1. Copyright 2001 Ernest R. Cadotte Using the Marketplace simulation Benoit Duguay STLHE Conference June 17 2004

2. Copyright 2001 Ernest R. Cadotte Copyright  Almost all slides of this presentation have been originally created by Ernest R. Cadotte.  For the purpose of presenting the Marketplace simulation at the 2004 STLHE annual conference, most slides have been reformatted and some modified, sometimes created, by Benoit Duguay.

3. Copyright 2001 Ernest R. Cadotte Marketplace is Realistic  It brings to life marketing concepts, principles, and ways of thinking.  You do what your real-life Managers do: Design brands Design ad copy Schedule media Set selling prices Hire and train sales people Worry about profits

4. Copyright 2001 Ernest R. Cadotte Marketplace is Organized  The game scenario follows the logical process of starting up a new product line.  You are guided through the decision- making process.  Detailed help files are available at the touch of a button.

5. Copyright 2001 Ernest R. Cadotte Learning Strategy: Learn by Doing  You learn about all aspects of marketing by managing a simulated marketing department.  The Marketplace scenario follows the life cycle of a new product.  Marketing decisions are introduced as they become relevant in the evolution of the product.

6. Copyright 2001 Ernest R. Cadotte Key Benefits  Develop teamwork across marketing functions.  Promote better decision making by helping you see how your marketing decisions are interconnected and need to be managed as a whole.  Facilitate learning of important marketing concepts, principles and ways of thinking.  Develop marketing planning and execution skills within a rapidly changing environment.  Instill a bottom line focus and the simultaneous need to deliver customer value.

7. Copyright 2001 Ernest R. Cadotte Key Benefits (continued)  Crystallize the financial implications of marketing decisions by linking them to cash flows and bottom-line performance.  Discover how important it is to use market data and competitive signals to adjust the strategic plan and more tightly focus business tactics.  Build marketing confidence through knowledge and experience.

8. Copyright 2001 Ernest R. Cadotte Simulation Pedagogy  Create a microcosm of the firm by including all key business functions – students must manage a whole firm.  Start at beginning of story – a new venture.  Gradually layer in new decision content as it becomes relevant in life of firm – a natural progression that is more intuitive.  Frequently repeat difficult decisions in order to set important concepts, principles and ways of thinking into the students’ natural thought process.  Create a storyline that is interesting and relevant to the student in the role of an entrepreneur.

9. Copyright 2001 Ernest R. Cadotte Simulation Pedagogy (continued)  Reinforce a process for making good decisions: Present a logical order to the decisions to be made Present relevant information before a decision Link decisions to cash flow and profitability  Encourage a balanced perspective on the management of the firm: the Balanced Scorecard  What drives the learning process? Competitiveness is in our genes Ownership of a business

10. Copyright 2001 Ernest R. Cadotte The Balanced Scorecard  Based upon : Financial Performance (profit as percent of sales) Market Performance (market shares in 2 target segments) Marketing Effectiveness (customer satisfaction with brand and advertising designs in 2 target segments (scored 0 to 100) plus unit sales per sales person) Investments in the Future (spending on new offices and research and development as percent of sales) Creation of Wealth (total profit/total investment)

11. Copyright 2001 Ernest R. Cadotte Why Use a Balanced Scorecard?  It is too easy to get caught up in market share and short-term profits.  Long-term viability requires that managers also deliver customer satisfaction and invest in the future.  The balanced scorecard measures both the long-term and the short-term.  The best managers will be good in all measured areas.

12. Copyright 2001 Ernest R. Cadotte Each quarter, each team is presented with a Balanced Scorecard. The goal is to rank the highest in Total Business Performance in Q8.

13. Copyright 2001 Ernest R. Cadotte Scores can be compared against industry standards.

14. Copyright 2001 Ernest R. Cadotte Instructor’s Role  Coach  Mentor  Devil’s Advocate

15. Copyright 2001 Ernest R. Cadotte Delivery of Learning Content  Lectures Few lectures Overview of decisions and learning points Software demonstration of decisions and information Key concepts, principles, ways of thinking  In depth treatment Help files Storyline and task description Cadotte and Bruce textbook

16. Copyright 2001 Ernest R. Cadotte Development of Critical Thinking Skills  Discussion and debate within each team  Instructor interaction with teams: Meetings Contact through email

17. Copyright 2001 Ernest R. Cadotte Tools to Help Instructor  Flash demos for training participants on signing up, use of software and overview of game  Instructor Guidelines for creating and managing a course  Online coaching tips  Power Point presentations for training  Balanced Scorecard for grading or awarding a winner  Online survey, testing, and peer evaluations

18. Copyright 2001 Ernest R. Cadotte Tools to Help Instructor (continued)  Online access to all team and student information  Hold and release option : check results before release if unhappy, can ask support to adjust demand which could change outcome  Diagnostic Coaching System to drill down into causes of a team’s strengths and weaknesses

19. Copyright 2001 Ernest R. Cadotte Game Scenario  You work for a large international electronics firm.  Corporate Headquarters wants to enter the personal computer business.  You have been selected to head up the new marketing division to sell computers into Asia, North America, and Western Europe.  Several other international firms are entering the market at the same time.

