Nissan Sentra AutoSim Simulation Market Segmentation, Business Cycles and Simulation BADM 423 Spring 2001 Gerald Blakely, PhD., Instructor By Matt Behar, Roger Harrison, Mike Henderson, Thomas Ryan and Francisco Tovar

Purpose of the Simulation By using the simulation software AutoSim, one can dynamically study and analyze the marketing and financial activities involved in the very competitive automobile market. AutoSim is a marketing case based on real data collected from the small car sector of the industry. Our group was assigned the task of working with the Nissan Sentra, a Japanese compact built in the US as well as in other countries.

The Nissan Sentra Manufactured in Smyrna, Tennessee Manufactured in Smyrna, Tennessee 1.6 liter, 115 horsepower, 34 mpg, gasoline engine 1.6 liter, 115 horsepower, 34 mpg, gasoline engine Offered in Base, XE and GLE models with average price of $13,959 Offered in Base, XE and GLE models with average price of $13,959 Smallest of the Nissan family of cars sold in the U.S.

The goodness of the Sentra StyleStyle PricePrice QualityQuality EconomyEconomy

And the ugliness of it Perceived lack of quality when compared to Honda or Toyota Perceived lack of quality when compared to Honda or Toyota Attractive to a relatively narrow demographic group Attractive to a relatively narrow demographic group Lacks outstanding or remarkable features Lacks outstanding or remarkable features

But it isn’t a motherless child! These people like it: Commuters and followersCommuters and followers People in the 25-34, age rangesPeople in the 25-34, age ranges

Our Competition The Honda Civic and the Toyota Corolla are our most direct competitors in terms of features offered and appeal Other competitors in terms of price and features include the Ford Escort and the Chevrolet Cavalier

Initial Market Conditions Quarterly production in the small car segment is 600,000 unitsQuarterly production in the small car segment is 600,000 units Production is projected to grow a healthy 11%Production is projected to grow a healthy 11% GDP is projected to increase by 2.2%GDP is projected to increase by 2.2% Inflation has remained unchanged during the last quarterInflation has remained unchanged during the last quarter

Initial Conditions for the Sentra Market share for the Sentra is 7%, Honda’s -the leader- 14%Market share for the Sentra is 7%, Honda’s -the leader- 14% Inventory is high for all of our modelsInventory is high for all of our models Contribution is lower than most of our competitorsContribution is lower than most of our competitors Advertising and promotions are not well targetedAdvertising and promotions are not well targeted Household income for the Sentra buyer, typically a Mid-Atlantic resident, is over $60,000Household income for the Sentra buyer, typically a Mid-Atlantic resident, is over $60,000

Then, our objectives are… To become the market leader in terms of contributionTo become the market leader in terms of contribution To increase market share by targeting other demographic groupsTo increase market share by targeting other demographic groups

Strategy Advertising will focus on customers desiresAdvertising will focus on customers desires Most advertising expenditures will be on network and spot TVMost advertising expenditures will be on network and spot TV Promotions will also keep customers in mindPromotions will also keep customers in mind Maintaining strong profit marginMaintaining strong profit margin Keeping labor and overtime costs low.Keeping labor and overtime costs low. Keep plant utilization at about 75%Keep plant utilization at about 75% Maintain inventory level at 40 days for each modelMaintain inventory level at 40 days for each model

Let’s fight!! Decision One We changed advertising to focus on the year old rangeWe changed advertising to focus on the year old range We offered 8% financing, and $250 rebates on the XE and GLE; $100 on the Base modelWe offered 8% financing, and $250 rebates on the XE and GLE; $100 on the Base model Forecasted an increase in market share as result of increased advertisementForecasted an increase in market share as result of increased advertisement Want to keep inventory at around 40 daysWant to keep inventory at around 40 days Plant utilization kept at 75% capacity. No overtime cost or lay-offsPlant utilization kept at 75% capacity. No overtime cost or lay-offs

Decision One Results Our market share increased by 0.5% to 7.5%. Honda lost 1%, Corolla lost 0.8%Our market share increased by 0.5% to 7.5%. Honda lost 1%, Corolla lost 0.8% Net contribution increased from to 132.9Net contribution increased from to The year old segment makes now the most Sentras purchasesThe year old segment makes now the most Sentras purchases Low inventory in the Base modelLow inventory in the Base model GNP grew at seasonally adjusted rate of 2.5%GNP grew at seasonally adjusted rate of 2.5% Prime rate is expected to rise to 8%Prime rate is expected to rise to 8% Small car production increased by 6%Small car production increased by 6%

