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FINAL REPORT

Team A

Federica Merli Valentina Salvini Filippo Vescovo Khader Alsadi

November 2011

University Of Pavia

Simulation Report - Team A

Introduction
Advanced Marketing course taught by Prof. Birgit Hagen and Prof. Stphane Ganassali provided us with the opportunity to participate in Markstrat Simulations. In November 2011, we as Team A and other 5 teams were asked to practice our marketing strategy and management skills in the Markstrat world. During the simulation we had 10 different periods in which we asked each of these to take different types of decisions regarding Marketing mix , sales force, Research and Development, Brand Portfolio and Market research studies. In this report we decided to divide our Markstrat experience into 3 milestones according to our performance during the simulation and for each of these milestones we highlighted the context, strategy, marketing mix, financial and market performance . Our first milestone was characterised by best results compared to our competitors. Our decisions for the second part has affected our results which led to a huge decrease both in market share and net contribution. Our team decided to recover our position, thanks to better marketing decisions, R&D decisions and Financial decisions, we were able to compete with the first 2 competitors. We decided to divide our report in this way because we think this is the best way to describe our track during this enjoyable journey.

Team A is:
Federica Merli fede.merli.87@hotmail.it Valentina Salvini persemprevale@hotmail.it Filippo Vescovo filippo.vescovo@gmail.com Khader Alsadi khader.alsady@gmail.com

Simulation Report - Team A

Summary
CHAPTER 1 The Great Illusion (Period 0 to Period 3)
1.1. The Context 1.2. Evolution of the simulation during period 1 to 3 1.3. Our strategy 1.4. Financial & Market performances 1.5. The Marketing Mix Recap 1.6. Research & Development Pag. 3 Pag. 4 Pag. 5 Pag. 5 Pag. 7 Pag. 8

CHAPTER 2 Hard Times for Team A (Period 4 to Period 7)


2.1 Context & Evolution of the Markets 2.2. Our Strategy 2.3. Financial & Market performances 2.4. The Marketing Mix Recap 2.5. Research & Development Pag. 9 Pag. 10 Pag. 10 Pag. 12 Pag. 13

CHAPTER 3 The Resurrection (Period 8 to Period 10)


3.1. Context & Evolution of the Markets 3.2. Our Strategy 3.3. Financial & Market performances 3.4. Marketing Mix Recap 3.5. Research & Development Pag. 14 Pag. 15 Pag. 15 Pag. 17 Pag. 18 Pag. 19

Key learning points & Conclusions

Simulation Report - Team A

CHAPTER 1 The Great Illusion (Period 0 to Period 3)


1.1. The Context

At the beginning of the simulation all the six competitive firms started from the same level of market share, sales and all with two Sonite brands in the market (with the same characteristics). Our products were: SAMA and SALT.

The Sonite market is composed of five customers segment. Each one represents different customers preferences and purchasing behaviours. - Buffs: people in this segment are very interested in Sonite products and they are extremely knowledgeable about Sonite technology. They are quite price sensitive and they demand high performance products. - Singles: they demand average level of both performance and convenience in Sonite product; like Buffs they are quite price sensitive. - Professionals: they are looking for high quality, high performance. They can afford expensive products and often view price as an indication of quality. - High-earners: this group of people have an high income so they can purchase relatively expensive products and their purchase is partially motivated by social status. - Others: this segments includes all consumers who do not belong to any of the above group, and usually they are looking for cheap, low-performance products with average convenience.

Sonite and Vodite consumers purchase in the following three distribution channels: - Specialty stores These stores are usually small and do not belong to organized chains. They are geographically close to their customers and can provide a high level of service and technical support. 3

Simulation Report - Team A - Department stores Department stores are characterized by the wide product assortment they offer, but their technological expertise is lower than that of specialty stores. - Mass merchandisers - These stores operate on a low-price, high volume basis and try to minimize overheads.

1.2. Evolution of the simulation during period 1 to 3


During these three periods we observed some changes of the Sonite market in relation to the segment size and growth rate as the Market forecast report suggested (see Figure). We concentrated our attention on the 4 segments with the best growth within the next 5 periods. For SAMA we focused on Singles and Others while for SALT on High earners and Professionals.

