Nissan Sentra Nissan Sentra

AutoSim SimulationAutoSim Simulation

Market Segmentation, Business Cycles Market Segmentation, Business Cycles and Simulationand Simulation

BADM 423 Spring 2001BADM 423 Spring 2001

Gerald Blakely, PhD., InstructorGerald Blakely, PhD., Instructor

By Matt Behar, Roger Harrison, Mike By Matt Behar, Roger Harrison, Mike Henderson, Thomas Ryan and Francisco Henderson, Thomas Ryan and Francisco

TovarTovar

Purpose of the SimulationPurpose of the Simulation

By using the simulation software AutoSim, one can By using the simulation software AutoSim, one can dynamically study and analyze the marketing and dynamically study and analyze the marketing and financial activities involved in the very competitive financial activities involved in the very competitive automobile market.automobile market.

AutoSim is a marketing case based on real data AutoSim is a marketing case based on real data collected from the small car sector of the industry.collected from the small car sector of the industry.

Our group was assigned the task of working with Our group was assigned the task of working with the Nissan Sentra, a Japanese compact built in the the Nissan Sentra, a Japanese compact built in the US as well as in other countries.US as well as in other countries.

The Nissan SentraThe Nissan Sentra

• Manufactured in Smyrna, TennesseeManufactured in Smyrna, Tennessee

• 1.6 liter, 115 horsepower, 34 mpg, 1.6 liter, 115 horsepower, 34 mpg, gasoline enginegasoline engine

• Offered in Base, XE and GLE models Offered in Base, XE and GLE models with average price of $13,959with average price of $13,959

• Smallest of the Nissan Smallest of the Nissan family of cars sold in thefamily of cars sold in the U.S.U.S.

The goodness of the SentraThe goodness of the Sentra

•StyleStyle

•PricePrice

•QualityQuality

•EconomyEconomy

And the ugliness of itAnd the ugliness of it

• Perceived lack of quality when Perceived lack of quality when compared to Honda or Toyotacompared to Honda or Toyota

• Attractive to a relatively narrow Attractive to a relatively narrow demographic groupdemographic group

• Lacks outstanding or remarkable Lacks outstanding or remarkable featuresfeatures

But it isn’t a motherless But it isn’t a motherless child!child!

These people like it:These people like it:

•Commuters and followersCommuters and followers

•People in the 25-34, 35-44 age rangesPeople in the 25-34, 35-44 age ranges

Our CompetitionOur Competition

The Honda Civic and the Toyota Corolla are The Honda Civic and the Toyota Corolla are our most direct competitors in terms of our most direct competitors in terms of features offered and appealfeatures offered and appeal

Other competitors in terms of price and Other competitors in terms of price and features include the Ford Escort and the features include the Ford Escort and the Chevrolet CavalierChevrolet Cavalier

Initial Market ConditionsInitial Market Conditions

•Quarterly production in the small car Quarterly production in the small car segment is 600,000 unitssegment is 600,000 units

•Production is projected to grow a healthy Production is projected to grow a healthy 11%11%

•GDP is projected to increase by 2.2%GDP is projected to increase by 2.2%

•Inflation has remained unchanged during Inflation has remained unchanged during the last quarterthe last quarter

Initial Conditions for the Initial Conditions for the SentraSentra

•Market share for the Sentra is 7%, Honda’s -the Market share for the Sentra is 7%, Honda’s -the leader- 14%leader- 14%

•Inventory is high for all of our modelsInventory is high for all of our models

•Contribution is lower than most of our competitorsContribution is lower than most of our competitors

•Advertising and promotions are not well targetedAdvertising and promotions are not well targeted

•Household income for the Sentra buyer, typically Household income for the Sentra buyer, typically a Mid-Atlantic resident, is over $60,000a Mid-Atlantic resident, is over $60,000

Then, our objectives are…

•To become the market leader in terms To become the market leader in terms of contributionof contribution•To increase market share by targeting To increase market share by targeting other demographic groupsother demographic groups

StrategyStrategy•Advertising will focus on customers Advertising will focus on customers desiresdesires•Most advertising expenditures will be on Most advertising expenditures will be on network and spot TVnetwork and spot TV•Promotions will also keep customers in Promotions will also keep customers in mindmind•Maintaining strong profit marginMaintaining strong profit margin•Keeping labor and overtime costs low.Keeping labor and overtime costs low.•Keep plant utilization at about 75%Keep plant utilization at about 75%•Maintain inventory level at 40 days for Maintain inventory level at 40 days for each modeleach model

Let’s fight!! Decision OneLet’s fight!! Decision One

•We changed advertising to focus on the 25-44 year old We changed advertising to focus on the 25-44 year old rangerange

•We offered 8% financing, and $250 rebates on the XE We offered 8% financing, and $250 rebates on the XE and GLE; $100 on the Base modeland GLE; $100 on the Base model

•Forecasted an increase in market share as result of Forecasted an increase in market share as result of increased advertisementincreased advertisement

•Want to keep inventory at around 40 daysWant to keep inventory at around 40 days

•Plant utilization kept at 75% capacity. No overtime cost Plant utilization kept at 75% capacity. No overtime cost or lay-offsor lay-offs

Decision One ResultsDecision One Results

•Our market share increased by 0.5% to 7.5%. Honda Our market share increased by 0.5% to 7.5%. Honda lost 1%, Corolla lost 0.8%lost 1%, Corolla lost 0.8%

•Net contribution increased from 109.9 to 132.9Net contribution increased from 109.9 to 132.9

•The 25-34 year old segment makes now the most The 25-34 year old segment makes now the most Sentras purchasesSentras purchases

