PharmaSim Analysis

Joey Bringhurst Krysta Henderson

Bradley Shinn Laura Winger

May 4, 2010

Overview

Allstar had some big decisions ahead of it. With changing market conditions and strong

competitors, their relatively decent market share and brand recognition were not enough to

sustain and increase sales revenue and net income. Armed with the ability to experiment in the

first three periods, our team set out a game plan to methodically determine the variables with the

greatest influence over net income, sales and market share. The results of our trial and error

approach, and later refinement, were supported by business intuition, marketing strategy and

information from the case. Once we understood a few key variables, we were able to formulate a

solid base to launch us into even greater profits in the following seven periods. The three most

relevant decisions were to strengthen the indirect sales force, increase point of purchase

promotions, and to focus advertising efforts to target young families. Our position as the highest

performing team in the class with cumulative net sales of $2,134M confirms that our overall

strategy and subsequent decisions throughout the simulation were sound marketing choices.

Analysis

Company, Customers, Competitors

Much to the benefit of the OCM group, Allstar was already an established product in the market

at the beginning of period 1. The company had already developed a reputation as “one of the

most effective brands on the market at reducing multiple cold symptoms,” as well as being more

successful than average in a financial sense. That being said, there were a number of strengths

and weaknesses to the company both before and during this simulation that contributed to and

influenced our brand strategy.

1

Indep Drugstore

Chain Drugstore

Grocery Stores

Convenience Stores

Mass Merch

Wholesaler Support

Merchandisers

Detailers

0

50

100

150

200

250

300

0 1 2 3 4 5 6 7 8 9 10

Sales Force by Period

At the start of this simulation, Allround owned 40.4% of the cold medicine market share (23.8%

of the entire cold and allergy market). On top of this, Allround also had the highest brand

awareness, was the most frequently purchased, and had the highest trial level. This greatly

influenced our brand strategy as we did not need to create a buzz about our product, we just

simply needed to develop it beyond the point to which it had already grown. As was previously

stated, the Allstar brand had been very successful financially with its Allround product, and the

amount of money that the company had at the start of this simulation significantly affected our

strategy as well. First off, we were able to confidently invest in the most expensive advertising

agency, which was known for its high quality work. We believe that this helped us to stay ahead

of the curve in a promotional sense, especially considering that our OCM group believed, at the

start of period 1, that

we already had more

promotional support

than any other brand on

the market. This

financial stability also

allowed us to employ a

substantial sales force,

totaling nearly 1000 employees by the end of the simulation. Our initial approach to staffing was

to focus our sales force on two of the indirect channels, which had proven successful in our trial

periods. This also meant that much of our business was being done before the product reached

the consumer. With the added income, we were later able to add employees in direct sales

channels as we saw fit.

2

The company possessed some weaknesses at the beginning of the simulation that contributed to

our brand strategy, but we chose to focus on these weaknesses more as opportunities. First, the

Allstar brand had a limited product line compared to the competitors, specifically when it came

to the allergy market. In addition to that, Allround was often viewed as an exclusively nighttime

product due to the alcohol and antihistamine in the ingredients, which limited the scope of the

product’s use. Removing the advertising message that it “Helps you sleep” was profitable in the

trial periods, so we not only

removed that message but also

removed the alcohol when we

could, increasing customer

satisfaction.

In later periods we were able to

further reformulate Allround, as well as introduce a non-drowsy allergy medication, Allright,

which greatly contributed to our net income by the end of the simulation. Based on our initial

experimentation and business intuition, we decided that our Allround brand was established well

enough that promotional trials were unnecessary and unprofitable. We did, however, utilize

promotional trials to promote the introduction of Allright. With the other competitors in the

market, we knew we needed to invest in co-op advertising to maintain and improve our shelf

space.

Allstar Brand was trying to fulfill the consumer wishes by helping to alleviate their cold

symptoms. The consumer awareness and satisfaction were key drivers of our efforts as these

figures were indicative of future sales. The four areas that we primarily focused on were

3

$27

$28

$29

$30

$31

$32

$33

$34

$35

$52

$54

$56

$58

$60

$62

$64

$66

Aches Nasal Chest Runny Nose

Cough Rest All but Rest

Stoc

k Pr

ice

(in P

er 3

)

Net

Inco

me

($M

in P

er 3

)

Advertising Message Strategy

analgesics, nasal congestion, chest congestion and coughing. These areas were always at the top

of symptoms reported by the consumer. This was accomplished primarily by our Allround

product which focused on aches, decongestion and cough suppression. Additionally we added

the expectorant in period 7 which helped with chest congestion by loosening phlegm. This

helped us to meet the consumers’ needs as it came to a cold remedy. Our brand expansion to the

Allright product allowed us to diversify the product line and meet additional customer needs

without cannibalizing demand for our main product. This was the first product available on the

market which served to answer our consumers’ needs.

