MARKESTRATed

MANUAL DEL PROFESOR

4. Preparing the initial situation
The starting situation of Markestrated is the company report for Period 0 (the first set of
decisions concerns Period 1). This company report is distributed to the teams during the
introductory session, and should thus be generated beforehand on the computer using the
Markestrated programs (see Chapter IV). If the Markestrated parameters are not modified, the
starting situation is always the same. In this case, one may choose to have the Period 0 reports
reproduced for subsequent administrations of the game, rather than generating them on the
computer again.

OVERVIEW OF THE MARKESTRATED SEQUENCE

Over the simulation horizon, the situations of the five competing firms may evolve in various
ways, depending on the actions they take. There does not appear to be any systematically
repeated pattern in the evolution of the firms from one administration of the game to another.
Although they all start with different initial situations, it seems that none of them has a
systematic competitive advantage at the end of the simulation.

While there is no repeated pattern in terms of competitive positions, there definitely is in the
course of the game a systematic and predictable evolution in the nature of the key problem
areas. This is represented schematically in Exhibit I. This evolution has been planned and
implemented in the design of the game. Although each team is faced each period with a
variety of problems simultaneously, its efforts and learning will be

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EXHIBIT 2.1

OVERVIEW OF THE MARKESTRATED SEQUENCE

Periods Key problem area

1 Understanding the operations of a Markestrated firm.
2 Analysis of marketing research studies.
3 Undertaking R & D projects.
4–6 Introduction of new Sonite and Vodite brands.
7–8 Consolidation in the Sonite market.
9 – 10 Consolidation in the Vodite market.

based on different key areas over periods. It is important that the administrator assimilate this
sequence well to foresee future developments in the simulation, and to prepare his
pedagogical activities in terms of these key areas.

I - Period I

The company reports at the end of Period 0 represent the initial situation, and the first set of
decisions thus concern Period I. In
the group sessions for this period, the participants should concentrate their efforts in
understanding the Markestrated environment and the operations of the firms. To this end, it
has been found highly desirable to give them the following information before they start
working on their first decisions:

- they are not allowed to give perceptual objectives for their advertising campaign as they do
not have the relevant information yet. The corresponding columns on the decision form
should be filled with the code number 99 to indicate that no repositioning is desired

- for the same reason, they are not allowed to launch R & D projects yet. The number of R &
D projects should be specified as zero and the corresponding entries on the decision form
should be left blank,

- they should be very conservative in making decisions for the first period. While they are
familiarizing themselves with their new environment, they should try to avoid taking any risk
which could jeopardize the future of their firm. Period I decisions should represent a conti-
nuation of the firms' policies during period 0.

The administrator can reinforce the learning objective of this period by asking to the teams
questions geared to the analysis of the Markestrated environment and of their firm: what was
the size of the budget for period 0? and how does it compare with the budget for period I?
How was the budget allocated for period 0? How does their firm compare to competitors in
terms of market share? Given their physical characteristics and prices, how are their brands
positioned relative to competitive brands? From which segments are they more likely to draw
sales ? What is the expected evolution of these segments? What is their sales forecast?

Period I is largely a "warm-up" period. Participants will refer often to the manual, and will go
through the company reports practically line by line. The decisions they must make are very
sim lr and drawl mainly on Exhibit 13 of the Participant's manual (General Background
Information) as well as the'company report. A typical decision-making process can go as
follows (ignoring the discussions, diversions, reading, and cross-checking which are all part
of the learning experience): keep the same number of salesman and the same allocation of
salesmen between channels; select marketing research studies to be purchased (only studies
for the Sonite market should be considered at this point in time); allocate remaining budget to
advertising, with the same proportional split between the two brands as in period 1; spend 5%
of the total advertising budget on advertising research, as this is an industry average; set the
recommended retail prices to follow inflation or the 102 average yearly price increase in the
Sonite market; to forecast sales in period 1, assume a constant market share, a total market
growth equal to the 35% average figure over the last three years, and qualify the estimate ac-
cording to the assumed positioning of the brand in the various segments; the production
planning estimate can then be deduced from this sales forecast and the inventory level at the
end of period 0; recognition of the fact that inventory holding costs are usually smaller than
costs of lost sales may then lead some teams to inflate their levels of production planning.
Given the pedagogical objectives of this period and the lack of information at the start, this
process is as good as any. Obviously, several iterations will usually be needed for a group to
reach consensus. The major arguments may center around the selection of marketing reserach
studies to be purchased. Some individuals will want to buy all available studies while others
would rather invest as much as possible in advertising. In fact, at this stage, it is in the interest
of the teams to buy the most relevant studies to understand their environment: studies I to 6,
12 and 13. The total cost of these studies is less than $400,000 compared to a total budget of 7
million MMUS. They represent less than 62 of the total budget and usually less than 8% of
the advertising budget. It will take a couple of periods before most of the teams realize that
the prices of the marketing research studies are very small compared to the total budget.
However, the real cost of these studies is the time which they take in analysis and discussions,
and this is certainly close to reality.

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2 - Period 2
The teams will have the first opportunity to analyze the results of marketing research studies
in period 2. Apart from the obvious familiarization with marketing research tools and their
use, an important advantage of these studies is that they incite the participants to think in
terms of more complex and realistic marketing phenomena than just the sales / advertising
response functions as is unfortunately the case with many marketing games. The main
elements of the market situation illustrated in these studies are the following:
- brand awareness (1 and 7)
- purchase intentions (1 and 7)
- shopping habits (1 and 7)
- attitudes (4 and 10)
- brand similarities (4,5 and 10)
- brand preferences and evolution of market needs (4,5 and 10)
- segments (1, 2, 4, 5, 6, 7, 8, 10, 11 and 15)
- distribution (1, 3, 7, 9, 13 and 14)
- competitive actions (12 and 13)
- test of elements of the mix (14 and 15)
- market forecasts (6 and 11)

The studies have been designed to illustrate these pedagogical points, while at the same time
keeping the complexity and volume of the outputs to a minimum. This has been achieved by
making a number of simplifications of the elements which had only a secondary pedagogical
role. Some of these simplifications_ are for instance: a global brand awareness figure, with no
indication of the awareness of specific brand characteristics or advertising themes, and no
significant observed difference between segments; only the three "most important" semantic
scales are given rather than the results of a complete semantic-differential questionnaire; the
two most important semantic scales are assumed to be practically orthogonal and similar to
the ones used for identifying the axes of the perceptual map; the stress level for the perceptual
map is assumed to be satisfactory for two dimensions, making possible a simple graphical
representation; the perceptual maps based on similarities data alone are also assumed to be
similar for all segments (which thus differ on preferences, but not on perceptions) which
simplifies the output of this study to one map instead of five; while brand perceptions and
ideal points evolve over time, the semantic scales classed as "most important" and the
interpretation of the perceptual map axes remain constant.

