INSTRU TOR’S GUIDE

2020-10-14 Markstrat Instructor’s Guide 1

INSTRUCTOR’S GUIDE PART 2 – MANAGING YOUR COURSE

Jean-Claude Larréché

The Alfred H. Heineken Chaired Professor of Marketing

INSEAD

Hubert Gatignon

The Claude Janssen Chaired Professor of Business Administration and Professor of Marketing


ABOUT MARKSTRAT The Markstrat simulation was created more than thirty years ago by Jean-Claude Larréché, Alfred H. Heineken Professor of Marketing at INSEAD, and Hubert Gatignon, The Claude Janssen Chaired Professor of Business Administration and Professor of Marketing at INSEAD, and has been constantly improved since its creation.

Used in combination with traditional training methods such as conceptual sessions or case studies, Markstrat is a highly effective tool to learn strategic marketing concepts, such as brand portfolio strategy or segmentation and positioning strategy, as well as operational marketing. Like a flight simulator, this marketing simulation allows students and managers to practice new skills in an intensive time frame and in a risk-free environment before trying them out in their real business environment.

The mathematical model of Markstrat is based on solid theoretical foundations, and the underlying formulas have been extensively tested. These simulations have been used to successfully train a large number of participants and executives from many universities and organizations.

You and your team will be given a company and product portfolio to manage in a dynamic and interactive environment. No previous computer experience is required but it is important to read this handbook prior to your course. If you do not read it carefully, you will run the risk of putting your team at a competitive disadvantage! Copyright Documents and Software © 2003, 2020 by StratX Markstrat is a registered trademark of StratX, All rights reserved

ABOUT STRATX SIMULATIONS StratX Simulations is a subsidiary of StratX, a unique training and development group founded by INSEAD Marketing Professor, Jean-Claude Larréché. StratX brings together disciplines from leading business schools, management consultants and learning design specialists.

StratX Simulations mission is to develop and market business games to the Academic Community. We develop high-tech, sophisticated simulations and tools, in partnership with academic stars such as Jean-Claude Larréché, Huber Gatignon, Chan Kim and Renée Mauborgne, all professors at INSEAD.

StratX Simulations is active in three disciplines: Marketing, Strategy and Management. Our methodology is based on our belief that new skills must be learned through action and experience in addition to books or lectures.

Over the past thirty years, StratX Simulations has designed and developed a portfolio of world-class business simulations, including Markstrat, BrandPRO, MixPRO, Digital MediaPRO, Markops and Blue Ocean Strategy Simulation, used in over 500 business schools from 70+ countries.


TABLE OF CONTENTS I. Prerequisites ______________________________________________________________________ 7

II. Setting up a Markstrat course _________________________________________________________ 8

1. Course Home Page __________________________________________________________________________________ 8

2. Creating industries __________________________________________________________________________________ 9

3. Forming teams ____________________________________________________________________________________ 15

4. Sending Emails ____________________________________________________________________________________ 17

5. Team Passwords ___________________________________________________________________________________ 18

6. Discovering Markstrat ______________________________________________________________________________ 18

III. Managing your Industries ___________________________________________________________ 19

1. Configure decisions ________________________________________________________________________________ 19

2. Decision Round Dashboard __________________________________________________________________________ 21

3. Run Decisions _____________________________________________________________________________________ 27

4. Re-run Decisions ___________________________________________________________________________________ 27

5. Decision run delayed _______________________________________________________________________________ 28

6. Printing Reports ___________________________________________________________________________________ 28

7. Downloading the Coaching Sheet _____________________________________________________________________ 29

8. Plotting and/or Comparing Data ______________________________________________________________________ 29

9. Announcing Results to Participants ___________________________________________________________________ 32

10. Grading Teams ____________________________________________________________________________________ 34

11. Markstrat Scheduler ________________________________________________________________________________ 36

12. Monitor Participants _______________________________________________________________________________ 38

IV. The Base Scenario: MSW-SM-DCG-A1 __________________________________________________ 40

1. Characteristics of the Initial Environment ______________________________________________________________ 40

2. Comparative Analysis of the Firm's Starting Situations ____________________________________________________ 41

3. Evaluation of the Starting Situation for Each Firm ________________________________________________________ 42

4. Conclusions on the Starting Situation for Scenario MSW-SM-DCG-A0 _______________________________________ 45

5. Notes on version “A0-Eco” __________________________________________________________________________ 46

V. The Base Scenario: MSW-SM-B2B-A0 __________________________________________________ 48



3. Evaluation of the Starting Situation for Each Firm ________________________________________________________ 50

VI. The Base Scenario: MSW-SM-FMCG-C0 ________________________________________________ 54



3. Evaluation of the Starting Situation of the Firm__________________________________________________________ 56

VII. Creating New Scenarios _____________________________________________________________ 59

1. Why customize a scenario? __________________________________________________________________________ 59

2. Should you customize a scenario? ____________________________________________________________________ 59

3. How to customize a scenario? ________________________________________________________________________ 59

4. “Standard” Customizable Parameters _________________________________________________________________ 61

5. “Advanced” Customizable Parameters _________________________________________________________________ 64

VIII. The Markstrat Pedagogical Process ____________________________________________________ 66

1. Preliminary Organization of the Markstrat Simulation ____________________________________________________ 66

2. The Markstrat Sequence ____________________________________________________________________________ 67

3. Role of the Simulation Instructor _____________________________________________________________________ 72

4. Classroom Sessions/Discussions ______________________________________________________________________ 75


5. Final Session ______________________________________________________________________________________ 78

IX. The Team Coaching Tool ____________________________________________________________ 79

1. Introduction to the Coaching Spreadsheet _____________________________________________________________ 79

2. The Coaching Spreadsheet in details __________________________________________________________________ 79

3. How to use the Coaching Spreadsheet _________________________________________________________________ 83


LIST OF FIGURES Figure 1 – Sample course Home page _______________________________________________________ 9

Figure 2 – Industry Creation Assistant – Type of competition ____________________________________ 10

Figure 3 – Industry Creation Assistant – Language ____________________________________________ 10

Figure 4 – Industry Creation Assistant – Scenario selection _____________________________________ 10

Figure 5 – Industry Creation Assistant– Number of participants – Team against Teams _______________ 12

Figure 6 – Industry Creation Assistant– Number of participants – Team-Against-Computer ____________ 13

Figure 7 – Industry Creation Assistant – Team-Against-Team – Number of industries & teams __________ 13

Figure 8 – Industry Creation Assistant – Team-Against-Team– Industry names ______________________ 14

Figure 9 – Industry Creation Assistant – Team-Against-Team – Selection of team-managed firm ________ 14

Figure 10 – Industry Creation Assistant – Team-Against-Team – Validation of choices made ___________ 15

Figure 11 – Industry Creation Assistant – Home page __________________________________________ 16

Figure 12 – Forming teams _______________________________________________________________ 16

Figure 13 – Sending email messages to participants ___________________________________________ 17

Figure 14 – Communicating login information to participants ___________________________________ 17

Figure 15 – Setting constraints ____________________________________________________________ 20

Figure 16 – Decision Round Dashboard – Team-Against-Team ___________________________________ 22

Figure 17 – Decision Round Dashboard – Team-Against-Computer _______________________________ 23

Figure 18 – Audit decisions form __________________________________________________________ 24

Figure 19 – Loan versus budget increase ____________________________________________________ 27

Figure 20 – Decision run delayed. _________________________________________________________ 28

Figure 21 – Print Report form _____________________________________________________________ 29

Figure 22 – Industry Comparator and Charting Tool ___________________________________________ 30

Figure 23 – Company Scorecard ___________________________________________________________ 32

Figure 24 – Result Announcement Tool _____________________________________________________ 33

Figure 25 – Grading Teams _______________________________________________________________ 36

Figure 26 – Markstrat Scheduler __________________________________________________________ 37

Figure 27 – Create/Edit Schedule __________________________________________________________ 37

Figure 28 – Monitor Participants __________________________________________________________ 39

Figure 29 – Economy x Performance perceptual map in period 0 _________________________________ 43

Figure 30 – Economy x Convenience perceptual map in period 0 _________________________________ 44


Figure 32 – Economy x Reliability perceptual map in period 0 ___________________________________ 53


Figure 34 – Economy x Reliability perceptual map in period 0 ___________________________________ 58

Figure 35 – Scenario Customization Assistant - Downloading a scenario ___________________________ 60

Figure 36 – Scenario Customization Assistant – Sample scenario excerpt __________________________ 60

Figure 37 – Scenario Customization Assistant - Uploading a scenario ______________________________ 61

Figure 38 – Overview of the Markstrat Sequence _____________________________________________ 67

Figure 39 – Team Coaching Spreadsheet – Sheet Firms – Top of page _____________________________ 80

Figure 40 – Team Coaching Spreadsheet – Sheet Firms – Bottom of page __________________________ 80

Figure 41 – Team Coaching Spreadsheet – Firm-specific Sheet (top part) __________________________ 81

Figure 42 – Team Coaching Spreadsheet – Firm-specific Sheet (bottom part) _______________________ 82

Figure 43 – Team Coaching Spreadsheet – Segment-specific Sheet (top rows) ______________________ 82

Figure 44 – Team Coaching Spreadsheet – Segment-specific Sheet (main body) _____________________ 84


LIST OF TABLES Table 1 – Task list for a new course set up ____________________________________________________ 8

Table 2 – List of basic scenarios ___________________________________________________________ 12

Table 3 – Task list for each simulation round _________________________________________________ 19

Table 4 – A typical constraint schedule _____________________________________________________ 20

Table 5 – Market characteristics in Period 0 _________________________________________________ 40

Table 6 – Shopping habits _______________________________________________________________ 41

Table 7 – Firm key performance indicators in period 0 _________________________________________ 41

Table 8 – Firm benchmarking in period 0 ____________________________________________________ 41

Table 9 – Brand characteristics in period 0 __________________________________________________ 42

Table 10 – Semantic scale ratings in Period 0 ________________________________________________ 45

Table 11 – Summary of brand/market positions in period 0 _____________________________________ 46

Table 12 – Market characteristics in Period 0 ________________________________________________ 48

Table 13 – Shopping habits ______________________________________________________________ 49

Table 14 – Firm key performance indicators in period 0 ________________________________________ 49

Table 15 – Firm benchmarking in period 0 ___________________________________________________ 49

Table 16 – Brand characteristics in period 0 _________________________________________________ 50

Table 17 – Market characteristics in Period 0 ________________________________________________ 54

Table 18 – Shopping habits ______________________________________________________________ 55

Table 19 – Firm key performance indicators in period 0 ________________________________________ 55

Table 20 – Firm benchmarking in period 0 ___________________________________________________ 55

Table 21 – Brand characteristics in period 0 _________________________________________________ 56


I. PREREQUISITES The development of the Markstrat software is based on 30 years of simulation experience in a variety of situations including executive, graduate and undergraduate education. Over the years, Markstrat has benefited from constructive feedback provided by marketing educators all around the world, and it has been progressively improved to integrate these inputs into several successive versions.

This document will guide you through the various tasks that you have to perform in order to set up and run your Markstrat course. Both technical and pedagogical aspects will be addressed in the following chapters.

This document assumes that you have already made the preliminary decisions and tasks listed below. If this is not the case, we invite you to read the INSTRUCTOR’S GUIDE – PART 1 – PLANNING YOUR COURSE that is available in the Downloads section of www.stratxsimulations.com.

• You have decided to use Markstrat.7, the latest version of Markstrat, running on the web.

• You have decided which industry sector to use: Durable Consumer Goods (the classic version), Business-to-Business or Consumer Goods.

• You have decided what type of competition to use: Team-Against-Teams or Team-Against-Computer.

• You are registered as a StratX instructor.

• You have created your Markstrat.7 course on the StratX Simulations portal.

• Your participants have all registered to your course.

The Markstrat software is composed of multiple modules also called platforms.

• a platform dedicated to participants to analyze their results and make decisions;

• a platform dedicated to instructors to administer their Markstrat courses;

• a charting tool, common to participants and professors, to plot Markstrat data into graphs;

The Markstrat platforms are compatible with the following internet browsers: IE 8+, Safari, You will need to authorize java scripts; however, the Markstrat platforms do not use Flash and can thus be used on Apple tablets.

These platforms are all accessible through our portal www.stratxsimulations.com. To log in the portal, participants must enter their Participant Activation Key (PAK) and professors must enter their user name and password.

http://www.stratxsimulations.com/


II. SETTING UP A MARKSTRAT COURSE This chapter discusses the list of tasks that must be completed in order to set up your Markstrat course, prior to starting the first decision round with your participants. These tasks are listed in Table 1 and are explained in more details in this section.

Task Mandatory Explanation Estimated Duration

Selecting a Scenario ✓

You must choose one of the base scenarios included in Markstrat. Scenarios are sets of parameters, used to initialize industry data and create the major competitive elements at the start of the simulation.

15’

Adapting a Scenario

You may customize your own scenario to adapt key parameters according to the course requirements. Key parameters include segment size, segment growth rates, inflation rates, etc.

60’

Creating Industries ✓

In the Markstrat terminology, an industry is a set of data on markets, consumers, channels, competitors, products, etc. A multi-step assistant will guide you through the choices that you have to make.

15’

Forming Teams ✓

You must decide which industry and team each participant will be assigned to. Then you must enter these assignments into the platform.

15’ per industry

Discover Markstrat

Instructors and participants are invited to discover Markstrat and become familiar with the Markstrat platforms, the available reports, the decisions to make, etc.

60’

Table 1 – Task list for a new course set up

1. Course Home Page

Once your course is created and validated, you may access its home page on the StratX Simulations portal by selecting Courses/Quotations on the left and then clicking on the course name in the list. The course home page is the main entry point to the various forms used to set up your course and then manage it rounds after rounds.

A sample Home page is depicted on Figure 1. From this home page, you will be able to set up and then run your course. Your will be able to:

• Modify your course profile: name, description, Instructor‘s email and dates.

• Add another instructor to your course so that he or she can help you in the course administration.

• Send emails to participants.

• Export to Excel the list of participants who have registered to this course.

• Adapt one of the Markstrat scenarios to your own needs, using the Scenario Customization Assistant.

• Create the initial data of your teams. In the Markstrat terminology, these data are called industries. The Industry Creation Assistant will guide you through this mandatory and highly important task.

• Group your students into teams and assign them to Markstrat industries and firms. If you do not have a sufficient number of participants assigned to one of your industries, a warning message will appear in an orange box on your course home page, as shown on Figure 1. This message will show up if you do not have at least 3 participants in each “human” team.

• Run your course through up to 10 Decision Rounds. The Decision Round Management Dashboard will help you perform this mandatory and highly important task.

• Decide which reports and decision forms will be released to participants, so as to adapt the complexity of Markstrat to your audience.


• Open the Industry/Team charting tool to compare the results of your teams across multiple industries.

Figure 1 – Sample course Home page

2. Creating industries

Creating industries is a very important step of the course setup process. A multi-step assistant will guide you through the choices that you have to make.

The first step of the Industry Creation Assistant is to choose a type of competition. Some of the following steps vary significantly whether you choose one type or the other.


To start the assistant, go to the course home page, as explained in section II.1, and select Create Industries.

A. Step 1 – Type of Competition

During step 1, you will be asked to choose a type of competition, as shown on Figure 2. Refer to stratxsimulations.com to learn more on the two existing types: Team-Against-Teams (TAT) and Team-Against-Computer (TAC).

Select the type of your choice and proceed to the next step.

Figure 2 – Industry Creation Assistant – Type of competition

B. Step 2 – Language

Select a language and proceed to the next step. The selected language applies to the entire course. All participants will share the same language.

Figure 3 – Industry Creation Assistant – Language

C. Step 3 – Scenario selection

During step 3, you will be asked to select a scenario, as shown on Figure 4. This form lists the base scenarios included in Markstrat as well as your own customized scenarios. Read the following paragraphs to learn more on scenarios.

Figure 4 – Industry Creation Assistant – Scenario selection

What is a scenario?

A scenario is a set of parameters that are used to:


• Initialize the industry data; e.g.: technical specifications of existing Sonite brands, initial awareness levels, etc.

• Adjust the simulation formulas; e.g.: the formula calculating the budget required to develop research projects, etc.

• Determine the evolution of the Markstrat world; e.g.: segment growth rates, inflation levels, etc.

A scenario must be selected when creating a new industry. This scenario can be one of the base scenarios provided by STRATX, or one of your own scenarios, customized as explained in section 0.

List of available base scenarios

Markstrat comes with several base scenarios so that you can rotate which one you use and thus prevent your students to pass information from one year to the next. Some differences in parameter values have an effect on the initial situation of the Markstrat world, such as the name and characteristics of initial brands or the initial position and evolution of ideal points. Other differences will only be noticed when running the simulation or taking decisions, such as the maximum acceptable price variation in percentage.

Table 2 provides the list of base scenarios which you can choose from. Please pay attention to the following points.

• All scenarios can handle from four to six firms. Each firm corresponds to one team of participants, usually from four to six participants. When used in Team-Against-Computer mode, all scenarios will only include 4 firms, one managed by the human team and the other three managed by the computer.

• All scenarios include two markets. Using a two-market scenario is the norm in a Markstrat course: teams will compete in one existing market, the Sonites, and will have the opportunity to create a new market, the Vodites.

• Depending on the selected scenario, the initial firm situations will be all different or all equal. Your teams will go through a richer experience if you choose a scenario where firms have different – but balanced – initial situations. These scenarios are more realistic as teams have different strengths, weaknesses, opportunities and threats. Alternatively, you may choose a competition scenario where all firms start in the exact same situation, with the same product portfolio, R&D capabilities, inventory, financial situation, etc.

Scenario Customization

• Scenarios can be adapted with a separate assistant called the Scenario Customizer; you can find a detailed explanation of this tool in section VII.

• . You can adjust some of the scenario parameters according to your own needs. For instance, if you want a very dynamic Vodite market, you can double the initial size in number of units and increase the segment growth rates. Or, if you want to illustrate that innovation is sometimes risky, you can decrease this initial size.

• We strongly advise you to become familiar with the base scenarios before creating your own customized scenarios.


Simulation Markets &

Teams Initial Firm Situations

Scenario Name

Comments

B2C Durable Goods

(Classic version)

2 Markets Sonites

& Vodites

4 to 6 teams

Different

A0 & A1

This is the original Markstrat scenario. The initial firm situations are different but balanced (slightly better balanced in version A1). Scenario A0 is fully described in section The Base Scenario: MSW-SM-DCG-A.

B0 & B1

This scenario is a variation of A0 and it shares most parameters. Variations were obtained by changing brand names, shuffling the firms, and the segments, and changing the evolution of ideal points. The initial firm situations are slightly better balanced in version A1.

A0-Eco See section IV.5

Equal

C0, D0

These scenarios share most parameters with the A or B ones, but the initial situations of the firms are all equal, i.e. all firms have the exact same two products at the start of the simulation exercise. These scenarios are called Competition Scenarios.

C0-Eco See section IV.5

B2B

2 Markets Squazols & Trigols

4 to 6 teams

Different

A0

This scenario is derived from the original Markstrat scenario. The initial firm situations are different but balanced. Scenario A0 is fully described in section The Base Scenario: MSW-SM-B2B-A0.

B0 This scenario is a variation of A0 and it shares most parameters. Variations were obtained by changing brand names and shuffling the firms.

Equal

C0, D0

These scenarios share most parameters with the A0 or B0 ones, but the initial situations of the firms are all equal, i.e. all firms have the exact same two products at the start of the simulation exercise. These scenarios are called Competition Scenarios.

B2C Consumer

Goods 2 Markets

Clinites & Nutrites

4 to 6 teams

Equal C0

At present, only one scenario is available for this Markstrat version. More scenarios will be developed in the near future. The initial situations of the firms are all equal, i.e. all firms have the exact same two products at the start of the simulation exercise. There is no scenario similar to the A0 scenario of the Durable Goods version. The reason is that Private Label brands would make it very difficult to have a balanced scenario with low-end and high-end firms.

Table 2 – List of basic scenarios

D. Step 4 – Number of participants

In the fourth step, you will be asked to specify how many participants (students or executives) will take your course. You must enter this number in the first cell, as shown on Figure 5; the second cell shows the number of participants that have already registered to your course, i.e. the participants that have purchased a Participant Activation Key and have registered on www.stratxsimulations.com.

In most cases, you will not know the exact number of participants, but it is not an issue as long as the number you input is not too far off the actual one.

