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Market Segments in Music2Go Marketing Simulation: Standard Segment

This article will be a three-part series introducing the market segments in Music2Go Marketing Business Simulation. In this article, we’ll be talking about the Standard Segment.

Market Segments in Music2Go Marketing

There are three market segments in Music2Go – Standard, Youth, and Sports (Multi-Player only).

These segments have different sizes, projected growth, sensitivity to price, advertising, distribution, and product specs.

You start with a single MP3 Player product in the Standard market segment. Starting in Year 3 (after 2nd rollover) you may improve your existing product and/or launch additional products into new market segments (up to a maximum of 4 products by Year 6). Part of the challenge of Music2Go is in being able to balance the needs of your products within your limited marketing budget.

Standard Segment

Consumers in this segment tend to be less active than those in the Sports segment and thus do not require the high level of technological specifications inherent in sports designs. While young adults in this segment share the purchasing ability of their sports counterparts, they are more price conscious, which is reflected in the relative pricing between these two segments.

  • Medium priced ($85 – $100) with high price sensitivity
  • Price range is $40 to $120, but the recommended range is $85 to $100.
  • Medium sensitivity to advertising
  • High sensitivity to distribution coverage
  • Low sensitivity to product specifications
  • Consumer style / tech spec preferences change slowly, so segment moves
    slowly on perceptual map.

Since consumers in this segment are highly price sensitive, you can expect some price competition. Plan for this with cost reduction projects to maintain acceptable unit margins. However, be careful of engaging in a price war. No one wins a war. This is the slowest moving segment and has low sensitivity to product specs. So you may only require a single product spec improvement project midway through the simulation to remain competitive. It is the largest of the three segments but has minimal underlying growth.

You will be selling a single Standard Segment music player in the first two years of the simulation. After the 2nd rollover you may launch additional products into the Youth and Sports segments (Multi-Player only).

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Correcting a failed product development project

Question of the Week: How do I correct a failed Product Development Project? | MikesBikes Advanced Business Simulation

You want to get product development projects right the first time as this can be a costly mistake. It can mean either your Unit Prime Cost is higher than you want and/or your specifications are not as you wanted resulting in a lower demand for your product if they are wrong.

There could be two reasons why your project failed:

1. The project/budget expenditure was too low and/or
2. The requested unit prime cost was unrealistically low

As in real life, you do not want to commit to a product development project without checking that it was appropriately funded and that it would be able to provide an acceptable return on investment.

In addition, you have to be careful that the specifications you enter for your new product actually fall close to the ideal point of the segment you are targeting. Look under Key Reports for Perceptual Map of Market Segments to check this. Products outside the radius of influence (i.e. outside the circles) will not sell at all.

How do we conduct successful development projects?

We will walk you through an example where we develop the design for a racers bike. While the specifics and calculations may change, the steps you follow will be the same:

1. View the Indicative Values for Market Segments within the Product Development Scenario Information report to view the ideal product attribute levels desired by each segment.

(Note: These desired product attributes by each market segment change slightly from year to year so be sure to keep monitoring for the changes.)

Indicative Values for Market Segments

2. Take the current Style/Tech Specs of your closest existing Design Project and calculate the required change in Style/Design and Technical Specs.

In our example, the closest existing Design Project is our Adventurer Bike. You can view the Product Development Project Results Report to view your closest existing design paying attention to the Style/Design and Technical Specs:

Product Development Project Results Report

3. Calculate the difference in Style and Technical Specifications between the desired design and the closest existing design.

As you can see, in this example, our only and closest existing design project is our Adventurer product. This features specifications of 50 Style and 60 Technical. Our desired design project has targeted specifications of 20 Style and 86 Technical.

So the difference is 30 Style and 26 Technical.

Estimated Costs and Time Frames

We can see on the Product Development Scenario Information report that each unit of Style development costs $1000 and each unit of Technical development costs $20,000.

Our example calculation will be:

30 x $1,000 added to 26 x $20,000 = $550,000

Therefore, our design cost would be $550,000 on the new design to achieve 20 Style and 86 echnical.

