A) Portfolio Analysis
B) Grow Market
Because region 6 is a growing market, we are fully aware that it will take a very good defensive strategic marketing plan, including a substantial amount of marketing effort and investment to protect our leadership position for product 1-1.
Our strategy to grow market and protect our leadership position is vital to our short-run profits. It will enable us to meet the expenses required for increased marketing spending and provide long-term growth and profitability.
One of our strategies was to increase our manufacturing price each quarter by an average of 4%. Because this region is not sensitive to price, this strategy would result in larger revenue and margins for the firm.
Another strategy was to increase marketing support spending. Advertising and promotion spending was increased in order to improve awareness, perceived performance and convenience. Research and Development was increased each quarter by the maximum amount allowed ($250,000). The thought behind this was that R&D would have a great impact on our quality perception, performance and ultimately, customer satisfaction. This all leads to retained and ultimately, new customers.
C) Grow Market Share
In Quarter 12, Firm 1 was still marketing product 1-3 in region 4. Product 1-3 had been declining in unit sales from 17,778 units in Q8 to 8,250 units in Q12. Firm 1 reformulated product 1-4 in Q12. Upon review of product 1-4’s formulation, we determined that its formula was much closer to the consumer preferences in Region 4 than the current product 1-3. Since product 1-3 sales continued to slip, we decided to introduce product 1-4 in region 4 in Q13 and drop product 1-3.
Introducing product 1-4 in Region 4 saved reformulation costs. An attempt to reformulate product 1-3 would have also had an impact in region 5, because firm 1 has been marketing product 1-3 in region 5. Therefore the decision to introduce product 1-4 in region 4 saved reformulation expenses and it allowed product 1-3 to continue to be marketed in region 5 without impacting its formulation.
D) Protect Strategy
The strategy followed in region 3 was directed to protect the market leadership of product 1-2. The product enjoyed a 46.1% market share in Q12, and shortly thereafter, competitors appeared with higher product performances that presented serious threats. The strategy to maintain market share was based on the following points:
· Spending a high amount in advertising (well above the optimum marketing productivity point) to establish a barrier of entry to competitors wishing to advertise new products
· High spending also in promotion, directed to dealers, to have the product available in every store in the region
· Price level in the top range of the industry, to maintain the image of a quality product with a good reputation and brand name
This strategy allowed the product to keep its market share at 42.2% maintain the highest price in Q19, and never losing leadership position, although there were multiple attempts by products 4-3 and 6-2.
E) Harvest Price Strategy
In region 5, our firm developed a “Harvest Price Strategy” in order to capture market share since this region was very price sensitive. In order to achieve this strategy we kept the same composition of the product since quarter 11. This allowed us to enjoy a much lower cost (due to the learning curve effect) than our competitors and also to have more room to decrease the price in order to capture market share.
III. TACTICAL DECISION MAKING TOOLS
A) Capacity Utilization Model
Capacity management was critical to the simulation, given that at the start, all firms faced a serious overcapacity issue. A spreadsheet model was developed to help the firm’s management team make informed and precise capacity management decisions (see Capacity Utilization Model below).
The model calculates the plant’s depreciation given the actual plant capacity and production volumes. Each quarter, a new forecast for future production volume is entered into the model (according to future sales predictions) and the model executes the optimum value for the production order capacity that maintains a capacity utilization close to 100%, thus minimizing future depreciation expenses.
Capacity Utilization Model
B) Reformulation Monitoring
A reformulation tool was developed by the firm and was used extensively in the reformulation decision-making process, to determine both the feasibility of reformulating a given product, and which reformulation would violate a patent infringement (see Reformulation Feasibility Tool below).
Each quarter the reformulation activity obtained from the marketing report #33 was analyzed and entered into a spreadsheet. This information, combined with the customers’ preferences obtained from market report #47, enabled us to calculate the “closeness” of each product to the “ideal” required by the customers in any given region.