Figure 5 – Industry Creation Assistant– Number of participants – Team against Teams

http://www.stratxsimulations.com/


E. Step 5/TaC – Number of teams

This step is relevant only if you have selected Team-Against-Computer.

You must now indicate how many teams you want to have in your course. This number should be calculated so that you have between 3 and 6 participants per team.

Please, be aware that the amount of administrative work increases with the number of teams.

The bottom of the screen shows the required number of teams depending on the number of participants that you want in each: 3, 4, 5 or 6.

StratX recommends five participants per team for Markstrat. This recommendation is based on the simulation complexity and quantity of analysis and decisions to be made at each round. Note that the complexity increases after a few rounds since most teams will launch new brands, possibly in the new market.

Figure 6 – Industry Creation Assistant– Number of participants – Team-Against-Computer

F. Step 5/TaT – Number of industries and teams

This step is relevant only if you have selected Team-Against-Teams.

It will help you determine how many industries and teams you need. Multiple combinations are proposed in a table, as shown in Figure 7, depending on how many teams you want to have in each industry and on the size of your teams.

• Teams are usually from 3 to 6 participants. StratX recommends 5 participants per team.

• Markstrat allows from 4 to 6 teams per industry. StratX recommends 5 teams per industry.

When choosing a combination, please be aware that the amount of administrative work increases with the number of industries and teams. In the table of Figure 7, the bottom two solutions are not recommended.

Figure 7 – Industry Creation Assistant – Team-Against-Team – Number of industries & teams


G. Step 6 – Industry names

Industry names are generated automatically based on the theme that you choose: animals, flowers, colors, countries, etc. The list of names is displayed at the bottom of the form each time you select a new theme, as shown on Figure 8.

Figure 8 – Industry Creation Assistant – Team-Against-Team– Industry names

H. Step 7 – Selection of the team-managed firm

This step is relevant only if you have selected Team-Against-Computer.

You must select which of the four firms in the industry will be managed by the human team. The other three will be managed by the computer. To guide you in the selection, the form shown on Figure 9 provides you with some information on the competitive situation of each firm at the beginning of the game.

You may change your choice and thus avoid participants to pass information from year to year.

Figure 9 – Industry Creation Assistant – Team-Against-Team – Selection of team-managed firm

I. Step 8 – Validation of choices made

The form of step 8 recapitulates all the choices you have made during the previous steps. A sample review form is depicted on Figure 10. If you are satisfied with your decisions, you may proceed and create your industries. Otherwise, click the back button as many times as needed and change your choices.

If you had already created industries in this course, they will be destroyed and replaced by the newly created ones.

Once you click the next button, the creation of your industries will start. The time to create the industries will vary significantly depending on the server workload. We advise you to close your browser and to come back to Markstrat at a later stage.


Figure 10 – Industry Creation Assistant – Team-Against-Team – Validation of choices made

J. Industry creation home page

The page depicted on Figure 11 will be displayed when you start the industry creation assistant, if you already have industries created in your course.

This page provides you with some general information on your course, and it lists all the industries created in this course. From there, you may decide to delete a specific industry, in case you have fewer participants than initially anticipated. You may also decide to restart the assistant from the beginning and recreate all of your industries.

Beware all your existing industries will be destroyed and replaced by the newly created ones.

3. Forming teams

Deciding on how to organize the participants into teams is the role of the instructor. There is no ideal team size; however, based on our experience in running executive and academic courses with Markstrat, we recommend teams of 4 to 6 participants. The industry Creation Assistant will make several proposals on how to organize large number of participants into several industries, as shown on Figure 7.

Once you have organized the teams, you must communicate to each participant his or her industry name, team initial and team password. This is done automatically by the platform, as explained below.

Before you assign participants to teams, you must check that each participant has registered to your course on www.stratxsimulations.com, using a valid PAK. Make sure to chase your participants until they have all done it, otherwise you might not be able to run your industry, as explained below.

If you do not have a sufficient number of participants assigned to one of your industries, a warning message will appear in an orange box on your course home page, as shown on Figure 1.This message will

show up if you do not have at least 3 participants in each “human” team.


Figure 11 – Industry Creation Assistant – Home page

Click on Form Teams to display a form that will let you place each participant in an industry and team for the duration of the course as shown in Figure 12. Please note that participants who have not registered to your course will not show up in this form.

We advise you to form teams as diverse as possible, mixing genders, nationalities, ages, education level, and to balance the sizes of industries and teams.

Click on Submit assignment when you are done with this form; your choice will be stored in the Markstrat database. You may come back to this form later to update and/or complete the teams.

When the team assignment is complete, you need to communicate to each participant the information they need to log in the Markstrat team platform: PAK, industry name, team name and team password. Click on Email to participants in the course Home page and select the “Industry/Team Assignment” template. Refer to section II.4 to learn more on how to send automated emails.

Figure 12 – Forming teams


4. Sending Emails

The instructor has the ability to send emails to teams through the instructor platform. This is useful to communicate information to participant such as changes in the schedule, release of constraints, availability of loans, etc.

To send emails to your participants select Email to participants in the course home page. You will be able to choose the industries and teams which you would like to send the email to. We also offer a list of email templates to use, as shown on figure 14. You can adjust the template copy before sending the email; the email copy can contain several automated fields such as [PAK], [CourseID] or [TeamPassword] that are automatically replaced by the relevant information stored in the database.

Figure 13 – Sending email messages to participants

Figure 14 shows the “Industry/Team Assignment” template email, that you can use to communicate to teams their log in information.

Figure 14 – Communicating login information to participants


You will find below the list of all automated fields that you can use in the email.

• Fields related to the participant:

• First name : [FirstName]

• Last name : [LastName]

• PAK: [PAK]

• Fields related to the instructor:

• Last name : [InstructorLastName]

• First name : [InstructorFirstName]

• Email : [InstructorEmail]

• Telephone : [InstructorTelephone]

• Fields related to the course:

• ID : [CourseId]

• Name : [CourseName]

• Location : [CourseLocation]

• Date begin : [CourseDateBegin]

• Date end : [CourseDateEnd]

• Instructor email : [CourseEmail]

• Industry/Team to which student has been assigned:

• Industry name : [IID]

• Team name : [TID]

• Team password : [TeamPassword]

5. Team Passwords

Team passwords are used to prevent unauthorized access to team data on the Markstrat server. Random four-digit passwords are automatically assigned to teams when industries are created. Passwords are shown on the course home page.

Team passwords may be communicated to participants with an automated email when you assign students to teams.

6. Discovering Markstrat

You can test your access to the Markstrat platforms as well as your knowledge of the Markstrat environment with the PREVIEW data. This data is obtained from an actual industry run during a past Markstrat course.

You will be allowed to browse through all charts and graphs and to open decision screens. Please note that you will be able to preview the content of decision screens, but you will not be allowed to enter decisions and run the mathematical model on this PREVIEW data. Participants may also open the PREVIEW data as soon as they have purchased a PAK and registered on www.stratxsimulations.com. They need to log in and click on the ‘Access Markstrat’ logo. A link to the PREVIEW data is located on the PREPARE page.

Instructors may discover Markstrat in the same way as participants but may also contact the sales and marketing department to obtain free industries to real practice Markstrat with decisions and run of rounds.


III. MANAGING YOUR INDUSTRIES During your course, you will go through several simulation rounds, each round representing of year of activity in the simulated industry. We recommend a minimum of 6 rounds in the simulation so that teams have sufficient time to decide on a strategy and to implement it. 10 rounds is the maximum number of rounds that can be played in Markstrat.

A simulation round starts when new data are provided to participants and ends with the run of the Markstrat mathematical model. A few administrative tasks must be done in between, such as hiding or releasing decision forms and reports, auditing participant decisions, granting loans to teams, etc. These tasks are listed in Table 3 below. Check the following sections for more information.

Task Explanation

Configure Decisions You may limit the scope of decisions that can be made each simulation period to pace learning. This step is optional as Markstrat includes a default pacing of decisions: Brand Portfolio, R&D and Marketing Plan decisions are disabled in Round 1.

Start Decisions Signal the beginning of the Decision Round by allowing teams to access to their latest firm situation and start making decisions.

Stop Decisions Signal the end of the Decision Round by preventing teams from using decision forms to update their decisions.

Continue Decisions Re-start the Decision Round to allow late teams to do last-minute changes to their decisions. Note that decisions already made are maintained.

Audit Decisions Analyze team decisions during the Decision Round and get a report on % of completion, number of errors, deviation from authorized budget, etc. Grant budget increases and/or loans if necessary.

Run Decisions Run the industry through the mathematical model to get results for the next simulation decision period.

Table 3 – Task list for each simulation round

1. Configure decisions

Configuring decisions allows the instructor to change the scope and complexity of the team software by making some decisions or results unavailable to participants. A given configuration can be set for only part, or for the entire duration of the simulation. Configuring decisions is usually done at the beginning of each decision round.

Click on the Configure Decisions button on the course home page (see Figure 1) to open the form depicted in Figure 15. If you uncheck an item in the list, the corresponding decision form or report will be hidden in the simulation; otherwise, it will be released to participants. For instance, you may want teams to start doing R&D decisions as of period 2; you could also uncheck Conjoint Analysis if you believe that this market study is too complex for the level of your students.

There are six categories of decisions that you can hide or release: Team Identity, Research & development, Brand Portfolio, Marketing Mix, Communication Objectives, Commercial and Market Research Studies.

You can also hide or release each report in the Company Report, Market & Competitive News, Market Research and Tools. For instance: Financial Report, Production Report, Marker Report, Consumer Survey, Semantic Scales, etc.

Table 4 shows the typical configuration schedule that is built-in Markstrat. This schedule is based on our experience with various groups of students. Most reports are released, provided that the team purchased it in the case of market research, but we build complexity over time in term of decisions. If you are fine with this schedule, then you do not have to worry about configuring decisions. Otherwise, you should do it at the beginning of each round.


Some reports and tools are not released automatically: feedback from coach; regression-based charts & tools; growth/share matrix. If you want to use these new features in your course, you must release them manually as explained above.

Menu Constraint Period 1 Period 2 Period 3+

COMPANY RESULTS Feedback from Coach Disabled Disabled Disabled

TOOLS

Charts Disabled Disabled

Regression-based Charts & Tools Disabled Disabled Disabled

Growth/Share Matrix Disabled Disabled Disabled

DECISIONS

Team Identity Disabled Disabled

Brand Portfolio Disabled

Communication Objectives Disabled

Research & Development Disabled

Marketing Plan Disabled Disabled

Tools Disabled Disabled

Table 4 – A typical constraint schedule

Figure 15 – Setting constraints


2. Decision Round Dashboard

You will use the Decision Round Dashboard depicted on Figure 16 and Figure 17 to manage your industries and teams throughout the decisions rounds. The dashboard shows one column per industry in the Team-Against-Team mode (TAT), and one row per team in the Team-Against-Computer (TAC) mode.

Note that the industries are not sorted in any specific order.

The dashboard provides you with the information listed below.

• The scenario used for the industry creation.

• Number of participants registered in each industry (TAT) or team (TAC).

• If you will be authorized to Run Decisions. Indeed, if you do not have a sufficient number of participants assigned to one of your industries or teams, the message DISABLED will appear in the second row of the Dashboard. This message will show up if you do not have at least 3 participants in each “human” team.

• What is the current decision period?

• Is the round opened, closed or being run by the simulation model?

• Which teams have error-free decisions or have incorrect or missing decisions.

In the TAT dashboard, this is materialized by the color of the buttons and a “$” sign (Figure 16):

o Green: No errors and warnings for the team

o Orange: At least one warning for the team

o Red: At least one error for the team

o Black: At least one critical error for the team. A critical error may fail the run process, Professors must click on the team button to check the critical error(s) and ask the team to correct it/them.

o The $ sign means that the team is over budget

In the TAC dashboard, three color-coded numbers such as 1/9/0 indicate the relevant numbers of critical errors, errors and warnings, according to the above color-code.

The dashboard also lists the actions that you can take on the industries or teams. It will guide you at each stage of the decision round by suggesting the most relevant next action. For instance, if the decision round is closed and all teams have error-free decisions, your logical next action is to run the decisions through the simulation model. However, if at least one team has incorrect decisions, you will be suggested to audit the decisions. You may also apply the same action to all your industries or teams at the same time.


Figure 16 – Decision Round Dashboard – Team-Against-Team

A. Start, Stop and Continue Decisions

The duration of a simulation round can be anywhere between two hours and two weeks. It is up to the instructor to decide how much time to give to participants for result analysis and decision making.

Clicking Start Decisions will signal the beginning of the decision round by allowing teams to access to their new firm situation and start making decisions. Clicking Stop Decisions will signal the end of the Decision Round by preventing teams from using decision forms to update their decisions. Note that you can restart the decisions, if needed, by clicking on Continue Decisions.


Figure 17 – Decision Round Dashboard – Team-Against-Computer

B. Impersonating a Team

You may click on a team initial (M, R, S, T, L and N) to open the team software as if you were this team. No PAK or team password is required to open the team.

You may browse all available charts and reports and make decisions on behalf of the team. You have access to all market studies, even if the team did not purchase some of them.

C. Audit Decisions

The instructor should make a decision audit before each simulation run, once teams have made their decisions. The objective is to check if teams have submitted complete and error-free decisions and if they have respected their allocated budget.

The audit form of Figure 18 recaps several elements for each team: the date of their most recent decisions; the percentage of completion; the number of errors and warnings that were found in the decisions; the authorized marketing budget, the actual marketing expenditures and the deviation from budget.

This form also allows the instructor to grant loans, to enter budget changes (positive numbers for budget increases) and to enter exceptional costs or profits (positive numbers for an exceptional profit) for each team. These changes in loans, authorized budget and exceptional cost/profit are often the result of negotiations between the instructor and the teams.

The bottom part of the form also shows a recap of all loans, budget increase/decrease and exceptional costs and profits granted to teams in past periods.

D. Checking decisions completeness and correctness

The simulation should not be run unless the row entitled % of decisions made shows 100% for all teams. Numbers below 100% indicate incomplete decisions. If the simulation was run with partial decisions for a team, then default decisions would be used automatically for this team. As default decisions are usually far from optimal, the situation of the firm may suffer dramatically. This solution should be avoided whenever possible.


Similarly, the simulation should not be run unless all teams have error-free decisions. Click on the black, red or orange buttons to review the error or warning messages. The critical errors must be fixed before the run. The critical errors can be: brand price equal to 0, no brand production and no inventory, no allocated sales force, or a R&D project with empty attributes.

Should you decide to run with errors, the red errors and warnings will be automatically fixed by the simulation. For instance, marketing expenditures will be reduced in case a team exceeds its budget.

Figure 18 – Audit decisions form

E. Decisions maker

In the “Teams-against-Teams” competition mode, the instructor can switch selected teams in an industry to a computer mode. This means that the decisions of this team will be automatized by the simulation model and no longer taken by participants. This can for instance be useful:


• When there are too many firms in the industry for the number of participants in the course. For instance, if there are 15 participants for 6 teams scenario, the instructor may have 5 teams of 3 participants, and 1 team managed by the simulation model.

• When participants leave the simulation program before the end. For instance, there are 6 teams managed by participants, but 1 team gives up. The instructor may turn this team in a computer mode.

At any time during the simulation program, the instructor may turn the selected teams back to the initial mode. For example, if participants join after the start of the program.

F. Entering loans and budget modifications

Negotiations to obtain additional financial capabilities will sometimes take place between the instructor and teams. This may take the form of a budget increase –the team is authorized to spend an extra budget of say $5m– or of a loan that the team will have to pay back and that will generate interest charges.

The instructor is in charge of entering details of loans and budget increases as shown in Figure 18. This can be done before, during or after teams make their decisions. In the latter case, teams will simply submit their decisions with a deviation from budget that is consistent with the negotiation results.

Similarly, an exceptional cost or profit can be entered. This facility is useful for examples to implement a bonus/fine system for early or late decisions. An exceptional cost/profit will affect the net marketing contribution of the firm in the next period but does not change the level of its marketing resources for the current period.

In TAC mode, automated firms will now receive the same loan amount given to the human team to keep balance. The loan to automated firms is given one year later.

Why should Instructors grant budget increases and/or loans?

All teams will benefit from a loan or budget increase in Markstrat because there are more opportunities to seize than what teams can achieve with the small budget they normally have. Indeed, most segments are growing; all teams cover only one or two segments initially, and in only one market; initial products are not very well positioned; etc. Typically, a loan may be granted to a team willing to enter the new market; this loan will allow the team to invest in R&D and develop its first project in this market.

Why should Instructors not grant budget increases and/or loans?

Having to deal with a limited budget is part of the Markstrat exercise. With limited resources, a planning exercise based on a thorough analysis is crucial.

What is the difference between a budget increase and a loan?

Granting a budget increase is basically authorizing a team to spend more of its own money. Let’s assume that you grant a $5 mio budget increase to Team T in Period 2. Team T will be able to develop more R&D projects, spend more in advertising or increase the size of its commercial team. The costs corresponding to these decisions will be incurred in Period 2 and will thus appear in the profit and loss statement of that year. If the team is not able to generate a return on this investment greater than one, i.e. to generate more than $5 mio in additional revenues, then its earnings will decrease.

Granting a loan to a team will provide this team with additional funds to spend. Let’s assume that you grant a $5 mio loan over 5 years and at 5% interest rate to Team T in Period 2. As in the case of the budget increase, Team T will be able to develop more R&D projects, spend more in advertising or increase the size of its commercial team. The costs corresponding to these decisions will also be incurred in Period 2 and will also appear in the profit and loss statement of that year. However, because this is a loan, the $5 mio principal will appear as a positive number in the line “Loan received / reimbursed” and will be added back to the firm results. Hence, the earnings will not be affected by the additional costs. The team will reimburse the principal over 5 years, from Period 3 to Period 7. Interests will be charged as of period 2 until the loan is fully reimbursed.


The difference between a budget increase and a loan is illustrated in Figure 19 below. This team wants to grow by 15% annually and generate an EBT equal to 35% of revenues (see case A). It realizes that this will not be possible unless it can spend an additional $5 mio in Period 2.

• In case B, the instructor grants a $5 mio budget increase to the team. The main drawback is that its EBT drops significantly in Period 2. This will have a negative impact on the team SPI and on its budget for Period 3.

• In case C, the instructor grants a $5 mio loan to the team. As you can see on the chart, the EBT remains the same in period 2 and decreases only slightly in Period 3 to 7 because of the principal reimbursements and interest charges.

Suggested policy to grant budget increases and/or loans

Instructors are free to organize loans and/or budget increase as desired. Based on our experience with Markstrat, we recommend the following policy:

• Grant a loan to a team which plans to invest in R&D. For instance, a $7 mio loan to develop their first Vodite, Trigol or Nutrite.

• Grant a budget increase to a team which requests money for advertising or commercial activities. For instance, a $3 mio loan to launch a new brand.

• At the start of the Markstrat challenge, we suggest that you communicate to all teams the fixed amount that they will be able to borrow or get as a budget increase during the course of the game. We recommend between 5 and 10 million dollars. This amount is to be spend freely before the end of the game; in one or several times: no less than $2000k in one period so as to simplify your book keeping;

Eg: you provide to all teams an access to 10 million dollars, that can be borrowed in one or two periods. Teams may ask the full amount at once, or 5 million in one period and the rest in another period, or 2 million and 8 million etc

• 50% of the total amount should be spend in R&D;

• A short plan (half a page) should be handed to the professor explaining the purpose of the loan and the expected return.

Please note: a loan or budget increase granted at a specific period must be entirely spent at this period. If the team doesn’t use it entirely, the unused amount will not be carried over to the next period.

G. Checking budget constraints

The last section of the audit compares the marketing expenditures with the allocated budget. A negative Budget Deviation indicates that a team has spent too much money. In this case, a loan or a budget increase can be granted to the over budget team, as explained above. Otherwise, the simulation (as explained in the decision error and warning messages) will automatically cut expenditures.


Figure 19 – Loan versus budget increase

3. Run Decisions

Running the decisions will produce the results for the next period by applying the Markstrat model to the current industry data and the team decisions.

The time required to run an industry will vary significantly depending on the server workload. We advise you to close your browser and to come back to Markstrat at a later stage.

4. Re-run Decisions

A. Cancel Last Run

In certain cases, the instructor may want to re-run the simulation after having made a few adjustments to the simulation settings or to the team decisions. Typical situations are given below.

