To begin with, Tiger Team E (the group in which I was a part of) had two products – SEMI and SELF. Both of these products were in the Sonite market. The products had a significant market share among its customers to begin with. This is the foundation that was built on by me and my team.
Broadly, we used the following criteria to judge the effectiveness of any decision taken in the subsequent years – market share, stock price and competitor benchmarking. The whole life cycle of a market and product and industry life cycle’s were well understood during the process of this simulation. The Sonite market for example became more and more fragmented with products specifically for each segment as time passed by. We got to see an Industry life cycle span out through the Sonite market.
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My responsibility in this simulation was to handle the marketing mix for the products we launched in the market. All the concepts of basic marketing were touched upon to determine the marketing mix of the products. For the sake of clarity, this document has been split into four parts – each part being one ‘P’ among the 4P’s of marketing – Product, Price, Place and Promotion. These ‘bread and butter’ concepts of marketing are the corner stones and hence a section being devoted for each of these concepts. Also, a marketing mix can be broadly conceptualized using the 4P construct. These were the reasons for using the 4P approach to explain the marketing mix followed in the MarkStrat Simulation.
During the initial stages of the simulation (rounds 1 and 2) specially, there was very little market research available and therefore most of our decisions were based on characteristics of the market segments. We had two products in our portfolio – SEMI and SELF. We tried to target the Pros and the High Earners market for SEMI and targeted Buffs for SELF. The idea was to try to make sense out of these products and make it customized more clearly for a segment of customers.
Inventory level was also used to a good extent to gauge the amount of sales of a product. As seen in the figure above, the no. of units in inventory for SEMI and SELF were 72 and 35,790 which meant that SELF sold much lesser than produced and therefore required some change in terms of marketing mix. As an immediate measure we reduced production (since we didn’t have market research to understand why it was selling lesser than expected). We also targeted it to Buffs more clearly by changing its advertising (will be touched further in the ‘Promotion’ section). We did not yet commission any new research in the first round.
Round 2 equipped us with the luxury of experience of round 1. This is a very important thing in the real world – experience. We understood about the product, the market much more than how we were earlier. We also got a sneak peek of how the competition was faring in the same market. Round 2 saw the introduction of SEL1, a new product we launched using the existing research. SELF as a product was failing with its sales dipping again. SELF had the problem of being a ‘confused product’ without proper targeting. It was nowhere in close to Buffs in any of the characteristics that Buffs as customers would prefer. SEL1 was a new product developed for the Buffs. It was based on existing research PSELF which was there in the first year itself.
New product development is a process of developing, testing and launching a new product in an already identified market. It is a core marketing concept extremely crucial for an organizations sustainability and profitability. The first step to a new product development is marketing research. The research could be a anything from trying to understanding the need of a segment of customers, trying to gain insights in an already existing product category. For example, we can take the case of lycra – the cloth material that became a fashion super-hit a decade ago. It was a clear case of new product development using an already existing material – lycra. Lycra was used to make gloves for surgeons so that it would stick to their skin and not interfere with their working during a crucial surgery. This was just launched as a new product in the commercial market through basic insight mining about the need for tight fitting clothes. We all know the success of Lycra. It was clearly a marketing success and it was the New Product Development department which identified that lycra can be marketed to customers other than surgeons.
In the second year, we decided to phase out SELF because of its dipping sales (but did not remove it right away because it was still contributing to the profit). We launched SEL1 for the Buffs and increased the production of SEMI as it was further growing. Again, the inventory level was our indicator to understand the necessity to increase/decrease production.
We launched a new research in this period for the ‘Others’ market. We chose the ‘Others’ market because we found that they were the highest in number and also the size of the ‘Others’ market was growing significantly. We felt that we need to be the first player in the market to launch a product in this market. Hence we commissioned a new research. We knew that a brand is built easily when the numbers of players in the market are few. This is because of the absence of clutter in the customer’s mind. The first mover’s advantage is something no promotion can give. Hence we launched the research and called it PSEFA. We entered the required characteristics of the product that the customers in the ‘Others’ market would need. We were generous in giving more than the customer asked. We understood that competition would also be giving the customer the same thing and hence wanted to offer more than needed. We understand that this could also work against us. For example, giving buffs more power than needed might not be a great idea. But we judiciously chose the parameters that were required for the product for ‘Others’ and launched the research.
In the next year, after the research findings of PSEFA were out, we immediately launched SEFA, our new product for the ‘Others’ market. While launching a new product, we were always faced with the question about how much we should produce. We didn’t want to see too much left with us at the end of the year as inventory because it comes with a holding cost. At the same time, we also didn’t want to see zero units in inventory which meant that we didn’t supply enough. To aid us in this decision making process, I created a simple sheet on Excel which was used both to estimate production as well as determine price of a new product to be launched.
By varying the ‘Estimated No. Of units produced’ field and the ‘Selling Price’ field I could get an idea of what the profit would be. Obviously, we made assumptions about the no. of units we would sell based on how we fared in our other products. We also initially decided that we will not produce less at the cost of losing sales even if the risk of holding inventory was high. We wanted to be available in the first place. The sales of SEL1 and SEMI were also steadily increasing and hence I increased the production accordingly.
