UNIVERSITY OF GLASGOW

Business Simulation

Report of Cesim

Name: Zhao Yiming GUID: 2074359 Group: Universe 2 Orange Date: 20

th

 April 2014

1. Introduction

Cesim is a system to simulate all kinds of business process. We used the system
to complete a series of procedure to operate a smartphone company Orange
Juice, in terms of product design, market, customer care, and R&D. This report
aims to illustrate the decision-making process, analysis of our group’s and
others’ performance, and find our pros and cons.

2. Round 1- 3 2.1 Marketing outlook

According to the marketing outlook, the demand of European customers to

smartphones is already at a positive level at the beginning of Round 1. On
contrast, the demand level of Asia market is much lower than the one of
Europe market in Round 1, but it is more potential. Both markets increased
hundreds of % in Round 2, especially the number of low-end customers of
which price elasticity of demand is high correspondingly. Asia market grows
dramatically, but the high-end market still dominates Asia market. With the
significant rise of low-end market, smartphone markets in Asia have
undergone remarkable structural changes.
2.2 Decision-making process

The design of phone After analyzing the marketing outlook, as the high-end
market is huge, our group decided to mainly focus on high-end one in each
market firstly. Considering Asia market was small, so only one was launched in
Asia in Round 1, and added one in the next round.

Table 1

 Name Market Position Daisy Europe Company and household Lily Europe
High-end company and household Peony Asia High-end company Jasmine Asia
High-end household Table 1 illustrates the target market of each phone. In
detail, the strategy of two smartphones, which one is designed for low-end and
the other is for high-end, were launched in Europe. The designs of smartphone
in Europe are Sport, because most European prefer to this style according to
Markets Research Report. As the investment of R&D, technology indices
increased. During the design of  phones, the compactness and battery life of
existing products were added to some degree. It can be seen in Picture 1.

Picture 1 

: Round 1-3 Round 1 Round 2 Round 3

 Markets

Pricing The pricing strategy is always end of 9. The strategy of Daisy was still
cost-leadership, as well as the one of other 3 products was pricing skimming in
order to keep high  profits of which high-end customers still tend to pay highly
for high-quality smartphones, though the low-end market enlarged
significantly.  

Sales forecast Because of the first period, it was hard to do sales forecast. So
the method we chose was 20% of the target segment, 15% of the same-end
segment (low-end or high-end), and 10% of other two segments respectively.  

Advertisement and channel Considering that advertisement has long-term

effects, and too high investments of advertisement and channel have negative
effect in fixed costs, so the appropriate percentage of the part is 15% out of
the profit margins to invest in advertisement and 10% out of the margin after
advertising to invest in channel in both Europe and Asia market.

Warranty period As the market average warranty period is one year, we decided
to choose one year. Additionally, we lowered down the margin on repairs to
25% in order to attract the market share of repair market as well

R&D

 We found that only when R&D is higher than others, can company provides
high-quality products in terms of battery life and compactness with relatively
low

costs, which would be our group’s competitive advantage.

So we decided increased

R&D investment from 4000k€ to 10000k€.

2.3 Result analysis

The result of the period is that share price of our group was 18.2, which was
third  prize of Universe 2. The investment of advertisement and channel were
too high, which caused that fixed costs rose and influenced profits and share
price, which

resulted our products’ customer awareness was high but its sales were not as
excellent at the awareness. Additionally, Europe market failed, because

Daisy’s price was too high. Specifically, Daisy that only had two features with
50 compactness and 40  battery life, compared with our competitor — 

Green Apple, whose MEE had 3 features with 65 compactness and 60 battery
life, only sold 219. The price of 229 was too high.
3. Adjustment period: Round 4-5 3.1 Marketing outlook

Due to the vast population in Eastern Asia, Asia market exceeded Europe
market. Meanwhile, household market became the largest one among the 4
segments, so market became more sensitive with price. As estimated, the
growth of demand for smartphones has decelerated in both market areas,
which turned into negative figures in high-end segments. However, the
demand of low-end segments in both Europe and Asia might still grow at the
rate of 100 %.

3.2 Decision-making process

The design of phone Because of the growth of Asia market, we decided

launched Daisy and Lily in Asia. Considering we were lack of middle-end
smartphone, so Lily was adjusted for middle-end product, while Peony was put
into Europe to attract high-end customers.

All products’ prices were reduced because market became more sensitive (see
Picture

2). At that time, product portfolio initially formed.

Picture 2 

: Round 4-5

Markets

Advertisement and channel For long-term development, we still maintained

about 15% from margin for investment in advertisement and 10% from after
advertising margin for investment in channel. In addition, considering that the
products had been updated and a couple of new products also launched in this
period, it is crucial to remain the same marketing  power in order not to lose
the previous market share but gain more as much as  possible.

Customer care and R&D This round, the warranty period was adjust to 18
months in order to raise the customer loyalty.

Meanwhile, R&D was increased to 30000k€in total.

3.3 Result analysis

The share price of our group was 42.84 in this period, which was fifth prize of
Universe 2.

In Europe, both Daisy and Lily’s sales

were poor. In terms of Daisy, its design was Asian household favourite one but
unpopular one of European household. So it failed in Europe but was
successful in Asia. Meanwhile, other group had similar  product as Lily but with
lower price. On the other hand, our group did well in Asia, especially Daisy that
became the best seller with 955.2 total. Although Peony and Jasmine
’s sales were not as good as Daisy,

the profits were high due to its high price. But we found a serious problem that
our company do not have middle-low end products, and there were still 2
products we can design. Considering that high-end market became decrease,
our product structure would be changed in the next turn.

4. Round 6-8 4.1 Marketing outlook

The growth of demand has decelerated in both market and kept stable. During
Round 7 and 8, marketing share became more important, and customers put
more attention to features.

