MARKETING STRATEGY GAME
FREE WINNING GUIDES AND TIPS (update 2019)
Part 3
Think about it and plan two/three periods in advance.
It takes one period just to develop or modify a product, two periods if we want
to develop it at the lowest cost.
When doing R&D, Always, Always, Always check the
box to develop our product at minimum base cost. One of our teams forgot
to check it. The base cost for their product was $1000, everyone else’s
was $300. Let’s just say their margins were in the negative.
Sales Force is tricky, costly, and offers little return.
Sales Force is most needed in new markets, not as much in established
ones. Give real thought if we start hiring people because it costs twice
as much to fire them. Use that money instead on R&D or Advertising.
This is a real balancing act. Over producing leads to
very high holding costs and under producing leads to missed sales. Our
team learned that it was better to over produce by a certain amount than run
out of inventory completely. We missed around 200,000 unit sales in one
period because we didn’t order enough. Bad for us, good for the other
team who happily filled the orders.
Not to mention all our accounting figures. Just because they
don’t have pretty colors and graphs doesn’t mean they are not EXTREMELY
informative.
If our product fits the needs of what Professionals want, then target
that group 100%. Splitting target segment percentages goes against you.
Let’s just say our team had a plan to create the most basic Vodite and
utilize a skimming strategy (charge a very high price and drop it slowly to
gain more market shares). No one will buy scrap medal, Period! Even
if we are one of the first to the Vodite market, it’s not a good idea to spend
$8,000 to develop a tin can. Best to stay in the middle when putting
together our R&D specs.
In the beginning periods, it is
common to see all teams receive a fixed and equal budget. This ensures that the
game is as fair as possible, as some teams will start off in better positions
than others. Because the budget is fixed to a set amount each period, any
leftover budget will not carry over to the next period. Our focus in the
beginning should also be to gain as much market share as possible; this is not
the time to begin cutting down margins. In the later periods our budget will be
determined by our performance in the previous round, and budget surpluses will
carry over into the next period. If you’re doing well, we may find that we have
more budget in a single period than we need for advertising and commercial team
(we can see this in the Experiments market research reports, which show
expected change in contribution had we increased our ad/commercial team spend).
The fight for market share should be pretty much over by these periods, and the
new focus is maximizing our net margin; if increasing advertising or commercial
team spend is going to decrease our net margins, don’t do it, let it carry
over.
This is probably the most basic
but important Marketing Strategy Game tip. In our Semantic Scales market
research report, we will see each target segment’s “ideal point” on positioning
maps laid out by price and each other physical attribute. We will also see
where each brand on the market lands on this map. This is showing we what each
segment wants and how well they perceive each brand at delivering it. Unless we
have no competitors on a segment (meaning we can charge higher prices or not
deliver a perfect product and still get sales), we want each of our brands to
stay as close to its target segment’s ideal point as possible. These points
will move each period, typically in a pretty linear trajectory (click “access
additional charts” at the bottom of our Semantic Scales report), so make sure
to track this and forecast ahead when building new base projects in R&D.
Segments place higher value on
certain product attributes than others. Typically this is Power and Price for
Sonite segments, Connectivity and Price for Vodite segments (we can see this in
the Conjoint Analysis report). When trying to hit a segment’s ideal point,
focus on the positioning map that plots those two most important
characteristics. Every period when we advertise our brands, set perceptual
objectives for these two characteristics to try and bring our brand closer to
that point.
The beginning periods are all
about gaining market share. There is much more harm in selling out (losing
potential sales and share) early on than incurring inventory costs, especially
if our budget is fixed for the next period (i.e. EI costs won’t be deducted
from our next period budget).
We want to make this as little
of a guessing game as possible. Use our market research reports to learn what our
competitors are doing: how much they’re spending on advertising and commercial
team per brand, which segments they are or will be targeting, when they’re
investing in R&D, and so forth. You’ll also need market research to learn
about our segments and measure the results of our decisions. There’s a lot of
data, so spend the first period or so familiarizing yourself with each report
so we know what to look for moving forward.