• A team did not allocate a sufficient budget to an R&D project and cannot use it in the next period to launch a new brand or modify an existing one. If the firm was already in a difficult situation and if this project is of crucial importance, the instructor may decide to go back one period, increase the budget allocated to the project and re-run the simulation.

• The instructor and one team negotiated a budget increase, and the instructor has forgotten to key it in the Audit Decisions form.

• The instructor is practicing with Markstrat and wants to test various strategies at a specific period, for instance when launching the first Vodite.

Select Cancel last run to re-run the industry; a warning message is displayed explaining that the current results will be erased by this action. If you continue, the industry data are restored to their previous state, as before the simulation run, and the period number is decreased by one. You may now make the adjustments you want and re-run the simulation.

B. Cancel All Runs

If you are planning on running one or two practice rounds, you can do this by having your teams run a maximum of two initial decision rounds. This will allow your participants to practice with the software, to understand the company report and the market studies, and to make decisions.


Once you have completed the practice rounds, you will have to select Cancel all runs to reset your industries to period 0, as if they had just been created.

Note that, contrary to Markstrat.5, all decisions are reset to their original state, as if the industries had just been created. Similarly, the number of authorized online queries is reset to the correct number.

5. Decision run delayed

The run of the industry can be interrupted before the end. This is usually due to critical missing and/or incorrect decisions (see section 2 and 2.D on critical errors). You can contact the StratX Paris Support Team between 9am to 5pm (GMT+1) on +33 1 53 46 53 94 or email [email protected].

If you cannot wait until this time slot, we invite you to click the “Try Again” button and enter teams with errors. If you find “missing and/or incorrect decisions” as described above, please fix them (eg. delete faulty R&D project; set a proper price; etc.) and try to run your industry again.

Figure 20 – Decision run delayed.

6. Printing Reports

Clicking on the Print menu will open a form where you can choose what to print. See Figure 21.

• A team report contains the financial results, the market and competitive news and the market studies purchased by the team, unless you select the option to include all market studies.

• The instructor report contains all team reports plus one copy of all market studies.

You may include all team reports in a single printout or print them one at a time. Please note that the first option may not work on your network as the file that is generated is very large and may be rejected by your firewall.

When you click on PRINT INSTRUCTOR’S REPORT or PRINT TEAM REPORTS, new windows will pop-up. There will be one window per team, unless you have selected the UNIQUE REPORT option. Right-click in a window to send the report to the printer; the available options depends on which internet browser you are using.

Do not pay attention to the page breaks; although they do not show up on your screen, the report will be correctly printed, with page breaks before each section. Finally, the reports should normally print fine on A4 and US Letter formats.


Figure 21 – Print Report form

7. Downloading the Coaching Sheet

The Coaching Sheet is a spreadsheet that summarizes key performance indicators (KPI) at the firm level and brand level, for each team in the industry. It can be downloaded at the end of each round by click on the Coaching Sheet menu and then by clicking on the desired period.

Read chapter IX to learn more on the coaching sheet.

8. Plotting and/or Comparing Data

The Markstrat.7 built-in Industry Charting/Comparator Tool is designed to help instructors compare data across teams within one industry, as well as across two or more Markstrat Industries.

A. Overview

The Comparator Tool can only compare industries that have been created with the same scenario and that are at the same period. For instance, you can use it if you have 60 students and you have decided to run two 6-team industries using scenario MSW-DCG-A1. It cannot be used to compare the results of two courses, for instance your spring course and your fall course.

Click on Industry Comparator on the course home page to start the tool. A new form pops up, similar to the one of Figure 22.


Figure 22 – Industry Comparator and Charting Tool

The tool is pretty easy to use. The menu at the top lists all the available charts. Select one of them in the list to display it in the main window.

Depending on the chart that you have selected, additional drop-down choice boxes will show up below the menu, as shown on Figure 22. These choice boxes will let you zoom in a specific market, segment, channel, period or firm. They may also be used to view the data in units (e.g.: volume sold) or in value (e.g.: retail sales).

All charts may be copied and pasted in PowerPoint; printed or saved in a file. Click on the chart and right-click your mouse to show a menu that will let you choose what you want to do with the picture.

There are two types of charts:

• The charts in Market, Performance up to Brand Charts are related to a single industry. Most of these charts are also available in the team platform by using the Charting Tool in the Analysis > Tools menu. Use the Industry drop-down choice box to select the industry you want to analyze.

• The charts in Team Comparator (TaT) or Team Comparator (TaC) are reserved to instructors. These charts are used to compare team results across two or more industries. As all teams with the same initial start in the same situation (e.g.: all teams S or all teams M), you may want to compare their results a few periods later. The available charts will allow you to plot the most important performance indicators: sales, contribution and share price index.

Most charts are self-explanatory. We invite you to browse through the available charts and select the ones that are more relevant to the situation that you are trying to debrief/explain to your participants.

B. Scorecard

The Company Scorecard was introduced with Markstrat.7. It shows the evolution of key performance indicators (KPI) of a company in Finance, Marketing, Production, Distribution and R&D.


There are three versions of the scorecard:

• By firm: to monitor KPIs over time for the selected industry and team and check if it is going in the right direction.

• By industry: to compare KPIs across the 4, 5 or 6 firms in the selected industry.

• By course: to compare KPIs of a given firm (M, R, S, T, L or N) across all industries in your courses.

There are over 30 key performance indicators in the scorecard. See example in Figure 23.

• Financial KPIs. Total revenues; revenues in each market; revenues from new brands (other than your two initial brands); Total contribution after marketing (CAM); CAM generated by each market; CAM generated by new brands; net contribution, in million dollars and in percentage of revenues.

• Marketing KPIs. Total market share, in volume and value; market share in each market; number of marketed brands, in total and in each market; number of brands leading in a segment.

• Distribution KPIs. Overall distribution coverage; distribution costs, in million dollars and in percentage of revenues; estimates of lost sales due to insufficient commercial efforts.

• Production KPIs. Volume sold; volume produced; units in inventory; inventory costs; estimates of lost sales due to production shortage.

• R&D KPIs. R&D expenses, in total and in each market; number of completed R&D projects, in total and in each market.


Figure 23 – Company Scorecard

9. Announcing Results to Participants

Markstrat.7 includes a facility to announce the latest results to teams. This facility is based on the charting tool described in the previous section. It plots a pre-defined series of graphs and charts aimed at disclosing the most important facts and results of the selected industry. See an example in Figure 24.

The following graphs are included in the result announcement series:


• Market size in volume and value.

• Segment size in volume and value.

• Perceptual maps based on multidimensional scaling and on semantic scaling.

• Market shares by segment, in volume and in value.

• Revenues and earnings before taxes.

• Share price index (the ultimate measure of success).

• Budget for the following period.

The page title, subtitle and/or footnote may contain additional information such as:

• Which team is leading for a specific KPI and a particular market, segment or channel? For instance, the title may say something like “Congratulations to Team MANGO, leader in this segment with MAXI & MACH”.

• Has the Vodite/Trigol/Nutrite market been created?

• What are the growth rates or relative size of markets, segments or channels?

• Which brands or products have been launched or modified?

• Etc…

Figure 24 – Result Announcement Tool


This tool can be used in class by the instructor to disclose the latest results to teams. Alternatively, you can email a URL to your students so that they can access to the results online. The URL is encrypted so that students can only access to their own industry and not to other ones.

10. Grading Teams

Markstrat.7 includes a built-in tool to grade teams at the end of the course based on their performance in the simulation. The tool is depicted in Figure 25. It includes three main steps.

A. Step 1

The first step is to decide whether you want to grade teams in all industries or in one industry in particular. Beware, grading all industries in one operation will not provide the same grades as grading all industries one at a time. Indeed, the statistics used to calculate grades – average and standard deviation – will not have the same value in both cases.

B. Step 2 (optional)

The second step is optional. You may review the performance of your teams along 17 key performance indicators (KPI). The first 10 KPIs are the ones used in the grading formula, with varying weights as explained in step 3 below.

KPI Description Unit

SPI Share Price Index of the firm for the selected period 1000 in Period 0 REV Revenues of the firm for the selected period Million $ EBT Earnings before taxes of the firm for the selected period Million $

ROI Earnings before taxes divided by marketing investments (advertising, commercial, R+D, market studies) of the firm for the selected period

Ratio

MSH-TOT Overall market share of the firm for the selected period %$

MSH-INI-MKT Market share of the firm in the existing market (sonites, squazols, clinites) of the firm for the selected period

%$

MSH-NEW-MKT Market share of the firm in the new market (vodites, trigols, nutrites) of the firm for the selected period

%$

CUM-REV Cumulative revenues of the firm up to the selected period Million $ CUM-EBT Cumulative earnings before taxes of the firm up to the selected period Million $

CUM-ROI Cumulative earnings before taxes divided by cumulative marketing investments (advertising, commercial, R&D, market studies) of the firm up to the selected period

Ratio

The other 7 KPIs may be used to manually adjust the grades, based on your judgment. For instance, you may decide to penalize a team with a high grade if this team did not launch any brand at all in the new market.

KPI Description Unit

CUM-RND Cumulative R&D investment of the firm up to the selected period Million $ CUM-IHC Cumulative inventory holding costs of the firm up to the selected period Million $ CUM-IDL Cumulative inventory disposal loss of the firm up to the selected period Million $ BRD-TOT Total number of brands marketed by the firm at the selected period Number of

BRD-INI-MKT Number of brands marketed by the firm in the existing market (sonites, squazols, clinites) at the selected period

Number of

BRD-NEW-MKT Number of brands marketed by the firm in the new market (vodites, trigols, nutrites) at the selected period

Number of

LEADING Consumer segments where firm is leading at the selected period N/A

C. Step 3

In the third step you are invited to parameterize the grading formula. You must specify which KPI you want to include in the grades and which weights to apply to these KPIs. By default, the tool will propose to use a unique KPI – the Share Price Index – with a weight of 100%.


Using only SPI is what makes most sense in the case of a Team-Against-Team course based on a scenario where teams start in different initial situations. You may also include MSH-NEW-MKT in the formula if you want to give a bonus to teams that have taken the risk to invest in the new market and that have been successful in penetrating this market. Finally, if you are running a large number of periods, like 8 to 10, you may consider that the team initial situations are not so important after all these years. So you may include additional KPIs, except the last three ones that are cumulative.

For courses using a scenario where all teams start in the same situation or for Team-Against-Computer courses, you may want to use other KPIs. For instance, some professors prefer to base the grades on the cumulative earnings before taxes generated by teams over the duration of the course.

Whatever the formula you choose, you must inform your participants at the beginning of the game as they will have to adapt their strategy to the objective given in the formula: maximize revenues, maximize EBT, penetrate the new market, etc.

The “raw” grade Gr of a team is equal to the weighted sum of the team KPIs. You must then specify how to calculate the “adjusted” grades Ga. The tool will first calculate the average A and the standard deviation D of all Gr. Then, adjusted grades are equal to :

If G𝑟 > 𝐴 then: G𝑎 = 𝐺𝑎𝑣𝑔 + G𝑚𝑎𝑥− 𝐺𝑎𝑣𝑔

𝑁 ×

G𝑟− A

𝐷

Else: G𝑎 = 𝐺𝑎𝑣𝑔 + 𝐺𝑎𝑣𝑔−G𝑚𝑖𝑛

𝑁 ×

A− G𝑟

𝐷

Where:

• G𝑚𝑖𝑛 and G𝑚𝑎𝑥 are the minimum and maximum grades that you want to have for your teams. For instance, G𝑚𝑖𝑛 = 8 and G𝑚𝑎𝑥 = 18.

• G𝑎𝑣𝑔 is the target average grade across all teams. Note that you may have G𝑎𝑣𝑔 ≠(G𝑚𝑖𝑛+G𝑚𝑎𝑥)

2. For

instance, you could specify G𝑚𝑖𝑛 = 10, G𝑚𝑎𝑥 = 20 and G𝑎𝑣𝑔 = 14.

• N is the number of standard deviations below or above the average to achieve the minimum or maximum grades. For instance, if N = 2, then a team that is 2 standard deviations above the average A will have the maximum grade.

Note that if G𝑎 > G𝑚𝑎𝑥, then G𝑎 will be set to G𝑚𝑎𝑥. Similarly, if G𝑎 < G𝑚𝑖𝑛, then G𝑎 will be set to G𝑚𝑖𝑛.

Finally, click Calculate to obtain the final grades. Grades are given in the third column of the table below the Calculate button, as shown on Figure 25. This table may be selected and copied into Excel. Make sure to copy/paste the whole table.


Figure 25 – Grading Teams

11. Markstrat Scheduler

The Markstrat Scheduler will allow you to automatically schedule the Markstrat operations in your course (START / RUN / STOP). You may create different schedules if you have more than one industry in your course. Times are shown in your computer’s time zone.


Figure 26 – Markstrat Scheduler

A. Step 1

Choose the number of decision rounds that you want to automatically schedule in the drop down below. If you tick « use practice rounds, the system will automatically add two practice rounds which will allow your students to test Markstrat for 2 rounds and revert back to start. If you run the practice rounds, the simulation will cancel ALL runs and revert to Period 1. The practice decisions will then be erased. There is no way to recover those decisions once the cancel all runs is initiated

B. Step 2

Select each Round’s START and STOP date and time. Please note that the time will be registered in the time zone showing when you create or modify the schedule.

C. Step 3

Select « Automated » or « Manual » for the run: If you select « Automated », the run will automatically perform once the Round is stopped. If you select « Manual », you will need to connect to your Instructor Platform once the Round is stopped to perform the Run yourself.

Figure 27 – Create/Edit Schedule


D. Practice Rounds

Please note if you keep “Automated” for Practice 2, your participants will not have access to their Practice results. If you want give access to the Practice results at the end of Practice 2 to your participants, you must modify “Automated” to “Manual” for Practice 2.

By default, the run is set as « Automated » at Practice 2. “Automated” will automatically put the industry at Round 1. The results of Practice 1 and 2 will be deleted immediately at the time set for Practice 2. It is irreversible. Your participants will not be able to access their results.

If you want to provide your participants time to see the results at the end of Practice 2:

- Step 1: select run “Manual” for Practice 2

- Step 2: Please set the actual START time for Round 1 after an acceptable time for your students to review the practice results

- Step 3: at the end of Practice 2 you will manually have to RUN + START DECISION

- Step 4: your participants will be able to access their results

- Step 5: manually you will have to STOP DECISIONS + CANCEL ALL RUNS to reset your industry at Round 1

Please note the Scheduler will continue to change your industry status without taking in consideration your manual actions. This means the Scheduler may START Round 1 before you finished to give access results of Practice 1 and 2 to your participants. So, steps 3, 4 and 5 must be processed before the date and time you input for Round 1 in the Scheduler. Take care to give you enough time to process the steps 2, 3 and 4 before date and time you input for Round 1.

Let's take an example: your practice 2 is set to October 15th 6:00 PM “Manual”, you want to give 2 days for your participants to access results of Practice 1 and 2, round 1 is set to October 18th 10:00 AM “Automated”. Below is the list of your actions:

- October 15th your participants finish to take their Practice decisions

- October 15th after 6:00 PM, you click on “Run” and “Start Decisions”

- October 16th - 17th your participants access their Practice 1 and 2 results

- October 17th in the evening you click on “Stop Decisions” and “Cancel All Runs”

- October 18th 10:00 AM the schedule will automatically start the Round 1

12. Monitor Participants

The Monitor Participants screen allow you to monitor your participants time spent in the simulation for your course. This information will allow you to quickly refer to your student’s engagement with the simulation.

You will be able to track your participants usage. The information that is currently available is; First Name, Last Name, Industry, Team, Main Menu, Page, Date and time. If you have multiple industries you can also select the drop down to select Industry, a specific team and either all participants or a specific participant. You can also export all information in an Excel file since this information will only be available for a period of 2 months.


Figure 28 – Monitor Participants


IV. THE BASE SCENARIO: MSW-SM-DCG-A1 This scenario inherits its main characteristics from the original Markstrat A0 scenario. Its name may sound complicated: MSW stands for Markstrat Web; SM stands for Strategic Marketing; DCG stands for Durable Consumer Goods; and A0 is here to make the link with similar scenarios from Markstrat.5: F4M2A0, F5M2A0 and F6M2A0.

The main characteristics of MSW-SM-DCG-A1 are:

• Competition Team against Teams (TaT), i.e. each firm managed by a human team, or competition Team against Computer (TaC).

• 4, 5 or 6 competing firms (4 firms if TaC).

• 2 markets: Sonites & Vodites

• 3 distribution channels: Specialty stores, Mass merchandisers and Online stores.

It is a particular characteristic of this scenario that the competing firms start in different situations. These starting situations are defined in the reports for period 0 which are generated by the model. In addition, the instructor can access to the complete set of market research studies for Period 0. The purpose of this chapter is to analyze the characteristics of the starting situation so that the instructor may readily comprehend the types of issues that each firm faces and anticipate their possible courses of action. This chapter focuses on the 5-team version.

1. Characteristics of the Initial Environment

In Period 0, the GNP growth rate is 3% and the inflation rate 2%. These conditions will prevail in the following year. The total Sonite market is equal to 787,000 units and $302 million at retail level. It is expected to grow at the rate of 17% in the following years.

As indicated in Table 5, the five segments are relatively comparable in size from 98,000 units to 214,000 units. However, their expected rates of growth vary widely from -2% to 34%. In addition, they present significant differences in profitability. For example, the average prices in segments Savers and High Earners are extremely different. Segments Professionals and High Earners are the high-end segments with an average market price around $480, followed by segment Explorers and Shoppers. The Savers segment is the most-price conscious one with an average price around $255.

Explorers Shoppers Pros Hi. Earners Savers Total

Segment size in units KU 185 135 153 98 214 787

%Total 23.6% 17.2% 19.5% 12.5% 27.3% 100%

Segment size in value M$ 79.3 46.8 73.1 48.4 54.7 302.3

%Total 26.2% 15.5% 24.2% 16.0% 18.1% 100%

Average price $ 428 346 477 492 255 384

Expected growth rate in period 1

% -2.1% 23.6% 23.6% 33.9% 18.4% 17.0%

Table 5 – Market characteristics in Period 0

Table 6 shows the shopping habits of Markstrat consumers. Consumers in the Explorers and Professionals segments strongly prefer to shop in Specialty Stores. The other three segments tend to favor two of the three distribution channels. Trying to reach several segments will indicate a greater dispersion of the commercial team across the three channels depending on the nature of the selected segments. It should be noted that a strategy aiming at the Explorers and Professionals segments will allocate a concentration of the commercial team on Specialty stores. Overall, a greater proportion of potential consumers would prefer to buy a Sonite in Specialty Stores and Mass Merchandisers.


(Percentage of potential customers indicating preference to shop in a given distribution channel)

Table 6 – Shopping habits

2. Comparative Analysis of the Firm's Starting Situations

Globally, the starting situations of the five firms are similar on many dimensions, as indicated in Table 7. In Period 0 firms have value market shares ranging from 19 to 22 %, total marketing and commercial team expenditures are around 5.2 million dollars, and the budget for period 1 is 7.5 million dollars for all teams. However, they are positioned in different segments, and this is reflected by larger differences in the retail sales volumes, market shares based on value, revenues, and marketing expenditures levels as a proportion of revenues, and net marketing contributions.

M R S T L

Key Performance Indicators

Share Price Index 1000 in P0 1 000 1 000 1 000 1 000 1 000 Market share %$ 19.9% 19.3% 19.4% 22.2% 19.2% %U 14.3% 25.0% 12.9% 26.5% 21.4% Revenues K$ 28 783 47 481 25 641 50 534 41 298

Net contribution K$ 10 137 11 512 10 901 13 494 12 976

Table 7 – Firm key performance indicators in period 0

M R S T L

Benchmarking

Revenues % Rev 28 783 47 481 25 641 50 534 41 298 COGS % Rev -12 543 -29 803 -8 953 -31 313 -22 653

Contribution before marketing

% Rev 15 606 16 981 16 370 18 963 18 445

Advertising expenditures % Rev -4 000 -4 000 -4 000 -4 000 -4 000 Commercial team costs % Rev -1 224 -1 224 -1 224 -1 224 -1 224 Contribution after marketing % Rev 10 382 11 757 11 146 13 739 13 221 Market research studies % Rev -245 -245 -245 -245 -245 R&D % Rev 0 0 0 0 0 Net contribution % Rev 10 137 11 512 10 901 13 494 12 976

Next period budget K$ 7 500 7 500 7 500 7 500 7 500

Table 8 – Firm benchmarking in period 0

The differences become particularly important at the level of individual brands, as indicated in Table 9. Market shares in value vary between 4 and 19%, and each firm has a strong brand and a weak one in terms of market share and net marketing contribution. The market-share in each of the five segments, the


distribution coverage in each of the three channels and the price levels seem to imply very different segmentation and positioning strategies.