4. Calculate your prime cost.

From the table above we can see that the prime cost will be calculated at roughly $0.1 to $0.15 per design and $4.50 to $5.00 per technical specification. We want a racers bike with 20 style/design and 86 technical specifications.

A conservative calculation would therefore be:

0.15 x 20 added to 5.00 x 86 = $433

If we enter any additional expenditure on to our design cost this will be used to further reduce the Prime Cost.

How do I correct a failed product design?

A failed product design is a design that shows anything less than 100% success rate within the Product Development Results Report. Unfortunately this means you will need to design the design again. However! The failed design is likely to be a lot closer to your desired specifications than the previous closest design, thus it means it is likely to be cheaper to invest in. Simply follow the process above again working off the new closest existing design (even if the closest existing design is a failure).

Check out our Common Mistakes in MikesBikes Advanced article.

CRM System in AdSim Advertising Simulation

Customer Relationship Management in AdSim Advertising Simulation

What is Customer Relationship Management (CRM)?

Three periods into the simulation and you will be given control of your firm’s Customer Relationship Management strategy.

Customer Relationship Management or CRM is an approach to manage a company’s interaction with current and potential customers.

Retention of Existing Customers is a key part of how to win AdSim and this is your main decision for keeping them satisfied with your Customer Service Level.

Purpose of CRM

The purpose of a Customer Relationship Management strategy in AdSim is to decide which policies you will implement to try and keep Existing Customers loyal to your Digital Camera brand.

You will be able to measure the effectiveness of your Customer Relationship Management strategy through two market research reports:

  • The Customer Relationship Management Evaluation report.

CRM Evaluation Report

Showing your adverts to a focus group of New and Existing customers and asking them to rate your current strategy’s appeal.

  • Competing Products Customer Relationship Management Options.

Competitor CRM report in AdSim

A comparison of your product’s Customer Relationship Management Options with its competition.

CRM Decisions In AdSim

Customer Relationship Management Decisions tab in AdSim Advertising Simulation showing decision screens

In AdSim you are required to make decisions about four elements of your Customer Relationship Management strategy:

  • CRM SYSTEM

Decide whether or not you want to invest in a Customer Relationship Management database system? And if so what type? e.g. Entry level, Mid-Level or Custom Built.

  • WARRANTY

What length of Warranty that you want to offer your customers? E.g. 90 Days, 180 Days, One Year or Two Years.

  • SUPPORT

What level of a customer service do you want to provide? E.g. A manual, a website too, an e-mail helpdesk, or a telephone helpdesk too.

  • LOYALTY

What type of customer loyalty program do you want to administer? E.g. nothing at all, a regular newsletter, a regular photo contest or even a photo school.

On each tab of the decision screen, i.e. CRM System, Warranty, Support and Loyalty you are required to choose which option you think best targets your customers within your budgetary constraints.

Note that each option has a cost associated with it and that amount will be deducted from your Promotion Budget if you select that option. Generally the greater the cost of the option, the more appeal it will have to your market.

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Measuring Your Firm’s Success in MikesBikes Business Simulation

Your Objective

Your objective is to create wealth for shareholders and so you will be evaluated on the cumulative change in Shareholder Value that your firm generates.

To see the shareholder value of your firm choose the “Financial Results for All Firms” report from the Key Reports menu.

Being evaluated on shareholder wealth is significantly different from evaluation based on net profit, market share, or earnings per share.

Your Aim

You should aim to:

  • Maximize net profit
  • Minimize shareholder investment
  • Minimize risk (associated with high levels of debt)

Due to these multiple objectives, a small niche marketer consistently earning good margins and without much debt may outperform a large heavily-indebted firm with earnings several times greater.

Firms will need to carefully consider these objectives when developing their overall strategy, their marketing, operational and financial plans. Simply increasing in size will not necessarily lead to an increase in shareholder value. You should only invest money (for example in new plant, new product development, or on factory improvements) if you believe that the return on these investments will be greater than what shareholders could achieve elsewhere at the same level of risk (e.g. shareholders can earn returns of 8% by investing in a term deposit). If not, you should instead consider repaying debt, paying a dividend, or repurchasing issued shares.

For more detail on how shareholder value is calculated and how to improve this, see the How to Increase Shareholder Value article.

