Introduction
Simulation games are of extreme importance for business learners as they help to apply knowledge to simulated situations. As a part of the Marketing 300 class, I had a chance to gain first-hand experience in marketing a new product line from start to finish. According to the scenario provided by the game, a large, international bicycle firm has decided to enter a new segment of the bicycle business. The company licensed a new technology that allowed 3D printing bikes using a new economical form of carbon fiber.
As a result of this innovation, the company gained a chance to create new types of bicycle shops, reduce inventory costs, and reduce prices. I was selected as the head of a new division that was created to become a separate company with no association with the Corporate Headquarters. This implied that I had to make all the strategic and tactical decisions, including brand design, pricing, segmentation, advertising, service and sales personnel, and sales outlets during six quarters of simulated company life. The present paper provides an overview of all the decisions by quarter and provides justification for them.
Quarters 1 and 2
During the first quarter, I had to make several strategic decisions, including the selection of the company name, target segments, and the location of the first store. I decided that the name of the company should be Chen’s for two reasons. On the one hand, I decided that as I am the founder of the division/company, my name should appear in the company name. On the other hand, the name “Chen” is a simple one-syllable word that is easy to remember. After choosing the name, I needed to select priority segments and open my first sales office.
These two decisions came in tandem, as they both depended on market research. I decided that since I was opening a new company that had absolutely no background, my goal was to serve the maximum number of customers to gain their trust. In the world of global communication and fast information sharing, customer feedback is of extreme importance in the early stages, as it helps the company to gain momentum and lets the satisfied customers be the best marketing tool. As a result, I decided to focus on the segment that generated the highest demand.
The recreation segment had the highest demand that totaling 23,536 in three locations, including Amsterdam, Bangalore, New York City, and Rio de Janeiro. I also checked the customer needs to understand if the new design could meet the needs of the chosen segment. The new technology led to the minimization of costs associated with lower costs of material, production, and distribution (smaller bike shops). Since the recreation segment was most sensitive to the pricing policy, the initial idea for the target segment was confirmed. I decided to open my office in Amsterdam since it had the highest market potential (6,830 of twelve-month potential demand).
During the second quarter, I was to design my first bike, set a fair price, create an advertisement, select media placement, and hire sales and service people. While some of the decisions were straightforward, others required in-depth analysis. In terms of personnel, it was clear that I needed five people, one of whom needed to have specialized service training and the other four in recreation sales.
The second quarter was associated with selling only one type of recreation bike, which meant that the salespeople had to be experts in the segment. Since service was not a priority during the second quarter, only one service person was needed. I also decided to open a new store in Bangalore, as it had the second-highest market potential among the four cities.
The most challenging task was to design the first bike. I decided to name the bike Chen-R#1 to increase brand awareness. At the same time, I wanted all the model names to be consistent, so I thought I would only change the last number for all the following bike designs. The decisions about the bike design were based upon the needs of the customers and strategic goals for the second quarter.
The primary objective was to gain the highest market share to increase awareness about the brand. Therefore, I decided to create a bike design that was the most attractive for the target segment and set the lowest possible price for the maximum number of benefits valued by the segment. According to market research, the customers wanted a bike that was easy to ride, comfortable, able to carry things, safe, simple to use, and low in price. Therefore, I added hybrid tires for university, precision brakes, and reflectors for safety, comfortable straight handlebars, polymer gel comfort seats, and front suspension for comfort, a basket to carry things, and 14 gears for ease of use.
The marketing campaign was also chosen to fulfill two objectives, which were to increase brand awareness and describe the benefits of the new bike in the most appealing way for the target segment. As a result, I included mentioning the brand as a top priority, and other priorities were distributed according to the market review. I made six inserts for Chen-R#1 in local media to start an aggressive marketing campaign. The price of the bike was set at 850 with 50 as a price rebate. The pricing policy was formulated considering the price that the segment was willing to pay and the cost of production.
Quarter 3
The goal of the third quarter was to review the results of the second quarter and alter the marketing strategy appropriately. Before making any decisions for the third quarter, I revised the balanced scorecard, market demand and market share, profitability, and customer satisfaction. The results of the second quarter were promising. The division had the highest overall market share (42%) and recreation market share (51%), which meant that the central strategic goal to increase brand awareness by maximizing market share was a success. However, it should be acknowledged that the market performance of the division was lower than two other companies in Amsterdam because the segment had a strong competitor (Winged Wheels).
