Markstrat report.doc

MarkStrat Group Report Section A – Group 2

Shahan Arshad Saad Jamil Fahad Zafar Sobani Tuba Javed Bilal Salim

20130026 20130023 20130008 20130030 20130014

Team: Rockets Market: Germany

Period 0 Decisions: After doing a few practice rounds we thought we had a plan of attack on how to target our customers. Our team set out several objectives in the beginning: •

Be first mover in Nutrites

•

Target Medium Income and High Income segments for Clinites market initially.

•

Look closely at market forecast to figure out segment growth

•

Utilize R&D and regression tools extensively.

After viewing market research reports, we decided that we would increase production levels by utilizing market shares of brands given by consumer survey and segment growth rates given by market forecasts. Advertising would be increased per period using the formula (1- average Brand Awareness percentage given by consumer surveys) x previous period advertising. The reason for this was because this would be percentage of people who were not aware of our brand and therefore we would want them to become aware by advertising. Advertising allocation was kept in accordance with the segments we wanted to target. We also decided to increase commercial team size and merchandising by purchase intention percentage given by consumer surveys i.e. purchase intention % x previous commercial team size. Same formula was used for merchandising expenditure. Channel allocation was selected according to shopping habits as provided by consumer surveys. We would order reports for each period especially consumer surveys, distribution panel, market forecast, semantic scales and MDS. Semantic scales were used for R&D and MDS was used for strategy. Our decisions on advertising and commercial team were flexible depending upon circumstances e.g. leftover inventory (decrease production next period), whether a product was a cash cow or star or question mark (decrease/increase advertising accordingly), pricing issues and other factors as the situation demanded. Our pricing policies were set using ideal values from semantic scales and regression tools. The physical attributes assigned to R&D projects were also derived from semantic scales and converted to out of 100 using regression tools. We would also keep a close eye on competitor prices in case they got into price wars for price sensitive segments. This is a snapshot of regression tools section we used to convert price and physical attributes from out of 7 to out of 100. 2

We started off with 2 brands RICH and RISE and a budget of $7100K. Looking at the pricing and R&D base of these brands, we decided to target High Income segment with RISE and the medium income segment with RICH. We set the prices of RISE and RICH at $22 and $15 respectively and production plans at 940K units and 1640K units respectively. Advertising costs for brand RICH was kept at $1436K and for RISE at $1626K. We increased and reallocated Commercial Team size of RICH and RISE according to the segments’ shopping habits.

We ordered the following research reports: Industry benchmark, Consumer survey and panel, Distribution panel, Semantic scales and MDS, Conjoint Analysis, Market forecast, Semantic scales for Nutrites. We also invested in R&D project PI-RIMED to modify brand RICH and ordered a feasibility report for it during period 0. We input the values for PI-RIMED after getting the ideal values from semantic scales. Result: Our revenues increased to $38,355K and we made a profit of $11,506K. Our SPI went up to 1033. We came in 5th at the beginning of Period 1.

Period 1 Decisions: Our RISE and RICH were flying off the shelf. Our ending inventory for RICH and RISE were 161 and 3 respectively which was a good sign. We possessed 14.2% of the market share of Clinites. Our decisions this round varied a little in production, advertising, salesforce and R&D. We kept the prices at the same level and increased production plan of RICH and RISE to 2,426K and 1,630K respectively. Advertising costs were increased to $2989K.

We increased the salesforce to 57 for RICH focusing on mass merchandising and specialized mass and 37 for RISE focusing on department stores and specialized mass channels because we were catering RICH for medium income segment and RISE for high income segment. 3

We ordered the following research reports during Period 1: Consumer Panel, Distribution Panel, Semantic scales, Market forecast for Clinites and Consumer Panel and Semantic scales for Nutrites We invested in 1 R&D project PU-RUHL during this period aimed at the health conscious segment of the Nutrite market and 1 R&D project PI-RIMED for modifying RICH to target Medium Income segment. Results: Our SPI rose marginally to 1034 while the leaders were at 1437. We held 5 th position during this period. Our RISE brand sold 1500 units and RICH sold 1771 units with 340 units left. Our inventory management was going excellent. RISE made a contribution of $19943 and RICH contributed $16,444. We were rising slowly but steadily.

