MarkStrat Final Analysis
- Pages: 12
- Word count: 2958
- Category: Strategy
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Firm E performed very well during the 8 periods we were in control. During those periods we grew the company’s contribution margin from $14.2 million dollars up to $70 million dollars and oversaw a stock price increase of over 170%. During this period we managed a maximum of 5 brands. Three of these five brands are making substantial profits totaling $75.7 million in the 8th period. The other two brands were targeted at the emerging Vodite market and although they are not currently seeing a profit, projections show they are on track to see profits within the next 2 periods (Exhibit #: chart showing Vodite sales) .In addition to the growth in sales we were able to position the products targeted to markets segments that are expected to have continuous growth over the next 5 periods.
The exception to this is brand VERY, which will be discussed in the “Goals and Objectives for Future Periods” section of the report. The firm’s largest riskiest decision was in producing two brands targeted at the Vodite market. While there were only a few periods during which Firm E had brands in the Vodite market, the data released for Period 9 shows increases in market shares, it is foreseeable that the brands will grow in contribution as the Vodite market develops. All of the brands in the Sonite market all contributed to the firm’s success, despite an increasing saturation of this market. The major obstacle the firm faced was in the release of brand SEXY. While able to achieve significant market shares from the Buffs segment, the return was minimal and segment was shrinking, in addition other firm’s brands were targeting this segment.
SEXY was remarketed to target High Earners and quickly broke even and began contributing to the success in the Sonite Market. Successful use of segmentation and positioning resulted in an effective targeting strategy. The R&D and advertising decisions made were essential in growing contribution. These efforts are reflective in the firm’s performance across the duration of the game. Overall, the shareholders reacted positively to the managerial decisions.
Assessment of Managerial Prowess
As managers, Team E relied heavily on data analysis to make decisions. This benefited us greatly, especially in later periods when there was more data making trends easier to identify, but was difficult for management during the early periods when data was limited. This is evident in the performance of the company as it remained in the middle of the pack until period 5. Once we had enough data to make better predictions our company was able to quickly pull ahead of the group. Our strength as management came from our ability to analyze and understand the data presented in the company reports. We understood the marketplace very well, where allocating budget would have a significant impact, and knew the needs and shopping habits of our target market. This allowed us to spend our budget wisely maintaining “After marketing contributions” over 75% when compared to “Before marketing contributions”.
An example of this can be seen in the difference in our “Sales Force” expenses between periods 3 and 4. During period 3 we compared our expenses to the expenses of our competition and noticed we were overspending on our “Sales Force” by as much as 100%. We corrected this in period 4 and immediately noticed an increase in our contribution margin without sacrificing in sales due to the cutback. (perhaps make a table of contribution to support this). One of our weaknesses as managers was our ability to predict movements and actions from our competition. There were 3 specific times other companies made unexpected movements that hurt our company’s sales. An example of this can be seen in periods 3 and 4 when the decision to create SEXY was made. In period 3 the needs of Buffs were largely unmet by any products as shown on the perceptual map.
The Buffs market was somewhat small compared to other markets and also growth was forecasted to be stagnant. However, since there were not currently any products meeting their needs, we anticipated creating a product to that would capture a substantial portion of that market would be a good decision. However, the same period we released SEXY several of our competitors repositioned their products to better suit the needs of Buffs and at the same time the Buffs segment began to shrink. (show perceptual map for period 3 and 4) The impact this had was so significant that it caused the company to have a negative contribution for the next two periods.
After those two periods we repositioned the product through advertising and marketing to meet the needs of HiEarners where it performed much better and maintained a positive contribution. A second area we had difficulty with as managers correctly estimating the production levels of our products, particularly after releasing a new modification. There were 3 times throughout the game when we underestimated the production levels and lost potential sales as a result. (Perhaps show calculation) Best and Worst Decision Periods
Team E made decisions each period that steadily increased the value of our company as viewed by shareholders, right up until the final period. However, some of those decisions were better than others. The worst decision we made as managers came late in the game during period 6 going into period 7. Going into this period we decided to conduct two R&D projects for SECT and SELL, as well as purchase two feasibility studies for our Vodite products VERB and VERY. After the MarkStrat simulation ran and we noticed the Vodite products had a negative contribution over $5 million dollars, for the second period in a row. Our decisions during period 6 should have been to conduct R&D projects for the two Vodite products, instead of the Sonite products.
