Get to know the latest addition to the Smartsims Team, Sunil Abinandan. He shares his experiences doing the MikesBikes Advanced simulation as a student, mentor and how these successfully helped him land the job here at Smartsims! Continue reading Student Success Stories: Journey from a MikesBikes Business Simulation Student to a Smartsims Employee
There are two types of inventory costs in Music2Go.
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
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.
How to Set Retailer Price and Retailer Margin in Music2Go
Improving Total Marketing Contribution
Reference:
This Photo by Unknown Author is licensed under CC BY
The Industry Benchmark Report is a summary of all firms’ Net Marketing Contribution reports so that you can benchmark yourself against your competitors as shown in the figure below.
In real life, this information would be difficult to obtain, but this report has been made available to you so that you can learn from your competitor(s).
There are several key parts of this report that you need to understand.
The Sales Revenue listed for each is the total wholesale sales revenue of all the firm’s products. The Cost of Goods Sold is the total cost of goods sold of all of the firm’s products that were sold, which is the number of units of a particular product sold multiplied by its manufacturing cost.
Gross Margin is the amount of profit that each firm made after the manufacturing costs were deducted.
You have no control over either the wholesale price or the manufacturing cost of your product, so your aim to maximize sales revenue by running the most cost effective advertising campaign that you can.
This section shows the combined Market Research, Agency Fees, Media Advertising, Customer Relationship and Marketing Communications expenditure for each firm.
The Evaluation Research expenditure lets you know how much market research your competitors are purchasing.
The Agency Fees let you know whether your competitors are using an Agency or not and how much it is costing them.
The Media Advertising expenditure allows you to see how much money your competitors are spending on Advertising, but now how they are allocating it to each media type.
Net Marketing Contribution is the amount of profit remaining after manufacturing (cost of goods sold) and marketing expenditures have been deducted. The only costs still to be deducted are other functional overhead costs for your firm, e.g. finance, administration, etc.
Net Marketing Contribution is a measure of how profitable your firm is as a result of its strategic marketing plan. There is only one way that you can improve it, increase your Sales Revenue per dollar of Marketing Expenditure.
The Market Summary Report is a market research report giving a side-by-side comparison of all the products currently being sold in the market.
Sales is simply how many units the particular product sold last year.
Retail Price is the recommended retail price that each firm set for their product(s). You need to remember that the wholesale price is retail price minus the retailer margin, so it’s possible that a cheaper product than yours might have a higher wholesale price if that firm has lower retail margins.
Awareness is a measure of how many consumers in that segment are aware of your product due to your corporate brand advertising and product advertising.
An awareness rating of 0.50 means that 50% of the consumers in that segment are aware of your product. When trying to raise the awareness level of your product(s), you need to pay attention to making sure that you are targeting your budgets to the media types that the particular segment watches the most.
PR is a measure of how many consumers in that segment have a “good” public relations image of your product due to your PR expenditure. When consumers read bike magazines you want them to see your product being reviewed and talked about and that is what your PR budgets are for. A PR rating of 0.40 means that 40% of the consumers in that segment have heard some good PR about your product.
The distribution rating is a measure of how much distribution coverage your product has. A distribution rating of 0.65 means that 65% of consumers in that segment will find your product in a store they regularly shop at.
The only way to improve your distribution rating is to convince more stores to stock
your bikes
The quality rating is a measure of how many units of your product are returned under warranty. If approximately 2% of your sales are returned under warranty then your rating will be approximately 0.50, but if you can reduce it to approximately 0.3% of your sales being returned under warranty then your quality rating will rise to 0.90. In MikesBikes the only control you have over quality is how much money you allocate to your quality improvement budget each year.
Delivery is a measure of how often your retailers run out of stock of your bikes. A delivery performance rating of 1.0 means that your factory never stocks out of bikes, however if your factory stocks out of bikes this year, then next year your delivery performance rating will fall. The lower your delivery performance rating, the less likely that retailers will want to stock your bikes. However be careful, as some segments are more sensitive than others to stocking out.
The “product specs” rating is a measure of how close your product is to the segment’s ideal dimensions for “tech” and “style”. A rating of 1.0 means that your product is 100% what the segments wants, a rating of less than 1.0 means that it is not. As MikesBikes progresses you will be offered numerous product development projects that will improve the product spec ratings of your products, if your product spec ratings are lower than your competitors it means that they are spending more money on product development than you are.
This report is a summary of all firms’ Key Financial results, which you can use to benchmark yourself against your competitors.
In MikesBikes Introduction, this report is divided into four sections: Financial Results, Customer Satisfaction, Internal Results and Innovation Learning.
