Period 1 Decision and Results

Rationale:

The first thing that you need to do is gain market share. In order to do this, you need to put 100% of your media spend into just one segment for each brand. I cannot stress how important this is. We had two practice rounds, and every other team floundered compared to ours, and the main difference was how ad dollars were distributed. You also need to make sure that your ad dollars are effective. In order to do this, put ~10% of your total ad spend for each brand into advertising research. If your multi-million dollar ad campaign is not properly communicating your message, you are going to fail. Fortunately for our class, our professor gave us the MDS maps for this period, so choosing which segments to pursue was fairly easy. Without this information, a good strategy for choosing a segment would be to look at which segment has the highest purchase intention for your brands and choose that one. This guarantees that when you are finally able to get the MDS maps and semantic scales, you have chosen to pursue the segment that is closest to your product on the perceptual maps. Our ad spend for our lower-cost higher-volume brand TINY was $2.5 million, and the higher-cost lower-volume brand TIME was allocated $1.5 million. These figures were arrived at as an approximate ratio of the two brands' contribution margins.

Figuring out how many units to produce is extremely important in this game. Inventory costs money (ours was 8% of transfer cost), and stockouts are lost potential profit. Which is better or worse depends entirely on your industry. High transfer costs with slim margins favor under-producing, and low transfer costs with larger margins favors over-producing. For our class, inventory costs came out to ~$0.30/unit for TINY and ~$0.50 for TIME. Contribution margins have varied from period to period. TINY has ranged from $1.79 to $3.06, and TIME has varied from $2.37 to $4.31. In this case, risking over production is logical since the potential inventory holding costs can act as a 10-20% insurance premium on not stocking out. Stockouts will hurt in another, very important way. All of the volume that your production cannot cover will end up going to your competitors. Not ideal. What we did was calculate predicted demand based on purchase intent, predicted segment growth, and current segment size. This gave a baseline that we considered our worst-case scenario. Since production has a +/- 20% swing, we decided to make our worst-case scenario equal to -20% of what our production figure would be (also taking inventory levels into account!). Our production for TINY was 2630k units and our production for TIME was 1460k units.

Since we had access to the MDS maps, we were able to see that our product was slightly less economical for both of our target segments. Since price is the largest factor for economy in MDS, we just dropped our price for both products by $1. This strategy also worked in the practice rounds, and it was very likely that the other teams would be following suit. 

Of much smaller import is your spending on your commercial team and merchandising. In our practice rounds, it was apparent that large swings in commercial team and merchandising did not translate into large revenue swings. We kept the total number of sales people constant, but shifted them between the two brands and channels so that TINY had more people, and each of the channels received a number of people that reflected their respective brand's segment's shopping patterns. Merchandising dollars were distributed in much the same way, but with a little bit of a bump in funding due to some leftover cash.

Results:

Domination.

Our SPI went from 1000 to 1423, and the team in second went from 1000 to 1132. Each group started with 20% value and unit market share. After period 1, we had 25% of VMS and 27% of UMS, a dramatic increase. We had the highest brand awareness, purchase intent, and repeat sales. Our market shares for our target segments were also second to none. We slightly over-produced for TIME, with 41k left in inventory (we were drawing down from an inventory of 390k). TINY very nearly under-produced. Our production was bumped up ~18% and our inventory of 973k units was completely exhausted. Our revenues were ~$55 million and earnings before taxes were ~$20 million. Our closest competitor was at ~$45 million and ~$14 million, respectively. Not too shabby.

Market Share

Contribution

Revenue

SPI