We heavily targeted young families throughout all periods for several reasons. First, our

experimentation showed that targeting them and them alone was the most profitable option.

Second, we believed that more mature customers were set in their ways; their habitual shopping

patterns would be difficult and costly to change. Most importantly, if young families were

attracted to Allround’s products and could be retained, this segment would have the greatest

lifetime value.

Customers want a quality product that will deliver effectiveness at a reasonable price which we

provided for them. Brand Awareness increased from 74.1% in period 1 to 93.4% in period 10

for the Allround product with over a 51% retention rate.

Our ad message to the young families was a primary and reminder message type. We wanted to

create awareness and stimulate demand for new customers with the primary message and then

maintain the awareness and demand with the reminder message. We felt this worked very well

with this target segment as we saw successful purchasing, conversions and retention. In our

trials, promoting benefits or product comparison were not as profitable as the primary and

reminder, so we continued to focus on those throughout the simulation. This strategy showed to

4

be effective in targeting the consumer, as demonstrated by our approximate market penetration

of over 70% and increased average purchase per year of 3.5 units.

We increased consumer satisfaction by listening to the customer and acting on it - they did not

want alcohol to cause drowsiness. At the end of period 2 when we removed the alcohol from our

ingredients we saw a huge increase in consumer satisfaction from 58% to 66% which we

maintained for the most part through the 10 periods. We saw a minor dip when we maxed out

the expectorant in a subsequent reformulation. We realized that customers and physicians alike

wanted to avoid excessive medication. Therefore, we made the appropriate changes to meet the

consumers’ request by reducing the dosage of the expectorant.

Our price was set at a value for the consumer. Our prices were actually lower than most

consumers anticipated and therefore have a higher value to the consumer. This strategy

combined with our high brand awareness and consumer satisfaction provided great results for

The Allstar Brand.

Trends that we observed were that retail sales continued to increase each period. This trend

helped us focus on the consumer by providing appropriate awareness primarily in grocery stores

and drug chains. We influenced stores to allocate additional shelf space to our brand in order to

provide more products for the consumer. By focusing increasing numbers of sales force

employees at the grocery stores and drug chains we made it convenient for the consumer to pick

up the cold medicine without having to go out of their way. Symptoms reported remained fairly

constant, so consumer demands for products addressing those symptoms could be easily

predicted. These trends helped us to maintain our focus on the customer, modify our formula

appropriately, introduce a new product to meet consumer needs, and reject the option to

introduce a brand extension that would have provided minimal benefits for the consumer.

5

From the outset of the simulation, the threat of competitive activity within the market was made

clear. The case specifically states that the industry had recently seen several product

introductions as well as major increases in promotional and advertising expenditures. Staying

abreast of developments taking place with competing brands proved useful. It was helpful to be

aware of their relevant operating statistics such as sales force allocation, advertising

expenditures, and message and promotional programs, as a gauge to determine appropriate

output levels for the Allstar brand. Moreover, it was our goal to beat our competition from the

very beginning as we believed in creating an innovative marketing strategy as opposed to a

reactionary approach. For this reason, we did not mimic the competitors’ actions and instead

stayed true to our initial strategy based on our research and analysis. This tactic proved to be a

successful one as we were able to consistently gain market share and increase profitability.

Our primary competitors changed through the course of the simulation. In the earlier rounds,

Coughcure and End were identified as our primary competition followed by Besthelp and Extra.

We focused on these brands since they had the strongest presence in the cough and cold sector.

Although Allround considered itself an allergy relief medication, the bottom line was the public

did not share this view. Allround’s market share in allergy product category was 0% in the

opening period. For this reason, our initial concentration focused on the cough and cold

segments. Once Allright was introduced in later periods to specifically address the needs of

customers suffering from allergy symptoms, the scope of our attention grew accordingly.

Careful consideration was given to the activities and developments with Believe and Defogg,

two of the strongest performers in the allergy category.

We recognized that it is imperative to be well informed of competitors’ movements. However,

we did not want to let their decisions sway us from continuing with our own marketing strategy.

6

If we could beat our competitors to the punch, we would be able to continue with our plans as

opposed to spending time, money, and efforts on countering their efforts. For this reason, we

never used any of our budget for comparative advertising campaigns or marketing reports in

addition to the data automatically generated in the simulation. We believed our brand and

product were strong enough to stand alone with primary and reminder advertising messages.

