Simulation Introduction
Why Simulate?
Risk Free. Innovate and explore alternative strategies
and tactics.
Big Picture. Decisions and their impacts will be
examined within the context of overall business operations -
across functional boundaries.
Develop Critical Thinking Skills.
You will analyze, assess, plan, make decisions, evaluate, and
adjust.
Compresses Time. Several years worth of
decision-making will play out during the term.
Comprehensive Strategy. Demonstrates
the importance of developing linked functional, business-
level, and corporate strategies.
$100M electronic sensor manufacturing firms. All
teams begin with an identical profile.
Oligopoly - market dominated by handful of firms.
No outside competitors or product substitutes.
Relatively benign environment no disruptive new
technologies or new competitors. Focus on existing
competition in an even playing field.
The Business
Markets Defined By
Segments
Performance 8.4% to
11%
Low End 39% to
37%
Traditional 32% to
28%
Size 8.7% to
11%
High End 11.2% to
13%
Percentage in dollars ($),
change over 5 years
Introduction To Perceptual Maps
Size
(how big is
the sensor?)
Performance
(how sensitive is the sensor, and how fast does
it process data?)
Large
Small
Slow Fast
Marketing tool used to depict product positioning. Illustrates how customers
distinguish between products that are similar in nature.
Electronic Sensors
Perceptual Map
Large
Small
Slow Fast
Size
Performance
Defines five market segments
Low End
Traditional
Size
High End
Performance
There are five
distinct segments of
the market:
Traditional
Low End
High End
Performance
Size
The customers in
each segment have
different priorities
and evaluate the
product according to
their own needs.
Perceptual Map
Large
Small
Slow Fast
Size
Performance
Segments Differentiated By Name
Low
Trad
Size High
Pfmn For example, Low End Segment
customers look for large, slow
sensors, representing nearly
obsolete technology. Their
primary concern is price.
While High End Segment
customers want the latest &
greatest technology. Theyre
willing to pay more to get very
small, high performance sensors.
Perceptual Map
Large
Small
Slow
Fast
Size
Performance
Segments drift over time
Low
Trad
Size
High
Pfmn
Customer expectations are
constantly changing. They
expect the sensors to become
smaller in size and better in
performance.
Perceptual Map
Large
Small
Slow
Fast
Size
Performance
Low
Trad
Size High
Pfmn
Segments drift over time
Perceptual Map
Large
Small
Slow
Fast
Size
Performance
Low
Trad
Size
High
Pfmn
Segments drift over time
Customers Go Through a Two-Stage Purchase
Decision Process
Stage 1 - Match Product to Market
1. Product must be positioned within the
segment (performance & size).
Able
Size
Performance 2. Product must fall within
price guidelines.
Able
Price
Segments
3. Product must fall
within reliability guidelines
Able
Reli-
ability
Segments
Two-Stage Purchase Decision
Stage 2 - Rank Best Product
Position
Age
Reliability
Price
1. Positioning
2. Age
3. Reliability
4. Price
Ideal
Spot
AB
0 1 Yrs
20000 25000
$30 $40
HIGH END
Product Ranking Criteria by Market Segment
Traditional
Segment
Size
Segment
Performance
Segment
High End
Segment
Low End
Segment
1 - Age
2 - Price
3 - Position
4 -Reliability
1 - Price
2 - Age
3 - Position
4 - Reliability
1 - Position
2 - Age
3 - Reliability
4 - Price
1 - Reliability
2 - Position
3 - Price
4 - Age
1 - Position
2 - Age
3 - Reliability
4 - Price
Listed in order of importance for each market segment.
Decision Screens Info in Team Member Guides
R&D Pg. 10-11
Marketing Pg. 11-13
Production
Pg. 13-14
Finance Pg. 15-17
Research & Development
Establish the specification of the
products to meet customer demand
Plan ahead for product position in
future years!
R&D can take anywhere from 3
months to 3 years. They cost
$100,000 per month.
Build the quality and reliability
(MTBF) into the products
Sometimes a long project needs to
be two shorter projects.
Ensure the perceived age of the
product meets customer demands
Create new products to meet the
changing marketplace
Our products
are not well
positioned in
the marketplace.
Marketing
Set the price of our products in the
marketplace
Build customer awareness through
promotion Do they know about the
product? (Promotion & Sales Budgets,
pgs. 12-13)
Establish a sales force and distribution
channels Is the product accessible?
Set Credit Policies AR/AP
Set the sales forecast for our products
SALES FORCASTING IS A KEY ELEMENT
TO COMPANY SUCCESS! (See pgs. 13 &
22)
Our products
are not priced
optimally.
And many of our
customers dont
even know our
product exists.
Think about the long-term, and
consider market growth early on.
AUTOMATION: Purchase
machinery to automate our
facilities
CAPACITY: Buy or sell capacity of
product lines
Think about products stuck in R&D
- They are not being produced
Maximize your fixed assets
Consider TQM Initiatives
Production
We are paying
too much for
labor costs.
Very soon we
will run out
of capacity to
meet demand.
Acquire capital to fund capital expansions
Short Term Debt A/P, inventory expansion,
more lax A/R policy
Issue Stock Use for funding long-term
investments (capacity, automation)
Issue Long Term Bonds Use for funding long-
term investments (capacity, automation)
Issue dividend to our shareholders (They do not
respond to dividends greater than EPS)
Balance our debt portfolio - debt & equity
Manage our proformas Financial information
measures your success, always track ratios (Also
used for success measures, understand these are
optimistic estimates)
AVOID EMERGENCY LOANS AT ALL COST! THEY
USUALLY OCCUR DUE TO BAD SALES
FORECASTING
Finance
We have poor
cash flow and
substandard
financial ratios.
We have no
financial policy
statement.
Other Modules
Labor Negotiations
TQM
Human Resources
Decision Making
Each firm begins with identical profile.
Decisions are made January 1st each year.
Tactical plan should align with chosen success
measurements (Profit, Stock Price, ROE, ROS, ROA,
Asset Turnover, Market Share, Market Capitalization).
Responsibilities may be divided up by Product
Manager, Functional Manager, or Market Segment
Manager roles/also Intelligence Officer & Record
Keeper.
Every member of the firm is able to create and
upload decisions - communication and teamwork is
vital!
Simulation Vs. Real World Differences
Finite time span to re-coop investments.
Segment growth rate & demand given for each year.
Demand grows for most years of the simulation.
Domestic market only.
Price ceilings given as part of simulation structure,
no sales once the ceiling is passed.
Customer preferences are homogeneous and given
within all segments.
Recommendations
Build a spreadsheet to calculate industry demand for
each year & sweet spot location over the course of
the simulation.
Build & offer a new product in Practice Round 1, it
serves as good practice.
Divide responsibilities among your group members,
but meet as a group to enter & make final decisions.
Dont wait until the last minute to make decisions.
Develop a consistent strategy and stick with it.
Focus on both internal strategies and behaviors of
competitors, avoid tunnel vision.