The game administrator will certainly be able to find many other simplifications that were
made in the design of Markestrated. An excellent exercise to test one's knowledge of the game
and mastery of the teaching situation is to make a list of the main simplifications one can find.
Simplifications have never been found to harm the game in previous administrations and, on
the contrary, a higher degree of complexity would be detrimental to the pedagogical process.
Participants will generally use research data for three main purposes:
- monitoring: checking the evolution of some critical values to identify problems which may
arise
- auditing: investigating the possible causes of some problems by examining and comparing
the results of the various studies/
- testing: measuring the effects of elements of the marketing mix on objectives in order to
guide action.

Use of the studies for monitoring and testing purposes is straightforward. Participants tend to
accept the high reported accuracy of numbers at the beginning, but they soon learn to discount
minor differences which may be due to measurement errors. One should note that participants
are sometimes surprised when using the results of the advertising or sales force experiments.
These experiments were run in the previous period, and extrapolating their results to the total
market for the following period obviously assumes that everything else will remain constant.
This is rarely the case, and possible competitive actions should be taken into account when
implementing a marketing plan based on the results of the experiments.
Use of the marketing research studies for investigating the possible causes of some problems
usually results in greater involvement, depth of analysis, and learning than their use for
monitoring and testing. At the beginning of the simulation, students may incompletely
analyze the marketing research studies and jump to conclusions. For instance, they may
attribute the cause of a small market share to an unsatisfactory awareness level, while
perceptual mapping, semantic scales, and purchase intention data may indicate a serious
product quality problem. However, they rapidly discover the need to systematically analyze
the market situation, and see that a marketing problem is more often due to a combination of
elements, rather than to a single one.

A procedure that the instructor may use to rapidly analyze marketing research studies when
confronted with a problem by one of the firms is the following:

- Awareness. Check the trend in the awareness level of the various brands as forgetting may
have caused a drop (study 1). Check the relative advertising budgets of these brands (study
12).

- Positioning. The perceptual map (study 5) gives a clear graphical representation of brand
similarities and preferences. The "design" dimension which is the third most important
semantic scale (study 4), but which does not appear in the perceptual map, should also be
checked in the evaluation of the brands.
- Purchase intentions. The analysis of the purchase intention figures for each brand in each
segment (study 1), in the light of the perceptual mapping and semantic scale data, provides
essential information about the relationship between positioning and marker share. It may
show in particular that a brand primarily directed to a given segment is also attractive to
another segment, because of the lack of more suitable brands, or because of their low
awareness. The comparison between the purchase intent and awareness figures should also
give a ,:rude evaluation of the respective merits of product improvement and communication
investments.

- Product availability in distribution channels. The shopping habits data (study 1) should be
used to investigate the coherence of the brand / segment strategy and the allocation of the
sales force. The evolution of a company's sales force should be analyzed relative to the
competition (study 13). The distribution panel (study 3) can be used as a global test of
coherence between the brand / segment strategy and the allocation of the sales force.

- Market share. Although the market share figures by segment (study 2) and by distribution
channels (study 3) are essential for control purposes, their explanatory power is more limited
than the above information. However, a comparison-of market share and purchase intent
figures may be used to investigate the effects of brand availability. In particular, if a brand
runs out of stock, the difference between the corresponding purchase intent and market share
figures may be used as a crude estimate of lost sales. On the other hand a market share higher
than the purchase intent value for a given brand is likely to be due to the unavailability of
competing brands.

3 - Period 3

Although most firms will have already launched R & D projects in Period 2, it is likely that
they will have more time to spend on this activity in Period 3, having a better control of the
management of existing products. The major issue in the management of the marketing / R &
D interface will be the difference between the perception of a brand and its physical
characteristics, between what the consumer wants and the manager's own definition of a
"good product". This "better mousetrap" phenomenon is largely discussed in marketing
courses and students can grasp very easily the marketing concept at the cognitive level. But
observation of the Markestrated teams at this stage of the simulation clearly shows that it has
been assimilated in varying degrees by different individuals, and that personal interpretations
of "product quality" are sometimes more prevalent than market considerations. This often
results in heated and valuable discussions, but these issues are soon clarified either through
the convincing arguments of some members of the team or( more expensively) by analyzing
why this otherwise "perfect" newly introduced brand did not live up to expectations.

The first common mistake made by students in launching R & D projects is to invest
resources in trying to "improve" some physical characteristics of the brands which do not
appear to be important to the consumers (for instance', the weight, volume, or maximum
frequency of the Sonites). The second one is to implicitly assume that increasing performance
will result in better market acceptance (for instance "the higher the power of a Sonite the
better") when in fact the needs of the various segments do not support this assumption.

When the students have resolved these issues, the next problem is to translate the perceptual
data into physical characteristics. Applying a linear transformation between the range of a
perceptual dimension (-20 to +20 on the perceptual map) and the feasible range of a physical
characteristic (0 to 100 for Sonite power) is certainly not appropriate. Instead one should
determine the physical characteristics of the existing brands positioned closest to the target
zone on the perceptual map or semantic scales to infer the physical characteristics of the R &
D project to be launched. This analysis should be repeated each period when new R 6 D
projects are requested, as the relationship between a physical characteristic and the
corresponding perceptual dimension may evolve because of changing consumer needs
(segment ideal points) or because of modifications in the set of existing products.

Specification of the cost characteristic requires special care. This characteristic represents the
average variable unit production cost incurred in manufacturing the first 100,000 units of a
new brand. Obviously, one should make sure that this cost is low enough to provide a
reasonable margin given the intended market price for the brand. On the other hand, if the
cost of the product is too low, it is possible that the intended price will not be accepted by the
market. In fact, the model will not accept a rice more than about four times the transfer cost of
the brand, and will automatically reduce it to that level if it is higher (in this case, the
appropriate message is given to the company). Conceptually, this may be explained by the
fact that the cost of a product (discounting engineering ingenuity and productivity gains)
represents to some extent a limit on the overall quality of the product. For instance, producing
a powerful Sonite at a very low cost will require sacrificing other features of the product such
as reliability. Although these features may not explicitly appear to be important to consumers,
they will certainly limit the price that consumers are ready to pay for the product.

