Using the Marketplace simulation Benoit Duguay STLHE Conference

Copyright Ø Almost all slides of this presentation have been originally created by Ernest R. Cadotte. Ø 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. Copyright 2001 Ernest R. Cadotte

Marketplace is Realistic Ø It brings to life marketing concepts, principles, and ways of thinking. Ø 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 Copyright 2001 Ernest R. Cadotte

Marketplace is Organized Ø The game scenario follows the logical process of starting up a new product line. Ø You are guided through the decisionmaking process. Ø Detailed help files are available at the touch of a button. Copyright 2001 Ernest R. Cadotte

Learning Strategy: Learn by Doing Ø You learn about all aspects of marketing by managing a simulated marketing department. Ø The Marketplace scenario follows the life cycle of a new product. Ø Marketing decisions are introduced as they become relevant in the evolution of the product. Copyright 2001 Ernest R. Cadotte

Key Benefits Ø Develop teamwork across marketing functions. Ø Promote better decision making by helping you see how your marketing decisions are interconnected and need to be managed as a whole. Ø Facilitate learning of important marketing concepts, principles and ways of thinking. Ø Develop marketing planning and execution skills within a rapidly changing environment. Ø Instill a bottom line focus and the simultaneous need to deliver customer value. Copyright 2001 Ernest R. Cadotte

Key Benefits (continued) Ø Crystallize the financial implications of marketing decisions by linking them to cash flows and bottom-line performance. Ø Discover how important it is to use market data and competitive signals to adjust the strategic plan and more tightly focus business tactics. Ø Build marketing confidence through knowledge and experience. Copyright 2001 Ernest R. Cadotte

Simulation Pedagogy Ø Create a microcosm of the firm by including all key business functions – students must manage a whole firm. Ø Start at beginning of story – a new venture. Ø Gradually layer in new decision content as it becomes relevant in life of firm – a natural progression that is more intuitive. Ø Frequently repeat difficult decisions in order to set important concepts, principles and ways of thinking into the students’ natural thought process. Ø Create a storyline that is interesting and relevant to the student in the role of an entrepreneur. Copyright 2001 Ernest R. Cadotte

Simulation Pedagogy (continued) Ø 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 Ø Encourage a balanced perspective on the management of the firm: the Balanced Scorecard Ø What drives the learning process? • Competitiveness is in our genes • Ownership of a business Copyright 2001 Ernest R. Cadotte

The Balanced Scorecard Ø Based upon: • Financial Performance (profit as percent of sales) • Market Performance (market shares in 2 target segments) • Marketing Effectiveness (customer satisfaction with brand advertising designs in 2 target segments (scored 0 to 100) plus unit 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) Copyright 2001 Ernest R. Cadotte

Why Use a Balanced Scorecard? Ø It is too easy to get caught up in market share and short-term profits. Ø Long-term viability requires that managers also deliver customer satisfaction and invest in the future. Ø The balanced scorecard measures both the long-term and the short-term. Ø The best managers will be good in all measured areas. Copyright 2001 Ernest R. Cadotte

Each quarter, each team is presented with a Balanced Scorecard. The goal is to

Scores can be compared against industry standards. Copyright 2001 Ernest R. Cadotte

Instructor’s Role Ø Coach Ø Mentor Ø Devil’s Advocate Copyright 2001 Ernest R. Cadotte

Delivery of Learning Content Ø Lectures • • Few lectures Overview of decisions and learning points Software demonstration of decisions and information Key concepts, principles, ways of thinking Ø In depth treatment • Help files • Storyline and task description • Cadotte and Bruce textbook Copyright 2001 Ernest R. Cadotte

Development of Critical Thinking Skills Ø Discussion and debate within each team Ø Instructor

Tools to Help Instructor Ø Flash demos for training participants on signing up, use of software and overview of game Ø Instructor Guidelines for creating and managing a course Ø Online coaching tips Ø Power Point presentations for training Ø Balanced Scorecard for grading or awarding a winner Ø Online survey, testing, and peer evaluations Copyright 2001 Ernest R. Cadotte

Tools to Help Instructor (continued) Ø Online access to all team and student information Ø Hold and release option : • check results before release • if unhappy, can ask support to adjust demand which could change outcome Ø Diagnostic Coaching System to drill down into causes of a team’s strengths and weaknesses Copyright 2001 Ernest R. Cadotte

