International Business Simulation over the Internet

Using the Marketplace simulation

Benoit Duguay

STLHE Conference

June 17 2004

Copyright 2001 Ernest R. Cadotte

Copyright



Almost all slides of this presentation have been originally created by Ernest R. Cadotte.



For the purpose of presenting the Marketplace simulation at the 2004 STLHE annual conference, most slides have been reformatted and some modified, sometimes created, by

Benoit Duguay.


Marketplace is Realistic



It brings to life marketing concepts, principles, and ways of thinking.



You do what your real-life Managers do:

• Design brands

• Design ad copy

• Schedule media

• Set selling prices

• Hire and train sales people

• Worry about profits


Marketplace is Organized



The game scenario follows the logical process of starting up a new product line.



You are guided through the decisionmaking process.



Detailed help files are available at the touch of a button.


Learning Strategy :

Learn by Doing



You learn about all aspects of marketing by managing a simulated marketing department.



The Marketplace scenario follows the life cycle of a new product.



Marketing decisions are introduced as they become relevant in the evolution of the product.


Key Benefits

 Develop teamwork across marketing functions.

 Promote better decision making by helping you see how your marketing decisions are interconnected and need to be managed as a whole.

 Facilitate learning of important marketing concepts, principles and ways of thinking.

 Develop marketing planning and execution skills within a rapidly changing environment.

 Instill a bottom line focus and the simultaneous need to deliver customer value.


Key Benefits

(continued)

 Crystallize the financial implications of marketing decisions by linking them to cash flows and bottom-line performance.

 Discover how important it is to use market data and competitive signals to adjust the strategic plan and more tightly focus business tactics.

 Build marketing confidence through knowledge and experience.


Simulation Pedagogy



Create a microcosm of the firm by including all key business functions – students must manage a whole firm.



Start at beginning of story – a new venture.



Gradually layer in new decision content as it becomes relevant in life of firm – a natural progression that is more intuitive.



Frequently repeat difficult decisions in order to set important concepts, principles and ways of thinking into the students’ natural thought process.



Create a storyline that is interesting and relevant to the student in the role of an entrepreneur.


Simulation Pedagogy

(continued)



Reinforce a process for making good decisions:

• Present a logical order to the decisions to be made

• Present relevant information before a decision

• Link decisions to cash flow and profitability

 Encourage a balanced perspective on the management of the firm: the Balanced Scorecard



What drives the learning process?

• Competitiveness is in our genes

• Ownership of a business


The Balanced Scorecard



Based upon :

•

Financial Performance (profit as percent of sales)

• Market Performance (market shares in 2 target segments)

•

Marketing Effectiveness (customer satisfaction with brand and advertising designs in 2 target segments

(scored 0 to 100) plus unit sales per sales person)

• Investments in the Future (spending on new offices and research and development as percent of sales)

• Creation of Wealth (total profit/total investment)


Why Use a Balanced Scorecard?



It is too easy to get caught up in market share and short-term profits.



Long-term viability requires that managers also deliver customer satisfaction and invest in the future.



The balanced scorecard measures both the long-term and the short-term.



The best managers will be good in all measured areas.


Each quarter, each team is presented with a

Balanced Scorecard. The goal is to rank the highest in Total Business Performance in Q8.


Scores can be compared against industry standards.


Instructor’s Role



Coach



Mentor

 Devil’s Advocate


Delivery of Learning Content



Lectures

• Few lectures

• Overview of decisions and learning points

• Software demonstration of decisions and information

• Key concepts, principles, ways of thinking



In depth treatment

• Help files

• Storyline and task description

• Cadotte and Bruce textbook


Development of Critical

Thinking Skills



Discussion and debate within each team



Instructor interaction with teams:

• Meetings

• Contact through email


Tools to Help Instructor



Flash demos for training participants on signing up, use of software and overview of game



Instructor Guidelines for creating and managing a course



Online coaching tips



Power Point presentations for training



Balanced Scorecard for grading or awarding a winner



Online survey, testing, and peer evaluations


Tools to Help Instructor

(continued)



Online access to all team and student information



Hold and release option :

• check results before release

• if unhappy, can ask support to adjust demand which could change outcome



Diagnostic Coaching System to drill down into causes of a team’s strengths and weaknesses


Game Scenario



You work for a large international electronics firm.

 Corporate Headquarters wants to enter the personal computer business.



You have been selected to head up the new marketing division to sell computers into Asia, North America, and

Western Europe.



Several other international firms are entering the market at the same time.


Game Scenario

(continued)



Your marketing strategy will be tightly focused on direct sales to business customers:

• You will not sell to the home market or through retail stores.

• You will sell through company-owned sales offices in major metropolitan markets around the world.



The market is structured into five segments.



As the quarters progress, you decide how you want to expand your international market coverage.


