THE MARKSTRAT CHALLENGE - INTRODUCTION I

CONGRATULATIONS ON YOUR NEW POSITION

You have been recruited to manage the marketing
department of the Electronics division of a large
corporation:

• You will compete with several other firms to market two

types of durable goods to consumers

• You will be responsible for formulating and implementing

the long-term marketing strategy of your division

Your performance will be assessed each year on:

• Your business results – sales, market share gain and

improved profit – are combined in a Share Price Index
(SPI)
Introduction to the Marktrat Challenge - Part I 2
YOUR ROLE FOR THE NEXT 10 YEARS

• Work in a highly competitive market

• Target consumer segments and position your products
• Interface with R&D to design and develop new products
• Launch new products and improve existing ones
• Interface with the production department
• Make marketing mix decisions: pricing, advertising, …
• Decide on the size and priorities of your commercial team
• Order market research studies to get up-to-date
information for decision making.
Introduction to the Markstrat Challenge - Part I 3
 Introduction to the
Markstrat Challenge - Part 4
THE MANAGING
GETTING
MARKSTRAT YOUR
STARTED
WORLD FIRM

Introduction to the Markstrat Challenge - Part I 5

 THE MARKSTRAT WORLD
80 MILLION INHABITANTS: MARKET CONDITIONS:
• Large territory with a highly developed economy

• Inflation and GNP growth fairly stable and no

40% 25% major political, social or economic events are
35%
URBAN SMALLER anticipated.
RURAL
(top 5 cities) URBAN
• Currency: Markstrat Dollar ($)

UP TO 6 COMPETING FIRMS EACH MANAGED ANNUAL BUDGET FUNCTION OF RESULTS:

BY A TEAM:
• All firms start in a same situation: Product
All competitors operate under similar budget
specification, target consumers, brand
constraints, with annual budget granted as a
awareness levels, market share, distribution
percentage of past period profits (EBT).
coverage, profitability, R&D expertise, ...

• The marketing strategy of your firm should

be adapted to its particular situation;

Introduction to the Markstrat Challenge - Part I 6

 TWO PRODUCT CATEGORIES

You can market up to 5 brands in each category at a given time

INDEPENDENT
NOT SUBSTITUTES
NOT COMPLEMENTARY

SONITES VODITES

Introduction to the Markstrat Challenge - Part I 7

 SONITE PRODUCT ATTRIBUTES
Sonite brands are already marketed, each characterized by 6 main attributes

NUMBER OF
DESIGN BATTERY LIFE
FEATURES
INDEX 3 – 10 24 – 96 HOURS (H)
10 – 20

PROCESSING POWER
DISPLAY SIZE BASE COST
5-100 GIGAFLOPS
4 – 40 INCHES (”) (GFLOPS) MINIMUM $10

Introduction to the Markstrat Challenge - Part I 8

 VODITE PRODUCT ATTRIBUTES
No Vodites exist yet. Experts believe that they will be characterized by

RESOLUTION ENERGY EFFICIENCY CARBON

20 – 100 LINES/MM 10–100 BIO FOOTPRINT
COMPUTATIONS/WH 5 – 50 KG

CONNECTIVITY NUMBER OF APPS BASE COST

INDEX 3 – 10 5 – 100 MINIMUM $10

Introduction to the Markstrat Challenge - Part I 9

BRAND NAME CONVENTIONS

T O NIC
M E LODY
Product
Company Category: Freely chosen
marketing letters or numbers
the brand: O=
Sonite
L, M, N,
R, S, T E=
Vodite
Introduction to the Markstrat Challenge - Part I 10
 SONITE CONSUMERS
EXPLORERS (Ex) PROFESSIONALS (Pr) SHOPPERS (Sh)

Highly interested in Sonite
product
Demand high performance
products
Quite price sensitive
Personal and professional usage Good product knowledge
Look for high quality, high- through extensive product
performance and easy-to-use comparison.
products Demand high quality–price ratio
Can afford expensive products Quite price-sensitive.