The overall awareness levels of the 10 brands available in Period 0 vary significantly from 29% to almost 60%. The variations are even bigger at the segment level; for instance, in segment Savers, awareness levels range from 28% to 71%. In the last period, the firms have each spent $4 million in advertising, allocated in different ways between their two brands. Each brand has a different inventory level. It should in particular be noted that a zero-inventory level may reflect an out-of-stock situation, implying lost sales, or may represent a minimum end-of-year inventory. This may easily be seen by comparing the actual production level and the production planning requested. If the actual production level is smaller than the requested production planning plus the maximum adjustment of 20%, the zero-inventory level does not represent an out-of-stock situation.

Table 9 – Brand characteristics in period 0

3. Evaluation of the Starting Situation for Each Firm

A. Firm M – MOST and MOVE

Firm M has a relatively strong market share based on units sold but a weaker market share based on retail sales. The retail sales of brand MOST are more than double those of brand MOVE. MOST is the leader in segment Savers with more than 40% unit market share, while the market share of MOVE in each segment is at most half of the leading brand in this segment. The unit contribution for MOVE is, however, higher than for MOST, and MOVE represents only 7% of the net contribution of the firm.

This net contribution is among the smallest of the industry, and Firm M will have to watch its bottom line results to have sufficient resources to survive in this industry. One possible course of action may be through price increases. Figure 29 contains the perceptual map for Period 0, which may be obtained through the multi-dimensional scaling market research study. The two axes correspond to Perceived Economy and Perceived Performance. It appears from this perceptual map, that price increases for MOST or MOVE will take these brands away from the ideal points of the segments in which they are stronger, and will certainly

MOST MOVE ROCK ROLL SOFT SOLO TONE TOPS LOCK LOOP

M$ 29.9 13.2 53.8 21.8 16.1 22.8 55.9 24.1 8.5 56.2

KU 124 33 111 41 82 71 113 62 40 111

%$ 10.1% 4.4% 17.7% 7.1% 5.4% 7.6% 18.5% 7.9% 2.8% 18.5%

%U 15.7% 4.2% 14.1% 5.2% 10.4% 9.0% 14.3% 7.9% 5.1% 14.1%

Retail price $ 242 399 483 539 197 323 496 387 214 505

Share of consumer segment

Explorers %U 3.7% 4.7% 16.8% 11.5% 4.1% 6.6% 12.3% 23.3% 3.3% 13.7%

Shoppers %U 16.1% 9.8% 7.4% 3.8% 11.4% 25.1% 6.9% 4.5% 6.6% 8.3%

Profs %U 0.7% 2.9% 29.8% 6.9% 0.7% 2.8% 23.0% 6.1% 0.7% 26.5%

HighEarn %U 0.2% 0.9% 21.6% 1.7% 0.2% 0.7% 42.7% 1.0% 0.1% 30.8%

Savers %U 43.7% 2.6% 1.5% 0.9% 26.7% 9.0% 1.6% 1.2% 11.0% 1.7%

Distribution coverage

Specialty stores % 20.8% 21.1% 50.7% 48.0% 30.2% 30.4% 45.7% 45.7% 38.3% 42.4%

Mass Merchandisers % 38.5% 37.3% 29.2% 27.8% 34.5% 33.4% 29.1% 28.4% 25.3% 26.8%

Online stores % 36.8% 37.6% 32.4% 30.2% 42.1% 42.1% 37.9% 37.3% 43.8% 48.4%

Awareness % 49.0% 50.0% 50.0% 45.0% 54.0% 58.0% 46.0% 40.0% 29.0% 56.0%

Explorers % 45.0% 56.4% 59.1% 53.6% 47.4% 63.7% 52.2% 43.3% 26.9% 61.5%

Shoppers % 63.2% 64.5% 46.8% 42.8% 67.1% 76.2% 43.0% 38.7% 31.6% 54.8%

Pros % 30.5% 50.7% 61.1% 55.8% 35.6% 51.0% 53.8% 45.8% 27.8% 69.2%

High Earners % 35.0% 56.3% 64.2% 55.1% 40.8% 55.3% 64.4% 44.8% 30.1% 72.1%

Savers % 62.2% 33.1% 31.1% 27.8% 70.8% 46.3% 30.3% 30.3% 28.4% 34.8%

Advertising budget K$ 1 510 2 460 2 500 1 510 2 070 2 070 2 080 2 070 1 050 2 970

Commercial team budget K$ 612 612 612 612 612 612 612 612 612 612

Revenues K$ 20 141 8 642 33 832 13 650 10 714 14 927 35 483 15 051 5 565 35 732

Selling price $ 163 262 304 337 131 212 315 242 140 322

Unit transfer cost $ 72 124 194 206 38 84 184 170 55 188

Unit contribution $ 91 138 110 131 93 128 131 72 85 134

Total brand CAM K$ 9 622 760 9 712 2 046 4 806 6 340 12 668 1 071 1 452 11 769

Retail sales

Share of market


result in a market share decline. A more desirable route for MOST is likely to be cost reduction, through R&D and/or increased volume and experience effects. The positioning of MOVE appears to be weak and Firm M could seriously consider exploiting this brand to invest in MOST and in the development of new brands. Its main competitor is Firm S with the SOFT and SOLO brands. MOST will require substantial marketing support, and an increase in its Display Size and Processing Power characteristics to keep its current position. In addition, it may benefit from a partial reallocation of the commercial team from Department stores to Mass merchandisers, given the shopping preferences of the Savers segment.

B. Firm R – ROCK and ROLL

ROCK from Firm R is one of the leading brands in the Sonite market with 14% market share based on units. It is the leading brand in the Professionals segment, and also has a strong share of the Explorers and High Earners segments. It is highly profitable and represents 90% of the firm's net contribution. ROLL, the other brand commercialized by Firm R, is the most expensive Sonite on the market, and sells at $539 retail price. It has one of the lowest sales volumes in the industry and does not have a strong foothold in any segment. This low volume does not make it very profitable despite a high unit contribution. A price reduction in ROLL would certainly result in a greater sales volume, but this could be achieved at the expense of ROCK, as the two brands of Firm R are closely positioned. On the other hand, it may be difficult for ROCK to keep its market share against two other strong brands, LOOP and TONE, against new competition which will inevitably be attracted by the potential and high profitability of the Professionals and High Earners segments. Firm R may try to exploit ROLL or to reposition it closer these segments to support ROCK. In the latter case, ROLL should be repositioned close to competitive brands and as far as possible from ROCK to reduce cannibalization. The commercial team may have to be reallocated partially to Mass merchandisers if High Earners become the prime targets. With its high level of profitability, Firm R may design new products for High Earners and Shoppers, and may be the leader in developing the Vodite market. Resources will however be needed to protect the highly profitable brand ROCK.

Figure 29 – Economy x Performance perceptual map in period 0


Figure 30 – Economy x Convenience perceptual map in period 0

C. Firm S – SOFT and SOLO

Firm S is strong in segment Savers with its brand SOFT which accounts for 27% of the unit sales in this segment. SOLO is the weakest of the two Firm S’s brands with 7.6% of the total Sonite market. Nevertheless, SOLO is the leading brand in segment Shoppers. SOFT is the lowest price Sonite and retails at $197. Although SOFT appears to be positioned closer to the ideal point of segment Savers than MOST, its market share in this segment is lower than the one of this competing brand. One of the main reasons for this is certainly the poor level of SOFT on a third dimension, Convenience, which appears on the perceptual map of Figure 30.

This is clearly shown in the Semantic Scales market research study. Its ratings are presented in Table 10. SOFT

is an inexpensive brand and its low cost has certainly been obtained at the expense of design, number of features and/or battery life. SOLO and SOFT have the highest awareness levels in the Sonite market. It would be difficult to increase awareness beyond these levels, or to try repositioning these brands through advertising. Instead, SOFT should be improved in its convenience, and the performance of SOLO should be increased. This would improve the position of SOFT in the Savers segment and SOLO would be more precisely directed at Shoppers, thus decreasing cannibalization of the two brands. In addition, the price of SOFT could be increased by as much as 10% without any significant market share loss, given the price differential between SOFT and the next lowest price brand, LOCK. The high unit contribution of SOLO makes a price reduction very feasible and this would reposition the brand closer to the ideal point of Shoppers. Firm S should certainly concentrate on low-price segments where high market shares and the effects of experience on cost reduction, give a strong competitive advantage. There will be a strong temptation to enter the more profitable segments like Professionals and High Earners with new products.

D. Firm T – TONE and TOPS

Firm T has a strong brand TONE, with 14% of the total Sonite market in units. TONE is the leading brand in the High Earners segment and has strong shares of the Explorers and Professionals segments. It is also one of the most profitable Sonite brands with a contribution after marketing of $13 million. TOPS represents 8% of the total Sonite market in units and is the leading brand in Explorers. It has, however, the smallest unit contribution of all brands (21% of selling price) and a relatively low awareness. It barely breaks even overall and is clearly a problem brand. One alternative would be to increase its price and exploit it, in which case TOPS will be in a situation very similar to ROLL from Firm R. Another alternative would be to decrease its cost through R&D, position it closer to the Explorers segment, and get a better profitability through sales


volume and experience effects. Yet another alternative would be to keep the TOPS brand name to launch a new product with lower power, and geared at Professionals. This could be combined with a repositioning of TONE more towards High Earners to decrease cannibalization effects. Overall, the situation of Firm T looks very good in terms of market share and profitability. It has a problematic brand, and will have to face strong competition as new brands will be introduced in the highly profitable Professionals and High Earners segments.

Table 10 – Semantic scale ratings in Period 0

E. Firm L – LOOP and LOCK

The two brands commercialized by Firm L are highly differentiated and serve different segments. LOOP is a direct competitor of ROCK and TONE, and it has significant market shares in the Explorers, Professionals and High Earners segments. It is actually the leading brand in Professionals. It represents 14% of the Sonite market in units and generates almost $12 million in contribution. LOCK seems to be very well positioned on the Economy x Performance perceptual map with respect to the ideal points of the Shoppers and Savers segments. Its sales in these segments are less than half those of the leading brands. Its total market share based on units sold is 5% and its contribution after marketing is one of the lowest ones. The Convenience x Performance perceptual map and the semantic scales ratings in Table 10 indicate that LOCK, like SOFT, has a convenience problem and consumers apparently prefer to compromise in this case on economy and performance by purchasing brands such as MOST and SOLO. In addition, LOCK has the lowest awareness level (29%) of all Sonite brands. However, it may acquire a strong position in segments Shoppers and Savers with adequate improvement in its convenience and marketing support. Firm L will need to cover several fronts with its two brands that aim at substantially different segments, and this may require considerable resources. In particular, its commercial team will have to be increased.

4. Conclusions on the Starting Situation for Scenario MSW-SM-DCG-A0

Each firm has different strengths and weaknesses in Period 0 of the simulation in terms of product characteristics, brand awareness and positioning, market shares, distribution coverage and profitability. This starting situation is globally equitable for all five firms in terms of difficulties and opportunities and no firm has had a systematic competitive advantage from previous runs of Markstrat. Each firm has a strong brand and a more problematic one.

If you consider only the main Sonite brands, the firm/product/market situation in Period 0 may be summarized on the matrix in Table 11. This matrix shows that there are three groups of competing firms: M and S on one hand in the low-end segments, R and T in the high-end segments, and L, in all segments. In addition, it appears that the Markstrat firms have not yet fully capitalized on the market segmentation in developing their marketing strategies. So far, it seems that a two-way segmentation has been adopted by all firms except L, with segments Shoppers and Savers on one side and Explorers, Professionals and High Earners on the other side. The perceptual map would seem to indicate that these strategies have targeted most closely on Professionals and Savers. The brands currently available on the market are far from satisfying the needs of Explorers, Shoppers and High Earners, and there are certainly opportunities for better use of segmentation in the growing Sonite market.


To make decisions for Period 1, the firms do not have all the information contained in this chapter as some market research studies are not available for Period 0. The situation may have changed somewhat by the time they acquire these studies, but no drastic change in the competitive positions should be expected in the first simulated years before new R&D inputs are available.

Firm R Firm T Firm M Firm S Firm L

High Earners ROCK TONE LOOP

Professionals

ROCK TONE TOPS

LOOP

Explorers

ROCK TONE TOPS

LOOP

Shoppers

MOST SOFT SOLO

LOCK

Savers

MOST SOFT LOCK

Table 11 – Summary of brand/market positions in period 0

5. Notes on version “A0-Eco”

A new version of the A0 scenario has been developed in May 2013. This new version includes a special treatment of the Carbon Footprint dimension.

The "Carbon Footprint" characteristic (abbreviated "Carbon") is also referred to as greenhouse gas emission. It weights the carbon impact of the product through its lifecycle: manufacturing, transportation, use, recycling and/or discarding. It is measured in kilograms of CO² released in the atmosphere. The "Carbon" of a Trigol is between 5 and 50 kilograms.

Consumers are more or less sensitive to the issues created by greenhouse gas emission. This is reflected by the "ideal point" of a consumer segment in Carbon. For instance, segment A is expecting a Trigol with 20 kg emission while segment B is expecting a Trigol with 15 kg only.

In the standard A0 scenario, Carbon is treated like any of the other 9 characteristics, i.e. offering a carbon level lower or higher than the ideal point has a negative impact on the product purchase intentions (PI). The new version improves this situation in three ways as explained below. Please note that the mathematical model was adjusted accordingly.

• The ideal point formula has been changed so that offering a level in Carbon better than the expected one (i.e. releasing less CO²) will not have a negative impact on PI. Of course, offering a level worse than the expected one will continue to generate a penalty on PI.

• In addition, strong brands may now change consumer expectations in term of Carbon Footprint. A strong brand is a brand that satisfies the needs of target consumers on all important attributes and that is priced at the right level. If a strong brand exceeds expectations in term of Carbon Footprint, then these expectations will change (toward lower emission levels) to match the level offered by the strong brand. Consequently, the other brands will be penalized unless they follow the new trend in carbon footprint reduction.


• At a certain point in time, the Markstrat government will vote the Greenhouse Gas Emission Act. This Act will establish a maximum level of CO2 emission, for instance M = 45 kg. All brands exceeding this maximum level will have to pay a "greenhouse gas emission tax" calculated by the formula:

$100,000 x (Brand Level - M).

This maximum level will decrease over time to reflect greater political concern on greenhouse gas emission.


V. THE BASE SCENARIO: MSW-SM-B2B-A0 This scenario is meant to be used with the Business-to-Business adaptation of Markstrat.7. This scenario inherits its main characteristics from the original Markpro A0 scenario. Markpro is the ancestor of Markstrat.7 Business-to-Business; this simulation has been used by a few professors around the world, under a special agreement with StratX.

Its name may sound complicated: MSW stands for Markstrat Web; SM stands for Strategic Marketing; B2B stands for Business-to-Business; and A0 is here to make the link with similar previous scenarios: F4M2A0, F5M2A0 and F6M2A0.

The main characteristics of MSW-SM-B2B-A0 are:



• 2 markets: Squazols (electro-mechanic device) & Trigols (mechatronic device).

• 3 distribution channels: Direct Distribution, Technical specialists and General line distributors.

It is a particular characteristic of this scenario that the competing firms start in different situations. These starting situations are defined in the reports for period 0 which are generated by the model. In addition, the instructor can access to the complete set of market research studies for Period 0. The purpose of this chapter is to analyze the characteristics of the starting situation so that the instructor may readily comprehend the types of issues that each firm faces and anticipate their possible courses of action. This chapter focuses on the 5-team version.


In Period 0, the GNP growth rate is 3% and the inflation rate 2%. These conditions will prevail in the following year. The total Squazol market is equal to 865,000 units and $305 million at retail level. It is expected to grow at the rate of 18% in the following years.

As indicated in Table 5, the five segments are relatively comparable in size from 90 to 260 thousand units. However, their expected rates of growth vary widely from -3% to 34%. In addition, they present significant differences in profitability. For example, the average prices in segments Manufacturing and Oil are extremely different. Segments Construction, Oil and Chemical are the high-end segments with an average market price around $440, followed by segment Utilities and Manufacturing. The Manufacturing segment is the most-price conscious one with an average price around $230.

Utilities Construction Oil Chemical Manufacturing Total

Segment size in units

KU 163 153 88 196 263 863

%Total 18.9% 17.7% 10.2% 22.8% 30.5% 100%

Segment size in value

M$ 52 64 44 85 61 306

%Total 16.9% 20.8% 14.5% 27.9% 19.9% 100%

Average price $ 317 416 507 435 231 354


% 33.9% 23.6% 23.6% -3.2% 17.4% 17.6%


Table 6 shows the shopping habits of Markstrat customers. Customers in the Oil and Chemical segments strongly prefer to deal directly with manufacturers. The other three segments tend to favor the two indirect distribution channels. Trying to reach several segments will indicate a greater dispersion of the commercial team across the three channels depending on the nature of the selected segments. It should be noted in particular that a strategy aiming at the Oil and Chemical segments will allocate a concentration of the


commercial team on direct distribution. Overall, a greater proportion of potential consumers would prefer to buy a Squazol in technical specialists or general line distributors.




Globally, the starting situations of the five firms are similar on many dimensions, as indicated in Table 7. In Period 0 firms have value market shares ranging from 18% to 23%, total marketing and commercial team expenditures are around 5 million dollars, and the budget for Period 1 is between 7 and 10 million dollars for all teams. However, they are positioned in different segments, and this is reflected by larger differences in the retail sales volumes, market shares based on value, revenues, and marketing expenditures levels as a proportion of revenues, and net marketing contributions.

M R S T L


Share Price Index 1000 in

P0 1 000 1 000 1 000 1 000 1 000

Market share - Total %U 21.0% 20.5% 12.1% 25.4% 20.9% %$ 22.6% 17.6% 17.7% 20.8% 21.3% Market share - Squazols %$ 22.6% 17.6% 17.7% 20.8% 21.3% Market share - Trigols %$ 0.0% 0.0% 0.0% 0.0% 0.0% Revenues K$ 53 542 42 168 46 472 46 923 50 299



M R S T L

Benchmarking Revenues % Rev 100.0% 100.0% 100.0% 100.0% 100.0% COGS % Rev -48.0% -42.8% -44.9% -45.0% -44.7%

Contribution before marketing

% Rev 51.9% 56.4% 53.1% 55.0% 54.8%

Advertising expenditures % Rev -5.6% -7.1% -6.5% -6.4% -6.0% Commercial team costs % Rev -5.2% -6.5% -6.3% -5.8% -5.4% Contribution after marketing % Rev 41.1% 42.7% 40.4% 42.9% 43.5% Market research studies % Rev -0.5% -0.6% -0.5% -0.5% -0.5% R&D % Rev 0.0% 0.0% 0.0% 0.0% 0.0% Net contribution % Rev 40.7% 42.2% 39.8% 42.3% 43.0%




The differences become particularly important at the level of individual brands, as indicated in Table 9. Market shares in value vary between 8% and 13%, and all firms except S have a strong brand and a weak one in terms of market share and/or net marketing contribution. The market-share in each of the five segments, the distribution coverage in each of the three channels and the price levels seem to imply very different segmentation and positioning strategies.

The overall awareness levels of the 10 brands available in Period 0 do not vary much, from 40% to 50%. The variations are much bigger at the segment level; for instance, in segment Utilities, awareness levels range from 30% to 70%. In the last period, the firms have each spent $3 million in advertising, allocated equally between their two brands. Each brand has a different inventory level. It should be noted that a zero-inventory level may reflect an out-of-stock situation, implying lost sales, or may represent a minimum end-of-year inventory. This may easily be seen by comparing the actual production level and the production planning requested. If the actual production level is smaller than the requested production planning plus the maximum adjustment of 20%, the zero-inventory level does not represent an out-of-stock situation.


3. Evaluation of the Starting Situation for Each Firm

The following sections provide a potential strategy for each of the 10 products marketed in Period 0. We advise you to analyze these strategies while looking at the two perceptual maps for Period 0, in Figure 31 and Figure 32.

