Monthly Archives: February 2019

Distribution in MikesBikes

Making Distribution Decisions in the MikesBikes Business Simulation

What is Distribution?

Distribution (place) relates to the ability of the firm to make products accessible to its target segments. This is achieved through distribution channels – in this case through retail outlets.

The number of stores in the channel that decide to stock your products will depend on the retail price, margin, unit sales history, and extra support offered. You must specify what margin and what extra support you are going to offer the retailers in each channel.

What is Retail Margin and Extra Support ($)?

The retailer margin decision refers to the percentage of the retail price that the retailer keeps.  So don’t increase it too much! Example, if your bike is priced at $1,000 and your retail margin is 40%, then the wholesale price that you receive for each bike is only $600.

Maintaining existing distributors and acquiring new ones require considerable resources. Extra Support  (e.g. in terms of special promotions and discounts) costs are required to enable product training of retailers and providing promotional literature.

Distribution costs vary based on the number of stores that currently stock your products.

Distribution and Branding screen in MikesBikes Advanced

Vendors of bikes can be broken into three categories:

  • Bike Shops
  • Department Stores
  • Sports Stores

(Note: Sports Stores are only available in Multi-Player in MikesBikes Advanced)

Your challenge is to decide how to set price and distributor retail margins in order to influence your distribution coverage in a way that results in either increased market share or increased profit.

Distribution Index

Your distributors look at how much total retail margin they make from stocking all of your products and based on this they decide how many stores will stock your products. This then translates into a Distribution Index which ranges from 0 to 1 (higher is better). In general as your distributors make more money from selling your products, then more stores will stock them and your Distribution Index will increase.

Distribution Index in MikesBikes

Example of Distributor Behavior

Note: The market segments all have medium sensitivity to Distribution apart from the Commuter segment, which has low sensitivity to distribution (see the Market Information report under the Key Reports menu).

For instance, if you sold 10,000 bikes at $1000 with a 50% retail margin, then your distributors would make 10,000 * 50% * $1000 = $5 million

Perhaps you dropped your price to $900, and your retail margin to 45% you can now sell 12,000 units. Your distributors would then make 12,000 * 45% * $900 = $4.86 million

In this case, your Distribution Index would fall slightly as your distributors made less retail margin in total. This may not be an issue in the Commuter market, but it may disadvantage you in the other market segments. Of course, it also depends on your competitors’ actions. If your competitors have much higher distribution indexes than you, then you will lose more market share.

As you can see, sales volume is also an important component of distribution. So it may be beneficial to keep retail margins slightly higher whilst building initial market share for new products. It may be possible to gradually reduce margins once you have established products with high sales volumes without adversely affecting your Distribution Index.

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Student Success Stories: Peter Johnson from Des Moines Area Community College

Meet Peter Johnson, an Intro to Business student from Des Moines Area Community College. He managed to land the Top 7 spot in the MikesBikes Introduction Hall of Fame last Fall.

We interviewed Peter to learn about his decision-making, strategy and what resources he used to help him succeed in the simulation.

What is your decision-making process in the simulation?

My decision-making process always began with reading the business reports to base my decisions off of.  When looking over the reports, I would also take notice of what my competition was doing.  Analyzing this information was very helpful in every new decision I made especially when expanding my product line.  I would then adjust my numbers for production and available units for sale.  Next, I would tend to my advertising in each market.  I spent quite a bit of money on advertising, but it worked well for me.  In addition, I invested in many company and product improvements such as efficiency and quality.  When able, I would pay dividends and repurchase equity as well.  For the most part, this decision-making process remained routine for me through each simulation rollover.

What was your strategy going into the simulation?

My strategy for the simulation was to increase shareholder value by boosting sales and maximizing profits.  To do so, I wanted to grow my company by expanding the product line and by investing more money in advertising to grow my brand and gain a competitive edge.  I knew I wanted to separate myself from the competition and an increase in advertising was my first step in accomplishing that.

How did you begin implementing that strategy?

I implemented that strategy by immediately increasing the money I spent on advertising.  I paid attention to the market reports to allocate my advertising expenses effectively for each market.  I also looked for ways to improve the products and company along the way.  For example, I invested in efficiency and quality when given the opportunity to do so.  Also, market reports helped me make tailor made product improvements according to the expectations of each corresponding market.

How did you familiarize yourself with the simulation?

I watched the instructional videos and looked through the various reports available.  I took advantage of my practice time with the simulation.  During this time, I was able to make decisions according to information I read in the reports and see how the results of my decisions would play out in the simulation.  Seeing how these decisions would positively or negatively affect my business was very helpful.

How would you describe the competition?

I would describe the competition as a high priority.  In my opinion, it is equally important to pay attention to what your competition is doing as much as it is to pay attention to what your own company is doing.  You can definitely create competitive advantages for your business depending on what your competition is doing or not doing.

What resources did you pull on to develop your winning strategy which led you to the top of your course and then top in the Hall of Fame?

Utilizing the reports made available to me in this simulation was crucial in developing a winning strategy.  The information they provide allowed me to refine my decisions along the way and improve the accuracy of those decisions.  Also, keeping an eye on my competition proved to be more valuable than I had originally anticipated.