As concerning the competitive environment, the first three periods saw good performance by our group and group O, both in terms of market shares (21% and 19% respectively), and Net contribution ($ 30+M and $40+M).

Simulation Report - Team A

1.3 Our strategy


Our main objectives in this initial part were to create our own brand awareness and to increase the level of our sales. In this part of the simulation our team had a relatively comfortable position with a large budget, and large revenue due to the good performance in the Sonite market. Expecting a rise in sales, We decided to increase our production according to the optimistic growth of the market forecast. At the beginning our team decided not to focus only on one segment, but with each of our product we decided to target two segment at the same moment. This decision was made because: It was not possible to develop new products for each segments, both in terms of time and of budget; The two couple of segments (as can be seen in the figure here) had similar characteristics in terms of Power and Price, the two most relevant characteristics to consumers. The result was so to target Hi-earns. and Pros. with SALT, Others and Singles with SAMA. In the meanwhile, we decided to give up the Buffs segment because it was the one that was decreasing in the next 5 years. To reach the ideal value that best satisfy our target consumer we decided to reposition SAMA and SALT through: R&D project (PSAM2, PSALT2), in order to improve products characteristics (period 2); increase the advertising budget and focus the budget more on target segments. Adjust the sales force according to shopping habits and so we increased the forces in Specialty Stores for SALT and in Mass Merchandisers for SAMA.

In period 2 we noticed the possibility to enlarge our brand portfolio in the Vodite Market, that seemed attractive because it was a so-called Blue-ocean market, with no competitors and high growth rates in the future. For this reason, in period 2 we started an R&D project in order to create the first Vodite (available in period 4).

1.4. Financial & Market performances


In the first three period, due to the increase in the selling for the product SALT (and, to a certain extent, SAMA), we observed a +213% in the revenues, passing from $16 M of period 0 to $34 M in period 3. Clearly, most of the growth came from SALT product, which registered higher volumes sold and higher margins than SAMA. Now lets consider the products one by one. SAMA (performance rating: B+)

SAMA, during the first three periods was chosen to target two segments at the same moment: Others and Singles, both of them dynamic groups with growth rates between 20% and 30% each year. As regarding the market share, the performance was quite stable in the first two periods, while in period 3 it registered an increase for the segment Single from 16,7 to 26,6%, and from 7 to 9,6% overall (Sonite market). 5

Simulation Report - Team A Even if in the market share SAMA performed quite well, the same cannot be said for its profitability. And this fact is linked to two clear reasons, marked with red in the table. SAMA
Periods Sales Units sold Average retail price (final consumer) Average selling price (distributors) Revenues Production Units produced Average unit transfer cost Cost of goods sold Contribution before marketing Marketing Advertising expenditures + Sales force Contribution after marketing K$ K$ -1.500 4.138 -1.890 5.399 -2.140 3.970 -2.690 5.491 U $ K$ K$ 80.000 74 -5.261 6.250 80.000 65 -5.350 8.033 96.000 58 -5.650 6.947 151.000 70 (a) -10.553 9.126 U $ $ K$ 71.320 244 162 11.562 82.535 243 163 13.414 97.064 194 (b) 130 12.621 150.955 193 131 19.737 Unit 0 1 2 3

a) During the second period, our company started the R&D project PSAM2 in order to upgrade the product, making its physical characteristics more suitable to the two segments, working on design and power. The error here was to work only on those two characteristics and not on its producing cost: with 1 M more invested on the R&D project, the production cost could have been decreased in order to increase the profit margin. The result then resulted the opposite: as can be seen in the production cost per unit, from period 2 to period 3, the production cost raised from 58 to 70, with a resulting in a big jump in terms of COGS. b) In period 2 we decided to decrease the selling cost for SAMA from 250 to 200, in order to cut away our competitors and secure the segments of Others and Singles, which were also the most price-sensitive. Even if the move worked in terms of market share, the same cannot be said in terms of its profitability. If in period 1 SAMA was sold at 163 to the distributor, in period 2 the value shrinked to 130, with a decrease in margins. Said this, inventory (<10% of units sold for all three periods) and sales forces resulted appropriated. SALT (performance rating: A-)

