222 Third Street Cambridge, MA Tel: (617) Fax: (617) The Markstrat Challenge II

2 Your success in Markstrat will greatly depend on your ability to manage the development and positioning of brands Positioning R&D Strategy

3 Customers make purchase decisions based on their perception of your brands Their perception of brands Your perception of brands Technical quality Brand A Brand B Brand C Brand D Brand C Brand A Brand B Brand D ? ?

4 The "Perceptual Map" is a valuable tool for visualizing brand positioning Perceptual Map based on MDS Study Key Perceptual positioning of brands Segment ideal point Ot Need 2 Need SELF Pr Hi Bu Si Ot SEMI SONO SOLD SUL I SAMA SUSI SALT SIBI SIRO

5 There are two key ways to re-position brands in Markstrat R & D Advertising Perceived Economy Perceived Performance

6 Physical positioning involves matching brand characteristics to customer needs Economy Performance Convenience Customer Needs SAMA Price Brand Characteristics Max. Freq.Power DesignVolume Weight

7 Positioning with advertising requires setting "Perceptual Objectives" -20 Perceived Economy Si Perceived Performance

8 Your success will greatly depend on your ability to manage the development and positioning of brands Positioning R&D Strategy

9 R&D success demands long-term thinking and the ability to identify evolving opportunities... Changing segment needs Hi New target segments Si Pressure on margins Ot Pr Competitor entry

10... and also requires working effectively with your R&D department Provide sufficient budgets Set realistic expected unit costs R&D = Profit Center Experience Number of Projects Similarity of Projects

11 When doing R&D, keep in mind both positioning and economic factors C Base Cost (at 100K units of production) Target margin Cost in other projects Project budget Impact of physical characteristics Most important physical characteristics WeightDesignVolume Max. Freq. Power S ONITE Market needs Competitive brands Feasible range Project budget Positioning Factors Economic Factors

12 Volume Weight Diameter The HIGHER the requested characteristic the LOWER the base cost Base cost Requested characteristic Impact of physical characteristics on base cost Design Max. Frequency Power Autonomy The HIGHER the requested characteristic the HIGHER the base cost Base cost Requested characteristic

13 The budget required to complete an R&D project is a function of several factors accuracy speed feasibility study on-line query vs. to find out more: R&D experience Requested base cost Physical characteristics R&D budget required for completion

14 There are two possible outcomes of any R&D project Project submitted to R&D: weightdesignvolume max. freq. power Minimum base cost is calculated at an early stage in the project. Minimum base cost = $110 Case A Requested Base Cost = $80 (requested base cost is below minimum, but the R&D will try to develop the project at the minimum base cost) Budget required for completion = $ 800 (at base cost = $ 110) Case B Requested Base Cost = $130 Budget required for completion = $ 550 (at base cost = $ 130) Budget required for completion is also calculated at an early stage in the project $ 1,000$ 300$ 1,000$ 300 Project is available at base cost = 110 Project unsuccessful Project is available at base cost = 130 Project unsuccessful Case A2Case B1Case B2Case A1 Budget allocated by team for this period:

15 A completed R&D project may be used to modify existing brands and/or introduce new brands Performance Economy Bu Ot Si Hi Pr Old SAMA New SAMA more performance New Brand "SAMY"

16 Bringing successful R&D projects onto the market may result in obsolete inventory SAMA Brand modification (name kept) Brand withdrawal TRADING COMPANY I'll buy any product at a given % of its transfer cost Inventory disposal Obsolete inventory SAMA

17 Cost reduction projects should be weighed against experience curve effects B Transfer cost Cumulative production A1A1 A Current product (initial experience curve) Cost reduced product (new experience curve) 100 KU 225 KU Current transfer cost A1 Base cost A Base cost B

18 The MDS study measures brand perception along three composite dimensions... WeightDesignVolumeMax. Freq.PowerPrice Economy slight moderate strong Performance slight strong moderate Convenience moderatestrongmoderateslight Product charac. Composite dimensions SONITE market Influence of brand characteristics on MDS dimensions in P0 Perceived Economy increases if Max. Freq. increases Perceived Economy increases if Price decreases

19... which are more or less influenced by the various brand attributes Autonomy Max. Freq. DiameterDesignWeightPrice Efficacy slightvery strongslightmoderateslight Flexibility strongslightmoderateslightmoderateslight Economy slight very strong Product charac. Composite dimensions Perceived Efficacy increases if Max. Freq. increases Perceived Flexibility increases if Weight decreases VODITE market Influence of brand characteristics on MDS dimensions in P0

20 New decisions introduced in Period 2: 1.Brand portfolio 2.Perceptual objectives (on semantic scales or MDS) 3.R&D

21 You can now extend your portfolio by introducing new brands... Click here to display the completed R&D projects and their features

22... you can also modify existing brands Select a new R&D project Keep the same name

23 To convey the right message to the market, you can set perceptual objectives for each of your products 1 Do you want to communicate on the semantic scales or on the MDS composite dimensions? 2 On which dimensions do you want to communicate? 3 Input the coordinates of the point that you want to reach on the map

24 You can initiate up to five R&D projects per period and per product type (five Sonite and five Vodite) Click here to obtain an estimate of the minimum base cost and budget required for completion of this project

25 You now know everything. From here on, it's down to your strategy...

26 Don't delete this page: Company Report in 'note page'

222 Third Street Cambridge, MA Tel: (617) Fax: (617) Don't delete this page: Company Report in 'note page'

28 Don't delete this page: Company Report in 'note page'