The Markstrat Challenge II

The Markstrat Challenge II

Organization of this Presentation
Perceptual Map Positioning through Advertising Positioning through R&D During the course of the simulation, companies may introduce new Sonite/Vodite brands and reposition or withdraw existing ones. The maximum number of brands marketed by a company in a given period is limited to five brands per market (Sonite or Vodite). This constraint makes it extremely important to find optimal segmentation and positioning strategies. The positioning and repositioning of brands with respect to the specific needs of various consumer segments is a major aspect of the Markstrat companies' marketing strategy. The strategic issues surrounding market segmentation and product positioning can be summarized in three questions: 1. Which segment do we want to target? 2. How do we design the product appropriate for this segment and position it effectively? 3. As the environment changes, how should we reposition our existing brands? In Markstrat, various approaches can be used to help address these questions. Modifying & Launching Brands New decisions in Period 2 21/09/2018 Introduction to the Markstrat Challenge - Part II

Perceived position of SOLO
The Perceptual Map is a valuable tool for visualizing brand positioning Need 2 Segment ideal point Need 1 Multidimensional scaling of brands similarities and preferences One basis for analyzing the positioning of each competitive brand is the perceptual mapping of similarities and preferences based on the multidimensional scaling study. The data are obtained through interviews with a sample of 200 individuals. This is a two-dimensional map whose axes are scaled from -20 to +20 and represent composite dimensions. Axis one represents the first most important need of the consumers and axis two the second most important need for that product category. The study will provide the best interpretation of the composite dimensions for each axis. The circles 'Bu', ‘Sa', 'Pr', 'Hi', and ‘Sh' on the graph represent the ideal points of each of the five segments. Each circle only represents the 'center of gravity' of the whole segment. Each consumer has a different preference, however, the preferences within a segment are sufficiently similar so that the ideal point represents well the overall global preference of the segment. The various geometric shapes (square, triangle, star...) correspond to the positioning of the brands as they are perceived by the market at the time of the study. Each brand name is clearly labeled. One specific color and shape is attached to each firm (for example, all brands marketed by firm A are represented by red stars). This study differs from the semantic scales study in that the respondent is not provided with criteria to evaluate the brands. Instead, these criteria are deduced by the approach which is based on global assessment of similarities of pairs of brands. This is a complex task which necessitates a number of brands to be able to derive a solution. This study is therefore not available for the Vodite market until sufficient competing brands are marketed. Perceived position of SOLO Needs : Economy, Performance, Convenience … 21/09/2018 Introduction to the Markstrat Challenge - Part II

Sonite brand characteristics to Consumer Needs (MDS Dimensions)
Economy Performance Convenience Price Processing Power Display Size Design No. of Features Battery Life Positioning through research & development After assessing a situation and developing a marketing strategy in line with the needs of the market, the strategy must be implemented. One of the most important aspects of implementation is specifying the characteristics of the product that will be offered to consumers. Given the time necessary to complete R&D projects and the long term nature of strategy, the product specifications should be based on the expectations of where the product should be positioned in the future. Whether you use semantic scales or the MDS study it is possible to relate the perceptual dimension or scale to an actual physical characteristic of the product. The specification of physical characteristics of a product can only be done effectively by gauging the relationship between an actual product attribute and the consumers' perception of that attribute. A simple way to summarize the information that you possess about that relationship is to plot the perceptions versus the actual characteristics. Alternatively, when few data points are available, it could may be preferable simply to estimate the optimal physical characteristics for a given segment from the closest brands available in the market. These methods, although imperfect, offer approximations which should become more accurate as more data becomes available over time. Brand Characteristics 21/09/2018 Introduction to the Markstrat Challenge - Part II

Perceived Price and #Features of SOLO
The Brand Map plots perceived physical characteristics rather than consumer needs Segment ideal point Perceived Price and #Features of SOLO 21/09/2018 Introduction to the Markstrat Challenge - Part I

Reasons to re-position
Changing segment needs New target segment Hi Sh Competitor entry Pressure on margins Identifying and anticipating market evolution Ideal points reflect the needs of consumers. These needs gradually change as the consumers' values and behavior evolve over time. These changes are typically due to changes in the environment, which in turn does not change drastically from one period to the next. Therefore, changes in preferences are by no mean entirely external to the industry. Indeed, the actions of the competitors in the industry can have a significant impact on these trends. Marketing decisions of the firms in the industry impact the segments' evolution in terms of their size, the importance of the dimensions characterizing the brands in the consumers' perceptual space, and consumers' preferences in terms of the degree to which they desire the product to possess given attributes. The semantic scales and MDS studies both provide a map which tracks the ideal point evolutions. If the pattern over time is stable enough and if the information provided by the market research is reliable enough, it is then possible to predict the position of an ideal point as a function of time. Pr Sa 21/09/2018 Introduction to the Markstrat Challenge - Part II

