How to win at Markstrat (Markstrat Tips and Tricks) Market Forecast and Segment Selection Market Forecast Start by looking at the market forecast, determine which segments are the high-growth segments, get into these segments early. This has two benefits, establishing segment dominance and control which makes it difficult for competitors to enter the segment, secondly, the high-volumes help to decrease unit costs over time. Plotted is the market forecast of each segment with an exponential trend line, forecasted additional three periods in the future. Shoppers and Savers clearly have the highest market growth in this example. Integrate the equations between period 0 and 8 to get total volume. Segment Equation Total over 8 periods Explorers y = 231764e-0.029x 1,654,717 Shoppers y = 176438e0.2592x 4,733,251 Professionals y = 160089e0.1414x 2,376,865 High Earners y = 146295e0.1815x 2,637,148 Savers y = 280506e0.1738x 4,868,505 One thing to consider is these two segments also have the smallest margins. An estimated simple Contribution Margin can be calculated using Recommended Retail Price minus Base Cost for each existing product. The summation of market share of each product multiplied by the calculated CM of each product gives as estimated CM per market segment. Product Est. CM Explorers 262 Shoppers 221 Professionals 299 High Earners 286 Savers 199 Using the total volume of each segment multiplied by CM of each segment, we get the following segment total CM. 1955x Explorers 3. adding in an exponential trend gives a rough price perception to actual price equation.5 294 Shoppers 3. Semantic scales will be discussed in more detail next part. Segment Ideal Values RRP = 147.77e0. we can get a rough price for each segment.When semantic scales are available from period one. Using ideal values for each segment.4 288 . we can associate price perceptions to actual prices. as expected. the Professionals and High Earners segments. .982 167 Professionals 449 211. CM = 147.Professionals 5.839 124 Shoppers 288 120. have the highest contribution margins. plotting the total contribution of each market segment calculated by the segment CM multiplied by the total segment size. Total CM Explorers 294 169. With the estimated segment product cost and estimated base cost.058 220 Savers 231 74. It can be seen that Shoppers and Savers are still the higher earning segments.7 449 High Earners 5. though the contribution growth is slightly slower. the estimated contribution margin per segment can be calculated. Finally. even though Professionals and High Earners have higher contribution margins. Product Est.3 420 Savers 2.964 156 Again.77e0.1955x Est. Base Cost Est.3 231 An estimated base cost for each segment can be determined by summing the products of individual product’s base cost and individual product’s segment market share.426 237 High Earners 420 200. so forecasting is required. both have their advantages.It should be noted that spending more budget in a Market Segment naturally increases the market segment size. Plotting the Ideal Values of a given segment (Savers) and it can be observed that each characteristic is evolving at a different pace. Semantic Scales are more closely tied to product characteristics. while the abandoned low-growth segments continue to die in a vicious circle. they would have changed by next period. Ideal Values change by spending on Advertising to change Perceptions. It is important to note. new products must use Semantic Scales Ideal Values when designing the characteristic of products. If the current period’s Idea Values are used. Additionally. this makes it a lot easier to change Brand Perceptions with advertising as you can chose two of the three. Add similar linear trend lines and the Ideal Values of each characteristic can be extrapolated. Markstrat Semantic Scales and Multidimensional Scaling There is two main market research data. Ideal Values are constantly evolving. . Semantic Scales and Multidimensional Scaling. Multidimensional Scaling combines the multiple characters into three simplified groups. Companies moving into the high-growth segments will naturally fuel the segment’s growth in a virtuous circle. rather than two of the five. possibly from the ranking of Importance of Characteristics. Companies will generally change Brand Perceptions (through advertising) of the important characteristics.Below shows variance between the trends of four points and actual periods ideals. There is significant deviation between Processing Power and Design Index. which intern would alter the Ideal Values. No. of Design Features Index Battery Life Display Processing Size Power Price . 1. The higher number of periods past.0 5. If you are developing a product over multiple periods (a Vodite product). Once we know the ideal values for a given period. this can be used to calculated the desired characteristics of a product to meet a segments ideals. this is critical. it is know that it will take one period for development. Markstrat Product Characteristics Let’s assume we want to create an ideal product for the Shoppers segment. . the below trends using three points and actual periods ideals.5 3. the same can be done with Multidimensional Scaling. more than one period into the future must be forecast. and negative for down) can be calculated for determining if to round down or up. so the Ideal Values of the following period must be forecast.2 2.7 1.7 10.0 Similarly. as it can’t be assumed all characteristics are increasing. Using a simple past two period example. the closer the exploration would be to ideals. Using LINEST. the direction (positive for up. the Excel TREND formula calculates the next periods values. of Display Processing Features Design Index Battery Life Size Power Ideal Char.0 -0.20 2.95 3.47 3. 