Table of Contents for Marketplace® Help File

A. Introduction to Marketplace Decisions

1. Introduction
2. Game Scenario
3. How to Win

B. Chapter 1: Player Activities

1. Introduction
2. Functional Organization of the Executive Team
3. Goals and Strategic Direction
4. Company Name
5. Table 2-1: Decisions to be Made by Quarter
6. Executive Briefings

C. Chapter 2: Market Research

1. Introduction
2. Initial Research: Market Opportunity Analysis (MOA)
3. Types of Information Available
4. Precision of Survey Data
5. Interpreting the Survey Data
6. Understanding What Customers Value
7. Test Marketing: Feedback and Control
8. End-User Feedback: Fast Tests
9. Competitive Benchmark

D. Chapter 3: Brand Management

1. Introduction
2. Brand Management Decisions
3. Brand Design
4. Match Up Benefits and Features
5. Consider the Price the Market Will Bear
6. Test Market to Discover the Performance Response Curve
7. Brand Name
8. Research and Development

E. Chapter 4: Advertising Decisions

1. Introduction
2. Planning the Advertising Program
3. Ad Copy Design
4. Deceptive Advertising
5. Media Placement
6. Advertising Effectiveness

F. Chapter 5: Sales Office Decisions

1. Introduction
2. Territory Development
3. Sales Office Management
4. Brand Selection
5. Brand Price
6. Price Elasticity
7. Competitive Prices
8. Price Rebate
10. POP Displays
9. Sales Order Priority
11. Sales Force Management
12. Number of Sales People
13. Target Market Specialty
14. Brand Promotions
15. Special Sales Force Programs

G. Chapter 6: Accounting

1. Introduction
2. Activity Based Costing (ABC)
3. Profitability of Marketing Division

H. Chapter 7: Finances

1. Introduction
2. Financial Planning

I. Glossary

1. Brand Components
2. Fatal Errors

Marketplace FAQs are available at: http://www.marketplace-simulation.com/support/faq-web-team.html

NOTE: To more quickly find items in the professor help files, hold down the Control key on your keyboard, then hit "F"; this action brings up a Search window, through which you can easily scan for specific words or terms.


Introduction to Marketplace Decisions

A vast array of decisions must be made to compete in Marketplace. These decisions are patterned after real-world decisions made by new venture firms. Each decision has been limited to its most important dimensions in order to keep the game manageable. Still, there is sufficient complexity and realism to challenge you to the maximum.

The real challenge in the game, and in real-life new ventures, is that you must continually make a large number of concurrent strategic and tactical decisions. There is no rest from the advertising decision or the market development decision while you solve the pricing decision.

Not only do you have to worry about the tradeoffs within each decision area, but you must also evaluate the tradeoffs between decision areas. Part of the value of the Marketplace experience is learning to manage a dynamic and complex world.

Marketplace will also give you practice in strategic and tactical decision-making. After identifying your options, weighing the advantages and disadvantages of each, you must commit yourself to a course of action.

The outcome of that action will always be uncertain. But you will find that you can make educated guesses and learn from the results of these decisions in the next quarter. You can then make adjustments so that even questionable decisions can be managed (our hindsight is so much better than our foresight).

The content, context, and educational objective of each decision to be made in the simulation are reviewed in the chapters found under the <Professor-help> icon. The decisions are presented in approximately the order in which they would be executed in the real world, starting with executive team formation, through market analysis, brand design, advertising, distribution, and financing.

The chapters are similarly organized to follow the logical process of decision-making within the game. This step-by-step process will help you organize your decision-making while playing the game.

You must study all of the material found under the <Professor Help> icon very carefully and become familiar with every step in the decision process. It is recommended that you first review all the material found in each chapter in its entirety in order to get a feel for the "whole" of the decision context.

Next, sit down at your computer and work your way through each decision to be made. It is important that you physically enter decisions and investigate the effects of alternate decisions. This form of "hands-on" experience will help familiarize you with the consequences of your decisions. If you have no prior computer experience, you will find that this exercise will greatly reduce your anxiety because the decision template is very easy to use.

Finally, table 2-1 will help you organize your work throughout the simulation exercise; it contains a list of the specific decisions that must be made each quarter.

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Game Scenario

Corporate Headquarters has selected you to manage its new PC Marketing Division. You are responsible for introducing a new line of microcomputers into several international markets.

Within the PC industry, other firms will be entering the market at the same time as your division. To keep the scenario simple, assume the microcomputer industry is in its introductory stage of the product life cycle. That is, there is no history and there are no established competitors. Furthermore, assume that all competitors, including your own division, will start with exactly the same resources and knowledge of the market.

All manufacturers will sell through company-owned sales offices in four major metropolitan markets around the world. Your target market will be the business sector. You will not be selling to the home market and you will not sell through retail stores. Thus, your marketing strategy will be tightly focused on direct sales to business customers.

There are five market segments to serve in the PC market. They are referred to as the Cost Cutter, Workhorse, Traveler, Innovator and Mercedes segments.

The Cost Cutter segment is a large segment that is looking for a computer that’s very easy to use for basic office applications. The segment is extremely price-sensitive.

The Workhorse segment is the largest group of customers. They want an easy to use PC for office workers. It should also have a modest price.

The Traveler segment wants a practical computer to use on the road. Traveler customers are executives and sales people who travel a great deal. This segment is also price-sensitive.

The Mercedes segment is looking for a high performance computer to use in engineering and manufacturing applications. Mercedes customers are willing to pay extra for the high performance.

The Innovator segment is a small segment that needs a computer to handle large computational problems (accounting, inventory management, engineering). This segment wants the latest technology and will pay a small premium for this high performance.

Each segment has different needs and wants and requires a different market strategy to appeal to it. One of your first decisions will be to select an initial segment to target. Having selected your target market, you will develop and then execute a very focused strategy to profitably serve that segment.

Corporate Headquarters will use a balanced scorecard to measure the PC Marketing Division’s total business performance. Your division’s score will be based upon its financial performance, market performance, and marketing effectiveness, investment in future and wealth.

Starting in quarter 4, the team can check its own performance and the performance of its competitors by viewing the balanced scorecard in the Performance Report section. The goal is to be the best competitor in Marketplace.

Your executive team has the next two years (8 quarters or decision periods) to get this company off the ground. Within this time frame, you should become a self-sufficient firm, earning substantial profits from your operations.

This description represents the whole of the world you will face. From this point forward, you will receive information, as you need it. You will also be given an ever-expanding set of decisions to make. The sequence follows the logical way in which a new product is introduced to the market in the real world.

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How To Win

The formula for success in business and marketing is very simple.
Make lots of people happy and you can earn a lot of money.

Here are the rules:

• Find out what people want.
• Give them what they want.
• Tell them you have what they want (advertise).
• Send people out to where they work and live and personally explain how you have the solution to their needs (distribution and sales force management).
• Collect the money for a job well done.

Sounds easy, right?
Of course, there are a couple of things that get in the way.

First, not all customers are alike. One offer will not work for everyone. People have different tastes, preferences, needs, etc.

As a result, many potential customers will wait until they find the "right" solution for their needs. To paraphrase a famous quote, you can satisfy some of the people all of the time, but never all of the people all of the time. So, demand may not be as great as you would like or hope.

The way around this problem is to discover the differences in needs among your customers (market research), break the customers down into smaller groups with similar needs (segmentation), and then develop a strategy for each group (target marketing).

Second, everyone wants more for less. A lower price for the same goods is a powerful magnet for customers.

Sure, you would like to sell for less, but you have to pay your expenses and earn a profit.

One solution to this pricing dilemma is often found in larger sales volumes. If you can generate large sales volumes, production costs per unit will usually drop dramatically. Lower costs for the goods sold will allow you to lower your prices and/or increase your profits.

How do you create larger sales volumes? Offer a better product at a better price and tell everyone about it (advertising and sales force).

Third, there will always be someone that wants to make money in the same market as you. Competitors will always emerge and try to take your sales and profits.

How will they do this?

Smart competitors will study the customers’ needs PLUS study what you have to offer (benchmark) and then create and sell a better solution. Usually, they find a group (segment) whose needs are not well served and then develop a superior strategy targeted at that group.

Fourth, customers will always gravitate towards the better offer.

Your job is never done. You must always check your offer against the customers’ evolving needs (satisfaction level) and that of the competition (benchmark) and make sure you have the better product, price, promotion and distribution.

In a nutshell, be the best at giving the customer what the customer wants. Then go out and find the customers and tell them how good you are at meeting their needs. This should create lots of sales that will drive down your costs and thus allow you to offer good prices with good profits.

Of course, it is not this easy, but this is the essence of marketing.

Keep these guidelines in mind as you compete in Marketplace. If you follow them, you will be successful. You will be a winner in Marketplace!

Good luck!

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Chapter 1. Player Activities

This chapter focuses on the activities you will perform as you work through the exercise from quarter to quarter. First you need to decide about the goals and strategic directions your company will follow for the next one and half year. Make your initial decisions thoughtfully. Even though you can adjust your strategy later, some changes may be costly.

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Functional Organization of the Executive Team

One of your first responsibilities in setting up your new venture will be to organize your executive team and assign responsibilities. This task is critical because Marketplace requires more work than any one person can do.

It is not efficient for everyone to participate in all aspects of the business. Ultimately, team organization and management will determine team effectiveness and the team’s satisfaction in working together.

Teams may have members rotate positions periodically, so that everyone experiences more than one decision area. The advantage to this approach is that the participants develop a good feeling for all of the decisions to be made. It also helps the team members to develop a common frame of reference.

Functional Roles

There are many ways to divide the team’s responsibilities. Here are the six possible executive assignment categories:

President - Overall Leadership: Coordinates all functional areas, participates in all areas, setting objectives, organizing and assigning work, managing schedules and meetings, monitoring overall performance (balanced scorecard) and managing the team to lead the industry.

Vice President, Brand Management: Delivery of customer needs through brand design and pricing.

Vice President, Advertising: Delivery of customer needs through ad copy design and media placement.

Vice President, Sales Management: Distribution (location and timing of sales offices), selection and funding of sales force management tactics (number, targeting, training and incentives).

Vice President, Marketing Research: Analysis of market and operational data.

Vice President, Finance: Financial performance, profit analysis, and capital structure.

There are many variations on this division of tasks. For example, in a five-person team the president would also be responsible for one of the five VP assignments.

You could have the leadership responsibility rotate through the team at appropriate points so that almost everyone obtains leadership experience. For example, one team member could be the leader during the start-up phase, a second member could be the leader during the preparation of the marketing plan, a third member could be the leader during the growth phase of the business, and a final person could be the leader during the preparation and delivery of the final report.

Other variations to the team assignments will depend upon the number of participants. If your group has four members, consider assigning the President a VP responsibility, and combining the VP of Marketing with the role of VP of Marketing Research.

Another way to organize your team is to use the brand management format. There would still be a President and Vice Presidents. But in this case, a brand management position would be assigned for each brand or segment that is to be targeted. Thus, one individual would be responsible for their normal role as President or Vice Presidents plus all of the marketing research, marketing, and sales for an individual brand or segment.

The advantage of this format is that one individual is in charge of knowing all there is to know about a segment of the market and is responsible for developing an effective strategy. It also provides a broader base of experience for more people on the team. The disadvantage is that competition can develop among brand managers as they vie for the resources and attention of the firm.

A variation on brand management is territory management. Once again, there would still be a President and Vice Presidents. The team is broken up into city managers, and each city manager is in charge of knowing everything about a city and developing an effective strategy for competing in that city.

Keep in mind that these guidelines are merely suggestions. Feel free to depart from these guidelines if individual preferences, experiences, or workloads would allow a more equitable allocation of tasks. Also, do not hesitate to reallocate responsibility if conflicts arise or the workload is unevenly distributed.

Team Management

Consider the following points about team management. First, very few new ventures succeed without strong leadership, shared goals, a willingness to compromise, a strong work ethic, and a willingness to carry one’s share of the burden.

You will have a very short time to organize your firm and bring it on-line as an effective, hard-hitting business enterprise. None of you can do it alone. You must learn to work as a team with everyone pulling his or her weight in the same direction.

Second, conflict within the team is inevitable. This is because you must make some tough decisions that are filled with uncertainty and risk. You will never have enough information or enough resources to do all that you want.

Furthermore, members of your executive team will have conflicting opinions on strategy, tactics and resource management. The ability to resolve conflict and the manner in which it is resolved may very well make the difference in whether or not you can succeed in business.

Finally, time management will be vital to your success in playing Marketplace. There is more to do than you have time for. Many teams get bogged down in executive committee meetings.

As a suggestion, the president should preside over each executive meeting, making sure that the discussion does not wander from the business at hand. Each team meeting should begin with an agenda and a timetable. Meetings should not last more than two hours. Long, drawn-out meetings are not productive and raise frustration levels about not getting things done. The meeting should conclude with a set of action items for each executive. The outcome of these actions should be reviewed at the start of the next meeting.

To facilitate the running of executive meetings, each team member should prepare his/her work in advance. The executive should know the ins and outs, problems and tradeoffs of his/her area of responsibility.

When the executive committee meets as a whole, each executive should have a plan of action to recommend to the team. The executive should be prepared to thoroughly discuss the options open to the company and be flexible on the final decision of the executive team.

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Goals and Strategic Direction

Your company must decide the order of priority for your target market.

At the outset of your business, the single most important set of decisions you will make involves defining your organization goals and strategic direction. In essence, you must choose the path you are going to take for the next 2-3 years of your business.

The path will cause you to channel your energies, hopefully in a manner that will be productive for both you and the organization. However, the further you go down that path, the more difficult it will be to change direction. All of your investments, both intellectual and financial, will be pumped into an increasingly narrower and more focused set of decisions.

The first task in quarter 1 is to analyze the market information from your market research. This market analysis will help you to determine the available market opportunities. With this information as a backdrop, you must make decisions in the following areas:

Target Markets:
Your company can decide which market segment/s to target with your product and which marketing efforts will most effectively reach that market segment/s.

Strategic Direction:
Your company can decide where it is headed in the future. What are your future goals for: market size, geographic markets, competitive posture and distinctive competency?

In quarter 1, consider your goals and strategic direction to be tentative. As you gain experience through test marketing, feel free to modify these initial decisions. However, by quarter 5, your strategic direction should be firmly established. If not, you will probably not have an opportunity to catch up with the leading firms in your industry.

Players can sell to all segments in every quarter, and, in most quarters, they will. Even though they are not targeting a segment, a number of customers of the non-targeted segments may like the computers offered and buy them. Money made from sales to any segment will help revenues and, in turn, will positively affect certain areas of the Balanced Scorecard, such as financial performance. The reason players have to designate which segments are their primary and secondary target segment is to enable the Balanced Scorecard to evaluate their marketing performance. If the majority of a team's sales are in their primary target market and the second largest amount of sales is in their secondary target segment, then they will have a good score for marketing. In other words, they are meeting their marketing goals with brand and ad designs that are a good fit for those segments. If they have a large amount of sales in segments that are not their primary or secondary choices, then their marketing scores will be lower as they are not appealing to the segments they have targeted. The balanced scorecard measures several factors of a firm's performance to get a rounded view of the company's overall success rather than just financial success. The players can see the full calculation for how the balanced scorecard is determined in that section of their team software.

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Company Name

Select a name for your enterprise. Start by defining the image you wish your company to project. Keep in mind what the name may mean to end-users, your competition and potential investors.

A good name is important in establishing a good first impression. You can use it to influence the expectations of those who do not know you.

However, your competitive behavior and style of business will ultimately define your image and what your name will come to mean. After all, the letters IBM have no intrinsic value, but they have come to represent a highly professional group of individuals who tend to do things right.

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Table 2-1: Decisions to be Made by Quarter

Note: Be prepared to justify your decisions, and explain the rationale used to form them.

Quarter 1: Organize team to do the job.