Waiting this additional period for the Vodite products ended up costing a great deal of money and caused stockholders to lose confidence in our company as shown in period 8 when our stock price dropped for the first time. (show Vodite sales charts for period 6 and 7) The best decisions period management made was in period 3 when we decided to modify the SELL product. This modification moved SELL into a near perfect position for Singles and we saw an immediate increase in marketshare from 22% to 49%. With each doubling of production our transfer prices effectively reducing the transfer costs by 15% -this resulted in a nearly 47% increase in SELL’s revenue. This was especially good because of the forecasted growth for the Singles segment. The very next period we decided to modify SECT, the decision was made taking into account that the awareness had dropped to a point were repositioning the SECT brand would be optimal. This decision turned about to be another great move by management.
After releasing this newly modified SECT product we saw 2 periods of huge growth. Their marketshare grew from 42.2% in period 4 to 64% in period 6. During this same period we saw the contribution after marketing grow from $16 million to $42 million. During these periods Others was the largest market and was predicted to be the largest market for at least the next 5 periods. The combined result of primarily these two decisions resulted in a stock price jump of 68.6% during periods 4-6. (perhaps make a graph of the stock price and product sales) Reflection on Goals
As managers we set forth both long-term and short-term goals for the company. The long-term goals for the company were based around stock price and competitive position. In creating these long-term goals we made goal stable and continually strived for it, but needed to make the plan to get there adaptable as conditions within the marketplace changed. Long-Term Goals:
1. Have the highest stock price by a 20% margin by period 6
2. Maintain that margin until the end of the session
Achieving these goals required a plan that could quickly adapt to a dynamic marketplace with several competitors. Therefore, we also set short-term goals, each of which was a milestone moving the company toward one or more of the long-term goals. The use of these short-term goals allowed our long-term goals to remain steady, while the plan to get there was agile and could respond well to changing market conditions. When setting these goals we purposefully used the S.M.A.R.T. system which required each goal to have a deadline, as well as quantifiable results that could be measured to determine its level of success. Sample short-term goals used to reach the long term goals:
Fulfill all sales by having 0 periods of under production
Maintain industry standard Sales Force numbers to maximize contribution margin Generate a positive contribution from brand SEXY by repositioning to new market Maintain a minimum of 55% market share within the Others segment While we were unable to meet all of our short-term goals they did provide an excellent guideline for thinking strategically about each of our decisions, as well as focus our efforts on a specific target. Although most of our goals were well thought out, now with the ability to look back at the results there are a couple of goals we would have changed. A specific example of this is the introduction of VERB. Upon creating VERB the goal was “Create an inexpensive Vodite to capitalize on price sensitive consumers”.
However, when creating the product we were unable to accurately determine to proper values for each of the semantic scales. This caused us the product to fall too far away from the ideal values of any target market, resulting low sales and a large negative contribution during periods 6 and 7. Consequently, this led to an expensive redesign of the product in order to reach the ideal values for followers. Having this hindsight the goal of “VERB” should have been targeted at a sales volume within a specific segment. This would have given us greater focus and clarity to develop a product that better fit the current needs of consumers. (show Vodite sales charts for period 6 and 7) 5 Factors of Brand’s Success
1. Choose 1 Segment for Each Product
The MarkStrat simulation has already done the work of segmenting the marketplace into needs based groups. From looking at the sales volume of each product, the ones that continually sold the most and had the highest contributions were marketed specifically at 1 segment, rather than attempting to reach a middle ground and sell to 2 separate segments. 2. Create Your Sales Funnel and Know What Drive It
It was a big help for our managers to be aware of the sales funnel and know which aspects of the simulation moved consumers down the funnel and converted them into customers. (Show graphic of sales funnel) At the top of the funnel was the entire MarketStrat marketplace and all its consumers. Step one was identifying a profitable segment and creating a product to meet their needs. Next, we needed to ensure customers were aware of our product and how it could meet their needs. Third, we needed to ensure our advertising was clear, reached our target audience, and was effective at communicating the message. The fourth and final step was to ensure our product was available where our target segment enjoys shopping to shop and priced properly to create a mutually beneficial transaction between our company and the consumer. 3. Choose Target Segments Wisely
Just because a segment is large, or because there are limited number of competitors it does not mean a segment will be profitable. It is important to take into account your expected market share, expected contribution margin, and any costs associated with targeting a product for the needs of that segment. 4. Know Where You Are, But Look Forward
