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Exercise 6.7: The Choice Pipeline Exploring how marketing spend develops consumers through stages, leading to growing sales and profits This exercise supports.

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Presentation on theme: "Exercise 6.7: The Choice Pipeline Exploring how marketing spend develops consumers through stages, leading to growing sales and profits This exercise supports."— Presentation transcript:

1 Exercise 6.7: The Choice Pipeline Exploring how marketing spend develops consumers through stages, leading to growing sales and profits This exercise supports Figure 6.7 in chapter 6 of the textbook ‘Strategic Management Dynamics’ by Kim Warren, from J Wiley & Sons, featured in class 6 of the course. STRATEGIC MANAGEMENT DYNAMICS Kim Warren

2 © Copyright Kim Warren, All rights reserved. The model to which these instructions refer - ‘Figure 6.7 Exercise Choice Pipeline.msf’ – can be found at The model requires the mystrategy™ software – a Reader version can be downloaded from The model can be run with the Reader version, but results cannot be saved Instructions on fully licensing the software can be found on the Help menu After installing mystrategy: Start mystrategy and open the model Read the following pages before working with the model ™ ‘mystrategy’ is a registered trade mark of Global Strategy Dynamics Ltd. The model …

3 © Copyright Kim Warren, All rights reserved. Your challenge. You have been asked to launch the brand in Europe where there are also 50 million potential consumers. Can you spend the marketing budget better, to win more consumers over 3 years, become more profitable, and make enough profit to get back all the marketing you spend, i.e. cumulative-positive cash by the end of 36 months? Background. Your company launched a premium coffee brand in North America 3 years ago. Estimated potential consumers = 50 million Marketing spend was $20m/month over 3 years This marketing was split equally [$20m/month] across four elements -mass advertising to make consumers aware of the brand -further targeted advertising to make them understand and interested in the brand -trial promotions to make interested consumers start buying the brand -loyalty promotions to make otherwise disloyal consumers choose this brand for every purchase The brand won more than 35m consumers over 3 years … and became profitable, but cumulative profit was still negative - i.e. it has not made back in total profits all the marketing spent to launch it Building a consumer brand, e.g. a premium coffee

4 © Copyright Kim Warren, All rights reserved. The outcome of the N America marketing launch [ Dashed line indicates total aware consumers – solid line indicates those who are aware, but not interested or buying. ] Can you spend money better than this … to make more profits sooner? Can you spend money better than this … to make more profits sooner? Can you spend money better than this … to make more profits sooner? Can you spend money better than this … to make more profits sooner?

5 © Copyright Kim Warren, All rights reserved. You can spend a maximum of $10million per month on each of the four types of marketing … so a maximum of $40m/month, but no more than $10m on any of them. Within this limit, you may spend more or less than the N American launch cost of $20m/month Spending decisions are committed for 6 months at a time. Rules …

6 © Copyright Kim Warren, All rights reserved. Running the model … Click ‘  ’ to run all 36 months at once or ‘  | ’ to step through 6 months on each click Click ‘  ’ to run all 36 months at once or ‘  | ’ to step through 6 months on each click The decisions you enter will appear in these small charts – double-click to change the spend decisions [see next page] You must stop the model ‘  ’ before you can make any changes Zoom to change the size of the model in your window. Scroll to move around the model. Hit ‘Home’ key to return to top-left.

7 © Copyright Kim Warren, All rights reserved. Changing the spending decisions … 2. Enter values in the cells for the spending rate you want for each 6 month period – the red chart line will change to reflect these values After double-clicking on one of the four monthly spending decisions: -Mass advertising spend -Values Advertising spend -Spend on trial promotions -Spend on Loyalty Promotions... this ‘Element Set-Up’ will appear. After double-clicking on one of the four monthly spending decisions: -Mass advertising spend -Values Advertising spend -Spend on trial promotions -Spend on Loyalty Promotions... this ‘Element Set-Up’ will appear. 1. Select the Graph tab [do not enter any values in the Equations tab, or the graph’s values will be ignored] 4. Click ‘OK’ to confirm your changes 3. … alternatively, drag the mouse across the chart area – the values in the cells at left will change to reflect this red line Do not alter the vertical scale – the model is only configured to work in a range of $0-10million per month.

8 © Copyright Kim Warren, All rights reserved. Comparing your results … Note the numerical values also displayed The results of running the business with your decisions are shown with a purple line The black line shows results of the original strategy [constant, equal spending rates]. Double-click the large charts and click the ‘Y axis’ button to change the vertical scale [the model need not be stopped] To save the model with your decisions, click File, Save As … [full version of mystrategy only]

9 © Copyright Kim Warren, All rights reserved. Spending no more than $20million per month in total: -what is the earliest time you can make the brand profitable? -what is the best cumulative profit you can make by month 36? Repeat this challenge, spending: -no more than $10 million per month in total -no more than $5 million per month in total The attached planning sheet will be helpful. Further challenges …

10 © Copyright Kim Warren, All rights reserved. Planning sheet for choice pipeline marketing spend plans Spending on each marketing activity: $millions per month Months: Mass advertising Values advertising Trial promotions Loyalty promotions TOTAL

11 © Copyright Kim Warren, All rights reserved. Further information … There are two copies of the model: -the first model, directly below this display runs with your decisions -the second model, below and to the right, runs the default decisions of $5million/month on each activity. There are two copies of the model: -the first model, directly below this display runs with your decisions -the second model, below and to the right, runs the default decisions of $5million/month on each activity. The model itself is below this display area, scroll down to view the model. Zoom to change the size of the model in your window. Scroll to move around the model. Hit ‘Home’ key to return to top-left. Various parameters in the model can be changed, e.g. the total number of consumers, the fraction responding to each $million of marketing, and the fractions moving back down the pipeline each month. Beware of changing these values – badly chosen values may lead to incorrect or meaningless behaviour of the model. Various parameters in the model can be changed, e.g. the total number of consumers, the fraction responding to each $million of marketing, and the fractions moving back down the pipeline each month. Beware of changing these values – badly chosen values may lead to incorrect or meaningless behaviour of the model.


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