In addition to these strategies, all products would benefit from cost reduction, through R&D and/or increased volume and experience effects.

MACH MAXI RACE RAID SAFE SAND TAKE TAPE LAVA LAMP

M$ 32.7 36.4 24.0 30.0 27.2 27.1 23.9 39.6 36.5 28.6

KU 101 81 120 57 47 57 106 113 66 114

%$ 10.7% 11.9% 7.8% 9.8% 8.9% 8.9% 7.8% 12.9% 11.9% 9.3%

%U 11.7% 9.4% 13.9% 6.6% 5.5% 6.6% 12.3% 13.1% 7.7% 13.2%

Price $ 325 450 200 525 575 475 225 350 550 250

Inventory KU 0 0 0 23 33 23 1 1 14 1


Utilities %U 35.1% 4.2% 9.4% 1.8% 1.3% 3.2% 12.5% 13.8% 3.2% 15.5%

Construction %U 7.5% 22.8% 1.4% 4.7% 3.6% 12.5% 2.0% 33.3% 9.8% 2.5%

Oil %U 1.6% 15.9% 0.4% 18.2% 12.5% 13.6% 0.6% 3.6% 33.0% 0.7%

Chemical %U 11.0% 12.3% 2.5% 15.5% 14.3% 10.2% 3.3% 17.3% 8.4% 5.2%

Manufacturing %U 3.4% 0.4% 37.0% 0.2% 0.1% 0.3% 28.9% 1.0% 0.3% 28.3%


Direct % - - - - - - - - - -

General % 36.1% 27.4% 50.7% 38.8% 24.3% 24.6% 48.9% 41.1% 38.5% 49.0%

Technical % 45.3% 35.6% 41.5% 31.3% 26.8% 26.9% 47.3% 41.1% 38.3% 49.3%

Awareness % 46.0% 44.0% 49.0% 40.0% 44.0% 41.0% 47.0% 45.0% 41.0% 49.0%

Utilities % 72.3% 36.8% 49.5% 29.8% 28.2% 36.0% 50.4% 48.9% 38.2% 50.9%

Construction % 44.7% 66.9% 33.8% 43.5% 49.1% 55.1% 34.3% 68.0% 50.5% 34.8%

Oil % 36.7% 54.0% 34.6% 54.3% 66.8% 55.1% 34.3% 35.4% 61.1% 34.6%

Chemical % 42.9% 48.3% 35.2% 54.1% 66.0% 48.7% 35.5% 49.0% 41.8% 42.7%

Manufacturing % 37.3% 27.0% 71.7% 29.0% 26.1% 26.1% 65.8% 30.2% 29.6% 66.0%


Commercial team budget K$ 1 505 1 301 1 346 1 408 1 454 1 454 1 326 1 377 1 336 1 367

Revenues K$ 24 051 29 490 16 759 25 409 23 622 22 849 16 608 30 315 30 373 19 926

Ex-factory price $ 239 365 140 445 500 400 156 268 458 174

Unit transfer cost $ 125 155 60 185 220 165 60 135 195 80

Unit contribution $ 114 210 80 260 280 235 96 133 263 94

Total brand CAM K$ 8 481 13 529 7 014 11 010 9 104 9 652 7 505 12 609 13 683 8 199

Sales

Share of market


A. Firm M

MACH MAXI

Primary target segment Utilities (leader) Construction (#2)

Other segment to consider

- Oil - But #3 and many competitors

Product Increase Reliability and possibly Power

Increase Servicing and possibly Power

Price Reduce price only if new competitors in primary segment

Decrease slightly to increase segment share

Communication High awareness. Maintain at same level but focus communication on primary segment.

Commercial Team Reallocate from direct to indirect channels, especially Technical

Better balance commercial team across all three channels

B. Firm R

RACE RAID

Primary target segment Manufacturing (leader) Oil (#2)


- Chemical

Product Increase Servicing and possibly Performance

Appropriate product to target Chemical. Need to downgrade Performance and upgrade Reliability to target Oil

Price Lowest price in the industry. Consider increasing price when product is upgraded

Price is fine to target Oil. A significant price decrease is required to target Chemical


Low awareness in both segments. Need to increase spending and focus on target segment(s).

Commercial Team Highest coverage in General. Reallocate from Direct to Technical

Need to reallocate to Direct channel whatever the target segment is..

C. Firm S

SAFE SAND

Primary target segment Chemical (#3) Oil (#3)

Other segment to consider Oil (#4) -

Product

Appropriate product to target Chemical. Need to downgrade Performance and upgrade Reliability to target Oil

Product is weak in both Performance and Reliability

Price Highest price in the industry. Need to reduce price in all cases, and drastically to target Chemical

Price is fine. May consider a price increase when product is upgraded.

Communication Low awareness to both segments. Need to increase spending and focus on target segment(s).

Low awareness. Need to increase spending and focus on target segment.


Commercial Team Need to reallocate to Direct channel if Oil is targeted

No need to reallocate commercial team.

D. Firm T

TAKE TAPE

Primary target segment Manufacturing (#2) Construction (leader)

Other segment to consider - -

Product Urgent need to upgrade Performance

The best position in this segment, but product is weak in both Performance and Reliability

Price Price is higher than that of RACE. May need to lower price when RACE is upgraded.

Price is fine. May consider a price increase when product is upgraded.

Communication High awareness. Maintain or increase slightly and focus on target segment.

The highest awareness in the segment. Maintain and focus on target segment.

Commercial Team Reallocate from Direct to Indirect channels

Better balance commercial team across all three channels

E. Firm L

LAVA LAMP

Primary target segment Oil (leader) Manufacturing (#3)

Other segment to consider - -

Product Very good Reliability. May need to upgrade Performance when competitors are upgraded.

The lowest Reliability in the market. Urgent need to upgrade.

Price Price is higher than that of competitors. May need to lower price in the coming years.

Price is much higher than that of RACE and TAKE. Need to lower price somewhat.

Communication Medium awareness. Increase slightly and focus on target segment.

High awareness. Maintain or increase slightly and focus on target segment.

Commercial Team Reallocate from Indirect channel to Direct distribution

Reallocate from Direct and Technical to General



Figure 32 – Economy x Reliability perceptual map in period 0


VI. THE BASE SCENARIO: MSW-SM-FMCG-C0 This scenario is meant to be used with the B2C Consumer Goods adaptation of Markstrat.7. Its name may sound complicated: MSW stands for Markstrat Web; SM stands for Strategic Marketing; FMCG stands for Fast Moving Consumer Goods; and C stands for Competition.

The main characteristics of MSW-SM-FMCG-C0 are:



• 2 markets: Clinites (cosmetics) & Nutrites (food-based beauty care).

• 4 distribution channels: Mass Merchandisers, Specialized Mass, Department Stores, Beauty Portals.

In this scenario, the initial situations of the firms are all equal, i.e. all firms have the exact same two products at the start of the simulation exercise. There is no scenario similar to the A0 scenario of the Durable Goods version. The reason is that Private Label brands would make it very difficult to have a balanced scenario with low-end and high-end firms.

The starting situations of the firms are defined in the reports for period 0 which are generated by the model. In addition, the instructor can access to the complete set of market research studies for Period 0. The purpose of this chapter is to analyze the characteristics of the starting situation so that the instructor may readily comprehend the types of issues that each firm faces and anticipate their possible courses of action. This chapter focuses on the 5-team version.


In Period 0, the GNP growth rate is 3% and the inflation rate 2%. These conditions will prevail in the following year. The total Squazol market is equal to 865,000 units and $305 million at retail level. It is expected to grow at the rate of 18% in the following years.

As indicated in Table 5, the sizes of the five segments range from 2.6 to 7.4 million units. Their expected rates of growth vary widely from 8% to 34%. In addition, they present significant differences in profitability. For example, the average prices in segments Low Income Families and High Earners are extremely different. Segments High Earners and Affluent Families are the high-end segments with an average market price around $20, followed by segment Medium Income Families and Singles. The Low Income Families segment is the most-price conscious one with an average price around $11.

High Earners

Affluent Families

Med. Income

Families

Low Income

Families Singles Total

Segment size in units

MU 2 645 2 988 4 780 7 399 4 965 22 776

%Total 11.6% 13.1% 21.0% 32.5% 21.8% 100%

Segment size in value

M$ 52 974 59 970 73 287 83 009 70 010 339 249

%Total 15.6% 17.7% 21.6% 24.5% 20.6% 100%

Average price $ 20.03 20.07 15.33 11.22 14.10 14.90


% 33.90% 8.20% 23.60% 18.50% 23.60% 21.12%


Table 18 shows the shopping habits of Markstrat consumers. There a wide variety of shopping behaviors: Singles are the only ones who prefer to shop in Specialized Mass; Medium and Low income Families prefer to shop in Mass Merchandisers; finally, the two high-end segments prefer Department Stores. Beauty portals


are not yet widely used. Trying to reach several segments will dictate a greater dispersion of the commercial team across the four channels depending on the nature of the selected segments. Overall, Mass Merchandisers is the largest channel, with 38% of total volume, followed by Specialized Mass (34%), Department Stores (21%) and Beauty Portals (7%).




Because we are using a “competition” scenario, the starting situations of the five firms are similar on all dimensions, as indicated in Table 7. In Period 0 firms have a value market share of 17%, total marketing and commercial team expenditures are around 5 million dollars, and the budget for Period 1 is 7.1 million dollars for all teams. Note that the total market share of the 5 companies is not 100% because a share of the market is taken by private label brands (PLB) XILO and XIBU



M R S T L


Share Price Index 1000 in P0 1 000 1 000 1 000 1 000 1 000

Market share - Total %U 15.1% 15.1% 15.1% 15.1% 15.1%

%$ 16.8% 16.8% 16.8% 16.8% 16.8%

Market share - Clinites %$ 16.8% 16.8% 16.8% 16.8% 16.8%

Market share - Nutrites %$ 0.0% 0.0% 0.0% 0.0% 0.0%

Revenues K$ 36 789 36 789 36 789 36 789 36 789


M R S T L

Benchmarking

Revenues % Rev 100.0% 100.0% 100.0% 100.0% 100.0%

COGS % Rev -53.0% -53.0% -53.0% -53.0% -53.0%

Contribution before marketing % Rev 45.4% 45.4% 45.4% 45.4% 45.4%

Advertising expenditures % Rev -8.2% -8.2% -8.2% -8.2% -8.2%

Commercial team costs % Rev -3.9% -3.9% -3.9% -3.9% -3.9%

Merchandising expenditures % Rev -2.9% -2.9% -2.9% -2.9% -2.9%

Contribution after marketing % Rev 33.4% 33.4% 33.4% 33.4% 33.4%

Market research studies % Rev -0.7% -0.7% -0.7% -0.7% -0.7%

R&D % Rev 0.0% 0.0% 0.0% 0.0% 0.0%

Net contribution % Rev 32.7% 32.7% 32.7% 32.7% 32.7%



Table 9 shows the starting situations of the 12 brands marketed in Period 0. Each firm has a high-end offering and a middle range one. Two low-end private label brands are also marketed: XILO and XIBU.

MISS, RISE, SING, TIME and LIME are the 5 high-end, identical brands. There are very successful in High Earners and Affluent Families, as you would expect. They have a very high awareness, around 70%; a fairly high price, $21, and they generate a positive contribution, around 4 million dollars.

MINT, RICH, SILK, TINY and LIKE are the 5 middle-range, identical brands. There are highly successful in Singles and Medium Income Families, with an awareness ranging between 60% and 70%. Their price is $14 and they generate twice as much contribution as the high-end offerings.

All 10 brands have pretty poor distribution coverages, ranging from 20% up to 40%. They are also very poorly positioned on the Low Income Families, the largest segment in volume and value.

XILO and XIBU are two private label brands, exclusively distributed in Mass Merchandisers. These two brands are extremely well positioned on the low-end segment, with a total market share close to 70%. XIBU is actually the biggest brand in the market. Cost and contribution data are not available for private labels.


3. Evaluation of the Starting Situation of the Firm

The table below provides a potential strategy for each of the 10 brands marketed in Period 0. We advise you to analyze these strategies while looking at the two perceptual maps for Period 0, in Figure 31 and Figure 32.

In addition to these strategies, all products would benefit from cost reduction, through R&D and/or increased volume and experience effects.

MINT MISS RICH RISE SILK SING TINY TIME LIKE LIME XILO XIBU

M$ 31.1 25.9 31.1 25.9 31.1 25.9 31.1 25.9 31.1 25.9 18.8 35.7

MU 2.227 1.21 2.227 1.21 2.227 1.21 2.227 1.21 2.227 1.21 1.815 3.776

%$ 9.2% 7.5% 9.2% 7.5% 9.2% 7.5% 9.2% 7.5% 9.2% 7.5% 5.6% 10.7%

%U 9.8% 5.3% 9.8% 5.3% 9.8% 5.3% 9.8% 5.3% 9.8% 5.3% 8.0% 16.6%

Retail price $ 13.96 21.37 13.96 21.37 13.96 21.37 13.96 21.37 13.96 21.37 10.35 9.45


High Earners %U 3.3% 16.5% 3.3% 16.5% 3.3% 16.5% 3.3% 16.5% 3.3% 16.5% 0.5% 0.4%

Affluent Families %U 3.3% 16.6% 3.3% 16.6% 3.3% 16.6% 3.3% 16.6% 3.3% 16.6% 0.3% 0.3%

Medium Income Families %U 15.1% 4.1% 15.1% 4.1% 15.1% 4.1% 15.1% 4.1% 15.1% 4.1% 1.8% 2.2%

Low Income Families %U 5.9% 0.4% 5.9% 0.4% 5.9% 0.4% 5.9% 0.4% 5.9% 0.4% 21.3% 47.2%

Singles %U 17.8% 1.0% 17.8% 1.0% 17.8% 1.0% 17.8% 1.0% 17.8% 1.0% 2.7% 3.3%


Mass Merchandisers % 39.1% 24.0% 39.1% 24.0% 39.1% 24.0% 39.1% 24.0% 39.1% 24.0% 45.0% 25.0%

Specialized Mass % 32.9% 31.7% 32.9% 31.7% 32.9% 31.7% 32.9% 31.7% 32.9% 31.7% 0.0% 0.0%

Department Stores % 23.2% 40.1% 23.2% 40.1% 23.2% 40.1% 23.2% 40.1% 23.2% 40.1% 0.0% 0.0%

Beauty Portals % 30.0% 30.0% 30.0% 30.0% 30.0% 30.0% 30.0% 30.0% 30.0% 30.0% 0.0% 0.0%

Awareness % 59.0% 49.0% 59.0% 49.0% 59.0% 49.0% 59.0% 49.0% 59.0% 49.0% 32.0% 42.0%

High Earners % 42.1% 68.9% 42.1% 68.9% 42.1% 68.9% 42.1% 68.9% 42.1% 68.9% 22.6% 22.5%

Affluent Families % 52.0% 73.6% 52.0% 73.6% 52.0% 73.6% 52.0% 73.6% 52.0% 73.6% 22.6% 22.4%

Medium Income Families % 57.4% 57.0% 57.4% 57.0% 57.4% 57.0% 57.4% 57.0% 57.4% 57.0% 32.3% 44.2%

Low Income Families % 62.6% 26.4% 62.6% 26.4% 62.6% 26.4% 62.6% 26.4% 62.6% 26.4% 42.1% 57.8%

Singles % 69.3% 49.1% 69.3% 49.1% 69.3% 49.1% 69.3% 49.1% 69.3% 49.1% 29.0% 36.7%


Commercial team budget K$ 714 714 714 714 714 714 714 714 714 714

Revenues M$ 20.7 16.1 20.7 16.1 20.7 16.1 20.7 16.1 20.7 16.1 13.2 25.0

Selling price $ 9.27 13.33 9.27 13.33 9.27 13.33 9.27 13.33 9.27 13.33 7.25 6.61

Unit transfer cost $ 4.73 7.11 4.73 7.11 4.73 7.11 4.73 7.11 4.73 7.11 2.02 2.11

Unit contribution $ 4.54 6.22 4.54 6.22 4.54 6.22 4.54 6.22 4.54 6.22 5.22 4.51

Total brand CAM K$ 8.2 4.1 8.2 4.1 8.2 4.1 8.2 4.1 8.2 4.1

Retail sales

Share of market


MINT, RICH, SILK, TINY, LIKE MISS, RISE, SING, TIME, LIME

Primary target segment

Singles Affluent Families


Medium Income Families High Earners

Product Slightly improve Performance Downgrade Usability

Increase Performance, especially Efficacy. Improve Packaging.

Price Reduce price depending on competitor moves. Long-term, no team will benefit from a price war.

Decrease price slightly over time. No need to adjust to competition since high-end segments are less price-sensitive.


Existing awareness is also very high. Focus communication on primary segment.

Commercial Team

Increase Commercial Team and Merchandising in Mass Merchandisers and Department Stores

Increase size of Commercial Team and allocate more Merchandising budget. Reorganize across all channels according to shopping habits.

All teams will benefit from launching new brands targeted at High Earners, based on their high-end offering, and at Medium Income Families, based on their middle-range offering. This must be done over 2 or 3 periods, depending on how fast they get higher budgets. The fifth segment is also quite attractive because of its very large volume and growth. Actually, teams that will decide to target this segment will be quite successful provided that they do not enter into a price war with XILO and XIBU. Over time, XILO and XIBU will always adjust their price downward if a competitor tries to compete on price. This will of course destroy the margin of all marketed brands. Instead, the teams should compete of the product offering, trying to match more closely the needs of low income consumers. By doing so, they will be able to charge a higher price and protect their contribution.



Figure 34 – Economy x Reliability perceptual map in period 0


VII. CREATING NEW SCENARIOS A scenario is a set of parameters that are used to initialize the industry data, adjust the simulation formulas, or determine the evolution of the Markstrat world. Some parameters have an impact on the initial situation of the industry, including the firms. Typical examples of these parameters are the technical specifications of initial Sonite brands, the initial positions of ideal points, or the number of competing teams. The impact of other parameters will only be noticed when running the simulation or making decisions. This is the case of segment growth rates, inflation levels, or the maximum acceptable price variation in percentage.

1. Why customize a scenario?

Markstrat comes with basic scenarios that can be partially modified with the Scenario Customizer software. The main reasons for creating new scenarios are the following ones.

• The need to bring the simulated environment closer to the realities of specific market conditions. For instance, inflation rates may be very different in various countries and over time. Expected market growth rates are very different in various industries. Instructors in different situations may have preferences for contrasting environmental conditions.

• The need to provide different competitive situations for consecutive classes. There is always some degree of communication between participants who attend the same course in consecutive terms or academic years. This may reduce the learning experience as some participants may rely more on tips provided from past classes than on their own intellectual efforts. Changing the parameters of the simulation and making it known reduces this effect.

2. Should you customize a scenario?

The answer is clearly no. Quite the opposite, StratX recommends that you become familiar with the base scenarios before creating your own customized scenarios.

Only 10% of Markstrat instructors customize their own scenarios.

3. How to customize a scenario?

To customize an existing scenario, you will have to:

• Download one of the existing scenarios. This can be one of the master scenarios created by StratX or one of your own customized scenarios. The scenario will come in the form of a Microsoft Excel document.

• Modify the value of specific parameters using Excel. Only a few cells can be edited and the range of values that you can input is limited.

• Save the modified file and then upload it to the Markstrat server. You will be asked to give a name and a description to your scenario so that you can easily recognize it when creating your industries.

• All your customized scenarios will then appear in the list of available scenarios when creating your industries, as shown on Figure 4.

The Scenario Customization Assistant will guide you through this process.

A. Downloading a scenario

Click on Customize your Scenario in the course home page and select Download a scenario to show the form depicted on Figure 35. The list of customizable scenarios is given with the names and descriptions. Select the scenario that you want to customize and click the download button. Note that you may further customize a scenario that you customized in the past. A window will pop up to ask you where you want to store the file.

You may also delete a scenario that you no longer use by selecting it in the list and clicking on the red button. This will delete it from the database, but the not from your own disk drive.


B. Modifying a scenario

A scenario will come in the form of an Excel file that you can edit and save. Figure 36 shows what the Excel document looks like (extract only).