Additionally, a predictive tool that forecasts future customers’ needs in each region, was used on many occasions to reformulate according to future, rather than present needs, giving us an advantage over our competitors that were thought to have locked in on the ideal formulation.
Reformulation Feasibility Tool
C) Regional Competitive Comparison Tool
A competitive comparison tool developed by the firm provided an at-a-glance, easy to follow summary of the marketing activity spending levels, and key performance indicators in each region (see sample Regional Competitive Comparison Tool). This tool is used extensively and is reviewed by each regional manager at the weekly regional manager’s meeting. It assists in influencing future marketing actions based on competitor’s activity.
Regional Competitive Comparison Tool
D) Proforma Income Statement
IV. OPERATING RESULTS
A) Identification of Key Turning Points
The most important turning points resulted from key decisions we made related to the products offered in each region. Specifically, the rapid divestiture of poor performing products proved to be very successful in minimizing losses, while appropriate reformulations fueled growth in profits and market shares.
Our product introductions and formulation decisions were supported with aggressive advertising and promotional spending in order to differentiate them from the competition, and develop brand awareness and dealer availability.
Examples of decisions that ignited key turnings in our performance are:
· Introduced product 1-1 in region 6 immediately, in order to position ourselves in the region and gain first mover advantage. We were able to achieve and maintain over 50% market share for the next four quarters following the introduction of this product.
· Divested product 1-1 in region 1 at the beginning of the simulation (Q11) since its performance and composition were very weak for the region.
· Dropped product 1-1 from region 5 right at the beginning of the simulation, which helped to strengthen the position of product 1-3, achieving great improvement in profits and market share.
· Reformulated product 1-2 in Q15, sold in region 3, to a formulation forecasted to be the consumer’s choice. As a result, product performance perception stopped downward trend, and grew from 28.3 in Q14 to 76.1 in Q19.
· Dropped product 1-3 in Q13, sold in region 4 and introduced product 1-4. Unit sales dropped from 8,250 units in Q12 to 2,468 units in Q13, producing an operating loss of $2,448,059. After several minor reformulation and marketing decision changes, this region finally began generating a positive net income in Q18.
B) Critical Self Evaluation – SWOT Analysis
Strengths· Advanced Marketing Technology tools (reformulation, capacity planning, competitive comparison)· Positive Work environment· Clear marketing plan· Increasing market share· Increasing revenue and operating income Weaknesses· Marketing productivity· Marketing spending· Capacity· Divesting of low producing products too quickly.
Opportunities· Population in the region is growing at a constant rate· Improving performance indicators· Reduce marketing spending· Threats· Market demand fluctuates according to unknown factors, making it difficult to forecast.· Increased competition· Changing buyer preference· Price competition
C) Summary of Accomplishments
· Maintained market leadership in region 3 throughout the entire simulation.
· Product 1-2 sold 598,681 units in the 9th quarter, generating $607 million in revenue and $218 million in operating income for the firm “cash cow”.
· Product 1-2 continually generated positive cash flow for the firm, which was needed to realize investments in plant capacity and enter new markets.
· Successfully introduced a new product into region 4.
· Leader in brand quality
· Quarter after quarter improvements in Key Performance indicators through effective marketing investment.
· Quarterly increases in unit sales and market share.
· All four products are producing a positive net income in all of the active regions for firm 1 as of Q18.
· Improvement in the key performance indicators through an effective marketing spending in region 5.
· Product 1-1 began losing market share due to product formulation. Opportunity to reformulate was missed in Q16.
· It took 5 quarters before region 4 began to generate a positive operating income after introducing product 1-4 in Q13.
· Missed the opportunity to reformulate at the right time. Product 4-3 reformulated in Q13 and took the leadership in product performance. It took a new reformulation and 6 quarters to have the best performance again.
· Since we had capacity problems at the onset of the simulation, the number of units produced of product 1-3 in region 5 and product 1-1 in region 6 was affected. As a result, fewer units were produced and sold and market share was lost (for quarter 13 and 14).