How to re-position brands
Perceived Performance Advertising Perceived Economy R&D Repositioning strategies Once a brand has been sold in the market, consumers have a certain idea about the brand, which is represented by its position in a perceptual space. Over time, demand and competitive dynamics affect what should be the optimal positioning of a brand. In Markstrat, brands may be repositioned to adapt to new environmental conditions. Repositioning can be achieved by advertising and/or by R&D. A brand might not need to be repositioned on both dimensions. Indeed, if the perception on one dimension corresponds to what consumers want, there is no reason to change that perception. Brand repositioning by advertising is limited by the actual physical attributes of a product, and consumers' perceptions of these characteristics may be shifted only within a certain range by advertising. At some point, it becomes more effective to reposition a brand by changing its physical characteristics than by advertising alone. The choice of repositioning through advertising versus new product development depends on the extent to which repositioning is desired and is a function of the current level of brand awareness. A brand which consumers are extremely familiar with will be more difficult to reposition. It also depends on the firm’s ability to complete R&D projects with the physical characteristics of the products that corresponds to the market needs. Finally, it should be noted that completing an R&D project will take at least one period, while advertising has an immediate effect. 21/09/2018 Introduction to the Markstrat Challenge - Part II

Positioning through Advertising

Positioning with advertising requires setting "Perceptual Objectives"
Perceived Performance 20 Sh 11 SUSI 10 Target Position 5 Current Position Perceived Economy Positioning through advertising Advertising in Markstrat is primarily used as a communication tool to get consumers to know about the brand name and about the characteristics of the brand. Advertising strategy should be consistent with the marketing strategy of the firm. It is used to increase brand awareness and to position and reposition brands so that consumers are convinced that the product offerings correspond to their needs and wants. Using advertising to reposition a product requires four types of decisions: 1. Selecting the target segment(s) 2. Specifying perceptual objectives for the brand. For example, to reposition SUSI closer to the ‘singles' segment, you would check the actual coordinates of the ideal point of that segment, try to anticipate its moves by looking at the trends, and enter the coordinates of the point that you want to reach on the map. You can choose to set perceptual objectives either on semantic scales or on MDS dimensions. A maximum of two dimensions can be used to keep the message simple and effective. 3. Allocating an advertising media budget for the brand. 4. Allocating an advertising research budget. The higher the advertising research budget, the more accurate one may expect the repositioning to be in terms of reaching the perceptual objectives, although there will naturally remain a limit to how far and how fast one can move perceptions. Simply indicating the targeted segment (100% of budget on the ‘singles') is insufficient to reposition a brand. Target selection only affects the media vehicle selected to communicate the message, but does not impact the message itself. The appropriate advertising program must also be designed in order to let consumers know of the change in the physical characteristics of a brand in case of brand modification through the implementation of a new R&D project. -10 -20 -20 -10 5 10 12 20 21/09/2018 Introduction to the Markstrat Challenge - Part II

Setting perceptual objectives in Markstrat
1 Enter a significant advertising budget and spend 10% to 15% in advertising research 2 Decide which scales (semantic or MDS) you want to communicate on 3 Select the dimensions which you want to communicate on 4 Input the coordinates of the point that you want to reach on the map 1 2 Perceptual objectives When trying to reposition a brand with advertising, it is necessary to indicate to the advertising agency what are the desired perceptual objectives. If the intent of the advertising is simply to raise brand awareness with no positioning objective, check the 'no objective' option. Objectives may be chosen on two communication dimensions. Perceptual objectives may be provided either in terms of semantic scales or in terms of the scales derived from the multidimensional scaling study. Just click on the type of scale of your choice. The appropriate dimensions can be displayed by clicking on the arrow of the boxes corresponding to dimensions 1 and 2. Once dimension choice is made, the objective levels must be selected. For the scales based on the multidimensional scaling study, these numbers should be between -20 and +20, the maximum coordinates of the axes. For the semantic scales, the range is from 1 to 7. These perceptual objectives convey information primarily of a qualitative nature (for example, how much should the lightness of the product be stressed) for the design of the advertising platform and copy. The numeric representation of these perceptual objectives is used only for communication purposes. The communication may be on a single dimension (a unique selling proposition). In this case, the list box for dimension 2 should not remain blank; instead, pick 'none' in the list to indicate that the communication is made on a single objective indicated in the box for objective 1. 3 4 3 4 21/09/2018 Introduction to the Markstrat Challenge - Part II