Staff Salary, Training and Motivation level

MikesBikes Advanced Question of the Week: What happens if you invest in people and they leave?

Invest in developing your people in MikesBikes
By Peter Baeklund

Good people will stay longer, are more motivated and will work harder if you provide them with an opportunity to learn, and grow.

Some people will choose comfort and security, even if they’re not fully engaged with their jobs. This is both bad for them and for you.

According to current research, opportunity for growth and development are still two of the most powerful motivators.

Your business is nothing more than the collective energy and efforts of the people working with and for you. 

If you want to make your business better, invest in your people. They’ll get the job done.

Jim Bouchard

So what does this mean for you in MikesBikes?

Not sufficiently investing in training your staff, poorly paid workers and/or firing workers due to inaccurate capacity calculation will often result in a low skill and motivation index. In addition, another negative outcome of this is an increase in staff turnover rate, which means your products’ quality will also suffer.

So what should you do to ensure that your staff are highly motivated?

1. Pay your staff well

Workers are more motivated when they are paid well.

The average salary level you set will affect not only your bottom line, but also worker motivation and effectiveness. Factory workers are paid (on average) the rate you select. Administration staff are paid (on average) twice the rate. For comparison purposes, the average industry salary is $25,000 per year.

The graph below shows the motivation index achieved by changing the firm’s average salary from $25,000. The effect would be increased by sustaining the salary changes across succeeding years.

2. Train your staff 

You need to think carefully about the relationship between your overall strategy and how employee motivation and employee skill levels relate to that, especially if your strategy is to be a low cost, high volume manufacturer.

In general, well trained and motivated workers are more productive than poorly trained workers, so you need to employ fewer workers to achieve a given level of worker capacity. If your workers are well trained and motivated you need fewer Administration staff.

Well trained workers are a significant factor in improving your internal quality. Workers are more motivated when they are paid more and when they are well trained. They are less motivated when you fire other workers as their feeling of job security decreases.

The graph below shows the effect of job cuts on morale and staff turnover rate.

Poorly motivated and poorly trained workers can contribute to significant staff
turnover (sometimes as high as 40% to 50% per year). That gets expensive because each worker than is replaced costs $4,000 to replace. Also each new  worker arrives with a minimum level of training, so your average employee skill level is reduced which lowers your internal quality. So remember to maintain an appropriate balance in managing your workforce rather than using a ‘slave labor’ model even if your overall strategy is to be a low cost manufacturer.

3. Pay close attention to your workforce

Keep track of your staff’s Skill Index, Motivation Index and the Staff Turnover Rate by referring to the Manufacturing Quality Report every rollover. You can find this report in the Manufacturing menu > Reports tab and navigate down to the report.

Manufacturing Quality Report MikesBikes

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Common Mistakes in AdSim Article

Common Mistakes in AdSim

When you repeat a mistake, it’s not a mistake anymore. It’s a decision.

-Paulo Coehlo

Over the years, we have noticed a few common mistakes that students make in the simulation that will be reflected in real-life if not learned from. We want you to learn from these mistakes and know how to resolve them.

Here are three of the common mistakes we see AdSim users make:

Mistake #1: Not getting the Message Strategy right

message strategy in AdSim

Getting the Message Strategy is message strategy is vital. This will be used to position your brand using your advertisements and therefore has a large bearing on your Advertising.

The purpose of a Message Strategy in AdSm is to establish your brand position to ensure that you are effectively targeting your customers through media advertising with a message that they will respond to. You will be able to measure the effectiveness of your Message Strategy decision through two market research reports:

  • The Advertising Evaluation Report – this shows your adverts to a focus group from your market segment and asking them to rate your campaign’s appeal.
  • The Tracking Study Report – shows a comparison of your product’s top of mind brand awareness versus its unaided brand awareness. The better your brand position, the higher your top of mind brand awareness will be.

Mistake #2: Not making Customer Relationship Management  (CRM) decisions based on market researchCRM decisions in AdSim

Retention of Existing Customers is a key part of how to win AdSim and this is your main decision for keeping them satisfied with your Customer Service Level.