• Focus on process of working as a team to achieve goals
      - Assess team members' skills, personalities and work styles
      - Set organizational and personal goals
      - Organize the work
      - Determine how to manage the organization
      - Establish leadership
• Determine desired image of company
      - Designate a company name

Quarter 2: Evaluate market opportunities, setup operations and prepare for test market.

• Analyze market opportunities—evaluate segments, geographic markets and potential competition
• Establish corporate goals and strategic direction
      - Specify and rank order corporate goals
      - Write mission statement
      - Select target segments
      - Establish strategic direction
• Create customer value—design initial brands for test market
      - Match components to benefits desired (Quality Function Deployment (QFD))
• Select test markets—setup sales offices

Quarter 3: Go to market to test strategy, and market assumptions.

• Marketing strategy—evaluate tactical options and choose marketing mix
      - Pricing and price promotions
      - Sales force management—number employed, training and incentives
      - Advertising—ad copy design, media placement, and ad frequency
• Market research—budget collection of information

Quarter 4: Evaluate test market performance and revise strategy, become a learning organization.

• Evaluate performance
      - Financial performance—profitability analysis
      - Market performance—customer opinion of brand designs, prices, advertising and sales force
      - Competitor tactics—segments targeted and selection of marketing tactics
• Revise marketing tactics as needed, and continue test marketing

Quarter 5: Seek external funding—prepare marketing plan.

• Evaluate performance—financial, marketing and competitive
• Develop two year marketing plan
      - Goals—marketing and financial
      - Marketing strategy
      - Financial strategy
• Invest in R&D for new technology
• Begin roll out of marketing plan

Quarter 6: Monitor, improve and execute.

• Evaluate performance—financial, marketing and competitive
• Skillfully adjust strategy
• Marketing—make incremental changes in tactics
      - Use activity based costing (ABC) to evaluate profitability of brands and sales offices
      - Conduct demand analysis to estimate brand, price, advertising and sales force elasticity
      - Continuously improve brand features (R&D)

Quarters 7 & 8: Monitor, improve and execute (continue).

• Manage strategy
• Skillfully adjust strategy to unanticipated competitive moves
• Continuously improve brand features (R&D), pricing, promotions and sales force
• Adjust strategy within financial capability

Final Quarter: Report to the board.

• Report on operations since presentation of marketing plan
      - Market and financial performance
      - Departures from plan, justification
• Present plan for the future

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Executive Briefings

The Chairperson of the Board (Instructor) may meet periodically with each team. The first meeting will be during the first or second quarter of play. During the rest of the simulation exercise, each team will meet with the Chairperson whenever a set of decisions is to be submitted.

During these executive briefings, the team will review its:

• Performance
• Market analysis
• Current decisions
• Decisions for the future

Each and every member of the team must be prepared to defend the analysis and the logic behind all of the team's decisions and plans.

See below for a list of possible discussion topics for meetings with the Chairperson of the Board during each quarter:

Quarter 1

Theme: Introduction and initial goals.

All Team Members should:

• Explain why you want the job and why you will be good at it.
• Review team member selection and how member fit will help your company to excel.
• What image does your company wish to project? After two years of business, what do you want competitors to say about your firm?
• Give name of company and rationale for its selection.

Quarter 2

Theme: What path are you going to take initially?

President:

• Restate (revise) your desired company image.
• Establish specific, quantifiable corporate goals and the rationale for them.
• Briefly describe segments selected for initial market development.
• Describe the strategic direction your executive team has established for the firm and the rationale for such direction.

Marketing Research:

• Name and describe each market segment (provide customer profiles).
• Estimate market potential and demand of each segment. Explain assumptions.
• Estimate market potential and demand of each metropolitan market. Explain assumptions.
• Identify cities chosen for test marketing. Explain choices.

Marketing:

• Lay out initial strategy for market development (i.e., market entry sequence by segment and geographic area). Justify.
• Describe brands to be produced for chosen segment(s). Justify features selected.
• Give names of brands to be produced and rationale for them.

Sales:

• Describe expected sales strategies and tactics.
• Lay out initial strategy for market development (i.e., market entry sequence by segment and geographic area). Justify.

Finance:

• Describe your current financial status.
• Describe how you plan to finance your initial operating investments and expenditures.

Quarter 3

Theme: Let’s go to market!

President:

• How are you beginning to accomplish your corporate goals?
• What do you hope to accomplish in the test market?
• How are you functioning as a team?

Marketing Research:

• Estimate market demand by segment for each brand. Explain process.
• What cities were chosen for test marketing?
• Explain your marketing research plan for the test market.

Marketing:

• Lay out your marketing strategy for each brand (i.e., marketing mix). Justify your decision.
• Describe any new brands to be produced. Justify features selected.

Sales:

• Define specific, quantifiable goals for the test market.
• Describe sales strategy and tactics.
• Do you plan to open any new sales offices in quarter 4? If so, why?

Finance:

• Define specific, quantifiable, financial goals for the test market.
• Describe your current financial status.
• Justify your pricing decisions. Show how all expenditures are accounted for in your final selling price. Allocate each expenditure (by proportion) against your sales figures.

Quarter 4

Theme: The results are in! What now?

President:

• How did your performance compare to your corporate goals?
• How do you assess your competition?
• Are you planning any changes in your corporate goals and/or strategy?
• What do you hope to accomplish in this next test market?

Marketing Research:

• What was the market’s reaction to your brands, advertising and prices? How do you compare to your competition?
• How do in-store decisions affect market demand?
• How do advertising and brand design affect market demand?
• Revise estimates of market demand by segment for each brand.
• Explain your marketing research plan for the test market.

Marketing:

• How did your performance compare to your marketing goals?
• How are you revising your goals and strategy for the current test market in response to the last test market?
• Lay out your marketing strategy for each brand (i.e., marketing mix).
• Describe any new brands to be produced. Justify features selected.
• Estimate advertising impact and financial effectiveness. Compare with your competitors.

Sales:

• How did your performance compare to your market goals?
• What was your demand per salesperson for each test market? How did it compare to the competition? What caused the differences?
• Have your market experiences caused you to revise your goals, strategy or tactics for the current test market?
• How strong is your position in each market? How can you improve it?
• Describe your sales strategy and tactics for each geographic market.
• Describe and justify your decisions to open sales offices.

Finance:

• How did your performance compare to your financial goals? To other firms in the industry?
• Are you revising your goals or strategy for the current test market in response to the last test market?
• Describe your current financial status. How is it affecting your ability to achieve your marketing and/or financial goals?
• Justify your pricing decisions. Using the Activity Based Costing information provided on the decision template, evaluate the contribution of each brand and region to the profitability of the Marketing Division. Show how all expenditures are accounted for in your final selling price. Allocate each expenditure (by proportion) against your sales figure.

Quarter 5

Theme: So, you received 5,000,000. Prepare your marketing plan.

All Team Members should:

• Prepare marketing plan for following quarters.

Quarter 6

Theme: Departures from the marketing plan.

President:

• What is your position in the market?
• What is your competition up to now?
• What trends are beginning to take shape in the market? How will they affect you?
• Are you on target with your marketing plan? Any departures? If yes, why?
• How do you assess your team’s performance? What are your strengths and weaknesses? What changes must be made to become a high-performance team?

Marketing Research:

• Are there any changes in the market that will affect you?
• What is the market’s reaction to your brands, advertising and prices? How do you compare to your competition?
• How do in-store decisions affect market demand?
• How does advertising and brand design affect market demand?
• Forecast market demand by segment for each brand.
• What is your marketing research plan?

Marketing:

• Are you on target with your marketing goals?
• Are you revising your goals, strategy and/or tactics in response to competitive or customer decisions? If yes, how and what is the anticipated effect?
• Lay out your marketing strategy for each brand (i.e., marketing mix).
• Describe and justify your R&D decisions.
• Describe any new brands to be produced. Justify features selected.
• Estimate advertising impact and financial effectiveness. Compare with your competitors.

Sales:

• How is your market performance comparing to your market goals? Compare your demand/salesperson figures with your competitors. Who is ahead and why?
• Have your recent market experiences caused you to revise your goals, strategy and/or tactics in dealing with your geographic markets?
• Describe your most recent tactics and how they are helping or hurting you in achieving your objectives.

Finance:

• How did your performance compare to your financial goals? To other firms in the industry?
• Describe your current financial status. How is it affecting your ability to achieve your marketing and financial goals?
• Evaluate the financial performance of each brand and sales office. Allocate relevant costs and revenues using Activity Based Costing. Which are the winners or losers?
• How must your marketing strategy change in light of your financial performance?

Quarter 7

Theme: Preparing for the big push.

President:

• What is your position in the market?
• How does your performance compare to your stated goals?
• How are things shaping up for the end of the year finale (in quarter 8)?
• Any surprises from your competition? The customers?
• Are you on target with your marketing plan? Any departures? If yes, why?

Marketing Research:

• Are there any changes in the market that may affect you?
• Can you quantify the effect of brand design, pricing, advertising and various in-store decisions on customer demand?
• Forecast market demand by segment for each brand.
• What is your marketing research plan?

Marketing:

• Are you on target with regard to your marketing goals?
• What are you doing to accomplish your end of year objectives?
• Lay out your marketing strategy for each brand (i.e., marketing mix). How do they all fit together into the ”Big Picture”?
• Describe any new brands to be produced. Justify decision.
• Estimate advertising impact and financial effectiveness. Compare with your competitors.

Sales:

• How does your market performance compare to your market goals?
• Lay out your sales force strategy for each geographic market (i.e., marketing mix). How do they all fit together into the ”Big Picture”?
• What are you doing to win the necessary support you will need from the rest of the executive team to achieve your year-end sales objectives?

Finance:

• How did your performance compare to your financial goals? To other firms in the industry?
• Describe your current financial status. How is it affecting your ability to achieve your marketing and/or financial goals?
• Evaluate the financial performance of each brand and sales office. Allocate relevant costs and revenues using Activity Based Costing. Which are the winners or losers?
• How must your marketing strategy change in light of your financial performance?

Quarter 8

Theme: The Final Push.

President:

• What will the market be like next year?
• What are your predictions about your customers and competition?
• What are your goals for next year in light of these projected market conditions?
• How will your strategy have to change in the coming quarters?

Marketing Research:

• Are there any trends/clues in your research and analysis that may suggest the market is evolving? What are they and what do they suggest about the market?
• In a maturing market, how will the relative importance of brand design, pricing, advertising and various in-store decisions change and affect customer demand?
• Revise your estimate of market potential by segment and geographic market.

Marketing:

• How are you planning to change your marketing strategy and tactics in a maturing market? What changes do you anticipate in your product line, advertising, pricing and distribution decisions?
• What are your marketing goals for next year?
• Lay out your marketing strategy for next year (i.e., marketing mix). How do all parts fit together into the "Big Picture"?
• What new technologies or R&D programs should you initiate for the coming year? Where do you think the market is going or where do you want to take it?
• Estimate advertising impact and financial effectiveness. Compare with your competitors.

Sales:

• What will it be like to do business next year? What leads you to these predictions?
• How strong is your position in each geographic market? How can you improve it?
• What are your sales goals for next year?
• What will be your strategy for next year?
• Describe and justify your sales office-opening decisions for next year.

Finance:

• Are you revising your financial goals and strategy in response to market demands?
• Describe your current financial status. How will it change in a maturing market? How will it affect your ability to achieve your corporate, marketing and/or financial goals?
• Show how your expected expenditures will have to be reapportioned to improve your financial performance in the third year.

Quarter 9

Theme: Rating your performance.

All Team Members should:

• Review the balanced scorecard.
• How does your company compare to the competition?
• Did you achieve you objectives?
• What should you have done differently?
• Prepare a final report of the company's position, and present to investors.


Chapter 2. Market Research

Initially, your company should conduct marketing research to determine:

1) The structure of the market.
2) The market requirements of customers.
3) The strengths and weaknesses of competitors.

This is known as a Market Opportunity Analysis (MOA). An outside research firm will collect several types of information that you can use to begin your MOA.

Your market research firm will collect the data that you will require. All they need to know is what you are willing to pay for the degree of precision of the survey data. Once the raw data is collected, you should begin the task of interpreting the survey data keeping in mind that the degree of precision you selected could have an effect on your interpretation.

As a starting point, prepare a market profile for each segment. Look for patterns within and between the segments to begin to understand what customers value.

Construction of your MOA is a continuing process which will be updated as new information such as end-user feedback and competitive benchmark surveys become available in future quarters.

One of the objectives of your continuing MOA must be to develop market forecasts of market potential, market demand, and/or brand/sales office demand. In the 3rd quarter you will be able to conduct test marketing on your product and other marketing tactics and receive data on customer opinions and competitive tactics. This test market data should enable you to skillfully adjust your tactics in order to better serve the needs of the market and outsmart your competition.

Learning Objective: The primary objective of the MOA effort is to give you experience in the study and evaluation of market opportunities. The starting point of all marketing effort is the determination of the needs and wants of the available markets and an estimation of the market potential of each segment. The firm must then evaluate the relative cost to serve each segment versus its financial attractiveness.

The ultimate objective is to select one or more target markets for development. The target market decision, in turn, strongly affects all subsequent marketing decisions, including brand design, pricing, ad copy design, media planning and distribution. Thus, the first step in the process of strategic planning is the Market Opportunity Analysis.

Concepts Emphasized:

MOA: The identification and assessment of market opportunities based upon an analysis of:

1) The structure of the market.
2) The market requirements of customers.
3) The strengths and weaknesses of competitors.

Value of information: Weighing the relative cost and benefits of more precision versus other investment options.

Market analysis: Sorting through and evaluating the information, and ascertaining the strategic implications of the findings.

Laddering and means-end hierarchy: Interpreting the data in terms of the linkages between benefits and features and benefits and values desired.

Forecasting: Prediction of market potential and demand based upon market data and one’s assumptions regarding:

1) The accuracy of customer purchase intentions.
2) The ability of their industry to serve the market.
3) The comparative advantage of your firm versus your competition.

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Initial Research: Market Opportunity Analysis (MOA)

A market opportunity analysis (MOA) is the identification and assessment of market opportunities based upon an analysis of:

1) The structure of the market.
2) The market requirements of customers.
3) The strengths and weaknesses of competitors.

An MOA provides the foundation for designing an effective strategy to capitalize on one or more of the identified opportunities. At this stage in the development of your industry, it is not possible to seriously evaluate your potential competitors. Just like your company, they are all entrepreneurial firms without a track record.

After about the fourth quarter, you should be able to judge their strengths and weaknesses and use this information in your strategic and tactical planning. For now, you must focus on the end-users. They are your ultimate boss, and you must ascertain what it will take to make them happy.

Your initial MOA should begin with an analysis of your potential customers. In Marketplace, you have an opportunity to contract with an outside research firm to conduct a survey of potential users. (The marketing research data are patterned after real-world, secondary data that is commercially available for a substantial fee. The data has been modified and simplified in order to facilitate its use in the simulation. Since the market modeled in the simulation is based upon this information, it is important for your firm to purchase the data.)

To begin your MOA, read the topics below to learn more about:

Types of Information Available
Interpreting the Survey Data
Understanding What Customers Value

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Types of Information Available

There are several types of market information included in the survey that you can purchase from the outside research firm. The major categories are customer needs and wants, use patterns, demographic characteristics, price willing to pay, and market size in each metropolitan market.

The data on customer needs and wants, use patterns, and media preferences will be reported for the market as a whole. Data for individual cities and regions will not be provided. Price willing to pay and market size estimates are available for each city. Each type of information is discussed in detail below.

The first part of the market survey seeks to determine what benefits are sought by each of the five major market segments. Potential customers are asked to review a list of benefits and rate their relative importance on a scale from 1 to 100. These values are then standardized with a mean of 100.

Values between 90 and 110 are well within the norm for the population. They represent minimum performance requirements for a segment, but do not indicate anything unique about the segment.

It is not until the rating score exceeds the norm that the benefit becomes an important factor in distinguishing between segments. You will want to be especially sensitive to the high scores because your firm must provide that benefit in order to appeal to the segment.