Period 2: Decisions: We launched two R&D projects, PI-RISN for singles segment and PU-RUHL for the health conscious segment. We had ordered semantic scales and market forecasts for Nutrites during the previous period and feasibility report as well so we had a good idea of the ideal physical attributes and budget to allocate to our Nutrite R&D project. According to our estimations, we decided to produce the following units: RISE 1,630

RICH 2,426

Production levels were calculated using market shares from consumer survey and segment growth rates from market forecast using the formula market share % x growth rate % x previous production. We did not change our prices in this period. We decreased advertising expenditure by around 1000(from 3110 to 2193) in order to keep costs low. Commercial team size was: period 2 previou s change

RISE

RICH

65

43

37 28

57 -14

We ordered the following reports for CLINITES: consumer panel, distribution panel, semantic scales and market forecast. For NUTRITES: semantic scales. Results: As a result of our decisions, we rose to 3rd position at the beginning of period 3 with an SPI of 1371. Our ending inventory for RICH (340) and RISE (3) was very low, showing that our production plan was nearly accurate. Our total market share (in dollars) dropped from 14% to 11% due to decreased advertising expenditure. Our market share in Clinites also fell from 14% to 12%. Our revenue decreased by about 2000 resulting in our profit going down by 200.

Period 3: Decisions:

4

We entered the Nutrites market in this period. We targeted the Health conscious segment with RUKD. We had ordered the proper research reports and tailored the product and advertising to specifically target this segment. We decided to make a project PU-RUFAM to target families segment. Our attributes for this segment targeting came from ideal values given by semantic scales. Consumer panel, Consumer survey, Distribution panel, Multidimensional scaling, Market forecast were ordered at a cost of $439k. Production units RIOV

RUKD 2,400

RUZL 1,675

1,425

RUXX 600

Prices were kept at the following levels using ideal price values from semantic scales: RICH 14.00

RISE 21.00

RUKD 30.00

RIOV 11.50

Advertising was kept at these levels using Brand Awareness ratios from consumer surveys: RUKD -1,408

RISE -981

RICH -1,635

RIOV -1,413

Commercial expenditure was kept at the following levels using Purchase Intentions percentage from consumer surveys: RUKD

RISE

RICH

RIOV

-537

-1,559

-769

-295

Results: Our SPI rose to 1435 as a result of our decisions. We held onto 4 th position and distanced ourselves from 5th. RUKD became our cash cow. Our other products were rising very slowly in market share. RUKD had been launched precisely to cater to Health Conscious segment and it fit their requirements perfectly. That is why we were able to capture the leading market share in this segment. Period 4: Decisions: We introduced RUXX to target Families segment in the Nutrites market. We also started an R&D project called PU-RUMB to make a product for Elderly segment. We ordered 5 R&D reports namely consumer survey and panel, semantic scales, multidimensional scaling and market forecast for both Clinites and Nutrites. For RUKD we produced 1444K units while for RUXX we produced 1800K units and the 5

prices we set for them were $37 and $34 respectively. We increased the production plans of each brand by their respective market shares. Results: Our SPI increased to 1435 as a result. Our revenues increased to $76,707 and our EBT was $19,886. The market share value of our company as a whole was 13.5%, a decrease from 15.3% in last period. RUKD was our leading brand and was targeted to health conscious people while RUXX was for families which had not shown the level of success what we expected from it.

Period 5: Decisions: The next day we reconvened after reviewing what we had done so far. After looking at our competitors’ advertising and commercial team expenditures, we decided to increase our advertising and commercial expenditure as well. We took a look at our growth-share matrix to see how our brands were doing. Our theory had told us that cash cows should be kept and more money should be invested in stars. Dogs ought to be sold off as they depress Return on Assets. Keeping this in mind, we decided to sell off our brands RICH and RISE since they were clearly in the dogs quadrant and to keep RUKD since it was in the cash cow quadrant. We also had to improve RUZL since it was in the question mark quadrant. Our production units were: RIOV

RUKD 5,650

775

RUZL 1,775

RUXX 175

Prices were obtained from ideal values using semantic scales and regression tools: RUKD 34.00

RIOV 11.50

RUXX 28.30

RUZL 30.30

Advertising was calculated using the brand awareness percentage given in customer surveys and increasing the previous amount by (1- brand awareness): Clinites -3,208

Nutrites -6,233

Commercial Team was increased by Purchase Intentions percentage given in customer surveys. We increased the previous amount by Purchase Intentions percentage to get the new period’s amount: -2,926

-6,354

We introduced a new R&D project PU-RUYY to modify RUZL for the Elderly segment and PI-RIDQ to start a product to target the Affluent segment. Physical attributes values were derived from semantic scales and regression tools. Results: 6

Our SPI fell to 1203. This was unexpected since our reasoning to sell off our brands in the dogs’ quadrant was to increase our SPI but instead it fell. We still held onto 4th position. RUZL for Elderly went into production and did mildly well. Our share for RIOV for singles increased to 6.5% which was a good sign.

