Student Advice Archives

Measuring Your Firm’s Success in MikesBikes Business Simulation

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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.

Perceptual Map in Music2Go

Question of the Week: What is the Perceptual Map in Music2Go Marketing Simulation?

Marketing Simulation, Student Advice, Business Simulation, News

Perceptual Map

The Perceptual Map is a convenient way of visualizing the differences between the different market segments in terms of the different level of Style / Design and Technical Specifications that each of the market segments desire. The center of these circles represents an “ideal” product for each market segment. So demand for your products will be higher if they are closer to the center of these circles.

Segment Movement Over Time

The style/tech preferences of the market segments will change over time. The Standard Segment moves relatively slowly, the Youth Segment moves at a moderate rate and the Sports Segment moves quickly on the perceptual map.

Perceptual Map Comparison in Music2Go

Related Articles:
Staff Salary, Training and Motivation level

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

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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

Student Advice, Business Simulator, Business Strategy, Experiential Learning, Business Simulation

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.

Related Articles: 
Need extra help?
  • You can receive an immediate answer to a number of commonly asked questions through our Support Center.
  • Contact us here.
Adrian Cenon University of Auckland student

Student Success Stories: Adrian Cenon from The University of Auckland

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Adrian Cenon is a Master’s student and MikesBikes Mentor from The University of Auckland. He was also recently invited by Audrea Warner, professor at the Graduate School of Management to share his experience using MikesBikes Advanced in the Managing People and Organizations course. We thought it would be a great idea for Adrian to share his experience with all of you.

Get to know Adrian more in our interview below as he shares his MikesBikes experience, the challenges and lessons he learned from the simulation.

Tell us about yourself

Adrian Cenon MikesBikes Student

Adrian: I’m currently a Master of Management, major in International Business student at The University of Auckland. I have finished a degree in Economics and Education, major in History at De La Salle University.

I have worked in Singapore as an Organizational Development Analyst and as a Global Learning Support Executive. In addition, I was also a Training and Research Officer.

What was your first impression about using a business simulation in the course? 

Adrian: I was impressed that my first course in University of Auckland recognized that learning is enhanced by connecting the management theories discussed in class with the dynamic interactions within a team. As well as how they respond to real-life challenges and scenarios incorporated in MikesBikes. Through my previous work experience, I have been an advocate of the 70-20-10 model (by Eichenger and Lombardo) that has been widely used by management consultants and talent development professionals.

Furthermore, I heard a lot of feedback from the previous Cohort that the MikesBikes experience will be a challenging, fun and effective way to enhance my business acumen and leadership skills.

Did your impression of the simulation change as the course progressed? 

Adrian:  Yes, the whole learning journey was more immersive and challenging than what I expected. The level of competition among teams was intense and it required a lot of effort and focus to adapt our strategies based on market trends so we could gain an edge.  I also didn’t expect that it would elicit extreme levels of happiness, excitement and sometimes disappointment as you view the results after each rollover.

How was your experience working on the simulation on your own and eventually with a team?

Adrian Cenon MikesBikes Team

Adrian: I would say that MikesBikes engaged my team on a level where we felt that we were running our own company and were accountable for our roles. When I reflect on the experience, I am extremely proud of how our team performed because of four reasons:

  1. We were genuinely passionate about our brand – WindChaser, and how it stood for “Chasing the Right Things” – identifying what is important and chasing it with the best of our abilities. Everyone participated in formulating our Team Goals and Key Performance Indicators (KPIs) and strategies.
  2. We had a great team culture and believed in the capabilities of one another. The rigor of analysing various reports (eg. Marketing, Finance, Manufacturing, Research and Development and Human Resources), making decisions, and competing with other teams strengthened our realization that we could only achieve our goals if we functioned as a high performing team. We learned to foster interdependence by aligning our actions with our core values of Passion, Accountability, Respect and Trust.
  3. Third, we dealt with conflicting priorities the right way and demonstrated integrity in how we competed with the other teams. Our team was aware of numerous “strategies” that we could pursue to get ahead and maximise our Shareholder Value (SHV) at all costs. But just like in the real world, you are sometimes faced with a choice to focus on the bottom line or preserve your reputation and relationship with others.

