SM 91 87 Business Simulation Part II

SM 91. 87 Business Simulation Part II

Your success in Markstrat will greatly depend on your ability to manage the development and positioning of brands Positioning Strategy R&D 2

Customers make purchase decisions based on their perception of your brands Your perception of brands Brand A Brand B Brand C Brand D Technical quality Their perception of brands ? Brand C Brand BBrand D Brand A ? 3

The "Perceptual Map" is a valuable tool for visualizing brand positioning Need 2 +20 Bu SONO SELF Perceptual Map based on MDS Study SEMI SUL I SOLD Pr Hi -20 +20 Si Need 1 SALT SUSI SIBI Ot SAMA -20 SIRO Key Ot Segment ideal point Perceptual positioning of brands 4

There are two key ways to re-position brands in Markstrat Perceived Performance Advertising Perceived Economy R&D 5

Physical positioning involves matching brand characteristics to customer needs Customer Needs Weight Volume Design Max. Freq. Performance Convenience Power S MA A Price Economy Brand Characteristics 6

Positioning with advertising requires setting "Perceptual Objectives" Perceived Performance 20 10 Si 9 5 0 5 Perceived Economy 11 -10 -20 -10 0 10 20 7

Your success will greatly depend on your ability to manage the development and positioning of brands Positioning Strategy R&D 8

R&D success demands long-term thinking and the ability to identify evolving opportunities. . . Hi Si New target segments Changing segment needs Pressure on margins Pr Competitor entry Ot 9

. . . and also requires working effectively with your R&D department R&D = Profit Center Number of Projects Experience n n Provide sufficient budgets Set realistic expected unit costs Similarity of Projects 10

When doing R&D, keep in mind both positioning and economic factors SONITE Weight Design Volume Max. Freq. C Power Base Cost (at 100 K units of production) Most important physical characteristics n Market needs n Target margin n Competitive brands n Cost in other projects n Feasible range n Project budget n Impact of physical characteristics Positioning Factors Economic Factors 11

Impact of physical characteristics on base cost The HIGHER the requested characteristic the HIGHER the base cost The HIGHER the requested characteristic the LOWER the base cost Base cost • Design • Max. Frequency • Power • Autonomy Requested characteristic Base cost • Volume • Weight • Diameter Requested characteristic 12

The budget required to complete an R&D project is a function of several factors R&D experience Physical characteristics R&D budget required for completion to find out more: accuracy feasibility study vs. Requested base cost speed on-line query 13

There are two possible outcomes of any R&D project Project submitted to R&D: max. freq. 17 6 85 power 35 weight design volume 70 Minimum base cost is calculated at an early stage in the project. Minimum base cost = $110 Case A Case B Requested Base Cost = $80 Requested Base Cost = $130 (requested base cost is below minimum, but the R&D will try to develop the project at the minimum base cost) Budget required for completion is also calculated at an early stage in the project Budget required for completion = $ 800 (at base cost = $ 110) Case A 1 Case A 2 Budget allocated by team for this period: $ 1, 000 Project is available at base cost = 110 $ 300 Project unsuccessful Budget required for completion = $ 550 (at base cost = $ 130) Case B 1 Case B 2 Budget allocated by team for this period: $ 1, 000 Project is available at base cost = 130 $ 300 Project unsuccessful 14

A completed R&D project may be used to modify existing brands and/or introduce new brands Performance Bu Pr Si Hi Economy New Brand "SAMY" New SAMA more performance Ot Old SAMA 15

Bringing successful R&D projects onto the market may result in obsolete inventory I'll buy any product at a given % of its transfer cost Brand modification (name kept) A AM S MA SA A AM S SA MA SA Inventory disposal Obsolete inventory MA A M SA Brand withdrawal TRADING COMPANY 16

Cost reduction projects should be weighed against experience curve effects Transfer cost A Base cost A Current product (initial experience curve) Base cost B B A 1 Current transfer cost A 1 Cost reduced product (new experience curve) 100 KU 225 KU Cumulative production 17

The MDS study measures brand perception along three composite dimensions. . . SONITE market Influence of brand characteristics on MDS dimensions in P 0 Perceived Economy increases if Price decreases Perceived Economy increases if Max. Freq. increases Product charac. Composite dimensions Performance Design Volume Max. Freq. Power Price slight moderate strong slight strong moderate Economy Weight strong moderate slight Convenience 18

. . . which are more or less influenced by the various brand attributes VODITE market Influence of brand characteristics on MDS dimensions in P 0 Perceived Efficacy increases if Max. Freq. increases Product charac. Composite dimensions Efficacy Flexibility Economy Perceived Flexibility increases if Weight decreases Autonomy Max. Freq. Diameter Design Weight Price slight very strong slight moderate slight slight very strong 19

New decisions introduced in Period 2: 1. Brand portfolio 2. Perceptual objectives (on semantic scales or MDS) 3. R&D 20

You can now extend your portfolio by introducing new brands. . . Click here to display the completed R&D projects and their features 21

. . . you can also modify existing brands Keep the same name Select a new R&D project 22

To convey the right message to the market, you can set perceptual objectives for each of your products 1 Do you want to communicate on the semantic scales or on the MDS composite dimensions? 2 On which dimensions do you want to communicate? 3 Input the coordinates of the point that you want to reach on the map 23

You can initiate up to five R&D projects period and per product type (five Sonite and five Vodite) Click here to obtain an estimate of the minimum base cost and budget required for completion of this project 24

You now know everything. From here on, it's down to your strategy. . . 25