SAVERS (Sa) HIGH EARNERS (Hi)

Cautious in the way they spend

High income level
their money
Demand cheap, low-performance, Demand performance and
average convenience products convenience
Future growth rate could exceed Purchase expensive products
forecasts. Introduction to the Markstrat Challenge - Part I
11
 DIFFERENT SEGMENTATION SCHEME FOR VODITES
FOLLOWERS
Sales
Typical segment size evolution over time

EARLY
ADOPTERS

INNOVATORS

Introduction to the Markstrat Challenge - Part I

Time 12
 DISTRIBUTION CHANNELS
SPECIALTY STORES MASS MERCHANDISERS ONLINE STORE

• Includes web-only merchants

• Operate on a low-price, high-
• Small stores not necessarily and retailers’ websites
volume basis
organized in chains
• Low but significant percentage of
• Lower level of service than in
• Located close to their sales are done on the web
specialty stores
customers and providing a
high level of service and • High convenience as consumers
• Depth of product lines
technical support shop from home
usually restricted to a few
units • Almost unlimited choice and easy
• Broad product line including
high-end products comparison
• Distribute the cheaper, low-
performance products • Likely to become more important
in the next 5 to 10 years
Introduction to the Markstrat Challenge - Part I 13
THE MANAGING
GETTING
MARKSTRAT YOUR
STARTED
WORLD FIRM

Introduction to the Markstrat Challenge - Part I 14

 YOUR OBJECTIVE

• Maximize your Share Price Index

• You will have to optimize:

• Market share
• Sales growth
• Net contribution
• Cumulative net contribution
• R & D investments

• ….but the main objective is to LEARN!

Introduction to the Markstrat Challenge - Part I 15
 FROM DATA TO STRATEGY
You will need to do a certain amount of analysis before setting a strategic
direction for your firm

Data Information Strategy

Conjoint Advertising and Competitive Market

analysis commercial team advertising & forecast
experiment commercial team

Multi-dimensional Semantic Distribution Consumer survey Industry

scaling (MDS) scales panel & consumer panel benchmarking
Introduction to the Markstrat Challenge - Part I 16
TACTICAL DECISIONS PERIOD 1

MARKETING MIX COMMERCIAL TEAM MARKET RESEARCH

• Production planning • Size of commercial team • Ordering industry-wide

market studies
• Pricing • Allocation across
distribution channels • Ordering market-
• Advertising & specific market studies
segmentation strategy • Allocation across
marketed brands

Introduction to the Markstrat Challenge - Part I 17

 PRODUCTION PLANNING
• A production plan must be submitted each period for each brand, taking into
account:
• The potential sales for the brand
• The existing inventory at the beginning of the period
• The flexibility of the Production department

• From one period to the next, production plans may be increased or decreased
without any penalty
• Actual production levels are automatically adjusted in response to actual
demand by plus or minus 20%

MARKETING MIX

Introduction to the Markstrat Challenge - Part I 18

SAMPLE PRODUCTION PLANNING
DECISIONS
180,000 150,000 IDEAL
154,000 124,000
Production Lost Sales = 0
Your Plan Potential Actual
Estimated Sales Production &
(your
Sales decision) (market (reduced) Ending Inventory = 0
30,000
demand)
Inventory
PESSIMISTIC
154,000 28,000
80,000 96,000 Lost Sales
110,000 Potential
Production Actual
Your Plan
Sales
Production
Ending Inventory = 0
Estimated (market
30,000 (your decision) (Increased)
Sales Inventory demand)

230,000 200,000 OPTIMISTIC

160,000 36,000
Production 154,000 Ending Inventory
Your Plan Actual
Estimated (your Potential
Production
Sales decision) Sales
(reduced)
Lost Sales = 0
30,000 (market
demand)
Inventory
Introduction to the Markstrat Challenge - Part I 19
 ESTIMATING LOST SALES

Comparing purchase intentions with market shares at the end of the period
can give you a feel for how many sales you have lost

Purchase
Intentions  Market
Shares  Sales Lost
to

Competitors
“Order-book”
Industry

Introduction to the Markstrat Challenge - Part I 20

 PRICING
• Every year, you set the Recommended Retail Price in $

MARKETING MIX

• To decide on a price, you should take into account

• The margin of the distributors
• The discounts made by some channels
• Consumers’ expectations
• Competitive prices
• Etc…
Introduction to the Markstrat Challenge - Part I 21
 SAMPLE PRICES AND CONTRIBUTIONS