What challenges did you face? How did you overcome these?

Lost sales became a challenge for me on more than one occasion.  Every time I expanded my product line, I incurred lost sales in each of the new markets.  To correct this, I increased the number of units available for sale in each of those markets.  Occasionally, I would have to buy more SCU to produce more units.  Paying attention to my market share and future market demand helped me eliminate lost sales.

Was there anything in particular you did that you think helped to prepare yourself?

I think taking advantage of the practice time to learn about the simulation really helped me.  Getting to know the reports available and the information they contain are advantageous in making solid decisions and taking informed calculated risks.

How has participating within a course which uses a business simulation to supplement their teaching materials helped you? What do you think of the business simulation?

I think it helped me in learning about and understanding how to read various business reports.  It is important to know what information to look for when making any decision for your company.  The interactive platform is a great way to experience making decisions for a business and seeing the outcome of those decisions.

Comments on your experience with the simulation itself

I really enjoyed my experience with the Mike’s Bikes simulation.  Engaging in the simulation is an interesting and fun way to learn.   It provided me with valuable tools and experience when addressing a company’s business decision making process.  Being that every Mike’s Bikes experience is unique to that user, it is a simulation I would participate in again.

MikesBikes Intro Hall of Fame

MikesBikes World Champs 2018 First Place Winners

2018 MikesBikes World Champs Winner: Whatever-Go from University of Auckland

We have interviewed the 2018 MikesBikes World Champs winner, Whatever-Go with Wiput Tantulaphongse, Yijing Tang, Meiyicong Lin, Zhen Peng and Fengkai Han from University of Auckland. They have also managed to achieve the second highest Shareholder Value from the past 9 MikesBikes World Champs!

MikesBikes World Champs 2018 First Place Winners
From left to right: Meiyicon Lin, Fengkai Han, Zhen Peng, Wiput Tantulaphongse

In this interview they talk about their experience in the simulation, their decision-making process, strategy and advice to future students.

Smartsims: What is your decision making process within the simulation and in the competition?

Whatever-Go: First of all, we look at the information in the Scenario Tab then we discuss about the strategy of the investment. The decision was based on the forecast market volume and the expected market share of our team. The expected market share is derived from the advertising expenditure and the target price. Moreover, we calculated the capacity needed to produce the expected amount of bikes two years in the future. The last decision made on the financial aspect. We simulated cash flow analysis and expected equity in the next rollover, so, we had the rough idea of how our cash on hand would be, and the likelihood of achieving that target. All of the decision made was influenced by the forecast of competitors’ decision as well.

Smartsims: What was your strategy going into the simulation?

Whatever-Go: Our strategy is to be the market leaders who produced high quality products with reasonable price. This strategy needs a thorough analysis of every aspect including marketing, product development, financing, and production as a whole. We had to understand the risk of each decision made in the particular rollover. We invested heavily in product development and advertisement in the first three rollovers because we expected to secure the highest market share earlier than our competitors. The forecast of the cash balance was really important to understand the sensitivity of financial information.

For example, if the expected market share change by 1%, we need to know how this would affect the ending cash balance. So, we can prepare the financing strategy whether we should take debt or equity financing. In the middle of the competition, we focused on optimizing the operation activities and maintaining a reasonable market share regardless of the price of products. We estimated the contribution margin of each product to ensure that every single product lines made the profit the team.

Every rollover, we aim for the highest profit which is the ultimate goal of a business. Moreover, we also focused on giving the dividend to shareholders. For the last two rollovers, we invested in investor PR to help our SHV and tried to maintain the investor PR index at 1 which is the optimal point.

Smartsims: What challenges did you face? How did you overcome these?

Whatever-Go: The most challenging part is the first three rollovers.

First rollover: We were not sure what the price of the Adventurer bike would be. If we set the price too high, it would lead to having a low profit in the following rollover. If we set the price too low, we could end up with loss sales which means loss of profits. In addition, we had to come up with the strategy for our product development. We had to guess which market to place the bike into. Finally, we decided to develop Adventurer and Kids bikes. We made the decision based on the profitability of Adventurer in the long run because we can double the profit of the Adventurer segment by investing 2-3 million. For kids segment, we had the assumption that most of the competitors would develop Racers. We decided to take a risk in developing a product in the Kids segment. The assumption in that moment was to take 30%-50% of kids market and gain a huge amount of profit rather competing in the “red ocean market” of Racers segment.

Second and Third rollovers: It was challenge to guess the competitors’ strategy. We had to estimate and monitor changes in price, awareness, PR, and quality of our competitors’ product. This helped us to understand the trend of each competitors and we adjusted our plan accordingly.

For both situations, teamwork is the answer to overcome all of these challenging issues. The more we share to the team, the more solutions we came up with.

Smartsims: Was there anything, in particular, you did that you think helped to prepare yourself?

Whatever-Go: Cash flow analysis, cash balance sensitivity analysis, product development plan (for the whole simulation period), and the most important part is to understand how advertising, operations, finance and product development are linked together, and how the simulation software works. Read the Players Manual!!!

Smartsims: What do you think of the business simulation?