Chen’s was the top performer among others in terms of marketing effectiveness (78.500) and financial performance (69,706 in net profit). The total performance of Chen’s was slightly above average (43.748 with an average of 41.971).
Customer satisfaction was one of the strongest points of the company’s performance. In quarter 2, Chen’s had the highest brand judgment rating in the entire industry for Chen-R#1. This implies that the objective of using positive feedback for company products as the central marketing tool was fulfilled.
In summary, it can be said that the goal for the second quarter was successfully achieved and only slight moderations needed to be made. In particular, the company’s strategy needed to be adjusted to make sure that I could substantially expand the marketing program and capture significant demand and profits from the market.
First, I decided to increase the product line without trying to capture any other segments. Chen-R#2 was created as an experiment to understand if the profitability can be increased by slightly reducing the production cost and increasing the price. As a result, the new product had almost the same characteristics as its predecessor at the expense of 900 with 100 as price rebate and without front shock observers.
I also made slight alterations in the marketing campaign for the second product by adding emphasis on the ability to carry things using the basket, as it was one of the segment’s needs. The profitability of the first model was 340 per unit, and I wanted to see if the new product could become more profitable. However, for financial safety purposes, the sales priority remained on Chen-R#1.
Second, I hired new personnel in both open locations, Bangalore and Amsterdam. In Amsterdam, I hired another person with specialized training in service, as I expected that the demand for service professionals would grow with the increased number of bikes in use.
In Bangalore, I mimicked the decision made for Amsterdam in Quarter 2 and hired four salespeople with specialized training in recreation and one service specialist. The idea behind the choice was to reproduce the success made in Amsterdam. I also decided to open my next store in New York, as it is the third city in terms of the market potential in recreational bike demand.
Third, I decided that the marketing campaign in Bangalore did not need to be as aggressive as in Amsterdam. The first reason for the decision was that the market potential in the segment was significantly lower in Bangalore than in Amsterdam. At the same time, I decided to start an internet marketing campaign that was supposed to compensate for the decreased number of local marketing inserts in Bangalore. Therefore, I decided to make three inserts in the marketing of the two products and invested 6,000 in Internet marketing. However, I decided to keep the number of local advertisement inserts in Amsterdam at the level of six per product.
In summary, all my decisions for the third quarter were aimed at repeating the financial success of the second quarter. I decided that it was too early to invest in the development of other segments and decided to make my position in the recreation segment firm. As a result, I decided to run a cautious experiment with the introduction of a new product that did not differ considerably from the first one to test if I can improve profitability and customer satisfaction. By the end of the third quarter, I expected that my financial performance and marketing effectiveness would improve, while the market performance would remain unchanged. I planned an increase in the market share for the fourth quarter.
Quarter 4
The central goal for quarter 4 was to expand the market offering by choosing a second segment the company wanted to serve. At the same time, I needed to evaluate the results of the third quarter and see if I needed to make any changes. The results of the third quarter were a little lower than expected. The market share decreased considerably, as Winged Wheels increased its presence in the recreation sector by 3%.
Marketing effectiveness remained unchanged with the highest performance among the competitors of 78.500. However, the financial performance skyrocketed with cumulative net profit for the division of 582,087, which is 12.81% of the final goal set by the Corporate Headquarters of 4 billion by the end of the sixth quarter. In summary, the majority of strategic objectives were achieved with minimal differences between desired and actual outcomes.
In terms of customer satisfaction, Chen-R#1 continued to be the top performer in the industry (total score: 80), while Chen-R#2 was the runner-up with an overall score of 77. This implied that my decision to create the second product was a success as I was able to increase the price and decrease the production cost with minimal losses in customer satisfaction.
The profitability of Chen-R#2 was lower (438 per unit in comparison with Chen-R#1’s 471). However, after the exclusion of investments in brand design and advertisement design, per unit profitability of Chen-R#2 was 505, which was higher than the per-unit profitability of Chen-R#1. In other words, even though the demand for the new model was considerably lower, the experiment with Chen-R#2 was a success. It was decided to keep both products to give customers a choice.
As for the strategic decisions in Quarter 4, I decided to create a product to serve the mountain segment of the bicycle market. I was opening a new store in New York, which had the highest market potential in terms of demand for mountain bikes. For the new store, I hired two service people, four specialists in mountain bikes, and two salespeople with specialized training in recreational bikes.
