*

FAIR SHARE ESTIMATES: 3-4 Rnds out:

ROW#1

S I M U L A T I O N

M A R K E T I N G M G T. A Historical Consideration…

RE: Projected Share

• LOW END: 0-1 product killed.. 0-1 repositioned or introduced

• TRADITIONAL: 3-6 repositioned from High…0-1 killed…1-2 introduced

• SIZE: 0-1 killed, 0-1 repositioned to Traditional, 1-2 introduced

• PERFORMANCE: 1-2 killed, 0-1 repositioned to Traditional, 0-1 introduced

• HIGH: 1-3 killed or repositioned to Traditional, 1-3 new products arrive in rounds 2 or 3

S I M U L A T I O N

M A R K E T I N G M G T. Round 3- Forecast Segment Competitive Density

• LOW END: 6 products=rivalry unchanged

• TRADITIONAL: 9 products, w/ 3 repositioned= increased competition

• SIZE: 7 products, w/ 2 new= increased competition

• PERFORMANCE: 4 products, w/ 1 new= reduced competition

• HIGH: 6 products, w/ 2 new= increased competition

66

99

77

44

66

S I M U L A T I O N

M A R K E T I N G M G T.

-Given Round 3 Scenario-How should adjust your production capacities?

Round 0-1st shift Capacity

Round 3-

Brand-Demand

(FAIR-Share)

Traditional 1800 1063

Low End 1400 2081

High End 900 668

Performance 600 823

Size 600 469

1.Quick N’ Dirty

2. Consumer Pref’s

3. Best vs. Worst Case Projections

2 Q’s:

1. What will the average product sell in the segment next round? (= Fair-Share)

2. To what degree is your product above or below average- on consumers'’ buying criteria? (= Earned-Share)

Estimate Your EARNED SHARE:

1

2

3

4

EARNED Share - Sales EARNED Share - Sales Forecast Forecast

Look-up next round Industry Demand …

Estimate # products that will be in segment. Divide total industry demand by the number of products= FAIR SHARE Your product’s EARNED demand can be ½ to 2X the average product’s demand…Compare your product with competing products.

Factors include design, awareness, accessibility, and planned mid-year revisions.

Examine industry capacities & capacities of the “best” products.Can products meet the demand they generate?

1.Quick N’ Dirty

2. Consumer Pref’s

3. Best vs. Worst Case Projections

Forecast off Customer Survey Scores

Total=223

R#1 Dec Survey score

% of 223 Predicted sales R#2

Actual Sales R#2

Baker 43 19% 1827 units 1758 units

Able 40 18% 1731 1598

Fast 36 16% 1339 1560

Eat 36 16% 1539 1492

Cake 42 19% 1827 1339

Daze 26 12% 1154 1045

R#1 Survey score

43

40

36

36

42

26

R#2

12

For Example-in Traditional segment everyone begins w/ 13% market share

Opening rounds crucial- can establish competitive advantage (that can be sustained for many years- even thru-out entire sim.)

Initial round demand can vary +/- 25%

Later rounds best case/worst case vary ~~~~ 10-15%

After 1st Year/Round-Can see demand spread

R#1 R#3R#2

CASE

CASE

Worst Case:

BIG INVENTORY- Little Ca$h

Best Case:

Lots of CA$H - Little Inventory

•Enter WORSE case = - (10-12%) < Earned Share in “your sales forecast” on marketing spreadsheet

•Enter BEST case= + (10-12%) > Earned Share in “production schedule” on production spreadsheet

•Spread show up as inventory on proforma BALANCE SHEET

$0.00

In WORSE CASE: You have lots of Inventory

& little or no Cash.

In WORSE CASE: You have lots of Inventory

& little or no Cash.

need to

drive cash

position to

the black…

If you are cash poor, issue Stock /Bonds - or consider a short term loan

If you are cash rich, pay dividends and/or buy back stock.

If you are cash poor, issue Stock /Bonds - or consider a short term loan

If you are cash rich, pay dividends and/or buy back stock.