1.28 2.87 5. one can calculate the characteristic with the following.13 3. and knowing the range of the characteristic.28 2.30 3.No.04 3.1 0.18 7. of Design Battery Display Processing Features Index Life Size Power Price Period 0 1.89 4.1 0.83 4.13 3.95 3.41 1.30 Period 1 1.83 4.96 22.52 0.81 5.11 Trend +ve +ve -ve +ve +ve Rounded 8 8 45 23 45 . No.24 2.99 45.87 5. 7.75 5.2 0. The characteristics are calculated as. there are two methods.47 Calc Char.78 44.1 0.13 3.1 Est Period 2 (TREND) Gradient/Direction (LINEST) To calculate the characteristics from the Ideal Values. Range method Knowing the ideal value is on a scale from 1 to 7. 75 45.25 306.Note.87 5. of Design Battery Display Processing Features Index Life Size Power Price 1. as the range is unknown. the above can’t be used for price.72 22.47 3.90 7. 6.52 44. No.13 3. Trend method The second method is to trend ALL market product brand perceptions vs.52 Char.28 2.25 Trend +ve +ve -ve +ve +ve +ve Rounded 7 8 45 23 45 307 Ideal Char. Similarly. Calc . the following characteristics are calculated. the Excel TREND function can be used. product characteristics.83 4. Plotted is the market forecast of each segment with an exponential trend line. since price increases are more dramatic at the higher-end of the scale. forecasted additional three periods in the future. secondly. but the first range method was slightly over. the Recommended Retail Price (RRP) can also be calculated. Segment Equation Total over 8 periods . of Features’. establishing segment dominance and control which makes it difficult for competitors to enter the segment. get into these segments early.Using this method. The only difference between the two methods is the ‘No. it may be worth using an Exponential trend rather than Linear. Shoppers and Savers clearly have the highest market growth in this example. which rounded it up to an 8. Market Forecast Start by looking at the market forecast. the high-volumes help to decrease unit costs over time. determine which segments are the high-growth segments. of Features’ value. Integrate the equations between period 0 and 8 to get total volume. In this example it may be worth using a 7 for the ‘No. and it can be seen that both values were hovering around 7. This has two benefits. 717 Shoppers y = 176438e0.505 One thing to consider is these two segments also have the smallest margins.1738x 4.654.251 Professionals y = 160089e0.Explorers y = 231764e-0. An estimated simple Contribution Margin can be calculated using Recommended Retail Price minus Base Cost for each existing product.029x 1.868.733.148 Savers y = 280506e0.376. The summation of market share of each product multiplied by the calculated CM of each product gives as estimated CM per market segment.865 High Earners y = 146295e0.637.1815x 2. CM Explorers 262 Shoppers 221 Professionals 299 High Earners 286 Savers 199 . Product Est.1414x 2.2592x 4. Semantic scales will be discussed in more detail next part. When semantic scales are available from period one. we get the following segment total CM.Using the total volume of each segment multiplied by CM of each segment. we can associate price perceptions to actual prices. adding in an exponential trend gives a rough price perception to actual price equation. . CM = Product 147. the estimated contribution margin per segment can be calculated. Segment Ideal Values RRP = 147. Est.77e0.839 124 Shoppers 288 120.77e0.1955x Explorers 3.7 449 High Earners 5. With the estimated segment product cost and estimated base cost.Using ideal values for each segment.3 420 Savers 2.1955x Est.5 294 Shoppers 3. Base Cost Est.3 231 An estimated base cost for each segment can be determined by summing the products of individual product’s base cost and individual product’s segment market share.4 288 Professionals 5.982 167 . we can get a rough price for each segment. Total CM Explorers 294 169. Professionals 449 211. It can be seen that Shoppers and Savers are still the higher earning segments. It should be noted that spending more budget in a Market Segment naturally increases the market segment size. Companies moving into the high-growth segments will naturally fuel the segment’s growth in a virtuous circle.426 237 High Earners 420 200. the Professionals and High Earners segments. plotting the total contribution of each market segment calculated by the segment CM multiplied by the total segment size. as expected. Finally.058 220 Savers 231 74. while the abandoned low-growth segments continue to die in a vicious circle. MARKETING Segmentation . have the highest contribution margins. though the contribution growth is slightly slower. even though Professionals and High Earners have higher contribution margins.964 156 Again. unless you are launching a new product. aim to at least match or trump your segment competitors total advertising spend in order to gain greater market dominance. The estimated advertising expenditure is extremely useful for determine competitor advertising spend. I haven’t found it necessary to ever use No Objectives. but about 10% of the total is added to each individual segment. if you want to match your product to ideal price you would change the