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PARIS – BOSTON
www.stratxsimulations.com
Overview of Markstrat World and
Business Game Practice
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Markstrat is a simulation designed to focus
on strategic marketing issues
Understanding customer needs
Long-term perspectiveMarketing as a profit center
Competitive environment
Marketing strategy is based on segmentation, positioning, and resourceallocation... marketing mix decisions are secondary
You and your team have to:
• Target selected segments and position your products in a highlycompetitive market
• Interface with the R&D department to design and develop newproducts
• Prepare the launch of new products, improve, maintain or withdrawexisting ones
• Make marketing mix decisions
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Gettingstarted
Managingyour firm
TheMarkstrat
World
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The Markstrat World: A large territory with a
highly developed economy
The Markstrat World
Population: 250 million inhabitants
Currency: Markstrat Dollar ($)
Both inflation and GNP growth are fairly stable, no major political,social or economic event
It roughly behaves like most markets.
In the Markstart world, many companies manufacture and marketconsumer durable goods. These goods are comparable to electronicproducts as well as office equipment, cars, books and other consumerdurable goods.
With most scenarios, each firm starts in a different situation in terms of
product specification, target customer groups, brand awarenesslevels, market share, distribution coverage, profitability, R&Dexpertise.
No firm has a relative advantage over the others and initially has manycharacteritics in common.
The intial brand porfolio of all companies is comprised of 2 brands.
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Each firm can compete in TWO product
markets
Maximum: 5 brands/firms marketed at a time
• independent
• not substitutes
• not complements
SONITES VODITES
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SONITE PRODUCTS
At the beginning of the simulation, all rival firms market 2Sonite brands.
Sonite existed for several years, market has gron quiteconsistently
A Sonite is a complex piece of equipment made up ofseveral components with 5 most important physicalcharacteristics and base cost.
The base cost is an initial production batch of 100,000units (decided jointly by Marketing Dept and R&D Dept)
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The Sonite market is already developed,
each product has 6 product characteristics
Weight(10 – 20)
Design(3-10)
Volume(20-100)
Max. Frequency(5 – 50)
Power(5-100)
Base Cost(min. 10)
Kg Index
dm3
kHz W
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VODITE PRODUCTS
New type of electronic product migh emerge, called Vodite.
Industry experts predict this is a products of the futureVodite products will satisfy entirely different needs from that ofSonite products
The demand for the 2 products will be completely independent.
They are not complementary or substitution for each other.
Although Sonite and Vodie technologies are similar, all firms have toengage substantial R&D resources to develop their first Voditeproduct
An investment of about 10 million dollars may be required for eachVodite brand.
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Vodites will also have 6 physical characteristics,
but the market is yet untapped
Autonomy(5-100)
Max. Frequency(5-20)
Diameter(10-100)
Design (3-10)
Weight(10-100)
Base Cost(min. 10)
m kHzmm
IndexKg
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Sonite customers have traditionally been
classified into 5 segments……
SINGLES (Si)
PROFESSIONALS (Pr)
BUFFS (Bf)
HIGH EARNERS (Hi)
OTHERS (Ot)
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...whereas initial studies for Vodites have pointed
to a different segmentation scheme
Followers
EarlyAdopters
Innovators
Sales
Time
Typical segment size evolution over time
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Sonite & Vodite customers can choose to purchase
through 3 distinct Distribution Channels
SpecialtyStores
DepartmentStores
MassMerchandisers
These stores are usuallysmall, geographically close tocustomers, has high level ofservice and technicalsupport. Not many different
product categories, but broadlines for each category.
Has wide productassortment. Provideextensive customer servicebut lower technical support
than SS.
Operate on low-price, high-volumebasis and try to minimizeoverheads. Level of serviceoffered is lower than these othertwo. Carry many different product
categories, but not deep at eachproduct line.
