1 Introduction “I hear and I forget. I see and I remember. I do and I understand.” Confucius

2 Decisions >You make decisions given competitor past, current and future decisions >You are responsible for the firm’s decisions >Decisions should be an adventure, not a chore

3 Firm Operation >Keep a record of all decisions made and results. This record will come in handy when you prepare your marketing and advertising plans in a few weeks. It will help you prepare your Director Memo at the end of the semester. A hardcover lab notebook works great for this purpose.

4 Budgeting >Each firm must submit budget using Excel to reproduce the information contained on the Financial Summary/Pro Forma form in the appendix of The Marketing Game

5 The Role of the Marketing Game >The Game offers unique learning advantages, compared to other learning approaches (like reading texts and articles, lectures, guest speakers, case analysis and presentation, projects) because it: >Is dynamic, like most business situations. >Brings the competitive aspects of marketing to life. >Highlights the need for integrative planning based on qualitative and quantitative analysis of the market environment.

6 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.

7 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

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

9 Six Key Product-Market Segments Harried Assistants Home Users High-tech Managers Modern Students Professional Creators Concerned Parents Segments have different needs, preferences, situations, sizes, growth rates.

10 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.

11 Product 1: Voice Recognition Device (VRD) Key Product Features Error Protection (1-10) Number of Special Commands (5-20) Ability to Customize (1-10)

12 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…

13 Product 2: Digital Vocal Communicator (DVC) Key Product Features Similarity of Commands (1-10) Number of Tasks (1-10) Ease of Learning (1-10) Level 3

14 Types of Advertising >Pioneering >Direct competitive >Indirect competitive >Reminder >Corporate (Institutional)

15 Expanded Marketing Responsibilities (Level 3) 2 PRODUCTsFeatures (and R&D for product modifications) PRICEWholesale price in each channel for each product PLACEDistribution intensity by channel, product PROMOTION -Advertising$ Spending for each product Type for each product -Personal sellingNumber of sales reps in each channel Percent non-selling time in each channel Commission rate -Sales promotion$ Spending per channel, product CUSTOMER SERVICE$ Spending MARKET RESEARCH 7 reports may be purchased Demand forecast/ production orderNumber of units for each product

16 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.

17 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

18 Discretionary Budget >Policy on initial discretionary budget. >Unspent money carries to future periods and earns interest. >“When it’s gone, it’s gone.” >Policy on special budget requests.

19 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

20 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.

21 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.

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

23 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

24 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

25 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

26 Market Research Reports (Level 3) >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 Note: separate reports are available for each product, Except for the consumer shopping habits study

27 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?

28 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

29 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?

30 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

31 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?

32 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 ?

33 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?

34 The Marketing Game