Finally, a question that some students will ask is the following: "Given a project with the
following characteristics, what is a reasonable budget to complete it successfully within one
period ?" This is a difficult question to answer, in Markestrated as well as in practice. Apart
from the ranges specified in the student's manual, comparison of the required R & D project
with existing products, experience and trial and error are the only ways to, set the R & D
budgets, except if one takes the "all I can afford" approach. In fact, the functions which
specify the probability of success of a given R & D project are rather complex as they take
into account the characteristics of the firm's existing products as well as the difficulty in
reaching a given variable production cost. In addition, the outcome of a given R & D project
is subject to an unavoidable stochastic element, and the firm's willingness to take risk for a
given project may be determinative in specifying its budget.

The instructor may react to this question in three ways: by indicating that he does not possess
additional information and that each team should use its best judgment and learn over time;
by going with the team through the various considerations in setting the R A D budgets, such
as the differences in the physical characteristics between the project and the firm's existing
brands, the cost requirements, and the risk level that they are ready to take with the project;
finally by giving an estimate to the team. In the latter case, the instructor may use the
experience he has acquired in previous administrations of the game. He should take into
account the ranges given in the student's manual, adjusted for in flation, and should realize that
the experience gained by the R & D department in the undertaking of projects facilitates the
development of new ones in the future. Finally, the instructor should indicate that this
estimate represents his personal judgment given his own attitude toward risk, and that there is
no guarantee that the project be successful for any budget level. The instructor should charge
for his services to avoid a "pass the buck" situation in which students pass on responSICAlity
to the instructor for major decisions.

4 - Periods 4, 5 and 6

The introduction of new brands may create major disturbances in the markets. While in the
first periods the students have learned to master the Markestrated environment, to use the
marketing research studies, to launch It 6 D projects and to manage a small number of brands
in a growing but relatively stable market, they will npw have to take more risk and respond
to1aggressive competitive actions.

After having determined global product / market strategies, which have to be planned well in
advance and in fact before the launching of R & D projects, they will now have to develop
specific marketing programs for the introduction of new brands. Resources will have to be
allocated to the introduction of these brands and to the maintenance of the existing ones. A
fruitful learning exercise is the estimation of the expected market share of a new product at
the end of the introduction period. In this process, students will in particular have to estimate
the expected awareness level of the new brand resulting from a given advertising level,
consumer preferences for the new brand compared to competition, distribution coverage, and
the penetration of the various segments. This will most often result in an iterative revision of
the objectives and the resources allocated to the new brand.

Two extreme strategies may be used in the introduction of a new brand. The first one consists
in investing a maximum amount of resources to rapidly gain a high level of awareness and,
hopefully, a strong market penetration. In the second one, the objective is to test market
acceptance of the new brand, and minimum communication expenditures are involved. In this
fashion, the new brand will have a low awareness level and a low market share in the first
period, but the firm will be able to analyze whether the brand is correctly positioned and to
evaluate market reaction by comparing the purchase intent and awareness figures. If the
results are satisfactory, the firm may invest heavily in the brand in the following period.
Otherwise, a repositioning of the new brand will be relatively easy to achieve given its low
awareness level. Conceptually there are many analogies that one can draw between these two
approaches, and regional vs. national introduction, or skimming vs. penetration strategies.
Most importantly, the second strategy is less risky in terms of investments and inventory plan-
ning and gives more posSICAlities for corrective actions. Penetration is however slower to
achieve, and it leaves more time for competitive reactions.

In the Sonite market, introduction of new brands is likely to stimulate primary demand. This
effect will be greater if the new brands are well differentiated from existing ones and if they
are better adapted to segments which have been somewhat neglected in the past.

Entry to the Vodite market is-more risky than introducing a new Sonite brand in several
respects:

- the "needs" of the consumers as expressed in the semantic scales are given in the absolute
and cannot be compared with Vodite brands as they do not exist at the beginning. The
determination of appropriate physical characteristics for R & D projects at this stage must rest
largely on judgment, and one should expect many prudent adjustweuts for the early periods of
the development of this market;

- the forecasts for the Vodite market are expected to he highly inaccurate and somewhat
optimistic until more experience is gained in this market.

- the first companies to launch Vodite brands must develop the market, and this may benefit
late-comers.

The Vodite market should be expected to be rather unstable and somewhat unprofitable
during the first periods of its development and some companies may wait and learn from the
competitors' mistakes before mak ing their entry. On the other hand, an entry too late may be
unsuccessful or at least very expensive if positions of competitive brands are already well
established. Finally, one should note that differences between segments are not significant,
contrary to the Sonite market.

5 - Periods 7 and 8
After having launched a number of new brands, some companies will discover that they have
dispersed their resources and that their better brands may loose market share.

They may have reached the maximum number of five brands which they can carry and they
may be forced to eliminate an existing brand in order to be able to launch a new one. In
addition, price controls which have been established by the Government since Period 6 may
create cash problems for some of the firms. This will induce the teams to consolidate their
activities, reallocate their resources with more discrimination, and to prune the product line.

By this time a market leader for Sonites is likely to have emerged, calling forth defensive
strategies, for instance, using multiple brands to protect a position in a segment or by building
up marketing entry costs for a particular segment. Other firms may try to fight the leader
or to consolidate their positions in less attractive segments of the market. In a market which is
globally reaching maturity,one is also likely to witness a shakedown period where some
companies want to pursue their growth at the expense of the weakest competitors through
price wars or better control of the distribution channels.

During this period, the Vodite market experiences a high rate of growth, and several
companies may have elected to invest a good part of resources accrued in the Sonite market in
Vodite brands.

6 - Periods 9 and 10

By now, a number of brands have well-established positions in the Vodite market, while
several other ones have been the victims of rapid technological progress in a fast-growing
market. This market is reaching maturity and becomes more price sensitive. It appears that to
survive in this market in the long run, a brand needs to be cost effective. If the firms now in
the Vodite market have offered brands which are well adapted to the needs of consumers, if
they have reached high productivity levels, and if they have developed the market to its full
potential, it is unlikely that a newcomer can successfully enter the Vodite market at this point.

ROLE OF THE GAME ADMINISTRATOR

In the course of the simulation, the game administrator plays a number of roles which can be
grouped under four headings: class activities, monitoring of the learning experience, external
partner to the Markestrated firms, and running of the simulation.
I - Class activities

At a minimum, two class sessions need to be planned in the administration of Markestrated:

an introduction to the game before the first set of decisions, and a final wrap-up session at the
end of the simulation. Other class sessions can be planned between the decision periods to
discuss marketing strategy concepts illustrated in Markestrated. In particular two review
sessions, on segmentation and positioning and the marketing strategy process, have been
found to be beneficial to the overall learning experience. Possible outlines of these class
sessions are given in the following pages.

