Pricing and Cost

Can my vehicle end up being sold for more than my MSRP?
Yes, it typically happens in one or more of the following circumstances:
1. Demand is high relative to supply, allowing dealers to mark up prices.
2. Dealer margins are tight on the vehicle and so they mark it up closer to industry
standards for that product class.
3. Since dealers are independent businesses, they may look at market conditions and
realize that a higher price is advantageous to their interests.
How can I estimate unit cost from base cost if the production is less than 100,000 units?
Use the Pro-Forma report and select Product Contribution from the list of screens.
Remember to estimate production for accurate projections.
How do you change the MSRP of a product?
Go to DECISIONS–Marketing and choose a vehicle to change the marketing mix decisions.
How do you determine the Manufacturing price and margins after making technology
Use the Pro-Forma report and select Product Contribution from the list of screens.
Remember to estimate production for accurate projections.
Is there a way to calculate the best price of a vehicle?
To find the best price for your vehicle, you must consider volume sales and profit margins.
There are several tools you can use when deciding on your price. The test market (TOOLS–
Test Market) lets you see how customers view your current products' pricing, while concept
tests (TOOLS–Concept Test optional) can give an idea of how they might view certain prices
on new products or upgrades. Of course, competition will likely change so these studies
provide guidance, but they can't anticipate competitive changes.
What impacts COGS in StratSim?
Some things that impact COGS are your product's design, your technology ratings and
product production volume. Also note that inflation is pushing your COGS up. You can
reduce COGS through vehicle upgrades, investing in technology, or by increasing production
levels. For more information, see Section 3 of the StratSim Student Manual under Unit
Margin: Cost of Goods Sold (COGS).
What is the difference between base cost and unit cost?
Base Cost = estimated unit cost based on 100,000 units of production.
Unit Cost (COGS) = actual cost to manufacture based on actual volume.

What is the expected price range?
The expected price range of a type of vehicle represents how much a customer thinks they
will have to pay for a type of vehicle. It reflects the beginning of the purchase process,
wherein preconceptions affect what vehicles a customer considers. In effect, expected price
range is primarily a positioning issue before the actual buying process begins.
Why am I being charged retooling costs?
Retooling costs are the cost of making alterations to your production equipment. You'll be
charged retooling costs if you upgrade OR increase production of a vehicle.

How can we estimate return on investment if we decide to increase the technological
On the input screen for technology, there is an Est. Cost Savings of Increase (mill). The
estimated savings is per year is for the entire firm, based on your current product line, sales
volume, and technology profile. Please note, that the technology investment only affects the
COGS, not the development costs. Also note that other factors also affect COGS (volume,
specifications, inflation, etc.).
What are the benefits of increasing our technological capabilities?
Investing in your technology capabilities has two benefits: your firm will be able to develop
products with better attributes, AND higher capabilities reduce the base cost of products, all
else being equal.
When I increase my technological capabilities, does this improve the attributes of my
current vehicles?
No, increasing your technology capabilities will not directly impact the specifications of any
existing product, but it will give you the capability to develop products with higher specs.
You must use upgrades in the development centers to change the attributes of your current
When upgrading the technology capabilities, what do "Est. cost savings of increase" apply
The estimated savings are on a per year basis and apply to manufacturing (not development).
They impact the entire firm, based on your current product line, sales volume, and technology
profile. Note that investing in your technology capabilities has two benefits: Your firm will be
able to develop products with better attributes, and higher capabilities reduce the base cost of
products, all else being equal.

and West). Is there a sales benefit to increasing the number of dealerships in our network? Yes. They make the actual sales to customers and are set up on a regional basis (North. Other factors that affect how many sales are made are the number of dealerships in your network and the quality and range of your vehicle offerings. because I won't be able to get the gas economy I want. all things being equal. So. more is always better. Safety. Increasing dealerships will also provide you with improved coverage in each region. and the Planned Openings line in the INTERNAL–Distribution and COMPETITION–Distribution screens. I do not want a 250 horsepower engine. For the former. different handling. and another year for the increase/decrease in distribution to impact results. the customer does not always want more (this goes for Price as well). Who doesn't want a better quality vehicle? But for Size and HP (performance). only refine them to better meet the needs of particular customers.Why am I able to improve my technological capabilities in Interior. for size and performance. and dealer discount percentage. a bigger car means more weight. . If I am looking for an economy vehicle. but do want more of the other attributes? There is a difference between the Interior Styling. so increasing the number of dealerships will allow you to sell more vehicles. As an example. East. Why don't people want more HP or Size. and Quality. if you make the decision to add dealerships in Period 1 (results for Period 1). There is no need to further develop these capabilities. to a point. like increasing regional and brand advertising. but not Size and Horsepower? All companies can develop the full range of size and horsepower preferences for vehicles throughout the course of the simulation. Safety. How long does it take to increase our distribution network? It takes 1 year to open/close a dealership. Styling. each customer has a more specific preference. How much does it cost to make changes to our distribution network? Check the note at the bottom of the DECISIONS–Distribution screen for the exact amount. more is always better whereas. on the I/S/S/Q. Pending dealership openings/closings will appear on the Scheduled Change line on the DECISIONS– Distribution screen. Likewise. Each of your dealerships is an independent business and their success impacts your success. and the Size and Horsepower. and Quality (I/S/S/Q) of a vehicle. and lower fuel economy. You can help your dealers make sales by making certain top-level decisions. training and support budgets. Dealerships and Distribution Can we control how many sales our dealerships make? Not directly. it will not impact results until the results for Period 3. There is a limit to how many vehicles each dealership can sell in a given year. Part is an on-going cost and part is for the change. South.