Period 6: Decisions: We used regression analysis to figure out future ideal values for each segment and decided to modify our products accordingly for the next period. We launched a new brand RILV targeted at the affluent segment. We also started an R&D project PU-RUSZ to again modify RUZL in order to meet the changing demands of the elderly segment as shown by the semantic scales and regression. According to our calculations i.e. market share % x segment growth % x previous production levels, we decided to keep production units at the following levels: RUXX 400

RUZL 1,028

RUKD 1,250

RIOV 2,054

RILV 1,000

We decreased RIOV and RUZL production substantially from 7054 units in the previous period because we had leftover inventory for these two brands. The production for RUKD and RUXX was increased since these products were flying off the shelf. We adjusted our prices as shown below: RECOMMENDED RETAIL PRICE RUKD

RIOV

RUXX

RUZL

RILV

35.98

9.00

35.00

33.00

21.00

These prices were obtained using ideal values from semantic scales and regression. We increased advertising expenditure from around 10,000 to 16,266. Advertising expenditure was increased by (1- Brand Awareness %). Commercial team size and merchandising were increased by Purchase Intentions percentage. Commercial team size RUXX RUZL period 6 176 168 previou s 100 100 change 76 68

RUKD

RIOV

RILV

48

210

110

40 8

110 100

110 0

We ordered the following reports for CLINITES: consumer survey, consumer panel, semantic scales, MDS and market forecast. For NUTRITES: Consumer survey, consumer panel, semantic scales, MDS and market forecast. Result: Ending inventory for RILV (482) and RUKD (616) were high which meant that our product did not meet customer expectations. Conversely, our other three brands RUXX, RUZL and RIOV were significantly under produced with a total of 5146k units of potential sales being lost. Our production calculations were insufficient because our products perfectly met the ideal values of the segments we were targeting. RUZL captured a significant portion of market share upon its introduction. Our cash cow, RUKD shrank due to shrinking growth of Health conscious segment. RUXX for Families segment also showed significant improvement as it went from dogs to cash cow as shown when compared to previous period’s growth-share matrix. RILV for Affluent segment failed to gain significant market share and ended up as a dog. 7

Our total market share (in dollars) dropped very slightly from 11% to 10%. Our share in Clinites split from 6% to 3% and in Nutrites, dropped slightly from 27% to 25%. Although our revenue increased from 84,172 to 92,778, our profit dropped sharply from 14063 to 2864 due to lost potential sales. As a result, our SPI also dropped to 1077 from 1203 and we ended up in 5th position.

Period 7: Decisions: In period 7 Brand RILV was shelved since we were unable to grab sufficient market share and the costs outweighed the benefits of producing that brand. Our production per brand was RUZL 15,712

RIOV 6,600

RUXX 1,335

RUKD 100

Using regression analysis, we were able to get the ideal values for price. We converted the ideal value price out of 7 to that out of 100 by using regression based tools- Semantic. Prices were set at: RUKD

RIOV

RUXX

RUZL

37.90

9.00

36.44

34.90

Advertising expenditure was kept as follows: RUZL -9,433

RIOV -8,180

RUXX -5,497

RUKD -1,887

Result: In period 7, SPI of Rockets increased to 1270, the revenues increased by $23,253. The Net Contribution was as follows: Clinites

Nutrites

-6,691

4,367

The market share was 10.8%. Sales increased by 25% to $116,031. Commercial expenditure for Nutrites and Clinites increased by 55% ($6.7 million) and 14% ($2.1 million).There was an increase of 78% ($8 million) and 22% ($1.6 million) of advertising expenditures in Nutrites and Clinites as compare to period 6. Seeing the growth-share matrix, RIOV for singles improved in performance since it moved out of dogs’ quadrant and into question mark quadrant as its market share and market 8

growth improved significantly. Although the simulation ended after this, we would have preferred if it had run a couple of more periods so that we could see what our strategy would bring about in the fast growing Elderly segment.

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