price directly. Targeting a single segment makes it easier to target your product for that specific segment. The estimated commercial team is spot on in number. with semantic scales you are limited to a maximum of two of the five characteristics. the segment that will return the largest contribution. If that makes sense. Estimated Expenditures The total estimated advertising expenditure is correct. Advertising I have found that advertising is more important than commercial team. and then change the consumers perception of the price back to their ideals. You can change the perceptions of price. It is easier to use multidimensional scaling compared to semantic scales since with multidimensional scaling you can alter multiple dimensions at the same time.Target one product for one market segment only. early on it may be tempting to target multiple segments. . this shouldn’t matter too much since it can be assumed competitors will be targeting one product per segment. Since each segment has a different ideal characteristic product. If there are two competitors. particularly due to initial market share in many segments and purchase intentions in multiple segments. as well as competitor target segments. aim to match their total spend. if budget permits of course. Make a decision to target the single segment. normally. or simply. Depending on your strategy. use the perceptions of price when you want to increase price. the advantage of changing the price perceptions is you can increase the price above the segments ideal price. but over the entire market. this contradicts the Experiments which I will discuss below. A possibly reason is commercial team isn’t segment specific. I have contacted StratX to try and determine how they calculate estimated change in contribution. you are changing the perception of the entire products market. I will attempt show how it is calculated below. . I have observed a team with a third more commercial team not gain any additional market share. which is never the case.Note. so whilst they may be a large difference between you and a competitor. Commercial Team Commercial Team possibly reaches a maximum. With commercial team. where any additional persons provide no additional benefit. other competitors are changing those perceptions. which is roughly calculated as Average Selling Price minus Average Unit Cost multiplies by the additional units sold (the addition of each segment of the Expected Change of Unit Market Share multiplied by the current period’s Market Size) subtract 20% of the current periods total Advertising spend. it is critical to distribute the commercial team using the Shopping Habits of the target segment. when you change a perception of a characteristic. An estimated expected change in contribution is provided. but they didn’t provide a definite answer. Though. over the larger market the difference is small. Though. This is why some ideal perceptions change dramatically. “Change in Contribution is equal to Expected additional revenues minus Additional costs of advertising or commercial team. it assumes the competitor actions remain the same. Advertising Experiment The Advertising Experiment calculates the increase in market share if advertising for a product was increased by 20%. Experiments The marketing experiments are useful for determining how to proportionate your budget. the market share was exactly proportional to advertising spent instead. 0% 0. What this means is. which explains why the units market share is higher (the indirect relationship).Commercial Team Experiment Similarly. when 10 persons are added to a distribution channel with low number of distributors compared to that with a high number of distributors. This suggests that the Expected Change in Units Market Share is relevant to that specific distribution channel only.000.4% 0.2% 19% 63% 18% Expected Change in unit Market Share (%U) Shopping Habits of Savers Total . in that. it is roughly $25. even though the percentage increase in Expected Change in Unit Market Share is the largest for a particular distribution channel. using Savers segment as an example. It even makes more sense. the increase in persons is a higher ratio. Mass MARKET : SONITES : Specialty Merchandiser Online SAVERS Stores s Stores 0. The cost of 10 persons can be calculated using the market research. The contribution of each distribution channel can be calculated as follows. The Expected Change in Number of Distributors is indirectly proportional to the Expected Change in Unit Market Share. the Commercial Team Experiment calculates the increase in market share if the commercial team was increased by 10 persons in each distribution channel. it doesn’t necessarily mean that is the distribution channel which should have the additional 10 persons. This is where I haven’t got a definitive answer. It is also a good indication on where to decrease budget spend and even where you have overspent.000 0 444 1.068 761.236 157.360 Expected Change in Savers units 916 CM (average selling price minus average unit cost) 116 Expected Change in Contribution 105.831 0 51.136 221. In other cases. It is important to apply the conditional formatting over each market segment individually.212.000 -250.000 Proportioning Budget Performing the above analysis on all products in all markets will give you an indication of where budget should be spent to maximise returns. Competitor analysis In most cases Excel’s Conditional Formatting Colour Scales is all that