In most courses, with the exception of executive programs, the instructor will have to give a
formal student evaluation in the form of a grade. This grade can be given on the basis of the
firms' overall performance or, pre ferably, on the basis of a team report presenting an analysis
of their performance over the course of the simulation, the strategies pursued, the adjustments
made to changes in the environment, their conclusions in terms of the key learning points, and
plans for the future. It can be suggested that they present this report as a document to help the
oew tam wh,rh witl take over the management of their firm. There should be a minimum of
one week between the time they receive the results of the last simulated period and the
deadline for submitting the report. Other grading procedures can obviously be selected but
one should be particularly careful that they are not detrimental to the learning experience. In
particular, designing an "automatic" grading procedure in which a grade is given on the basis
of a mathematical transformation of performance criteria (i.e. final market share, contribution,
or return on marketing investment, compared to their initial values or SEFA-assigned
objectives) will inevitably induce "game beating" behavior at the expense of learning
activities. Likewise, the assignment of individual grades on Markestrated, rather than team
grades, will enhance individual initiatives at the expense of group learning.

2 - Monitoring of the learning experience

The teams can be left to work by themselves, in which case the only interaction of the
instructor with the students over the course of the game is the collection of the decision forms
and the distribution of the company reports for each period. The value of the pedagogical
experience may be increased, especially when Markestrated is administered over a short
period of time, if the instructor is attentive to the following points:

a) Going over the returned decision form with each team. In addition to following a firm's
activities and enquiring about the supportive rationale, the instructor can pinpoint flagrant
errors which could place the firm in a difficult position and reduce the learning motivation of
the team members. For example, one can rapidly check the number of brands, R d D projects
and marketing research studies requested; the reasonableness of the production planning and
advertising. budget levels (i.e. errors in the units used), and completeness of the decision
form.

b) Stimulating learning by asking questions . Asking questions of the managing team of a

Marstrat firm is a good way to check if they have considered the relevant issues, and to
stimulate their analysis. The instructor will have no difficulty in coming up with a large
number of possible questions such as: Do you know the marketing budget of your firm in
period 0 (while the team is working on the decisions for period 1)?

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¿Have you estimated the marketing budget of your main competitor ? What would happen if
the advertising budget of a given brand was drastically reduced (for instance for a well
established brand in a mature market )? Why did you select this specific allocation of the sales
force across channels ? Did you estimate the level of lost sales (in a stock-out situation)? This
questioning should be kept within limit for a given firm in a given period to avoid submerging
them with new issues.

c) Helping the laggards. Some teams may lag behind the other ones in mastering the
marketing strategy concepts, or may be unable to recover from a difficult situation. In this
case, the remainder of the simulation may be pedagogically more rewarding to them if they
receive some help from the instructor, and this will give a greater challenge to their
competitors at the same time.

d) Encouraging planning activities. Planning activities should be encouraged, for instance by

requesting copies of the planning and budgeting forms any time the instructor is consulted on
a specific problem.

e) In the last set of decisions, the students should be requested to purchase the complete set of
marketing research studies in order to be able to make a detailed analysis of their firm's
situation at the end of the simulation.

3 - External partner to the Markestrated firms

The instructor plays the role of various partners to the Markestrated firms: consultant on
specific problems; marketing research firm for "crash" marketing research studies when a
team forgot to request them in due time on the Decision Form; chief executive officer for
changes in the marketing budget; export firm to liquidate obsolete inventories; and justice
court to settle espionage or cartel cases and assign fines. In each of these situations, the firms
concerned will negotiate with the instructor. The instructor is obviously entirely free in his
decisions, but the following may be useful as initial guidelines:

a) Crash marketing research studies. Each "crash" study may be charged at a 50%
premium compared to its regular cost in the current period.

b) Consulting fees. Consulting fees may be araigee! in the tango of the marketing
research studies costs for the current period, depending on the importance of the contribution
given to the team. The a("pe and the price of the consultancy should be clearly established
beforehand, an the outcome of this type of service is most often intangible.

c) Fines. Fines should be set to represent a noticeable part of the marketing budget,
without limiting too drastically the scope of activities of the penalized firm. For instance, a
fine should be set for each minute of delay in the submission of the decision form, in such a
way that a ten-minute delay represents around 10% of an average marketing budget for the
current period. In the first period this fine may be set at $ 100,000 per minute of delay. In fact,
fines are mainly used as a deterrent to misbehaviour but rarely need to be enforced.

d) Budget increases. Budget increases should be given on the basis of a sound

marketing plan. They induce the students to take more initiatives and to be more creative than
if they had to stay in the limits of the budget which is automatically allocated. If no major
flaw can be detected in the proposed marketing plan, the requested budget increase should be
granted with the following limitations, in order to protect competition: if a firm has already a
budget substantially higher than its competitors, it should not receive any additional funds; the
total marketing resources of a firm receiving an additional budget should not significantly
exceed those of the firm having the highest budget for the current period; and, finally, a firm
should not receive an additional budget for more than two successive periods, as money
should not be perceived as a substitute for thinking. It is best to avoid awarding budget
increases until the Period 3 decisions.

e) Obsolete inventories. Obsolete inventories, when a firm wants to withdraw a brand

from the market or to modify it, can be purchased for from 10% below to 10% above transfer
price. The instructor may specify that his "export firm" is ready to purchase these stocks for a
one-shot action in markets outside the Markestrated world, which will in no way affect the
Markestrated markets.

These adjustments do not need to be very accurate, and the instructor should make his
proposals readily, without spending tier in detailed computations.

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4 - Running the simulation

After having gathered the decision forms of all five firms in a given period, the instructor will
have to input these decisions to the computer, and run the simulation model which generates
the company reports. This procedure is explained in detail in Chapter IV of this manual.

Before entering the decisions, the instructor will need to fill in the two cells in the bottom
right-hand corner of the decision form.

The left-hand cell may contain an exceptional coat (negative number) or an exceptional profit
(positive number), and the right-hand cell may contain a budget reduction (negative number)
or a budget increase (positive number). These values should be expressed in thousand $ and
allow the instructor to input all results of his negotiations with the teams. These values are
obtained directly from the back of the decision form which recapitulates the negotiations for
the current period. If no exceptional cost or profit or budget change has been noted, the num-
ber zero should be entered in the corresponding cell.

On the back of the decision form, one should note that various actions may result an
exceptional profit or lost, or in a budget change, or in both. An exceptional prufit or lost will
affect the net marketing contribution of the firm in the next period, but does not change the
level of its marketing resources for the current period. On the other hand, a budget
modificatti_Q will change the funds available for marketing activities in the current period,
but will not affect directly the net marketing contribution in the next period. Thus, if a firm is
granted a budget increase, this should be indicated only as a budget change; if it sells obsolete
inventory to the instructor, this will be represented only as an exceptional profit (in this case,
the marketing department will also automatically incur an exceptional cost, equivalent to the
value of the inventory at transfer cost, resulting from the accounting transfer of the inventory
from the production department to the marketing department); if it buys some information
from the instructor, this will be represented both as a budget reduction (to decrease the level
of resources remaining for other marketing activities), and as an exceptional cost (to include
the payment for the study in the contribution statement).