The purpose of a Customer Relationship Management strategy in AdSim is to decide which policies you will implement to try and keep Existing Customers loyal to your Digital Camera brand. Each option has an associated cost. Generally, the greater the cost of the option, the more appeal it will have to your market.

You will be able to measure the effectiveness of your Customer Relationship Management strategy through two market research reports:

Mistake #3: Not spending all your Marketing Plan Budget and not purchasing Market Research Reports

Marketing Plan Budget report in AdSim

You need to ensure that you spend all your marketing budget as funds do not carryover on to the next year if left unspent.

You can look at investing it in activities where you think the return will more than cover the cost.  In addition, you can also allocate it towards purchasing additional market research reports.

Market Research Reports in AdSim

Information has value and by investing on these reports, you are making more informed decisions.

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Need extra help?
  • You can receive an immediate answer to a number of commonly asked questions through our Support Center.
  • Contact us here.
What is Weighted Average in MikesBikes?

MikesBikes Question of the Week: What does “Weighted Average” mean?

Market Summary Report in MikesBikes

It is the average Price / Awareness / PR / Distribution / Quality index weighted by the volume of demand for each product.

We use a weighted average to give a better indication of the overall level of value for consumers.

For instance, if you have two products A and B with A priced at $100 and B at $50, then the average price of those two products is $75, ie. ($100 + $50) / 2 = $75).

But for the weighted average we look at the amount of demand for each product.

If A had 100 units of demand and B had ten times as much demand (1,000 units) then the weighted average price would then be:

(100 * $100 per unit + 1000 * $50 per unit) / 1100 units = $54.55

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Part 2: Common Mistakes in Music2Go Marketing Simulation

Mistakes are the stepping stones to success.

– John C. Maxwell

What are the other common mistakes in Music2Go Marketing?

In Part Two, we’ll talk about the importance of reaching the right customers and how to better allocate your Sales Promotion Mix.

Here’s Part One of the article in case you missed it.

Mistake #4: Misunderstanding the Importance of Reaching the Right Customers

Not understanding this can be a costly mistake as it often leads to incorrectly assigning your Advertising Mix. This can have a negative impact on the demand for your products and can also lead to overspending. Meaning your firm’s profitability is at risk!

How do you know if you are spending your advertising budget inefficiently? Follow through this section, it will show you how to efficiently allocate your advertising budget.

Each market segment is sensitive to different dimensions. View the Market Information report.

Product Dimension Sensitivities in Music2Go

How do I interpret this Product Dimension Sensitivities graph?

The best way to explain it is through an example. If you take the Standard segment, you’ll see it has a high sensitivity to Price. This means that an increase to your price (example setting the price to the maximum) is going to have a negative effect on your sales volume.

What these sensitivities mean is a change in any of these factors, will result in a proportionate change in the consumers’ demand for your product(s).

There are four media choices to develop your advertising mix on: Television, Newspapers, Magazines and Digital Media.

There are two substantial sources of information you can use to determine your optimal advertising mix for a given advertising spend: Advertising and PR Reach by Media Curve and Media Viewing Habits. Both information can be found in the Market Information report.

Each media type can reach a given proportion of its audience for a given investment. This is shown within the Advertising and PR Reach by Media Curve.

The best way to explain this would be to provide an example.

Example: Budget of $4 million on Standard Segment.

Option 1: 42% of the Standard Segment read magazines.

So our $4 million spend would reach approximately 90% (taken from the graph at a spend of $4 million) x 42% (Media Viewing Habits) =  37.8% of the Standard segment can be reached

Option 2: 85% of the Standard Segment can be reached via Digital Media.

So our $4 million spend would reach approximately 50% (taken from the graph at a spend of $4 million) * 85% (Media Viewing Habits) = 42.5% of the Standard segment

Option 3: But maybe we can do better than that still. What happens if we spend $2 million on Newspapers, and $2 million on Magazines?

If we spend $2 million on Newspapers, we could reach approximately 40% of Newspaper viewers and 58% of the Standard segment reads Newspapers. So we could reach approximately 40% (Media Viewing Habits) x 58% (taken from the graph at a spend of $2 million) = 23.2% of the Standard Segment.