I also made sure that my stores in Amsterdam and Bangalore hired two specialists each in mountain bikes. Such a distribution of salesforce was dictated by the decision that the New York store would specialize in mountain bicycles. I was also planning to open a new store in Quarter 5 in Rio de Janeiro, which was the only city left among the options.
The design of the new product was defined by customer needs in the sector. The name of the new product was Chen#3. Customer needs assessment provided in the first quarter revealed that the customers in the mountain segment wanted a durable bike, could handle rough terrain soften its impact, and was able to stop quickly and turn sharply.
Price was not among the immediate concerns, and customers were willing to pay around 1,100 per unit. Therefore, the design included front suspension, mountain high grips, standard disk brakes, and 24 gears. The decals and accessories did not seem to be needed. The price was set at 1,150 with 50 in price rebate, which was rationalized by marker research and the experience of DreamBikes, which was the leader in the segment in terms of market share.
The experience of the competitor also inspired the design of the advertisement for the new product. Chen’s was doing well in terms of financial performance; therefore, the central goal of the market expansion was not to distort the success by making only the safest decisions. I did not want to shift the emphasis from recreation bikes to the new segment, and the introduction of the new product was used as a test to see how the new product can improve financial performance.
In terms of media placement, I decided to start an aggressive local campaign in the mountain segment for the new product in New York. The local media inserts were supplemented by online advertisements on the website and social media. I also started a moderate local marketing campaign in Amsterdam by dedicating four local media inserts, as it also had an adequate market potential in the mountain segment. Local media inserts in Bangalore remained the lowest as the city had the lowest market potential.
In summary, the results for Quarter 3 were adequate, and no drastic alterations in the current strategy were needed. Therefore, I focused my attention on expanding the market by introducing a new mountain bike. The expansion was expected to improve the market performance of the company and boost financial performance. However, marketing effectiveness was expected to stagnate as I utilized a borrowed marketing strategy.
Quarter 5
There were two primary goals for the fifth quarter, including launching new products based on the latest available components and maximizing performance based on the results of the fourth quarter. Quarter 4 was a success as all the strategic goals were achieved, and all three evaluated aspects reached the desired results. As was expected, marketing effectiveness stagnated with a score of 77.50, as I tried to make cautious decisions not to disrupt the success of the previous quarters. Market performance improved considerably as Chen’s grabbed 38% of the mountain segment with Chen#3, which was the largest market share in the sector.
The financial performance skyrocketed once again, with 1,646,083 in net profit for the quarter. As a result, Chen was the top performer in all aspects, with a total performance of 67.217. This implied that my judgment was fair, which made me more confident to make drastic changes in the branding and marketing campaign.
In this quarter, I realized that I could no longer make safe decisions. The performance needed to improve drastically, especially in marketing effectiveness, as the board expected brand judgment and ad judgment to be above 90. Updating the design of advertisements and products required significant investments; however, it was not a significant concern, as the division generated substantial profits.
I redesigned all the products to include the best components with minor differences between the products in the same segment and introduced a new bicycle, Chen#4. I decided that I did not need to increase the price, as I could afford a decrease in profitability to boost brand judgment. I also did not want to differentiate my products too much, as I wanted the company to produce only top-quality bicycles. In short, by the end of Quarter 5, Chen’s offered four high-quality products at a reasonable price, which was expected to improve customer satisfaction.
I adjusted all the advertisements to include information about the new parts. I also decided it was no longer a priority to include the brand name in all products, as the customers were aware of the company. Instead, I decided to focus on the benefits of the new design and core values. I thought about mentioning in the advertisements the fact that Chen-R#1 and Chen#3 had the highest rating in the segments. However, I decided not to include this information, as the move appeared too risky for me at that moment.
As for local media placement, I decided to modify my strategy and market different products in different locations. In New York City and Rio de Janeiro, I emphasized Chen-R#2 and Chen#4; in Amsterdam, I focused on advertising Chen-R#1 and Chen#3, and in Bangalore, I decided not to differentiate my marketing strategy. The idea behind the distribution was to test the effectiveness of different marketing strategies.
Local media inserts were supplemented by an online marketing campaign, which remained the same since the fourth quarter. I decided not to use any paid ads, as I believe they can annoy the customers. However, if the marketing campaign was not efficient enough, I considered adding a small budget to paid ads, to improve the situation.
