Get to know the latest addition to the Smartsims Team, Sunil Abinandan. He shares his experiences doing the MikesBikes Advanced simulation as a student, mentor and how these successfully helped him land the job here at Smartsims! Continue reading Student Success Stories: Journey from a MikesBikes Business Simulation Student to a Smartsims Employee
Monthly Archives: November 2018
Question of the Week: What are the Inventory Costs in Music2Go Marketing Simulation?
There are two types of inventory costs in Music2Go.
Inventory Holding Cost
Each year all firms are charged 3.5% of the value of their average closing inventory for inventory holding costs to cover the cost of warehousing etc.
For instance, if you have 1 million units of unsold stock at the end of the year at a cost of $40 per unit, then you have $40 million of inventory which will cost:
3.5% *$40 million = $1.4m in holding cost
Inventory Disposal Loss
If a firm updates a product with a new design or abandons it altogether then all existing inventory is dumped at 93.5% of what the firm paid for it.
Example:
$1 million of inventory would be dumped for $935K giving a loss of $65K.
You can gather some valuable market research from looking at the figures for your competitors. Firms that have no inventory holding costs have stocked out, because they are under forecasting demand for their products. Firms with large inventories are over forecasting demand. If you see any inventory disposal costs, then you know that your competitor has either updated an existing product’s design or abandoned one.
Related Articles:
How to Set Retailer Price and Retailer Margin in Music2Go
Improving Total Marketing Contribution
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- You can receive an immediate answer to a number of commonly asked questions through our Support Center.
- Contact us here.
Reference:
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ADSIM ADVERTISING SIMULATION REPORT GUIDE: Budget Report
What is the Budget Report?
The budget report shows you your annual budget, how this is currently being spent and how much budget is remaining. You can access this report by clicking on the Live Forecast widget (top right of all decision screens), on your Home page and under the Reports menu.
Related: Industry Benchmark Report
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- You can receive an immediate answer to a number of commonly asked questions through our Support Center.
- Contact us here.
AdSim Advertising Simulation Report Guide: Industry Benchmark Report
The Industry Benchmark Report is a summary of all firms’ key results so you can benchmark yourself against your competitors. Click on the image below for an example report:
The Sales Revenue listed for each is the total wholesale sales revenue for each company’s products.
The Cost of Goods Sold is the number of units of a particular product sold multiplied by its manufacturing cost.
Gross Margin is the amount of profit that each firm made after the manufacturing costs were deducted.
Note: You have no control over either the wholesale price or the manufacturing cost of your product, so your aim to maximize sales revenue by running the most cost effective advertising campaign that you can.
The Evaluation Research expenditure lets you know how much market research your competitors are purchasing.
The Agency Fees let you know whether your competitors are using an Agency or not and how much it is costing them.
The Media Advertising expenditure allows you to see how much money your competitors are spending on Advertising, but now how they are allocating it to each media type.
Marketing Contribution is the amount of profit remaining after manufacturing (cost of goods sold) and marketing expenditures have been deducted. This is a measure of how profitable your firm is as a result of your decisions.
Need more help?
- You can receive an immediate answer to a number of commonly asked questions through our Support Center.
- Contact us here.
MikesBikes Introduction Report Guide: Market Summary
What is the Market Summary Report?
The Market Summary Report gives a side-by-side comparison of all the products currently being sold in the market. It compares every product on the key features that help consumers decide which product to buy.
Some of these features are more important than others to each Market Segment. For instance, the Road segment is highly sensitive to Quality and Product Specifications, but does not care as much about Price. But the Kids segment is highly sensitive to Price and Awareness but does not care much about Quality. So you need a different strategy to succeed in each market.
You should read the Market Research report to see which features are most important to each Market Segment.
Sales, Lost Sales, and Market Share
Sales is simply how many units that each product sold last year.
Lost Sales tells you how many more units each product would have sold if that Firm had manufactured enough to satisfy demand. If Lost Sales is zero for a given product, then the Firm produced enough to meet all the demand for that product this year.
Example: If there are 20,000 units of demand for a product, and 18,000 units available for sale,
then Lost Sales = 2000 units
Market Share shows the share that each product has of total market demand (ie. including Lost Sales).
Retail Price
Retail Price is the recommended retail price that each firm sets for their product(s). So if your Retail Price is $700 and your average retailer margin is 35%, then the wholesale price that you receive from your distributors for each bike is $455. But the Retail Price is what consumers actually pay, so Retail Price is what they compare when deciding which product to purchase.