If we spend $2 million on Magazines we could reach approximately 50% of Magazine viewers and 42% of the Standard segment reads Magazines. So we could reach approximately 50% (Media Viewing Habits) x 42% (taken from the graph at a spend of $2 million) = 21% of the Standard segment.

So, together our $4 million spent half on Newspapers and half on Magazines would reach approximately 44.2% of the Standard segment, which is obviously a better use of our Advertising budget than the first two options.

As you can see, with the same budget, but a different allocation towards each media channel can make a huge difference in the amount of consumers you can reach.

This is only an example of good and bad marketing mixes. This is far from the best mix you can make. We suggest playing around on different Marketing Mix and see what works best for your strategy and budget.

Mistake# 5: Inaccurately Allocating Your Sales Promotion Mix

Your Sales Promotion strategy will need to vary with the Life Cycle of your product. For instance, Trade Shows and Sales Force training will be important a new product launch, bur progressively less so as the product ages. Your existing product will be in the Mature phase of its life cycle for your first Sales Promotion decision (Sales Promotion decisions are available after the 1st rollover).

It is important that you get your Sales Promotion Mix right, because it helps boost your distribution coverage and distribution index. In addition, some segments are particularly sensitive to Distribution, such as the Standard Segment.

There are 6 types of Sales Promotion activities available to you to promote your products and support your distributors:

  • Trade Shows
  • Salesforce Training
  • Premiums (Gifts)
  • Website/Social Media
  • Point of Purchase Displays
  • Rebates
So, how do I choose a Sales Promotion Mix for my products? 

Remember that each of your products will progress through the Product Life Cycle starting in the Growth phase for new products and then gradually progressing through to the Decline stage over the next six rollovers.

Say we launch a new Youth product this period. This new product will start in the Growth phase of the Product Life Cycle (See Market Information Report > Sales Promotion). Then from looking at the tables above, we can see that our Ideal Sales Promotion Mix for a new Sports product is:

  • Trade Shows – 15%
  • Sales Force Training – 25%
  • Premium (Gifts) – 5%
  • Website and Social Media – 25%
  • Point of Purchase Displays – 25%
  • Rebates – 5%

Total = 100%

That was a simple example, but what happens in the second year that we sell this Youth product? The product will be moved from the “Growth” phase to “Growth – Starting to Mature.” So the optimal Sales Promotion mix will be 1/3 of the way between the ideal Growth and Mature figures in the Sales Promotion Table. That would give us an optimal Sales Promotion mix something like:

  • Trade Shows – 10% (Ideal Growth = 15%, Ideal Mature= 5%)
  • Sales Force Training – 17% (Ideal Growth = 25%, Ideal Mature= 10%)
  • Premiums (Gifts) – 15% (Ideal Growth = 5%, Ideal Mature= 25%)
  • Website and Social Media – 23% (Ideal Growth = 25%, Ideal Mature= 20%)
  • Point of Purchase Displays – 25% (Ideal Growth = 25%, Ideal Mature= 25%)
  • Rebates – 10% (Ideal Growth = 5%, Ideal Mature= 15%)

Total = 100%

You should buy the Distribution Coverage and Sales Promotion Market Research report for detailed information on the Sales Promotion Rating and Stage of Product Life Cycle for all firms in the Industry. 

 

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 within 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

Music2Go Marketing Factory

Question of the Week: Why did I receive a different number of units from what I ordered? | Music2Go Marketing Business Simulation

In Music2Go you make decisions for an entire year, but your factory has a limited ability to adjust the number of units produced to try to meet actual demand during the year. This is called Demand Responsiveness.

Demand Responsiveness allows the actual number of units ordered to increase or decrease by up to 20% to meet the actual demand for your product.

For instance, if you ordered 1 million units of a product, then the actual number of units delivered could vary between 800,000 units and 1.2 million units depending on actual demand.

Product Contribution Report in Music2Go Marketing

In our example above, we ordered 1.9 million units of our Sonic product, but the Actual Units ordered was less than this at 1.5 million because the demand for our products was less than what we anticipated to sell.

Note: Most worlds have 20% Demand Responsiveness enabled, although your instructor may request this to be modified or disabled for your Multi-Player. 

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