INTRODUCTORY SESSION

The purpose of this session is to present the Markestrated exercise to the students, to organize
the teams and to give them the necessary information to start making decisions for the first
simulated period. Students should have read the participant's manual before the class. The
following is a possible plan for the introductory session;
I - Objectives of the Harkstrat exercise
The objectives of the Markestrated exercise should be presented in the context of the course in
which it is administered. These objectives can be defined in terms of the concepts illustrated,
the advantages of a simulation compared to the more traditional pedagogical tools used in the
remaining of the course, and in terms of group behaviour.. In addition, the general
characteristics of Markestrated can be presented by comparing them to other games that the
students may know, or may have previously used. Finally, if a grade is given for the
Markestrated exercise, the grading procedure and the relative importance of this grade for the
course should clearly be indicated.

2 - Presenting the outline of the Markestrated exercise

The instructor should emphasize the following points:

- need to respect the deadline for each set of decisions

- importance of penalties for delays in submitting the decision form
- time periods at which the instructor is available for consultation
- presentation byeach firmof theirexperience at the endof the simulation.

3 - Presentation of the Marstrat simulation

This presentation should recapitulate the main elements of the simulation, as the students will
unavoidably feel that they have not assimilated all the information contained in the
participant's manual. The transparen cies included in Appendix II may be used as a basis for
the presentation. Thet are organized around the following themes:

- Markestrated objectives,
- the Harkstrat world,
- market structure,
- company organization,
- operating instructions.

- 27 -

The instructor should select the transparencies that he finds most appropriate, as the complete
set is too large for a single session. In particular, all transparencies dealing with R & D, brand
modification or perceptual objectives for Vodites may be kept for another session, as they are
not of direct interest for the initial periods. Finally, the students should be reassured that it is
absolutely normal if they have not yet assimilated all information contained in the manual.
The set of decisions for the first period is purposefully limited (no R & D, no perceptual
objectives) so that the teams may concentrate on learning the basic elements of the Markatrat
simulation.

4 - Organization of industries and teams

The teams may be formed by the instructor or by the students themselves. Each team should
not be composed of more than eight students. Given the size of the class and five firms in
each industry, the instructor may choose the number of industries required to run the
Markestrated simulation, as well as the average team size. It is recommended that a team size
of five be considered as optimal. Each team should then be assigned an industry number and a
firm number. If time and the number of students per team allow it, the instructor may take the
challenge of managing one of the Markestrated firms by himSEFA.

5 - Distribution of the starting situations

After the teams have been assigned, the company reports for Period 0 which represent the
initial situation can be distributed to the corresponding firms. The instructor may wish to
indicate that the teams are replacing the previous management, and that they should take the
first couple of periods to familiarize themselves with the market and the operations of their
firm before making any drastic changes.

CLASSROOM DISCUSSIONS

The purpose of these class sessions is to ensure that all students have mastered the basic
concepts and have seen how to use them in the formulation of the marketing strategy. The
sessions should decrease the competitive advantages of the more advanced groups, but
increase the pedagogical benefits for all students and the competitive challenge. The sessions
can be handled as a lecture or as a discussion between all students. In the latter case, the
instructor should encourage students to contribute and expose the main elements they use in
their own analysis. Because of the competitive situation, this will usually take some
provocative questions and good humor. Alternatively, questions can be asked by the game
administrator of each group separately, to check that they have considered the main concepts.

I - Segmentation and positioning

This session should ideally be scheduled at a time between the second and fourth set of
decisions. The first two parts of the session are reviews of segmentation and poses iti u ng
concepts, as they are found in marketing textbooks. They maybe rapidly reviewed as they will
usually have been previously covered in a marketing course. The bulk of the session should
be devoted to the third part where the experience gained in the first Markestrated decisions
may contribute best to the active application of segmentation and positioning concept.

Session outline

Review of segmentation:
- the purpose of segmentation,
- criteria for segmentation,
- segmentation methods.

Review of positioning:
- the concept of product positioning,
- measurement of product positioning through scaling,
(should cover semantic scales and perceptual mapping)
- strategies for product positioning and repositioning.
 Implementation of segmentation and positioning concepts in the selection of product /
market positions. A list of elements which should be considered in the evaluation of
product / market positions can be made with the participation of students. Specific
examples can be drawn from the Harkstrat experience inn the preceding periods.

Background readings

* Assael, A. "Perceptual Mapping to Reposition Brands"

Journal of Advertising Research, February 1977, pp. 39-42.

- 29 -

* Barnett, N.L. "Beyond Market Segmentation",

Harvard Business Review, vol. 47, January-February 1969,
pp. 152-166.

* Beik, L.L., and Buzby, S.L.. "Profitability Analysis by Market Segments",

Journal of Marketing, vol. 37 (July 1973),
pp. 48-53.

* Doyle, P. "Nonmetric Multidimensional Scaling: A User's Guide",

European Journal of Marketing, 1973, pp. 82-88.

* Foote, N.N. "Market Segmentation as a Competitive Strategy",

in J.F. Engel, H.F. Fiorillo. and M.A. Cayley (Eds.),
Market Segmentation, New York: Holt, Rinehart and Winston,
1972, pp. 49-59.

* Haley, R.I. "Benefit Segmentation: A Decision-Oriented Research Tool",

Journal of Marketing, vol. 32, July 1968, pp. 30-35.

* Johnson, R.M. "Market Segmentation: A Strategic Management Tool"

Journal of Marketing Research, vol. VIII (February 1971)
pp. 13-18.

* Perry, M., Izraeli, D., and Perry, A. "Image Change as a Result of Advertising",
Journal of Advertising Research, February 1976,
pp. 45-50.

* Smith, R.E., and Lusch, R.F. "How Advertising Can Position a Brand",
Journal of Advertising Research, Vol. 16 February 1976, pp. 37-43

* Wind, Y., and Robinson, P.J. "Product Positioning: An Application of Multidimensional

Scaling", in R.I. Haley, ed., Attitude Research in Transition, American
Marketing Association, 1972.
2 - The marketing strategy process

This session should be scheduled at least three periods before the end of the game, so that
students may benefit from it in making their decisions. It should particularly emphasize the
benefits for long-term marketing planning, and draw examples from previous periods in the
Markestrated simulation.