Game Scenario Ø You work for a large international electronics firm. Ø Corporate Headquarters wants to enter the personal computer business. Ø You have been selected to head up the new marketing division to sell computers into Asia, North America, and Western Europe. Ø Several other international firms are entering the market at the same time. Copyright 2001 Ernest R. Cadotte

Game Scenario (continued) Ø 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. Ø The market is structured into five segments. Ø As the quarters progress, you decide how you want to expand your international market coverage. Copyright 2001 Ernest R. Cadotte

How is the marketing game conducted? Ø Teams are placed in a game scenario in which they start up and run a new marketing division. Ø The opposition can be played out by computergenerated competitors or other student teams. Ø At the outset of each quarter, teams receive information on the current situation. Ø The current situation is evaluated, strategy formulated, and tactics set in placed. Ø Tactical decisions are fed into the marketplace simulator, along with decisions of opponents. Ø Results of decisions are fed back to teams. Copyright 2001 Ernest R. Cadotte

Funding Ø The initial funding is 2, 000 which is being invested by Corporate Headquarters in 500, 000 increments over the first 4 quarters. Ø Corporate Headquarters will provide another 5, 000 in Quarter 5 if it approves your marketing plan for the second year. Copyright 2001 Ernest R. Cadotte

Total Performance Evaluation Ø Marketing plan Ø Report to Corporate Headquarters Ø Strategic thinking and tactical execution Ø Market performance: • Profitability • Customer satisfaction • Market share in targeted markets • Investments in the firm’s future • Creation of wealth for Headquarters Copyright 2001 Ernest R. Cadotte

Suggested course evaluation Ø Individual Quiz Ø Presentation of initial Marketing plan Ø Formal Marketing plan Ø Company performance Ø Presentation of company results Ø Critical evaluation of simulation Copyright 2001 Ernest R. Cadotte 10% 25% 10% 20%

Sequence of Key Activities Ø Startup phase (Q 1 to Q 4) • Organize the team and learn to work together • Learn the business • Test the market Ø Transition phase Q 5 • Prepare Business Plan to accelerate growth • Present Business Plan to and negotiate equity investment with Corporate Headquarters Ø Growth phase (Q 6 to end) • Execute Business Plan • Skillfully adjust tactics in response to unforeseen problems and opportunities Copyright 2001 Ernest R. Cadotte

Quarter 1 Organize the Business Copyright 2001 Ernest R. Cadotte

Learning Points for Quarter 1 Ø Managing the team Ø Organizing the work Ø

Tasks for Quarter 1 Ø Name the company Ø Assign organizational responsibilities Ø Purchase

Marketing Team Ø Each team member assumes a tactical area of responsibility: • Overall leadership • Brand management • Advertising • Sales office management Ø Everyone is responsible for marketing research and profit management. Copyright 2001 Ernest R. Cadotte

Before you Wrap Up your decisions, a quality check is done by the independent

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 Copyright 2001 Ernest R. Cadotte

Q 1 decision Copyright 2001 Ernest R. Cadotte

Quarter 2 Establish Strategic Direction Copyright 2001 Ernest R. Cadotte

Learning Points for Quarter 2 Ø Ø Market opportunity analysis Segmentation and target marketing Strategic and tactical planning Competitive positioning Ø Brand design: • Linking product features to customer benefits • Finding the customer’s response functions Copyright 2001 Ernest R. Cadotte

Tasks for Quarter 2 Ø Analyze market information Ø Establish strategic direction: • Select 2 target segments • Decide on competitive posture Ø Set up shop: • Develop distribution strategy: üopen initial sales offices for test market • Design 2 brands, 1 for each target segment Copyright 2001 Ernest R. Cadotte

Market Segments Mercedes Traveler Innovator Performance Cost Cutter Work Horse Price Copyright 2001 Ernest

Each market segment has its own set of needs. Copyright 2001 Ernest R. Cadotte

Select two segments to target initially. As the game progresses, you may also sell

Brand design Ø Customers buy benefits, not features… Ø But benefits are derived from features Ø Translate wants and needs into specific features Ø Is more speed, software applications, memory, keys on the keyboard, etc. always valued? Ø Could “more of some feature” even make a customer unhappy? Ø Which response functions apply to the market segments you have selected? Copyright 2001 Ernest R. Cadotte

Deduce the market’s many response functions Like Like Dislike Dislike Less More Copyright 2001

Q 2 decision Copyright 2001 Ernest R. Cadotte

Quarter 3 Go to Test Market Copyright 2001 Ernest R. Cadotte

Learning Points for Quarter 3 Ø Ø Ø 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 Ø Advertising - deciding what to say, how to say it and how frequently to say it Ø Sales force - hiring and targeting the sales staff Ø Testing the market - discovering the market’s many response functions Copyright 2001 Ernest R. Cadotte

Objective The Goal is to Maximize Learning and Not Profits Copyright 2001 Ernest R.