Positioning through Advertising

Why and when to interface with R&D ?
To develop a new product To modify the features of an existing product To reduce the manufacturing cost of an existing product 21/09/2018 Introduction to the Markstrat Challenge - Part I

Introduction to the Markstrat Challenge - Part II
Cost reduction projects should be weighed against experience curve effects Transfer cost Cost reduction versus experience curve The manufacturing cost of the products tend to decrease as a result of productivity improvements gained through experience, although this effect may be offset by inflation. This 'experience effect' can result from a variety of sources in addition to labor productivity. The cost reduction generated by the production department is very regular, every time cumulative production for a given product doubles, unit transfer cost from the production department to the marketing department decreases by about 15%. However, in the case of several products based on the very same R&D project, cumulated productions will be added and productivity gains will be shared. Greater changes in manufacturing costs may be obtained by undertaking appropriate R&D projects, for which it is necessary to change only the cost characteristic of an otherwise unmodified product. There are two methods for deciding what should be the actual cost requested: 1)a feasibility study specifying the lowest possible base cost (very accurate but takes time) ; 2) a on-line R&D query option (overstated but immediate). The budget required to complete such a cost reduction project varies by firm and depends on the amount of R&D experience developed over time by each firm. The base cost of a new project might be lower than the base cost for the first 100,000 units of the current product but higher than the current transfer cost achieved by experience effect. It can, however, lead to cost reduction as, after the product modification, production starts a new experience curve. By the time the brand is known in the market, sales could be substantial and cumulative production could double extremely fast, possibly within the first year of production. While the older product might be in the flat part of its experience curve, where gains in productivity are minimal, the new product starts on a new experience curve and therefore benefits from high level of productivity gains. Cumulative production 21/09/2018 Introduction to the Markstrat Challenge - Part II

How to interface with R&D
1. Choose a meaningful name and enter a description 2. Enter the desired physical characteristics of the future brand 3. Enter the desired Base Cost of the future brand 4. Allocate a budget to so that R&D can allocate resources and complete the project 21/09/2018 Introduction to the Markstrat Challenge - Part I

How to decide on the desired Base Cost?
Option 1 – “Develop this project at the lowest possible base cost” The project will be more expensive to develop but manufacturing costs will be the cheapest possible. Option 2 – Choose a Base Cost above lowest: The project will be less expensive to develop but manufacturing costs will be higher Product specifications Marketing requests a project from the R&D department by specifying a project name, a budget, the physical characteristics and base cost of the desired product. A project specification may consist of any combination of the five most important characteristics for the product category as long as each is a whole number and remains within its respective feasible range. One simple way to specify a base cost in an R&D project is to start with the price that consumers in the targeted segment are willing to pay for that product. Give an objective for the margins, the maximum cost possible to get to that objective can be computed. This might not be the lowest cost achievable, but it provides a basis above which the strategy would not be attractive. An alternative method for determining the cost characteristic is by doing many on-line queries or feasibility studies, as R&D can provide information as to the lowest cost that they are willing to guarantee. Because not all physical characteristics have the same importance for the consumers, a trade-off must be found to achieve a cost which will provide appropriate margins for the firm. 21/09/2018 Introduction to the Markstrat Challenge - Part II

Introduction to the Markstrat Challenge - Part I
Determine R&D Budget Option 1 – Use one of your 5 online queries/year R&D instantly tells you (overestimated) budget Minimum Base Cost Project can be started and completed in this year Option 2 – Select “Feasibility Study” and give R&D $100,000 With the next set of results, R&D tells you Accurate (and lower) budget Project can be started and completed in the following year. It cannot be done this year 21/09/2018 Introduction to the Markstrat Challenge - Part I

Your success will depend on your ability to develop & position brands

A completed R&D project may be used to modify existing brands or introduce new brands New Brand SOCCER Utilization of completed R&D projects An R&D project, once completed, makes the corresponding product available for production. If the team decides to use the new product opportunity, two options are available. Either the product is entered on the market as a new brand, or an existing brand is modified with the physical characteristics corresponding to the project. New brand introduction A new brand is introduced on the market by entering a brand name which has not been used in the past. This brand name is completely independent of the code used for the R&D project. This R&D project code, however, needs to be specified in order for the production department to know the product specifications. Brand modification An existing brand is modified by keeping its existing name and using the physical characteristics corresponding to a new completed project. The only difference with a brand introduction is that the brand name is not new, so awareness levels are maintained. Multiple brands with same physical characteristics The same product can be marketed under different names. This could occur in competitive situations where the presence of multiple brands could build barriers to the entry of new brands by competitors. This situation could also occur when the same basic product is to be distributed under different brand names to different segments which may be willing to pay different prices. New SOFT higher performance 21/09/2018 Introduction to the Markstrat Challenge - Part II