The second part of the survey will provide you with a profile of the product use of each segment. The profile includes information on the different categories of customers, and their specific uses or applications for the product. The information is scaled in the same fashion as the benefit list, where the mean is equal to 100. Look for distinguishing factors that are well in excess of 100.

The third type of information that you will receive is relative to the media preferences of the decision-makers. (Please note the decision-maker is responsible for the decision to purchase the product, but may not be the user of the product.). This part of the survey is displayed in the advertising section and will be made available to you as you prepare to place your advertisements in different media. The responses are standardized with a mean of 100. Again, look for distinguishing factors that are well in excess of 100.

In the fourth part of the questionnaire, potential customers are asked about their buying intentions for the next 12 months. After appropriate data manipulation, you will receive information on the price the customer would consider paying for the ideal brand.

For the fifth part of the questionnaire, we again use the data from when potential customers were asked about their buying intentions for the next 12 months. After appropriate data manipulation, you will receive information on the market size. This number is computed for you by multiplying:

The percent of customers who intend to buy
(x) The number of potential customers in each segment
(x) The number of units that a customer is likely to buy in the next 12 months

This information is based upon census data and the customer profile data described above. It is a very rough estimate and should be used with great caution.

Again, please be cautious in using this market information. At best, these estimates are very rough projections. Buying intentions are notorious for being wrong about actual purchases. The actual purchase rate will ultimately depend upon how well the product is designed, priced, and distributed, as well as the condition of the economy and how well you and your competition serve the market.

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Precision of Survey Data

Your marketing research firm has advised you to collect information on customer needs, wants, buying patterns, and media preferences. The cities in all different regions will be surveyed and the information will be compiled across these potential test markets. To help determine market size, the information on buying intentions and the number of customers potentially in the market will be obtained separately for each geographic market surveyed.

How much precision should you buy? The more end-users included in your survey, the less error you can expect in the data, but the costs go up accordingly. Professional researchers estimate that your survey data will be accurate to within plus or minus 15 percent of the average if only 100 end-users are surveyed.

By collecting information from more potential buyers, you should be able to reduce this variance and improve your estimate of the underlying factors of market demand. A larger sample of geographically dispersed end-users drawn from diverse economic markets and population sizes should yield an accuracy of plus or minus 8 percent, a minimum in survey research. If a large number of end-users are included in the survey, accuracy should improve to plus or minus 4 or 5 percent.

Remember that this information can be used only to project market-wide trends and not regional or other sub-market preferences. (The precision estimate is based upon the statistical concept of the confidence interval. A confidence interval is computed using plus or minus two standard deviations from the mean.)

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Interpreting the Survey Data

The interpretation of research data is more art than science. The marketing research firm will give you data. Your analysis and interpretation of the data is needed to convert it into information. Your objective should be to look for patterns in the data. These patterns should help you understand the overall structure of the market and the subtleties of each segment.

As a starting point, prepare a market profile for each segment. Place each segment profile on a separate piece of paper. Then take each section of the survey and summarize the distinguishing characteristics of each segment.

Within each section, list the characteristics from highest to lowest priority. There is no need to provide an exhaustive list; include only those items that set the segment apart from the rest of the market.

As a caution, the precision of your data could have an effect on your interpretation of the data. Specifically, the rank order of the benefits sought could be altered due to chance, if your precision is low. For example, if speed was given a rating of 115 and ease of use was given a rating of 120 by a particular segment, you would want to make ease of use a feature of your product before worrying about speed. The higher number means that ease of use is obviously more important to the end-user than speed.

However, if your precision level is plus or minus 8 percent of the average score, then speed might really be rated 124 (115 * 1.08) and ease of use might really be rated 110 (120 * 0.92). Thus, their positions could be reversed.

In this light, you will want to look for relatively large differences, given your level of precision. Attributes or benefits with small differences in ratings should probably be treated as equally important to the end-user.

Once you have a profile of each segment, look for the patterns within and between the segments. There are no statistical techniques to help you here. You will have to draw upon your natural insight and creativity. The patterns exist; it is only a matter of discerning them.

After you have a good mental picture of the segment, give it a name, for example, ”the sensory segment” as in toothpaste users. A name will make it easier to think about the segment and discuss it with your teammates. Choose a name that embodies the image you have of the segment. To help you out, we have given each segment a tentative name and these can be found in the Introduction to Marketplace Decisions.

Also, find a picture that conveys the type of people who use the product and how they use it. Attach it to your profile. (Look in magazines that carry related ads.) Marketers for the Saturn Corporation have used this technique to help them visualize their target customers.

In planning for the Saturn car, they assembled a large collection of pictures depicting their target customers and how they use their cars and placed them on a large bulletin board. Executives would stop by and study the board when they were trying to resolve difficult problems. They even held meetings in front of it. Their objective was to make sure they think of their customers as real people and not as abstractions or tables of numbers.

As noted above, the marketing research firm recommends that you study the information on price willing to pay and on the number of customers in each segment for all 20 metropolitan markets. This information can be used to estimate market potential.

As a word of caution, never forget the difference between market potential and market demand. Market demand will always be less than market potential. The rate at which market potential is converted into actual sales demand will depend upon the quality and quantity of the industry’s total marketing effort. Your share of that demand will, in turn, depend upon the quality and quantity of your marketing efforts relative to your competitors.

As a final note on market surveys, keep in mind that respondents are not infallible in their responses to a researcher’s questions. On occasion, they may not give a response that reflects their true position on an issue because they are either unable or unwilling to do so. As a consequence, it is extremely important that you include market testing in your MOA.

That is, design your brands and ads and set your prices in a fashion that your market survey suggests is best for your target markets; then see how the market reacts to them. Customers’ reactions (actual purchases) are better indicators of their motives than their words.

Thus, a complete MOA should include a market survey and test marketing. To obtain test market feedback on your market offering, you will want to subscribe to the market research publications entitled End-User Feedback and Competitive Benchmark.

Now that the data is organized by market segment, you must translate it further to begin Understanding What Customers Value within each segment.

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Understanding What Customers Value

Once you have organized your data by market segment, your interpretative work has just begun. It is necessary to further translate this data into useful information. Specifically, the data regarding customer needs is very helpful in understanding the benefits and costs perceived in the use of the product.

But, this data tells you almost nothing about which components can deliver the benefits desired or avoid the costs feared. Also, the data barely touches on the values desired through product use. Customers do not buy components or features; they buy benefits. At a higher level, these benefits help users to accomplish their goals and to realize certain values or end states.

It is your job to figure out how to deliver the value desired. A good way to start is to apply the logic behind the means-end hierarchy. Take the most important benefits desired by each segment and speculate on which components or services will be necessary to deliver these benefits.

Draw ladders downward linking the benefits with the features or components (also referred to as attributes) which can be built into a new product at the factory. Next, extend the ladder upwards and speculate on the values being sought through these benefits.

For each segment, you need to build several ladders linking the available components to the benefits desired and then up to the values to be served. Once all of the ladders have been built for each of the important benefits, try to bring them together into a coherent whole.

The ladders and the overall means-end hierarchy will be useful in designing your new brands. In fact, this information is a prerequisite to brand design decisions. It will form the foundation of the Quality Function Deployment (QFD) techniques to be used in designing brands.

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Test Marketing: Feedback and Control

You must recognize that you do not operate in a vacuum. In every case, your marketing decisions are judged on both an absolute and a relative basis. On an absolute basis, you must satisfy the needs of a target segment if you hope to sell that segment any brands. The more closely you match your market offer to the needs and wants of your marketplace, the greater will be the interest in your brands.

But your potential customers do not stop with this evaluation. They also compare your market offer to the offer of your competition. On a relative basis, the better offer will earn the larger share of the business. Thus, it is imperative for you to periodically check on your competition and compare their marketing programs to your own.

To obtain feedback on your marketing plan, you need to survey your customers and monitor your competition. Your marketing research firm offers two types of test market research that might be of interest—End-User Feedback and Competitive Benchmark.

The end-user feedback and the competitive benchmark data should be purchased during the test market phase, and periodically thereafter. If your company wants to subscribe to these services, you must budget for the expenditure during the current quarter. The information will be collected during the current quarter and will be made available to you at the start of the next quarter of business.

It is not possible to collect market research data and deliver the results during the same quarter. Events are still in progress throughout the quarter. It is not until all decisions are finalized and submitted to the instructor that the data collection can begin. As a result, you will always be working with information that is one quarter old.

Brand designs and ad designs are public information. As soon as the design for either is finalized (submitted to the instructor at the end of a quarter), the information will enter the public domain. If you purchase End-User Feedback for a specific region, in the next quarter, you will be given the information about how the customers rated each brand, ad and price in that region.

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End-User Feedback: Fast Tests

The end-user feedback is in the form of fast tests. The fast tests give you a summary judgment or evaluation of currently available brands, prices and advertising copy from your customers’ viewpoint. They are labeled Brand Judgment, Price Judgment and Ad Judgment. The rating service can be purchased for any region in which you believe a competitor operates a sales office. (No refunds are given if no sales offices are open.)

See below for more information on:
Brand, Price, and Ad Ratings
The Source of Fast Test Data
The Use of Fast Test Data

Brand, Price, and Ad Ratings

The brand judgment provides an indication of how closely a brand matches the basic needs of each market segment. All of the brands sold in a particular geographic market are rated by several panels of local buyers. Each brand will receive a rating of between 1 and 100 from each of the five market segments.

A rating of 100 indicates that a brand satisfies all of the basic needs of the segment. A score of less than 100 indicates that the brand design is deficient in some respect. The lower the score, the lower the interest in the brand and the lower the sales from that segment.

The price judgment is obtained in the same way. The price of every brand in the local market is evaluated by the same panels of current buyers. Each price is given a score of from 1 to 100 by each of the five segments. A score of 100 indicates a price which is satisfactory to most of the customers in a given market segment.

For both the brand judgment and price judgment, a score of 70 is the minimum needed to serve the market. At this level, customers will begin to give serious consideration to buying the brand. The score, however, suggests that the market will respond vigorously to further improvements in brand design and cuts in price.

A judgment score over 90 is considered very good. Demand should increase exponentially as price and brand ratings climb above the 70 score minimum, all other things being equal. However, it is not enough to have a high score on one variable; both dimensions (price and design) must be satisfied simultaneously to win market favor.

Ad Copy Judgments can also be obtained under the fast test program. The ratings represent a summary judgment of the appeal of an advertisement to each market segment. The consumer panels are asked to evaluate each one of these ads.

For each ad, you will be given a simple rating score that may vary from 1 to 100. A separate rating is obtained from each segment. The higher the rating, the more appealing the ad is to a market segment. End-users seem to be very demanding in their evaluation of a firm’s advertisements. Ratings in the 70s are difficult to obtain. A rating over 80 is generally considered to be very good.

The Source of Fast Test Data

To help you visualize how the numbers are derived, it is useful to review the marketing research procedure. Specifically, your marketing research firm has been hired to conduct personal interviews in each trading area that you select for study. Potential customers are presented with the actual brands, prices, and tear sheets from all magazine advertising.

The customers evaluate every brand for sale in that market, the price of each brand, and all advertisements that have been run in any media. As they evaluate each brand, price, or advertisement, they can compare one to another. For example, when they are conducting the brand judgments, they are permitted to physically examine each brand.

After the brand evaluations are completed, a price card is positioned in front of the brand and the judgments are taken. In the case of the magazine ads, the tear sheets are mounted on stiff cardboard and presented to each subject in a different random order.

The end-user is then permitted to sort through the ads until all ads have been rated. (Due to the comparative procedures employed, the ratings could change as new brands and advertisements are introduced into the market and the evaluation set is enlarged.)

In each case, the end-user is not asked to justify his or her rating. To expand the study and collect customer opinion regarding these evaluations would substantially increase the cost.

In addition, the research firm has reservations about the accuracy of customer opinion for this application. It is felt that customers make their purchase decisions based upon the whole package (gestalt) of what is offered rather than an analysis of individual components or ad benefits. (The whole is greater than the sum of the parts.)

A sample of subjects is recruited from each market-segment group. Every brand, price and ad is rated by each sample. This procedure allows a rating to be computed separately for each segment. Thus, the same price, brand design or advertisement may receive a high rating from one segment and a low to moderate rating from the remaining four segments. If your target marketing efforts have been successful, the high ratings should appear in the segment(s) targeted.

You can expect different ratings for the same brand design and price in different regions of the market. At this time, it is not known if the market is homogeneous throughout or if there are regional or local differences in customer requirements and attitudes. It will be necessary for you to sample different markets in order to make this determination.

The Use of Fast Test Data

To obtain insight into the relative appeal of different features or ad benefits, it will be necessary for you to apply deductive reasoning. That is, simultaneously compare several brand designs and their respective ratings.

Ideally, look for two brands that have everything in common except for one or two features. A comparison of the brand ratings with slightly different brand designs should suggest the relative importance of one feature over another. Because each segment has a different set of needs, this analysis must be conducted separately for each one. Ad ratings can be analyzed in the same fashion.

The end-user feedback will be useful in different ways at each stage in your market development. During the test-marketing phase, the fast tests will be invaluable in testing your assumptions of what the end-user is actually looking for in a brand, price or advertisement.

The initial market survey represents a good starting point, but it operates at the abstract level. During test marketing, customers deal with reality. They can see and touch the final product in its entirety. Their judgments at this point are closer to their true attitudes. Consequently, the fast tests will provide you with better information to deduce which feature or benefit is more appealing than another.

During the introductory phase of the market, you will probably encounter little direct competition. In markets with little competition, the various judgments are important in terms of their absolute scores. They indicate how closely your decisions have matched the needs of the market.

As you enter more competitive markets during the growth phase, you should probably turn to relative evaluations of brand judgments, price judgments and ad copy judgments. In markets with multiple competitors, market share will be determined more by relative performance than by absolute performance.

This is because the shortcomings of a brand are accentuated when there is a better brand to compare it with. Thus, a difference in brand scores of five points (an 85 versus a 90) can have a disproportionate effect on the crossover to the better brand. The same is true for price, and ad judgments.

During the maturity phase of the market, you will find that the decision-making of all competitors will be greatly refined. Poor designs will be phased out, prices will be in line with consumer expectations, and the basic ingredients of a good ad will be widely known. The competitive focus will be on distribution (maximizing showroom exposure), advertising (justifying and allocating large budgets) and price (achieving greater production economies through small market-share gains).

In this market, the role of the various fast tests will diminish. It will serve more as a monitoring function to track any unexpected shifts in market opinion.

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Competitive Benchmark

The marketing research firm offers its competitive benchmark research in addition to its end-user feedback. By subscribing to the competitive benchmark service, you can learn about the competitive environment in any metropolitan market.

Data can be obtained relative to the demand by segment for every brand in the regional market, the sales office decisions, sales force plans and the media decisions of every manufacturer. This information is labeled Brand Demand, Sales Office Decisions, Sales Force Plans, Local Ad Plans and Major Media Ad Plans respectively.

Essentially, this information will tell you what your competitors did during the previous quarter in any market in which you might be interested. The Competitive Benchmark data allows you to keep track of what is happening in the market. That is, you can obtain a complete record of all of the decisions that were made in the public arena.

For comparison purposes, the end-user feedback research provides qualitative information whereas the competitive benchmark research provides quantitative data. By combining these data, you should be able to ascertain the strengths and weaknesses of your own firm and your competition.

Brand Demand, Sales Office Decisions, Sales Force Plans, Local Ad Plans and Major Media Ad Plans

The brand demand data contains estimates of market demand for each sales office in the selected geographic market. Demand information is obtained for each brand on the shelf and is broken out by segment. That is, you can observe how many units of a particular manufacturer’s brand were demanded by segment one, segment two, and so forth.

The brand demand data also includes local, regional and total market summaries for each manufacturer. Specifically, the number of units demanded by segment is added across all sales offices open in the region across all brands on the market. Thus, a manufacturer can observe how many units each segment demanded.