•Low inventory in the Base modelLow inventory in the Base model

•GNP grew at seasonally adjusted rate of 2.5%GNP grew at seasonally adjusted rate of 2.5%

•Prime rate is expected to rise to 8%Prime rate is expected to rise to 8%

•Small car production increased by 6%Small car production increased by 6%

Decision 2Decision 2

• Offered higher rebate on GLE modelOffered higher rebate on GLE model• Lowered financing to 4.9%Lowered financing to 4.9%• Increased production of Base modelIncreased production of Base model• Focused advertising and vehicle upgrade on Focused advertising and vehicle upgrade on

price and comfortprice and comfort

Decision 2 ResultsDecision 2 Results

• Our market share grew by 0.3% to 7.8%. Honda lost Our market share grew by 0.3% to 7.8%. Honda lost 1.9%, while Corolla gained 2%1.9%, while Corolla gained 2%

• Our net contribution fell to 127.5 even though sales Our net contribution fell to 127.5 even though sales were up, due to the lower rates and incentives.were up, due to the lower rates and incentives.

• Overall car sales fell 1% while production went up 9%Overall car sales fell 1% while production went up 9%• GNP grew 3.5% and prime rate is unchanged at 8%GNP grew 3.5% and prime rate is unchanged at 8%• Everybody is throwing their companies out the Everybody is throwing their companies out the

window with very low rates and promotionswindow with very low rates and promotions

Decision 3Decision 3

• Need to decrease production of Base model Need to decrease production of Base model to cut inventory backlogto cut inventory backlog

• Increased contribution allows us to reduce Increased contribution allows us to reduce MSRPMSRP

• Keep same rate-promotion mixKeep same rate-promotion mix

Decision 3 ResultsDecision 3 Results

• Sentra lost 0.2% market share. Honda remained Sentra lost 0.2% market share. Honda remained unchanged while Corolla lost 2.8%unchanged while Corolla lost 2.8%

• Inventory backlog for the base model is now 70 days, Inventory backlog for the base model is now 70 days, and 54 days for the XEand 54 days for the XE

• Our net contribution fell to 115.0Our net contribution fell to 115.0• GNP grew to a seasonally adjusted rate of 4.2%, GNP grew to a seasonally adjusted rate of 4.2%,

inflation increased 0.5%, and prime rate is expected inflation increased 0.5%, and prime rate is expected to fall to 7.5%to fall to 7.5%

• Car sales fell 2%Car sales fell 2%

Decision 4Decision 4

• Advertising expenditure remains unchanged Advertising expenditure remains unchanged from previous periodsfrom previous periods

• We lowered financing rate to 1.9% and the We lowered financing rate to 1.9% and the promotion mix remained unchanged from the promotion mix remained unchanged from the previous period.previous period.

• Lowered production to help reduce inventoryLowered production to help reduce inventory• Expecting decrease in salesExpecting decrease in sales

Decision 4 ResultsDecision 4 Results

• We gained 0.7% in market share. Honda lost We gained 0.7% in market share. Honda lost 1.2% while Corolla gained 1.0%1.2% while Corolla gained 1.0%

• Our net contribution increased to 149.5Our net contribution increased to 149.5• Our Base model inventory is lower than Our Base model inventory is lower than

plannedplanned• Car sales increased 6%; more than expectedCar sales increased 6%; more than expected• Consumer confidence increased, GNP grew Consumer confidence increased, GNP grew

4.3%4.3%

Decision 5Decision 5

• We introduced a new Luxury model

• Kept promotions and financing unchanged

• Increased production on Base and XE models. Decreased production of GLE

Decision 5 Results: We ran Decision 5 Results: We ran out of gasout of gas

• We lost 0.4% in market share. Civic remained We lost 0.4% in market share. Civic remained unchanged and Corolla lost 0.3%unchanged and Corolla lost 0.3%

• Our net contribution took a bit hit, losing 47.8 Our net contribution took a bit hit, losing 47.8 to fall to 101.7to fall to 101.7

• The introduction of the new luxury car ate up The introduction of the new luxury car ate up sales of the GLE model, pushing inventory of sales of the GLE model, pushing inventory of the GLE to 105 daysthe GLE to 105 days

Time to pack upTime to pack up

We, the Sentra Team, lost ground in contributions due to We, the Sentra Team, lost ground in contributions due to the introduction of a new model in the last period, and to the introduction of a new model in the last period, and to the cut-throat competitionthe cut-throat competitionEnding Contribution = 101.7Ending Contribution = 101.7Beginning Contribution = 124.8Beginning Contribution = 124.8Highest Contribution (Y3Q1) = 149.5Highest Contribution (Y3Q1) = 149.5

We gained market share, one of our objectivesWe gained market share, one of our objectivesBeginning Market Share = 7.0%Beginning Market Share = 7.0%Ending = Highest Market Share = 7.9%Ending = Highest Market Share = 7.9%

Our main competitor, the Our main competitor, the Civic, lost 3.1% to end at Civic, lost 3.1% to end at 10.9%10.9% market share. market share.

Generally SpeakingGenerally SpeakingOur approach was conservative, trying to Our approach was conservative, trying to maintain a constant level of inventory, maintain a constant level of inventory, advertising expense and plant capacity advertising expense and plant capacity utilization. This approach allowed us to gain utilization. This approach allowed us to gain market share while raising contributionmarket share while raising contribution

Our contributions made steady gains that were Our contributions made steady gains that were only upset in the final period by the introduction only upset in the final period by the introduction of a luxury model that competed directly with of a luxury model that competed directly with our own GLE modelour own GLE model

Then, we can safely say…Then, we can safely say…

My Sentra is better than My Sentra is better than your Civic! your Civic!

(and the others too!)(and the others too!)