Whatever-Go: The simulation needs comprehensive decision making method.

This is one of the best activities we have done so far throughout the course.

MikesBikes shows every single element in the accounting perspective such as balance sheet, cash flow statements, statement of change in equity, and the costing information for management accounting. This is the good experience for management students so far.

Smartsims: Comments on your experience in your course simulation and with the MikesBikes World Champs

Whatever-Go: We had fun in the course and found that in MikesBikes World Champs is far more challenging because of the additional rules such as the limitation of numbers of development in a roll.

Smartsims: Advice to future students

Whatever-Go: Focus on your business strategy, set the target, think about the plan to achieve the target, adjust your decisions based on the business environment, focus on every aspect equally (advertising, operations, finance, R&D) because each decision supports each other and contribute to your overall Shareholder Value.

 

2018 MikesBikes World Championship Results

MikesBikes World Champs: Past Winners

Maksym Chernenko featured image

2018 MikesBikes World Champs Runner Up: Maksym Chernenko

De Anza College student, Maksym Chernenko, has achieved second place in the final round of the 2018 MikesBikes Business Simulation World Championship.

3rd place winner in the 2018 MikesBikes World Champs

Maksym Chernenko

From 20,000 students who used a Smartsims simulation this year, 120 of the top students were invited to compete in the 2018 MikesBikes World Champs. Over the qualifying rounds Maksym was able to place in the top 10 which put him in the final round against other students and teams across the United States, Canada, New Zealand and Turkey.  Makysm has only used our MikesBikes Introduction simulation in his Intro to Business course. Competing against senior and MBA students, Maksym achieved second place with a shareholder value of $241.53. Maksym says:

“I believe MikesBikes game is a must have experience for every student majored in Business. It gives amazing possibilities for everyone to implement their own strategies on the highest level and check outcomes most of us will never get in real life”.

 

Makysm is also featured in the following articles:

Big Finish in Business Contest

2018 MikesBikes World Championship Results

MikesBikes World Champs

2018 MikesBikes World Championship Competition Results

Our 2018 MikesBikes World Champs is Whatever-Go from University of Auckland! Big congratulations to Wiput Tantulaphongse, Yijing Tang, Meiyicong Lin, Zhen  Peng and Fengkai Han for this outstanding achievement! They have managed to achieve the second highest Shareholder Value from the past 9 MikesBikes World Champs!

In second place, we have Swan from De Anza College with Makysm Chernenko and in third place, we have NGUYEN Inc with Nguyen Pham from Selkirk College. Incredible work, well done!

Our winners had the following to say:
First Place Winner: Whatever-Go from University of Auckland

MikesBikes World Champs 2018 First Place Winners

Wiput Tantulaphongse, Yijing Tang, Meiyicong Lin, Zhen  Peng and Fengkai Han

“This is one of the best activities we have done so far throughout the course. We had fun in the course and found that in MikesBikes World Champs is far more challenging because of the additional rules such as the limitation of numbers of development in a roll.”

We have also interviewed Whatever-Go about their experience, decision-making process and advice to future students.

Second Place Winner: Swan

3rd place winner in the 2018 MikesBikes World Champs

Makysm Chernenko

“I believe MikesBikes game is a must have experience for every student majored in Business. It gives amazing possibilities for everyone to implement their own strategies on the highest level and check outcomes most of us will never get in real life.”

Makysm has also been featured in their college’s News page. You can check it out here.

Third Place Winner: NGUYEN Inc  from Selkirk College

Third Place MikesBikes World Champs Winner 2018

Nguyen Pham

“I would love to say thanks to the Smartsims Business Simulations for organizing the MikesBikes World Championship, so I had a chance to compete with other students from other Universities and Colleges around the world and learn from them as well.”

Congratulations to everyone who participated in the competition! It was incredible to see your progress after each rollover! It shows that you were able to apply everything you’ve learned in class in the simulation. You have carried your team and your school with pride. You should be proud of how far you’ve come! We wish wish you all the best! Thank you so much for your support in this year’s MikesBikes World Champs!

Pos Firm SHV Team Members School
1 Whatever – Go $490.59 Wiput Tantulaphongse | Yijing Tang | Meiyicong Lin | Zhen Peng | Fengkai Han University of Auckland
2 Swan $241.53 Maksym Chernenko De Anza College
3 NGUYEN Inc $140.16 Nguyen Pham Selkirk College
4 Booster Inc. $134.60 Ahmet Yasin Kuzucu Dokuz Eylul University
5 Momentum Bikes $41.73 Alicia Covert | Mike Covert Baker University
6 CyclePath $34.04 William George Jr | Maxwell Schuler | Jonas Correa | Jared Lerner | Axel Miazga Quinnipiac University
7 Rough Riders $5.00 Monica Lannen | Noah Trone Christopher Newport University
8 vakn $0.90 Kha Phan | Ashby Creighton Des Moines Area Community College
9 Rad Penny Farthings $0.01 Michael McCafferty Linn Benton Community College
10 Shiba Ninja $0.01 Quang Nguyen | Zoe Tran Drexel University

View the Full Scoreboard

You can view the current and past winners here.