If inventory is very high. Gross/Dealer includes the margins they make on vehicles sold (difference between retail price and dealer invoice). you may want to consider delaying the minor upgrade a year and lowering production to minimize inventory levels before initiating the upgrade or doing a major upgrade to give you an extra year to sell off inventory. and are just as reliable as those in the real world. ratings will eventually go up. At a certain point. however. It is calculated as follows: Support/Dealer = (Regional Corp. Actual sales will be influenced by a number of decisions that competitors in the industry will make (new products. coverage.Dealerships are first added to the locations that will have the biggest impact on sales. but in the long-run they will. . and profitability affect these ratings. Dealer ratings are long-term in nature. Adv / # of dealers + Training and Support / Total Dealers) * 1000 Manufacturing and Inventory Can you upgrade a vehicle without writing off previous inventory? For a minor upgrade.) Remember that vehicle forecasts on the pro-forma are based on what YOU enter. pricing. you will need to increase capacity yourself. training. Gross/Dealer is probably the most important factor influencing your Dealer Rating because that represents the revenues that the average dealer has to run their business. number of vehicles sold. the ratings won't suffer drastically. no. If you believe the sales/production of the new vehicle will take you over capacity. so if you squeeze margins/lose sales in a given year. So. Do the development costs of a new vehicle cover increase in capacity. etc. Product offerings. marketing. and revenues from the service department. the market will become saturated and some of these dealers will overlap each other. This could hurt the sales from the surrounding dealerships and cause sales per dealer to decrease. or do we need to also factor that in and plan for it? Development of a new vehicle does not automatically increase your capacity. which can cause several negative side effects at the dealership level. What affects our Dealer Rating and how can we improve it? Dealer ratings (1-100 scale) reflect the customer experience at the dealership. What is meant by "Support/Dealer?" Support/Dealer in the INTERNAL–Distribution screen refers to how much is spent in support of dealerships for training and regional advertising. How are the Consumer Customer forecasted sales determined? The forecasts are based on the best economic forecasts money can buy. if you improve margins and/or increase sales volume (per dealer). upgrades.

It is strictly a way to clear out the old model quickly (selling off to car rental companies. This is particularly helpful to determine the retooling cost of an upgrade. Just be sure to take into consideration possible over-capacity charges. Conversely. 3. Reallocate some manufacturing capacity from your current vehicle production to the new one. Click Select Report. but we forgot to increase capacity. What are manufacturing overhead costs on the Income Statement and what factors impact it? The Manufacturing Overhead costs are the costs involved with the maintenance and general upkeep of your manufacturing facilities. and click Plant Investment to see all estimated manufacturing costs for next period. choose the Cash Flow Report. Produce over-capacity. overseas. you will incur over-capacity charges. The cost is missing out on sales for that year. including repairs to the building. How does flexible production work? Flexible production helps mitigate over/underestimates in vehicle production levels by 10%. if your supply produces more inventory than can be sold in 120 days. What can we do? You and your team can choose among the following options: 1. Should I check the flexible production box even if I think I can hit demand? Generally. maintenance of . Postpone the launch.How do you calculate Retooling costs? The easiest way to calculate the cost of retooling your plant for changes in production is to go to DECISIONS–Manufacturing. Be sure to reduce the production input for the vehicle once you have the information you need. flex production will automatically decrease production by up to 10% to meet the 120 days inventory. etc.). 2. these sales do not impact the marketplace. CarMax. If production falls between 0-120 days inventory. as if the flex production checkbox was disabled. but it does not compete for market share. Do note that if production is increased beyond your manufacturing capacity. Any production above capacity will be assessed an automatic over-capacity charge. higher amounts will result in a higher loss percentage). It does always result in a loss to you (the % loss is based on how much inventory there is. Is my written-off inventory after an upgrade sold as a competing product? No. and see what the retooling cost will be. The other way is to run a pro-forma based on estimated sales. enter increased production for the vehicle. activating flex production makes sense. Specifically. flex production will automatically increase production up to 10% to help satisfy the unmet demand. if demand is greater than supply. although you can still advertise to build brand equity. We have a new product scheduled to launch next period. production levels remains unchanged.

you will sell off your oldest (and most inefficient) plants. Once a concept or upgrade is ready to launch. What are the costs associated with the unsold inventory? Unsold inventory ties up cash (see the Balance Sheet and Cash Flow Report). If your total production levels exceed your manufacturing capacity. but this may vary based upon development / upgrade plans for a particular vehicle. and to upgrade existing vehicles. so plan ahead. If they are not fully depreciated. Generally auto companies aim for approximately 30 days of inventory. Where can I find the expense line for over-capacity charges? Overcapacity charges are found under Extraordinary Items on the Income Statement. and runs the risk of becoming obsolete resulting in an inventory write-off if the product is upgraded or discontinued. it is sent to your manufacturing plant for production. reduced depreciation and plant maintenance costs will begin the following period. and maintenance costs also go up as the plant ages. What is the difference between a Development Center and a Manufacturing plant? And how do these relate to our Technological capabilities? A Development Center is used to create and develop concepts. you will receive 50% of the remaining value on the plant and the other 50% of that difference will be an exceptional loss. Depreciation and maintenance goes up as capacity increases. increasing depreciation and decreasing maintenance costs somewhat. The factors impacting manufacturing overhead are depreciation. and retooling costs. Because it takes one year to sell and dispose of the plant. more efficient facilities and equipment) will lower the manufacturing overhead costs. maintenance costs. Your Manufacturing plant produces your vehicles for sale in the consumer market. What is meant by "Days Inventory?" Days Inventory is an estimate of the number of days of inventory available at year-end based on yearly sales and is derived by the formula (365 x units inventory / sales).manufacturing equipment. Part of the cost calculation is the age of the facilities and equipment. . What happens when we sell off capacity? Will we get cash back? When you reduce capacity. The higher your technological capabilities. The attributes of your vehicles (I/S/S/Q) are limited by your technological capabilities. the cheaper it is to produce your vehicles due to innovations and efficiencies in the production process and product design. you will receive an overcapacity charge. so increases in your production capacity (adding newer. Retooling also impacts depreciation and plant maintenance by adding to plant investment and updates the plant. etc. Keep in mind that it takes a year to build new capacity.

