Group StratSim Marketing Industry 1, Firm E

The main objective of the StratSim Marketing simulation is to deploy key business skills in order to become a leader in the automobile industry by maximizing customer satisfaction and shareholder value. Within the simulated competitive environment, Team was assigned firm E Efficient Auto Company (EAC) in Industry one- with three vehicles in family (Efizz), truck (Estruck) and utility (Euro) classes. EAC bases its business strategy on the mission statement: Sustainable development of quality cars and trucks at affordable prices for worldwide customer satisfaction. Organizational Objectives The firms within the StratSim Marketing simulation are uniquely positioned based upon several key performance measures (manufacturing, market, net income and stock price; Table 1). At the outset of the simulation, EAC had a market share of just over 20% and management team realized that it would need to focus on companys core competencies in order to bring maximum value to the company in the coming periods. The business model adopted at EAC was to become a customer centric firm developing specific products for specific consumers in order to satisfy the customers demand(s) and maximize shareholder value. EAC, while focusing on the customers, also focused on continual internal operational improvement as one of the main objectives. This was accomplished by the management team attempting to keep the companys inventory levels extremely lean. Market Strategy Target Markets: Throughout the course of the game, the management tried to maintain a fairly consistent overall market strategy. To begin with, EAC produced Efizz, Estruck, and Euro,

which competed in the Family (F), Truck (T), and Utility (U) markets respectively. As each category also consisted of sub-markets, the management approach was to focus primarily on segments accounting for the larger number of sales. EAC also introduced two new vehicles designed specifically to meet the needs of potential customer segments within the Alternate Energy (A) and Economy (E) markets. Technology Development: EAC started by increasing the interior and safety capabilities up to 5 on the scale from 0-11, as these were the two lowest for EAC. The management also increased the quality rating to 6 on the scale from 0 - 11 during the last round because it hit the most hot button issues among EACs target customer segments. EAC strategy involved keeping different class of vehicles in a mid-level price range, so high capabilities were not necessary. Manufacturing: Constant vehicle upgrades complicated manufacturing decisions for the firm. After release of an upgraded vehicle, all previous inventories were written off; therefore, we attempted to mimic just-in-time (JIT) manufacturing practices to reduce excess inventory. In theory, this would also reduce cost of goods sold by minimizing inventory carrying costs. Due to constant increase in sales volume, the management was required to increase production capacity every round. In fact, during the last couple of rounds, we were a little short on capacity which caused us to incur overage charges in production. Distribution: At the beginning of the simulation, EAC distribution capabilities were lowest in the East and West regions. Initially, EAC added dealerships to increase coverage in these two areas to 50%, or on par with the North and South regions. This was especially important for the West region, where we quickly realized the largest unit sales overall. The management team was also aware that too few dealerships would cause EAC to lose sales, while too many would cannibalize sales from nearby dealerships. Therefore, the management team

goal was to increase dealerships slowly to a level just above 50%. Judging by EACs dealership ratings, which were much higher than the competition, this strategy worked well. Communication: EAC communication decisions were rather conservative to start. For example, in the first round, the management increased Regional Corporate Advertising by one million dollar in each region. Throughout the course of the simulation, the management incrementally increased all areas of marketing equally among regions. The exception was one round where we lowered advertising for the Efizz to be equal to the other models. EAC also set advertising for the Electric higher upon its launch, since it was a new product. Additionally, the management modified areas of promotional focus to be in-line with our target markets hot button issues. During the later stages of the simulation, EACs financial position allowed for an increase in marketing expenses more drastically (from $348 to $1015 million overall). Financial Strategy and Performance Overall, EAC market value, net income and sales increased (doubling over 7 periods) by the same order between these three variables (Figure 1). Having inherited some long-term debt (Figures 2-3), we issued bonds to help offset the development costs of the AEV and the major Estruck upgrade. Additionally, after EACs first bond issue, the credit rating increased from AA to AAA, so the two subsequent bond issues were achieved at lower interest rates. The management called back the first two bond issues, holding the third as leverage to offset equity and gain tax benefits. The management also approved repurchasing shares of EAC stocks early on, as this is a more efficient way of returning value to shareholders than raising dividends. During the last two rounds, EAC had the financial capacity to buy back larger amounts of stocks while also raising