The MarkStrat simulation, like the real world, is continuously changing. It is important to not only know where you are currently, but where you are in relation to the future needs consumers and make predictions about the movements of your competition. This involves looking at market forecasts, trends of consumer tastes and needs, as well as looking at what your competition is doing. In order to keep up with trends regular modifications to each of the products becomes necessary. Additionally, as the competition makes shifts in the marketplace you need to be prepared to take action in order to hold or grow your market share. 5. Efficient Budgeting
In order for each product to become and remain profitable it is key to manage your budget wisely. Each area of the budget has diminishing returns with every dollar spent. Tracking your expenses and comparing those with your competitors’ expenses you can find an equilibrium point between the expenses you are incurring and the amount of return you are getting on those. It is at this equilibrium point that, each product will be realizing its maximum profit. Most Competent Competitor
There are 6 companies competing for business in the MarkStrat simulation. Of the 5 companies we were competing with there were 2 we felt offered us a substantial challenge and at times outsmarted us. Of these 2 team “I” ended up with a higher stock price at the end of the game due to excellent consumer targeting and continually eroding market share from our 2 most profitable products. Team “I” chose to stay out of the Vodite market and instead focus their efforts on creating a total of 6 products in the Sonite market.
This worked out very well for them because not only were they able to generate profits from each of these products, but it took away market share and sales from 2 of our most profitable products, SELL and SECT. The profits “I” was taking away from our company in the Sonite market, we were not able to make up for through sales in the Vodite market and by period 8 they were able to gain more confidence from shareholder than we were as shown in their stock price. “I”’s stock price in period 8 was $2,733, while our price was only $2,632. Goals and Strategy for Future Periods
The goals for our company during periods 9 through 11 are as follows.
1.Maintain a minimum 20% stock price margin over the nearest competitor
2. Gain 35% of the total Vodite market
3. Gain 65% of Others in Sonite market
4. Maintain greater than 65% of Singles in Sonite market
5. Gain 50% of HiEarners in Sonite Market
In order to achieve these goals we have created a specific plan that involves several short-term goals and objectives based on predictions in the market place. In order to reach 35% market share of the entire Vodite market we are targeting Followers with our VERB brand. The Followers are expected to make-up 85% of the entire Vodite market by period 12 with expected unit sales of 558,000 units. By establishing and advertising VERB to this market starting in period 8, we believe brand awareness and purchase intensions will be well established. Early penetration into this market is likely to prove an advantage in the upcoming periods. Additionally, we plan on continuing to closely follow the preferences of this market segment and make minor modifications to the product as necessary.
Given that the other segments in the Vodite market are quickly shrinking during those same 5 periods we expect the competition in the Followers segment to become quite competitive. We will need to watch our competition closely in order hold a substantial market share. In the Sonite market our SECT and SELL brands are performing extremely well in their respective segments. A new brand was introduced in period 6, SIPS, that started to eat away SECT’s market share in the Others segment. In order to prevent further erosion and regain market share we will be closely monitoring price and making continuous improvements following the trends of Others. We will also invest heavily in our advertising message to ensure the perceived values are closely matching the needs of Others.
Although it is not necessary at this time, we may find it necessary in the next few periods to introduce a new product targeted at the Others segment in order to regain the 65% market share we once had. As the Others segment continues to grow additional new products may enter the market just like SIPS and will continue to eat away at SECT’s market share. If necessary, we will need to perform a profitability study, including cannibalization, in order to determine if introducing another new product targeting the Others segment will be profitable. SELL is currently our highest contributor with over $47 million dollars each period.
This is due to having over 65% of the Singles market, combined with a low base cost relative to the average selling price. It is our expectation that a new product will be introduced into the Singles market within the next 2-4 periods. In order to maintain our market share we will be continually making small improvements as consumer tastes change as well as fully funding advertising and sales as necessary. Similar to SECT, if the market segment seems to be getting saturated with products, it may become necessary to create another product targeting Singles to reduce the ability of other companies to become profitable in the Singles segment. MarkStrat Economy and Stock Price Prediction
Correlation to Share of Voice and Share of Market
Can only reposition while you have low awareness
Awareness must be in conjunction with a good message and sales force in order to convert into sales / market share While awareness is high your ability to change perception with advertising message become diminished