Do we need to pay all development costs upfront for a multi-year project? No. If you accept the changes. However. along with a new Base Cost and Development Cost. Your changes will be immediately displayed on the upgrade screen. if you end up with 240 days of inventory. you can CANCEL PROJECT or TEST to run a concept test of the upgraded vehicle. the 10% flex production will only bring you down to around 215 days. For example. To upgrade a vehicle. development costs are spread evenly over life of the project. Upgrades and New Product Development Can you upgrade the specs of a new car while it is in development? Yes. it is much more difficult for a firm that is known for its economy products to attain good sales for a new luxury vehicle than for a firm with an established track record with higher end vehicles. you can make minor changes to any major upgrades or new products in the 2nd year of development (or 3rd if a new class vehicle). All firms begin with 3 vehicles that have been in the market for a few years and no upgrades or new vehicles in process (in the development centers). Do any firms have products in development at the start of the game? No. click DEVELOP to complete the process.Will I always have between 0-120 days inventory if I have my flexible production box checked? No. StratSim does take into account a company's overall positioning. How do I upgrade a vehicle? The DECISIONS–Product Development screen will allow you to upgrade a vehicle or create a new one. Otherwise. . Then choose the vehicle you want to upgrade and the type of upgrade (minor or major). 'tweaking' the vehicle before launch will add more costs to the back-end. so it is possible for inventory to be outside the 0-120 day range. This will bring you to the upgrade screen. choose Upgrade from the list of choices. Notice that the specs of your vehicle have not changed. The change will not delay the launch of the product or upgrade. the flexible production box will only modify up to 10%. but will not delay the project. In order to change the attributes of your vehicle. you must click MODIFY to change the specs. For example. except for the Base Cost (there is a slight reduction in COGS when a vehicle is upgraded that reflect reengineering the vehicle to save costs in the manufacturing process without affecting the product's attributes. Does StratSim take into account brand positioning? Yes.

Is there any way to delay the launch of a model and free up a development center? You may cancel a project to free up a development center. when the manual states that a minor upgrade takes one year. If your Total capacity exceeds your current capacity. production volume and other future things that impact costs. The other option is to begin building a new development center (it will take one year to complete). use the Pro-forma Product Contribution report which takes into account the product changes. it is important to note that each round consists of a DECISION period. You may find it helpful to look at the Long Term Planning description in Section 3 of the StratSim manual for charts that nicely illustrate the development timeline for vehicles. MARKET. it means the upgrade will impact next period's results and will be in a development center for one decision period. you must wait until your first vehicle launches to see the benefit of reduced development time for an existing class. When you are ready. That is why it indicates Launch: NOW. When viewing the Decision section. How long does it take for additional manufacturing capacity to be available? It takes one year for increases in capacity to become available so plan accordingly. Meaning the remaining inventory will be written off. If we have a New product in a NEW CLASS currently in development. AND a RESULTS period. You can continue to make modifications on this page until you are satisfied with the costs. but you will have to start over again when you decide to start developing it again. the simulation begins in Period 1. the screen will indicate the Current Period. the DECISION period. the screen will indicate the next period. You can delay the introduction of a new model by setting the Price and Production level at 0 when it is scheduled to launch. you will receive an overcapacity charge in the Extraordinary Items line on your Income Statement. In other words. In other words. with each firm making decisions for Period 2. and TOOLS sections. click DEVELOP. and pricing and production decisions should be set with the upgraded vehicle in mind. In general. How do we find out the exact cost of the upgrade before approving it? Once you have begun the upgrade process after going to DECISIONS–Product Development. The INTERNAL–Manufacturing screen lists your current Capacity and your Coming on Line capacity. or RESULTS period. the Development Costs will be shown on the Upgrade screen. along with the changes to the Base Cost of the vehicle. To find out the actual production cost. As an example. The simulation only considers a vehicle an EXISTING class if it is currently being sold in the market. aka. When viewing the INTERNAL.How do the development timelines work in StratSim? The development timelines can indeed be a bit confusing. . COMPETITION. will we see a reduction in development time if we develop another vehicle in that class? No.

Correspondingly. If. Sales will be impacted the very next period so be sure to set your Marketing and Production decisions right away. When performing a MINOR upgrade. When performing a MAJOR upgrade. the per unit cost will likely be higher. and Manufacturing (production level) decisions. how much can I modify a vehicle? A major upgrade allows you to modify a vehicle by: Size: +/-10 in the 1st year. you may want to think about other clues for discerning whether competing firms are active in R&D development or not. +/-2 in the 2nd. base unit costs will increase due to the improvements made.). upgraded or licensed vehicles introduced this period. You can enter your manufacturing decisions and then view the Pro-forma Product Contribution report to see what the estimated per unit cost would be at that production level. you will see sales results for this vehicle.What does it mean when a product in development indicates "Launch Now"? This means the project is complete. In addition. Note that in the 2nd year. I/S/S/Q: +/-2 in the 1st year. there will be a message in Industry News one period in advance of the launch for NEW CLASS vehicles only.000 units of production. you must set Marketing (price.. etc. HP. you will likely see a reduction in costs as the development team perfects the engineering process. That said. If you produce fewer units. . If you do not improve the vehicle itself. Will I experience a reduction in the base cost of my vehicle when I upgrade? It depends on what specs you are upgrading. how much can I modify a vehicle? A minor upgrade allows you to modify a vehicle by: Size: +/-2 HP: +/-5 I/S/S/Q: +/-1 (as long as your technology capabilities allow) A minor upgrade is the quickest way to upgrade a vehicle. on the other hand. decreasing any of those attributes will lower the base unit costs. and if you produce more units you can expect to have a lower per unit cost. HP: +/-20 in the 1st year. A major upgrade takes 2 years and can give you time to sell excess inventory before it is written off. you are increasing the size. a 'tweak. Why is the base cost of my concept different in the Product Development screen than in the Pro-forma? The base cost is an estimate of the per unit cost of the vehicle based on 100. Once the simulation is advanced.' or minor upgrade can be performed to allow additional modifications. dealer disc. +/-1 in the 2nd (as long as your technology capabilities allow). Where can we find out if a competitor is upgrading a vehicle or launching a new one? The MARKET–Industry News contains information about changes in the competitive environment including any new. Before the vehicle can be sold. Note that additional inventory will be written off at a loss. +/-5 in the 2nd. and/or specs (I/S/S/Q) of the vehicle during your upgrade.