II. Product, Pricing, Promotion, and Place

The Allround product was an effective, affordable and well known remedy for cough and cold

symptoms from the start of the simulation. However, there was concern that the multi-symptom

“shot-gun” approach provided excessive medication. We corrected this problem by dropping the

alcohol in the Period 3 reformulation. Customers not only wanted to avoid over-medicating but

advertising results showed there was little interest in the benefit of sleep assistance.

In Period 4, we chose not to move forward with the line extension known as Allround +. Since

the ingredients and benefits were so similar to the original formula, we did not believe this was a

valuable line extension to Allstar Brands. In fact, we saw this option as having the potential to

cannibalize our existing product offering.

7

We introduced

Allright in Period 6. The

reasoning behind this

decision was to create a

strong presence in the

allergy relief sector that we

had previously been lacking.

Our advertising for Allright focused on relieving allergy symptoms and not causing drowsiness.

These were two areas that were not promoted for Allround. Since the Allround and Allright

products addressed separate sectors, cough/cold and allergy relief respectively, we were

confident that the addition of Allright would not cannibalize Allround sales. We strongly believe

that being the first to introduce this new product had a profound impact on our sales. Having a

strong company performance in prior rounds made us confident that we were prepared to launch

a complimentary product. The strong brand awareness of 90%, existing sales support, and large

budget of $18M resulted in a 42% market share in Allright’s first period on the market.

Our final product adjustments took place in Periods 8 and 9. We added the maximum dosage of

expectorant in Period 8 because cough and chest congestion were repeatedly the most

complained about symptoms. We revised this decision in Period 9 to a lower dose of 100 since

we realized that this was in line with our competitors’ formulations and our customers want to

avoid overmedicating.

Our pricing strategy was initially based off trial Periods 1 through 3. The result of the trials

showed that starting at $5.16 MSRP maximized net income and nearly maximized retail and

manufacturing sales. At this point we also offered minimal discounts to the wholesale sector and

8

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

$-

$50

$100

$150

$200

$250

$300

$350

$400

$450

Yr 0 Yr 1 Yr 2 Yr 3 Yr 4 Yr 5 Yr 6 Yr 7 Yr 8 Yr 9 Yr 10

Mar

ket

Shar

e

Man

ufac

turi

ng S

ales

($M

)Sales and Market Share - Allergy Segment

Allright Believe Defogg Allright Believe Defogg

the 250-2500 unit bucket. This was to drive higher volume sales. We looked at the market

conditions in each period and based our decisions on the market in general as well as inflation.

We used Sully and Rogers, the Tier 2 advertising firms in the starting periods. With increased

budgets in later rounds, we had the additional funds to use BMW, the Tier 1 advertising firm. As

mentioned earlier, young families were our primary advertising target with primary and reminder

messages. Benefit messages were implemented when the Allright product was introduced.

Point of purchase promotions proved to increase brand awareness, market share, and unit sales.

We did not do point of purchase promotions in convenience stores since this was not profitable

in trials. Co-op advertising improved shelf space figures. We did not have a strong response to

coupons so these were kept at minimal levels. In our trial periods, we found that offering free

trials was not profitable for Allround. However, we chose to offer free trials of Allright since it

was a new product and this was a profitable promotion.

Initially we focused on indirect sales force; specifically merchandisers and detailers. Our direct

sales force was minimal coming out of Period 3 and this was an area we continuously increased

across each subsequent period. Convenience store sales increased in later periods (starting in

Period 6, and through period 9) and the sales force was allocated accordingly.

Take-Aways

If we could replay the simulation, we would have paid closer attention to details. One example

where we overlooked information was when we maxed out our expectorant having the

knowledge that our customers were hesitant of over-medicating. We got better results when we

lowered the expectorant dosage, so in hindsight this was consistent with what we knew about

consumers based on the case.

9

Since our allergy medication was the first non-drowsy product in the allergy segment, the pricing

direction was not evident. More research and comparative analysis might have enabled us to

price the product more efficiently and maximized revenue from this product.

One other factor we did not prioritize in our research and analysis was how to effectively manage

our capacity constraints and expansions. Since these factors were overlooked, there were

potential savings that we could have missed.

The amount of variables to consider in a marketing plan was much greater than we first realized.

It was a little daunting and overwhelming at first, but once we broke it up into groups, we started

to understand how they influenced performance and interacted together.

The simulation deepened our appreciation for the relationship between marketing research

concerning consumer needs and communicated these findings to the R&D team responsible for

product reformulation, expansion and when necessary, product discontinuation.

$67$226

$351$492

$661$833

$1,037

$1,280

$1,508

$1,789

$2,135

0

500

1000

1500

2000

2500

Yr 0 Yr 1 Yr 2 Yr 3 Yr 4 Yr 5 Yr 6 Yr 7 Yr 8 Yr 9 Yr 10

Team Performance - Cumulative Net Income

10