M A RKETING
M G T.
S I M U LA T I ON
M A RKETING
M G T.
S I M U LA T I ON
M A RKETING
M G T.
S I M U LA T I ON
Most Basic Principle
Guiding Your Decisions-will it:
• Increase Demand for
Product
• Decrease Cost
of Making &
Marketing
Product
M A RKETING
M G T.
S I M U LA T I ON
Made all the Right Decisions --product
design, pricing, positioning, promotion,
distribution… credit terms… production line
capacity, automation, hiring training, TQM & PI…
Your Competitors produce a
better product
 &/or You produce too much of
your “great” product

IF
Then
You’ll be left w/less
revenue than anticipated
PLUS production &
inventory carrying costs
that must be paid..
IF
You’re left w/less revenue than
anticipated and did not plan &
allocate enough cash to cover your
production & inventory carrying
costs....
Then
Big Al arrives -pays your bills,
and leaves you
with a loan & a
stiff interest
payment
In order to:
• Avoid “Big
AL” & a
Liquidity
Crisis-
Need to:
•Maintain
Adequate
working capital
& cash reserves
•Have realistic/
accurate sales
forecasts
1.Quick N’ Dirty
2. Consumer
Pref’s
3. Best vs. Worst
Case Projections
Estimate Your EARNED SHARE:
2 Q’s:
1.What will the average
product sell in the segment
next round?
2.To what degree is your
product above or below
average- on consumers'’
buying criteria?
EARNED Share - Sales Forecast
1
2
3
4
Look-up next round Industry
Estimate #
Demand …
products that will be in segment.
Divide total industry demand by the number of products=
FAIR SHARE
Your product’s EARNED demand can be ½ to 2X the
average product’s demand…
Compare your product with competing products.
Factors include design, awareness, accessibility, and
planned mid-year revisions.
Examine industry capacities & capacities of the
“best” products.
Can products meet the demand they generate?
1.Quick N’ Dirty
2. Consumer
Pref’s
3. Best vs. Worst
Case Projections
Forecast off Customer
Survey Scores
R#1 Dec
Survey score
Baker
43
19%
Predicted
sales R#2
1827 units
Able
40
18%
1731
1598
Fast
36
16%
1339
1560
Eat
36
16%
1539
1492
Cake
42
19%
1827
1339
Daze
26
12%
1154
1045
Total=223
% of 223
Actual
Sales R#2
1758 units
R#2
2
1
R#1
Survey
score
43
40
36
36
42
26

Opening rounds crucial- can
establish competitive advantage
(that can be sustained for many yearseven thru-out entire sim.)


Initial round demand can vary
+/- 25%
Later rounds best case/worst
case vary ~~~~ 10-15%
For Example-in Traditional
segment everyone begins w/ 13%
market share
After 1st Year/RoundCan see demand spread
R#1
R#2
R#3

Worst Case:
BIG
INVENTORY-

Little Ca$h

Best Case:
Lots of CA$H
- Little Inventory

•Enter WORSE case- in “your
sales forecast” on marketing
spreadsheet
•Enter BEST case- in
“production schedule” on
production spreadsheet
•Spread show up as inventory
on proforma BALANCE SHEET
In WORSE
CASE: You
have lots of
Inventory
& little or no
Cash.
$0.00
To adjust your cash
position -If you are cash poor,
issue Stock /Bonds - or
consider a short term
loan
 If you are cash rich,
pay dividends and/or
buy back stock.

Important Considerations
re: BEST-WORST Scenario Analyses
By adjusting your CASH
POSITION according to your
WORST CASE estimate– will avoid
… BiG AL
Important Considerations
re: BEST-WORST Scenario Analyses
By adjusting production
according to BEST CASE
estimate– will minimize loss of
profit due to Stock-outs


Fixed costs (marketing, R&D, interest
or depreciation) already covered
Thus, any additional sales would
only incur variable (production)
costs
For example:
1.
2.
3.
If annual sales $120M,
= $10M/mo.
If a months material &
labor costs = $7M, you
missed contributing $3M
to Net Margin.
You’r taxed at ~35%, so
your opportunity cost is
~$2M in profit.
How Big is your
Slinky?

Worst Case:

BIG INVENTORY/ no
cash– risk seeing Big Al

Best case:

Lots of CASH / no
Inventory -you risk stockout
Determining A
Reasonable Spread

Want to avoid generating an ultra
Conservative Worst case scenario
…matched w/ an ultra Optimistic Best
case scenario
Should be able to sell excess
inventory
 in ~betw. 6 & 16 weeks


w/ 8<9 =
How to measure your slinky slack--
Take your
total
inventory
costs
$23,900M
& Divide by total
variable costs of
inventory sold:
$23,900M/$131,119M
=.18
52weeks *.18 = 9
Risk ~9weeks of
Inventory to avoid
stockout
Additional Tools/Techniques for
Managing & Assessing Your
Performance:
1. Marketing-
Evaluation
Checklist
2. Round Analysis
3. Analyst Report
M A N A G E M E N T
S I M U LA T I ON
Round analysis
-example
M A N A G E M E N T
S I M U LA T I ON
Simulation
Scoring System