You will. Are we required to call our bonds before the end of the simulation? No. Does the StratSim program include a tax shield for depreciation in the financial calculations? If you are referring to the tax shield benefits of interest or depreciation. . That is. meaning your fixed rate may go up. You may call them if you like. for example. the 2nd (and subsequent) vehicle you develop within a class will take less time and cost less money to develop. However. Finance Are bonds deductible on corporate tax returns in the simulation? Bonds do not reduce taxable income. there are some "risks" associated with bonds. but the interest paid on them does. but if you do you will be charged one year of interest expenses. the simulation does not account for synergies between vehicle classes. there is no loss-carry forward effect in StratSim. your current interest rate may change by the time the bonds are issued. yes. it is frequently an indication of other factors that do impact the likelihood your vehicles will be purchased. The second is a penalty for calling bonds early. but remember there is a penalty equivalent to one year's interest payments for calling them early. however. they are definitely included. Are there any downsides to offsetting my short-term debt by issuing bonds? The rate for the long-term bonds will always be less than short-term loans. an increase in stock price would increase the market value of the firm. That said. stock price itself does not impact customer preferences. Does stock price impact customer preferences? No. Does increasing dividends improve our stock price? How will this impact our market value? Increasing dividends may or may not increase the share price—it depends on whether investors are more interested in income or growth. therefore. For one. since the number of shares is unchanged. a truck and an SUV? No. you only have to be concerned with making the interest payments. You are not required to call your bonds by the end of the game. However. However. Remember all the bonds that were issued together must be called together (no partial calls). The bonds are long-term bonds that mature beyond the time-frame of the simulation. receive an advantage when producing vehicles of the same class.Will we receive a cost reduction when we develop and produce 'similar' vehicles.

Think of short-term debt as a revolving line of credit—it is automatically issued if needed and automatically paid off each period. How do you pay off short-term debt? You may replace short-term debt with either long-term debt or cash raised by issuing stock. yes. remember that in this simulation. This will improve your ability to generate a stream of income. Profitability. Since stock price is an overall measure of the current position of your firm. If we issue more shares. and improve your bond rating. As you know. (Note that the first year forecast is also an estimate. etc. based on the cash rate (what interest rate they can get in a money market account) and the prime rate. First. they are not known constants. although because the simulation is a bit more volatile than the real world. Please carefully consider your current position. I'd probably increase it a bit from that. Alternatively. thinking long-term. you'll need to make an assumption about approximately what it would be. To get out of the dark completely. Second. . your estimates may be fairly accurate or more difficult to nail down. but this might be better than nothing if you need a benchmark. will our stock price fall? If all other things remain unchanged. as in the real world. . improvements in managing inventory. you will have to make estimates beyond a year.How can I raise my firm's stock price? Stock price is an indicator of the current position of the firm. your strategy. are all factored into stock price. you are making decisions in an uncertain environment with less than perfect information. You can use a range of rates here to determine sensitivity or pick something that is "average. Using the "real world" is generally not advised in the simulation. growth. and the execution of your strategy. as well as market risk. That can be difficult and frustrating. you could use the Beta estimate of one of the auto companies. How do we improve our bond rating? Generally.) Depending on the particular investment you are considering. With regard to future cash flows of a project. which is what you will have to do to some extent when you play the simulation. Betas are estimates of risk in the financial world as well. But there are very few situations where all of the inputs of an NPV calculation are truly known. the bond rating reflects your current default risk as a company. If they are "known. . etc." You are correct that Beta is not provided. How do I perform an NPV analysis within the simulation? I seem to be missing several inputs . Restructuring might help. with regard to the risk-free rate. you will want to consider all factors that go into making your firm a profitable one. The best way to improve it is to have a successful strategy and execute it well. will also improve your cash position." it just means that someone has gone through the work of coming up with the assumptions and estimates. income from operations. future potential. but perhaps at the expense of your stock price.

The manual states that depreciation will remain constant unless PP&E is purchased or sold. but the amount will be lower due to selling off equipment unless the plant was already fully depreciated (as oldest plant and equipment are sold off first). What is the difference between Cash Rate and Prime Rate in the Economic Outlook screen? The cash rate is interest a firm receives on short-term cash balances. Note. and bonds/stocks issued do not provide sufficient cash for you to cover expenses. What happens if we run out of cash? Will we go bankrupt? If operations. and it will always be less than the short-term debt. it is an indicator that you do not have enough cash to fund all your expenses and you should consider ways to increase your cash position. that the final rate is also dependent upon how things go during the year. you can count on depreciation remaining constant (unless you increase capacity) over the course of the game. So your plant depreciation will continue. Training and support for dealerships is also included. you are actually selling off some of your plant and equipment. so it is to your advantage to plan cash flow needs accordingly. In the proforma. Is a discount rate used when calculating cumulative net income? We use straight cumulative net income no discount rate. plant depreciation occurs over a 10 year straight line. current cash. Section 3 of the StratSim manual describes these ways in detail. Running a pro-forma may help you determine your cash needs for the next period. as well as factors related to receivables and payables that you can't directly control. prime rate is the rate a firm pays on short term loans (if it is a "prime" customer). If you continue to see high short-term debt. What are G&A expenses? G&A is a catch all for a number of indirect expenses such as admin costs for each vehicle sold and for each new or pre-existing dealership. a short-term loan will be automatically issued for the amount necessary to cover any shortfalls. however. you can experiment with different levels of debt to see probable impacts on the interest rate. The short-term borrowing will be at a higher rate of interest than longterm debt. . Does that mean that we assume that depreciation goes into infinity? No. Is the long-term interest rate dependent on the size of the debt issued? The interest rate will depend on the market's evaluation of the risk of your firm.If we reduce capacity. Since the game is played up to 10 years. will it reduce my depreciation expenses? When you reduce capacity.