- 30 -

Session outline
Setting objectives. The meaning of market share as a marketing objective.

Analysis of opportunities. Add longer term considerations to the segmentation and positioning
elements discussed in the previous session:, environmental changes, evolution in consumer
needs, product / market life-cycles...

Elaboration of a marketing strategy and a marketing plan.

- the need for a marketing strategy,
- matching marketing opportunities and corporate ressources
- the selection of product / market strategies;
- the planning of long term activities and allocation of resources.

Implementation of the marketing plan

- coordination with other departments of the firm, in particular R d D;
- elaboration of marketing programs;
- contingency planning,

Evaluation of marketing performance and adaptation of the marketing plan.

Background readings
Ansoff, H.I. "Strategy as a Tool for Coping with Change",
Journal of Business Policy, Vol. I, Summer 1971, pp. 3-7.

Bloom, P.N., and Kotler, P. "Strategies for High Market Share Companies",
Harvard Business Review, Vol. 53, November 1975, pp. 63-72.

Brien, R.H., and Stafford, J.E. "Marketing Information Systems: A New Dimension
For Marketing Research," Journal of Marketing, vol. 33, July 1968, pp. 19-23.

Buzzel, R.D., Gale, B.T., and Sultan, R.G.M. "Market Share:

A Key To Profitability," Harvard Business Review, vol. 53, January 1975, pp. 97-106.

Catty, B., and Chevalier, M. "Market Share Strategy and the Product Life-Cycle,"
Journal of Marketing, Vol. 38, October 1974, pp. 29-34.

- 32 -
. Cravens, D.W. "Marketing Strategy Positioning,"
Business Horizons, Vol. 18, December 1975, pp. 53-61.

Fogg, C.D.'Planning Gains in Market Share,"

Journal of Marketing, Vol. 38, July 1974, pp. 30-38.

Hedley, B. "A Fundamental Approach to Strategy Development,"

Long-Range Planning, Vol. 9, No. 6, December 1976, pp. 2-II.

Hedley, B. "Strategy and the Business Portfolio,"

Long-Range Planning, Vol. 10, February 1977, pp. 9-15.

Hopkins, D.S. "New Emphasis in Marketing Strategies,"

The Conference Board Record, August 1976, pp. 35-39

Kotrba, R.W. "The Strategy Selection Chart,"

Journal of Marketing, Vol. 30, No. 3 (July 1966), pp. 22-25.

Rossotti, C.O. "The Concepts of Long-Range Planning: An Analysis of Current

Practice," Boston, Mass.:. The Boston Consulting Group.

Shoeffler, S., Buzzell, R.D., and Heany, D.V., "Impact of Strategic Planning
on Profit Performance," Harvard Business Review, Vol. 52, March 1974, pp. 137-145.

Woodruff, R.B. "Market Opportunity Analysis: A Systematic Approach for Practical

Applications," Business Horizone, Vol. 19, No. 4 (1976), pp. 55-65.

3 - Common problem areas

In previous administrations of Markestrated, we have repeatedly observed that some teams lag
behind other ones in mastering some of the issues. The issues for which this effect has been
most important are listed below. The instructor may choose to raise some of them in class
discussions or during his interactions with the teams:

a) Limited purchase of marketine research studies. Students should realize the importance of
these studies in understanding market behavior, and their moderate coat relative to the total
marketing budget. They should recognize that the real cost of the studies is the time it takes
to analyze them, given the limited time available for making decisions.
b) Difficulties in forecasting brand sales. This requires analysing and integriting a number of
elements such as market growth, awareness, purchase intentions, distribution coverage and
competitive actions.

c) Taking too much risk. In particular, launching a new brand with a high penetration strategy
and inadequate preparation often results in excessive inventories and is usually an expensive
experience. Although it leaves time foi competition to react, test marketing a new brand first
by introducing it smoothly with a moderate advertising budget is sometines preferable,
especially with limited marketing budgets.

d) Scattering resources. Some companies tend to launch more brands than the number they
can satisfactorily maintain with their resources.
e) Failure to prune the product line. Some firms are satisfied to keep a brand as long as it
generates a minimum level of sales, when in fact a crude economic analysis indicates that the
resources it requires would provide a much higher return if used for other brands.

f) Underinvestment in R & D. The teams should recognize that successful R & D projects are
a scarce resource, that they take a minimum of one period to be available, and that prompt
reaction to competitive actions often requires the availability of new products for introduction.
Underinvestment may be reflected in terms of the budget allocated to a given R & D project,
or by the fact that firms search only for the products which they are sure to introduce later. It
may be more desirable sometimes to think in terms of a pool of available R & D projects,
some of which correspond to planned marketing actions, and others which are maintained to
respond to competitive actions or new market developments.

g) Superficial analysis of the perceptual map. A superficial analysis of the perceptual map
may provide erroneous interpretation of brand penetration in the various segments, and of
competitive structure. This should be cross-checked with awareness, purchase intent and
consumer panel data. In add1tion', some firms may take a long time to recognize the evolution
of the ideal points on the perceptual map, and the importance of the third dimension (Design)
which appears in the semantic scale study but is absent from the perceptual map.

h) Advertising for mature brands. Some firms may invest large advertising budgets on mature
brands, especially if they think in terms of an advertising/sales ratio. Although this will
undeniably protect the brand from competition and raise entry costs, such a brand already has

- 33 -

a high awareness level and can hardly be repositioned. It may be more appropriate to transfer
at least part of the resources to other brands in the introduction or growth stages, and consider
the mature one as a "cash cow".

i) Concentrating on absolute rather than relative marketing investments. Some

students concentrate on the absolute marketing investments they make, comparing them with
the corresponding amounts in the previous periods. This fails to recognize the evolution in
competitive practices. A more appropriate approach is to follow the magnitude of these
investments compared to total industry marketing investments, for example, the share of
advertising expenditures for a brand in the market or the size of the firm's sales force
compared to the total number of salesman in the industry.

j) Integrating inflation in marketing decisions. With the observed inflation rates in the
Markestrated world, the consumer price index increases by approximately 250 percent from
Period 0 to Period 10. Some firms do not realize this effect when comparing prices, net
marketing contributions or budgets over time, and the evaluation of their own progress is
therefore over-optimistic. They should recognize that a $ 2 million advertising budget in
Period 8 only buys half of the advertising space resulting from the same budget in Period 0.

k) Analysis of opportunities. Firms tend to analyze product/ market opportunities in an

absolute fashion, discounting the fact that competitors are performing exactly the same
analyses. As a result, competition tends to be rather intense in segments 3 and 4 which appear
to be more profitable, and segments 1, 2 and 5 are seriously considered only later in the
simulation. Firms with more limited resources could benefit by entering these segments
earlier, after having performed appropriate R & D projects which would ensure them a
comfortable margin in these segments.