The spreadsheet is protected so that you can: (1) edit only the cells that have a blue background; (2) enter a pre-defined range of values. The other cells are calculated to help you analyze the impact of your modifications. For instance, Figure 36 shows the relative size of the Sonite segments in Period 0 and Period 10. The period 0 sizes are based on the maximum sizes that you have entered, and the period 10 sizes are based on the segment growth rates which you can modify in another section of the scenario.

Check section VII.4 for a thorough description of the parameters that you can edit. Once you are finished with your modifications, save the file under a new name and upload it back to the Markstrat database.

Figure 35 – Scenario Customization Assistant - Downloading a scenario

Figure 36 – Scenario Customization Assistant – Sample scenario excerpt


C. Uploading a scenario

Click on Customize your Scenario in the course home page and select Upload a scenario to show the form depicted on Figure 37.

Select the file that you want to upload. This is the file that you have modified with Excel, as explained in the previous section; it should be located on the disk drive or on your network places.

Enter a name and a detailed description so that you can remember later what this customized scenario is about. You will retrieve these name and description when you create your industries, as explained in section II.2. Finally, click on the upload button.

Figure 37 – Scenario Customization Assistant - Uploading a scenario

4. “Standard” Customizable Parameters

There are two sets of customizable parameters.

• The first set includes the most commonly customized parameters such as segment sizes and growth rates. These parameters are located in the sheet Customization.

• The second set includes the advanced customizable parameters such as shopping habits or evolution of ideal points. These parameters should be handled with care; they are located in the sheet Advanced Customization.

This section describes the standard parameters.

A. Advertising and Commercial Team experiment parameters

These two parameters represent the increase in number of full-time equivalents in the commercial team experiment and the percentage budget increase in the advertising experiment.

Experimental Expenditures = Actual Expenditures x (100% + Coefficient)

Larger values of these parameters will increase the amplitude of the differences observed in the corresponding experiments.


B. Minimum number of marketed brands for MDS study

This parameter specifies the minimum number of marketed brands that can be used to build the MDS study. Markstrat can actually provide this study as soon as one brand is marketed. However, to increase the realism of this simulation, the MDS is said to be unavailable when not enough brands are marketed.

C. Number of R&D on-line queries authorized per firm and period.

The number of authorized on-line queries is restricted in a given period because the R&D department will only allocate limited resources to this activity.

D. Commercial team costs: annual cost, hiring cost and firing cost of a commercial person

The annual cost of a commercial team full-time equivalent and the cost of hiring/training or firing a new person are expressed in $ in Period 0 and are automatically adjusted over time to follow inflation, as shown in the “Period 10” column. The annual cost includes salary and other operating expenditures.

E. Inventory holding and selling cost coefficient

The inventory holding cost and the cost of obsolete stocks are expressed as a percentage of transfer cost. If the cost of obsolete stocks is 20%, then disposal of stocks that have become obsolete because of a product modification, or because of the withdrawal of a product from the market, will cost the firm 20% of the value of these stocks based on transfer cost.

F. Next period budget parameters

The next period budget formula is based on three parameters: next period budget coefficient (), minimum

next period budget () and maximum next period budget (). The marketing budget for a given period is related to the firm earnings in the previous period by the simple formula:

Next period budget = Max [ ; Min [ , * Earnings ] ]

In the case of low or negative earnings each team should still receive a minimum budget to support its operations and to make the learning experience effective. In the case of very successful results, limiting the authorized marketing budget to a maximum level forces a participant team to have to make allocation decisions and preserves a certain level of competition. These minimum and maximum limits are set in the basic scenarios at levels that are based on previous experience. The instructor may, however, decide to change them to create more or less competition between the teams. The values of these parameters are set

for Period 0. In the case of and , they are then automatically adjusted over time according to the prevailing inflation rate, as shown in the “Period 10” column.

G. Minimum budget for R&D project

Minimum budgets for Sonite and Vodite R&D projects can be set. This corresponds to the setting-up cost of a project for R&D and the software will not accept R&D projects with budgets under these levels.

H. Minimum ratio for successful R&D project

This parameter corresponds to the level below which the probability of completing an R&D project is zero. The R&D department always requests a budget for a given project. If a budget equal or greater to this requested level (corrected by inflation) is allocated to this project, the probability of completing it is 100%. If this allocated budget is smaller than the requested budget, the probability of successfully completing the project is evenly distributed between the minimum level set as a parameter and the requested level. For example:

• Minimum ratio for successful R&D project = 75% (value of parameter in scenario)

• Budget requested by R&D = K$ 800

• Budget allocated to project = K$ 650

• Minimum budget for successful completion = K$ 800 x 75% = K$ 600


• Probability of successfully completing project = (K$ 650 - K$ 600) / (K$ 800 - K$ 600) = 25%

On one extreme, if the minimum ratio is set at 0%, the probability of completion is evenly distributed from zero to the requested budget. On the other extreme, if the minimum level is set at 100%, a project will be successfully completed only if the allocated budget is equal or greater than the requested budget.

Note that different values can be set for the Sonite and Vodite markets.

I. Automatic adjustment of production plan

Brand production plan is automatically adjusted to market demand by plus or minus % where is a parameter. If P is the production plan and I the inventory at beginning of period, actual sales can be between

I + P (1 − ) and I + P (1 + ). For instance:

• Automatic adjustment of production plan = 20% (value of parameter in scenario)

• Current inventory = 45,000 units

• Production plan = 150,000 units

• Potential sales = 220,000 units

• Production required = 220,000 - 45,000 = 175,000 units

• Maximum production available = 150,000 x 120% = 180,000 units (this is greater than 175,000)

• Actual sales = 175,000 + 45,000 = 220,000 units


J. Experience effect coefficient

This parameter indicates the importance of experience effects for brand manufacturing. It gives the expected transfer cost level, adjusted for inflation, when the cumulative production of a brand is doubled.


K. Maximum price variation

This parameter specifies the maximum allowed change in retail price from one period to the next. Its purpose is to avoid unrealistic sudden changes in team decisions.


L. R&D On-line Queries

The R&D decision assistant includes an on-line query form to help teams specify new projects. For given technical specifications and base cost, a query gives an estimate of the budget required to complete the project and an estimate of the minimum feasible base cost. Query results are given instantaneously, but at the expense of accuracy. To match reality, the information provided is over-estimated by a random factor

comprised in [i , x] for the base cost and in [i , x] for the budget.


M. Inflation and GNP growth rates

This matrix of parameters specifies the GNP growth rates and inflation rates over the course of the simulation. The GNP growth rates and inflation rates must be specified for each of the 10 periods. Please note, too high of an inflation rate and GNP growth rate will lead to a dramatic market size going beyond the calibration of the software. For example, inflation rates of 20% over 10 years would multiply all costs by a factor 5.

The columns “Cumulative Inflation” and “Cumulative GNP Growth” are calculated automatically as you modify the other two columns. Use them to double check your modifications.


N. Segment maximum sizes and segment growth rates

These parameters specify the maximum size (in Period 0) and the intrinsic growth rate of each segment of the specified market. The intrinsic growth rates must be specified for each period. These values correspond to maximum market sizes and intrinsic growth rates. The actual market sizes and growth rates observed in the simulation will be different as they will be influenced by the activities of the firms operating in the industry. However, changes in these parameters will modify the relative attractiveness of the market segments, and of the Vodite market compared to the Sonite market. Please note, too high of a growth rate might lead to a dramatic market size going beyond the calibration of the software; for example, more than 50% growth over 10 years.

Note that a few cells and charts are automatically calculated to help you check the impact of your modifications. You will find:

• The relative size, in numbers and in a donut char, of the consumer segments in period 0 and 10.

• The total growth rate over 10 years as well as the compound annual growth rate of the consumer segments;

• A chart showing the evolution of market size, by segment in in total.

O. Market studies available in Period 0

Only four studies are available in Period 0 for an industry created with a master scenario: Consumer Survey, Consumer Panel, Distribution Panel and Market Forecast.

You may release less or more studies by adjusting this parameter. Simply put Yes in front of the studies that you want to disclose and No for the other ones.

Note that only two studies can be released for the new market (Vodite/Trigol/Nutrite): semantic scales and market forecast. The other studies will be irrelevant as not brands are marketed in the new market.

P. Cost of market studies in Period 0

You may adjust the cost of market studies. This parameter indicates the cost in Period 0. The costs will then be adjusted by inflation year after year.

5. “Advanced” Customizable Parameters

This section describes the advanced customizable parameters. As indicated earlier in this document, these parameters should be handled with care; they are located in the sheet Advanced Customization.

A. Shopping Habits

The shopping habits represent the percentage of customers in a segment who prefer to shop in a given channel.

This parameter is given by two tables with one row for each customer segment and one column for each channel. The first table gives the shopping habits at the beginning of the simulation (Period 0) and the second table at the end of the simulation (Period 10). The value for Period P is interpolated by a simple formula: VP = V0 + (V10 – V0) × P/10.

A few recommendations:

• The sum of values across rows must be equal to 100%. The sum is calculated automatically and will appear in red if not equal to 100%.

• The average shopping habit for a channel is also calculated automatically (average of a column). Make sure to have a balanced scenario where one channel is not too small compared to the other ones.


B. Relative importance of Multidimensional Scaling dimensions

All multidimensional dimensions do not have the same weight in the purchase intention calculation. For instance, Economy is the most important dimension in the Sonite market while this is Efficiency in the Nutrite market.

You may change the relative importance of the three dimensions by modifying this parameter. The table has one column for each dimension. The first row gives the weights in Period 0 and second one gives the weight in Period 10. The weight for Period P is interpolated by a simple formula: VP = V0 + (V10 – V0) × P/10.

The sum of values across rows must be equal to 100%. The sum is calculated automatically and will appear in red if not equal to 100%.

C. Initial/Middle/Final Position of Ideal Points along Semantic Dimensions

The evolution of customer needs over time is a key element of the Markstrat simulation. This evolution is given by three tables: position of ideal points at the beginning of the simulation (Period 0), at the middle (Period 5) and at the end (Period 10). Each table has one row per customer segment and one column per dimension (5 attributes plus price).

The sheet contains five tables:

1. initial position of ideal points;

2. middle position of ideal points;

3. final position of ideal points;

4. total movement achieved during the simulation;

5. percentage of total movement achieved during the first half of the simulation (Periods 0 to 5).

The initial position of ideal points is not customizable as these parameters have a dramatic impact on the initial situation of firms; modifying them could lead to a very unbalanced scenario. You may change the evolution of customer needs by changing the third and fifth tables.

The best way to proceed is to first decide on the final position of ideal points. You may want for instance to print the five brand maps in Period 0 and plot on these maps where ideal points should go. Then, report the final position in table 3.

You must then decide on which percentage of the total displacement will be done during the first half of the simulation. Percentages must be entered in the fifth table.

• With a value of 50%, the movement of the ideal point will be regular over the 10 periods.

• With values lower than 50%, say 30%, the ideal point will move quite slowly during the first half of the simulation, and it will then accelerate.

• With values greater than 50%, say 70%, the ideal point will move quite fast during the first half of the simulation, and it will then slow down.


VIII. THE MARKSTRAT PEDAGOGICAL PROCESS It is essential that the instructor have a good grasp of the complete Markstrat pedagogical process before the beginning of the simulation. Our experience with Markstrat demonstrates that the pedagogical experience is substantially enriched if the instructor considers all of the following points before the beginning of the course:

• Organizing all administrative aspects of the simulation in advance;

• Having a good grasp of the pedagogical emphasis of each decision in the sequence;

• Understanding the various facets of the instructor's role during the course of the simulation;

• Giving an introductory presentation of Markstrat to the participants;

• Planning a few class discussions between some simulated periods;

• Requiring participants to make a presentation of their activities and performance in a final session.

Each of these points will now be reviewed in more detail.

1. Preliminary Organization of the Markstrat Simulation

In every teaching program, there is a pedagogical and an administrative part. In business games, the administrative part is so critical to the success of the program that it tends to take more attention and time from the faculty member.

The Markstrat instructor's platform has been designed to reduce the number of administrative tasks. Carefully planning all logistical aspects of the simulation will allow the instructor to devote the main part of his or her time to pedagogical issues during the course.

A. Familiarizing Oneself with Markstrat

It is essential that the instructor have a good grasp of the participant and instructor's guide before the start of the game. In particular, the instructor should have a good understanding of the "rules of the game" (best described in the participant handbook), how to operate the simulation, and the overall Markstrat teaching process. Being able to adapt scenarios is not required to operate Markstrat.

You can become familiar with Markstrat quite easily by running the simulation with your own decisions and experimenting with different scenarios. You can re-run the simulation for the same period and analyze its behavior under different conditions. The software allows you to run the simulation with default decisions. This can be a very fast way to observe the evolution of the simulation, as it requires less than 10 minutes to simulate Periods 1 to 10 in this fashion.

B. Preparing the Class Schedule and Documents

In preparing the class schedule for Markstrat, the instructor should take the following into account:

• A minimum of six decisions is necessary for pedagogical reasons, and the upper limit has been set to 10 decisions.

• The deadline for each decision should be clearly indicated.

• Two classroom sessions are necessary, one for the introduction to the simulation and the other for the conclusions and wrap-up at the end of the simulation.

• Other class sessions devoted to Markstrat may be planned between decisions, depending on the needs of the particular group. The authors have found it worthwhile to introduce in most of their applications of Markstrat a session on "Segmentation and Positioning," and one on "The Marketing Strategy Process," (covered later in this chapter).

• Participants need a minimum of two hours for the first two decisions, and this may be cut to one hour and a half for later decisions, if required. The participant decision process consists of "digesting" the new information to verify the impact of past decisions followed by the formulation of new decisions. An


experienced participant could achieve this process in 15 minutes to a half-hour, but two hours should be given whenever it is possible.

Markstrat can be used in a blocked-time fashion over a period of three to five days, or spread over a term or semester.

1. The blocked-time alternative presents a number of advantages: higher concentration on the subject, faster and higher action-feedback effects, stronger group dynamics, greater availability of the instructor, and minimal conflict with other courses. On the other hand, it requires a tight schedule and often some additional administrative help to take care of simultaneous activities such as a class session and running of the simulation for the current period. This approach is the only one feasible for short executive seminars and, under these conditions a typical program would include seven decisions over a period of three full days.

2. When the Markstrat decisions are spread over a term or a semester as part of a regular course, the instructor needs to specify the class sessions devoted to Markstrat, and the deadlines for turning in the team decisions for each period. Only the lectures on Markstrat must be included in the course schedule, and the participants' group work for each simulated period may be scheduled outside of the class sessions. On the other hand, some group discussions/working sessions may be scheduled during the class schedule. The advantage of the latter alternative is that all groups and the instructor are simultaneously available, which facilitates interaction, negotiations, and group control. In addition, the quality of the decision preparation is higher when participants do not have to prepare a case and/or readings and deliver a Markstrat decision at the same time. Each instructor will have to make his or her own trade-off between participant workload, the quality of class preparation, and the breadth of subjects covered in the course.

A few examples of typical Markstrat schedules are included at the end of this guide. Participants should receive a copy of the schedule for the course and of the participants’ handbook several days before the beginning of the course. The instructor should also give reading assignments based on the Markstrat Participant Handbook. One possibility is to ask participants to read the entire handbook before the beginning of the course. This is not generally recommended, not only because of the amount of reading involved, but also because the relevance of chapter VI and VII cannot be fully appreciated without some prior Markstrat

experience. Chapters I to IV are required reading before the beginning of the course. They provide basic information on Markstrat. Chapter VI deals with selected strategic marketing issues in the Markstrat

environment and can be assigned after the participants have had access to market research information.

2. The Markstrat Sequence

During the course of the simulation, the situations of the competing firms may evolve in various ways, depending on the actions they take. However there definitely is a systematic and predictable evolution in the nature of the key problem areas. This is represented schematically in Figure 38. This evolution has been planned and implemented in the design of the simulation.

Periods Key Problem Area

1 Understanding the operations of a Markstrat firm

2 Analysis of market research studies

3 Undertaking R&D projects

4-6 Introduction of new Sonite & Vodite brands

7-8 Consolidation in the Sonite market Consolidation in the Vodite market

Figure 38 – Overview of the Markstrat Sequence

Although each team is faced each period with a variety of problems simultaneously, its efforts and learning will be based on different key areas over the periods. It is important that the instructor learn this sequence


to anticipate future developments in the simulation, and to prepare pedagogical activities in terms of these key areas.

A. Period 1

The company reports at the end of Period 0 represent the initial situation, the simulation starting point. Therefore the first set of decisions concern Period 1. In the group sessions for this period, the participants should concentrate their efforts on understanding the Markstrat environment and the operations of the firms. It has been found highly desirable to give them the following information before they start working on their first decisions:

• They are not permitted to enter perceptual objectives for their advertising campaign, as they do not have the relevant information yet.

• For the same reason, they are not allowed to launch R&D projects yet. They should concentrate on sales and marketing efforts for the products they already have on the market

• They should be conservative in making decisions for the first period. While they are familiarizing themselves with their new environment, they should try to avoid taking any risks that could jeopardize the future of their firm. Period 1 decisions should represent a continuation of the firms' policies from Period 0.

The instructor can reinforce the learning objective of this period by asking the teams questions geared to the analysis of the Markstrat environment and of their firm: What was the size of the budget for Period 0? How does it compare with the budget for Period 1? How was the budget allocated for Period 0? How does their firm compare to competitors in terms of market share? Given their physical characteristics and prices, how are their brands positioned relative to competitive brands? From which segments are they more likely to draw sales? What is the expected evolution of these segments? What are their sales forecasts?

Period 1 is largely a "warm-up" period. Participants will refer often to the handbook, and will go through the company reports practically line by line. The decisions they are asked to make are very simple and draw mainly on the Participant Handbook (Chapters I to IV) as well as the company report.

A typical decision-making process can go as follows (ignoring the discussions, diversions, reading, and cross-checking that are all part of the learning experience):

• Keep the same number of commercial persons and the same allocation between channels

• Select market research studies to be purchased (only studies for the Sonite market should be considered at this time)

• Allocate remaining budget to advertising, with the same proportional split between the two brands as in Period 1

• Spend 5-10% of the total advertising budget on advertising research, as this is an industry average;

• Set the recommended retail prices to follow inflation or the 3% average yearly price increase in the Sonite market

• Forecast sales in Period 1, assuming a constant market share, a total market growth equal to the 35% average figure over the last three years, and qualify the estimate according to the assumed positioning of the brand in the various segments

The production-planning estimate can then be deduced from this sales forecast and the inventories level at the end of Period 0. Recognize that inventory holding costs are usually smaller than costs of lost sales which may lead some teams to inflate their levels of production planning. Given the pedagogical objectives of this period and the lack of information at the start, this process is as good as any.

Several iterations will usually be needed for a group to reach consensus on team decisions. The major arguments may center on the selection of market research studies to be purchased. Some individuals will want to buy all available studies while others would rather invest as much as possible in advertising. It will take a couple of periods before most of the teams realize that the prices of the market research studies are very small compared to the total budget. However, the real cost of these studies is the time that they take in analysis and discussions, and this is certainly close to reality.


B. Period 2

The teams will have the first opportunity to analyze the results of market research studies in Period 2. Apart from the familiarization with market research tools and their use, there is an important advantage of these studies. They motivate the participants to think in terms of more complex and realistic marketing phenomena than just the sales/advertising response functions, as is unfortunately the case with many marketing simulations. The main elements of the market situation illustrated in these studies are the following:

• Brand awareness

• Purchase intentions

• Shopping habits

• Attitudes

• Brand similarities

• Brand preferences and evolution of market needs

• Segments

• Distribution

• Competitive actions

• Test of elements of the mix

• Market forecasts

The simulation instructor will certainly be able to find many other simplified elements in the design of Markstrat.

Participants will generally use research data for three main purposes:

• Monitoring: checking the evolution of some critical values to identify problems that may arise;

• Auditing: investigating the possible causes of some problems by examining and comparing the results of the various studies;

• Testing: measuring the effects of elements of the marketing mix on objectives in order to guide action.

Use of the studies for monitoring and testing purposes is straightforward. Participants tend to accept the reported accuracy of numbers at the beginning, but they soon learn to discount minor differences, which may be due to measurement errors. Please note that participants are sometimes surprised when using the results of the advertising or commercial team experiments. These experiments were run in the previous period, and extrapolating their results to the total market for the following period obviously assumes that everything else will remain constant. This is rarely the case, and possible competitive actions should be taken into account when implementing a marketing plan based on the results of the experiments.