Decision 2 Offered higher rebate on GLE modelOffered higher rebate on GLE model Lowered financing to 4.9%Lowered financing to 4.9% Increased production of Base modelIncreased production of Base model Focused advertising and vehicle upgrade on price and comfortFocused advertising and vehicle upgrade on price and comfort

Decision 2 Results Our market share grew by 0.3% to 7.8%. Honda lost 1.9%, while Corolla gained 2%Our market share grew by 0.3% to 7.8%. Honda lost 1.9%, while Corolla gained 2% Our net contribution fell to even though sales were up, due to the lower rates and incentives.Our net contribution fell to even though sales were up, due to the lower rates and incentives. Overall car sales fell 1% while production went up 9%Overall car sales fell 1% while production went up 9% GNP grew 3.5% and prime rate is unchanged at 8%GNP grew 3.5% and prime rate is unchanged at 8% Everybody is throwing their companies out the window with very low rates and promotionsEverybody is throwing their companies out the window with very low rates and promotions

Decision 3 Need to decrease production of Base model to cut inventory backlogNeed to decrease production of Base model to cut inventory backlog Increased contribution allows us to reduce MSRPIncreased contribution allows us to reduce MSRP Keep same rate-promotion mixKeep same rate-promotion mix

Decision 3 Results Sentra lost 0.2% market share. Honda remained unchanged while Corolla lost 2.8%Sentra lost 0.2% market share. Honda remained unchanged while Corolla lost 2.8% Inventory backlog for the base model is now 70 days, and 54 days for the XEInventory backlog for the base model is now 70 days, and 54 days for the XE Our net contribution fell to 115.0Our net contribution fell to GNP grew to a seasonally adjusted rate of 4.2%, inflation increased 0.5%, and prime rate is expected to fall to 7.5%GNP grew to a seasonally adjusted rate of 4.2%, inflation increased 0.5%, and prime rate is expected to fall to 7.5% Car sales fell 2%Car sales fell 2%

Decision 4 Advertising expenditure remains unchanged from previous periodsAdvertising expenditure remains unchanged from previous periods We lowered financing rate to 1.9% and the promotion mix remained unchanged from the previous period.We lowered financing rate to 1.9% and the promotion mix remained unchanged from the previous period. Lowered production to help reduce inventoryLowered production to help reduce inventory Expecting decrease in salesExpecting decrease in sales

Decision 4 Results We gained 0.7% in market share. Honda lost 1.2% while Corolla gained 1.0%We gained 0.7% in market share. Honda lost 1.2% while Corolla gained 1.0% Our net contribution increased to 149.5Our net contribution increased to Our Base model inventory is lower than plannedOur Base model inventory is lower than planned Car sales increased 6%; more than expectedCar sales increased 6%; more than expected Consumer confidence increased, GNP grew 4.3%Consumer confidence increased, GNP grew 4.3%

Decision 5 We introduced a new Luxury model Kept promotions and financing unchanged Increased production on Base and XE models. Decreased production of GLE

Decision 5 Results: We ran out of gas We lost 0.4% in market share. Civic remained unchanged and Corolla lost 0.3%We lost 0.4% in market share. Civic remained unchanged and Corolla lost 0.3% Our net contribution took a bit hit, losing 47.8 to fall to 101.7Our net contribution took a bit hit, losing 47.8 to fall to The introduction of the new luxury car ate up sales of the GLE model, pushing inventory of the GLE to 105 daysThe introduction of the new luxury car ate up sales of the GLE model, pushing inventory of the GLE to 105 days

Time to pack up We, the Sentra Team, lost ground in contributions due to the introduction of a new model in the last period, and to the cut-throat competition Ending Contribution = Beginning Contribution = Highest Contribution (Y3Q1) = We gained market share, one of our objectives Beginning Market Share = 7.0% Ending = Highest Market Share = 7.9% Our main competitor, the Civic, lost 3.1% to end at 10.9% market share.

Generally Speaking Our approach was conservative, trying to maintain a constant level of inventory, advertising expense and plant capacity utilization. This approach allowed us to gain market share while raising contribution Our contributions made steady gains that were only upset in the final period by the introduction of a luxury model that competed directly with our own GLE model Then, we can safely say…

My Sentra is better than your Civic! (and the others too!)