4.2 Decision-making process

The design of phone

P i c t u r e 3 : T h e d e s i g n in R o u n d 6

 From Round 6, our group did change much in design. Specifically, in each
market, we launched 4 smartphones: low-end, middle-low end, middle-high
end, and high-end, as a product portfolio to competed with other group.
Considering that both high-end markets liked avant-garde style and low-end
customers were care about design, so the middle-high end and high-end one
were designed as avant-garde. Others were according to marketing research
report to choose their design. Since features became important, every phone
was added one feature in order to cater to customers. Furthermore, after
analyzing our competitors, we found two kinds of gap: price gap and function
gap. Likewise, in these three rounds, our group firstly analyzed our
competitors, then, designed our smartphones with competitive matching
pricing strategy, which means our price was adjusted according to our
competitors.

 
Market The percentages of advertisement and channel investment kept 15%
and 10%

respectively.

Customer care This round, the warranty period was adjust to 3 years, because
the market research report refers that the effect of 3-year warranty period is 3
times as 18-month. Another reason is that few groups choose 3 years as their
warranty period, so we tended to increase our repair sales through improve
the warranty period.

R&D R&D

kept 30000k€ in Round 6 and 7, while the figure reduced to 10000k€ in Round

8.

4.3 Result analysis

Although our group did excellently in both markets, especially Daisy and Rose
gained huge successes in Europe, our share price was still fourth prize in Round
6 (58.5) and 7 (70.01), improve to third prize in Round 8 (85.35). Through
financial statements, some problems can be analyzed. Firstly, with the growth
of sales, variable costs increased as well. But that is not the main reason of low
share price but the prices of our smartphones were too low. Secondly, due to
increase of new products, the  production line costs rose rapidly as the top 1
among our universe, which around

21000k€. Thirdly, the warranty investment could be decreased to about

23000k€, and it was 35000k€at that time

5. The contrast between our group performance and other

groups’ performance

Picture 4: the result of

all groups’ performance

 According to the summary, Orange Juice stands at third prize of share price
(85.35) at the end of Cesim, following Green Apple (111.1) and Ochre (91.02).
Actually, the share price between Green Apple and our group appeared in
Round 4, then, enlarged in the following rounds. Since the strategies of Green
Apple and Ochre are similar, only the performance of Green Apple will be
analyzed in the report, in terms of

 products’ design and portfolio, and fixed costs

 in Round 4. As well as in Round 6, our group had a huge change of product
design, so the figure of this round will be analyzed as well.

5.1 Round 4

Picture 5:Financial statement in Round 4 

 
According to financial statement, it shows that fixed costs of the two groups
were almost similar. Only a problem is that our production line costs were too
high,  because Green Apple rarely changes all products in one round that can
keep  production line costs at a low level. The main reason for the gap
between Green Apple and us is sales. Their sales were almost 1.5 times of ours.
What resulted these were the problems of product design. Product design
Green Apple is the first group to apply product portfolio in Europe to focus on
all market from low-end to high-end in Round 3. With the expand of Asia
market, Green Apple launched their product portfolio in Asia as well, which
brought them huge success.

Picture 6 

G r e e n A p p l e p r o d u c t d e s i g n i n Ro u n d 4 Picture 7:Orange Juice

product design in Round 4 

 According to product design, it can be seen that they also existed the
maldistribution of product portfolio in terms of compactness and battery life
without from 70 to 100,
 

they emphasized more on low-end that there were two smartphones for low-
end customers in each market. Comparing with them, we focused more on
high-end market due to its high profit, but we cannot adjust product portfolio
promptly according to the change of market. For example, the distinguish
between Peony and Jasmine was the difference of function, so they can be
combined and launched new one for middle-low end market. Then, our group
cannot understand the usage of high R&D fully. Specifically, there are two
effects of R&D: increasing product attributes and decreasing costs. We only
realized first one, and ignore the later. So the inappropriate usage of R&D
reflects our  prices were too high. Last but not least, we should developed six
products from this round, because both markets increase most rapidly in
Round 4, actually which was a chance to enlarge our market.

5.2 Round 6
Product design

Picture 8 

Green Apple product design in Round 6 

P i c t u r e 9 : O r an g e J u i c e p r o d u c t d e s i gn i n R o u n d 6

It is obviously that Green Apple was lack of these kinds of products:

compactness  between 70-111, 111-160; battery life between 70-109, 109-160;
and price between 189-249, 249-330, and 330-389, which were exact our
products. That is also what is mentioned in previous contest: function gap and
price gap.
 

Picture 10 

Financial statement in Round 6 

 But this huge change resulted the rise of production line costs, which can be
seen in financial statement, 3500 versus 21000. On the other hand, since they
had obtained huge market share during the previous rounds, it is necessary to
invest a little in advertisement. In addition, the long-term effect of
advertisement showed up during the last rounds, so we need not invest so
much.
 

6. Conclusion

Overall, in my opinion, our pros are that R&D investment, the later product
portfolio, and sales forecast. Especially, high R&D provides us competitive
advantage to design high-end smartphones in the previous 5 rounds and low
costs in the later rounds. On the other hand, we were poor in controlling fixed
costs, which is main reason for low share price. It is hard to say whether we did
good or bad, but we really learnt a lot from this course. Just like how to
implement strategies and position our products, how to design smartphone to
cater to customers, how to calculate all costs, and so on. Also, during the
decision-making process, we really made mistakes. But the most important I
consider is what we learnt from these mistakes and how to avoid make again.
However, Cesim is only a simulation, dislike real business, what we should
consider is limited. Therefore, we still should analyze physical situation before
making decision.