R&D is expensed over the course of the product development project (1. These options also give you the flexibility of a) selling off your inventory while not manufacturing any vehicles (setting production to 0 but still offering the vehicle for sale in the consumer market. then it could improve stock price. it is important to coordinate with your teammates so you don't accidentally produce a similar report you don't need. 2. What would be the impact to our stock price if we cut our dividends? All other factors being equal. Once a report is purchased. First. there is a minimum amount of cash that the company requires for on-going operations. Although you won't be charged for creating an exact duplicate. Will my available cash ever drop to zero? No. This may not be in compliance with GAAP. Which of my expenses are depreciated over time? In general. or b) ONLY selling your vehicle into the B2B market (by unchecking the Sell In Consumer Market box and bidding on B2B contracts and manufacturing the appropriate number of vehicles for the contracts). In short. but if the cash that is freed up is used to boost income (and therefore equity). it can be viewed by anyone on the team for no additional cost. the simulation tries to keep expenditures as current as possible. or 3 years) and production capacity is depreciated over 10 years.What is the rate of return we'll earn on our excess cash after we've paid off our short-term debt? See the MARKET–Economic Outlook report (where GDP and other economic data are listed) for the current cash rate. go to the DECISIONS–Manufacturing screen and set production to 0 for that model. . it depends on what you do with the money saved by cutting dividends. the output from many of the reports is based on parameters set by your team. but it improves accountability for decisions in the simulation. Then go to the DECISIONS–Marketing screen for that model and uncheck the box labeled Sell in Consumer Market. cutting dividends will have a negative impact on stock price. so opening dealerships and increasing technology capabilities are expensed in the current period. The simulation speeds up depreciation/amortization rates mainly to make sure most investment decisions impact the firm during the simulation rather than after they've retired. However. How do I discontinue a vehicle model? Discontinuing a vehicle is a two-step process. This varies depending on the operating conditions of the company and cash needs. Entering Decisions Can a team be charged twice for the same report? No.

and then it is replaced with the next one. to review. . which are binding once purchased/accepted. Keep in mind that your company is making billion-dollar decisions each period. $50. you can simply open the page you want to export and click the Copy icon in the upper menu bar of the simulation. or use Ctrl+C to make a copy. Tools. you cannot retroactively change anything. As a general rule. Is it possible to undo a decision? Yes. You can choose File in the top left corner and click [Print Reports] to see predetermined selection of pages to export (You must check the Export to Spreadsheet box at the bottom unless you want to print them). studies cannot be returned or refunded.000 for a report is miniscule by comparison. remember that your teammates can make changes also. take a screenshot. you may need to use Paste Special to make it tab-delimited. It is important. so if you are using a different program. therefore. and optional licensing and International agreements. both customer preferences and competition changes each year. If the page you want is not listed there.How do I export simulation data to a spreadsheet? There are a few ways to do this. or export your Decision Summary before each round ends to verify everything is correct. and Customers Can I sell a Delivery vehicle in the consumer market? No. The Delivery class is only for the fleet buyer (B2B) and has no impact on the consumer market. Once the decision round has been advanced to the next period. Do consumer preferences change over time? Yes. Your market research tests are private and can only be viewed by members of your team. can we receive a refund? Unfortunately not. The exceptions are market research studies. Can our competitors see what market research we've purchased? No. Any member of a team can purchase reports. you can undo most decisions and change them BEFORE the decision round due date. and possibly print-. however. Then simply paste it into a spreadsheet. In some periods there will be more change than others. If you are playing as a team. so you will want to coordinate your efforts. Once purchased. so it is important that you coordinate with your team and carefully consider the research you want. We accidentally purchased market research we don't need. Does the New Customers list change every period or is it static? The new customer list stays the same until a new customer emerges. The copy function is optimized for Excel. Research. just like in real life. there will always be 3 new customers available.

You'll want to look at the forecast units under CONSUMER-Customers (forward looking) as well as analyze historical trends and consider customers who are interested in that class and their expected growth rates.000 and $16. The characteristics of the existing product are used. The idea behind conjoint is to find out what trade-offs your customers are willing to make. How do you identify which vehicle class has the highest growth potential? All of the information you need is found in the MARKET section. you would need to use concept tests. advertising. The key is providing the customer with a good product at the right price with good awareness. promotion.000 to see if a particular consumer is willing to pay $1000 for the improvement in vehicle specifications. carefully read TOOLS–Conjoint Analysis. For instance.Does the Test Market analysis use the current vehicle or the upgrade in development when producing results? The Test Market is used to determine the impact of price. you might select 3/1/1/1 and 1/3/1/1 to help you analyze which higher attribute is preferred. Other factors such as the size of the market and advertising budget also play a role. though it is somewhat limited. or upgrades. You may also want to use some of the market research to learn more about the emerging customers. awareness. How accurate is the "likely to buy" percentage in the Concept Test? The likely to buy percentage is a good way to begin to estimate demand. On the specifications in particular. you might choose 1/1/1/1 and 2/2/2/2 and prices of $15. How do I create a useful Conjoint Analysis? For a start on choosing good values for the study. For new concepts. How do we determine customer perceptions? In StratSim there are two primary ways to learn about how a particular customer segment perceives an existing product the focus group and the perceptual map. in the Operations Guide section of the manual. so you'll want to design the study such that it yields that type of information. Also note that only one new customer can emerge each period. Remember when analyzing historical market data that vehicle stockouts impact sales. . and the best support. advertising. but note that this study is run "unbranded" and therefore does not take into account distribution. firm preference. not any planned changes (upgrades). products in development. The new market will go to the vehicle that provides the best fit. The MARKET–New Customer screen provides the only information available for new customers. etc (see the Concept Tests page of the manual in the TOOLS section). and promotion on sales. where the product features are held constant. How can we make a new customer market emerge? There is no surefire way to make a new customer market emerge.