To adjust your cash position --

Important Considerations re: BEST-WORST Scenario

Analyses

By adjusting your CASH POSITION according to your WORST CASE estimate– will avoid … BiG AL

By adjusting your CASH POSITION according to your WORST CASE estimate– will avoid … BiG AL

Important Considerations re: BEST-WORST Scenario

Analyses

By adjusting production according to BEST CASE estimate– will minimize loss of profit due to Stock-outs

Fixed costs (marketing, R&D, interest

or depreciation) already covered Thus, any additional sales would

only incur variable (production) costs

By adjusting production according to BEST CASE estimate– will minimize loss of profit due to Stock-outs

Fixed costs (marketing, R&D, interest

or depreciation) already covered Thus, any additional sales would

only incur variable (production) costs

For example:

1. If annual sales $120M, = $10M/mo.

2. If a months material & labor costs = $7M, you missed contributing $3M to Net Margin.

3. You’r taxed at ~35%, so your opportunity cost is ~$2M in profit.

Worst Case:BIG INVENTORY/ no

cash– risk seeing Big Al Best case:

Lots of CASH / no Inventory -you risk stockout

How Big is your Slinky?

Determining A Reasonable Spread

Want to avoid generating an ultra Conservative Worst case scenario …matched w/ an ultra Optimistic Best case scenario

Should be able to sell excess inventory

in ~betw. 6 & 16 weeks

Take your total inventory costs

$23,900M

Take your total inventory costs

$23,900M

How to measure your slinky slack--

& Divide by total variable costs of inventory sold:

$23,900M/$131,119M =.18

52weeks *.18 = 9

Risk ~9weeks of Inventory to avoid

stockout

& Divide by total variable costs of inventory sold:

$23,900M/$131,119M =.18

52weeks *.18 = 9

Risk ~9weeks of Inventory to avoid

stockout

Tutorials: • Forecasting • Demonstration

“Generically, profits are driven by the company’s

asset base and by its efficiency

working those assets”

S I M U L A T I O N

M A R K E T I N G M G T.

Key Demand Consideration:

• Overall market growing @ ~ 14%/yr

• “Average” company should/could double - sales in 6 years

Key Capacity Consideration:Key Capacity Consideration:

How effective will u b in building your Co’s asset base?

At outset should be spending ~$10-25M / round on plant improvement

By end should expand asset base to min $140M to $160M+

0

10000

20000

30000

40000

50000

60000

70000

Year1

Year2

Year3

Year4

Year5

Year6

Year7

Year8

NET PROFITS $$NET PROFITS $$

•Year 1 $6 million

•Year 2 $8 million

•Year 3 $10 million

•Year 4 $12 million

•Year 5 $16 million

•Year 6 $21 million

•Year 7 $27 million

•Year 8 $35 million

NET PROFITS $$NET PROFITS $$

•Year 1 $6 million

•Year 2 $8 million

•Year 3 $10 million

•Year 4 $12 million

•Year 5 $16 million

•Year 6 $21 million

•Year 7 $27 million

•Year 8 $35 million

Rounds 6,7,8 should be

most profitable

S I M U L A T I O N

M A R K E T I N G M G T.

Pay off DebtInvest in

growthBuy-back stockPay dividends

Pay off DebtInvest in

growthBuy-back stockPay dividends

Things you can do w/ your $$$:

Which most often selected …but least preferable to do?

S I M U L A T I O N

M A R K E T I N G M G T.

Reducing Leverage

• Says to stockholders— “We can think of nothing better to do w/ $$ than save you interest payments”– More debt eliminated the greater

target you become for a takeover..

• No reason not to maintain Co. Financial Structure that got you to position of high profitability…

S I M U L A T I O N

M A N A G E M E N T

One more thing to

think about

What is the Relationship between My Strategy &

Success Measures

S I M U L A T I O N

M A N A G E M E N T

• Cumulative Profits• Ending Market Share• ROS• Asset Turnover • ROA• ROE• Ending Stock Price• Market Cap.

Strategy

Performance Measures- Defined Performance Measures-Dynamics

Success Measures

Diff Strategies Play into Different Success Measures

Profit MS SP & MC ROE

pf/e

ROS

pf/s

AT

s/a

ROA

pf/a

BCL

L=2-3X X X X

Cost- Niche & PLC X X X

B-Diff L=1.5-2

X X X X

Niche-PLCDiff

X X X X

Cost Strategy = higher leverage/more

margin/ more assets/more debt/ less

equity

Cost Strategy = higher leverage/more

margin/ more assets/more debt/ less

equity

Differentiation Strategy =lower

leverage/less investment/ less assets

Differentiation Strategy =lower

leverage/less investment/ less assets All Segments= more sales & thus enable

greater Cum. profit & overall market share

All Segments= more sales & thus enable greater Cum. profit & overall market share

Focused

Strategies should

operate more

efficiently & have

overall less salesFocused

Strategies should

operate more

efficiently & have

overall less sales

Select Success Measures & Determine Relative Weightings

Need to enter weightings – prior to round-1

Select Success Measures & Determine Relative Weightings

Need to enter weightings – prior to round-1