1 The Marketing Game Introduction Dr. Gerald Smith MK-719

2 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.

3 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 Next Decision period

4 Industry Environment >Market growth >Technological environment  No major innovations expected  Yearly revision cycle >Competitive environment  Type of competition depends on firms’ decisions

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

6 Past Sales By Market Segment For Voice Recognition Device

7 Competitor Analysis >Estimate competitor’s net contribution >Analyze past strategies & likely changes. >Evaluate positioning and target segments. ? X X X ? ? X Firms Segments

8 Expanded Marketing Responsibilities (Level 2) PRODUCTFeatures (and R&D for product modifications) PRICEWholesale price in each channel PLACEDistribution intensity in each channel PROMOTION -Advertising$ Spending Type -Personal sellingNumber 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 Purchased Demand Forecast/ Production orderNumber of Units

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

10 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

11 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.

12 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) = $ 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

13 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.

14 R&D for Product Modifications: Computing Costs FeatureCost to DecreaseCost 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 Commands68+2 $8,000*2*2=$32,000 Error Protection43 $0 Ease of Learning35+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…

15 Industry Sales Report BrandUnit SalesShare (units)$ Sales (retail) Firm 1 25, $4,292,964 Firm 2 25, $4,292,964 Firm 3 25, $4,292,964 Firm 4 25, $4,292,964 Total100,604$17,171,854 ChannelUnit SalesDollars Sales 156,296$10, ,308$6,475,614

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

17 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 10 5% $92,500 Firm 2 $250,000 $0 10 5% $92,500 Firm 3 $250,000 $0 10 5% $92,500 Firm 4 $250,000 $0 10 5% $92,500

18 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

19 TMGPlan Software Easy to use for preparing and evaluating plans, managing reports Select directory Enter Plan Decisions Evaluate spending and profit forecast View, print, and manage password protected reports

20 Market Share by Segment Report Brand Firm 1 Firm 2 Firm 3 Firm 4 Total Sales (units) , , , , , ,092 Segment Who’s selling to whom? Who’s buying what? What is each firm achieving? Which segments are buying?

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

22 Consumer Preference Study Segment Students Home Assistants Creators Managers Parents Special Commands Error Protection Ease of Learning Price Range low high low What kind of product would a segment prefer? What reference price seems typical for the segment? How are segments similar and different?

23 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 % % Competitors with lower Index 0 Competitors with equal or higher Index 3

24 Detailed Sales Analysis Firm Channel 1 Channel , ,109 3, ,602 1, ,808 1, ,363 1, ,086 1,074 Segment Unit sales by segment and channel Are you reaching your target?

25 Detailed Sales Analysis Firm Channel 1 Channel , ,109 3, ,602 1, ,808 1, ,363 1, ,086 1,074 Segment Unit sales by segment and channel Are you reaching your target?

26 Customer 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 ?

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