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

2 Markstrat is a simulation designed to focus on strategic marketing issues Understanding customer needs Long-term perspective Marketing as a profit center Competitive environment Marketing strategy is based on segmentation, positioning, and resource allocation... marketing mix decisions are secondary

3 Getting started Managing your firm The Markstrat World

4 The Markstrat World: A large territory with a highly developed economy The Markstrat World Population: 250 million Currency: Markstrat Dollar ($)

5 The basic scenario begins with firms starting in different positions

6 Each firm can compete in TWO product markets Maximum: 5 brands/firms marketed at a time independent not substitutes not complements V ODITES S ONITES

7 Power Base Cost Max. Frequency Design Volume Weight The Sonite market is already developed, each product having 6 determining product characteristics $ min. 10 Kg kHz Index W dm 3

8 Base Cost Weight Design Diameter Max. Frequency Autonomy Vodites will likely also have 6 main physical characteristics, but the market is as yet untapped $ min. 10 m kHz mm Index Kg

9 It is easy to recognize the origin of the brands from their names Product Type: S=Sonite V=Vodite Company marketing the brand: A, E, I,... Freely chosen letters or numbers SIBI

10 Sonite customers have traditionally been classified into 5 segments…… Singles / Si High Earners / Hi Buffs / Bf Professionals / Pr Others / Oi

11...whereas initial studies for Vodites have pointed to a different segmentation scheme time sales Followers Early adopters Innovators Typical segment size evolution over time

12 Sonite & Vodite customers have the choice of purchasing through 3 distinct distribution channels

13 Summary of the Markstrat World Environment Economic Environment MarketGrowth Market Growth Technology

14 Getting started The Markstrat World Managing your firm

15 Your objective in managing your company is to maximize your Share Price Index To do that, you will have to optimize: Market share Sales growth Net contribution Cumulative net contribution R & D investments ….but the main objective is to LEARN!

16 You will need to do a certain amount of analysis, before setting a strategic direction for your firm Data Information Strategic Options Strategic Options

17 Market research studies provide market data… it is up to you to prioritize, digest, and interpret them Consumer survey Consumer panel Distribution panel Semantic scales Multi-dimensional scaling (MDS) Industry benchmarking Market forecast Competitive advertising Competitive sales force Advertising experiment Sales force experiment Conjoint analysis

18 Once your strategy is clear, you should proceed to make a number of tactical decisions each year 1) Production planning 2) Inventory disposal 3) Pricing 4) Mass communication 5) Sales force & distribution 6) Market research

19 Market demand Production Inventory build-up Lost sales Number of Units QP (1-20%) QP Requested production level (assuming zero inventory level) QP (1+20%) Your production department will automatically adjust production levels up to 20% (+ or -) against your plan

20 ? Competitors “Order-book” Lost to industry Comparison of purchase intent with market share can give you a feel for the size of "lost sales." Market Share Market Share Purchase Intent Purchase Intent Lost Sales Lost Sales - 

21 Pricing in Markstrat is fixed once a year Specialty Stores Department Stores Mass Merchandisers Average Retail Price $100 $90 Distrib. Margin $40$ 30$ 27 Average Selling Price $ 60 $ 70$ 63 Recommended Retail Price = $100

22 Each firm receives a marketing budget for the coming period, based on the previous period’s performance Budget Operating cost Hiring & training cost Firing cost Sales force Advertising expenditures Advertising research expenditures Advertising research expenditures Advertising for each brand for each brand R & D Development budget for each project for each project Market Research Sonite and Vodite study costs

23 Brand results

24 Company performance

25 The simulation starts at the end of the initial period, the new management (you!) making decisions for the next period START MSPH

26 Organize yourselves and manage the group process Time pressure Conflicting opinions Information overload

27 The Markstrat World Managing your firm Getting started

28 When you return to your team room, the Main Menu will be on your screen Click here to open a session & access the decisions screen

29 Within the Decision Screen, you will start making decisions for the coming period Click here to make Production, Price & Advertising decisions The decisions you will make

30 Decisions on production, price and advertising should be entered for each brand You are making decisions for the brand SAMA Switch from Sonites to Vodites Switch from one brand to the other

31 The sales force is organized by channel type to better meet the specific needs of the channels Click on the assistant to help you allocate to sales forces automatically

32 Buying market research studies will help you make sound decisions The cost of each study appears as you make your selections

33 You can monitor the status of your decisions at any time

34 Don't forget to transfer your decisions to your instructor by closing the session You can close your session by clicking on Interface/Close Markstrat Session

35 Good luck! On your marks, get set, GO! Give a name to your company if you like Respect the deadlines