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Music2Go Inventory Costs

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.
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Reference: 

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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. 

Related Articles
Music2Go Sales Promotion Screen

Question of the Week: What is Sales Promotion? | Music2Go Marketing Simulation

Sales Promotion

Sales Promotion in Music2Go works by boosting your distribution coverage and distribution index. 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.

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

Each promotional activity has particular relevance to certain stages of the Product Life Cycle as outlined below. Note that the Distribution Coverage and Sales Promotion Market Research report will show the age and stage of product life cycle for every product on the market, as well as the Sales Promotion Rating and the Promotion Mix effectiveness.

Choosing a Sales Promotion Mix

Sales Promotion Mix in Music2Go Marketing

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

Say we launch a new Sports product this period. This new product will start in the Growth phase of the Product Life Cycle. Then from looking at the Sales Promotion table (this can be found in the Player’s Manual and Market Information Report), we can see that our ideal Sales Promotion Mix for a new Sports product is:

  • Trade Shows: 20%
  • Sales Force Training: 30%
  • Premiums (Gifts): 20%
  • Website and Social Media: 15%
  • Point of Purchase Displays: 15%
  • Rebates: 0%

Total =100%

That was a simple example, but what happens in the second year that we sell this Sports product? The product will have 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 in the Sales Promotion table. That would give us an optimal Sales Promotion mix something like:

  • Trade Shows: 15%

(Ideal Growth = 20%, Ideal Mature = 5%)

  • Sales Force Training: 27%

(Ideal Growth = 30%, Ideal Mature = 20%)

  • Premiums (Gifts): 26%

(Ideal Growth = 20%, Ideal Mature = 40%)

  • Website and Social Media: 13%

(Ideal Growth = 15%, Ideal Mature = 10%)

  • Point of Purchase Displays: 17%

(Ideal Growth =15%, Ideal Mature =20%)

  • Rebates: 2%

(Ideal Growth = 0%, Ideal Mature = 5%)

Total =100%

Tip: 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.

Related Articles
How to set retail price and margin in Music2Go Marketing Simulation

Question of the Week: How do I set the Retail Price and Retailer Margin for each product? | Music2Go Marketing Simulation

Setting your Retail Price

When setting the Retail Price, you should consider things like:

  • How much competition is there in this market segment?
  • How are my competitors pricing their products in this market segment?
  • How sensitive is this market segment to price? What are the minimum and maximum price levels for this market?

Note: We recommend staying away from the top 5%-10% of the price range for every market segment, even for price insensitive segments. The maximum price is the level beyond which NO consumers will buy your products. So even for price insensitive segments, a product that is priced at the maximum looks like poor value compared to a more reasonably priced product.

Similarly do not price too close to the minimum price level for a given market. The extra market share is unlikely to make up for your smaller margins. Start off somewhere in the upper-middle of the price range and work your way up or down from there.

  • What is my overall strategy?
    • High Price, Lower Volume
    • Medium Price, Medium Volume
    • Low Price, Higher Volume
  • What are my projected sales for a given pricing level and advertising mix?

Setting your Retail Margin

Once you set your price, consider your retailer margin, unit cost, unit margin and sales projections. Look carefully at your Forecast Results reports and your Forecast Net Marketing Contribution report.

  • If your sales projections are accurate, will you make sufficient gross margin to give you a positive Net Marketing Contribution?
  • Is it worth giving your Distributors more Retail Margin early in the simulation to encourage them to stock your products and gain market share?
  • Or do you already have sufficient market share and distribution that you can afford to cut your Retail Margins?
Need extra help?
  • You can receive an immediate answer to a number of commonly asked questions through our Support Center.
  • Contact us here.
Check out other Music2Go Marketing articles here: 

Music2Go Tip: Leftover Marketing Budget

Music2Go Tip: Improving Total Marketing Contribution

 

Consumer Preferences and Shopping Habits of customers

What Do My Customers Want?

If you want to create messages that resonate with your audience, you need to know what they care about.

– Nate Elliott, Marketing Technology Adviser

Consumer Preferences

It is crucial that your Product Strategy follow the preferences of your consumers. Valuable Market Research has been conducted to investigate what your customers are looking for in the products they buy. This information is available to you under the Market Information Report (under the Key Reports menu).

Market Information Report with information on Product Dimension Sensitivities and Preferences in MikesBikes Intro

The table above (taken from the Market Information Report) will tell you important areas that you should be focusing on.

For example, the Mountain Segment has High sensitivity to Advertising. What this means is you should be focusing your Marketing Budget on Advertising and not PR (as the Mountain segment has low sensitivity in this area). If a market segment is highly sensitive to one area this means: “if you increase this figure, then proportionately more people are going to buy your bike.” This would then result in a higher return on your investment than if you invest in areas where your target market segment has a low sensitivity in.

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

Marketing Dimension Sensitivities

If we take the Racers segment we see it has a low sensitivity to Advertising and a high sensitivity to PR. This means that an increase to our Racers bikes’ PR index (see Market Summary report) is going to have a larger increase to our sales volume than a change to our Awareness rating.

Questions?

We strongly recommend all MikesBikes Advanced users view our Business Simulation Tutorial Videos.

If you have any questions just send us an email through our Contact Us page.

Pricing your products correctly - Smartsims

How Do I Price My Products?

The Importance of Retail Price

The moment you make a mistake in pricing, you’re eating into your reputation or your profits.” – Katherine Paine

Your Retail Price is the dollar price you direct distributors (Bike Shops) to sell your products to customers. The distributor receives a percentage of the Retail Price (known as Retail Margin) and you receive the remaining amount (known as Wholesale Price).

Retail Price is usually a key determinant of Consumer Demand and is critical to maximizing your Sales Revenue and Profit. Therefore, carefully thinking about your pricing strategy is important to your company’s overall success!

The most common Pricing Methods are:

  1. Mark-up: Fixed margin on costs
  2. Target Return: Return/margin required by the company
  3. Perceived Value: What the consumer is willing to pay
  4. Going Rate: What is being charged in the market

Your Retail Price should not be set without regard for the price sensitivity of consumers (see Market Information Report) and the prices of your competitor’s products (see Market Summary Report).

Your Retail Price must also align with the overall marketing and company strategy. For example a Low Retail Price would require a High Volume of Unit Sales, as such, you would need to consider how this would impact marketing expenditure and operations decisions (i.e. Factory Capacity and Efficiency).

Pricing Example in our MikesBikes Introduction to Business Simulation:

Pricing Example in our MikesBikes Advanced Strategic Management Simulation:

Pricing Example in our Music2Go Marketing Simulation:

Questions?

If you have any questions just send us an email through our Contact Us page.