Awareness
Awareness % is a measure of how many consumers in each market segment remember and know something about your product due to your brand promotion and product advertising.
Awareness of 50% means that 50% of the consumers in that segment are aware of your product. When trying to raise the awareness level of your product(s), you need to pay attention to making sure that you are targeting your budgets to the media types that each market segment watches the most.
Distribution
The Distribution Rating (1 to 100) is a measure of what proportion of the consumers in each market segment can easily find your products at a local store without having to travel too far.
In general, as your sales volumes and retail margins increase then more stores will be willing to stock your products and your Distribution Rating will increase. Once you have established significant sales volume in a market you may be able to reduce your retail margins slightly without losing too many stores.
Quality
Quality refers to the level of customer satisfaction in your product based on finish, workmanship, and the rate of product defects. This is measured using a Quality Rating out of 100 which applies to all your company’s products.
See the Quality screen under the Operations menu.
Product Specs
The Product Spec Rating is a measure from 1 to 100 of how close your product is to a perfect or ideal bike for that Market segment. From Year 4 onwards you will be able to conduct Product Development to improve the specifications of your bikes and Cost Reduction to reduce the Prime Cost of your bikes.
CSR Rating (Corporate Social Responsibility)
Corporate Social Responsibility (CSR) is a concept which sees companies being responsible not only for profit maximization, but also to do what’s best for people, the planet and society at large. Your CSR rating is a measure of how well your company integrates social and environmental concerns with its business operations.
Your CSR Rating is affected by your Social Responsibility decisions (under Brand Promotion from Year 2) and Sustainable Manufacturing decisions (under Operations from Year 3).
Note: If you do not see the CSR Rating, then your course is not using the Brand Promotion and Sustainable Manufacturing decisions.
Comparing Product Ratings
Don’t get too obsessed with trying to achieve a specific Awareness, Distribution, Quality, or Product Spec Rating. The important thing is to use the Market Summary report as a benchmarking tool to see how your products compare with your competitors.
If your competitors have a much cheaper product, or much higher product specs or quality than you then you may need to invest more in those areas to compete. But if you already have significantly higher Quality or Awareness than your competitors then at some point diminishing returns will kick in and you may be better investing more into other areas of your business.
Also remember to read the Market Research report to see which features are most important to each Market Segment so you aren’t wasting time and money on something which won’t really make much difference to a particular market.
MikesBikes Introduction Report Guide: Industry Benchmark Report
What is the Industry Benchmark Report?
This report is a summary of all firms’ Key Financial results, which you can use to benchmark yourself against your competitors.
In MikesBikes Introduction, this report is divided into four sections: Financial Results, Customer Satisfaction, Internal Results and Innovation Learning.
Financial Results
There are two key variables that you need to understand in this section, Share Price and Shareholder Value.
Your Share Price is the current market price of one share in your firm; the main drivers of share price are your average earnings per share (EPS) and your D/E ratio. If you want to improve your Share Price then you need to keep improving your EPS and to keep your D/E ratio below 1.0.
Shareholder Value is a measure of how much value a shareholder has received from owning one share of your company from the moment you took over running your firm. So Shareholder value is the current Share Price, plus the accumulated dividends that you have paid with 10% compound interest.
Customer Satisfaction
Most of the fields here should be self-explanatory. However, you need to be aware that the Distribution Channel support figures include both your Extra Support (sales promotion support) spending and the annual support cost of supporting all the retailers that currently stock your products. Distribution Information (Distribution and Branding > Reports tab) report details what those annual costs are.
So every firm that has at least one store stocking its products will be spending at least a couple of hundred dollars. To see what their sales promotion budgets are, view the Multi-Firm Retailer Margins and Extra Support report under “Firm Marketing”.
Internal Results
The main purpose of this section of the report is so that you can compare your production efficiency strategy with your competitors. Make sure to compare your wastage results and number of products. The lower the production efficiency budget and the higher the number of products (more setup time), then the worse a firm’s wastage value will be.
Innovation and Learning
Monitor how much your competitor(s) are spending on product development, it means that they are either making their products cheaper to produce, more attractive to the market or both. If you let a competitor get a significant production cost advantage over you then they will easily win any price wars involving that product.
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