StratSimMarketing

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StratSimMarketing
Advanced Intro to StratSim PMBA 623 Dr. Charles
Noble
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StratSimMarketing
Ties It All Together

• Marketing
• Product Development
• Manufacturing
• Finance
• HR

Integrated Long-Term Market-focused
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StratSim Environment

• Based on the Automobile Industry
• Two Markets Consumer Fleet (B2B)
• Consumer market of 150 million people
• B2B market of numerous fleet contracts

• Currently, low GDP and inflation growth rates
• Demand sensitive to GDP, interest rates, and
  decisions that you make as an industry
• Maximum of 10 yearly decisions

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StratSim Environment
The Products Cars Trucks

• Principle Characteristics
• Vehicle Class
• Size
• Engine / Performance
• Interior
• Styling
• Safety
• Quality

and Price
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StratSim Environment

• 7 Product Classes with Existing Vehicles

(E)conomy, (F)amily, (S)ports, (L)uxury,
(M)inivan, (U)tility, and (T)ruck

• Plus two potential new classes if developed

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StratSim Environment

• Competitors 5 Firms (A-E)
• Each firm has 3 vehicles on the market

• ? Alfa (F), Alec (E), Awesome (U)
• ? Boffo (F), Beaut (L), Buzzy (S)
• Cafav (F), Camini (M), Climax (L)
• Defy (F), Delite (E), Detonka (T)
• Efizz (F), Estruck (T), Euro (U)

• Amazing Cars (A)
• Best Motor Works (B)
• Cool Cars (C)
• Driven Motor Co. (D)
• Efficient Motors (E)

• The firms have different strengths and weaknesses
  and are uniquely positioned in the market

Corresponds to Product Class
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Industry Overview
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StratSim Environment

• Competitors 5 Firms (A-E)
• Starting positions on several key performance
  measures

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Consumer Market

• 5 consumer segments (1-5) with different needs
  and class preferences
• Customer Intersection of segment and class
• (e.g., 1T is a value seeker who wants a truck)

Segments Value Seekers (1) Families (2) Singles
(3) High Income (4) Enterprisers (5)
Customers 1E, 1T 2E, 2F, 2M 3S, 3T, 3U 4F, 4L 5L,
5U
New customers may emerge
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Consumer Market
Purchase Process

• Customers have different needs and expectations
  with regard to vehicle characteristics
• Customer consideration set based on product
  class, size, and MSRP

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Consumer Market
Purchase Process

• Customers prefer a particular size vehicle
• Customers prefer a specific engine HP due to the
  trade-off between performance and fuel economy
• Customers prefer better (more) Interior, Styling,
  Safety, and Quality
• Customers weigh this bundle of goods against the
  price charged

Hints Customers may have certain hot buttons
or attributes that are particularly important to
them, and some customers may be more price
sensitive than others.
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B2B Market (optional)

• New Opportunity in direct sales to Fleet Buyers
  
• Rental Car Fleets (6) (e.g. Hertz)
• Delivery fleets (7) (e.g. FedEx)
• Other (8) (e.g. Govt)
• Note Segments designated 1-5 are consumer
  customers
• Segments designated 6-8 are B2B customers.
• B2B Customers have a very different purchase
  process from Consumer Market.
• Guaranteed sales are awarded to firms who meet
  contract requirements, preferred supplier status
  (2x sales) awarded to low cost supplier who meets
  contract requirements.

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B2B Market (optional)

• Example Cheapy Stus
• To qualify, you must offer an economy vehicle
  with size 1-20, HP between 65-115, Interior,
  Styling, Safety and Quality greater than or equal
  to 1.
• Must have dealer coverage of more than 40 in all
  regions
• Must bid a price equal to or below 10,900.

• If ALL of those requirements are met, you will
  sell 33K units (guaranteed).
• In addition, if you offer the lowest bid of any
  firm, you will be selected as preferred supplier
  and sell 66K units (2x).

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B2B Market (optional)

• Adds potentially lucrative target markets to the
  environment, but requires additional management
  time and resources
• Make sure you meet ALL minimum requirements
• Consider impact on margins and production
  especially if you are chosen as preferred
  supplier. B2B contracts are the first units
  allocated from production.
• Think about synergies (or not) between B2B
  customers and consumer customers.