l) Imitation vs. innovation. Most firms will usually define the desired characteristics of
new brands by analyzing in detail the basic marketing research data. Most of the time they
will try to launch new products which represent differentiated advantages compared to com-
petition. This is certainly a very good strategy in most cases. One should also recognize that,
when a very successful new competitive brand has been introduced on the market, the easiest
and sometimes most efficient approach is to imitate it plainly and benefit from its experience.
As a matter of fact;, an instructor achieved very reasonable results in one administration of
Markestrated by following this simple strategy without buying any marketing research
studies.

m) Market maturation. As the Sonite market matures, it becomes more and more
difficult to introduce new brands, to gain awareness and a profitable market share level. Many
firms will not have forecast this phenomenon and may persevere in making plans for the
introduction of new brands along the same lines as they used to do in the growth period.

FINAL SESSION

This session should be scheduled to leave sufficient time after the distribution of the last
period's results for each team to analyze their performance over all periods. The instructor
will have to decide on the importance to give to each part of the following session outline,
depending on the time available.

1 - Presentation of general results by the instructor

The purpose of this presentation is to describe the overall development of the

simulated Markestrated industry over the course of the game, as a background to the group
presentations. The evolution of the following elements from Period 0 to the end of the game
can be presented, preferably on transoarettciea
- ideal points for each segment, for Sonites and Vodites, noting the lack of observed
differentiation between the needs of the various segments in the Vodite market;
- industry sales per segment;
- major events in the Markestrated industry (such as price controls, entry in the Vodite
market, and major shifts in competitive strategies);
- total industry investments (number of brands, advertising expenditures, sales force,
average price index, R & D budgets);
- global performance (company market shares and net marketing contributions).

- 35 -
If several industries were simulated, the instructor may compare their evolution, and
pinpoint major differences. The data necessary to support this presentation may be obtained
from the complete output obtained by the instructor for each period, or by running an
"automatic analysis" computer program, available with the Markestrated package. This
program, described in Chapter IV, presents in tabular and graphical form the evolution of key
data over all periods of the simulation. In any event, the instructor should tell the students
beforehand exactly what material he will present in order that students can focus on the
material that they can present to build upon the instructor's presentation.

2 - Group presentation

The preparation of this presentation and the exchange of experiences in the classroom
is a major learning aspect of the Markestrated exercise. As previously indicated, each group
may consider its presentation as a briefing to the new team which will take over the
management of their firm, and should include the following elements:
- analysis of past performance;
- main strategies pursued;
- main adjustments made to changes in the environment;
- key points learned through past successes and failures;
- recommendations for the future.

If the presentations are well prepared In advance on paper charts or transparencies,

each team can do a good job in fifteen minutes, and the instructor may choose the number of
groups to call on according to the time available for the session.

3 - Overall description of the simulation model structure

The instructor may present some aspects of the simulation model, for instance, its
general organization, and some specific elements of interest such as the treatment of
repositioning through advertising. These may be extracted directly from Chapter V. The
purpose of this presentation is to satisfy the understandable curiosity of the students, and to
show that the model interactions are such that a good understanding of marketing concepts is
more essential to succeed in the management of a Markestrated firm, than trying to find out
the model formulation of a specific relationship.
In fact, this part does not need to be developed extensively as the objective of the
Markestrated simulation is to teach marketing strategy concepts and not marketing modelling.
What is essential is the behavior of the simulation for an "outside" observer, and not the
treatment of specific interactions inside the model. Moreover, students will be more satisfied
with only a general presentation of the simulation model structure.

4 - Conclusions

The instructor will obviously have to draw and present his own conclusions, according to the
objectives of the Markestrated exercise in the context of his course. It is however desirable to
spend some minutes to discuss the transferability of marketing strategy concepts learned with
Markestrated to other cases or practical situations to which students will be exposed in the
future. In particular, one may distinguish between specific characteristics of the Markestrated
world (such as segment definition, growth rates, company organization, and availability of
marketing research data) and concepts of a more general nature.

- 37 -

Chapter III
 THE STARTING SITUATION OF THE MARKESTRATED FIRMS

It is a particular characteristic of the MARKESTRATED simulation that the five

competing firms start in different situations. These starting situations are defined in the
Company Reports for Period 0 which are generated by the MARKESTRATED computer
programs and distributed to the corresponding teams. In addition, the instructor will
automatically obtain the complete net of errketing research studies for Period 0 when running
the computer programs for the first time. The purpose of this chapter is to analyze the
characteristics of the starting situation so that the instructor may readily comprehend the types
of problems that each firm faces and anticipate their possible courses of action.

CHARACTERISTICS OF THE INITIAL ENVIRONMENT

In Period 0, the GNP growth rate is 4 Z and the inflation rate 9 Z. These conditions
will prevail in the following year. The total Sonite market is equal to 872,000 units and $ 342
million at retail level. It is expected to grow at the rate of 30 Z in the following years.

As indicated in Exhibit 3.1, the five segments are relatively comparable in size from
113,000 units to 211,000 units. However, their expected rates of growth vary widely from - 5
Z to 60 Z. In addition, they present significant differences in profitability. For example, the
price ranges dominating in segments 5 and 3 are $ 195-340 and $ 420-485, respectively.
Segments 3 and 4 are the most profitable markets, followed by segments I and 2. Segment 5 is
the most price-conscious one.

Consumers in segments 2 and 4 tend to shop to a large extent in all three distribution
channels, while segments 1, 3 and 5 tend to favor two of the three channels. Trying to reach
several segments will imply greater dispersion of the sales force across the three channels
depending
on the nature of the selected segments. It should be noted in particular that a strategy aiming
uniquely at segments 3 and 5 will allow a concentration of the sales force on channels 2 and 3.
Overall, a greater proportion of potential consumers would tend to prefer to buy a Sonite in
channel 3.
 Exhibit 3.1

MARKET CHARACTERISTICS IN PERIOD 0

Size Proportion of Expected Dominant Shopping Habits

(thousand total rate of price (% potential consumers indicating
units) Sonite growth range preference to shop in a given
market (%) (%) distribution channel)
(%) Channel 1 Channel 2 Channel 3
Segment 1……. 199 23 -5 340-485 .60 .07 .33
Segment 2……. 113 13 20 278-420 .38 .18 .44
Segment 3……. 201 23 50 420-485 .05 .62 .33
Segment 4……. 148 17 60 420-485 .24 .46 .30
Segment 5……. 211 24 30 195-340 .06 .31 .63
TOTAL SONITE 872 100 30 195-485 .25 .34 .41
MARKET…

- 39 -

COMPARATIVE ANALYSIS OF THE FIRMS' STARTING SITUATIONS

Globally, the starting situations of the five firms are similar on many dimensions, as
indicated in Exhibit 3.2. In period 0 firms have unit market shares ranging from 18 to 22%,
marketing expenditures from 5 to 5.3 million MHUS, sales force from 50 to 66 salesmen, and
they all have a budget of $ 7 million. They however are positioned in different segments, and
this is reflected by larger differences in the retail sales volumes, market shares based on value,
revenues, marketing expenditures levels as a proportion of revenues, and net marketing
contributions.

