Markstrat Strategies

Markstrat Strategies

of Team L in Paris Industry

AIM0316: Marketing Strategy

      WANG, XIAOWEI        xwang291@uic.edu

         WU, QIAN                     qwu31@uic.edu        

YU, LIYANG                lyu28@uic.edu

Jun 30th 2016

Executive Summary

After 10 Periods in Markstrat, our Team Lucifer received the highest SPI in Paris industry. We had four Sonites, one Vodites for the last period and each brand took the largest market share in their segment respectively.

Looking back to the growth of our firm, we divided 10 periods into four stages: early stage (Period 1 to 3), steady growth (Period 4 to 6), harvest (Period 7 to 9) and booming SPI (Period 10).

At early stage, we overspent on advertising and changed price recklessly. But soon we discovered our mistakes and changed our strategy in Period 3. Since most of our competitors invested heavily in Vodite R&D in Period 2, they would have less budget left for existing Sonites brands even though their total budget was much higher than us. So we focused on Sonite market and generated enough budget for us to develop a better Vodites product in the next period. Period 3 is a milestone for our team since it was the first time we developed a strategy suitable for sustainable growth of the firm. It is important that we gradually learned how to set up long-term goals and broke it down into short-term tactics.

During Period 4 to 6, we experienced a steady growth. Revenue in Sonites market kept strong partically due to the launch of LOL targeting high-earner in Sonites. At the same time, new brand LEON in Vodites suffered the consequence from poor brand positioning. From the failure of LEON, we learned that the market changed rapidly. When we conduct R&D, we need to think 2-3 periods ahead to satisfy the customer need in the launching period.

After we got more experience in R&D, we did better job on positioning our product and predict the future customer need. So we shifted our focus to improve the ROI of each brand. Bearing this goal in mind, we put each brand under microscope to ensure they always satisfied customer need, and modify our product 1-2 period ahead of time before it went too far from the ideal value. Starting from Period 7, with 7 brands at hand, we implemented multi-brand management strategy supported by mathematics models and detailed competitor analysis. We prevent our major opponents Team M & T from getting more profits by launching LOAM targeting at shoppers. We also launched LOTUS targeting at explorers during the same period for the similar reason, luring Team R to invest more on unprofitable explorers segment. For Vodites, we remained the high investment on LEARN targeting follower to maintain the competitiveness in this vital segment. The competitive intelligence reports were frequently used to feed the mathematic model we developed during these periods. With the help of the model, we were able to identify the real threat for each brand and modify our marketing strategy rapidly and accordingly.

We enjoyed a booming SPI in Period 10 by adpoting following strategies. Looking into the market forecast, we could tell that adopters and explorers would shrink dramatically in the following periods, so it would be unwise to keep underperformance brands with low market share in a shrinking market in our portfolio. So we dumped those two brands and used the extra budget investing in the remaining brands. As a result, all the remaining brands became the dominate brand in their segments. With the rational trade off we made for Period 10, we finally got first place in both Sonites and Vodites market with the highest SPI in Paris industry.

In Period 11, we will focus on followers of Vodites market, and keep the comparative advantages we had in Sonites market. We made many mistakes along the road. Fortunately, we self-corrected most of them through numerical analysis, brand prioritization, and goal-oriented budget allocation. If we have a chance to start over, we would focus on high-end market in Sonites for higher total revenue at the beginning. Then, we would use the revenue from Sonites market to compensate the R&D and marketing cost of Vodites and targeted solely on follower segment.

There are 5 teams in Paris Industry. In Period 0, each team had 2 identical products. As time went on, each firm adopted different strategies, and the whole market reacted to our decisions and strategies. Based on the overall market environment and our team’s decision, we briefly divided our strategies into four periods.

1. Early stage (Period 1 to 3)

At the beginning of the game, we could  view  the market as a perfect competition market. In other words, all the companies have the exactly the same products budget and market share. By looking into our products, we decided to focus on the high-end brand. We made two major decisions to increase the market share of LOOP. The first decision was increasing the price of LOOP and the second investing heavily on advertising (Graph 1). However, the strategy did not work as we expected, the high price of LOOP scared the prospective customers.  As a consequences, our team was in the last position during the first two periods.

When we looked back at those two periods, we noticed that we made several mistakes, Increasing the price recklessly is the first mistake we made, since we didn’t even know the ideal value of price from targeted consumers (Graph 2). The second mistake is that we overspend on advertising. At one point, advertising expenditure alone took 14% of the total cost. However, large spending on advertising would not guarantee a bigger market share. Indeed, through advertising we could increase the brand awareness, but purchase intension along with other factors would determine whether the prospective customers would buy our product or not. Commercial team is another mistake we made during this period. For Period 1 alone, we had 13.4k units of lost sales due to distribution. The imbalance investment in advertising and commercial teams led to unfavorable positions for us at the beginning.  

Even though we made few mistakes in the Period 1 and 2, but we learned from our failure fast. We gradually got ourselves familiar with the Markstrat software. After Period 2, R&D was introduced to the game and Vodites market is wide open to us as well. Through the benchmarking report, we could tell that Rosemary, MockingJ and Shrek all invest heavily in R&D. Our team faced two options back then: be a follower and match the amount they invested in R&D or be ourselves and focus on Sonites market. We had a heated discussion back then, but we decided to choose the latter one for the following reasons. First, Vodites R&D is extremely expensive back then, which would drain 80% of the total budget easily. Second, the budget we had back then could barely cover the basic cost to maintain two existing Sonites brands under a fierce market competition. Third, if those three teams invested heavily on R&D which meant that they would invest less on the existing Sonites brands even though their total budget is much higher than us. For the aforementioned reasons, we found a niche in Sonites market and we decided to stick with it for one period and invest in Vodites R&D in the next period.

So we adjusted our advertising and commercial team expenditures to keep us in a favorable position on existing brand and conducted two Sonites R&D aiming at Savers and High Earners respectively. Our strategy turned out very well, company SPI raised from the last place in Period 1 to the first place in Period 3 with more than 600 points increase. Also our budget for Period 4 increased to 13.5m. With the success in Period 3, we not only increased our ranking in the game, but also generated enough cash for R&D on Vodites.

Two very important lessons learned from this period. Competitor analysis and self-evaluation are gold in a highly competitive market. Even though Vodites market is highly profitable, you may able to charge thousands per unit, but that came with extremely high invest beforehand and it might dramatically decrease the performance on other brands. On the contrary, it is easier and more realistic to gain a larger market share in Sonites market for a team with limited budget like us. Also, a good performance team in Sonites market could also help with the marketing plan in Vodites market. Period 3 is a milestone for our team since this is the first time we develop a strategy for sustainable development growth of the firm. It is important that we gradually learned how to set up long-term goals and break down into short-term tactics.

1. Steady growth (Period 4 to 6)

Since three teams finished their R&D project in Period 4 in Vodites market, the total revenue of Vodites market increased to 255m, which was more than 50% of the total revenue of 431m in Sonites market. Meanwhile, the Sonites market became stabilized (Graph 5). With the R&D project we developed during Period 4, we decided to launch LEON aiming at Adopters with comparable large investment in advertising and commercial team to compete with MockingJ and Rosemary, two Vodites giants back then. At the same time, we run few online query to prepare ourselves for the Follower segment, because based on the market forecast Follower will be the single biggest segment in Vodites market. With the growing number of brands our team had, we decided to change the resource allocation to increase the ROI of Sonites brands.