SALT was the product that was targeting Pros and Hi-Earns segments (with annual growth rates between 14 and 20% during the first three periods). As regarding the Market shares, we can take a look at the graphic here, where there are represented the market shares of SALT for three segments. We can notice a substantial equilibrium in the first two periods, while in the third, the product became the Hi-earns first product of the market with a share of 30,3%. This phenomenon can be explained both with advertising policies and price policies (the price was increased). 6

Simulation Report - Team A For what concerns the profitability, SALT resulted in much better performances than ones of SAMA, with a net contribution that grew during all the periods and passing from $16 M in period 0 to $28 M in period 3 (+175%) and a doubling in units sold. In period 3, the increase of the price increased the margin, while did not affected at all the market shares (Hi-earners instead, increased). SALT
Periods Sales Units sold Average retail price (final consumer) Average selling price (distributors) Revenues Production Units produced Average unit transfer cost Cost of goods sold Units in inventory Contribution before marketing Marketing Advertising expenditures + Sales force Contribution after marketing K$ K$ -3.100 12.479 -3.550 21.724 -3.895 27.350 -4.390 28.820 U $ K$ U K$ 97.400 161 -15.680 6 15.591 135.200 134 -18.069 95 25.278 156.000 121 -18.850 0 (A) 31.154 177.100 148 (B) -26.170 45 33.010 U $ $ K$ 97.394 493 321 31.271 135.111 493 321 43.348 156.095 492 320 50.005 177.055 508 334 59.180 Unit 0 1 2 3

Anyway, two little mistakes could have been avoided during the period, in order to increase the Net contribution. The first (A on the table) is due to a too low level of production during period 2 (we did not dimensioned the level properly), but during other periods, the level of production have been forecasted quite well, with low inventory cost. The second is similar to the error made for SAMA. With the developing of the R&D project PSAL2, we focused only on characteristics without taking into account the production price: a bigger investment could have bring higher profits in the period 3 and followings.

1.5. The Marketing Mix Recap


SAMA Production: the team decided to increase the production in all the three periods. The average increase was 8.5%. The main reason was that the market forecast showed a relevant growth, especially in Singles and Others segments; Price: the price was maintained at the same level just the first period and in the following two periods the team decided to decrease the price (from 250 to 200) in order to compete with other brands focused on the same segments. Promotion: the advertising budget was increased both for media and research, in order to reach the targeted segments; Place: we focused on Mass merchandiser since our segments shown high level of purchasing in this distribution channel.

Simulation Report - Team A SALT Production: the team decided to increase the production in all the three periods as in the case of SAMA. The average increase was much higher than SAMA, since it was 47%. This was due to the fact that despite all the efforts made by the Production department, they were not able to fulfill all the orders of the brand. Price: the starting price was much more higher than SAMAs price and it was settled at 500. We decided to increase a little (from 500 to 515 in the period 3). Since we targeted Professionals and High earners, which are less price-sensitive in comparison to the other segments, we did not expect a negative reaction for the increase in price. Promotion: the advertising budget was increased both for media and research, in order to reach the targeted segments; Place: we focused mainly on Specialty stores and secondary on Department stores, since our segments shown high level of purchasing in these distribution channels. Moreover, they provided higher technical support.

1.6. Research & Development


In period 2 we decided to upgrade our Sonite product with project PSAM2 and PSAL2 in order to better answer to consumers needs, especially in terms of Design & Power (SAMA), and MaxFreq & Power (SALT). Prototypes were ready for the following periods, and turned out to be a good plus (except of the production cost, that could have decreased with some more investments).

We also started an R&D project for developing our first Vodite product in period 2 and we finished it in period 3. Regarding this project, we did not have a precise idea of what was the best solution to satisfy the Vodite Markets consumers. We invest only 4,6 M$ in this project and this amount of money was very low to create a good product. In particular, the prototype resulted weak in terms of Autonomy, Max Frequency and Design.

