The Goal is to Maximize Learning and Not Profits. But winning = points

50% of the firm’s decisions will prove to be unacceptable – be careful Responses based not only on your decisions but that of competitors

Set selling prices Develop advertising campaign Design 2 ads, one for each brand Determine number of placements per ad You cannot develop sales channel Segmentation is key…marketing for a particular segments is not effective for another Key tip- segment and target

Schedule production Forecast demand Set operating capacity Set desired ending inventory Run factory simulation, check numbers Contract for market research on customers and competition Check pro forma financial statements

The Market is not waiting for you to take their orders. You must create the market Sell brands that Customers want and at a price they are willing to pay Inform and persuade Customers to buy a PC through advertising Competition is good it creates consumers Forces you to innovate and improve

Costs – production, marketing, overhead Profit goals What Market will bear Competition Be careful- worse thing you can do is retrench marketing expenses Focus on best segments and market to them Make sure brands and ads are the best…rebates work

There are many startup costs which will exceed your revenues. Your production volumes will be very low, resulting in high per unit costs.

Time Profit Costs to setup and grow the business 0

Time Profit Costs to setup and grow the business 0 Revenue

Time Profit Costs to setup and grow the business 0 Revenue Profits come later You are hereYou are trying to get here Free cash flow

Demand Time Introduction Growth Maturity Decline You are here. High costs, low demand

You must discover the Market Response Function regarding price.

Your Demand Your Price Elastic (demand drops fast with increasing prices) Inelastic (price is not a big factor)

Your Demand Price premium for your brand Less Elastic Elastic Differential Advantage shifts the demand curve and reduces price elasticity

Your Demand Competitor’s Price Low competitor prices will kill your demand

Your Ad Order of priority tells the ad agency what to stress in the ad Order of priority implies importance of message to customer Low price Easy to use More productive Fast Office applications Picture office workers Most important Least important

Example of “high” clutter stimulus (i.e. high quantity, proximity and intrusiveness of interface elements)

Example of “medium” clutter stimulus (i.e. medium quantity, proximity and intrusiveness of interface elements)

Example of “low” clutter stimulus (i.e. low quantity, proximity and intrusiveness of interface elements)

Which response function is at work? OR More is good to a point and then ceases to add excitement Hot Cold LessMore Hot Cold LessMore More adds value to a point & then takes away value

Your Demand Number of ads Diminishing returns Too little

Strong competitor advertising will steal away your customers Your Demand Competitor’s Advertising

High production Lower unit production costs Risk of too much inventory Uses up large volumes of cash Risk of brand obsolescence (wrong product in warehouse) Low production Low cash requirements Higher per unit production costs Risk of too little inventory Stock outs // Lost revenue // Customer ill will (unhappy customers)

Demand is a function of market potential of the segment and the market along with the quality of marketing decisions.

The plant manager checks the warehouse every day to determine the rate at which each brand is being pulled out of the warehouse The production schedule is set to mirror the demand pattern in the warehouse, faster moving brands get more time on the production line than slower moving brands.

Enter all decisions. The financial component of each decision will be posted to the Pro Forma Cash Flow. Run the factory simulation. The simulator will estimate production costs and revenues. Load data into the Pro Forma Cash Flow. Check the ending cash position. A desired ending cash position would be $500,000 or more. Prepare a pessimistic scenario. Reduce demand by 50%, keeping all the other expenses the same Rerun the factory simulation Reload the Pro Forma Cash Flow For this pessimistic scenario, the ending cash position should be $300,000 or more. Prepare a worst-case scenario. Set demand at 25 total Look at the numbers, how bad would it be?

Time Profit Costs to setup and grow the business 0 Revenue Profits come later You are here

Execution of a coherent strategy Management of cash in the face of great uncertainty Learning to walk before you run

Coordinating a host of tactics Pricing – balancing costs, profit, what the market will bear, and competition Testing the market – discovering the markets’ many response functions Production – managing capacity, inventories, and costs to meet demand-based goals