The local, regional, and total market summaries are also used to compute market share information. Each manufacturer can determine its market share by segment and for the market as a whole. Finally, the local, regional, and national summaries can be used to compute the proportion of each firm’s total demand that is derived from each of the five market segments. This information will indicate the relative importance of each segment to a manufacturer.

For each region, you can also request information on the sales office and sales force decisions of every manufacturer who operates a sales office in every city in that region. Under the category, Sales Office Decisions, you can find out which brands are carried in the showrooms, their sales priority, prices, and whether or not a rebate, point-of-purchase display, sales bonus or incentive accompanies any brands.

Under the category, Sales Force Plans, you can determine which manufacturers have sales offices open in the region, the size of their sales force, how many salespeople are trained in each segment’s needs and whether firms have invested in professional training, sales contests or demonstration kits.

The final type of data that you can request are the ad plans for manufacturers. The ad plans contain information on the number of insertions for each ad in either local or national media. The information is first broken out by local media and then by regional editions of the major media, one manufacturer at a time.

Thus, you can determine what message is being conveyed, its frequency, its media outlet and its geographic target for every manufacturer.

Now that you know what data is available, read below to learn about the Use of Competitive Benchmark Data. If you can discover patterns in the decision-making process of end-users and competitors, you will have substantially improved your odds of succeeding in Marketplace.

Use of Competitive Benchmark Data

The most direct application of the competitive benchmark data is simply keeping track of what is happening in the market. Too often, young executives are attuned to only what they do to generate business for the company. It is almost as if the rest of the world does not count.

Then they are heard to complain that the market is not responding to their marketing efforts or that it is over-responding. What they have failed to realize is that a large portion of their success or failure can be attributed to the actions of their competitors.

For example, when a manufacturer did not observe the expected jump in demand after cutting the price by 20 percent, was it because competitors also cut their prices on comparable brands? If a sales office’s volume is not experiencing any growth, but the rest of the industry is doubling sales, the team needs to know that the other manufacturers have twice as many brands, twice as many salespeople, and twice as many sales offices in operation.

If the bottom falls out of the market, could it be that everyone scaled back their marketing efforts by raising prices, reducing sales forces, and cutting back on advertising? Was the blitz ad campaign of one manufacturer counteracted by the blitz ad campaign of another?

These examples may seem obvious, but too many executive teams do not know why their sales are flat, decreasing, or even increasing. To determine the effectiveness of their decisions, each team must include the decisions of its competitors in its analysis. In almost every case, the investment in marketing research is worth the price.

When you receive your marketing research, you will be overwhelmed with numbers. The answers to your questions will not jump out at you. It will take work to find them. Multiple regression, discriminate analysis, analysis of variance, and linear programming do not seem to work. They are usually not helpful because there are too many variables working at the same time, and because many of the relationships are curvilinear.

Most statistical packages assume linear relationships. The key to the analysis is finding patterns in the data. Compare one situation with another. If at all possible, find situations that are nearly identical. If all other things are equal (ceteris paribus), then it is possible to isolate the effect of a change or difference on a single variable.

For example, if two firms in the same market carry a brand with the same features, give it the same sales priority (or close) and a similar price; then the only major difference between the two cases should be the firms’ advertising efforts. To eliminate the effect of sales force, it is suggested that you divide the brand demand by the number of salespeople in the sales office.

A manufacturer with six salespeople will always generate more demand than one with two, all other things being equal. It is also suggested that you avoid comparing firms that carry vastly different numbers of brands. A firm with a wide selection of brands is likely to generate more total demand than a firm offering only one or two brands, even though sales of each brand might be less if sold individually.

The manufacturer might also try different prices and observe the combined effect of differences in brand design and pricing. Or the firm might try vastly different sales priorities and observe the combined effect of design and sales priority. Obviously, the task becomes more difficult if more than one variable at a time is affecting sales.

If you wish to determine the relative importance of different design features to a segment, find similar brands being sold in the same geographic market and compare their brand judgments. If you get lucky (it happens often because more than one manufacturer will target the same market), two or three brands will enter the market with only one or two features that are different. The same is true for advertisements.

As you undertake your marketing research, keep five points in mind. First, try to set up or find situations in which only one variable is different. Sales office managers are able to experiment with their use of sales priorities, POP displays, brand selection, prices and sales force allocation. A sales office manager can manipulate key variables and study their effect on demand. Alternatively, you can engage in experimentation after the by identifying situations where only one, or at most two, variables are different.

Second, you want to look for patterns in the data. A 10 percent price difference may have very little effect on demand for the high-performance segment, but it could have a sizable effect on the price-conscious segment. The single best source for discovering these patterns is the city competitor profiles. If you have purchased all of the available test market data, a special report can be printed that details individual brand demand (by segment) as well as brand, price and ad judgments.

This data also includes the media schedule, sales force plans for the city and the key indicator of demand per salesperson. The goal is to determine what causes the sales per salesperson for one competitor to be higher or lower than another. Are there differences in prices, brand judgments or media plans that might explain the differences? Does one competitor have more brands targeted to a segment, or more service personnel?

Whatever the sources of differences in demand, the competitor profiles will help you find important clues. Look for patterns in the data. If you can determine how the market is responding to the decisions of your company and your competitors, you will have a significant advantage over the competition.

Third, you can learn as much from the decisions of others as you can from your own. There is a good chance that one of your competitors executed a decision that you were considering. By studying the effect of their decision, you can gain some insight whether or not it was a good course of action. In the same vein, do not limit your market research to only the cities in which you are represented, especially during the test market phase. Many valuable lessons may be lost if you focus on only your marketing efforts.

Fourth, plan on investing many hours in poring over the marketing research. The learning will not come easy. You must display a considerable amount of insight and creativity to discern the patterns in the data and figure out how to use them to your advantage. Every time you go back and review the data, you can learn something more. There is no practical limit to how much time could be spent on marketing research. The Marketplace world is very complicated.

Finally, keep in mind that the computer model is logical. When you become frustrated because you cannot figure out why something is happening the way it is, remember that the world of Marketplace is based upon logic. There are no random events; everything is cause and effect.

It is all patterned after the basic principles of marketing found in most introductory textbooks. In a sense, the computer model is unrealistic because it is totally logical, but that is the way computers are. (The seemingly illogical and random part is provided by the players.) To make the programming task manageable, the real world had to be simplified and logically organized. What makes the analysis task difficult is the large number of decision variables that are simultaneously influencing events.

In a sense, your research task is to reverse engineer the Marketplace model—that is, to figure out what is in the black box and how it works through the study of what is observable. You might argue that this approach is unfair or unrealistic, but is it not what you must do with real consumers and industrial buyers? From the study of their decisions, you try to determine what makes the customer tick. What goes on in their minds (the black box)? What is motivating them to action? What is more important—price, state of the art technology, security, a high sales priority or something else?

The key to market research in the real world is the discovery of patterns in the decision-making of the end-user and competitors. If you can discover these patterns, you will have substantially improved your odds of succeeding in the real marketplace.

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Chapter 3. Brand Management

After completing your (MOA) you are asked to make the following brand management decisions.

• Brand design
• Brand name
• Research and Development

Learning Objective:

The primary objective of the brand management effort is to help you understand the relationship between the abstract benefits sought by customers and the physical components that can be produced in the factory. Consumers buy sex appeal, speed, less work, relaxation, excitement, and so forth. The factory cannot deal with these abstractions. As a brand or marketing manager, you must tell the production division what specific components are to be built into each brand.

The entire organization depends upon your ability to evaluate whether component X or component Y provides the right amount of the desired benefit. Moreover, will the final selection of components satisfy the complete set of needs of the customer while keeping the final price within his or her price sensitivity constraints?

Concepts Emphasized:

Brand design: Selection of production components that provide the desired level of an abstract benefit while remaining within the price constraints of the target market.

Quality Function Deployment (QFD): A technique for systematically matching features to benefits.

Brand labeling: Selection of a brand name designed to project a defined image, purpose, or benefit of a brand.

Target marketing: Selection of individual segments for market development.

Differentiated marketing strategy: Development of a unique marketing strategy for each segment.
   -versus-
Mass marketing strategy: Development of a generic marketing strategy designed to appeal to multiple segments.

Decision-making: Evaluation of the pros and cons of available investment options, and making a commitment of resources to an uncertain future.

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Brand Management Decisions

Brand management includes Brand Design, Brand Name and Research and Development decisions. Your task is to interpret the abstract benefits which end-users say they want in a brand and select features or components that will provide the desired benefits.

During the early stages of market development, this task is filled with risk. Both you and the consumers lack sufficient experience to know for sure what will or will not meet their needs. It is not until the consumer sees and uses the physical product that he or she can truly judge the value of the offer. As the product assortment grows and consumers make their choices from among the available brands, the relative attractiveness of the available features should become clearer.

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Brand Design

Initially, your company should conduct marketing research to determine:

1. The structure of the market.
2. The market requirements of customers.
3. The strengths and weaknesses of competitors.

This is known as a Market Opportunity Analysis (MOA). After you have completed your MOA, your next step is to design a few brands to put on the market. To accomplish this task, you must: Match up Benefits and Features that are attractive to your target market, Consider the Price the Market Will Bear and Test Market to Discover the Performance Response Curve.

Through your selection of features and their accompanying costs, you must position each brand favorably relative to your target market. Choose two segments which you consider to be the most attractive, and design a brand for each segment. It is generally recommended that you avoid designing more than two brands until you receive the results of your first test marketing efforts.

Your firm will be given a set of standard features in quarter 2 from which to design brands. Starting in quarter 5, the company will have additional options which can be obtained with sufficient investment in R&D. Your job is to pick and choose the features that will appeal, in combination, to your target segment(s). You have several options under each component area.

Each market segment evaluates each component or feature in light of its needs. In some cases, a feature will fall short of the requirements of one segment, while in another case, it may provide more capability than is needed. Without providing too little or too much in the way of performance, you must match up the features to the needs of the market.

The role you are fulfilling is that of a brand manager. To help you visualize the responsibility, imagine that you are in a committee meeting with the engineering staff. Your task is to provide the engineering staff with a specification sheet (spec sheet) on the product you want them to make in the factory. This spec sheet lists each component or feature that will go into the product you intend to test market. You must decide on the exact features. You cannot hedge your bets. You must commit to the design that you think has the best chance of succeeding.

This responsibility is always difficult and filled with risk. As you will discover, it is even more difficult and risky for a firm that does not have any market experience.

The cost to design or modify a brand is $60,000. You can modify the same brand multiple times in the same quarter and you will only be charged once. So if you create brand "A" in quarter 3 and then decide to modify brand "A" while still in quarter 3 you will only be charged once, but if you modify brand "A" once and brand "B" once you will be charged twice. If you enter the brand design screen and decide you do not want to design/modify the brand then use the cancel option so that you will not be charged.

If you modify a brand then you must change the name of the new brand. The only exception to this rule is if the brand was created in the current quarter. If you design a brand in quarter 4 and then decide to modify it while still in quarter 4 then you do not have to change the name. You must change the name for any brand you modify that was designed in a previous quarter.

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Match Up Benefits and Features

Your market opportunity analysis is very important to your understanding of what a customer wants in a product. This information should help you decide what features to build into your brands in order to satisfy these wants. Many executives have difficulty coming to grips with this responsibility.

The problem is that customers buy benefits, not features. Every day, the executive must deal with components—their design, costs, production, availability, compatibility, etc. In most cases, the customers do not care if the manufacturer includes component A or component B. All they want to know is: "will it do the job?"

For this reason, you must understand the value, utility, or benefit of each and every component or feature that could be built into your brands. You cannot design a brand without this knowledge.

For your Market Opportunity Analysis we recommended that you start with the last benefits desired (wants and needs) by a target segment and then speculate on the features or components which would provide the benefits desired. For the Brand Design decision, we recommend that you undertake the flip side of that task. That is, start with the features and speculate on the benefits delivered by each.

Start by doing some homework in the real world on the product category. Find out the usefulness of each feature and to whom it would be of use. Not everyone will find each feature to be equally desirable. Then, take the list of the features available to you and write a brief description of what need is fulfilled or benefit provided by each feature. You are essentially building a ladder from features to benefits.

Next, match up the list of benefits provided with the list of benefits sought. This matching process should enable you to identify which features are likely to appeal to which segments. While the exercise is not foolproof, it should provide you with a logical basis for designing brands.

Caution: Pursuing the Mercedes segment before you have new R&D technology is difficult, the segment requires high level technology to create relatively large demand.

While matching up benefits and features, you must also Consider the Price the Market Will Bear.

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Consider the Price the Market Will Bear

Your Brand Design decision must also include consideration of the price the market is willing to pay. There is always a price/performance tradeoff. Higher performance features will generally cost more than lower performance features. Will the target market pay for the additional capability?

Your MOA should help you to determine how sensitive your target market is to price versus performance. Consider establishing a price point for each segment and then designing a brand within that constraint. A good rule of thumb is to multiply your total materials cost for the component times two or three to obtain an estimate of what the brand would retail for. (Choose the materials cost estimate from the brand design summary on your decision template.)

If the projected brand price is higher than you think the market will bear, you should consider scaling back the design to fit the price. In some cases, you may even be able to add features and stay within your price objective. This issue of pricing will be discussed in more depth under the topic of Brand Price, but it cannot be ignored during your brand design efforts.

The next important step will be to Test Market to Discover the Performance Response Curve of your proposed product.

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Test Market to Discover the Performance Response Curve

After you have completed your initial brand designs, it will be necessary to test market your brands and your suggested brand prices. Remember that your market survey is based upon an abstract evaluation of theoretical benefits. Until your customers see, touch, and use your product, there is no way to know for sure how attractive they will find it.

To bring this point home, suppose you were asked what you would like to have in a candy bar. You could probably tell the researcher how much you liked caramel, chocolate, nuts and so forth. A manufacturer might then develop four or five versions of your "preferred" candy bar. In a taste test, there is a good chance that the one you "really" like is different from the one they might have predicted from your survey responses.

Until they combine the ingredients into a particular formula and you taste it, they are simply making an educated guess about your preferences. In the same vein, the market survey will help you make a good educated guess, but it is still necessary to test market your brands to determine true consumer preferences.

You should start with the expectation that you will have to revise your initial brands within the first six to nine months. With so little experience in this market, you will be lucky to have a highly rated brand right from the first.

Note: Brand judgment ratings are based on the customers' reactions per region. It is important to check the brand rating for each region you are selling in.

As a point of comparison, Apple Computer withdrew its pioneering Lisa brand from the market within seven months and introduced the far more successful Macintosh line. It is not uncommon for a new venture firm to upgrade its products almost immediately after launch. It is virtually impossible to have fully anticipated all of the ways in which a product can be used (or misused). The objective of your test marketing will be to learn what you did right and what needs to be improved and then to quickly revise your design to better match end-user requirements.

Another caution to keep in mind is that more is not always better. Some executives might think they could appeal to lower-end segments by simply cutting the price on a brand with extra features. This tactic will not always work.

To illustrate the point, suppose you placed a scientific calculator with 36 special function keys on sale alongside a standard four-function calculator. Both are sold for the same price. You would find that a good number of customers would purchase the simpler machine. That is because there is a hidden price in the more complicated calculator.

Customers must spend the time to figure out how to work with it. They might also worry about hitting the wrong keys or in the wrong order. The scientific calculator could be intimidating. The point is that for some segments simplicity will be one of the benefits sought. Consumers would not necessarily rate the more sophisticated brands as better.

To further illustrate this important point, consider the seven hypothetical response functions:

1. More of a feature is always better. This is the assumption most engineers and product managers make; and in a large number of cases it is true. For example, a faster processor on a PC will create increasing excitement and product use among calculation (engineers) and data intensive (order processors) end-users. Greater miles per gallon, battery life, insulating capability and rpm are almost always desired. However, it is wrong to assume that more of a feature is always better. Some consumers have different response functions where more does not add value and may even detract from it.