Simulation Report - Team A

CHAPTER 2 Hard Times for Group A (Period 4 to Period 7)


2.1. Context & Evolution of the Markets
Sonite The Sonite market evolution during the central part of the simulation was the following: rise in Others, decrease in Buffs and substantial stability for the other segments. As regarding our companys situation, at the beginning of period 4 we founded our position dramatically changed, registering loss both in market share and net profit contribution: something did changed. Thanks to more clever marketing policies, team O and E stole to our group relevant part of market shares in the market, putting us from the 1st position of period 3 to the 3rd position in period 7.In particular, team O made a very good work, resulting in stunning performances both in terms of market shares (35% by period 7) and Net contribution (>$100 M, compared to an averafe of $20 M performed by other teams). As we can see from the graph the only market segment that increased significantly was the Others segment that was satisfy by our SAMA, but from period 4 to period 7 our competitors developed others product that made the competitive environment more complex. This resulted in a loss of market shares, especially in period 4 and 5. Losses in market shares meant also loss in net contribution, but this point will be better explained in the next paragraph.

Vodite The central part of simulation saw also the born of the Vodite market. Lets take a look at its segments. Innovators (In) These consumers will be the first users of Vodite products. Although this segment will probably be the largest one in the early days, it represents only a small percentage of total potential consumers. Early adopters (Ad) Consumers in this segment will not adopt Vodite products as quickly as innovators but will certainly do so before a majority of people have accepted the new technology. Followers (Fo) - These individuals represent the bulk of potential consumers. Because they perceive more risk in buying new products, they adopt a product innovation only after a large number of consumers have tried it. 9

Simulation Report - Team A Vodite market officially started in period 4, with the launch of VARA product by our group and VOA1 by group O. Our main competitor (firm O), launched its first Vodite product much better than our VARA and they reached almost 98% of market share in Vodite Market in the first year. In period 6, two new competitors entered, group E with its VERI, and group and VYBI by group Y. They performed much better than us, leaving our VARA at weak market shares. As it will be explained later, the bad characteristics of our product were putting it completely out of the market. Overall, our weak performances turned out in lower budgets, period after periods. Our financials have been saved in period 6 by a $ 4M loan (used to re-launch successfully our Sonite and upgrade our VARA) and in period 7 by an external surprise bonus of $5 M. Those two injections, united with better marketing policies, contributed to a remarkable recover for our Sonites product, especially during period 7.

2.2. Our Strategy


Due to our bad performance in period 4, our main objective was to try to re-launch our products and to gain position in market share and net profit. In Sonite market we had loss in market share because our product were not able to cover the actual requests of the market segment so we decided to upgrade our SAMA for Others and to develop a new product SAFA, created in order to perfectly fit the preferences of Singles segment that was the segment with highest forecast of growth in the next years. We focused SALT, our expensive and best product, on the Hi-earners segment that was composed by people willing to spend an extra budget for a good product. We started also to identify our perceptual objectives to clarify our advertising intention to our customers. We had utilized the semantic scale and especially the MDS as a source of insight into the similarities and differences of the 3 target segment . In period 5 we had low budget due to our bad result of previous period and so we were forced to reduce the production of SAMA and especially VARA, which was a very bad and so hard-to-sell product. The objective was to regain a good position in Vodite market, so thanks to a loan of 4M$ in period 6 we were able to start an R&D project in order to improve VARA and create a competitive product with better characteristics; we thought this product focusing on the followers segment.

2.3. Financial & Market performances


As already introduced, in the central part of the simulation (period 4 to period 7) our company did not performed well, and the results are clear when we look at the financial side. Period 4, 5 and 6 registered losses both in terms of market share and net contribution, while in period 7 thanks to extra-budget coming from outside a little advertisement-led recover did happened. The big, and for us disappointing numbers are the followings: Total Net Contribution: from $31 M to $8 M between period 3 and period 6. Market Shares: from 20% (2nd position) to 12% (4th position) between same periods.