When running a Concept Test. development capabilities and financial position. the first vehicle class listed (primary) is somewhat preferred over the second (secondary).Is it possible for a customer to have two "desired classes?" Yes. each consumer market has a primary and secondary 'desired class. Consider the fact that BMW thought it better to buy the Mini Cooper and build on it rather than develop its own brand from scratch. repositioning of your firm. what price are we inputting: MSRP. so plan accordingly. This is unlikely to occur in reality. In addition. We want to discontinue a vehicle so our firm is better positioned as a high-end manufacturer—what are the downsides to this? Dropping a brand should be done with care. though achievable. you inherit its customer base. and changes that you make will not change others' view of the company overnight. In effect. or dealer price? The price you enter on the concept test assumes that MSRP and the retail sales price to the consumer are the same without any dealer discounting. In the Consumer Customers report.' This means the customer will consider both vehicle classes when making purchasing decisions. you also inherit people's perception of your firm based on years of experience. does demand increase or is it at the expense of some of the existing segments? New customers represent new business and increase industry-wide demand. Average Sale price. and allow finer segmentation of the market. . since you have built up equity in the brand that can only be replaced at great expense over a long period of time. Your future vision of the company may or may not match the current company that you are managing. When a new customer pops. What are the measures of customer satisfaction in StratSim? The main measures of customer satisfaction in StratSim are: • Consumer preference: Overall satisfaction measure for the firm. Usually. The Consumer Customers reports provide detailed information about each customer's vehicle preferences. competitors. which company do consumers prefer to do business with? • Dealer Ratings: A measure of consumer satisfaction with the dealership experience • Focus groups: specific feedback on various aspects of the product What is included in the MARKET–Consumer Customers report? Consumer customers are the intersection of consumer segments (report: INDUSTRY– Consumer Segments) and vehicle classes (report: Industry–Vehicle Classes). When you take over management of a firm. So. product portfolio. does take time.

among other things.Where do market research costs appear on the Income Statement? The cost for market research will show up under Extraordinary Items on the Income Statement. desired class. clicking the [Dev. they will buy other vehicles. Center] button and unchecking Add Development Center. how many vehicles of each type of class were purchased. If the Licensing option is activated (instructor optional). but there is no on-going cost for having it if you don't use it. how many vehicles a particular customer-type purchased. which provides some similar information. and even secondary. you will be able to use it next period. you can't remove a development center once it has been built. just like the other consumer customers. and ONLY if the Licensing option is activated. The detail view will show the cost as Reports. among other things. If the Development center has not yet been built. If you make the decision to add a development center in the current period. you can license a vehicle from another firm. How long does it take to add a development center? It takes one year to build the development center. As part of the licensing agreement. you can run a concept test on one of the emerging customer. including other classes. The numbers will vary based on how well the new vehicle meets their overall needs. Why can't I run a focus group on an emerging customer? Focus groups are only available for customers that have already emerged. However. Development Centers Can we license development centers and production plants from another team? Sort of. Can we remove a development center? No. Sometimes customers will purchase vehicles outside of their primary. A new or significantly upgraded vehicle MUST be created in the class that the New Customer report indicates in order for the customer to pop. The Consumer Customers report shows. the licensor can develop. You can use the TOOLS–Sales by Customer report for detailed information. Will a new customer buy a vehicle that's different from its listed class? Yes and no. After the new customer pops. on the market that meet their needs. upgrade and/or produce a vehicle for your firm using their facilities. Why do the unit sales numbers differ between the MARKET–Vehicle Classes report and the MARKET–Consumer Customers report? The Vehicle Class report shows. . you may "undo" the decision by going to DECISIONS–Product Development.

actual sales. So perhaps the question your team should consider is what is impacting the market's assessment of your firm's future value. However. range of products offered. Europe. you can wait until one frees up. Needless to say. In other words. all the things that make a customer want to do business with a firm. Miscellaneous How realistic is the StratSim environment compared to the U. If you need more. in a simplified way. These assessments are made each period. to try to maximize our position. faculty and students should only use historical perspectives as a way of relating to the market. and firm publicity—in short. The stock market is determining the value of your firm into the future by assessing the discounted value of your future cash flows. You can only add one per period and can have a maximum of 5 over the course of the game. What are the drivers of firm preference? Firm preference is determined by dealer ratings. Generally. we've retained as much realism as possible to make it easier to quickly understand the overall environment. Remember that it takes one year to build a new development center. What is the best way to approach this? Remember that your firm performance is a function of your performance within industry and across industry on net income and market value. what we are trying to provide is an even opportunity experience for all teams that reflects. That said. . The same is true for economic indicators in the simulation. B2B Marketing (Optional) Are there any negative consequences to entering the B2B market? While selling to fleet buyers does not impact the perception of your firm as measured by firm preference. even though we are ending the game at Period 10. B2B contracts may impact your internal operations due to changes in production levels of vehicles which may require retooling. a realistic market and market dynamics.What do we do if we don't have any more Development centers available? All firms start with 2 development centers. or build a new one by clicking [Dev. including the final period. firm technology capabilities. the market's assessments of your firm continues to be forward looking as it has been throughout the game. or adding additional capacity. rather than for analytical purposes. age of products.? StratSim is based on the automobile industry and many of the scenarios are modeled to reflect more mature markets such as North America. much of the complexity of the industry has been simplified to allow participants to focus their time and energy on strategic issues. or Japan . so you will not have immediate access. Center] and checking the Add Development Center box in the DECISIONS–Product Development Center. You should also plan carefully regarding margins in the B2B markets. Our team is trying to figure out how the simulation thinks about the end of the game.S. and whether we should do a lot of cost cutting then.