Use of the market research studies for investigating the possible causes of some problems usually results in greater involvement, depth of analysis, and learning rather than their use for monitoring and testing. At the beginning of the simulation, participants may not completely analyze the market research studies and jump to conclusions. For instance, they may attribute the cause of a small market share to an unsatisfactory awareness level, while perceptual mapping, semantic scales, and purchase intention data may indicate a serious product quality problem. However, they rapidly discover the need to systematically analyze the market situation, and see that a marketing problem is more often due to a combination of elements, rather than to a single element.

A procedure that the instructor may use to rapidly analyze market research studies when confronted with a problem by one of the firms is the following:

• Awareness: Check the trend in the awareness level of the various brands, forgetting may have caused a drop. Check the relative advertising budgets and advertising research percentage for these brands.

• Positioning: The perceptual map gives a clear graphical representation of brand similarities and preferences. The "design" dimension which is the third most important semantic scale should also be checked in the evaluation of the brands.


• Purchase Intentions: The analysis of the purchase intention figures for each brand in each segment, in the light of the perceptual mapping and semantic scale data, provides essential information about the relationship between positioning and market share. It may show, in particular that a brand primarily directed to a given segment is also attractive to another segment because of the lack of more suitable brands, or because of their low awareness. The comparison between the purchase intent and awareness figures should also give a crude evaluation of the respective merits of product improvement and communication investments.

• Product Available in Distribution Channels: The shopping habit data should be used to investigate the coherence of the brand/segment strategy and the allocation of the commercial team. The evolution of a firm’s commercial team should be analyzed relative to the competition. The distribution panel can be used as a global test of coherence between the brand/segment strategy and the allocation of the commercial team.

• Market Share: Although the market share figures by segment and by distribution channels are essential for control purposes, their descriptive power is more limited than the above information. A comparison of market share and purchase intent figures may be used to investigate the effects of brand availability. In particular, if a brand runs out of stock, the difference between the corresponding purchase intent and market share figures may be used as a crude estimate of lost sales. On the other hand a market share higher than the purchase intent value for a given brand is likely to be due to the unavailability of competing brands.

C. Period 3

Although most firms will have already launched R&D projects in Period 2, it is likely that they will have more time to spend on this activity in Period 3, as they will have better control of the management of existing products. The major issue in the management of the marketing/R&D interface will be the difference between the perception of a brand and its physical characteristics, between what the consumer wants and the manager's own definition of what constitutes a "good product." This "better mousetrap" phenomenon is largely discussed in marketing courses and participants can grasp very easily the marketing concept at the cognitive level. Observation of the Markstrat teams at this stage of the simulation clearly shows that it has been assimilated in varying degrees by different individuals, and that personal interpretations of "product quality" are sometimes more prevalent than market considerations. This often results in heated and valuable discussions, but these issues are soon clarified either through the convincing arguments of some members of the team or (more expensively) by analyzing why this otherwise "perfect" newly introduced brand did not live up to expectations.

The first common mistake made by participants in launching R&D projects is to invest resources in trying to "improve" some physical characteristics of the brands which do not appear to be important to the consumers (for instance, the number of features or the battery life of Sonites). The second one is to assume that increasing performance will result in better market acceptance (for instance "the higher the power of a Sonite the better") when in fact the needs of the various segments do not support this assumption.

When the participants have resolved these issues, the next problem is to translate the perceptual data into physical characteristics. Applying a linear transformation between the range of a perceptual dimension (-20 to +20 on the perceptual map) and the feasible range of a physical characteristic (5 to 100 for Sonite power) is certainly not appropriate. Instead one should determine the physical characteristics of the existing brands positioned closest to the target zone on the perceptual map or semantic scales to infer the physical characteristics of the R&D project to be launched. This analysis should be repeated each period when new R&D projects are requested, as the relationship between a physical characteristic and the corresponding perceptual dimension may evolve because of changing consumer needs (segment ideal points) or because of modifications in the set of existing products.

Specification of the cost characteristic requires special care. This characteristic represents the average variable unit production cost incurred in manufacturing the first 100,000 units of a new brand. One should make sure that this cost is low enough to provide a reasonable margin given the intended market price for the brand. On the other hand, if the cost of the product is too low, it is possible that the market will not accept the intended price. In fact, the model will not accept a price more than twenty times the transfer cost


of the brand under the standard scenario version, and will automatically reduce it to that level if it is higher (in this case, the appropriate message is given to the company). Conceptually, this may be explained by the fact that the cost of a product (discounting engineering ingenuity and productivity gains) represents a limit on the overall quality of the product. For instance, producing a powerful Sonite at a very low cost will require sacrificing other features of the product such as reliability. Although these features may not explicitly appear to be important to consumers, they will certainly limit the price that consumers are ready to pay for the product.

Finally, a question that some participants will ask is the following: "Given a project with the following characteristics, what is a reasonable budget to complete it successfully within one period?" This is a difficult question to answer, in Markstrat as well as in practice. The Markstrat Research and Development component will provide the information as to the minimum budget required to finish the project with the specified characteristics within one period. Participants have limited access to this information (5 queries per period), but this automated process allows participants to release new products quicker than if they had to rely on estimations or trial and error to finish projects.

The Budget Allocated if adjusted by the R&D Online-query function is 100% guaranteed to finish the R&D project in one period unless the team makes any change to the physical characteristics or the Requested Base Cost of the project. Following any changes in these fields, teams must adjust decisions with the on-line query function or face the possibility of not finishing the project in one period.

D. Periods 4, 5 and 6

The introduction of new brands may create major disturbances in the markets. In the first periods the participants have learned to master the Markstrat environment, to use the market research studies, to launch R&D projects and to manage a small number of brands in a growing but relatively stable market. They will now have to take more risk and respond to aggressive competitive actions.

After having determined global product/market strategies, which have to be planned well in advance and before the launching of R&D projects, they will now have to develop specific marketing programs for the introduction of new brands. Resources will have to be allocated to the introduction of these brands and to the maintenance of the existing ones.

A profitable learning exercise is estimating the expected market share of a new product at the end of the introduction period. In this process, participants will have to estimate the expected awareness level of the new brand resulting from a given advertising level, consumer preferences for the new brand compared to competition, distribution coverage, and the penetration of the various segments. This will most often result in an iterative revision of the objectives and the resources allocated to the new brand.

Two extreme strategies may be used in the introduction of a new brand. The first one consists of investing a maximum amount of resources to rapidly gain a high level of awareness and, hopefully, a strong market penetration. In the second one, the objective is to test market acceptance of the new brand, and minimum communication expenditures are involved. In this fashion, the new brand will have a low awareness level and a low market share in the first period, but the firm will be able to analyze whether the brand is correctly positioned and to evaluate market reaction by comparing the purchase intent and awareness figures. If the results are satisfactory, the firm may invest heavily in the brand in the following period. Otherwise, a repositioning of the new brand will be relatively easy to achieve given its low awareness level. Conceptually there are many analogies that one can draw between these two approaches, and regional vs. national introduction, or skimming vs. penetration strategies. Most importantly, the second strategy is less risky in terms of investments and inventory planning and gives more possibilities for corrective actions. However penetration is slower to achieve and it leaves more time for competitive reactions.

In the Sonite market, introduction of new brands is likely to stimulate primary demand. This effect will be greater if the new brands are well differentiated from existing ones and if they are better adapted to segments which have been somewhat neglected in the past.

Entry to the Vodite market is more risky than introducing a new Sonite brand in several respects:


• The "needs" of the consumers as expressed in the semantic scales are given in the absolute and cannot be compared with Vodite brands, as they do not exist at the beginning. The determination of appropriate physical characteristics for R&D projects at this stage must rest largely on judgment, and one should expect many product adjustments for the early periods of the development of this market;

• The forecasts for the Vodite market are expected to be highly inaccurate and somewhat optimistic until more experience is gained in this market.

• The first companies to launch Vodite brands must develop the market. They will benefit from the "first-mover advantage," while late-comers will benefit from having access to more information and a larger market when they decide to introduce their own Vodite brand.

The Vodite market should be expected to be rather unstable and somewhat unprofitable during the first periods of its development and some companies may wait and learn from the competitors' mistakes before making their entry. On the other hand, an entry too late may be unsuccessful or at least very expensive if positions of competitive brands are already well established. Finally, one should note that differences between segments are not significant, contrary to the Sonite market.

E. Periods 7 and 8

After having launched a number of new brands, some companies will discover that they have dispersed their resources and that their better brands may lose market share. They may have reached the maximum number of five brands that they can carry and they may be forced to eliminate an existing brand in order to be able to launch a new one. This will force the teams to consolidate their activities, reallocate their resources with more discrimination, and to prune the product line.

By this time a market leader for Sonites is likely to have emerged, bringing out defensive strategies from trailing teams, for instance, using multiple brands to protect a position in a segment or by building up marketing entry costs for a particular segment. Other firms may try to fight the leader or to consolidate their positions in less attractive segments of the market.

In a market that is reaching global maturity, one is also likely to witness a shakeout period where some companies want to pursue their growth at the expense of the weakest competitors through price wars or better control of the distribution channels.

During this period, the Vodite market experiences a high rate of growth, and several companies may have elected to invest in this market a good part of resources accrued in the Sonite market.

F. Periods 9 and 10

By now, a number of brands have well-established positions in the Vodite market, while several other ones have been the victims of rapid technological progress in a fast-growing market. This market is reaching maturity and becomes more price-sensitive. It appears that to survive in this market in the long run, a brand needs to be cost effective. It is unlikely that a newcomer can successfully enter the Vodite market at this point if the firms now in the Vodite market have offered brands which are well adapted to the needs of consumers, if they have reached high productivity levels, and if they have developed the market to its full potential.

3. Role of the Simulation Instructor

Over the course of the simulation, the simulation instructor plays a number of roles that can be grouped under four headings: class activities, monitoring of the learning experience, external partner to the Markstrat firms, and running of the simulation.

A. Class Activities

At a minimum, two class sessions need to be planned for the administration of Markstrat: an introduction to the game before the first set of decisions, and a final wrap-up session at the end of the simulation. Other class sessions can be planned between the decision periods to discuss marketing strategy concepts illustrated by the developing Markstrat market. In particular two review sessions, on segmentation and positioning and


the marketing strategy process, have been found to be beneficial to the overall learning experience. Possible outlines of these class sessions are given in the following pages.

In most courses, with the exception of executive programs, the instructor will have to give an evaluation in the form of a grade. This grade can be given on the basis of the firms' overall performance. Preferably, the grade is given on the basis of a team report presenting an analysis of their performance over the course of the simulation, the strategies pursued, the adjustments made to changes in the environment, their conclusions in terms of the key learning points, and plans for the future. It can be suggested that they present this report as a document to help the new team that will take over the management of their firm. There should be a minimum of one week between the time they receive the results of the last simulated period and the deadline for submitting the report.

Other grading procedures can obviously be selected but the instructor should be careful that they are not detrimental to the learning experience. In particular, designing an "automatic" grading procedure in which a grade is given on the basis of a mathematical transformation of performance criteria (i.e. final market share, contribution, or return on marketing investment, compared to their initial values or self-assigned objectives) is not recommended. This grading process will inevitably induce "game beating" behavior at the expense of learning activities. Likewise, the assignment of individual grades on Markstrat, rather than team grades, will enhance individual initiative at the expense of group learning.

B. Introductory Session

The purpose of this session is to present the Markstrat exercise to the participants, to organize the teams and give them the necessary information to start making decisions for the first simulated period. Participants should have read the assigned chapters of the Markstrat handbook before the class. The following is a possible plan for the introductory session:

C. Objectives of the Markstrat Experience

The objectives of the Markstrat experience should be presented in the context of the course in which it is administered. These objectives can be defined in terms of the concepts illustrated; the advantages of a simulation compared to the more traditional pedagogical tools used in the remaining of the course, and in terms of group behavior. In addition, the general characteristics of Markstrat can be presented by comparing them to other games that the participants may know, or may have previously used. Finally, if a grade is given for the Markstrat exercise, the grading procedure and the relative weight of this grade in the scheme of the course should clearly be indicated.

D. Presenting the Schedule for the Markstrat Experience

The instructor should emphasize the following points:

• The need to respect the deadline for each set of decisions

• The cost of penalties for delays in submitting the team decision data

• Time periods at which the instructor is available for consultation

• Expectations for presentations by firms at the end of the simulation experience.

E. Presentation of the Markstrat Simulation

This presentation should recapitulate the main elements of the simulation, as the participants will unavoidably feel that they have not assimilated all the information contained in the manual. Two Processing PowerPoint documents have been prepared to assist professors in introducing Markstrat. These slides can be downloaded on our web site www.stratxsimulations.com.

The instructor should select the slides that he or she finds most appropriate, as the complete set may be too large for a single session. Especially all slides dealing with R&D, brand modification or perceptual objectives for Vodites may be kept for a later session, as they are not of direct interest for the initial period. Finally, the participants should be reassured that it is absolutely normal if they have not yet absorbed all information

http://www.markstrat.com/


contained in the manual. The set of decisions for the first period is purposefully limited (no R&D, no perceptual objectives) so that the teams may concentrate on learning the basic elements of Markstrat.

F. Organization of Industries and Teams

The teams must be formed by the instructor. Each team should be composed of not more than six participants for an optimal learning atmosphere. Given the size of the class and four to six firms in each industry, the instructor may choose the number of industries required to run Markstrat, as well as the average team size. Each team of participants should then be assigned to a Markstrat industry and firm, as explained in section II.3. By extension, we use the term ‘Team X’ to designate the team of participants in charge of Firm X.

G. Distribution of the Starting Situations

After the teams have been assigned, the company reports for Period 0 can be distributed to the corresponding firms and the team files can be downloaded. The instructor may wish to indicate that the teams are replacing the previous management, and that they should take the first period to familiarize themselves with the market and the operations of their firm before making any drastic changes.

H. Running the Simulation

The detailed instructions to process Markstrat in the initial period and in each following period are described in the Administering your Markstrat Course section of this guide.

Default decisions are offered as a facility in Markstrat to allow you to run the simulation easily when experimenting with the software. Using these default decisions in an actual Markstrat application is likely to seriously hinder the performance of the corresponding team!

After the simulation model has been run you have access to the results of the new current period. You can display the summary graphs and print the results for each team.

I. Monitoring of the Learning Experience

The teams can be left to work by themselves, in which case the only interaction between the instructor and the participants over the course of the simulation is the collection of the team decision data and the distribution of the company reports for each period. The value of the pedagogical experience may be increased, especially when Markstrat is administered over a short period of time, if the instructor is attentive to the following points.

• Stimulating learning by asking questions. Asking questions of the managing team of a Markstrat firm is a good way to check if they have considered the relevant issues, and to stimulate their analysis. The instructor will have no difficulty in coming up with a large number of possible questions such as: Do you know the marketing budget of your firm in Period 0 (while the team is working on the decisions for Period 1)? Have you estimated the marketing budget of your main competitor? What would happen if the advertising budget of a given brand were drastically reduced (for instance for a well-established brand in a mature market)? Why did you select this specific allocation of the commercial team across channels? Did you estimate the level of lost sales (in a stock-out situation)? This questioning should be kept within limit for a given firm in a given period to avoid submerging them with new issues.

• Helping the laggards. Some teams may lag behind the others in mastering the marketing strategy concepts, or may be unable to recover from a difficult situation. In this case, the remainder of the simulation may be pedagogically more rewarding to them if they receive some help from the instructor, and this will give a greater challenge to their competitors at the same time. Help could be in the case of tips, added explanations, or giving of extraordinary profits or loans.

• Encouraging planning activities. Encourage planning activities, for instance, by requesting copies of the planning and budgeting forms any time the instructor is consulted on a specific problem.

• Wrap Up. In the last set of decisions, the participants should be required to purchase the complete set of market research studies in order to be able to make a detailed analysis of their firm's situation at the end of the simulation.


The instructor platform includes a tool to help you coach teams. This tool is discussed in chapter IX.

J. External Partner to the Markstrat Firms

The instructor plays the role of various partners to the Markstrat firms. These vary from being a consultant on specific problems; market research firm for "crash" market research studies when a team forgot to request them in their decision making; chief executive officer for changes in the marketing budget (loans and budget increases); and justice court to settle espionage or cartel cases and assign fines. In each of these situations, the firms concerned will negotiate with the instructor. The instructor is entirely free in his or her decisions, but the following may be useful as initial guidelines:

• Crash market research studies. Each "crash" study may be charged at a 50% premium compared to its regular price in the current period.

• Consulting fees. Consulting fees may be assigned in the range of the market research studies costs for the current period, depending on the importance of the contribution given to the team. The scope and the price of the consultancy should be clearly established beforehand, as the outcome of this type of service is most often intangible.

• Fines. Fines should be set to represent a noticeable part of the marketing budget, without drastically limiting the scope of activities of the penalized firm. For instance, a fine should be set for each minute of delay in the submission of the team decision data, in such a way that a ten-minute delay represents around 10% of an average marketing budget for the current period. In the first period this fine may be set at $100,000 per minute of delay. In fact, fines are mainly used as a deterrent to misbehavior but rarely need to be enforced.

• Budget increases. Budget increases should be given on the basis of a sound marketing plan. They motivate the participants to take more initiatives and to be more creative than if they had to stay in the limits of the budget which is automatically allocated. If no major flaw can be detected in the proposed marketing plan, the requested budget increase should be granted with the following limitations, in order to protect competition:

− If a firm has already a budget substantially higher than its competitors, it should not receive any additional funds

− The total marketing resources of a firm receiving an additional budget should not significantly exceed those of the firm having the highest budget for the current period

− A firm should not receive an additional budget for more than two successive periods, as money should not be perceived as a substitute for thinking.

− It is best to avoid awarding budget increases until the Period 3 decisions.

4. Classroom Sessions/Discussions

The purpose of these class sessions is to ensure that all participants have mastered the basic concepts and have seen how to use them in the formulation of the marketing strategy. The sessions should decrease the competitive advantages of the more advanced groups, but increase the pedagogical benefits for all participants and the competitive challenge. The sessions can be handled as a lecture or as a discussion between all participants. In the latter case, the instructor should encourage participants to contribute and expose the main elements they use in their own analysis. Because of the competitive situation, this will usually take some careful questions and good humor. Alternatively, the game instructor can ask questions to each group separately, to check that they have considered the main concepts.

A. Segmentation and Positioning

This session should ideally be scheduled at a time between the second and fourth set of decisions. Participants should have read the Positioning and Research & Development Section of the Markstrat

Participant Handbook before the session. The bulk of the session should be devoted to the part where the experience gained in the first Markstrat decisions may contribute best to the active application of segmentation and positioning concepts.


Session Outline

• Review of segmentation: the purpose of segmentation; criteria for segmentation; segmentation methods

• Review of positioning: the concept of product positioning; measurement of product positioning through scaling (should cover semantic scales and perceptual mapping); strategies for product positioning and repositioning

• Implementation of segmentation and positioning concepts in the selection of product/market positions. A list of elements that should be considered in the evaluation of product/market positions can be made with the participation of participants. Specific examples can be drawn from the Markstrat

experience in the preceding periods.

B. The Marketing Strategy Process

This session should be scheduled at least three periods before the end of the game, in order that participants may benefit from it in making their decisions. It should particularly emphasize the benefits for long-term marketing planning, and draw examples from previous periods in Markstrat.

Session Outline

• Setting objectives. The meaning of market share as a marketing objective

• Analysis of opportunities. Add longer-term considerations to the segmentation and positioning elements discussed in the previous session: environmental changes, evolution in consumer needs, and product/market life cycles...

• Elaboration of a marketing strategy and a marketing plan

− the need for a marketing strategy

− matching marketing opportunities and corporate resources

− the formulation of product/market portfolio strategies

− the planning of long term activities and allocation of resources

− the formulation of product/market strategies

• Implementation of the marketing plan

− coordination with other departments of the firm, in particular R&D

− elaboration of marketing programs

− contingency planning

• Evaluation of marketing performance and adaptation of the marketing plan

C. Common Problem Areas

We have repeatedly observed that some teams lag behind other ones in mastering some of the issues. The most common issues are listed below. The instructor may choose to raise some of them in class discussions or during his interactions with the team:

• Limited purchase of market research studies. Participants should realize the importance of these studies in understanding market behavior, and their moderate cost relative to the total marketing budget. They should recognize that the real cost of the studies is the time it takes to analyze them, given the limited time available for making decisions.

• Difficulties in forecasting brand sales. This requires analyzing and integrating a number of elements such as market growth, awareness, purchase intentions, distribution coverage and competitive actions.