is required.796 1.067 Cost of 10 persons -250. Advertising . Using the experiments is only one indication. a little bit of work is required. not the entire market. the square root of the sum of squared differences can be used to determine the distance between two points. and should be used with previous competitor actions to determine the optimal strategy. Excel makes this calculation easy with the SQRT(SUMXMY2()) formula.000 -750.000 -250. in many cases this can be used to calculate how close a competitor is to ideal values. For the below examples blue is segment targeted.Savers next period Expected Market Size 229. the exact commercial team size per channel of the competitors’ products can be determined. Commercial Team Using the Estimated Commercial Team Size (in full-time equivalent). Converting the distribution between each channel to a percentage. Semantic Scales Similar can be done to semantic scales. which provides an indication to which products are ideal for the market segment. which product has a more ideal commercial team distribution to meet a particular segment. . The two tables to use in the calculation are Brand Perceptions and Ideal Values. The results show which company is targeting their products to which segment.Advertising competitor analysis is the easiest. the Estimated Advertising Expenditures (in thousand dollars) gives a good indication to which company is targeting which segment. Using Excel’s SQRT(SUMXMY2()) we can get the difference between the ideal distribution and the actual for a particular product and segment. But more importantly. A lower value means closer ideal and actual. it can then be compared against the Shopping Habits found in the Consumer Survey. especially since the product would not meet ideal values. Vodites market. This makes it very easy to upgrade the product as soon as a competitor enters the market. . if a competitor happens to enter the market at the same time as you. Though you still need to maintain ad spent to increase the market size. Ignoring the values.Multidimensional Scaling Similar to Semantic Scales. the same can be done for Multidimensional Scaling. However. then you won’t gain any market share. as long as you are the only product in the market. The trick is to enter with the basic and least expensive product. The second advantage to entering the market with a basic product is when it is time to R&D the upgrade. My main view is to be the first to enter the market. The ad spend doesn’t have to be very high since there would be no competitors. you will notice significant (more than 50%) reduced costs. Change Multidimensional Scaling Perceptions and you change Semantic Scales perceptions and vice versa. the consumers will have no other choice but to purchase your product. what is interesting is how similar the Multidimensional Scaling is to Semantic Scales seen through the similar shades of colours. People said buy all the reports. Trying to target more segments with one products will be the disadvantage for the long run. Map out your team decisions. their prices. Do not go with “I think we should”. Innovators and Early Adopters. Use your resources: talk to the professor early in the period. and based costs . Don’t be afraid to take short term losses for long term gains. and tedious. o Market Report: shows how much product did other teams sold. thus predict their next steps. A product should only target one segment.000 or five times the base cost. Be creative but smart about your decision.Target the largest markets first. and numbers to support it. That’s vague and dangerous. This will helps you analyze and predict what the competitors are up to. Make an excel sheet to keep all the data about the competitors. Dos and Don’ts in Markstrat: Read the manual: even though it is long. have data. Too many products without management will decrease the market share in the long run. Do not be afraid that your product won’t be good enough. Take a risk. Make sure that you have enough money to keep your product in the portfolio competitively. so do not get too comfortable with the initial success. You can always change it later through R&D. Continually have R&D to improve the products because the PRODUCT LIFE CYCLE in Markstrat is real. A rough estimate for RRP for a Voditie product on launch is $1. If you are the only competitor. or others who already played this game. you may be able to charge even more. Performances in the later periods determine your win or loss. Be the first one in the Vodite market. they will also pay a premium for your products. Know why you are doing what you doing. A couple of research reports I suggest buying are: o Industry benchmarking: you will be able to see what other teams spend on R&D. Consumer’s awareness and perceptions are the most important factors to gain the market share in the Vodite market. But I think it is redundant. IT IS THE BEST GUIDE to SUCESS. o . o Market Forecast: Helps you calculate production plan.Consumer Panel: shows the market share each product gains in each o segment. ( I will have more detail on how to calculate this next blog) o Competitive advertising and competitive commercial teams: shows how much competitors spend on these two categories. Distribution Panel: market share per distribution channel. Help you determine how much you should spend to gain more market share. This will help to allocate the commercial team o Semantic Scales: Brand perceptions. important characteristics that consumers want.