How is the marketing game conducted?



Teams are placed in a game scenario in which they start up and run a new marketing division.



The opposition can be played out by computergenerated competitors or other student teams.



At the outset of each quarter, teams receive information on the current situation.



The current situation is evaluated, strategy formulated, and tactics set in placed.



Tactical decisions are fed into the marketplace simulator, along with decisions of opponents.



Results of decisions are fed back to teams.


Funding



The initial funding is 2,000,000 which is being invested by Corporate Headquarters in 500,000 increments over the first 4 quarters.



Corporate Headquarters will provide another

5,000,000 in Quarter 5 if it approves your marketing plan for the second year.


Total Performance Evaluation



Marketing plan



Report to Corporate Headquarters



Strategic thinking and tactical execution



Market performance:

• Profitability

• Customer satisfaction

• Market share in targeted markets

• Investments in the firm’s future

• Creation of wealth for Headquarters


Suggested course evaluation



Individual Quiz 10%



Presentation of initial Marketing plan 10%



Formal Marketing plan 25%



Company performance



Presentation of company results



Critical evaluation of simulation

25%

10%

20%


Sequence of Key Activities



Startup phase (Q1 to Q4)

• Organize the team and learn to work together

• Learn the business

• Test the market



Transition phase Q5

• Prepare Business Plan to accelerate growth

• Present Business Plan to and negotiate equity investment with Corporate Headquarters



Growth phase (Q6 to end)

• Execute Business Plan

• Skillfully adjust tactics in response to unforeseen problems and opportunities


Quarter 1

Organize the Business


Learning Points for Quarter 1



Managing the team



Organizing the work



Deciding what one wants from the learning experience


Tasks for Quarter 1



Name the company



Assign organizational responsibilities



Purchase survey of end users


Marketing Team



Each team member assumes a tactical area of responsibility:

• Overall leadership

• Brand management

• Advertising

• Sales office management



Everyone is responsible for marketing research and profit management.


Before you

Wrap Up your decisions, a quality check is done by the independent auditor to help prevent common mistakes.


Teams, login & password

1-Alpha

2-Bravo

3-Charlie

4-Delta

5-Echo

6-Foxtrot

7-Golf

8-Hotel

9-India

10-Juliet

11-Kilo

12-Lima

13-Mike

14-November

15-Oscar

16-Papa

17-Quebec

18-Romeo

19-Sierra

20-Tango

Email (login name): abc@def.com

Password:

Company name (lower case) eg alpha


Q1 decision


Quarter 2

Establish Strategic Direction





Market opportunity analysis

 Segmentation and target marketing

 Strategic and tactical planning



Competitive positioning



Brand design:

• Linking product features to customer benefits

• Finding the customer’s response functions





Analyze market information



Establish strategic direction:

• Select 2 target segments

• Decide on competitive posture



Set up shop:

• Develop distribution strategy:

 open initial sales offices for test market

• Design 2 brands, 1 for each target segment


Performance

Market Segments

Traveler

Mercedes

Innovator

Cost Cutter

Work

Horse

Price


Each market segment has its own set of needs.


Select two segments to target initially.

As the game progresses, you may also sell to other segments.

For example, the

Traveler segment might be selected.


Once you select a segment, you must design a brand to meet the needs of that segment.

What features would make a computer more attractive to the

Traveler segment?


Brand design

 Customers buy benefits, not features…



But benefits are derived from features



Translate wants and needs into specific features



Is more speed, software applications, memory, keys on the keyboard, etc. always valued?

 Could “more of some feature” even make a customer unhappy?



Which response functions apply to the market segments you have selected?


Deduce the market’s many response functions

Like

Dislike

Less More

Like

Dislike

Less More

Like

Dislike

Less More

Like

Dislike

Less More

Like

Dislike

Less More

Like

Dislike

Less More


Q2 decision


Quarter 3

Go to Test Market





Execution of a coherent strategy

 Management of cash in the face of great uncertainty

 Learning to walk before you run



Marketing strategy - coordinating a host of tactics



Pricing - balancing costs, profit, what the market will bear, and competition



Advertising - deciding what to say, how to say it and how frequently to say it



Sales force - hiring and targeting the sales staff



Testing the market - discovering the market’s many response functions


Objective

The Goal is to Maximize

Learning and Not Profits





Set selling prices

 Develop advertising campaign:

• Design 2 ads, one for each brand

• Determine number of placements per ad



Develop distribution strategy:

• Hire sales force for quarter

• Open new sales offices for Q4

 Test Market:

• Contract for market research on customers and competition

• Check pro forma financial position


How to Set Price?



Costs (production, marketing, overhead)



Profit goals



What the market will bear



Competition


In the beginning, your revenues will not cover all your costs



There are many startup costs which will exceed your revenues.