20. Copyright 2001 Ernest R. Cadotte Game Scenario (continued)  Your marketing strategy will be tightly focused on direct sales to business customers: You will not sell to the home market or through retail stores. You will sell through company-owned sales offices in major metropolitan markets around the world.  The market is structured into five segments.  As the quarters progress, you decide how you want to expand your international market coverage.

21. Copyright 2001 Ernest R. Cadotte How is the marketing game conducted?  Teams are placed in a game scenario in which they start up and run a new marketing division.  The opposition can be played out by computer- generated competitors or other student teams.  At the outset of each quarter, teams receive information on the current situation.  The current situation is evaluated, strategy formulated, and tactics set in placed.  Tactical decisions are fed into the marketplace simulator, along with decisions of opponents.  Results of decisions are fed back to teams.

22. Copyright 2001 Ernest R. Cadotte Funding  The initial funding is 2,000,000 which is being invested by Corporate Headquarters in 500,000 increments over the first 4 quarters.  Corporate Headquarters will provide another 5,000,000 in Quarter 5 if it approves your marketing plan for the second year.

23. Copyright 2001 Ernest R. Cadotte  Marketing plan  Report to Corporate Headquarters  Strategic thinking and tactical execution  Market performance: Profitability Customer satisfaction Market share in targeted markets Investments in the firm’s future Creation of wealth for Headquarters Total Performance Evaluation

24. Copyright 2001 Ernest R. Cadotte Suggested course evaluation  Individual Quiz10%  Presentation of initial Marketing plan10%  Formal Marketing plan25%  Company performance25%  Presentation of company results10%  Critical evaluation of simulation20%

25. Copyright 2001 Ernest R. Cadotte Sequence of Key Activities  Startup phase (Q1 to Q4) Organize the team and learn to work together Learn the business Test the market  Transition phase Q5 Prepare Business Plan to accelerate growth Present Business Plan to and negotiate equity investment with Corporate Headquarters  Growth phase (Q6 to end) Execute Business Plan Skillfully adjust tactics in response to unforeseen problems and opportunities

26. Copyright 2001 Ernest R. Cadotte Quarter 1 Organize the Business

27. Copyright 2001 Ernest R. Cadotte Learning Points for Quarter 1  Managing the team  Organizing the work  Deciding what one wants from the learning experience

28. Copyright 2001 Ernest R. Cadotte Tasks for Quarter 1  Name the company  Assign organizational responsibilities  Purchase survey of end users

29. Copyright 2001 Ernest R. Cadotte Marketing Team  Each team member assumes a tactical area of responsibility: Overall leadership Brand management Advertising Sales office management  Everyone is responsible for marketing research and profit management.

30. Copyright 2001 Ernest R. Cadotte Before you Wrap Up your decisions, a quality check is done by the independent auditor to help prevent common mistakes.

31. Copyright 2001 Ernest R. Cadotte 1-Alpha 2-Bravo 3-Charlie 4-Delta 5-Echo 6-Foxtrot 7-Golf 8-Hotel 9-India 10-Juliet 11-Kilo 12-Lima 13-Mike 14-November 15-Oscar 16-Papa 17-Quebec 18-Romeo 19-Sierra 20-Tango Teams, login & password Email (login name): abc@def.com Password: Company name (lower case) eg alpha

32. Copyright 2001 Ernest R. Cadotte Q1 decision

33. Copyright 2001 Ernest R. Cadotte Quarter 2 Establish Strategic Direction

34. Copyright 2001 Ernest R. Cadotte Learning Points for Quarter 2  Market opportunity analysis  Segmentation and target marketing  Strategic and tactical planning  Competitive positioning  Brand design: Linking product features to customer benefits Finding the customer’s response functions

35. Copyright 2001 Ernest R. Cadotte Tasks for Quarter 2  Analyze market information  Establish strategic direction: Select 2 target segments Decide on competitive posture  Set up shop: Develop distribution strategy: open initial sales offices for test market Design 2 brands, 1 for each target segment

36. Copyright 2001 Ernest R. Cadotte Market Segments Price Performance Cost Cutter Work Horse Traveler Innovator Mercedes

37. Copyright 2001 Ernest R. Cadotte Each market segment has its own set of needs.

38. Copyright 2001 Ernest R. Cadotte Select two segments to target initially. As the game progresses, you may also sell to other segments. For example, the Traveler segment might be selected.