you will be awarded the guaranteed units for the contract. check the box next to the client's name. • The next step is to hire a sales force to build a relationship with the client and obtain a request for quotation. You will be prompted to choose a vehicle for the contract. build a new one. The preferred supplier will win double the guaranteed units. How do we qualify for a B2B contract? How does the process work? Company fleet buyers have a significantly different purchase process than individuals. Please note it takes one year to build a relationship. Please note that B2B units will be allocated before consumer sales. This price has no effect on your vehicle price in the DECISIONS–Marketing screen. or increase your distribution coverage to qualify. You may already meet all of the qualifications. • Once the simulation advances to the next period. Whether or not a vehicle is currently for sale in the Consumer market. but also very likely you may need to modify a current vehicle. Please note if you are the only supplier. as long as you continue paying your sales force. you will become the "preferred" supplier. or offer the lowest vehicle price. • The first step is to determine which contract(s) you wish to bid on. The requirements for each B2B contract can be purchased in the MARKET–B2B Contracts section. And all firms can qualify for the same contract if they fit the requirements. Do all firms see the same B2B contracts available for bidding? Yes. so you should keep that in mind when setting production levels. You can see which firms have qualified in the MARKET– B2B Contracts screen. you will automatically become the preferred supplier as long as you produce a sufficient amount of units. These are two different markets with different purchase processes. your company must meet ALL the requirements for that B2B client. and will be awarded DOUBLE the guaranteed units.Can we sell a vehicle for different prices in the Consumer and B2B markets? Yes. and all other suppliers will be secondary and win the guaranteed contract units. If you are the ONLY supplier. . you will be prompted to enter a separate price in the DECISIONS–B2B Marketing screen. Go to the DECISIONS–B2B Marketing screen to see your available contracts. In order to qualify for a contract. you are ready to bid on a contract. To target particular client contracts. If not. How do we become the PREFERRED supplier? The preferred supplier is the one who meets all the requirements at the lowest price. You may want to use this time to work on meeting all requirements. you can continue to try again each period. If you meet all the requirements. this is done in the DECISIONS–B2B Marketing screen.

expanding distribution. retooling. which is around $500K per client. However. . Licensing (Optional) Are there any fees associated with producing a vehicle for a licensee? Not directly. product development. of course. Can we bid for a B2B contract with a licensed vehicle? Yes.How long do B2B contracts last? B2B contracts are awarded each period based on the bids received for the contracts. may all also come into play. Alternatively. etc. you will incur retooling costs. producing a vehicle under license will increase your overall production. Information on production and manufacturing can be found in the INTERNAL–Manufacturing screen. You may want to run a pro-forma to determine if your margin will justify moving forward with the deal. but as licensor. Instead. Where do we find information on B2B Contracts? Two options. when you hire sales force and target particular contracts. you create a new production line. you will incur some retooling costs. • Any time you change your manufacturing mix. • Lastly. the license agreement may include a License Fee. this benefits the licensor for additional costs. there are several issues you want to keep in mind that can affect your profits. but the price requirements will change to take into consideration inflation. and the DECISIONS–Manufacturing screen.. you can purchase contract information for each of the B2B clients in the MARKET–B2B Contracts section. your sales force will provide similar information the following period as part of the request for quotation process. You can expect the contracts to continue throughout the simulation. If the B2B module has been activated for your class (instructor-selected). you do not simply use the old production line and slap a different nameplate on the vehicles as they come off the line. some of your competitors may enter the B2B market which may impact preferred provider status. While you do benefit from the experience with the vehicle it is based on. as long as your license contract allows this. and. How much does it cost to enter the B2B market? The only direct cost is the sales force. but entering a negative number will benefit the licensee. Make sure your manufacturing capacity can handle it or you will receive an overcapacity charge. • The most important is the unit price of the licensed vehicle. The license fees will appear on the Income Statement under Licensing Fees. When you produce a vehicle under license. Typically. overhead. the COMPETITION–Manufacturing screen. • Additionally. This allows you to upgrade the licensed vehicle (as per your agreement) independent of your own products.

just input your requested changes. both parties can come to an amicable agreement. the licensor must review the license requirements per the contract and accept the agreement (or do nothing and ask the licensee to modify the license). go to DECISIONS–Licensing. How do we penalize a team that doesn't comply with a licensing contract? First. and vehicle specs. you may want to include a License fee in the agreement to offset potential development costs. Or charge more on a per unit basis. negotiating the contract will mostly take place outside of the simulation in person with the other team. however. so keep an eye on price and units to make sure they correct. Skype. After the offer is extended. As part of the contract. .How do I begin the licensing process? Licensing is an instructor-selected option. Once you agree on a contract. Research can be done within the simulation (in the MARKET. As soon as you click [OK]. How many sales were potentially lost? How much money was potentially lost? Answering these questions is often difficult to estimate.). you can license vehicles from other firms in your industry to sell under your brand. You will probably need to get the instructor involved and it is important to have all terms agreed to in writing. We do not dictate the terms of the contract. Therefore it may be a good idea to discuss your expectations with the licensor. you will enter the units. Expenses such as these can be factored in by entering a licensing FEE which is paid to the licensor to offset additional costs. contract price. the licensee must go to the DECISIONS–Licensing screen and click Add to enter terms of the contract. Based on the contract you negotiated. you will need to determine the consequence of non-compliance. the licensor may need to modify the vehicle in question. For example. email. (Note: this is the name of the vehicle you will sell. Please note that Major upgrades will take two years and may delay a license. you CANNOT undo this decision. etc. click Accept. the simulation will automatically add production of the licensed vehicle to the licensor's plants. COMPETITION and TOOLS section). we can reimburse and/or fine the parties involved WITH INSTRUCTOR APPROVAL. but keep in mind the limitations within the simulation. If this option is activated. Results from these sales will be available next period. not the vehicle you are licensing. The licensor will then have to upgrade the vehicle. If both parties can come to an agreement over potential damages. or reject the contract. check the EXTEND OFFER box. Please note this is a last resort and it is our hope that with instructor mediation. How do we request an upgrade on a licensed vehicle? When entering licensing decisions. Just have the instructor email us. and enter the vehicle model to license. First you must enter a name. The Licensee then needs to pricing and advertising budgets for the licensed vehicle in the DECISIONS–Marketing screen. or by phone. Once you click [OK]. Then you are prompted to choose the vehicle you want to license. To accept. if you want to upgrade Interior and the I/S/S/Q of the current vehicle is 4/3/2/2. As licensor. enter 5/3/2/2. This should all happen in the SAME PERIOD. so it must begin with the first letter of your firm. Once the contract has been entered.