For example, heading to the final rollover, we had the option of extracting as much capital from our partner firm/ subsidiary. The problem was that applying this tactic would hurt their final SHV. Instead of taking full advantage, our team agreed to a reasonable rate with our subsidiary to ensure a sustainable SHV growth for both teams. In the end, this decision came at the expense of our team losing the European market by a narrow margin. However, we didn’t treat this as a setback because we stayed true to our values and enhanced our reputation and credibility among our peers.

4. Even though we didn’t win our market, we believed that the MikesBikes experience brought out the best in each one of us. As the CEO, I learned the importance of empowering your team members to perform their roles but at the same time providing guidance and support when they experience challenging situations. I am grateful to my team for believing in my capabilities and trusting me that we would become better individuals as a result of this learning journey.

Please share your experience in the course as a whole and how the simulation added value and impacted your learning.

Adrian: I consider MikesBikes as an effective platform that maximised the learning from the “Managing People and Organisations” course. The different scenarios and complexities provided various opportunities. I was able to utilise my previous work experience and theories I learned in class, and apply them in a simulated business environment.

The experience took me out of my comfort zone as it brought a lot of high and low points which required me to reflect and adapt to changes to effectively lead my team. I consider the lessons learned from the simulation and the course as vital “Deep Smarts” which I would be able to leverage when I continue my career in Organizational Development and Talent Management.

What advice would you give your past self (go back to the time when you were still doing the course and the simulation)? What do you wish you knew back then when you were doing the simulation?

Adrian at UoA Business School

Adrian: I would prefer not to give my past self any advice about the course and the simulation. I believe that the process of dealing with uncertainty provided the best opportunity to learn and more importantly, build character. There were several instances where our team spent a lot of time in figuring out how to drive our strategies because we recognized that a wrong move can have significant consequences.  Ultimately, the ability to handle pressure, evaluate the effectiveness of decisions, and manage our mindset proved to be excellent learning points which are applicable in the real world.

Connect with Adrian through LinkedIn.

Sajjad Husain Arastu First Place in the Top 20 MikesBikes Advanced Hall of Fame

Student Success Stories: Sajjad Arastu from The University of Auckland

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Meet Sajjad Husain Arastu, a Master’s student in International Business from The University of Auckland. He is currently sitting in first place in the Top 20 MikesBikes Advanced Hall of Fame. His $1,014.11 Shareholder Value  has been unbeatable for two consecutive years now. Since then, he has been consistently trying to beat his own record.  This reminds us of a saying from a Canadian based philosopher and entrepreneur,  Matshona Dhliwayo:

“To be a champion, compete; to be a great champion, compete with the best; but to be the greatest champion, compete with yourself.”

The article below is written by Sajjad. Let’s get to know him more as he shares his MikesBikes Experience with us.

The beginning of my journey

Sajjad Arastu from University of Auckland

I’m Sajjad Husain Arastu. I’m from India. I came from an engineering background specializing in Marine Engineering. I was fortunate to get an education in top universities in three different countries namely: India, Malaysia and New Zealand.

Coming from a technical background, I soon realized that the main decision-making ability lies with people who understand business. This motivated me to come to New Zealand and pursue a Master’s in International Business. I wanted to expand my knowledge further, learn the commercial aspects of business and to grow in the industry. The purpose of selecting this course was to gain deep knowledge on the commercial side of the International Business  – focusing on International Trade, Logistics, Global Operations and Consultancy. In addition, I also wanted to gain skills in managing people, operations, research and development, planning and strategy in complex business environments.

MikesBikes Experience

My first course in this program was Managing People and Organisations, which introduced me to MikesBikes Advanced. It was the most exciting part of my learning. I want to thank Professor Darl Kolb for teaching this course and giving us the ability to run our own companies.

When I was doing my Marine Engineering course, I had an experience using a simulation to design ships and learn how to calculate. I never knew that we could run a business using a simulation.