Our company’s overall strategy was to not only be present in all segments but also to be there first. We wanted to have the first mover’s advantage in all our products. Consequently, we were the first to launch a product in the Vodite Market. We launched the research for the launch of a product in the Vodite market in round 4 (PVODA). We also launched an R&D for a new product for High Earners. Competition was springing up significantly in round 4 and we were losing share in some of our highly contributing products. We modified targeting/advertising for these products to remain competitive. We successfully launched VEDA in round 5. Two teams had launched products in the Vodite market in round 5. VEDA was targeted to the innovators. We immediately launched another research PVODB to improve the cost of production of VEDA. This was done because competition was catching up and competitive benchmarking was the order of the day. We anticipated stiff competition in the Vodite market and wanted to skim it until we were among the few players present.
Subsequently, VEDA was modified with inputs from PVODB, the research that was done to reduce cost of production of VEDA. As the Vodite market was maturing, we launched another research for a new product specifically for adopters in the Vodite market – PVEA1. We learnt from our experience in the sonite market (as well as text books in the past) that as the industry matures, products become more specific for each need of the customer and each type of customer. VEDA was a generic product in the Vodite market that would have specifically been of interest to innovators and others who would take the chance of buying a not very tried-and-tested product. With time and the entry of competition, customers evolve and become very choosy about the need they want satisfied. For example, a salesman would prefer to have a mobile phone with good battery life more than anything else. Hence the most important characteristic he/she would be looking for would be battery life. Any amount of value in other characteristics might not excite him or her. This obviously would not have been the case when a product called cell-phone was launched in the market. Irrespective of whether the customer was a salesman or a high-flying CEO, the options available were quite limited. Therefore, we launched researches to make sure that we were there in each segment in the vodite market as well. ‘Innovators’ as a market segment was dying and the majority was shifting to ‘adopters’. Hence, we launched this new research for adopters. We were also modifying our products in the Sonite market using cost reduction research so that our profitability was not hit. By this time, all the teams had products in most of the segments in the Sonite market and Price and Promotion were becoming the most effective means of competing. This forced us to reduce costs of production in our products the Sonite market.
By the time we reached round 9, we had one product for each segment in the Sonite market. From this point on, we were only altering advertising, sales force and price of the product in this market. Vodite was the one that was growing well and we channelized our energies there. We launched products for the adopters and the followers in the vodite market. As we came close to the last round, price became an important variable for competing with everyone in the market slashing prices. We had to follow suit which reduced the overall profitability of the industry. But this is typically what happens in a mature market. An Industry Life Cycle consists of the introduction, growth, maturity and decline stages. Maturity is where products become commoditized and companies use advertising and other promotions to build a brand image that would differentiate it among the other products. It is also here that prices are rationalized. A recent example would be the telecom sector in India with Tata DoCoMo slashing prices (by bringing the ‘per second billing’ scheme) which forced everyone in the market to follow suit so that they remain competitive.
We also understood the product life cycle to a great extent through this simulation. A product life cycle is quite similar to the industry life cycle, only that there are many product lifecycle’s in an industry life cycle. We can take the example of VEDA for example. VEDA is a product while Vodite is an industry. We just went through how the Vodite industry was evolving and slowly went into the maturity stage towards the end of the simulation. VEDA, on the other hand went into a maturity stage about 2/3 stages before the end of the simulation.
Price, as mentioned earlier is the most understood concept to a customer. A customer does not really understand brand, positioning, targeting etc. Price, on the other hand is one thing that majority of the customers (other than perhaps one segment of customers who are self-actualized according to the Maslow’s hierarchy) understand. One of the most important learning’s I had from this simulation is that the relationship between price and purchase is not always linear. A reduction in price need not necessarily mean increase in sale. This is because the price of a product also signifies quality. If Rolex decided to cut the price of its watch and become a mass product, it would lose a huge segment of loyal customer. This was best illustrated in round 10 of this simulation when we decided to slash prices of all our products so as to penetrate further and increase our market share. We did this in anticipation of the fact that other teams would also cut price (as we were nearing the end of the simulation). We did this across all our products. This was not a good move in hindsight. We in fact lost share in most of the products after this move. We corrected this in the next round and this was perhaps too late and hence remained in the second place (in terms of share value). The thing that happened was that we gave a lesser price when a customer associated quality reasonable on price. Aspirin for example has a tablet that heart patients take. This is priced at 30 times the price of an aspirin that you or I would take for a headache etc. It is to be noted that both the products are same to the dot. If the aspirin that heart patients was cheaply priced customers would not buy it thinking it’s of low quality. No one would buy an inferior quality product when the issue in concern is the human heart. Hence, price and buying have a more complicated relationship than just a linear one. This was well understood through the simulation.
Right from the initial stages of the simulation, we used an excel sheet (refer the pic used earlier) for determining what would be a good price for a new product launch. That gave us an idea as to what would be the increase in profit for the increase in price. Broadly the following were the factors that determined price
Customers price preference
Cost of production, marketing
Stage of the Industry life cycle the industry was in
As the Sonite market was growing, competition increased and price had to be corrected periodically. Cost reduction research was also done periodically to make sure we had the freedom to price lower if need be.