2. More of the feature will add value to a brand up to a point, but then it ceases to add anything more. For example, TV manufacturers have found that the addition of stereo sound to a TV created lots of enthusiasm (almost 90% of all primary TVs sold today have stereo sound). However, adding further sound capability (adding a broader range of sound reproduction or more powerful speakers) creates no further excitement or additional sales. Some consumers feel this way about modem speed or storage capacity on a hard drive. Others reach a plateau with the number of channels on cable TV, the size of a PC monitor, the horsepower of an engine or the durability of a fabric.

3. More of the feature will add value, up to a point and beyond that point, more of the feature will detract from the experience or enjoyment. For example, romance in a movie can be enjoyable, but too much romance can be overbearing. And, attentive waiters and waitresses can be an asset to a restaurant, but they can quickly become a nuisance to customers if they constantly interrupt the dinner conversation. And, the amount of carbonation, syrup and water in a fountain drink all have tight tolerances where too much or too little is undesirable.

4. A little of a feature is just right, more only takes away value. Some consumers do not want anything more on a calculator than the basic four functions: addition, subtraction, division and multiplication. Each additional function only adds to confusion and frustration. In other cases, increasing the number of gears on a bicycle, the length of a computer manual, the amount of fat in prepared foods or the number of commercials on a TV show will reduce satisfaction for some consumers.

5. Any amount of the feature is bad. Some consumers feel this way about violence in a movie or TV show. Other consumers are turned off by: sugar or caffeine in soft drinks, the use of prepared foods in a restaurant, plastic wrapped fruits and vegetables in the produce department or polyester in clothes.

6. Little interest until threshold is crossed. In cases of many new products, interest remains low until the capabilities of the product reach a critical level. For example, the personal computer did not become a household tool until Windows 95 made it easy enough for the average person to use it. Similarly, the Internet did not achieve widespread adoption until Netscape came on the scene and made very easy to browse the World Wide Web. Within the current exercise, the Mercedes segment will relatively slower to purchase computers until the processing speed and storage capability are great enough to handle the problems that it faces, which is exactly what happened in the real world.

7. The presence of some features in a product can have no affect on consumer excitement. Adding a modem or math coprocessor to a PC is not likely to cause even a ripple of excitement in customers who are only concerned about word processing or basic accounting, unless, of course, they feel they are paying extra for it. Other consumers might be indifferent to high-resolution graphics, fuel injection carburetors or extended warranties.

In the current exercise, one of your tasks is to ascertain what the response function looks like for different features for different segments. Thus, more processing speed might excite one segment, add little value to another, and actually turn another one off. Or the use of an enhanced keyboard may really please one segment but add nothing to another.

You can deduce segment preferences and response functions by studying end-user reactions to the various brand offerings on the market. Try to determine if more or less of a feature improves end-user judgments. Keep in mind that end-user preferences may or may not match your expectations or prior assumptions. In fact, what you think makes sense is not important. The objective is to give the end-users what they want, not what you think they should want.

Comment:
The goal of marketing is to select features that add value to end-users. This goal must be balanced against the goal of minimizing production costs in order to be able to offer competitive prices and realize substantial profits for the firm. Therefore, a secondary goal of marketing is to determine which features add the greatest value and which add the least.

If you find indifference between alternate models of the same component (for example, standard keyboard and enhanced keyboard), or one is only slightly preferred, perhaps the model which is used in other brands should be selected. Thus marketing must understand these response functions so that they can recommend features which can be standard across multiple brands and which must be unique.

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Brand Name

At the same time you are developing your brand designs, it is important to select a brand name. Even though this decision will not affect demand generation in Marketplace, it should not be taken lightly. A name can help or hinder communication. A well chosen name may convey the totality, essence, image or even, simply, the function of the brand.

The brand name might attract attention and serve in a promotional capacity, or it can be a clever play on words that makes people smile or otherwise stop to notice the name. For example, Excel is a spread sheet program by Microsoft that says nothing about the product, but might communicate to the user that the user can "excel" by using the product. Other names that denote excellence might include the Intel Pentium computer chip, Infinity automobiles or Craftsman power-tools.

Fun brand names include Gameboy (a handheld device for playing electronic games), Petro Mexican restaurants or Jolt cola. Brand names which convey the activity or functional use of the product include the PalmPilot (a personal digital assistant that easily fits in your hand to control, or pilot, your life schedule), Mr. Clean (household products) or Dunkin Donuts.

Sometimes, brand names have no meaning whatsoever, but develop an identity from use. A good example of such a brand name is Kleenex tissues. And finally, many companies use numbers or letters in their brand names to indicate the difference between letter versions and early ones (ex. Windows 98 versus Windows 95), or between economical models (Mercedes) and full performance models (Mercedes LSX).

A brand name will project an image of the firm. Careful attention to the name can ensure that the right kind of image is projected.

Finally, brand recognition can also help boost sales. If a previous brand named "Titan" had good sales, and you now want to modify the brand to include new R&D, you will want to retain at least 60% of the original name so that customers will recognize it as a continuation of the "Titan" line. You could name it "Titan II", "Titan 200" or something similar. This will not guarantee you any sales but it does improve your chances by playing off the loyalty already created with the original "Titan" brand.

The next step is to focus on Research and Development in order to have components available which satisfy your customers’ future needs.

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Research and Development

Initially, you have a modest set of components with which to design new brands. Through research and development (R&D), you can add new features. Some of these technologies are forecast to be available for R&D investment in quarter 5.

Others are only a glimmer in the eye of technology specialists and are not forecast to be available for your R&D engineers until quarter 7, 8 or beyond. The R&D features are expected to cause considerable excitement in the market. In every case, they are capable of outperforming a currently available component or providing a benefit that is not now available. If incorporated into new brand designs, these features could make existing models virtually obsolete within certain market segments.

R&D is necessary as both an offensive and a defensive tactic. As an offensive weapon, R&D-based brands will facilitate your efforts to capture market share from competing brands with older technology. Moreover, if you are the first on the market with state of the art technology, you will enjoy certain pioneer advantages in the form of customer loyalty. As a defensive weapon, you may have to match your competition in order to keep from losing business to superior brands.

To bring the new features out of the lab and into the factory, you must invest in the necessary R&D. The exact cost for completing the R&D for any project is determined by the degree of difficulty inherent in the project and the speed at which you want the work completed.

These costs can be determined by experimenting with several investment options on your decision template. As you will see, you can speed up a project by investing more money and placing more engineers on the project. However, you pay a price in efficiency.

The additional engineering staff creates a new set of communication and coordination problems. There is also a limit as to how quickly you can speed up a project. With the more difficult projects, you must allow a certain amount of gestation time for the engineers to work out various problems. Thus, you do not get a proportional increase in work by adding personnel. You may have to triple your investment in order to cut the development time in half.

As you experiment with the R&D investment options, you will also discover that you cannot afford to undertake all projects at the same time. You must choose the best two or three projects in which to invest. This, in turn, presumes that you have selected your target markets and you know the value of each R&D feature to each segment. Thus, your R&D decision must be made in concert with your target market decision and your other Brand Design decisions.


Chapter 4. Advertising Decisions

Effective advertising is an important component of your marketing mix. Planning the advertising program for your firm will require you to consider the following:

• Ad copy design
• Media placement
• Advertising effectiveness

Learning Objective: The purpose of this advertising effort is to force you to think through the tradeoffs inherent in advertising and promotion planning and to see how advertising relates to the broader strategic decisions of the firm. To succeed at advertising design, you must understand what each segment wants in a product and then design an ad that effectively appeals to those needs.

Similarly, how much weight should be given to advertising within the marketing strategy of the firm? In terms of marginal returns, which is more important: expanded advertising, further brand development, lower prices or more salespeople?

In media planning, you must balance the lower cost, lower precision of local advertising against the higher cost and higher precision of regional advertising. The former represents a mass marketing approach, while the latter represents a differentiated marketing strategy. Advertising, however, is not the only way to stimulate sales. On the margin, various types of trade and consumer promotions may yield a better return.

Ultimately, the advertising decision must be judged against the firm’s other investment options. With limited resources, would it be better to spend the next 100,000 on advertising, or could a higher payoff be realized by investing in R&D, new sales offices or sales force?

The size of your advertising budget relative to other expenditures implies a certain set of priorities. To make effective decisions you must know your investment options, estimate their payoffs and consciously establish your strategic priorities. You will find that these priorities will change as your firm and the industry pass through the introductory stage of the product life cycle, to the growth stage and on into maturity.

Concepts Emphasized:

Ad copy design: Identifying and prioritizing benefits to be stressed in an ad message.

Media selection: Selecting the right media to achieve the greatest market exposure for a given target market.

Media budgeting: Determining the size of the budget based upon consideration of available resources, competitive expenditures, target advertising-sales ratios and advertising objectives.

Advertising effectiveness: Advertising impact and effectiveness of advertising expenditures.

Market positioning: Establishing an image [in part, through ad copy design] relative to target market needs and wants.

Mass marketing -versus- Differentiated marketing: An emphasis on undifferentiated local advertising versus narrowly focused regional media.

Promotional mix: Deciding on relative emphasis of advertising, sales force support, point-of-purchase (POP) displays, rebates and incentive programs.

Strategic decision-making: Determining the relative emphasis of advertising versus important asset investment options, and other elements of the marketing mix. Learning to make commitments in the face of uncertainty.

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Planning the Advertising Program

Advertising is an important part of the marketing mix. It can be used to inform, persuade and reinforce the market relative to the qualities of your firm, your brands and your distribution system. An effective ad campaign can help you to outsell your competition, even if some of your brands are not perfectly positioned relative to the needs of your customers.

Effective and sizable investments in advertising also create barriers to entry. If the price to overcome your name recognition and buyer loyalty is sufficiently great, competitors will have to think long and hard before they challenge you in your markets. In short, advertising can make or break an otherwise effective marketing strategy.

The major disadvantage of advertising is that it is an expense, and not an asset. Once it is spent, you have nothing tangible to show for it. There is no sales office or R&D to show to investors.

There is simply a higher probability that customers will buy your product; and it is very difficult to quantify how that probability has changed as a result of advertising. Given the serious cash flow problems of new ventures, most entrepreneurs have great difficulty investing in advertising, no matter how important it is.

The advertising decision with which you are faced is composed of three parts: Advertising Copy Design, Media Placement and Advertising Effectiveness. For advertising copy design, you must select which benefits you wish to stress in your ads and the priority to be given to those benefits in terms of message emphasis. Media placement includes the selection of specific media in which to place your advertisements, and the number of insertions for each ad during the planning period. Advertising effectiveness consists of estimating how well you are reaching your target markets, especially in relation to your competition, and how you can improve the advertising response.

Ad judgment and media effectiveness are segment-specific. A good ad placed in the wrong media outlet will be ineffective, and vice versa. You must design the right message and place it in the right media outlet in order to persuade each segment.

The size of your company’s advertising investment compared to that of your competitors will also influence total advertising effectiveness. If your competition outbids you for the attention of your customers, they will take market share away from you.

With patronage advertising, the objective is to attract customers to the company without reference to a particular brand. The emphasis is on the company as a whole. You are able to influence the number of customers being drawn from each segment by altering the relative emphasis of your advertising to match the message preferences of the different segments.

Once the customers have selected your firm as one of their preferred suppliers, brand advertising takes over. The different brands compete for the attention of the customers who are now predisposed to buy from your firm. Brands that have higher name recognition or have been pre-sold will have higher sales potential.

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Ad Copy Design

The copy design decision begins by reviewing the needs and wants of your target market and then designing an advertising message that should appeal to the segment. To help visualize this responsibility, imagine you are working with the account representative from your newly employed ad agency.

The advertising agent is skilled in the mechanics of copy preparation and media placement. He or she also has access to the creative talents of copywriters, graphic designers, photographers, models and so forth. However, you know more about your particular business than the account rep or anyone else at the ad agency.

You must provide the agency with the content of the advertisements. You must decide on the message or theme to be conveyed. The ad agency will then take your guidelines and create an attractive advertisement that conveys the intended message.

The Marketplace decision template lists the possible benefits that are thought to be important to various market segments. To assist the advertising agency in copy preparation, you must select and prioritize the benefits you want stressed in your ads. That is, you must decide what is the most important point you want conveyed in an ad.

You must then decide on the second most important benefit, the third most important and so on. Taken in combination, the selection and order of benefits should serve to position your firm and products to match the needs and wants of your target markets.

If you are unsure about how advertisements are designed, try studying ads for real brands in current periodicals. In most cases, you will find an ad contains a multifaceted message. That is, several major and minor points are addressed in the ad. These points highlight needs of the consumer or benefits of the brand or company.

You can almost rank-order the different points made in the ad by the size of type and their placement on the page (i.e., large bold letters at the top versus small letters in the lower right). You should also see the identification of a specific brand or company name. The name is probably not the most important point in the message.

There is probably some key benefit that gets top billing. All of these factors combine to create a message to a targeted audience. Again, visualize the marketing or brand manager who approved the content of these ads. You will be fulfilling that responsibility.

As you design each ad, keep in mind that the importance of the benefits will vary by segment. An ad designed to appeal to the workhorse segment will not appeal to the mercedes segment.

Thus, you must design a separate ad for each segment to be targeted. Past experience also suggests that ads should not convey too many benefits in the message. As the number of benefits increases, ad clutter goes up, and message effectiveness goes down.

In summary, you must build the content of an ad by manipulating three variables at the same time:

1) What to say in the ad (which benefits are important to a target segment).
2) How much to say in the ad (how many benefits to mention in the ad).
3) The priority of the content (what should be given top billing, second and so forth).

Long ads are not necessarily better than short ads. Experimentation will be necessary to optimize the ad design. The addition or deletion of a benefit or the rearrangement of the message priorities could make a noticeable improvement.

Even modest improvements in ad design can greatly extend your advertising expenditure. For example, by improving an ad’s rating from 60 to 90 (out of a possible 100 rating points), your advertising effectiveness jumps by 50% ((90-60)/60). Alternatively, better ad designs will allow you to spend less on advertising with the same effectiveness.

In making the ad copy design selection, be certain that you can document the benefits you select. In other words, do not engage in Deceptive Advertising because you may be subject to penalties.

The cost to design or modify an ad is $30,000. You can modify the same ad multiple times in the same quarter and you will only be charged once. So if you create ad "A" in quarter 3 and then decide to modify ad "A" while still in quarter 3 you will only be charged once, but if you modify ad "A" once and ad "B" once you will be charged twice. If you enter the ad design screen and decide you do not want to design/modify the ad then use the cancel option so that you will not be charged.

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Deceptive Advertising

In designing your ads, be careful to select claims that you can document. All ad claims must be supportable by the market research data for the region or city in which the ad is run. For ads that do not mention a brand name (Company Ad) you must have atleast one brand that satisfies the claim. To design an ad for a specific brand choose "Mention brand name" from the ad features list. This will allow you to select a specific brand to be mentioned in the ad. To design a company ad do not choose "Mention brand name".

Ties (or having the same conditions) will allow two or more firms to make the same superlative claim.

For example, if you run an ad in quarter 4 which includes the claim "Lowest price in town", then you must be able to document that your company has a brand available for sale in quarter 4 that is priced as low as any competitors brands were in quarter 3.

It is permissible to test market any conceivable ad copy during the first quarter of sales (Q3) without the worry of a deceptive advertising lawsuit. Starting with the second quarter of sales (Q4), all claims must be supportable.

Note: Include any applicable rebates for price comparisons.
Caution: If a brand is modified any market research data based on the original brand is not valid for the newly modified brand.

Ad Claim Requirements

The following list contains all of the possible ad claims and the corresponding technical requirements for each claim.

  • Every day low prices-less than avg: All brands must be priced as low as the average price of all competitor brands in the previous quarter.

  • Lowest price in town: Brand must be priced as low as all competitor brands were in the previous quarter.

  • Manufacturer`s rebate: A rebate must be offered for the brand.