The idea of using a business simulation was very new to me. I wanted to try and understand it in order to help me make decisions in a real business. I came from a technical background with literally no experience in business, so it was tough for me to understand the different business functions.

We first tried the single-player version for a week and then progressed to form our teams, where we managed our companies in the multi-player version. I was selected as the CEO of my company, Cycle planet, because I managed achieve a Shareholder Value (SHV) of  $200 in my single-player version.

Competing against our friends and running my own company was one of the most thrilling experiences for me. The MikesBikes Advanced simulation is a perfect combination of the human-machine interface, which makes use of technology to develop human thinking. This motivated me because, it was exciting as every decision is unique and brings a different outcome. It also gave me an ability to manage and learn from people by competing against their companies.

Invitation to MikesBikes World Champs

The best thing happened to me towards the end of the quarter. Smartsims sent an invitation to participate in the MikesBikes World Champs. I got excited because we were just playing among our friends and classmates, and now I’m given an opportunity to compete against other students from all over the world. I wanted to experience this and develop my understanding further, so I participated in the world championship.

In the world champs, there was a condition where we could not design more than two R&D (Research and Development) projects in a given year. This was something different from the scenario we do in the course. It required a new set of decisions and more strategic planning. My team and I made some mistakes with our strategy and our group ended up in the Top 14 worldwide, which was not bad but gave me more motivation to learn and master the simulation.

My Single-Player Journey to First Place

MikesBikes Advanced Top 20 All Time Hall of Fame

Using MikesBikes for around 10 weeks in the course honed my learning and understanding of business. I was also becoming more familiar with the simulation. After every rollover, I look at the Hall of Fame ranking. I wondered how people could get such high scores and what they did differently.

After joining MikesBikes World Champs,  I decided to play with a target of getting in the Top 20 Hall of Fame. Since I have a technical background in marine engineering, I started to think like an engineer than a business person. I started optimizing my decisions to generate more profit. As soon as I realized I’m spending too much money, I needed to minimize my cost in all aspects of my planning and came up with a new strategy to enter the Hall of Fame. I tried and looked at my decisions very carefully and started optimizing my R&D, Operations and Marketing spend.

As an example, in my initial rollover, the cost of making one Adventurer bike inclusive of all costs was close to $260 which I optimized to as low as $97. This increased my profit margins. Additionally, I also adjusted my Operations, Advertising, Distribution and Finance decisions to reach a Shareholder Value (SHV) of $1,022 with an overall net profit of $73 million which landed me the top spot in the Hall of Fame. 

Impressions on the simulation

When I was first using the simulation, I thought it is just like a game. However, that was not the case. I noticed that every aspect of the simulation is interrelated and it requires strategic planning in aspects such as R&D, marketing and operations. It also involved a lot of teamwork, because we make decisions that involve a lot of planning and some calculations. Some of the decisions in my initial rollovers were just based on trial and error. However, as the course progressed, they became more planned, calculated and forecasts were made more accurately. Working well in your teams is one of the keys to succeed in the simulation.

Value and impact of the simulation in my learning

I got a chance to work with a diverse group of people. I also realized that interaction with your team is necessary in order to share ideas with each other. Every member of the team has specific duties, which is essential to make collective decisions.

In MikesBikes, our firm needed to maintain profitability in order to increase our Shareholder Value over time. This can be achieved by proper planning, understanding the components of business functions and making informed decisions.

One of the main challenges we faced as a team revolved around making the right decisions as some of our members were not aware of some of the concepts. This created misunderstanding among  us when analyzing the reports. Our main priority as a team was to learn and understand our roles and duties to strengthen our relationship with each other. To improve on this, we kept a record of all our previous decisions so that we can focus on modifying these and to achieve better results. In MikesBikes, we are dealing with competitive markets which were hard to predict. Every decision required a large amount of funding.

MikeBikes provided us with a very realistic platform, which is an essential part of my learning and development. As an individual and also as someone that’s part of a team, the simulation gave me an insight in every aspect of the business. It also gave me an understanding of the value of money and how to avoid overspending to maximize our output. The simulation has helped my development in the university.