• Taking too much risk. In particular, launching a new brand with a high penetration strategy and inadequate preparation often results in excessive inventories and is usually an expensive experience. Although it leaves time for competition to react, test marketing a new brand first by introducing it smoothly with a moderate advertising budget is sometimes preferable, especially with limited marketing budgets.


• Scattering resources. Some companies tend to launch more brands than the number they can maintain with their resources.

• Failure to prune the product line. Some firms are happy to keep a brand as long as it generates a minimum level of sales, when in fact a crude economic analysis indicates that the resources it requires would provide a much higher return if used for other brands.

• Under-investment in R&D. The teams should recognize that successful R&D projects are a scarce resource; that they take a minimum of one period to be available, and that prompt reaction to competitive actions often requires the availability of new products for introduction. Under investment may be reflected in terms of the budget allocated to a given R&D project, or by the fact that firms search only for the products that they are sure to introduce later. It may be more desirable sometimes to think in terms of a pool of available R&D projects, some of which correspond to planned marketing actions, and others which are maintained to respond to competitive actions or new market developments.

• Superficial analysis of the perceptual map. A superficial analysis of the perceptual map provides an erroneous interpretation of brand penetration in the various segments, and of competitive structure. This should be cross-checked with awareness, purchase intent and consumer panel data. In addition, some firms may take a long time to recognize the evolution of the ideal points on the perceptual map and the importance of the third dimension (Design) which appears in the semantic scale study but is absent from the perceptual map.

• Advertising for mature brands. Some firms may invest large advertising budgets on mature brands, especially if they think in terms of an advertising/sales ratio. Although this will undeniably protect the brand from competition and raise entry costs, such a brand already has a high awareness level and can hardly be repositioned. It may be more appropriate to transfer at least part of the resources to other brands in the introduction or growth stages, and consider the mature one as a "cash cow".

• Concentrating on absolute rather than relative marketing investments. Some participants concentrate on the absolute marketing investments they make, comparing them with the corresponding amounts in the previous periods. This fails to recognize the evolution in competitive practices. A more appropriate approach is to follow the magnitude of these investments compared to total industry marketing investments, for example, the share of advertising expenditures for a brand in the market or the size of the firm’s commercial team compared to the total number of commercial persons in the industry.

• Integrating inflation in marketing decisions. Even with the moderate inflation rates in Scenario MSW-SM-DCG-A0, the consumer price index increases by approximately 27 percent from Period 0 to Period 10. Some firms do not realize this effect when comparing prices, net marketing contributions or budgets over time, and the evaluation of their own progress is therefore over-optimistic. This effect will be higher if the instructor decides to change the inflation rate parameters to reflect a more unstable economic environment.

• Analysis of opportunities. Firms tend to analyze product/market opportunities in an absolute fashion, discounting the fact that competitors are performing exactly the same analyses. As a result, competition tends to be rather intense in segments Professionals and High Earners, which appear to be more profitable, and the other three segments are seriously considered only later in the simulation. Firms with more limited resources could benefit by entering these segments earlier, after having performed appropriate R&D projects which would ensure them a comfortable margin in these segments.

• Imitation vs. innovation. Most firms will define the desired characteristics of new brands by analyzing in detail the basic market research data. Most of the time they will try to launch new products that represent differentiated advantages compared to competition. This is certainly a very good strategy in most cases. One should also recognize that, when a very successful new competitive brand has been introduced on the market, the easier and sometimes most efficient approach is to imitate it plainly and benefit from its experience. As a matter of fact, an instructor achieved very reasonable results in one administration of Markstrat by following this simple strategy.

• Market maturity. As the Sonite market matures, it becomes more and more difficult to introduce new brands, to gain awareness and a profitable market share level. Many firms will not have forecast this


phenomenon and may persevere in making plans for the introduction of new brands along the same lines as they used to do in the growth period.

5. Final Session

This session should be scheduled to leave sufficient time after the distribution of the last period's results for each team to analyze their performance over all periods. The instructor will have to decide on the importance to give to each part of the following session outline, depending on the amount of time available.

A. Presentation of General Results by the Instructor

The purpose of this presentation is to describe the overall development of the simulated Markstrat industries over the course of the game, as a background to the group presentations. The evolution of the following elements from Period 0 to the end of the simulation can be presented, preferably on slides.

• Ideal points for each segment, for Sonites and Vodites, noting the weak differentiation between the needs of the various segments in the Vodite market

• Industry sales per segment

• Major events in the Markstrat industries (such as entry in the Vodite market, and major shifts in competitive strategies)

• Total industry investments (number of brands, advertising expenditures, commercial team, average price index, R&D budgets)

• Global performance (company market shares and net marketing contributions)

If several industries were simulated, the instructor may compare their evolution, and pinpoint major differences. This presentation may be based on the analysis graphs readily available from the Markstrat

platform as well as on other charts and graphs obtained by the instructor for each period. In any event, the instructor should tell the participants beforehand exactly what material he or she will present in order that participants can focus on the material that they can present to build upon the instructor's presentation.

For large classes the Industry Comparator tool can be a great resource. See the next section for details.

B. Group Presentations

The preparation of these presentations and the exchange of experiences in the classroom are major learning aspects of the Markstrat exercise. As previously indicated, each group may consider its presentation as a briefing to the new team which will take over the management of their firm, and should include the following elements:

• analysis of past performance

• main strategies pursued

• main adjustments made to changes in the environment

• key points learned through past successes and failures

• recommendations for the future

If the presentations are well prepared in advance on paper charts or slides, each team can do a good job in fifteen minutes, and the instructor may choose the number of groups to call on according to the time available for the session.

C. Conclusions

The instructor will obviously have to draw and present his or her own conclusions, according to the objectives of the Markstrat exercise in the context of the course. However it is desirable to spend a few minutes to discuss the transfer of marketing strategy concepts learned with Markstrat to other cases or practical situations to which participants will be exposed in the future. In particular, one may distinguish between specific characteristics of the Markstrat world (such as segment definition, growth rates, company organization, and availability of market research data) and concepts of a more general nature.


IX. THE TEAM COACHING TOOL We have explained in section VIII.3.I that the value of the Markstrat pedagogical experience may be increased if the instructor is stimulating learning by asking questions to teams, or if the instructor is helping the teams that lag behind the others in mastering the marketing strategy concepts or that are unable to recover from a difficult situation.

In order to facilitate this task, the Markstrat platform provides instructors with an Excel spreadsheet that summarizes key performance indicators (KPI) at the firm level but also at the brand level. Brand KPIs are given in total but also by consumer segment. For instance, the spreadsheet will tell you how LOCK is doing in segment Savers, relative to its competitors in this segment: SOFT and MOST (see chapter IV).

1. Introduction to the Coaching Spreadsheet

The coaching spreadsheet is generated at the end of the simulation run. There is one spreadsheet per industry and per period that contains the KPIs of all teams and all brands.

The name of the spreadsheet is TEAM-COACHING-[INDUSTRY]-PER[PERIOD].XLS, where [INDUSTRY] is the name of the industry and [PERIOD] is the period number. For instance, TEAM-COACHING-LIONS-PER07.XLS is the spreadsheet for industry LIONS in period 7.

To download the spreadsheet, go to the Decision Round Dashboard, as shown Figure 16, click the Downloads button and follow the instructions.

The spreadsheet contains up to 15 sheets:

• the sheet Firms shows a comparison of KPIs at firm level;

• Each sheet M, R, S, T, L or N focuses on a specific team; it shows the KPIs of that team and provides suggested actions for each brand in its portfolio;

• Each sheet Sonites-Shoppers, Sonites-Profs, …, Vodites-Followers focuses on a specific consumer segment; it shows KPIs, decisions and key results for each brand targeting this segment; data are presented in columns for an easy comparison across brands.

2. The Coaching Spreadsheet in details

The following sections provide more details about each sheet.

KPIs, results or decisions are compared across columns, one column representing a firm or a brand. In many cases, the highest value is highlighted in green and the lowest one in red. The color of a given cell is not an indicator of good or poor result; for instance, if all firm contributions are very high in absolute value and excellent in term of % revenues, the same color scheme will be used and one firm will appear in red.

A. Sheet “Firms”

The sheet Firms is depicted in Figure 39 and Figure 40. It contains one column per team in the industry: M, R, …, L. The rows are divided into sections: Key Performance Indicators, Benchmarking, Loans and budget changes, Production, Brands, and R&D projects.

The Key Performance Indicators section compares seven KPIs across the firms: share price index; total market share in volume and value; value market share in a given market, Sonites and Vodites if relevant; revenues; and net contribution.

The Benchmarking section compares the P&L data across the firms. It shows the most relevant items, from top line to bottom line: revenues, COGS, contribution before marketing, advertising expenditures, commercial team costs, contribution after marketing, market research studies, R&D, net contribution and next period budget. The values are given in percentage of revenues so that it is easy to compare two firms. For instance, one can see in Figure 39 that team R has a cost advantage that may explain its high contribution.


Figure 39 – Team Coaching Spreadsheet – Sheet Firms – Top of page

Figure 40 – Team Coaching Spreadsheet – Sheet Firms – Bottom of page

The Loans and budget changes section provides a recap of loans and budget changes granted to teams, on a cumulative basis.

The Production section summarizes the cumulative costs incurred by teams in inventory holding and disposal costs. It also indicates the cumulative lost sales due to production shortage. A team having low capability in forecasting sales will have abnormally high numbers in one or more of these indicators.

The Brands section shows how many brands each firm is marketing, in total and in each market. This may explain why a team is not doing well: a team with too many brands may spread its resources too thin, while a firm with too few brands will eventually lose market share and decline in SPI. More importantly, the number of leading brands is a good indicator of the team success or failure. The list of leading brands is given in this section with, under parenthesis, the segment where the brand is leading. A brand may be leading in more

Loans and budget changes

Cumulative loans received K$ -8 542 0 -11 884 -5 639

Cumulative interest paid K$ -780 0 -600 -392

Cumulative budget change K$ 0 0 0 0

Production

Cumulative holding inventory cost K$ -3 939 -3 362 -1 496 -2 949

Cumulative inventory disposal loss K$ 0 0 0 0

Cumulative lost sales KU -55 -5 -134 -142

Brands

Total number of brands # 3 2 2 4

Sonite # 2 2 1 4

Vodite # 1 0 1 0

Leading in a segment # MOST (Sh), MOST (Sa) ROCK (Pr), ROXAN (Hi)SERIOUS (In), SERIOUS

(Ad), SERIOUS (Fo)Toxic (Ex)

#2 in a segment #MESO (In), MESO (Ad),

MESO (Fo)ROCK (Sh) SOFT (Sa)

TOPS (Ex), TONE (Pr),

TONE (Hi)

R&D Projects

Cumulative R&D investment K$ 6 980 2 550 8 770 11 251

Completed this period # PEADOP (V)

Partially completed this period #


than one segment. A team with no leading brands has probably encountered difficulties in developing proper R&D projects or in marketing upgraded/new brands.

Finally, the R&D Projects section provides the cumulative spending in R&D since the beginning of the simulation. We very often see a correlation between low R&D expenditures and poor results. It also shows the projects that have been completed or partially completed in the current period.

B. Firm-specific Sheets

The firm-specific sheet focuses on a given team.

The top part, depicted on Figure 41, repeats some of the information given in the Firms sheet. The middle column shows the KPIs of the current team and the minimum and maximum values are given in the other two columns. The leading brands of the firm are listed as well.

Figure 41 – Team Coaching Spreadsheet – Firm-specific Sheet (top part)

The bottom part, depicted on Figure 42, includes one column per brand in the team portfolio.

• The Contribution section gives the contribution after marketing of each brand, in absolute value as well as in % of the brand revenues and % of the total firm contribution. On the example below, one can see that MOVE, MOOD and MONO have pretty good unit contribution – 39%, 42% and 36% of revenues – but that MOVE is by far the brand generating most of team M’s contribution – 65%.

• The Primary consumer segment section indicates what segment each brand is targeting, and how successful the brand is in term of ranking and segment share.

• The Suggested actions section provides the instructor with a series of advices to give to the team during the group work facilitation. It tells whether the brand should be upgraded, and, if yes, along which physical characteristics. This is measured by how far the brand is perceived from the target segment ideal point. Other possible actions are: to raise awareness (advertising); to adjust price; to adjust production plan; and to increase the size of commercial team in a given channel. For the pricing action, a target price is mentioned if necessary. For the production plan, no action is given, but the spreadsheet provides the number of units in the inventory and the number of units stocked out. Please note that stocked out units are not equal to lost sales as a significant share of these units are lost to the industry. For the other two actions, three values are possible: No, Yes and Critical. No indicates that the action is not necessary. Yes and Critical indicate that the action should be undertaken; the latter value indicates that the brand will highly benefit from this action.


Figure 42 – Team Coaching Spreadsheet – Firm-specific Sheet (bottom part)

C. Segment-specific Sheets

The segment-specific sheet focuses on a given consumer segment and on all marketed brands targeting this segment.

The two top rows, depicted on Figure 43, provide information on the segment itself: market (Sonites or Vodites); name; size in volume and value during the latest period P; expected growth next period and in five periods; compound annual growth rate over the next five years.

Figure 43 – Team Coaching Spreadsheet – Segment-specific Sheet (top rows)

The main body of the segment-specific sheet is depicted on Figure 44. There is one column per brand targeting this segment. More precisely, a brand will appear in the list if: the team has explicitly included the segment in the brand segmentation strategy; or if the brand has achieved a significant market share in the segment. The brands are presented in decreasing order of segment shares.

The sections below provide more information on the KPIs, decisions and other results presented in the rows.

• Launched in. Period when the brand was launched; equal to Period 0 if the brand is one of the brands initially marketed by firms.

• Base R&D Project. Name of the R&D project which the brand is based on. This may be one of the projects initially available in each firm, or one of the project initiated by the teams.

• Market Share. Total brand market shares, in volume and value.

• Segment Share. Brand market share in the segment, in volume and value. This row is used to sort brands in decreasing order of success in the segment.

• Contribution. Contribution after marketing generated by each brand in the current period. This KPI is given in absolute value as well as in % of the brand revenues.

Course Industry Period P Market Segment Size P (M$) Size P (KU) Growth P+1 Growth P+5 CAGR + 5

C96324 LIONS 2 Sonites Explorers 69.5 178 -2.1% -23.7% -5.3%


• Product Design - Distance from Ideal Point - Semantic Scales. These five rows provide information on brand perceptions, using the Semantic Scales study. The distance between the brand perception and the segment expectation (ideal value) is given for each physical attribute, such as Design or Battery Life for Sonite products. The distance is measured on the perceptual map; a distance of 0 means a perfect match between the brand and the ideal point, while a distance of 6 means a total mismatch. Note that the relative weights of the five physical characteristics are given in % in the second column.

• Product Design - Distance from Ideal Point - Multidimensional Scaling. These two rows provide information on brand perceptions, using the Multidimensional Scaling study. The distance between the brand perceptions and the segment expectation (ideal value) is given for each composite dimension, such as Performance or Convenience for Sonite products. The distance is measured on the perceptual map; a distance of 0 means a perfect match between the brand and the ideal point, while a distance of 40 means a total mismatch. Note that the relative weights of the two dimensions are given in % in the second column.

• Pricing. This section provides the brand retail prices in $, as well as the distance between brands perceived price or economy and the segment expectation (ideal value). The price distance is related to the Semantic Scales study while the economy distance is related to the Multidimensional Scaling study.

• Advertising budget. The brand advertising budgets for the current period are given in this section. The cumulative budgets for the past 3 years are given as well. These two rows are usually helpful to explain the awareness data in the next section.

• Ladder of Adoption. The first two rows show which brands are well-known from consumers in the segment and which ones they intended to purchase during the last period. A poor purchase intention figure may be explained by a low awareness – the team did not spend enough in advertising – or by a poor product design – the brand is perceived too far from the segment expectations. The preference data will tell you in which situation a given brand is: a preference close to 1.0 means that the brand has appropriate physical characteristics. Hence, a brand with a high preference but a low purchase intention will benefit from increased advertising. In any case, a brand with a low preference is unlikely to have a high purchase intention, until it is upgraded with a new R&D project.

• Size of commercial team. The sizes of commercial teams allocated to the brands for the current period are given in this section. Sizes are given for each of the three channels: Specialty Stores, Mass Merchandisers and Online Stores. These rows are usually helpful to explain the distribution coverage data in the next section.

• Distribution Coverage. This section provides the distribution coverage percentages achieved by each brand in the three channels: Specialty Stores, Mass Merchandisers and Online Stores.

• Gained (+) / Lost (-) sales. This row indicates if a given brand has lost sales to or gained sales from its competitors. Lost sales are usually due to a pessimistic production plan; i.e. the plan entered by the team was so low that the production department could not manufacture enough units to satisfy the demand for the brand, despite the 20% automatic adjustment of the plan. Lost sales may also be due to poor distribution coverage; i.e. consumers intended to purchase a given brand but could not find it in the stores. In both cases, consumer may be abandon or postpone the purchase, or choose another brand, in which case the chosen brand will gain sales from competitors.

• Cumulative lost sales. Finally, the last row provides the firm’s cumulative lost sales since the beginning of the simulation. Gained sales are not accounted here.

3. How to use the Coaching Spreadsheet

We believe that you will find these sheets very helpful to analyze the situation of your teams, to prompt them with relevant questions and to help them in making their decisions, if necessary. The spreadsheet summarizes all important information in the company reports and market studies. Using them in combination with the perceptual maps should be enough for a good situation analysis.

• Start with the Firms sheet to get the big picture: SPI, market shares, contribution and leading brands. Check which teams are doing great and which ones are suffering.


• Continue with the firm-specific sheets. Check what are the key actions required for each brand: upgrade the product design; increase advertising or the allocated commercial team. Check also the number of brands: resources spread too thin on too many brands, or not enough brands to sustain market share.

• Finally, use the segment-specific sheet to learn more on a specific brand: what attribute should be upgraded? Should this attribute be increased or decreased? Is the brand too cheap or too expensive? Did the team allocate enough advertising budget or commercial team? Etc…

We strongly advise you to never distribute these sheets to the students.

Figure 44 – Team Coaching Spreadsheet – Segment-specific Sheet (main body)

ROCK TONE ROXAN TOPS

Launched in Period 0 Period 0 Period 3 Period 0

Base R&D Project POPRO POTOLL POHIGH POTOPS

Market Share %U 24.9% 17.4% 15.3% 4.5%

%$ 32.3% 22.0% 17.4% 4.0%

Segment share %U 59.7% 21.7% 13.6% 2.8%

%$ 62.3% 22.1% 12.4% 2.0%

Contribution M$ 58.9 37.7 26.1 2.9

% Revenues 62.8% 59.1% 51.6% 25.6%

Product Design - Distance from Ideal Point - Semantic Scales

No. of Features 2% 0.2 1.1 1.8 2.2

Design Index 11% 0.1 0.7 0.5 4.2

Battery Life 3% 0.4 1.0 1.5 3.2

Display Size 11% 0.2 0.9 1.2 0.8

Processing Power 26% 0.2 0.6 0.5 0.7

Product Design - Distance from Ideal Point - Multidimensional Scaling

Performance 37% 1.5 4.9 4.9 4.7

Convenience 15% 0.9 1.3 0.7 25.3

Pricing - Retail Price in $ and Distance from Ideal Point

Retail Price $ 550 535 480 375

Distance - Price 48% 0.8 0.8 0.4 0.4

Distance - Economy 48% 5.3 5.4 2.9 3.0

Advertising budget

Current period K$ 1 990 270 390 660

Cumulative past 3 years K$ 5 970 810 390 2 990

Ladder of Adoption

Awareness % 78.9% 57.4% 16.8% 63.4%

Purchase Intentions % 53.3% 24.4% 12.6% 5.9%

Preference (Awa / PI) 0.9 0.6 1.0 0.1

Size of commercial team

Specialty Stores 54% 30 22 25 4

Mass Merchandisers 23% 10 9 15 2

Online Stores 23% 10 5 10 2

Distribution Coverage

Specialty Stores 54% 55% 51% 54% 18%

Mass Merchandisers 23% 35% 31% 44% 10%

Online Stores 23% 54% 43% 58% 24%

Gained (+) / Lost (-) sales Unit 16 354 -6 793 2 439 -7 855

Cumulative lost sales Unit 0 -21 689 0 -16 600