The lowest peak was reached in the 6th period, when we ended with a very low budget, and so we had to ask a loan of $4 M, mostly used for the improvement of our Vodite product, VARA. 10

Simulation Report - Team A But lets see now the performance product by product. SAMA (performance rating: C-)

SAMA started very bad, registering in period 4 a loss in terms of market share of 35,1%, due to our competitors SIRO and SOLD, that stole us relevant part of the Others segment. Our reaction as it will be explained in the R&D chapter was to start a modification of the product in order to better target the segment of Others (which was, in the long term, the biggest and most dynamic in Sonite market). In period 5, when we launched the new version of SAMA we made a very big mistake and we underestimate the quantity of unit sold. By producing so few units (60k, from 100k in the previous period), we suffered 2 bad effects: 1) we loss potential selling, and so revenues; 2) we did not benefited from scaleeconomies, resulting in high producing cost, and so low margins; those bad mistakes bring us to a loss again in market share, and a negative Net contribution. In period 6 we performed better, and we could steal some of the lost market share and avoiding negative Net contributions, while in period 7 SAMA finally came back as one of the Others mass products (11,6%, third positioned in the segment), but still not so good in terms of revenues (less than 7% of our companys revenues), also because of the low margins of the segment. SALT (performance rating: B+)

SALT was the product that could make us survive during the central part of the simulation, covering on average more than 90% of our total revenues. The success of SALT during periods 4 to 7 was mainly due to its good positioning among the segment of Hi-earners, especially in terms of physical characteristics. This fact granted SALT to be the segments first product in the market, with shares between 35% and 23%. Exploiting its high margins and scale economies, we could make SALT a good source of revenues between $31 M (period 4) and $21 M (in period 6). SAFA (performance rating: C+)

SAFA was launched in period 5 with the intent of targeting the segment of Single, that we considered potentially very profitable, both because of market forecasts, both because the competition was not too high (competitors, in fact, concentrated more on the Other segment than Single, during all the simulation). SAFA, during periods 5 to 7 performed well in terms of market share and bad in terms of net contribution. As regarding market shares, it reached in the second year the 23% of Single segment, making it the first product for this group of consumer: a very satisfying result. At the other side of the coin instead SAFA turned out to be a great delusion, registering weak performances in terms of revenues. This result is mainly due to our bad price management. In fact, SAFA was launched with a retail price of $ 220, which alone could not cover the cost of production: an important mistake mainly due to our inexperience, that we could understand only on the next period. After having understood the roots of our mistake, we decided to put up some modifications: We increased the price from 220 to 260; We concentrated more the sales force in the specialty stores, where the margins are bigger.

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Simulation Report - Team A The result was that, after 2 periods of negative performances, Net contribution resulted in $1,3 M in period 7 (with selling lost in this period due to under-estimation of the production), and eventually increased in later periods. The change in price did not result in a lost in market share, nor it changed the perception of customers. Probably, the price could have been raised until 280, where our segment-competitor SINO was located. VARA (performance rating: E)

VARA was launched in period 4 with the highest expectations, because it was the first product in Vodite market. Production units was dimensioned at 80K units, 50% of the expected new-born market (we did know that one of our competitors was going to launch another Vodite in the same period). The result was a disastrous: just 2K units were sold, corresponding to 1,4% of the new-born Vodite market. In the following period units sold increased to 27K, mainly due to the growth in the Vodite market, and again, in period 6 selling went down to the entering of new competitors. Weak performances were registered for the product also in terms of revenues: negative Net contributions in all the three periods. How this happened? The answer is clear and simply: our product was very bad, and too low R&D investments were put on it. The result was that consumers were not buying VARA, and so retailers were forced to sell it under-price, between 370 and 400, compared to a retail price of (on average) 500, and production cost was around 400. Vodite so registered low selling, and those few were also characterized by a price lower than production cost, resulting in negative net contributions, even before the marketing expenses. In few words, VARA during those periods was a total disaster, and for this reason our team decided to invest $3.5 M for the improvement of the product, using the money of a loan we received in period 6.

2.4. The Marketing Mix Recap


SAMA Production: the team decided to decrease a lot the production in period 5 (-64.%). These changes were mainly due to a lower budget caused by a high level of inventory in SAMA which was sold to a trading company with a disposal loss of K$178. Moreover, in period 5 we introduced the modified brand. Thanks to an increase in sales, the team decided to increase again the production of the brand in period 6 (+260%) because on the previous year the demand was higher than what we produced before; Price: the price progressively decrease from 210 in period 4 to 200 in both periods 5 and 6; Promotion: the advertising budget decreased because of a reallocation budget, that results to be low; Place: we focused on Mass merchandiser since our segments shown high level of purchasing in this distribution channel.