I want to thank Professor Darl Kolb for always encouraging and motivating me to develop my learning in the simulation through his weekly stock reports. This report showed us how we are doing in class against our competitors.

Advice to my past self

If I were to go back and play the simulation again, I would improve and optimize my pricing and financial decisions. I have not not mastered these aspects yet. As an example, if I keep my prices too high, my competitors will take the market share by offering low prices. Additionally, if I drop my price, I will miss out on potential profits. I need to find balance between pricing my products and knowing when the best time time is to make financial decisions.

Using my MikesBikes Experience in LinkedIn

Sajjad Arastu - Screenshot of LinkedIn account mentioning MikesBikes experience

I want to be an expert in my field and want to grow in the industry. I worked day and night using MikesBikes to develop my learning and understanding of business. I think in this competitive environment, it is necessary to do something different and stand out in the eyes of employers by showing your potential.

I used LinkedIn to demonstrate potential employers that I have great abilities and skills, which I developed over time and would be a great asset to them if they provide me with an opportunity to work with them. It has been eight years till date, and my struggle to find a full-time job has pushed me beyond my comfort level to grab any opportunity to show employers my potential and worth. I believe LinkedIn can market my achievements to the world of employers.

Connect and get to know Sajjad:

What is Weighted Average in MikesBikes?

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

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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

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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. 

 

Common Mistakes in Music2Go Part 1

Part 1: Common Mistakes in Music2Go Marketing Simulation

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“During a research experiment a marine biologist placed a shark into a large holding tank and then released several small bait fish into the tank.

Shark Story

As you would expect, the shark quickly swam around the tank, attacked and ate the smaller fish. The marine biologist then inserted a strong piece of clear fiberglass into the tank, creating two separate partitions. She then put the shark on one side of the fiberglass and a new set of bait fish on the other.

Again, the shark quickly attacked.  This time, however, the shark slammed into the fiberglass divider and bounced off.  Undeterred, the shark kept repeating this behavior every few minutes to no avail.  Meanwhile, the bait fish swam around unharmed in the second partition.  Eventually, about an hour into the experiment, the shark gave up.

This experiment was repeated several dozen times over the next few weeks.  Each time, the shark got less aggressive and made fewer attempts to attack the bait fish, until eventually the shark got tired of hitting the fiberglass divider and simply stopped attacking altogether.

The marine biologist then removed the fiberglass divider, but the shark didn’t attack.  The shark was trained to believe a barrier existed between it and the bait fish, so the bait fish swam wherever they wished, free from harm.”

The short story above is by Marc Chernoff.

What do you think is the moral lesson of this story? 

The lesson here is many of us give up after experiencing failures. Like the shark story, we believe that if we were unsuccessful in the past, then we will always be unsuccessful. We continue to see barrier in our heads, even when there are no “real” barriers.

So you are probably reading this article because you want to get out of a situation where you have made mistakes in the simulation and want to fix it, right? Good on you for crossing that barrier!

Mistake #1: Not purchasing Market Research Reports

Purchasing Market Research reports in Music2Go

We cannot reiterate enough how important this is. Many students want to “save” their budget and invest it in other areas in the simulation. However, knowledge is power and by investing in these paid reports, you are making more informed decisions.

Mistake #2: Having leftover Marketing Budget

Marketing Budget Report in Music2Go

Your budget does not carryover to the next year, so it is important that you spend the entire Marketing Budget that you have been given for the current year.

Mistake #3: Misunderstanding the Importance of Pricing Products Correctly

Price is usually a key determinant of demand and is the most critical component to maximizing your revenue. Therefore, carefully thinking about your Pricing strategy is important as this would have an impact on the demand for your products.

Check out this article on How to Set Retailer Price and Retailer Margin for your products.

Part 2 talks about Misunderstanding the importance of reaching the right customers and inaccurately allocating your Sales Promotion Mix.

Distribution in MikesBikes

Making the Distribution Decision in MikesBikes

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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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