  • Technical leader, most R&D: Company must have as many R&D components in their brands available for sale than any other company had in the previous quarter.

  • Tackle really big problems: Subjective, there are no specific requirements for this claim.

  • Most advanced processing on market: Brand must have as powerful a processor as any competitor brand had in the previous quarter.

  • Local sales/service: Company must have either a web center or sales office staffed by a sales person trained in the "Service" specialty.

  • Regional sales,serv-4 mkts/region: The region must have either a web center or four sales offices, each staffed by a sales person trained in the "Service" specialty.

  • Engineering design application: Brand must include "Engineering graphics software" component.

  • Finance & accounting application: Brand must include "Accounting/bookkeeping software" component.

  • Word processing application: Brand must include "Office software-word, spreadsheets" component.

  • Data management application: Brand must include "Data base software" component.

  • Business graphics application: Brand must include "Business Graphics software" component.

  • Presentation application: Brand must include "Presentation software" component.

  • Statistical analysis application: Brand must include "Statistical analysis software" component.

  • Easy to use, simple design: Subjective, there are no specific requirements for this claim.

  • Easy on eyes with larger screen: Desktop brand must have at least a 17" monitor, and portable brand must have at least a 14" monitor.

  • More productive-high comfort design: Brand must include "High comfort keyboard with wrist rest" component.

  • High-resolution screen, fine detail: Brand must include the "high-resolution color monitor 19in" or larger. Not available for portable models.

  • Plug and Play, very easy to use: Brand must include "Plug and play design (easy set up)" component.

  • Ready to use, bundled software: Brand must include at least two software packages.

  • Highest rated brand-Traveler: Brand must have been the highest rated for the Traveler segment in the previous quarter.

  • Highest rated brand-Mercedes: Brand must have been the highest rated for the Mercedes segment in the previous quarter.

  • Highest rated brand-Innovator: Brand must have been the highest rated for the Innovator segment in the previous quarter.

  • Highest rated brand-Cost Cutter: Brand must have been the highest rated for the Cost Cutter segment in the previous quarter.

  • Highest rated brand-Workhorse: Brand must have been the highest rated for the Workhorse segment in the previous quarter.

  • Rugged design for portability: Brand must include "Rugged design for portability" component.

  • Small footprint/size: Brand must include either "Miniaturized circuitry (smaller PC)" or "Rugged design for portability" component.

  • Smaller with miniaturized circuitry: Brand must include "Miniaturized circuitry (smaller PC)" component.

  • Link to Internet: Brand must include "Internet connection" component, or better.

  • Link company PCs with network: Brand must include "Standard network/Internet connection", or "High speed network/Internet connection" component.

  • Link Internet via super fast line: Brand must include "High speed Internet connection" component.

Lawsuits

You are free to challenge any ad that a competitor places in the media (excluding the ads for the first quarter of sales). The process begins when you issue a formal complaint to the Federal Trade Commission (instructor) that a competitor has engaged in false advertising. At the same time you present the FTC with the complaint, you must submit a copy to the president of the firm(s) named in the complaint. The complaint must be filed within 24 hours of the quarter being processed (or as specified by the instructor). The complaint can only address ads that were run in the previous quarter, any ads that were run prior to that have passed the due date required for filing. Each claim must be filed in a separate email.

In the lawsuit, the plaintiff must provide the following information for each claim:

  • Name of the company being sued.
  • Name of the ad being cited as false.
  • Name of the brand linked to the ad.
  • Where the ad was placed (name of media).
  • Quarter in which the ad was run.
  • The specific claim which is believed to be false.
  • The reason the claim is false (the facts which make the ad false).

The defendant has 48 hours after the quarter has been processed, to respond to the claim (or as specified by the instructor).

If the defendant wishes to challenge the lawsuit, then the following information must be provided:

  • Name of firm filing the lawsuit.
  • Name of the ad being cited as false.
  • Name of the brand linked to the ad.
  • Where the ad was placed (name of media).
  • Quarter in which the ad was run.
  • The specific claim which is believed to be false.
  • The reason the claim is true (the facts which make the ad true).

The FTC will then review the charge(s) and the defense. The FTC will deliver their ruling prior to processing of the current quarter. Their decisions are final.

Penalties

If a team is found guilty of multiple deceptive advertising claims in the same quarter, it shall be penalized as a single offense. The FTC reserves the right to adjust these penalties as it deems necessary for fair game play. Using a claim that has been previously prohibited as the result of a deceptive advertising penalty is itself considered deceptive advertising and is subject to further prosecution.

If the firm is found to be guilty of deceptive advertising, then, the penalty will be as follows:

First offense:
The defendant will not be allowed to make the claim for the next 4 quarters. No other penalty is allowed.
Special note: If a company's first offense occurs during the last quarter of the game it shall be penalized as the second offense.

Second offense:
The defendants' total cumulative balanced scorecard will be reduced by 5%. Also, the defendant will not be allowed to make the claim for the next 4 quarters.

Third offense:
The defendants' total cumulative balanced scorecard will be reduced by 10%. Also, the defendant will not be allowed to make the claim for the next 4 quarters.

Fourth offense:
The defendants' total cumulative balanced scorecard will be reduced by 20%, and so on.

Note: These are the default FTC rules provided as a guideline for the instructor. The instructor may choose to modify these rules to fit the particular needs of each game.

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Media Placement

The second step in the advertising decision is media planning. The decision template lists examples of different media that are available to you for communicating to your target markets. Your market opportunity analysis should tell you which media are more effective in reaching the different segments. After selecting the right media for a particular market segment, you must decide which ad to run and how many times the ad will run.

Both local outlets and regional outlets (major media) exist. The regional media will not become available until quarter 5, when the firm matures and the distribution is wide enough to justify the investment.

The local media represent a "shotgun" approach to advertising. The expenditures represent a potpourri of advertising from spot television and radio to newspaper ads. While there are some differences between segments, the local media are thought to cover all segments of a given metropolitan area. (This also means that if you have nothing to sell to one or more segments, then that portion of your coverage is wasted.)

The regional media represent a “rifle” approach to advertising. Each outlet is more narrowly targeted to the different segments, although some overlap may occur. The regional media is more effective in reaching your target markets simply because there is a higher probability of potential customers viewing your advertisements. The media can be purchased on a regional basis, with each region covering four geographic markets. As you review your decision template, you will find that these are very expensive relative to local advertising.

One concern with regional media is advertising waste. With regional editions, you may end up advertising in cities in which you have no product distribution. Without product in local sales offices, you will create demand that you cannot serve. The carryover in brand recognition from one quarter to the next is limited and is negated by the creation of ill will among customers who could not find your brands.

The advantage of local media is that you can better coordinate your advertising with your distribution. Thus, your media placement decision must consider the number of customers who have access to your brands, along with the cost and effectiveness of the media.

The media listed in the template should be considered examples of the types of regional outlets available to you. Your market survey revealed a broad assortment of magazines that your potential customers read on a regular basis.

You can count on your ad agency to review and select the best media outlets in each category. For example, the agency will discover the best Executive Business Magazines or the best Trade Journals and place your ads in the top 3 or 4 outlets in that category. Furthermore, the ad agency will try to avoid saturation in any single magazine. Thus, if you want to place 12 insertions in New Venture Magazines in a given quarter, the ad agency will spread them out so that the ad will appear every 4th week in each of the top 3 magazines. As a general rule, the ad agency will select magazines that run weekly. The regional media are published weekly over the 13 weeks of the quarter, and the local media can be used daily over the 90 days of the quarter.

As you prepare your media plan, you need to worry about media saturation. It is possible to wear out the persuasive appeal of an advertisement if it is run too many times in the same media category. For example, if you were to run the same ad 36 times in Sports Magazines, it would appear weekly in the top 3 magazines. This would be too much for the market to endure. It would be better to create 3 different advertisements and run them a dozen times each or to go to other media choices that are high on the list for the targeted segment.

Another consideration to keep in mind as you plan your media budget is that your target customers read more than one type of magazine. They may read current news, financial news, or sports news magazines. As you expand your budget, consider more than the highest rated magazine. Exposure in multiple contexts will increase the probability of the message getting through the clutter of the media and the customer’s natural defenses against advertising.

As a general rule, the more often you advertise, the more likely you will move a potential customer through the awareness, interest, decision and selection sequence.

However, this rule has three limitations:

1) After a certain point, additional insertions start to result in diminishing returns.
2) The ads must be on target, both in design and placement, to be effective.
3) Your advertising will be judged against the quality and quantity of advertising of your competition. If your competition does a better overall job than you do, they will capture a larger share of the market.

The ultimate decision that you must make in media planning is how much to invest in advertising. Authors of marketing textbooks usually identify four methods of setting advertising budgets: all you can afford, competitive parity (i.e., the same amount as your strongest competitors), percentage of sales (i.e., 5% of projected sales) or objective and task.

Theoretically, the objective and task method is the most attractive because you must spell out your objectives, assumptions and the expected payoff of the amount of money invested. Practically speaking, the first three methods help to establish benchmarks for comparison between brands and competitors and should be part of the decision.

A final point to consider in advertising planning is your firm’s advertising effectiveness. The first sales office to enter a city will generally encounter buying resistance on the part of the end-user. Local buyers do not know who you are, what you have to offer or why they should buy from you.

When you are the new kid on the block, it will usually take a quarter or two for customers to become familiar with your sales office and the brands you carry. Heavy advertising will prove wasteful. A more moderate budget is preferred in order to move potential customers from the awareness stage to a purchase decision. Later entrants into the market should not experience this startup problem, although they must overcome the buyer loyalty built up by the pioneering firm.

Breakdown of media discounts:

Media cost = Cost per insertion * Number of ad inserts ^ (Elasticity for frequency discount)
Elasticity to determine frequency discount = 0.90

Sample Calculations:

1) Sample media cost per ad insert = 5,000
Number of insertions = 10
Total media cost = 39,716.41
Ending cost per insertion = 3,971.64

2) Sample media cost per ad insert = 5,000
Number of insertions = 100
Total media cost = 315,478.67
Ending cost per insertion = 3,154.79

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Advertising Effectiveness

It is important to estimate how well you are reaching your target markets, especially in relation to your competition. While it is difficult to estimate advertising impact and financial effectiveness, it can be done with a little work. First, you must estimate the advertising impact of the local media and then the advertising impact of the regional media. To obtain an estimate of local advertising financial effectiveness, divide the estimate for local media impact by the local advertising budget. Similarly, if you divide the estimate for regional media impact by the regional advertising budget, you will have an estimate of regional advertising financial effectiveness.

To estimate impact for local advertisements, multiply 100, by the frequency with which the advertisement is run, times the judgment rating of the advertisement.

Local Impact of an advertisement = 100
* the number of times the advertisement is run
* the judgment rating of the advertisement

To estimate impact for regional advertisements, multiply the media preferences rating (found in the end-user profile), by the frequency with which the advertisement is run, times the judgment rating of the advertisement.

Regional Impact of an advertisement = media preferences rating
* the number of times the advertisement is run
* the judgment rating of the advertisement

By repeating these steps with different media plans, you can compare the advertising effectiveness of each and determine which plan will provide the best return for the advertising expenditure.

Equally important, you can compare your advertising impact and financial effectiveness to your competitors. You may be surprised that the firm with the largest advertising budget may not have the most effective advertising campaign.

Please note, advertising impact and financial effectiveness must be computed separately for each segment in each city. That is, it is segment-specific. Because of the difficulty of computing these estimates, it is prudent to compute them only for your major target markets.

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Chapter 5. Sales Office Decisions

Distribution is one of the least understood elements of the marketing mix. Most of us can relate to brand design, pricing and advertising decisions because they impact upon us as consumers of household and personal goods. It is rare for most of us to have any experience with distribution.

When we walk into the grocery store, we assume that the detergent, milk, cereal or whatever else we want will be there, because it has always been there. Who thinks about how it got there or why one brand is on the top shelf and another is on the bottom, or why one brand is on special but not another, or even why one brand is carried but not another? It is the job of marketers to worry about these decisions and many more like them.

There are two components to distribution or sales office decisions. First, you must consider Territory Development by evaluating the sales potential of each city in the world market and decide upon your preferred order of entry.

Second, you must make Sales Office Management and Sales Force Management decisions in each city by deciding what brands to carry, prices, sales force size and allocation, and brand and sales force incentive programs.

If staff is moved within the same region, there are no hiring or layoff costs. If you move them to another region, your company fires a staff member and hires one in the new region, and so you pay both costs.

Learning Objectives:

The primary objective of the sales office management effort is to force you to deal with demand management. Your market orientation can profoundly affect the complexity of your sales office decisions and potential payoffs. If you consider only the consumer’s viewpoint, the task of making sales office decisions is manageable. Through careful study of the relative contribution of each decision to sales and profitability, it is possible to find the right combination to maximize short-term and long-term profits.

A second objective is to give you experience in sales office planning. Brand assortment selection, price determination, priority setting and sales staff planning are all common selling activities. While limited in comparison to real-world decision-making, they provide a realistic experience in dealing with the basics of Sales Force Management.

A third objective is to give you experience in translating customer needs and wants into brand-design specifications. Sales office managers are essentially buying agents for the end-user. Their job is to anticipate and understand end-user needs and assemble an assortment of brands that will satisfy these needs. Successful sales office managers cannot afford to simply take what is offered. They must be able to recognize a strong performer from the rest and possibly become involved in the brand-creation decision itself.

Finally, the objective of the pricing effort is to give you experience in making pricing decisions which simultaneously consider consumer preferences, competitive pressures, profitability and return-on-investment variables. The pricing exercise should help you to understand the multidimensional nature of the pricing decision. Too often, business people consider only one variable at a time. They might begin by focusing on markups over cost, or what the market will bear. At other times, they may concentrate on competition. A few may consider the margin * volume tradeoff and a target return on investment. All of these variables must be considered simultaneously.

Concepts Emphasized:

Sales office management: Manipulation of brand assortment, pricing, sales priorities and sales force strategies to accomplish sales and profitability objectives.

Financial strategy: Margin versus turnover operation.

Brand evaluation: Assessing end-user needs and determining the best brand designs to satisfy needs.

Brand assortment: Depth of product line.

Forecasting: Predicting unit sales by brand based upon market potential, current market performance, the predicted decisions of competitors and an evaluation of one’s own performance versus the predicted performance of others.

Sales/production coordination: Coordinating production with planned sales events such as manufacturer price rebates, blitz ad campaigns and other special sales campaigns.

Postponement: Maximizing decision flexibility and minimizing risk by waiting to see what happens.
   -versus-
Speculation: Early commitment of resources in order to gain a cost advantage and a jump on competition.

Pricing strategy: Role of price to achieve corporate objectives relative to customer, competition and profitability considerations.

Pricing tactics: Penetration pricing, skim-the-cream pricing, price lining and so forth.

Price computation: Overhead and variable costs, cost allocation among brands, margins.

Financial accountability: Return on investment requirements and need for continued corporate financial support.

Pricing economics: Monopoly [only brand with new technology], oligopoly [one or two competitors] or monopolistic competition [everyone has it, use other variables to differentiate brand].

Price elasticity: The responsiveness of a market segment to a change in price.

Demand management: Manipulation of sales variables to control demand relative to supply and to maximize profitability across available brands.

Decision-making: Evaluation of the pros and cons of available investment options and a commitment of resources to an uncertain future.

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Territory Development

Your territory development decision is among the more straightforward decisions with which you are faced. Each city has a different sales potential or number of prospective buyers. In addition, there are differences in the composition of the market segments.

Thus, one metropolitan area may have a greater proportion of one segment than another city. These differences in market composition will influence the sales volume of the different brands on the market.

Your MOA should provide you with a rough estimate of the sales potential by segment and by geographic market Determine which markets have the highest concentrations of potential customers in your target segments. With this information, you should be able to establish a priority list of geographic markets.