SALT Production: the production was decreased a little in the fifth and sixth periods; Price: the team decided to maintained the same price for all the macro-period; Promotion: the advertising budget was increased both for media and research, because of lower budget in comparison to the previous periods; 12

Simulation Report - Team A Place: thanks to the sales force experiment, the team understood that the sales force distribution was allocated in the right way.

SAFA (introduced in period 5) Production: the starting level of production was fixed at 150 KU for both periods 5 and 6; Price: the price was fixed at 220 and the targeted segment was Singles, since the market forecast shown a high growth level; Promotion: the team spent a little bit more in 5 period, since it was a key step in the introduction in the market. One year later, the budget decreased by -18%. Place: we focused mainly on Specialty stores and secondary on Department stores, since our segments shown high level of purchasing in these distribution channels.

VARA (introduced in period 4) Production: the team decided to start with 100 KU of units produced. After its first period, it showed that it was not the right product that satisfied the need for that specific segment, the Innovators. Price: in the first period the fixed price was 680, which was much higher than our main competitor VOA1, launched in the same period. Then, the team decided to decrease the price (even if the base cost was very high) in order to reach a higher market share. Promotion: the advertising budget was increased in the period 6 both for advertising media and research (+18%); Place: VARAs sales allocation was distributed mainly between Department stores and Specialty stores, according to consumers habits research.

2.5. Research & Development


In period 4 we developed an R&D project (PSAM3) in order to improve and upgrade SAMA with the intention to better fit the Others segment. This action was chosen according to our strategy which was to pass by a multi-targeting of the product (SAMA was targeting both Singles and Others at the beginning) to a focus only on Others segment. For this reason, we parallel decided to develop a new Product SAFA - created for Singles. To choose the characteristics of the products, we looked at the graph of Ideal Values evolution to have an idea of where were going the preferences of consumers in the following periods. Thanks to this clever action, SAFA turned out to be a perfect answer for the segment Singles, giving us good performances in terms of market shares. As regarding our VARA, we soon understood that our products characteristics were the main cause of its total failure, in particular, Autonomy and Max Frequency as can be seen in table of comparison here. For this reason, in period 6 we started an R&D in order to improve the product. Due to budget constraints, we had to ask a loan in order to face the cost of $3,5 M that the project worth.

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Simulation Report - Team A

CHAPTER 3 The Resurrection (Period 8 to Period 10)


3.1. Context & Evolution of the Markets
In the last part of the simulation, our two markets were presenting similar dynamics. While both Vodite and Sonite were increasing in terms of number of units sold at relevant rates, only the first one was increasing also in terms of value.

In terms of competition, the expanding of the market did not result in great competition: Group O increased its market shares until 50% of the total market (both in terms of Value and units sold)in the last period, becoming a monopolist-like group; In period 8, many brands folded, passing by 26 to 23, while instead an increase was expected.

The greater change that was observed during this period came essentially from our group A. In fact, our new-modified-VARA was able to steal relevant shares to group O in the Vodite market. In the last period, relevant performances came by product VYBE of group Y.

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Simulation Report - Team A

3.2. Our Strategy


In this last part we decided to focus our resources more on Vodite market because: Sonite market was much more competitive and with not so dynamic (mature market); - Vodite market was more dynamic and less competitive (only 7 brands at the end of period 7) Considered that, our main objective was so to market our new-modified VARA in order to increase our market share and net contribution. We tried to do that by increasing our advertisement budget and so the production volumes. This strategy, as it we will see in the next paragraph, will turn into success. Regarding the Sonite market, we saw potential in our SAFA, that was targeting well the cluster of Singles, with no big competitors. The decision to concentrate resources would have turned out to be quite profitable. As of SAMA and SALT, due to budget constraints, we could not be able to give them the right quantity of budget for the marketing, and so their performances went bad. In particular, SALT suffered from the increasing competition of SOHI and SELF. As regarding our positioning policies, we tried to anticipate the evolution of customer preferences by studying the ideal value evolution graph. It gave us an idea of how we had to modify our perceptual objectives in order to improve our advertisement. At the beginning of period 10 we had an great budget so we decided to reposition all our brand through the advertisement and also through a better advertising research to create best quality message.