The launch of products in the Vodite market gave us an opportunity to price at a huge premium as we were the first the launch the product and there was no competitor to benchmark our price. This is the first mover advantage that was mentioned earlier. Slowly, as competition increased the price came down but the advantage we had in the beginning was tremendous and saved us from a further fall in the share value.
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Availability becomes a very important criterion for a brand to succeed. Basic availability of a brand can be understood by looking at the inventory level. However, there is a catch in it. Inventory level would not tell us if we were present at the right place the customers of the segment to which we have targeted. It would merely tell us if we have sold the units produced or not.
In the above snapshot, we can see that each product has a different mix of sales persons allocated for the different types of stores. We came up with these numbers by understanding the buying behavior of the customers. Which are the stores frequented by buffs? What percentage of Hi-Earners visit Mass Merchandisers?
When we stopped selling a product, the remaining stock in the inventory was sold through an external channel partner to whom we sold at a lesser price. In this way, sales and distribution channels play a very important role in the sales of a product. Most FMCG companies targeting mass markets strategize similarly. Just the availability of the product can make or break a brand.
The stage in the industry life cycle the product is in is a very important to determine the importance of promotion. During the growth stage is when the necessity to differentiate the brand comes up. In the introduction stage, the need is much lesser. While in the maturity stage it becomes the most important factor. Brand name and image play an extremely important role in the sales of the product. This is because there would be too many brands in the market by then – all of them offering similar products. The only way to differentiate is by other abstract associations – brand.
In Markstrat, we had options to change the targeting of a product to a segment(s) of customers. Segmentation, Targeting and Positioning are three concepts that will aid promotion of the brand better. This is because a well-positioned product, targeting a specific segment of customers would be the easiest to promote the brand. The communication can be specific, clear and we can be sure that spill over will be minimal. After the first two stages, we understood the need to target to specific segments and by the end of the simulation we had one product for each segment in both the Sonite and the Vodite markets.
In the Sonite market, as the industry evolved, we increased our budgets for advertising. The advertising expenditure for our team (E) is shown below. As we can see, with time, the advertising expenditure kept increasing. We were among the top spenders in promoting our products. We can also clearly see that all teams increased their expenses for advertising as time went by. This clearly shows that the need for promotion of brands arises significantly in the growth and the maturity stages of the industry.
Another noteworthy point was that when we were launching a product in a market that was already established i.e. we were not the first movers, we had to significantly increase the advertising spend because we need to create an impact in a market where there are established players already.
In the Vodite market when there was no research available, to advertise and to target products, we needed to assume the characteristics of the segment. For example, we made a basic assumption for innovators that they were not really looking for a low price product. Such assumptions were made as we did not have any research available initially.
APPLYING AND EXTRAPOLATING LEARNINGS TO PRODUCTS OF RECKITT BENCKISER PLC.
I choose this company because I am aware of the brands of Reckitt Benckiser (RB) as I interned there for my summers. RB has several huge brands in India. In spite of all this, a lot of research has gone into their products that are specifically targeted to Indian customers. For example, Dettol Soap in India has a different fragrance from the one in UK. They found that Indians need a stronger smell and hence developed a stronger selling product here. Similarly, they have designed and packaged very different products for the Indian market specifically. This is clearly a case of Segmentation, targeting and positioning for the Indian market.
RB also engages in many new product development projects – like they recently launched a new product called Strepsils Ayurveda specifically in the Indian market. Strepsils is a lozenge that was sold only in chemist stores. The composition was such that there was permission only to sell in chemist outlets. To sell in all outlets, RB developed Strepsils Ayurveda which allowed it to distribute freely in all outlets across the country. We can see that the idea of ‘Place’ also feeds into new product development. The relationship between the different functions of marketing is extremely dynamic and complex. A new product can be developed simply to make sure it’s available in all outlets.
Looking at the TV commercials in the recent past we can see that Dettol soaps has been re-launched with a new fragrance, shape, packaging etc. This is clearly after a fresh set of research conducted by RB. They have modified an existing product under the same brand name so that it meets the requirements of the target segment more clearly. This is similar to how we kept modifying products in both the Sonite and the vodite market to cater to the changing needs of the target segment. Whenever we see the words, “New”, “Improved” etc. on the packaging of a product, we can be sure that the product has changed (ever so marginally) to factor in the changing needs of the consumer.
Continuing with the example of the Dettol soap, it was launched decades back and had just one variant. Now it has five variants. This is to cater to each segment of customer clearly. Each new variant has brought about an incremental sale to the brand. This is similar to what we went through in the simulation. When we launched, we had two products but at the end we had about 8 products each targeting a different segment. With time, the number of segments of customers keeps increasing, and subsequently the number of products targeting these customers also keeps increasing. We can be sure that Dettol will also keep increasing the number of variants in its soap with time. This is the strategy employed by most FMCG companies while marketing their products.
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