Tasks for Quarter 3 Ø Set selling prices Ø Develop advertising campaign: • Design 2 ads, one for each brand • Determine number of placements per ad Ø Develop distribution strategy: • Hire sales force for quarter • Open new sales offices for Q 4 Ø Test Market: • Contract for market research on customers and competition • Check pro forma financial position Copyright 2001 Ernest R. Cadotte

How to Set Price? Ø Costs (production, marketing, overhead) Ø Profit goals Ø What

In the beginning, your revenues will not cover all your costs Ø There are many startup costs which will exceed your revenues. Ø Your production volumes will be very low, resulting in high per unit costs. Copyright 2001 Ernest R. Cadotte

Profits will come later + Profit Revenue Costs to setup & grow the business

Your goal is to speed up the adoption rate Maturity Decline Growth Demand Introduction

What Will the Market Bear? You must discover the market response function regarding price.

What is the market’s price response function? Inelastic (price is not a big factor)

Maybe it looks like this? Demand drops slowly with small price increases and then

How will the market respond to competitor prices? Your Demand Low competitor prices will

How to Create Ads? Low price Most Important Easy to use More productive Fast Office applications Picture office workers Least Important Order of priority tells the ad agency what to stress in the ad and implies importance of message to customer. Copyright 2001 Ernest R. Cadotte

How much to say in an ad? (Number of benefits? ) Which response function is at work? Like Dislike Like More is good to a point and then ceases to add excitement Less Dislike More Copyright 2001 Ernest R. Cadotte 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. Your Demand Strong competitor advertising

Design ads to appeal to your target segment. You select the benefits to mention in the ad and indicate their order of priority. Copyright 2001 Ernest R. Cadotte You decide which brand will be featured in the ad.

How many sales people? Diminishing returns Your Demand Too many Too few Number of

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 Copyright 2001 Ernest R. Cadotte

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

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

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

Q 3 decision Copyright 2001 Ernest R. Cadotte

Quarter 4 Skillfully Adjust Strategy Copyright 2001 Ernest R. Cadotte

Learning Points for Quarter 4 Ø Using the tools of management: • Market feedback

Learning Points for Quarter 4 (continued) Ø The management of strategy: • • Learning from your customers Learning from your competition Learning from your financial information Skillfully adjusting your strategy and tactics Ø Management of financial resources Copyright 2001 Ernest R. Cadotte

Q 4: Evaluate Performance Ø Check customer reaction to brands, prices and advertising Ø Check financial performance Ø Check out competition: • Strategic direction • Tactics • Market’s response to their prices, brands, ads Copyright 2001 Ernest R. Cadotte

Measures of Customer Satisfaction Ø Brand judgment Ø Price judgment Ø Ad judgment (0 to 100) 100 indicates complete satisfaction. 70 would be a good initial brand 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. Copyright 2001 Ernest R. Cadotte

Goal of Monitoring Customer Satisfaction Give the customer what they want and do so

Deduce the market’s many response functions Hot Hot Hot Cold Cold Less More Copyright

Based upon customer feedback skillfully adjust marketing tactics Ø Revise brand designs or create new ones Ø Revise ad copy Ø Adjust prices Ø Hire more sales people or deploy them differently Add or take away elements to find the sweet spot in the customer’s response function. Copyright 2001 Ernest R. Cadotte

Goals of Competitive Benchmarking Ø Reverse engineer the strategy of each competitor Ø Determine who is a threat and who is not Ø Determine strengths and weakness of competition Ø Emulate good decisions Ø Predict direction of competitive moves Ø Adjust strategy and tactics in reaction to competitor strengths and weaknesses and in anticipation of future moves. Copyright 2001 Ernest R. Cadotte

Goals of Financial Management Ø Discover which brands and markets are making the greatest and weakest contribution to the bottom line. Ø Deploy resources to correct weaknesses and take advantage of strong performers. Copyright 2001 Ernest R. Cadotte