3.3. Financial & Market performances


In the last three periods, our performance improved a lot, especially in terms of profitability. In the following graphs are represented the Net contribution in the three periods, dived by product.
60000 50000 40000 30000 20000 10000 0 -10000 -20000 8 9 10 5k -10K 5K 9K 24K 16K 4K 11K 9K 19K 19K VARA SAFA SALT SAMA

As it can be seen, the great part of our success was due to the stunning performance of our Vodite product VARA. The other increase came from the product SAFA, while SALT decrease dramatically, from $24 to $9 K. But lets see now the details product by product.

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Simulation Report - Team A SAMA (performance rating: D)

SAMA bring us very low margins during all the last three periods, and so low level of revenues. Could we make it better with this brand? The answer is yes, and to understand it we can take a look at our competitors. In the table here there are values of SAMA and the two main competitors SEMI and SOLD in periods 8 and 9 (average values). First of all, we can see that those two products were selling much more than us (<30% compared to 10%), mainly thanks to a better advertisement (product characteristics were more or less the same). SEMI and SOOT had been turned out to be more profitable than our SAMA because of 2 reasons: They were selling more (due to better positioning), and so producing more: this let them decrease production cost with scale economies; Their basic margin between production cost and retail price were greater at the beginning (86, compared to 89 and 99);

Said this, the segment Others were the less profitable one in all the Sonite industry because of its state of maturity and so its low prices to consumers. Surely, we could have increased our revenues here with greater volumes of selling, an objective failed due to weak marketing policies, and so bad positioning. SALT (performance rating: C+)

SALT were the second disappointment of the last part of the simulation, passing from a market share of 21,8% among Hi-earners (2nd position) to just 6,6% in period 10. In terms of net contribution, it passed from $24 K of period 8 to $9 K in the last one. How can be explained this big loss in market shares? Lets see to whom we lost them: SELF and SOHI: the first went from 55 to 70%, while SOHI from 5 to 20% of Hi-earners segment. Their better results came from: Better positioning through advertisement (they spent on average $ 800 more than us, and had registered better results, as can be seen in the table communication dimension and message quality that we purchased in period 9). Better price-policy: both of our competitors decreased the price while we were maintaining it constant: it bring them more close to consumers in terms of economy and convenience.

Lost in market shares turned out to decrease deeply profitability and so, Net contribution. In the end, we can observe that, with a decrease in selling price (assisted by a better and greater investment in terms of advertisement), even if our per-unit margins would have reduced, scale economies would have maintained the product very profitable.

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Simulation Report - Team A SAFA (performance rating: B)

SAFA, compared to the other two Sonite products, turned out to be a good success. In terms of market shares, it passed from 22% of Period 7 to 31% in the last period, consolidating its first position among the segment of Singles. SAFA have probably been the brand that we better managed. In terms of price management, even if we offered the highest price among our segment-competitors SOLD and SUSI, we did not lost any market share. In terms of advertisement, we registered a poor performance (see market research studies of period 9), mainly due to low budget, on average $ 500 below SOLD and SUSI volumes. Our success in this segment was the characteristics of SAFA, which was much better than our competitors, especially in terms of Power (68, compared to 40 and 50), which was the second most relevant characteristic after price. In this sense, merits go to the R&D department that created an ad-hoc product for the segment. A bad mark goes instead to the dimensioning of the volumes to be produced: in period 8 the production resulted in being too low, and so we lost potential customers. VARA (performance rating: B+)

VARA was our biggest disappointment in the central part of the simulation. In the last part it became instead our biggest success. In period 8 we introduced the new model of VARA (based on the R&D project PVAR1), and the results came: units sold passed by 7 to 111K and market share from 1,5% to 15%. Despite those numbers, the Net contribution turned out to be negative, mainly due to our inventory disposal loss which is the cost derived by the lost of old Vodites we had in inventory (without this negative line, VARA would have turned out in a Net contribution of $3 K. Period 9 was a consolidation of the previous success: units sold from 111 K to 248 K, with an increase of market share from 15% to 24%. Net contribution resulted in $19 K. The result came surprisingly with the increase of the sales among the cluster of Early Adopters, rather than Followers.