the dividends. Repurchasing 6.3% stocks and increasing dividends by $300 million supported a jump in stock value from $52.06 to $115.68. A vital decision was made early on to increase the MSRP (maximum suggested retail price) of vehicles regularly. Increasing MSRP also reduced the impact of in-game inflation and increases in labor and materials costs on EAC profit margins. This resulted in improved profit margin in successive game periods. The management also noticed early on that we were selling almost all vehicles, so increasing MSRP would also lead to increase in profit margin without additional inventory. Competitive Advantage and Positioning EAC continued improvement in research and development (R&D), while costly, allowed management to effectively convey to consumers that they were important to us and that their needs would not go unmet if they continued to be loyal to our product offerings. This continued customer-based marketing approach served as a competitive advantage once EAC developed products made it to the market. EAC enjoyed significant improvement in the companys market share, stock price, and period sales numbers at the end of the simulation. Additionally, lean inventory or JIT merchandizing, allowed EAC to minimize inventory cost, reduced write-off costs and maximizes vehicle production. By the end of the simulation, EACs performance was outstandingly better than other firms in the industry one. EAC came FIRST in almost all key performance metrics and was able to return maximum shareholder value as evident by our highest stock price ($115.68, period 7) and dividend payouts. Thus, it would seem that the companys consumer-based marketing approach was effective and should therefore continually be implemented in the future. EACs future goal is to expand current product offerings (as EAC started R&D on a new economy car
4

during the last period of the simulation) and satisfy a broader consumer base. This strategy should serve well for the EAC in the future (if the simulation results thus far were any indication) as this strategy leads to a win-win situation for both the company and the firms customers. Marketing Management Take-Away EACs successful performance over the course of the seven simulation rounds serves to re-iterate several key lessons regarding the process of marketing management. First and foremost, management team chose to abide by and implement objectives consistent with two primary guiding principles: customer-focus and internal efficiency. Management team decided to invest heavily in R&D early on, viewing current expenses and debt as potential to realize our customercentric market strategy and internal efficiency objectives over the life of our company. The management focused on incremental innovation to sustain our market leadership for our best products and radical innovation to develop line extensions for EAC brand. Additionally, the management chose to conduct careful market and sub-market analyses and focused on technology, communication, and distribution decisions specifically to meet or exceed the needs of each target market. In doing this, EAC were able to build both brand strength and stature, as shown through performance indicators throughout the course of the game. In summary, marketing management requires consistency in adhering to business principles and a willingness to take risks in order to realize maximum profit and shareholder value.

Appendix A
Table 1. Starting positions on several key performance measures for different firms in Industry 1

Figure 1: Key Performance Measures, Industry 1

Performance summary for Period 7, industry 1

300 250 200 150 100 50 0 -50 -100 -150 Stock price Market Share (% of units) Return on Assets (%ROA) Net income (% change from start) Firm A 25.9 26.3 3.9 -72 Firm B 66.01 8.6 28.3 6 Firm C 114.55 13.4 59.3 63 Firm D 20.63 18.2 1.6 -91 Firm E 115.68 33.5 29.5 259

Figure 2. Sales, Net Income, Market Value and Debt for Firm E in Industry 1
$50,000.00 $45,000.00 $40,000.00 $35,000.00 $30,000.00 $25,000.00 $20,000.00 $15,000.00 $10,000.00 $5,000.00 $0.00 0 1 Sales 2 3 4 5 Market Value 6 Debt 7 8

Cumulative Net Income

Figure 3. Long and Short Term Debt, Cash, and Retained Earnings for Firm E in Industry 1
$20,000.00 $15,000.00 $10,000.00 $5,000.00 $0.00 0 ($5,000.00) ($10,000.00) ($15,000.00) Cash Depreciation Short Term Debt Long Term Debt Retained Earnings 1 2 3 4 5 6 7 8 9