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Decisions

• Technology
• Concept Creation
• Product Development
• Consumer Marketing
• B2B Marketing (optional)
• Manufacturing
• Distribution
• Licensing (optional)
• Finance

Integrated Long-Term Market-Focused
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Technology

• Each firm has an overall technology capability
  with regard to Interior, Styling, Safety, and
  Quality that can be improved through investment
  in technology
• For Example Firm As technology profile is 4,
  5, 4, 5, meaning that it can develop and/or
  upgrade vehicles to these maximum specifications
• A firm with greater technology capability can
  produce vehicles with better features in these
  areas AND produce vehicles with the same features
  at lower per unit cost
• Weigh benefit against cost of investment

Important Investing in technology does not
automatically improve the specifications of your
products, only your ability to do so through
upgrades.
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Technology
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Concept Creation

• To introduce a new product, a firm must first
  develop a product concept
• A concept consists of all the vehicle
  specifications (class, size, engine, attributes)
• Your firm will receive feedback on the unit cost,
  development cost, and time to develop
• Your firm may also run a concept test to see how
  a customer views your concept.

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Product Development

• Product Development takes place in Development
  Centers
• New products move from concept to development in
  one of the centers
• Upgrades also take place in the centers
• Each firm starts with 2 development centers
  allowing concurrent development on two products
  (new products or upgrades)
• New development centers can be added over time up
  to a maximum of five (one per period).

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Product Development

• 4 General Approaches
• Minor Upgrade Based on existing product, uses 1
  center for 1 decision period, prepare launch now
  (immediate impact after advance). Inventory
  disposed now.
• tweak Max. change of 2 size, 5 HP, 1 other
  specs.
• Major Upgrade Based on existing product, uses 1
  center for 2 decision periods, prepare launch
  next decision (1 year). Inventory disposed next
  year.
• Max change of 10 size, 20 HP, 2 other specs
  tweak next year
• New Product, Same Class Based on concept, uses 1
  center for 2 decision periods, prepare launch
  next decision (1 year)
• New Product, New Class Based on concept, uses 1
  center for 3 decision periods, prepare launch in
  two years
• Use concept test for new products to measure
  quality of your offering.

Balance opportunities, speed to market, cost, and
need for change
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Product Development
Product Development Timelines (Exhibit on page
12 in manual)
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Product Development

• Example
• In the 1st decision period, a firm initiates a
  minor upgrade and a new product in a new class
• If, in the following period, the firm thinks it
  will want to initiate two more upgrades, what are
  its options?
• Build a new development center in the 1st
  decision period so they would have 3 operational
  centers in the 2nd decision period
• Only choose one upgrade in the 2nd period
  (because the new product would occupy one
  development center)
• Choose to discontinue development of the new
  product to free a development center.

Hints Be sure to plan development time lines
and development capacity
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Product Development
Sample development screen showing an upgrade
(Alfa), new product (Aphid), and a new
development center
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Consumer Marketing

• Corporate Level
• Budget set by region (North, South, East, West)
  to create general firm preference and support
  dealerships
• Public relations to create interest in firm
  developments
• Direct Mail to different consumer segments

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Consumer Marketing

• Product Level Advertising and Promotion
• Advertising budget to build and maintain
  awareness
• Advertising theme (performance, interior, style,
  safety, quality) to appeal to target segments
  hot button
• Promotion budget to help spur sales during slow
  periods used for rebates, special financing,
  attractive leases, etc.

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Consumer Marketing

• Product Level Pricing
• MSRP Manufacturers Suggested Retail Price used
  to position vehicle, set expected price in mind
  of consumer and dealership
• Dealer Discount discount off MSRP to dealer
• MSRP - discount Actual revenues to your firm
• Actual selling price to consumer (retail price)
  determined by dealer

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Consumer Marketing
Consumer Marketing Decisions Screen
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B2B Marketing (optional)

• B2B Customers have requirements that must be met
  in order to obtain a contract
• Equal To or Below Maximum Price
• Equal To or Above Minimum Specifications
• Dealership Coverage in ALL regions
• Specific Vehicle Class
• Within Requested Size and Engine Ranges
• In addition, must target the contract with your
  sales force to be able to bid on the contract the
  following period.
• Salespeople are hired automatically when
  contracts are targeted
• Salespeople cost approx 100K each including
  expenses

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B2B Marketing (optional)

• Initial Period
• Determine whether to pursue the B2B market
  (Strategic Decision)
• Use the B2B market research to evaluate the B2B
  opportunities
• Select contracts to target to bid next period
• Consider investments necessary to meet
  requirements
• Subsequent Periods
• For contracts where you qualify, select vehicle
  and enter bid
• Must meet all specs and price at or below minimum
• Check main decision page to make sure you qualify
  after entering bid
• For contracts where you dont qualify, decide if
  it is worth the investment necessary to bid on
  the contract in the future
• Adjust your target contracts as necessary

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Manufacturing

• Capacity
• Total vehicle production must be less than
  capacity or incur over-capacity charges
• Capacity may be increased, but takes one year
  before available and costs
• Plant investment is depreciated over 10 years
• Maximum increase (or decrease) in a year is 50
  of current capacity

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Manufacturing

• Production
• Set production based on YOUR sales forecasts and
  inventory levels
• Retooling costs for initial or increased
  production
• Remember there is a cost to dispose of inventory
  of old vehicles if upgraded (minor or major)
• Set flexible production (/- 10)
• Adjusts production if gt 120 days or insufficient
  to meet orders.

