D
efiance
Motors
Jonathan Jaeger & Nick Kalinka
August 6, 2013
Based on our initial position after acquisition of Defiance Motors, we made the decision to
continue targeting our largest volume customer base and products situated within the largest
volume of vehicle sales. Our goals were set to create maximum net income, high standards for
stock price and competitively compete in the largest market share in the family and truck
markets. Defiance Motors has always been positioned in the economy, family, and truck
classes with an emphasis on average quality, yet speedy and vast distribution coverage.
We successfully maintained or even expanded our positions in these three markets throughout
the duration of the simulation. Additionally, we achieved a final cumulative net income of 23.29
billion dollars, nearly 4 billion higher than our nearest competitor. Our stock price is a direct
reflection of our successful performance through the last ten years. (Represented in chart
below)
Our direct competitors within the simulation were initially assumed to be firms A and E because
they had high percentage of family, truck, and economy vehicles and we wanted to keep a
competitive advantage leadership in these classes. In the end, firm E fell off and firm A was
less competitive than expected. The surprise and late arriver to the party, was the impressive
firm C, who made a late last push to overcome Defiance Motors with a higher stock price.
Being that this is a simulation and there are certain limitations and guidelines that must be
followed. Firm C exploited the simulational limitations by repurchasing shares from the market,
thus drastically increasing their price per share over a 3 yr period. This was a successful
strategy that worked very well for them. We opted for a more viable option of issuing higher
dividends to shareholders in order to raise stock price. We had the ability and free cash flows to
purchase all outstanding shares and taking our company private, however, wanted to show our
appreciation to our shareholders and bondholders for years of support and loyalty. However,
Defiance Motors strategic plan was always to simply make it to Round 10, exploiting another
limitation of the software.
Following our strategy we stopped our product development and expansion, since we were at
the forefront of the competition in the beginning and had no reason to expend more cash than
needed. One strategic change that our firm made and didn’t forecast, occurred near the middle
of the simulation. Defiance Motors made a strategic decision to develop a new vehicle in a
market that was virtually untapped, the AEV market. This strategic decision helped Defiance
Motors claim the entire industry, albeit small, but growing.
Another goal that Defiance Motors had after recent acquisition was to expand and equalize our
distribution of our vehicles. This was a success, however, there was still a little balancing and
expanding to establish within the country.
Successful Market Share Strategies
We ended up leading in market share with a total of 35% of the market in our hands, our closest
competitor was 10% behind us. How we managed to hold so much market share goes back to
our strategies to really focus on two classes from period 1, the truck and family classes and to
put most of our efforts into those two classes to really gain a good strong hold within the
competition of the market. Why we went after the truck and family classes originally, because
we saw the most money to be made in these two classes based on what we were provided with.
Our only competitor in the truck class was firm E and we started out with a 10% advantage and
looked to exploit this advantage, so we attacked the class by heavily focusing on how we can
serve our segment the best, which was heavily weighted within the value seekers. We started
out with 44% of the segment, and ended with 70%. Value seekers are primarily focused with
truck and economy classes. We wanted to establish ourselves in the largest class as well, the
family. We choose to keep a competitive advantage in this market because although our main
focus was to compete with firms A and E, we believed that to stay competitively on top we have
to competitively compete against all four firms within the industry, and that is why we went after
the family class.
The economy was another class we started out in but with more than half the market owned by
firm A, we thought it would have been a huge waste of money & time to include this as one of
our primary classes to focus on. So we kind of let it dump off for the first four periods where we
didn't put much money into it, and at one point were thinking about just getting out of that class
as a whole, but we saw we were still making money, which didn't make much sense considering
we basically let firm A control the class. How did we manage to do this? By establishing a
stronghold in two specific segments; value seekers and families.
Within both of these segments the customers are interested in the economy class of vehicles.
With firm A having a more pricier vehicle but were not competitively pricing their car with ours,
our value seekers and families took a great deal of interest in our economy vehicle we had to
offer, because of the lower price. Essentially our primary focus in the two segments built
potential wealth within our economy car without us having to put much money into it. So when
we realized (period 4) we can be making more money with our economy car we started to
strategize on how we can try to gain back some market share within the class. As of period 4
firm A controlled over 70% of market share. In period 5 we gained 10% of market share back in
the economy. In period 6 we were splitting the market 50/50 with firm A (economy class), this
forced them to have to drop the price a couple thousand dollars instantly when they saw how
fast we were re-entering back into the class. As of period 9 firm A held out and ended with 53%
market share in the economy class, although we didn’t dominate this market share like we did
for trucks we still made ourselves a viable competitor for firm A. Our initiative to get back into
the economy class was more of a defensive strategy, to ensure that firm A did not control the
whole class. By doing so you can see has of period 5 firm A started to lose market share in the
family class which was our intent for doing so. Take a look below at how we were able to limit
market share gain for firm A between the economy and family classes, because we established
ourselves as an aggressive competitor.