As you enter these markets, keep in mind that actual sales will be less than market potential, especially in the early stages of the industry’s product life cycle. Unit demand will depend upon how well the needs of each target market are fulfilled.

There are four concerns beyond market size to keep in mind as you open sales offices. The first is operating expense. The better markets tend to have higher operating expenses. These include the setup costs (leasehold improvements, office equipment, furniture and supplies), quarterly lease rates and sales force salaries. Thus, the greater market potential of these markets must be balanced against the greater cost of serving them.

The second factor affecting the location decision is competition. Territories with high demand are likely to attract more manufacturers, and competition is expected to be stronger. Markets with lesser demand may attract fewer competitors.

Another competitive consideration is that early entrants will have the pioneering advantage of building unchallenged customer loyalty, but they pay a price in low initial sales due to a lack of customer awareness of the product category. Late entrants into the market avoid the delays in market recognition but may require one or two quarters to overcome the brand loyalty factor.

Advertising economies are also a factor in the territory development decision. As the region becomes filled with sales offices, advertising in the regional media becomes more attractive. Advertising in a regional edition of a major media means your message goes to all metropolitan markets in the region.

If you do not have something to sell in one or more of those markets, then you will have wasted that portion of your advertising investment. Consequently, there is additional economic incentive to concentrate sales office openings into a limited number of regions in order to get the most out of your advertising expenditure.

In summary, the territory development decisions are influenced by market potential, competition, operating expenses and advertising economies. The sales appeal of the larger markets must be balanced against the higher overhead to enter and compete in these markets. Finally, each firm should have a basic plan regarding the sequence of markets to be entered. As information becomes available regarding the decisions of the other manufacturers, this plan should be revised.

Identify the top seven or eight markets by segment and then decide upon the order of marketing. Decide which sales offices will be open in quarter 2, which will be open in quarter 3, and so forth. When you are finished with this priority list, you should have a timeline of sales office openings by quarter.

As you enter each new market, you will want to address Sales Office Management decisions. These decisions can influence demand.

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Sales Office Management

Brand Design, Brand Pricing and Advertising Effectiveness are the most important variables effecting demand. A design that meets the needs of the target market and is priced within their spending limits should be a good sales performer. A weak design or too high a price will result in a significant reduction in demand relative to market potential.

Advertising is also very important because it is necessary to create awareness of a brand and its want-satisfying capability for the end-user. Even a good design with an acceptable price cannot achieve its full potential without solid advertising support.

You can influence demand by your management of the sales office. Brand Selection at the particular sales office location, Brand Price, Price Rebates, Sales Order Priority, POP Displays and Sales Force Management can have an incremental effect on demand. A top sales order priority, a POP display and salespeople with technical training could favorably help the sales of a brand by 20 percent to 40 percent. In addition, Price Rebates and Special Sales Force Programs (contests, bonuses and gifts) can provide a substantial short-term stimulant to demand.

Most of your sales office decisions are made on a regional basis. That is, your decisions regarding Brand Selection, Brand Price, Price Rebates and Sales Order Priority will be identical or standardized across all sales offices within a given region.

The metropolitan markets within the same region are thought to be more similar than markets in different regions. Rather than expend the extra time and effort to design a new sales office plan for every market, you will discover that it is faster and less expensive to employ the same sales program throughout the region. Essentially, this is the philosophy of many real-world retail chains that develop a top-rated plan and then set up the sales offices across the country in a cookie-cutter fashion.

You do have the flexibility to change the sales office plan from region to region. This may be desirable in order to take advantage of regional differences in competition, market needs and the concentration of the different market segments.

You have complete flexibility to adjust your sales force by metropolitan market. You can adjust the total number of salespeople and the relative emphasis they place on different segments.

Finally, there are three Special Sales Force Programs that serve the entire sales force. These programs include professional training, company-wide contests and kits to show and demonstrate your products.

When allocating sales people in an office, the first number entered is the total pool of staff available. Subsequent numbers determine the number of people who will be trained for either specific market segments or support. Specialized people will spend 70% of their time either selling to a specific market or performing support, whichever the case may be. The remaining 30% will be spent selling to all segments evenly. Unassigned sales people will divide their time selling to any and everyone and are less efficient in sales to any particular market segment but are more likely to meet needs you may not have planned for.

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Brand Selection

One of your most important sales office decisions is the selection of the brands to be sold in the region. If you do not offer what your customers want, they will not call for a sales presentation or visit your sales offices.

Mechanics: Essentially, the Brand Selection decision is the specification of which brands will be sold through the sales offices in the region. Any brand designated for regional sales must also be given a brand price and assigned a sales priority.

It is this combination of decisions that determines the brand assortment in the regional market. You are free to have a different assortment of brands in each region. This tactic will allow you to respond to regional differences in market needs and demand.

Be careful about moving brands into and out of a region. Brand loyalty increases the longer a particular brand is sold through a regional sales office. This loyalty is lost if you remove the brand for even a single quarter.

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Brand Price

All sales to the end-users are through your sales office; therefore, you must establish a sales price for each brand. When setting the price, you must consider:

1. Cost of manufacturing and operations—for each brand, you are given the value of Cost of Goods Sold. This number represents all the expenses related to number of units sold.
2. Price Elasticity, how price sensitive is your target market?
3. Competitive Prices, what price are your competitors going to charge?

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Price Elasticity

Your pricing decision should also Consider the Price the Market Will Bear. All segments are responsive to lower prices. However, some are less sensitive. To some segments, a ten percent difference in price will have little bearing on demand. In other cases, the difference could cause a substantial switch from one brand to another.

It is very important to test and know the Price Elasticity (sensitivity) of your target segments. This knowledge will help you to decide whether to use penetration pricing (deep price cuts), Price Rebates or skim-the-cream pricing (premium prices).

In addition to segment-specific price sensitivity it is believed that the total market will expand as prices drop. Thus, as your prices drop, expect more potential customers to shift into an active buying mode. The rate at which customers enter the market as prices drop will vary by market segment.

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Competitive Prices

The final consideration in setting prices is the action of your competitors. If they price below you, they can expect a larger share of the market, all other things being equal. The size of this brand switching will be dependent upon the sensitivity of the segment to pricing issues and the size of the difference.

Keep in mind that your firm will develop a price image for each sales office. If your firm’s average price is below the competition, the price differential should become a magnet to attract business away from your competition.

You should also recognize that this price sensitivity extends to your own product line. Your lower-priced models will be more attractive than your higher-priced brands for any given market segment. Even if no other manufacturer is in a city in which you have a sales office, your brands will compete with each other for market share.

Again, test the market’s sensitivity to prices. Also, determine if the added sales volume is worth the decline in gross margin due to the lower price.

As a planning tool, you might wish to prepare a price worksheet for each brand you carry. The worksheet would include the identity of the target market, suggested brand price, price sensitivity of the target market, predicted price judgment, brand prices of comparable competing brands, and a breakdown of your direct variable costs, R&D, and advertising.

It would also include a sales volume estimate and a total profit contribution (profit margin * sales volume) for each brand. This worksheet should help you to visualize the different variables affecting your pricing decision and ensure that they are a conscious part of the decision. It will also be a good resource for your marketing plan and to use in meetings with the chairperson of the board.

Note: The price judgment ratings are based on the final price after any rebates.

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Price Rebate

Price rebates are a short-term stimulant to market demand. Rebates are popular among all customers and are good traffic builders for sales offices. Rebates create excitement and encourage customers to buy NOW. If you want to attack an established competitor in a new market, you may wish to promote a price rebate for one or more brands.

The down side of a rebate program is that you may be borrowing sales from the future. Some of your customers may have intended to buy at a later date. The sale simply encourages them to act sooner. In addition, a large proportion of the customers would have made the purchase without the rebate. Also, while your price image will be improved in the quarter of the sale, it will deteriorate in the quarter the rebate is removed, as customers perceive a price increase.

Rebates in the order of 100 to 300 are typical. You can expect that 50 percent of all sales made during the quarter in which a rebate of this magnitude is offered will result in a rebate request.

Note: Price comparisons are based on the final price after any applicable rebates.

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Sales Order Priority

Once you have decided which brands to carry in your showroom, you must then decide on the sales priority for each brand. The sales priority is a clear indicator to the sales staff regarding management’s interest in selling one brand over the other when making sales calls.

The brand given the number one priority will be pushed the hardest by the salespeople. A brand given a number two priority would be promoted hard by the sales staff, but not as hard as the number one brand. A brand with a number 10 priority would be almost ignored by the sales staff. Customers would have to come looking for the brand and be determined to not accept any substitutions.

The Sales Order Priority also will be used in establishing the shelf locations in your showroom. A good shelf location will improve the visibility of the brand, encourage closer inspection, and may even stimulate impulse buying. Thus, the same brand will sell in larger quantities in a high-traffic location near the front of the showroom than in an out-of-the-way spot in the back of the showroom, all other things being equal.

You have up to 40 sales priority assignments. The number 1 spot provides the best sales potential. This potential systematically declines as the brands are placed farther and farther down the list as indicated by the higher numbers.

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POP Displays

You have the option to create point-of-purchase (POP) displays for each brand sold on the market. If you elect to place a POP in the showroom for a particular brand, its sales potential will be enhanced. Displays draw attention to a brand and usually contain persuasive information on how the product can be useful to the customers.

POP Displays will give a brand a differential advantage in the showroom. You, however, must be careful about how many displays are placed in the showroom — too many POPs detract from their effectiveness. More than two or three POP Displays tend to divide attention, and clutter the display area.

There is a charge of 200 per brand per sales office to create a POP display. Your ad agency will take care of the creative and production details if you authorize their use. The displays are only useful for one quarter because they become soiled and otherwise unattractive from handling. Therefore, you must create new POP displays for any quarter in which you wish to use them.

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Sales Force Management

Your final sales office decision is Sales Force Management. You must decide the number of salespeople to employ in each sales office, and their Target Market Specialty.

You must also decide on whether to employ special incentive programs such as Brand Promotions, and/or provide other Special Sales Force Programs in the form of demonstration kits and other kinds of professional training.

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Number of Sales People

The number one decision to make in Sales Force Management is how many salespeople to employ in each region. A salesperson’s salary, plus fringe benefits, will vary by market. You can expect to pay a higher rate in the larger markets. (See your decision template for the specific figures.)

Each salesperson will sell to customers whom they recruit by phone calls and visits to prospective firms. Demand is thought to be directly affected by the number of salespeople that you place in a market. As you add salespeople, unit sales will increase, but at a decreasing rate.

There is a financial penalty for adjusting the size of your sales force from quarter to quarter. It is costly to find and hire new sales people. The cost of recruiting new sales people escalates as the number of sales people increases because of the difficulty of finding qualified people. Similarly, it is costly to lay sales people off. Also, the market is a little sensitive to a decrease in the sales staff. From the customer’s viewpoint, a reduction in staff generally indicates a drop in service. There is no financial cost to move sales people around within a region. Thus, inefficient sales people in one market can be moved to another city within the region without paying a premium.

There are practical limits to the number of salespeople you can employ in a market. After a while, they begin to get in each other’s way. The number of salespeople to hire will depend upon the market potential of the city and the quality of your brands, prices and advertising relative to market needs and competition.

Initially, a conservative approach would be to estimate that each salesperson sells 40 units in a given quarter. For example, if you want to sell 200 units in a quarter in city X, then you would need to hire five or six salespeople (200/40). Alternatively, if you think your marketing plan will be extremely effective, you might forecast 100 units per sales person, and thus only need to hire 2 sales people. (However, a conservative estimate is probably wiser).

Caution: These starting figures for demand estimates are based upon the averages. Demand can be less or greater than the estimates given here if your marketing efforts are well below or above the average.

As you gain experience in the market and refine your Brand Designs, Ad Copy Design, Media Placement and Brand Prices, the number of sales per salesperson will increase. Thus, it might only take four salespeople in the eighth quarter to accomplish what six salespeople had to do in the third.

As you reposition your brands and refine your other marketing decisions, the sales curve will likely move upward. Later, when you introduce new technology and substantially invest in advertising and sales training, the curve is likely to shift upwards again. Just how high the curve will move will depend on the size of the target segment and the marketing decisions made by you and your competition.

As you can ascertain from this discussion, the number of units sold per salesperson is a critical number to watch. Be certain to compute this figure for each segment in each city and compare it to your competition’s estimate in order to gauge the effectiveness of your marketing efforts.

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Target Market Specialty

One particularly important dimension of the sales force decision stems from their market training. You can favorably influence the sales of a brand by having some of the sales staff receive special training or specific segment’s needs.

The training program has a modest cost per salesperson. With this training, your salespeople will be more knowledgeable about a particular segment’s needs, more persuasive in closing the deal, and provide better support to the customer after the sale is complete.

The designation of a Target Market Specialty will also direct the salesperson when making outside cold calls. If a salesperson has received training to specialize in the Workhorse segment, then he or she will look for customers that fit the profile of the Workhorse segment and largely ignore the other segments.

To illustrate this point, imagine a salesperson driving through a major market looking for new business. He or she might stop at all of the small businesses but bypass most of the factories or engineering firms. The latter businesses are in the Mercedes segment. The salesperson is not well equipped to sell to these segments and therefore he or she tends to ignore them.

Overall, the specialized salesperson can still be expected to support all the brands carried, but he or she will be targeted toward a specific segment. In any case, the more salespeople you assign to specific segments, the more effective your total marketing effort will be, versus your competition.

A second important option of the target market decision is whether to allocate one or more salespeople to a service/support role. Certain segments are concerned about after-sale support. They want to have someone available to help with installation and troubleshooting, should problems develop. You can enhance your sales to these segments by assigning salespeople to this service role. The benefit is spread across all segments concerned about sales support. These service support personnel do little direct selling; however, they do enhance the selling potential of your other sales personnel.

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Brand Promotions

Salespeople are strongly motivated by financial incentives. You can channel their energies toward a specific brand by offering either a cash bonus or a free gift to the top sellers of the brand in a region. Either incentive will encourage the salespeople to promote the designated brand and unit sales will generally increase noticeably.

The use of a cash bonus or a free gift is attractive if you want to promote a brand with a better than average margin. Some firms use them to boost sales at the end of the year in order to make the financial books look better. The disadvantages of these techniques are that their effect is short-lived and they may distract the salespeople’s attention from the rest of the product line.

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Special Sales Force Programs

In additional to regional incentive programs, you can undertake three company-wide sales support programs. The first is a professional training program where salespeople can develop skills related to teamwork, interpersonal relations, making presentations and proposal writing.

The professional training is also designed to further develop the sales forces’ understanding of business practices and methods and keep them informed about the latest philosophies and theories of business. The effect of this kind of training is much more difficult to measure but is thought to add to the professionalism of the sales force, which enhances the company’s reputation among your customers.

The second support program that you can offer is a company-wide sales contest. In this case, the contest is for a special vacation trip for the top performers among your sales staff. These vacation contests are strong motivators, especially for the more expensive and exotic vacations.

The disadvantage is that the incentive to excel can decline in the quarter following a sales contest. The staff works hard to close its pending deals and exhausts their sales leads during the contest period.

The final support program is the demonstration kit. These kits are notebooks containing professional presentations designed to sell product. The advantage of preparing a demonstration kit is that the sales argument can be carefully thought through, scripted and illustrated to show company products in the most favorable light. They also help to standardize the sales pitch by the sales force, thus avoiding ill-conceived presentations.

While these demonstration kits enhance the selling power of the sales staff, they do not provide a sudden boost to sales. They are more likely to add to the professionalism of the staff and enhance the company’s image. Over time, these benefits add to the marketability of your products and customer loyalty.

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Chapter 6. Accounting

The accounting information should help you understand the importance of evaluating the profitability of your business decisions through the use of Activity Based Costing. Thus, you should learn to allocate revenues and expenses to their proper activity in order to assure the profitability of your brand and sales office decisions.