Should do it as early as possible. If we have a brand that comes in far off the ideal point and is not
being received well by our target segment, it will be very hard (and take lots
of money) to change those perceptions and gain market share with that brand. It
is much easier to drop the brand and launch a new one; if we give the new brand
lots of advertising money, market share can be gained relatively quickly in the
early rounds. One of the best decisions our team made was to drop one of our
beginning brands very early on in the game (LOCKER) and focus on the higher end
segments where we had a good product (LOOPEA) to base new brands off of.
As mentioned in the previous
point, it can be hard to change the initial perception that a brand receives on
the market. If the brands that we start with are far off the ideal point of the
segments we wish to target, it may be better to wait until we have new base
projects created before we launch new brands. If we launch a brand and it is
far off the ideal point, take it off the market and try again with different
perceptual objectives or wait until we have a better base project. Brands that
come on the market earlier than others, but are far from the ideal point, will
capture much less market share (both short-term and long-term) than brands
which come in a period later and hit the ideal point perfectly.
The “base project” of a brand
determines its physical attributes; a perceptual objective determines what we want
our target segment to perceive each physical attribute as. Because segments’
ideal points are always moving, we base project will not always deliver exactly
what they are asking for. Use perceptual objectives to bring our brand closer
to the ideal point each period. For example, if our brand is perceived as a 3.0
in power on the Semantic Scales chart and the segment’s ideal point for power
will be a 3.2, we can set our perceptual objective to 3.4 to land directly on
the ideal point. As a note, never use perceptual objectives to make a segment
perceive our price as higher (some teams made the mistake of doing this); if
the ideal point is moving towards higher prices, just raise our actual prices
so we can increase our margins.
In order for our perceptual
objectives to work, we need to spend at least 10–15% of our advertising budget
per brand on advertising research.
If our brand is perceived as
being close to a segment’s ideal point, this is the biggest determinant of
market share. Throughout my simulation, it was common to see teams leapfrog
others in market share based on one round of outspending them in advertising.
In the early periods (when brand awareness is low) advertising seemed to be a
little more important, but as the game moved forward it became evident that
having a higher commercial team helped to increase our sales and net
contribution. Early on we gave our commercial team about 20% of our marketing
spend (ads + commercial); in later rounds as budget increased we made it 50/50.
Pay attention to our Experiments report to see where we should be spending more
money.
Look at which brands are
generating the most unit sales and the highest per unit contribution margins.
Brands with high unit sales have a good opportunity to become the market
leaders in their segments, support them with lots of advertising power to keep
them on top of the competition (if they have slim margins, we can focus on
improving these later by minimizing costs through R&D or increasing prices
through price setting and perceptual objectives). For brands with good unit
contributions margins, focus on trying to maximize their sales, as each dollar
spent here will go a longer way for our overall net marketing contribution. In
the first period, we split our budget in terms of how much net contribution
each brand gave us (LOOPEA generated 75% of our net contribution, so it got 75%
of our budget).
We can launch a maximum of 5
Sonite brands and 5 Vodite brands. In Markstrat, think of a “brand” as the
packaging of a product, and the “base project” as what is actually inside. We will
typically need a different base project to target different segments, but
multiple brands can use the same base project. Limiting yourself to two
segments means that we can limit yourself to two base projects, which will save
costs. This is because the more units we sell of each base project, the lower our
“transfer costs” (cost of production). This is also because it will cost we a
good amount of money each time we want to create a new base project through
R&D, therefore we don’t want to have too many. With those two base
projects, we can then launch 5 brands in the Sonites market. This will spread our
advertising, but allow we to capture as much market share in each target
segment as possible
Decide where we want to be by
the final period, and then set a period-by-period strategy to get there.
Knowing when we plan to invest in R&D and when (if) we plan to enter the
Vodite market will help we organize our spending each period. Spend a good
amount of time looking at the data we have in Period 1 to do this, and choose
target segments wisely (based on size, price-sensitivity, competition, etc.).
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