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Summary of the Markstrat World
Technology MarketGrowth EconomicEnvironment
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Gettingstarted
TheMarkstrat
World
Managingyour firm
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Your objective in managing your company is to
maximize your Stock Price Index
You will have to decide the overalldirection of the company, regarding:• Product portfolio strategy
• Segmentation and positioning strategy
• Marketing mix strategy
You will have to optimize:• Market share
• Sales growth
• Net contribution• Cumulative net contribution
• R & D investments
….but the main objective is to LEARN!
ll d d f l
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You will need to do a certain amount of analysis,
before setting a strategic direction for your firm
Data
InformationStrategicOptions
R h di id k d i i
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Research studies provide market data, it is up to
you to prioritize, digest & interpret them
Consumer survey
Consumer panel
Distribution panel
Semantic scales
Multi-dimensionalscaling (MDS)
Industry benchmarking
Market forecast
Competitive advertising
Competitive sales force
Advertising experiment
Sales force experiment
Conjoint analysis
O t t i l h ld k
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Once your strategy is clear, you should make
a number of tactical decisions each year
Production planning
Inventory disposal
Pricing
Mass communication
Sales force & distribution
Market research
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PRODUCTION
Each period, you are responsible for submitting a production plan for
each of your marketed brands.
In case of unsuccessful brand, you can decrease the inventory orsell all or part of it to a trading company at some cost/loss.
You are completely free to increase or decrease the productionplanning of a given product, without any penalty.
The units produced are charged to the Marketing Dept only whenthey are sold to distributors. The price paid to production is calledthe transfer cost .
Inventory-holding costs are charged to Marketing Dept in case units
produced are excessive to be kept in inventory.The transfer cost of a given product increases with inflation.
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Inventorybuild-up
Lostsales
Number ofUnits
QP(1-20%)
(assuming zeroinventory level)
QP(1+20%)
Production Department adjustment
Marketdemand
ProductionQP
Requestedproduction
level
Your production department will automatically adjust production
levels (+ or -) 20% against your plan
C i h i t t ith k t h
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Competitors
“Order -book”
Lost to industry
Comparing purchase intent with market share
can give you a feel for the size of "lost sales."
Purchase
Intent
Market
Share
Lost
Sales
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PRICING
In Markstrat, you must set the recommended retail price for eachmarketed brand
The retail price is the list price for customers
The average selling price is the price at which you sell your product
to distrbutors. It varies according to distribution channel because ofdifferent margins.
Notice that mass merchandisers use promotions or special offers tosell products to a discount rate of 10% off the list price.
Dumping is strictly forbidden in Markstrat world, so the selling price
must be higher than its transfer cost.Price increase or decrease greater than 30% in one period arehighly discouraged.
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Pricing in Markstrat is fixed once a year
Specialty
Stores
Department
Stores
Mass
Merchandisers
Average RetailPrice $100 $100 $90
Distrib. Margin
$40 $ 30 $ 27 Average Selling
Price $ 60 $ 70 $ 63
Recommended Retail Price = $100
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COMMUNICATION
You should determine the advertising budget allocated toeach brand. The budget is used to:• Purchase media space and time (advertising media ). This
includes buying media space and time.
• Do advertising research (advertising research ). This includes
creative work, media selection and other activities to make surethe quality of your message.
• Companies devoted on average 7% of their total communicationexpenditures to advertising research.
• You need to specify which segments to be targeted with your
advertising• You finally must decide perceptual advertising objectives for
each brand.
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SALES FORCE
Your sales force is organized in 3 groups
Each group is specialized to focus on the stores of asingle distribution channel
Marketing Dept must specify the number of salespeoplein each group
Salespeople may be reallocated from one channel to theother at no cost.
But hiring or firing costs will be charged to yourdepartment when the total number of salespeopleincreases or decreases.
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ORDERING MARKET RESEARCH STUDIES
One of your decisions will be to order market research
studies.
All studies are ordered at the beginning of a period. Theresults are delivered with your annual report at the end
of the period.
A maximum of 23 different studies may be ordered eachperiod.
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RESEARCH & DEVELOPMENT
Making R&D decisions is a crucial task
The Marketing Dept must specify the desiredcharacteristics for the new or improved product,including the target transfer cost.
You must also allocate a budget to each project
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MARKETING BUDGET
Your marketing budget is linked to the success of thedepartment, being equal to 40% of the net contribution inthe previous period.
In general, your budget for each period will be between $
7,000,000 and 20,000,000. You will work within thisgiven budget.