Review the following topic to help make wise decisions regarding your accounting and financial planning:

Activity Based Costing
Profitability of Marketing Division

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Activity Based Costing (ABC)

Given the difficulty of starting up a new business, it is imperative to know precisely the profitability of each brand and market. Activity Based Costing is a valuable tool for evaluating the contribution of each market activity to the financial vitality of the firm. The objective is to assign each activity and cost related to the creation of a sale to the brand or market that generated the sale.

For example, suppose 300,000 were spent in total advertising. Should this cost be charged to the overhead of the firm as a selling expense? If yes, then every unit sold would effectively carry the same advertising burden. But, what if we know that 200,000 was spent on Brand A and 100,000 were spent on Brand B.

Wouldn’t it make more sense to charge Brand A with the greater advertising burden? We can similarly charge each brand with its relevant demand creating costs (point of purchase displays, sales force incentive, rebates, etc.) as well as the cost to manufacture it. When all of the revenues and costs are properly allocated, we can discover which brands are making the greatest contribution to the profitability of the firm.

We can similarly evaluate the regional markets in which the firm is selling. It is not difficult to allocate revenue or cost of goods sold, but we can also assign costs associated with the regional rebates, sales force salaries, office leases and advertising costs. Again, our objective is to learn the relative profitability of each region so that we can allocate our resources effectively.

As part of their support function, your accountants have prepared an ABC analysis on each brand and sales region. At the very least, this analysis will help you to evaluate the profitability of all of your demand generating activities. However, it will not tell you what to do. You may elect to retain a brand that has a low contribution to profits if it helps you to accomplish other objectives, such as having a full product line or greater economies in purchasing components for all brands.

Or you may realize that it will take time to build the business and a new brand or market may not become profitable for several quarters. Regardless of the reason, if you are losing money, you should know it. If you are making more money on some brands or regions, then perhaps you should reallocate some resources to take further advantage of these gains.

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Profitability of Marketing Division

The fundamental goal of your Marketing Division is to earn a profit for Corporate Headquarters. Each quarter, your Marketing Division will report its Net Profit to Headquarters. To determine whether your division was profitable in a particular quarter, you will compare your Gross Margin (Revenues – Rebates – Cost of Goods Sold) with your Operating Expenses. If your Gross Margin is greater than your operating expenses, you have generated a profit.

It is normal to lose money during the test market phase of the business. Demand will be low until people learn about your firm and products. Also, the firm will incur substantial startup expenses in the early quarters. Finally, unit production costs will be high due to low production volumes.

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Chapter 7. Finances

Strong marketing planning and execution requires good financial management skills. The management of any strategy usually translates into the management of money. You must carefully plan the timing of your receipts and disbursement in order to be successful.

Initially, the financial resources available to your PC Marketing Division will be limited to the investment provided by Corporate Headquarters. Revenue from sales will be insignificant in the first year as you focus on getting your business started. Thus, you must learn to live within the budget provided by Corporate Headquarters.

In the second year, you will receive additional funding from Corporate Headquarters. In addition, your sales will increasingly generate money to help you expand your product offering and sales territories. However, you will find that the available money will still not allow you to pursue all of the opportunities that exist. Thus, it will be necessary to establish priorities and pursue those opportunities that provide the greatest financial return. Again, Financial Planning, and living within a budget will be important.

To help you evaluate the financial viability of your Marketing Division, a set of profit analysis tools have been created for you by your accounting department. These tools will allow you to evaluate the profitability of individual brands, sales regions and the division as a whole. With this knowledge, you should be able to skillfully adjust your strategy to maximize the wealth created by your Marketing Division.

Corporate Headquarters uses the balanced scorecard to measure your overall performance. One important component of the scorecard is the return on investment of your division. Corporate Headquarters will invest 7,000,000 in your new venture. It is expecting you to return all of that investment plus another 14,000,000. This can be accomplished only if you carefully manage your financial resources and invest in those activities, which will yield the highest rate of return.

Concepts Emphasized:

Financial Management: Allocation of a scarce resource, and living within a budget.

Financial Accountability: Return on investment requirements, and need for continued corporate financial support.

Postponement: Maximize decision flexibility, and minimize risk by waiting to see what happens.
-versus-
Speculation: Early commitment of resources in order to gain a cost advantage and a jump on competition.

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Financial Planning

There are two major sources of funds for your company: investment money and sales revenue. For the first five quarters in business, you cannot count on sales revenue. Therefore, your initial funding must come primarily from Corporate Headquarters.

Corporate Headquarters will invest 500,000 in each of the first 4 quarters. You will use this money to pay for your start up expenses (new sales offices) and any loses that you might incur.

After your first year in business, in quarter 5, you will receive an additional 5,000,000 from Corporate Headquarters. These resources should be invested in new technology development (R&D), and additional sales offices. At this stage, it is wise to prepare a marketing plan (in quarter 5) that will outline the direction your company wants to take for the next year. Your marketing plan should include a market analysis, a market development strategy and a financial budget for the next four quarters of business. It should also include an historical record of your prior decisions, and your market and financial performance to date.

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Glossary

Brand Components

Base components: Hardware components that form the internal structure of both desktop and portable model computers, and to which all other hardware features are connected. Includes main circuit board, video and sound adapters, memory chips, internal wiring, external ports, speaker and other features.

Compact disk (CD) read/write drive: Hardware component for both desktop and portable model computers. Capable of reading and writing compact disks. The computer can use the information on a disk to load a program, play a media recording, download information, etc. The computer can write data to blank disks to store data long term and to share that data with other computers.

Digital video disk (DVD) read/write drive: Hardware component for both desktop and portable model computers. Faster read/write times and greater storage capacity than a basic compact disk (CD) drive. Capable of reading disks in both the CD and DVD formats, as well as writing new DVD disks. The computer can use the information on a disk to load a program, play a media recording, download information, etc. The computer can write data to blank disks to store data long term and to share that data with other computers.

Standard hard drive: Hardware component for both desktop and portable model computers. Reads and writes data to a hard disk so the computer can work with the data and store it as needed. Data may include programs, information, media, etc.

High capacity hard drive: Hardware component for both desktop and portable model computers. Greater storage capacity compared to a standard hard drive. Reads and writes data to a hard disk so the computer can work with the data and store it as needed. Data may include programs, information, media, etc.

Very high capacity hard drive: Hardware component for both desktop and portable model computers. Greater storage capacity compared to a high capacity hard drive. Reads and writes data to a hard disk so the computer can work with the data and store it as needed. Data may include programs, information, media, etc.

Massive capacity hard drive: Hardware component for both desktop and portable model computers. Greater storage capacity compared to a very high capacity hard drive. Reads and writes data to a hard disk so the computer can work with the data and store it as needed. Data may include programs, information, media, etc.

Office software-word, spreadsheets: Software component for both desktop and portable model computers. Programs allow computer to manipulate text and spreadsheet documents for reading and editing, including formatting, arithmetic and graphing functions as well as other special features.

Office software-word, spreadsheets-new release: Software component for both desktop and portable model computers. This new release version contains all the functionality of the previous version in an updated format, plus adds several new features. Programs allow computer to manipulate text and spreadsheet documents for reading and editing, including formatting, arithmetic and graphing functions as well as other special features.

Accounting/bookkeeping software: Software component for both desktop and portable model computers. Program allows computer to manage business accounting and finance information. The software includes tools to track inventory, sales, and customer information, print checks, manage credit card orders, organize payroll data, and create reports, as well as other special features.

Business graphics software: Software component for both desktop and portable model computers. Program allows computer to manipulate graphics for review and editing, including illustration, design, animation, publishing and other special features.

Presentation software: Software component for both desktop and portable model computers. Program allows computer to create highly stylized slide shows and reports. The software includes functions for creating charts and graphs from scratch or by importing the data from a spreadsheet application, inserting text, and a variety of formatting options, as well as other special features.

Database software: Software component for both desktop and portable model computers. Program allows computer to store, modify, organize, and extract information from a database. Information can be presented in a variety of formats, includes a report writer that enables the output of data in the form of a report, a graphics component that enables the output of information in the form of graphs and charts, and other special features.

Statistical analysis software: Software component for both desktop and portable model computers. Program allows computer to manage, analyze, and report on company data, combining information from past circumstances, present events, and projected future actions. Includes tools for analysis and forecasting of variance and regression, control charts, measurement systems, time series, Six Sigma, and other special features.

Engineering graphics software: Software component for both desktop and portable model computers. Program allows computer to create, edit, and navigate three dimensional solids and surfaces as visual images in the design process, and translate design models into construction documents. Includes tools for walk-through animations, realistic rendering, design dependency, sectioning, flattening, and other special features.

15" monitor for desktop: Hardware component for desktop model computers. Output device that allows the operator to interface with the computer through a visual display of data. Standard analog resolution with full color capability, screen size is 15 diagonal inches from corner to corner.

17" monitor for desktop: Hardware component for desktop model computers. Output device that allows the operator to interface with the computer through a visual display of data. Standard analog resolution with full color capability, screen size is 17 diagonal inches from corner to corner.

19" monitor for desktop: Hardware component for desktop model computers. Output device that allows the operator to interface with the computer through a visual display of data. Standard analog resolution with full color capability, screen size is 19 diagonal inches from corner to corner.

19" high resolution monitor for desktop: Hardware component for desktop model computers. Output device that allows the operator to interface with the computer through a visual display of data. High level digital resolution with full color capability, screen size is 19 diagonal inches from corner to corner.

21" high resolution monitor for desktop: Hardware component for desktop model computers. Output device that allows the operator to interface with the computer through a visual display of data. High level digital resolution with full color capability, screen size is 21 diagonal inches from corner to corner.

12" monitor for portable: Hardware component for portable model computers. Output device that allows the operator to interface with the computer through a visual display of data. Standard analog resolution with full color capability, screen size is 12 diagonal inches from corner to corner.

14" monitor for portable: Hardware component for portable model computers. Output device that allows the operator to interface with the computer through a visual display of data. Standard analog resolution with full color capability, screen size is 14 diagonal inches from corner to corner.

Budget processor: Hardware component for both desktop and portable model computers. Central processing unit and connected microprocessors that manage and perform calculations on data as needed. Data may include programs, information, media, etc. Standard level central processing unit instruction set, bandwidth and clock speed.

Mid-range processor: Hardware component for both desktop and portable model computers. Central processing unit and connected microprocessors that manage and perform calculations on data as needed. Data may include programs, information, media, etc. Faster and more powerful instruction set, bandwidth and clock speed compared to a budget processor component.

High performance processor: Hardware component for both desktop and portable model computers. Central processing unit and connected microprocessors that manage and perform calculations on data as needed. Data may include programs, information, media, etc. Faster and more powerful instruction set, bandwidth and clock speed compared to a mid-range processor component.

Ultra high performance processor: Hardware component for both desktop and portable model computers. Central processing unit and connected microprocessors that manage and perform calculations on data as needed. Data may include programs, information, media, etc. Faster and more powerful instruction set, bandwidth and clock speed compared to a high performance processor component.

Massively powerful processor: Hardware component for both desktop and portable model computers. Multiple coordinated central processing units and connected microprocessors that manage and perform calculations on data as needed. Data may include programs, information, media, etc. Faster and more powerful instruction set, bandwidth and clock speed compared to an ultra high performance processor component.

Standard keyboard: Hardware component for both desktop and portable model computers. Input device that allows the operator to enter and manipulate data in the computer through a set of typewriter-like keys. Comprised of alphanumeric, punctuation, function, control, directional, format, print screen and other keys. Includes a two-button mouse for point and click input.

Expanded keyboard with hot keys: Hardware component for both desktop and portable model computers. Input device that allows the operator to enter and manipulate data in the computer through a set of typewriter-like keys. Comprised of the standard keyboard set, plus 15 additional special-function keys and 10 programmable hot keys. Includes a two-button mouse with scroll wheel for point and click input.

High comfort keyboard with wrist rest: Hardware component for both desktop and portable model computers. Input device that allows the operator to enter and manipulate data in the computer through a set of typewriter-like keys. Comprised of the standard keyboard set, plus 15 additional special-function keys and 10 programmable hot keys. Ergonomic design and padded wrist rest platform reduce physical stress on the user. Includes a two-button ergonomic mouse with scroll wheel for point and click input.

Rugged design for portability: Hardware component for portable model computers. Laptop case designed with reinforced structure of high strength composite materials, and sealed to protect against dust and moisture.

Miniaturized circuitry to reduce PC size: Hardware component for both desktop and portable model computers. Technology that reduces the circuitry mass allowing computers to be built smaller and lighter while retaining equal processing power, drive space and other features.

Plug and play design (easy setup): Hardware component for both desktop and portable model computers. Technology that allows a computer system to automatically configure expansion cards and other devices. The user is able to plug in a device and play with it, without worrying about setting switches, jumpers, or other configuration elements.

Accelerator card for math computation: Hardware component for both desktop and portable model computers. A numeric coprocessor specifically designed to perform complex mathematical calculations. The central processing unit can perform other operations while the accelerator card handles the advanced mathematical computations, which allows the system to handle more complex calculations at faster speeds.

Standard network/Internet connection: Hardware component for both desktop and portable model computers. A device that enables a computer to connect to a specific network and/or the Internet. The Internet is a worldwide, publicly accessible network of interconnected computer networks that share data. The Internet carries various information and services, such as electronic mail, online chat, file transfer, and the interlinked Web pages and other documents of the World Wide Web.

High speed network/Internet connection: Hardware component for both desktop and portable model computers. A device that enables a computer to connect to a specific network and/or the Internet. Greater bandwidth provides faster data transfer (upload/download times) compared to a Standard network/Internet connection component.

Standard battery for portable: Hardware component for portable model computers. An internal electrical storage device that provides power for the computer to operate for a limited period of time, when not connected to an external power source.

Long-life battery for portable: Hardware component for portable model computers. An internal electrical storage device that provides power for the computer to operate for a limited period of time, when not connected to an external power source. Capable of supplying power twice as long as a Standard battery for portable while retaining the same weight and size.

Windows for professionals: Software component for both desktop and portable model computers. A program (Operating System) that performs tasks, such as coordinating input and output of the system, organizing files and directories, controlling software and hardware operations, basic system security, and other functions.

Windows for professionals with high security protection: Software component for both desktop and portable model computers. A program (Operating System) that performs tasks, such as coordinating input and output of the system, organizing files and directories, controlling software and hardware operations, system security, and other functions. Provides higher level of integrated system security compared to Windows for professionals.

Windows upgrade for professionals with high security protection: Software component for both desktop and portable model computers. A program (Operating System) that performs tasks, such as coordinating input and output of the system, organizing files and directories, controlling software and hardware operations, system security, and other functions. Provides improved high level integrated system security, faster operations, and new user interface compared to Windows for professionals with high security protection.

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Fatal Errors

As you begin to compete in the Marketplace, you will find that your auditor will impose a number of limitations on your decisions. These constraints will be listed in the Final Check link at the end of your decisions. Unless you correct all fatal errors, you will not be able to wrap up your decisions.

The following table indicates the limitations that you can expect in each quarter of play. These constraints will keep you in a safe zone until you get more experience. As you will note, in later quarters, the constraints imposed by the auditor will gradually be released.

FINAL CHECK FATAL ERRORS

Quarter 1

Quarter 2

Quarter 3

Quarter 4

Quarter 5

Quarter 6

Quarter 7

Quarter 8

Limit on number of new sales offices (maximum of 2 sales offices per quarter)

 

 

 

 

 

 

Limit on number of sales people (7 or less)

 

 

 

 

 

 

Limit to 2 brand features R&D projects

 

 

 

 

 

 

 

Brand price minus rebate must be greater than 1,300

 

Brand price must be less than 8,500

 

Limit on advertising expenditures
Q3: 150,000
Q4: 300,000

 

 

 

 

 

 

Limit on R&D and sales outlet expenditures to last quarter’s cumulative profit + current quarter’s cumulative investment from Headquarter

 

 

 

 

Other limitations (valid for the entire game):
· You cannot have more than 40 brands.
· You cannot have more than 30 differently designed advertisements.

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