licensed vehicles cannot be upgraded or modified. can we make changes before the simulation advances? Once an agreement is accepted by the licensor it CANNOT be changed until the next period. distribution restrictions. . will the simulation penalize them? No. The licensor will then need to perform an upgrade in the DECISIONS–Product Development screen before they can accept the license in the DECISIONS–Licensing screen. This means the contract price cannot be changed (selling price is set be licensee).How is market share determined for a licensed vehicle? Whose sales. While excess inventory may temporarily increase costs on your end. However. However. your contract may include details or requirements that cannot be enforced by the simulation. and deduction and addition of license fees occur automatically in StratSim. and the licensed vehicle (with YOUR name). The licensor is now producing two separate vehicles: the original (with THEIR name). and there is no way to sue. You will be able to change the license agreement next period when it is up for renegotiation. such as non-compete clauses. In other words. the licensor produces a completely new vehicle (albeit a vehicle based on a current product) with your name on it. Therefore. If the original vehicle our licensed vehicle is based off gets upgraded. Once a license is agreed on. Production and delivery of licensed vehicles. If one partner does not comply with the terms of the contract. you may continue selling them after the licensing agreement has expired. The licensor can choose to upgrade the original without any input from the licensee. For this reason it is important to carefully estimate demand when projecting unit sales of a licensed vehicle. If we do not sell all of the vehicles we license. the licensor or the licensee. If our Licensing agreement has been accepted. The vehicles have your brand name and are sold in your dealerships therefore you will be stuck with the vehicles if you don't sell all of them. there are no lawyers. Carefully consider all ramifications before entering into a contract. This is because Value Market Share (% of $) is based on share of manufacturer sales. It is up to the licensee to request an upgrade to the licensed vehicle using the DECISIONS–Licensing screen. who gets stuck with costs? The licensee. etc. will our licensed vehicle get upgraded automatically? No. units cannot be returned. etc. are reflected in their market share? The sales of BOTH the licensor and the licensee are reflected in Value Market Share (% of $). the development process is tied to the NAME of the vehicle. only the licensee (the firm who ultimately sells the vehicles in the consumer market) will see their Unit Share (% of units) affected. upgrade intervals. it is up to both parties to monitor each other and communicate to ensure everyone adheres to the contract. Unless your instructor takes on the role of the legal system.

your contract may include details or requirements that cannot be enforced by the simulation. and there is no way to sue. • License contracts can require that vehicles be upgraded once. and corporate positioning. If a contract is broken. However. Remember. there may be no recourse. do we need to set production levels? When you accept the license agreement (by clicking the [Accept] button). or at set intervals throughout the game. on how many vehicles you can license TO other firms. etc. it is up to both parties to monitor each other and communicate to ensure everyone adheres to the contract. distribution restrictions. There is no limit.What are the rules and restrictions for licensing in StratSim? You should review the Licensing section of the StratSim manual for further details. but we've included some important notes below: • A firm can only license a maximum of TWO vehicles FROM other firms. Carefully consider all ramifications before entering into a contract. since you are bound by contract to deliver the vehicles. • Inventory remaining after the licensing agreement ends can be sold by the licensee (as long as the contract allows this). even though it is produced in your competitor's production plants. scheduled upgrade intervals. In other words. • Once an agreement is accepted by the licensor it CANNOT be changed until the next period. and deduction and addition of license fees occur automatically in StratSim. This is done in the DECISIONS– Licensing screen. Increasing the . licensed vehicles cannot be modified. such as noncompete clauses. no open-volume license contracts. • Unit requirements must be set. • While a multi-year contract can be negotiated. • Lastly. the licensed vehicle and units will automatically be added to your production schedule. This means the licensee must re-offer the license AND the licensor must re-accept the license every period. licensed vehicles must match what is in the licensing agreement or the simulation will not allow the agreement to be offered. however. This means the contract price cannot be changed (selling price is set be licensee). However. In other words. What is the difference between the licensed vehicle and the original? It is true that the specs of both vehicles will be identical. the upgrades must be done BEFORE the licensing contract is accepted. there is no court system in StratSim. Therefore it is seen as part of your product portfolio and gets the benefits (or drawbacks) of your overall corporate profile (including perceptions such as dealer ratings. That said. production and delivery of licensed vehicles. units cannot be returned. there are no lawyers. When we license a vehicle to another firm. licenses MUST be renewed each period within the simulation. etc. the licensed vehicle has your firm's name on it. • Classes with multiple competitive industries cannot license vehicles to or from other industries. firm preference. Therefore. and you will not be able to change the number. It cannot be returned to the licensor.

it will not be available until next decision period. If you do not produce enough. is a decision you make separately. For example: if your total domestic plant capacity is 1M—each vehicle will have a limit of 2M in the international regions. so you may be running over capacity for a year.production capacity. Why is my capacity utilization number so low when I am producing more than it says I have capacity for? If you are producing vehicles in a plant located abroad. Where do I set production levels for a vehicle I'm marketing internationally? In the DECISIONS–Manufacturing screen. and factor that it when deciding if a deal is worth pursuing. That is. The partner will calculate the tariff and shipping. You only set one production number for any particular vehicle. the price you enter for the agreement is the cost per unit to you. so be sure to produce enough to meet expected demand in the domestic region. Capacity utilization is looking at the total domestic plant capacity and the total domestic vehicle production. Who pays the tariff and shipping when sourcing from a partner? The offshore partner pays the extra fees. on the other hand. International What is my manufacturing capacity in an overseas plant? Your capacity in the international regions will be determined by your domestic plant capacity. Keep in mind that if you increase capacity this period. these are not included in the totals and thus are not affecting your capacity utilization percentage. as well as any international regions you have entered. Each vehicle will be limited to twice the amount of your total domestic capacity. demand will be met in the international market FIRST and in the domestic region second. .