39. Copyright 2001 Ernest R. Cadotte Once you select a segment, you must design a brand to meet the needs of that segment. What features would make a computer more attractive to the Traveler segment?

40. Copyright 2001 Ernest R. Cadotte  Customers buy benefits, not features…  But benefits are derived from features  Translate wants and needs into specific features  Is more speed, software applications, memory, keys on the keyboard, etc. always valued?  Could “more of some feature” even make a customer unhappy?  Which response functions apply to the market segments you have selected? Brand design

41. Copyright 2001 Ernest R. Cadotte Deduce the market’s many response functions Like Dislike LessMoreLessMoreLessMore LessMoreLessMoreLessMore Like Dislike Like Dislike Like Dislike Like Dislike Like Dislike

42. Copyright 2001 Ernest R. Cadotte Q2 decision

43. Copyright 2001 Ernest R. Cadotte Quarter 3 Go to Test Market

44. Copyright 2001 Ernest R. Cadotte Learning Points for Quarter 3  Execution of a coherent strategy  Management of cash in the face of great uncertainty  Learning to walk before you run  Marketing strategy - coordinating a host of tactics  Pricing - balancing costs, profit, what the market will bear, and competition  Advertising - deciding what to say, how to say it and how frequently to say it  Sales force - hiring and targeting the sales staff  Testing the market - discovering the market’s many response functions

45. Copyright 2001 Ernest R. Cadotte Objective The Goal is to Maximize Learning and Not Profits

46. Copyright 2001 Ernest R. Cadotte Tasks for Quarter 3  Set selling prices  Develop advertising campaign: Design 2 ads, one for each brand Determine number of placements per ad  Develop distribution strategy: Hire sales force for quarter Open new sales offices for Q4  Test Market: Contract for market research on customers and competition Check pro forma financial position

47. Copyright 2001 Ernest R. Cadotte How to Set Price?  Costs (production, marketing, overhead)  Profit goals  What the market will bear  Competition

48. Copyright 2001 Ernest R. Cadotte In the beginning, your revenues will not cover all your costs  There are many startup costs which will exceed your revenues.  Your production volumes will be very low, resulting in high per unit costs.

49. Copyright 2001 Ernest R. Cadotte Profits will come later Profits come later.You are here. Profit Profits 0 Time Costs to setup & grow the business Revenue + -

50. Copyright 2001 Ernest R. Cadotte Your goal is to speed up the adoption rate Demand Time Introduction Growth Maturity Decline You are here (High costs-low demand)

51. Copyright 2001 Ernest R. Cadotte What Will the Market Bear? You must discover the market response function regarding price.

52. Copyright 2001 Ernest R. Cadotte What is the market’s price response function? Your Demand Your Price Elastic (demand drops fast with increasing prices) Inelastic (price is not a big factor)

53. Copyright 2001 Ernest R. Cadotte Maybe it looks like this? Your Demand Your Price Demand drops slowly with small price increases and then drops dramatically with larger price increases

54. Copyright 2001 Ernest R. Cadotte How will the market respond to competitor prices? Your Demand Competitor’s Price Low competitor prices will kill your demand

55. Copyright 2001 Ernest R. Cadotte You set the brand price, any rebate you wish to offer, and designate the sales priority.

56. Copyright 2001 Ernest R. Cadotte How to Create Ads? Order of priority tells the ad agency what to stress in the ad and implies importance of message to customer. Low price Easy to use More productive Fast Office applications Picture office workers Most Important Least Important

57. Copyright 2001 Ernest R. Cadotte How much to say in an ad? (Number of benefits?) Which response function is at work? More is good to a point and then ceases to add excitement Like Dislike LessMoreLessMore More adds value to a point & then takes away value Like Dislike

58. Copyright 2001 Ernest R. Cadotte How often do you advertise? Your Demand Number of Ads Diminishing returns Too little

59. Copyright 2001 Ernest R. Cadotte But it also depends on what your competitors do. Your Demand Competitor’s Advertising Strong competitor advertising will steal away your customers

60. Copyright 2001 Ernest R. Cadotte Design ads to appeal to your target segment. You select the benefits to mention in the ad and indicate their order of priority. You decide which brand will be featured in the ad.