During the fifth quarter, I also opened a new store in Rio de Janeiro, which was specialized in the mountain segment, as market research revealed it was the most appropriate for the region. The specialization was achieved by hiring sales personnel trained in selling mountain bicycles. I mimicked the staff of the store in New York, as its experience confirmed that the number of salespeople and service personnel was optimal.
The expectations for the fifth quarter were unclear as there were many variables that changed. I believed that all the decisions were adequate and expected a significant increase in customer satisfaction and marketing effectiveness. However, I feared that my financial performance would lose its momentum. However, I decided to take the risk to maximize the score in ad judgment and brand judgment.
Quarter 6
The central aim of the last quarter was to make the final push to the objectives set by the central headquarters. In order to achieve desired outcomes, I needed to review the results for Quarter 5 and make necessary alterations. The results of the fifth quarter were astounding. All the goals set by the Corporate Headquarters were achieved in five quarters instead of six. The market performance improved considerably as Chen’s grabbed 55% of the mountain and recreation segments, which led to the final score of 110 on the balanced scorecard.
The financial performance beat all the records generating more than 10,000 sales in the quarter, which meant 4,678,171 in net revenues for the quarter, which was 117% of the goal set by the central headquarters. Finally, marketing performance improved considerably from 76.5 to 110. Brand judgment was between 97 and 99, which was considerably above the minimum of 90. In other words, the results of the fifth quarter surpassed the expectations and with a total score of 106.401, which was the highest in the market.
The review of Quarter 5 revealed that no alterations were needed to achieve the desired outcomes. Therefore, the fundamental idea behind all the decisions made during the last quarter was to maintain stable performance in all three aspects. For that reason, I decided to keep the same number of employees in all the regions. I also did not make any changes in the marketing campaign in terms of advertisement design and local media inserts for the existing products, as they did seem to be needed.
However, I decided that the company should not stop its development. Therefore, I decided to design a new product, which was named Chen-C#3. I also renamed all the models for consistency: all names of the recreation models started with “Chen-C#,” while all the mountain bikes’ names started with “Chen-R#.” The idea of creating a new recreational bicycle was motivated by the desire to emphasize that the company’s top priority was the recreational segment. The new product mimicked the design of Chen-C#1, the top-selling bike in the sector. However, Chen-C#3 had a valuable addition of a performance bike computer with only a minor price increase (900 instead of 850).
Before the introduction of this bicycle, none of the products in the recreation sector offered this accessory. Therefore, I decided to give my customers the opportunity to have such an option. However, I did not want the bike to have a high priority in sales, as it was expected to be less profitable than the other two models. Therefore, I gave the new bike less attention to the local media; however, I still ran a website and a social media campaign to promote it. I still did not dedicate any money to paid online ads, as I believed they were unnecessary.
After all decisions for the last quarter were made, I felt uneasy, as I expected stagnation in the development of the company. I realized that my competitors would be making significant changes in their campaigns, which may cause Chen’s to lose its current position as a leader. However, I still believed that all the objectives set by the Corporate Headquarters would be achieved.
Final Results and Conclusion
The results for the sixth quarter were not as good as they were in Quarter 5, as I decided to preserve the lead instead of continuing the development. As a result, the market performance of the company decreased from 110 to 92, as I lost 8% of the market share in recreation and 10% in the mountain segment. Marketing effectiveness and financial performance improved inconsiderably with a net profit of 4,740,180.
The introduction Chen-C#3 was successful; however, the new product decreased the sales of Chen-C#1 and Chen-C#2. The final score was 101.002, which was significantly lower than in the fifth quarter. In summary, the results of the sixth quarter signaled a looming disaster, and if the game were to continue, I would need to make significant alterations to avoid stagnation.
In conclusion, the game turned out to be a useful tool to practice decision-making skills in marketing and company management. I was able to utilize the knowledge gained in Marketing 300 class to analyze the data provided by the marketing research and financial reports to make adequate strategic and tactical decisions. Even though the game was overly simplistic, I was able to learn valuable lessons, which I will use in my career. First, I realized how important the decisions be data-driven to ensure objectivity.
Second, I understood that market performance often depends on the decisions of the competitors, and strategies should be adjusted using the information about their performance. Third, I realized that there is nothing wrong with mimicking the choices of the competitors to receive stable results. Finally, I realized that trying to hold for the achieved results is not a viable strategy, and the best managers should always look for ways to improve.