Market share %
FIRM A
Economy
Family
Period: 3
68%
23%
Period: 4
73%
23%
Period: 5
63%
19%
Period: 6
50%
18.6%
Period: 7
55%
21%
Period: 8
55%
20%
Period: 9
53%
23%
As you can see between periods 3 and 4 they were (Firm A) starting to grow rapidly in the
economy class because we weren’t being competitive within that class which allowed them to
make easy money, and to spend their time and money focusing on other classes. Once we
established we were going to stay and compete in this class we halted their rapid growth within
the class between periods 4 and 5 and this allowed for us to keep some control over our main
competitor, firm A, for the rest of the simulation.
If we had abandoned the economy class we could of been out of the competition like firm E did
related to the truck class. The relationship between what we had with firm A in the economy
class, starting with a 10% disadvantage between market share with only two competitors in the
class, was the same thing in the truck class only we had about a 10% advantage on firm E, but
firm E never tried to really compete with us in the truck market. Basically handing us the class to
allow us to spend our time and money focusing on other classes we want to compete more
aggressively in like the strategy to get back into the economy class and to limit firm A’s growth.
Our last strategic move to bump up our market share within the simulation was a risky one, but
if we could make it work it would really pay off in the long run. We made a late move and that
was to enter the AEV class which launched in period 7. This was a make or break situation, we
were starting a class late in the simulation, which could have really hurt us because you usually
have to give this some time to build as a good product and to improve on, but because we had
no competitors in the class, we were the only ones to offer an AEV vehicle, and in turn forced
customers to buy our product if they wanted an AEV because there was nowhere else to go!
Strategies to maintain high stock price
We also wanted to maintain a high and competitive stock price within the industry. Doing so
meant that we had to keep growing our sales, income, and market value each period while at
the same time maintaining lower levels of debt and COGS.
We successfully grew our sales each period, never having a decline in sales put us on the right
track to keep growing our stock price. In period 1 we had sales of $19.33 Billion by period 9 we
had grew our sales to $42.86 Billion, thats a 45% increase in sales over a 10 yr period. We grew
our cummulative net income over the nine periods, never fell below what it was the previous
period, with an ending $23.30 billion in cummulative income. We grew our market value each
period ending with a $43.28 billion in ending market value. COGS grew at a relative rate to our
sales growth, we reduced COGS by period 9 while raising sales which was a huge success. We
took on a lot of debt from the start of period 1, about $7 billion, by period 6 we got it down to
$1.15 Billion and maintained it at that level through the rest of the simulation.
When you really look into everything that goes into valuing ones stock price, ours is pretty spot
on. We finished with a stock price of $104 per share we grew this from $50 from period 1. There
was no jump in stock price due to us buying back more stock, or giving more dividends, it’s
purely based off the fact that our company offered something else that our competitors couldn’t,
and that was a well valued product.
Improvements & Conclusion
One of our largest expenses throughout the simulation was the increased capacity charge. In
the first few rounds increased capacity wasn’t a concern, we were manufacturing the correct
amount. Then when we noticed we were going to lag in production we attempted to increase
the output but were a little behind our distribution expansion and customer demand.
In the final round we started to play around with the focus groups and customer research, tools
that we failed to use earlier in the simulation but proved to be very helpful. I would highly
encourage the use of these tools in the future to optimize production and product development.
With these new found tools, we conducted some focus groups on our lagging AEV vehicle and
plan to make adjustments to the Dart. The new Dart will be refocused back to our customer
base and offered at a lower market price with less frills and a smaller size. This will allow
Defiance Motors to refocus our customer base and capitalize on another large market segment.
This simulation was a great culminating activity that allowed our group to utilize our
undergraduate studies to apply and confirm our knowledge to a more tangible market and
industry. We utilized our supply chain knowledge, marketing knowledge, financial and
accounting knowledge to create a profitable company within a very competitive market.