There are two key variables that you need to understand in this section, Share Price and Shareholder Value.
Your Share Price is the current market price of one share in your firm; the main drivers of share price are your average earnings per share (EPS) and your D/E ratio. If you want to improve your Share Price then you need to keep improving your EPS and to keep your D/E ratio below 1.0.
Shareholder Value is a measure of how much value a shareholder has received from owning one share of your company from the moment you took over running your firm. So Shareholder value is the current Share Price, plus the accumulated dividends that you have paid with 10% compound interest.
Most of the fields here should be self-explanatory. However, you need to be aware that the Distribution Channel support figures include both your Extra Support (sales promotion support) spending and the annual support cost of supporting all the retailers that currently stock your products. Distribution Information (Distribution and Branding > Reports tab) report details what those annual costs are.
So every firm that has at least one store stocking its products will be spending at least a couple of hundred dollars. To see what their sales promotion budgets are, view the Multi-Firm Retailer Margins and Extra Support report under “Firm Marketing”.
The main purpose of this section of the report is so that you can compare your production efficiency strategy with your competitors. Make sure to compare your wastage results and number of products. The lower the production efficiency budget and the higher the number of products (more setup time), then the worse a firm’s wastage value will be.
Monitor how much your competitor(s) are spending on product development, it means that they are either making their products cheaper to produce, more attractive to the market or both. If you let a competitor get a significant production cost advantage over you then they will easily win any price wars involving that product.
Check out the Smartsims Support Center or contact us here.
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.
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.
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:
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.
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:
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:
(Ideal Growth = 20%, Ideal Mature = 5%)
(Ideal Growth = 30%, Ideal Mature = 20%)
(Ideal Growth = 20%, Ideal Mature = 40%)
(Ideal Growth = 15%, Ideal Mature = 10%)
(Ideal Growth =15%, Ideal Mature =20%)
(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.
The first key decision you need to make for each of your products is whether you will employ the services of an advertising agency to assist you with your media selection.
The Internal Plan means trusting your own media selection ability and going at it alone, which often obtains far greater returns.
The default plan for each product is average at best. Approximately 30% of you promotion budget is being wasted on poor media selection. By carefully reading and analyzing the marketing plan and market overview/research for your product’s target segment, you should be able to greatly improve the effectiveness of your promotion budget.
TV Magic is a media-buying agency that specializes in producing TV advertisements and bulk purchasing TV advertising time.
TV Magic will suggest a TV advertising media plan that will be significantly better than following the default plan. They are less skilled at other media production/selection, but their suggested plans will be noticeably better than the default plan.
Print Works is a media buying agency that specializes in producing print advertisements and bulk purchasing print advertising space.
Print Works will suggest a Newspaper/Magazine advertising media plan that will be significantly better than following the default plan. They are less skilled at other media production/selection, but their suggested plans will still be noticeably better than the default plan.
Radio Can is a media-buying agency that specializes in producing radio advertisements and bulk purchasing radio-advertising airtime.
Radio Can will suggest a radio advertising media plan that will be at least significantly better than following the fault plan. They are less skilled at other media production/selection, but their suggested plans will still be noticeably better than the default plan.
There are three ways on how you can test your decisions in MikesBikes Introduction to Business Simulation.
These figures on the Live Forecast update in real-time as you click “Apply” on any decision screen. This enables you to easily see the impact of individual decision changes on overall performance.
The figures can then be clicked to bring up the relevant forecast report in full. Previous figures remain in small font below.
The new Live Forecast feature will help you make more informed decisions and provide an immediate warning if you have made poor decisions.
This menu features reports which give you an indication of your performance – assuming you meet your forecasts.
There are a range of Pro Forma reports available for you to view:
This feature in the Multi-Player allows you to try out different decision options and strategies before you commit yourself.
In Offline Mode, your competitors use only their default decisions. So don’t read too
much into the results.
To start Offline Mode, click the “Offline” button next to the Multi-Player launch button.
In Offline Mode, your competitors use only their default decisions. So don’t read too much into the results. For instance, in Offline Mode you might launch new products into empty markets and do very well due to lack of competition. But if you use those same decisions in the Multi-Player, you could do poorly if the other firms choose to launch new products at the same time. So always think about what might happen if your competitors were to do something differently.
Important: After using Offline Mode, your team’s agreed decisions need to be re-entered in the Multi-Player.
Watch our tutorial video here:
Note that this feature might be disabled in your course.
When setting the Retail Price, you should consider things like:
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.
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.
Music2Go Tip: Leftover Marketing Budget
Music2Go Tip: Improving Total Marketing Contribution