• Assuming a price of $400 and a transfer cost of $125

  Specialty Mass Online

Stores Merchandisers Stores

Average Discount None 10% − $40 5% − $20

Actual retail price $400 $360 $380

Distribution margin 40% − $160 30% − $108 30% − $114

Selling price $240 $252 $266

Transfer cost $125 $125 $125

Introduction to the Markstrat Challenge - Part I 22

 ADVERTISING
• To build brand awareness
• To make consumers familiar with product characteristics and
price
• To develop demand for the whole market
• To influence the decision of distributors to carry or not your
products
• To create a barrier to entry for your competitors

Media budget : to purchase Research budget : to improve Segmentation Strategy: Indicate

media space and time the quality / persuasive power which consumers should be targeted
of your message & normalize to 100% to save

MARKETING MIX

Introduction to the Markstrat Challenge - Part I 23

 COMMERCIAL TEAM DECISIONS
• You decide the size of your commercial team for each channel
and brand

• Your commercial team is responsible for obtaining and

entering orders, and for supporting distributors
• Visiting stores, distributors and wholesalers
• Enrolling customers in trade programs
• Helping stores organize and conducting promotions
• Taking orders and handling out of stock situations
• Participating in trade shows

COMMERCIAL TEAM

Introduction to the Markstrat Challenge - Part I 24

MARKETING BUDGET FOR THE COMING PERIOD
Budget based on the previous period’s performance
40% of previous year EBT,
with a minimum of $7m
and a maximum of $20m

Loan and budget

increase/decrease granted
by instructor

Total available budget

Expenses generated by
your decisions

Deviation from budget.

Should always be positive
or equal to 0
Introduction to the Markstrat Challenge - Part I 25
UNDERSTANDING P&L

Introduction to the Markstrat Challenge - Part I 26

UNDERSTANDING BRAND CONTRIBUTION

Introduction to the Markstrat Challenge - Part I 27

 GETTING STARTED
Ready to get started on your first year’s decisions?
• Get familiar with Markstrat and with your teammates
• Do not make any major changes in your firm's operation in the first round!

ANALYZE DECIDE RUN

PERIOD 1 PERIOD 2 PERIOD 3 PERIOD 4 PERIOD 5 PERIOD

…
THAT’S IT – YOU ARE READY TO START. GOOD LUCK IN ACHIEVING ALL YOUR
OBJECTIVES!
Introduction to the Markstrat Challenge - Part I 28
ORGANISE YOURSELVES AND MANAGE THE GROUP PROCESS

CONFLICTING
OPINIONS INFORMATIO
N
OVERLOAD
TIME
PRESSU
RE

Introduction to the Markstrat Challenge - Part I 29

THE MANAGING
GETTING
MARKSTRAT YOUR
STARTED
WORLD FIRM

Introduction to the Markstrat Challenge - Part I 30

ACCESS THROUGH WEBSITE OR DIRECT URL
Sign in www.stratxsimulations.com
1 1 Go to http://markstrat7.stratxsimulations.com/
using your Participant Activation Key OR
(PAK)

2 Click the Markstrat Logo

Enter the information given by your Instructor

Introduction to the Markstrat Challenge - Part I 31

ANALYZE REPORTS AND MARKET STUDIES BEFORE MAKING DECISIONS

Introduction to the Markstrat Challenge - Part I 32

CHOOSE A NAME FOR YOUR FIRM

It must start with the initial

of your firm and be 8
character long maximum

Introduction to the Markstrat Challenge - Part I 33

CHECK YOUR BUDGET AT REGULAR INTERVALS

Click here
to check
your
budget

Introduction to the Markstrat Challenge - Part I 34

CHECK YOUR ERRORS & WARNINGS AT REGULAR INTERVALS

Click here
to check
your
messages

Introduction to the Markstrat Challenge - Part I 35

RESPECT THE DEADLINES – GOOD LUCK !

ON YOUR
MARKS,
GET SET, GO! 36