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Manufacturing
Note over-capacity (1845gt1800) and resulting
charge
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Distribution

• Dealerships make the actual sale to consumer
• Set up on a regional basis (North, South, East,
  West)
• Can open or close dealerships (max of 10 change
  each year and takes 1 year to open/close)
• Dealer ratings (1-100 scale) indicate customer
  experience at dealership, impacted by
• Profitability and product offerings
• Training, education and support
• Dealer discounts and servicing

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Distribution
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Licensing (optional)

• One firm makes offer to another firm that
  specifies vehicle class, size, HP, and minimum
  specifications The licensee
• The firm that receives the offer must have a
  vehicle that meets the requirements and they must
  accept the offer The licensor
• Additional terms to be negotiated
• Price licensee pays per vehicle
• Units purchased
• Any additional fees
• License is re-entered each period (even if you
  negotiate a long-term agreement)
• Once licensor accepts the offer, it is a legally
  binding contract.

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Finance

• Uses of cash (long-term investment decisions)
• Technology, product development, capacity,
  retooling, advertising, distribution, repurchase
  of bonds and stock, repayment of loans.
• Sources of cash
• Operations, selling bonds and stock, short-term
  borrowing
• Use Pro-Forma to see likely impact on cash
  position based on YOUR forecasts and decisions

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Finance
To repurchase stock, enter a negative value ()
Bonds are callable after three years
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Financial Performance

• Financial Statements
• (Income statement,
• balance sheets, cash flow)

• Stock price and bond ratings

• Use Pro-Forma reports to see
• likely impact on performance
• based on YOUR forecasts and
• decisions.
• Actual Results Will Vary

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Internal Reports

• Internal Analysis
• Performance Summary
• Income Statement
• Balance Sheet
• Cash Flow Statement
• Product Contribution
• Marketing
• Distribution
• Manufacturing

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Market Reports

• Market Analysis
• Industry News
• Economy
• Vehicle Classes
• Regional Sales
• Consumer Segments
• Consumer Customers
• New Customers
• B2B Segments
• B2B Contracts

B2B reports are optional and will be displayed
only if selected
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Competition Reports

• Competitive Analysis
• Products
• Market Share
• Technology
• Marketing
• Communications
• Distribution
• Manufacturing
• Financials

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Tools and Research

• Tools available
• Vehicle Sales by Customer ()
• Focus Groups ()
• Concept Test ()
• Competitive Mapping ()
• Perceptual Mapping ()
• Test Market ()
• Conjoint Analysis ()
• Portfolio Analysis

Note Tools available will vary based on
customization selected
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Decisions Menu

• Input Decisions
• Technology
• Concept Creation
• Product Development
• Consumer Marketing
• B2B Marketing (optional)
• Manufacturing
• Distribution
• Licensing (optional)
• Financing
• ProForma
• Decision Summary

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Decision Summary
Check your decisions on the Decision Summary
screen (Decisions menu) before the simulation is
advanced to the next period
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Simulation Process
See Sections 3 and 4 of Manual
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StratSim Logistics

• All decisions are saved on the server, so you
  must be online
• Everyone on the same team shares ONE decision
  file, so when one person makes a change, the
  whole team makes that change. In addition, when
  one team member purchases a tool, the whole team
  purchases the tool. In other words, organize
  your decision process!
• Please print out decision summary and pro-forma
  income statement when your team is done entering
  your its decisions
• Decisions must be completed on time
• Results will be available at beginning of next
  meeting time

See the Student Demo for more detailed
instructions and examples of the software and
website.
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Final Considerations

• Your strategy drives your decisions make sure
  you have one!
• Focus on how to best serve your target markets
  through a total offering product, marketing,
  service, and price
• Importance of team organization - HR
• Manage your margins understand financial
  implications of decisions
• Understand fixed and variable costs
• Long term vs. short term
• Make wise investments
• Use the Pro-Forma for insights BEFORE finalizing
  decisions
• Try new approaches apply concepts experiment
  have fun!