance was terrible! Manage well your time! If in your case. the learning process would have been faster and easier. First of all we mismanaged the production of SAMA and SALT in the central period and we lost potential sales of these products. and so our final results! 19 . if our brands were correctly targeted. also in according to the competitors’ decisions. Than considering the price. unlike the Vodite of Firm O. Until period 4 we did not understand well the role of Perceptual Objective and so our brands were not perceived as we wanted by our target segments. the time is low for each period. We have also learned that for a good advertising message it is important to invest a specific part of our budget in advertising research. this improves the quality of the message for our targeted segments. segment by segment.e. resulting in the winning team. If we would have studied better the manual. In the other hand. advertisement team).Simulation Report . Thanks to the Market Research report the team could also consider. but sometimes we did it too late. In the first 2 periods we had a good position both in market share and in net profit contribution. We all agreed that Markstrat was a great opportunity for each member of the team at both professional and personal level to improve our notions in marketing field.Team A Key learning points & Conclusions We believed that the biggest success’ factors in the Markstrat simulation was to first launch the Vodite product in order to take advantage of a blue ocean strategy in a new and unexplored market. With this mistake our competitors could reach higher rates both in market share and net contribution. Our team have understood the importance of all the Market Research studies that we could purchase each period. and we well understood that each segment required its own price decision. We tried to do this. organize efficiently the team. In order to better understand the targeted customer we have analyzed Consumer Panel and Consumer Survey. we have also improved our teamwork skills. but our R&D investment was too low and our product. putting in practice our theoretical knowledge. R&D. …And some tips for future Markstrat’s generations Don’t be afraid to ask for a loan. In relation to the Marketing mix decision we made some mistakes. Thanks to Markstrat.