Each firm receives a marketing budget for the
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Each firm receives a marketing budget for the
coming period
The budget amount is based on the previous period’s performance
B u d g e t
MarketResearch
Sonite and Voditestudy costs
for eachproject
R&D Development budget
Sales force Hiring & training cost
Firing cost
Operating cost
for eachbrand
Advertising Advertising researchexpenditures
Advertising expenditures
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UNDERSTANDING YOUR ANNUAL REPORT
INDUSTRY NEWSLETTER
This provides general and financial data on the industry, on thecompeting firms and on marketed brands. All firms have access tothe same Industry Newsletter
Stock market and key performance indicators: charts with variousindicators such as: market shares, sales, contribution, stock priceindices and return on investment ratios.
Economic variables and costs: the evolution of economic variablessuch as the inflation rate and GNP growth rate and various costs like
salespeople, inventory cost, etc.Information on Sonite market: physical characteristics and price ofall marketed Sonite products and indicates which brands have beenrecently improved or introduced. Also provides market shares,volume sold and retail sales of all Sonite products.
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UNDERSTANDING YOUR ANNUAL REPORT
COMPANY REPORT
This provides confidential company information. You andyour team are the only ones who have access to theinformation disclosed in your Company Report. This
includes:• Company results
• Brand results
• Research & Development results
• Cumulative results• Decision summary
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Brand results
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Company performance
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MARKET RESEARCH STUDIES
Industry benchmarking: general information from annual reportsabout each of the Markstrat competitors.
Consumer survey: provides information on
• Level of brand awareness (consumers in each segment who can recalla given brand name)
• Brand purchase intentions (consumers in each segment who intendedto buy a given brand)
• Shopping habits (consumers who prefer to shop in a given distributionchannel)
Consumer panel: total unit sales for each segment, the relative size
of each segment, market shares, based on unit sold for each brandin each segment.
Distribution panel: total sales in units in each distribution channel,relative size of each channel, market shares for each brand in eachchannel
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MARKET RESEARCH STUDIES
Semantic scales: respondents are asked to rate each brand along
each physical characteristics on a scale from 1 to 7. it provides theimportance of each characteristic, or the weight each characteristicholds in the buying decision.
Multidimensional scaling of brand similarities and preferences:
• One of the most important studies that may be purchased by your team.
• It provides a map showing similarities and differences betweenmarketed brands on three different dimensions.
Market forecast: this study estimates the expected size in units andthe growth rate of each segment for next period and in 5 years time.
Competitive advertising estimates: estimates the total advertising
expenditures for each competitive brand by segment.Competitive sales force estimates: estimates the number ofsalespeople allocated to each brand and provides average salesforce size by brand and by firm
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MARKET RESEARCH STUDIES
Advertising experiment: this study estimates the effects of increasingyour advertising budget by a given percentage. It projects brandawareness and market share for each of your brands.
Sales force experiment: the sales force experiment predicts theincreased distribution coverage and market share for each of yourbrands.
Conjoint analysis: it provides the utilities – the real number betweenfrom 0 to 1 for each of the 4 most important characteristics for eachsegment, higher to 1 indicates high consumer preference.
h l h d f h l d
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The simulation starts at the end of the initial period
.
. The newmanagement (you!)make decisions for
the next period
The decisions for the first period are limited
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The decisions for the first period are limited
in scope
Your team can get familiar with Markstrat• Gather information
• Do not make any major changes in your firm's operation
• Do not introduce new brands, modify or withdraw existing ones
• Do not start R&D projects• Do not give perceptual objectives for advertising
Organize yourselves and manage the group
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g y g g p
process
Timepressure
Conflictingopinions
Informationoverload
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TheMarkstrat
World
Managingyour firm
Gettingstarted
When you return to your team room,
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y y
the Main Menu will be on your screen
Click here toaccess session
information
You can access all the decisions on the main
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screen to make decisions for the next period
The decisionsyou will make
Marketing Mix decisions should be entered for
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g
each brand
You aremaking
decisions forthe brand
SAMA
Switch fromSonites to
Vodites
The sales force is organized by channel type to
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meet the specific needs of the channels
Click on theassistant to helpyou allocate to
sales forcesautomatically
Buying market research studies will help you
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make sound decisions
The cost ofeach studyappears as
you make yourselections
You can monitor the status of your decisions
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at any time
Don't forget to transfer your decisions to
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your instructor by closing the session
You can closeyour session by
clicking onInterface/Close
Markstrat Sessionor just click here
O k t t GO!
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On your marks, get set, GO!
Respect the deadlines