How to introduce new brands
1. Click here to launch a new brand Introducing a new brand By clicking on the 'introduce new brand' link, a new screen appears. First, the name of the brand must be entered using the naming conventions. The name of the R&D project giving the project specifications for producing the brand must be selected in the ‘Base R&D project‘ drop down. The list of available R&D projects is provided for information. The name of the R&D project to be used as the base can simply be selected by clicking on the name of the project in the list of available projects. In order to introduce a brand in a given period, it is required that the corresponding R&D project be successfully completed in a previous period. A project requested from the R&D department is never available for commercialization before the beginning of the following period. The 'undo' button in the brand portfolio screen can be used to remove a new brand added to the portfolio with the 'Introduce new brand' button. Just select the brand and click on the 'undo' button, the new brand is removed from the ‘marketed brands' list. 2. Choose a name 3. Enter the role of the new brand … 4. Choose the base R&D project 21/09/2018 Introduction to the Markstrat Challenge - Part II

How to modify existing brands
1. Click here to modify a brand 2. You keep the same name Modifying an existing brand A new screen appears when clicking on the ‘modification' button. The R&D project name corresponding to the new product specification must be selected among the available R&D projects completed in prior periods. Of course, the name of the brand cannot be changed, otherwise, it would be a brand introduction. The 'undo' button in the brand portfolio window can be used to cancel the changes made to a brand using the 'modification' button. Just select the modified brand and click on the 'undo' button, the old brand specification (based on the project used in the prior period) replaces the changes which had been made. Withdrawing a brand The 'withdraw' option removes a brand which was marketed in the previous period from the market for the following period. The brand to be removed is first selected by clicking on that brand in top table of the Brand Portfolio window. Clicking on the 'withdraw' button moves the brand to the lower table of the Brand Portfolio window. The ‘undo' option enables the team to re-insert a brand which had been moved to the 'withdraw brand' table. Just click on the brand name which corresponds to the brand you want to re-introduce. This brand name is highlighted. Then click on the 'undo' button and the brand name will re-appear on the top table showing the list of marketed brands. If inventories remain when a brand is withdrawn from the market, they are sold to a trading company at a given percentage of the transfer cost and a loss of (1 - the given percentage) is incurred. A brand which was marketed in the past and withdrawn from the market may not be re-introduced later in the simulation. 3. Select the MODIFY option 4. Choose the new R&D project 21/09/2018 Introduction to the Markstrat Challenge - Part II

Bringing successful R&D projects onto the market may result in obsolete inventory I'll buy any inventory at a given % of its cost Brand modification MOVE Obsolete inventory Brand modification or withdrawal One of the consequences of a brand modification decision, is that the production department will immediately start producing the new version of the product. Inventories of the obsolete product have to be sold outside of the Markstrat world. In this case, the obsolete stocks are sold to a trading company at a price corresponding to a given percentage of the transfer cost (the exact percentage will be found each period in the Newsletter). As the units are still in the possession of the production department, which charges the marketing department when units are sold, the obsolete units must then be purchased from the production department and paid for. Consequently, a loss of (1 - the given percentage) of transfer cost is taken on the obsolete inventory. This loss will appear as a cost for inventory disposal in the next period company results. The same rule applies if inventories remain when a brand is withdrawn from the market. Inventory disposal When commercializing a non-modified product with units left in inventories from previous periods, teams can decide to sell off a portion of the stock by selling that portion to a trading company, according to the same pricing agreement as above (given percentage of transfer cost). Transfer cost valuation In all cases, the older stocks will be sold first, according to the FIFO method, and the transfer price of each unit will be calculated according to the production cost of the product at the time it was manufactured, adjusted for inflation. Brand withdrawal TRADING COMPANY 21/09/2018 Introduction to the Markstrat Challenge - Part II

Your success will depend on your ability to develop & position brands

New decisions introduced in Period 2
R&D Initiating new projects Continuing or shelving uncompleted projects Brand Portfolio Launching new brands Upgrading or withdrawing existing brands Marketing Mix Production planning, Pricing, Communication & segmentation strategy Setting Perceptual Objectives Commercial Team Size of commercial team Allocation across distribution channels and brands Market Research Ordering industry-wide market studies Ordering market-specific market studies 21/09/2018 Introduction to the Markstrat Challenge - Part II

You now know everything.
From here on, it's down to your strategy... 21/09/2018 Introduction to the Markstrat Challenge - Part II

The Markstrat Challenge II

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