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
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.
$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.
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What is the Marketing Plan Budget Report?
The forecast marketing expenditure budget shows you how much money you have available to spend this year as shown in the figure below.
Note: This report can be found in the Marketing Plan menu.
There are three key parts of this report that you must understand.
Your budget limit is set as part of your product’s marketing plan. It is up to you to decide whether you spend your entire budget or not.
How much you spend of this year’s budget has no effect on your budget for next year.
The first column shows much money you currently have allocated to evaluation research, Agency fees and product advertising. Changing any of your decisions in these areas will automatically update this report.
Available to Spend
This is how much unallocated budget you have left, i.e. how much money you still have available to spend if you want to. Any money you spend will be deducted from your net marketing contribution, so you should only spend on activities where you think the return will more than cover the cost.
If this number is negative that means that you have exceeded your budget and you need to choose which advertising activities to cut back. If you do not do so yourself, then AdSim will automatically reduce your media advertising expenditure during the rollover to bring you back within budget.
Check out the latest AdSim Report Guide here:
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What is the Industry Benchmark Report?
The Industry Benchmark Report is a summary of all firms’ Net Marketing Contribution reports so that you can benchmark yourself against your competitors as shown in the figure below.
In real life, this information would be difficult to obtain, but this report has been made available to you so that you can learn from your competitor(s).
There are several key parts of this report that you need to understand.
Sales & Gross Margin
The Sales Revenue listed for each is the total wholesale sales revenue of all the firm’s products. The Cost of Goods Sold is the total cost of goods sold of all of the firm’s products that were sold, which 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.
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.
This section shows the combined Market Research, Agency Fees, Media Advertising, Customer Relationship and Marketing Communications expenditure for each firm.
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.
Customer Relationship and Marketing Communications expenditure lets you know how much your competitors spent on implementing their selected options.
Net Marketing Contribution
Net Marketing Contribution is the amount of profit remaining after manufacturing (cost of goods sold) and marketing expenditures have been deducted. The only costs still to be deducted are other functional overhead costs for your firm, e.g. finance, administration, etc.
Net Marketing Contribution is a measure of how profitable your firm is as a result of its strategic marketing plan. There is only one way that you can improve it, increase your Sales Revenue per dollar of Marketing Expenditure.
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What is the Market Summary Report?
The Market Summary Report is a market research report giving a side-by-side comparison of all the products currently being sold in the market.
8 Key Pieces of Information
Sales is simply how many units the particular product sold last year.
Retail Price is the recommended retail price that each firm set for their product(s). You need to remember that the wholesale price is retail price minus the retailer margin, so it’s possible that a cheaper product than yours might have a higher wholesale price if that firm has lower retail margins.
Awareness is a measure of how many consumers in that segment are aware of your product due to your corporate brand advertising and product advertising.
An awareness rating of 0.50 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 the particular segment watches the most.
Public Relations (PR)
PR is a measure of how many consumers in that segment have a “good” public relations image of your product due to your PR expenditure. When consumers read bike magazines you want them to see your product being reviewed and talked about and that is what your PR budgets are for. A PR rating of 0.40 means that 40% of the consumers in that segment have heard some good PR about your product.
The distribution rating is a measure of how much distribution coverage your product has. A distribution rating of 0.65 means that 65% of consumers in that segment will find your product in a store they regularly shop at.
The only way to improve your distribution rating is to convince more stores to stock
The quality rating is a measure of how many units of your product are returned under warranty. If approximately 2% of your sales are returned under warranty then your rating will be approximately 0.50, but if you can reduce it to approximately 0.3% of your sales being returned under warranty then your quality rating will rise to 0.90. In MikesBikes the only control you have over quality is how much money you allocate to your quality improvement budget each year.
Delivery is a measure of how often your retailers run out of stock of your bikes. A delivery performance rating of 1.0 means that your factory never stocks out of bikes, however if your factory stocks out of bikes this year, then next year your delivery performance rating will fall. The lower your delivery performance rating, the less likely that retailers will want to stock your bikes. However be careful, as some segments are more sensitive than others to stocking out.
The “product specs” rating is a measure of how close your product is to the segment’s ideal dimensions for “tech” and “style”. A rating of 1.0 means that your product is 100% what the segments wants, a rating of less than 1.0 means that it is not. As MikesBikes progresses you will be offered numerous product development projects that will improve the product spec ratings of your products, if your product spec ratings are lower than your competitors it means that they are spending more money on product development than you are.
Check out the last MikesBikes Intro Report Guide here:
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.
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.
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”.
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.