3.4. Marketing Mix Recap


SAMA Production: the level remained the same just in the period 7 and 8 (180KU), while in period 9 it was decreased (50KU) and finally in period 10 it was increased a lot (300KU); Price: the price was maintained the same for all the four periods, since the targeted segment was price-sensitive ( Others); Promotion: the main changes were represented by a completely cut on the advertising budget in period 9 (0K$) and an increased in period 10 (2500K$) since the budget was available thanks to an increase in the net contribution in the previous period; Place: we focused on Mass merchandiser and Department stores.

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Simulation Report - Team A SALT Production: the production was almost at the same levels for all the periods (130KU); Price: the team decided to maintained the same price for the first three periods, since the team decided to focus on High Earners, but it was decreased during the last period from 515 to 450; Promotion: the advertising budget was increased both for media and research, because the available budget was addressed to the brand with lower brand awareness; Place: we focused on Specialty stores and Department stores.

SAFA Production: the level of production constantly increasing, because of the success of this brand on the targeted segment (Singles); Price: the price was fixed at 260 for the four periods. Promotion: the team decreased the expenditure on advertising media and there was a focus on the advertising research, in order to have a good quality of the message; Place: the sales forces were distributed in all the three distribution channels with no significant difference.

VARA Production: the production constantly increased in all the periods, since we introduced a modified brand in period 8 which met the need of both Followers (95% targeted) and Early Adopters (5% targeted); Price: in order to satisfy segments needs and to compete with other 8 Vodites products the team decided to decrease the price from 600, in the first two periods, to 550 in the remaining periods; Promotion: the advertising budget was constantly increased in all the periods because we observed that our product was one of the best in terms of quality; Place: the sales forces were distributed mainly in Department stores and Mass merchandiser.

3.5. Research & Development


In the last part of the simulation we just had one R&D project, that we made in the last period. This decision was due to the fact that, by knowing that the simulation was going to end soon, we preferred to concentrate our means in order to improve market shares and net contribution rather than create products that would have been available for periods after the end of the simulation.

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Simulation Report - Team A

Key learning points & Conclusions


We believed that the biggest success factors in the Markstrat simulation was to first launch the Vodite product in order to take advantage of a blue ocean strategy in a new and unexplored market. We tried to do this, but our great mistake was in the Vodite R&D project. In the other hand, group O could do that, resulting in the winning team. In the first 2 periods we had a good position both in market share and in net profit contribution, but our R&D investment was too low and our product, unlike the Vodite of Firm O, was very bad and very far from the customers preferences. Our team have understood the importance of all the Market Research studies that we could purchase each period. In order to better understand the targeted customer we have analyzed Consumer Panel and Consumer Survey, but sometimes we did it too late. Thanks to the Market Research report the team could also consider, segment by segment, if our brands were correctly targeted. In relation to the Marketing mix decision we made some mistakes. First of all we mismanaged the production of SAMA and SALT in the central period and we lost potential sales of these products. Than considering the price, we have not always done the right choice, and we well understood that each segment required its own price decision, also in according to the competitors decisions. Until period 4 we did not understand well the role of Perceptual Objective and so our brands were not perceived as we wanted by our target segments. With this mistake our competitors could reach higher rates both in market share and net contribution. We have also learned that for a good advertising message it is important to invest a specific part of our budget in advertising research; this improves the quality of the message for our targeted segments. In general our team is very satisfied and proud to have take part to this simulation. We all agreed that Markstrat was a great opportunity for each member of the team at both professional and personal level to improve our notions in marketing field. Thanks to Markstrat, we have also improved our teamwork skills, putting in practice our theoretical knowledge.

And some tips for future Markstrats generations


Dont be afraid to ask for a loan, if you believe in your project! Our company was performing very bad in the central part of the simulation. With a loan of $4 M we could develop an R&D to improve our Vodite: it resulted in a great success. Dont invest too low in your first Vodite ( at least $ 8-10 M)! We made the mistake to create a weak Vodite and so our performance was terrible! Manage well your time! If in your case, like ours, the time is low for each period, organize efficiently the team, also by dividing the team in sub-parts (i.e. R&D, advertisement team). Study well the manual before the start! Some points have been understood by us only in the central part of the simulation. If we would have studied better the manual, the learning process would have been faster and easier, and so our final results!

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