Your production volumes will be very low, resulting in high per unit costs.


Profits will come later

+

Profit

Costs to setup

& grow the business

0

-

Revenue

Pro fits

Time

You are here.

Profits come later.


Your goal is to speed up the adoption rate

Maturity

Decline

Growth Demand

Introduction

You are here

(High costs-low demand)

Time


What Will the Market Bear?

You must discover the market response function regarding price.


What is the market’s price response function?

Your

Demand

Inelastic

(price is not a big factor)

Elastic (demand drops fast with increasing prices)

Your Price


Maybe it looks like this?

Your

Demand

Demand drops slowly with small price increases and then drops dramatically with larger price increases

Your Price


How will the market respond to competitor prices?

Your

Demand

Low competitor prices will kill your demand

Competitor’s Price


You set the brand price, any rebate you wish to offer, and designate the sales priority.


How to Create Ads?

Low price

Easy to use

More productive

Fast

Office applications

Picture office workers

Most Important

Least Important

Order of priority tells the ad agency what to stress in the ad and implies importance of message to customer.


How much to say in an ad?

(Number of benefits?)

Which response function is at work?

Like

Dislike

More is good to a point and then ceases to add excitement

Less More

Like

Dislike

More adds value to a point

& then takes away value

Less More


How often do you advertise?

Your

Demand

Diminishing returns

Too little

Number of Ads


But it also depends on what your competitors do.

Strong competitor advertising will steal away your customers

Your

Demand

Competitor’s Advertising


Design ads to appeal to your target segment.

You select the benefits to mention in the ad and indicate their order of priority.


You decide which brand will be featured in the ad.

How many sales people?

Diminishing returns

Your

Demand

Too many

Too few

Number of Sales People


The response function is dynamic!

Your

Demand

Number of Sales People

Shift the response function upwards with better brands, prices, advertising, web tactics, sales force placement and compensation


Immediately after processing, you find out how profitable the division was in the previous quarter.


You can see your market share by segment and for the whole market.


Your company is

Traveler.

The market research shows how satisfied each segment is with your designs and those of the competition

.


If a brand is not doing well, compare it to the higher rated brands in that segment and redesign the brand.


Your brand

Higher rated brand

You are also given a profit analysis of each brand so that you can adjust your brand strategy.


Q3 decision


Quarter 4

Skillfully Adjust Strategy





Using the tools of management:

• Market feedback

• Competitive benchmarking

• Profitability analysis (activity based costing)



(continued)



The management of strategy:

• Learning from your customers

• Learning from your competition

• Learning from your financial information

• Skillfully adjusting your strategy and tactics



Management of financial resources


Q4: Evaluate Performance



Check customer reaction to brands, prices and advertising



Check financial performance



Check out competition:

• Strategic direction

• Tactics

• Market’s response to their prices, brands, ads


Q4: Skillfully Adjust Strategy



Adjust as needed:

• Strategy

• Brand designs and prices

• Advertising

• Sales office locations

• Sales force management



Check finances


Measures of Customer

Satisfaction



Brand judgment (0 to 100)



Price judgment (0 to 100)



Ad judgment (0 to 100)

100 indicates complete satisfaction. 70 would be a good initial brand and ad rating. New technology will be available in Quarter 5. The new features will make customers happier and yield higher ratings.

Price ratings should be near 100 in all quarters.


Goal of Monitoring Customer

Satisfaction

Give the customer what they want and do so better than the competition.


Deduce the market’s many response functions

Hot

Cold

Less More

Hot

Cold

Less More

Hot

Cold

Less More

Hot

Cold

Less More

Hot

Cold

Less More


Hot

Cold

Less More

Based upon customer feedback skillfully adjust marketing tactics



Revise brand designs or create new ones



Revise ad copy



Adjust prices



Hire more sales people or deploy them differently

Add or take away elements to find the sweet spot in the customer’s response function.


Competitor Benchmarks



Brand and ad designs



Prices and sale priorities



Sales staffing



Ad placements



Demand by brand by segment


Goals of Competitive

Benchmarking



Reverse engineer the strategy of each competitor



Determine who is a threat and who is not



Determine strengths and weakness of competition



Emulate good decisions



Predict direction of competitive moves



Adjust strategy and tactics in reaction to competitor strengths and weaknesses and in anticipation of future moves.


Financial Performance



Division profitability



Brand profitability



Region profitability



Return on investment


Goals of Financial

Management



Discover which brands and markets are making the greatest and weakest contribution to the bottom line.



Deploy resources to correct weaknesses and take advantage of strong performers.


Measurement of the

Firm’s Performance

The Balanced Scorecard


Q4 decision


Benoit Duguay duguay.benoit@sympatico.ca

Telephone office 51.49.87.30.00 #8171

Telephone residence 45.04.61.16.97


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