61. Copyright 2001 Ernest R. Cadotte How many sales people? Your Demand Number of Sales People Too many Diminishing returns Too few

62. Copyright 2001 Ernest R. Cadotte The response function is dynamic! Shift the response function upwards with better brands, prices, advertising, web tactics, sales force placement and compensation Your Demand Number of Sales People

63. Copyright 2001 Ernest R. Cadotte Immediately after processing, you find out how profitable the division was in the previous quarter.

64. Copyright 2001 Ernest R. Cadotte You can see your market share by segment and for the whole market. Your company is Traveler.

65. Copyright 2001 Ernest R. Cadotte The market research shows how satisfied each segment is with your designs and those of the competition.

66. Copyright 2001 Ernest R. Cadotte If a brand is not doing well, compare it to the higher rated brands in that segment and redesign the brand. Your brand Higher rated brand

67. Copyright 2001 Ernest R. Cadotte You are also given a profit analysis of each brand so that you can adjust your brand strategy.

68. Copyright 2001 Ernest R. Cadotte Q3 decision

69. Copyright 2001 Ernest R. Cadotte Quarter 4 Skillfully Adjust Strategy

70. Copyright 2001 Ernest R. Cadotte Learning Points for Quarter 4  Using the tools of management: Market feedback Competitive benchmarking Profitability analysis (activity based costing)

71. Copyright 2001 Ernest R. Cadotte Learning Points for Quarter 4 (continued)  The management of strategy: Learning from your customers Learning from your competition Learning from your financial information Skillfully adjusting your strategy and tactics  Management of financial resources

72. Copyright 2001 Ernest R. Cadotte Q4: Evaluate Performance  Check customer reaction to brands, prices and advertising  Check financial performance  Check out competition: Strategic direction Tactics Market’s response to their prices, brands, ads

73. Copyright 2001 Ernest R. Cadotte Q4: Skillfully Adjust Strategy  Adjust as needed: Strategy Brand designs and prices Advertising Sales office locations Sales force management  Check finances

74. Copyright 2001 Ernest R. Cadotte Measures of Customer Satisfaction  Brand judgment (0 to 100)  Price judgment (0 to 100)  Ad judgment (0 to 100) 100 indicates complete satisfaction. 70 would be a good initial brand and ad rating. New technology will be available in Quarter 5. The new features will make customers happier and yield higher ratings. Price ratings should be near 100 in all quarters.

75. Copyright 2001 Ernest R. Cadotte Goal of Monitoring Customer Satisfaction Give the customer what they want and do so better than the competition.

76. Copyright 2001 Ernest R. Cadotte Deduce the market’s many response functions Hot Cold LessMore Hot Cold LessMore Hot Cold LessMore Hot Cold LessMore Hot Cold LessMore Hot Cold LessMore

77. Copyright 2001 Ernest R. Cadotte Based upon customer feedback skillfully adjust marketing tactics  Revise brand designs or create new ones  Revise ad copy  Adjust prices  Hire more sales people or deploy them differently Add or take away elements to find the sweet spot in the customer’s response function.

78. Copyright 2001 Ernest R. Cadotte Competitor Benchmarks  Brand and ad designs  Prices and sale priorities  Sales staffing  Ad placements  Demand by brand by segment

79. Copyright 2001 Ernest R. Cadotte Goals of Competitive Benchmarking  Reverse engineer the strategy of each competitor  Determine who is a threat and who is not  Determine strengths and weakness of competition  Emulate good decisions  Predict direction of competitive moves  Adjust strategy and tactics in reaction to competitor strengths and weaknesses and in anticipation of future moves.

80. Copyright 2001 Ernest R. Cadotte Financial Performance  Division profitability  Brand profitability  Region profitability  Return on investment

81. Copyright 2001 Ernest R. Cadotte Goals of Financial Management  Discover which brands and markets are making the greatest and weakest contribution to the bottom line.  Deploy resources to correct weaknesses and take advantage of strong performers.

82. Copyright 2001 Ernest R. Cadotte Measurement of the Firm’s Performance The Balanced Scorecard

83. Copyright 2001 Ernest R. Cadotte Q4 decision

84. Copyright 2001 Ernest R. Cadotte Benoit Duguay duguay.benoit@sympatico.ca Telephone office 51.49.87.30.00 #8171 Telephone residence 45.04.61.16.97