The differences become particularly important at the level of individual brands, as

indicated in Exhibit 3.3. Market shares on value vary between 2 and 21 Z, and each firm has a
strong brand and a weak one in terms of market share and gross marketing contribution. The
market shares in each of the five segments, the distribution coverage in each of the three
channels, and the price levels seem to imply very different segmentation and positioning
strategies.

The awareness levels of the 10 brands available 33 Z for SUXI and 73 Z for SICA.
The firms have each spent $ 4 million in advertising, allocated in different ways between their
two brands. Each brand has a different inventory level. It should in parti,ular be noted that a
zero inventory level may reflect an out-of-stock situation, implying lost sales, or may
represent a minimum end-of-year inventory. This may easily he seen by comparing the actual
production level and the production planning requested. If the actual production level is
smaller than the requested production planning plus the maximum adjustment of 20%, the
zero inventory level does not represent an out-of-stock situation. This is the case for all the
brands with zero inventories in Period 0.
 Exhibit 3.2

Firm characteristics in Period 0

FIRM 1 FIRM 2 FIRM 3 FIRM 4 FIRM 5

1. Retail sale (million $) 49 86 55 87 65

2. Market share (% based on $) 14 26 16 26 19
3. Unit sales (thousand units) 151 192 184 190 154
4. Market share (% based on units) 18 22 21 21 18
5. Revenues (million $) 30 53 34 54 40
6. Marketing expenditures (million $) 5.3 5.3 5.5 5.3 5
7. Marketing expenditures (% of revenues) 18 10 16 10 11
8. Sales force (number of salesmen) 60 60 66 60 50
. Channel 1 4 25 6 20 15
. Channel 2 40 25 30 20 20
. Channel 3 16 10 30 20 15
9. Net marketing contribution
(million $) 6.5 15 11 14 10
10. Marketing budget Period I
(million $) 7 7 7 7 7

- 41 -

Exhibit 3.3

Brand characteristics in Period 0

SAKA SATO SERI SEFA SIMO SICA SOLO SONO SUXI SUTE

1. Retail sales 28 21 70 16 11 44 65 22 7 58
(million $)
2. Market share 8 6 21 5 3 13 19 7 2 17
(% based on $)
3. Unit sales 101 51 168 25 51 129 134 56 31 123
(thousand units)
4. Market share 21 6 19 3 6 15 15 6 4 14
(% based on units)
. Segment 1 4 5 24 6 4 8 13 16 3 16
. Segment 2 12 11 8 2 8 34 6 4 7 7
. Segment 3 1 5 38 2 1 2 23 6 1 22
. Segment 4 1 7 21 3 1 3 35 4 1 24
- Segment 5 35 4 2 1 16 31 2 1 7 2
5. Distribution coverage 43 44 37 36 40 40 34 34 31 34
(% stores carrying brand)
. Channel 1 15 15 51 49 22 21 46 46 38 41
. Channel 2 46 48 37 36 41 41 32 32 30 33
. Channel 3 35 36 26 25 49 49 40 40 33 35
6. Awareness 61 54 54 50 71 73 50 37 33 63
(%)
7. Advertising budget 1.5 2.5 2.5 1.5 2 2 2 2 1 3
(million $)
8. Retail price 278 420 420 635 195 340 485 400 225 470
($)
9. Inventory 19 45 0 55 25 0 0 24 49 21
(thowsand units)
10. Selling price 171 259 261 390 120 109 301 246 138 292
($)
11. Unit transfer cost 104 138 155 230 57 103 165 207 80 175
($)
12. Unit contribution 39 47 41 41 52 49 45 16 42 41
(% selling price)
13. Gross marketing con- 5 3 15 1 1 12 16 0 0 11
tribution (million $)

- 42 -

EVALUATION OF THE STARTING SITUATION FOR EACH FIRM

Firm I has the smallest market share of the industry, based on unite SOLO (18 Z) or retail
sales (14 Z). The unit sales of brand SAKA are dowilde those of brand SATO. SAKA is the
leader in segment 5 with 35 Z unit market share, while the market share of SATO in each
segment is smaller than one third df the leading brand in this segment. The unit contribution
for SATO is however higher than for SARA, and SATO represents nearly 40 Z of the total
gross marketing contribution of the firm.

This total gross marketing contribution is the smallest of the industry, and Firm I will have to
watch carefully its bottom line results to have sufficient resources to survive in this industry.
One possible course of action may be through price increases. Exhibit 3.4 contains the
perceptual map for Period 0 which may be obtained through Marketing Research Study 5. The
two axes correspond to Economy and Power. Each number on the map represents the position
of the corresponding segment's ideal point, and each name represents the position of the
corresponding brand. It appears from this perceptual map, that price increases for SAHA or
SATO will take these brands away from the ideal points of the segments in which they are
stronger, and will certainly result in a market share decline. A more desirable route for SARA
is likely to be cost reduction, through R & D and/or !increased volume and experience effects.
The positioning of SATO appears to be weak and Firm I could seriously consider milking this
brand to invest in SAKA and in the development of new brands. Its main competitor is Firm 3
with the SIMO and SICA brands. SAKA will require substantial marketing support, and an
increase in its Power characteristics to keep its current position. In addition, it may benefit
from a partial reallocation of the sales force from channel 2 to channel 3, given the shopping
preferences of segment 5.

SERI from Firm 2 is the leading brand in the Sonite market with 19 Z market share based on
units.. It is in particular the leading brand in segments I and 3, and has also a strong share of
segment 4. It is highly profitable and represents 94 Z of the firm's gross marketing
contribution. The other brand commercialized by Firm 2 is the most expensive Sonite on the
market, and sells at $635 retail price. It has the lowest sales volume in the industry (3 Z
market share based on units) and does not have a strong foothold in any segment. This low
volume makes it hardly profitable despite a high unit contribution. A price reduction in SEFA
would certainly result in a greater sales volume, but this could be achieved at the expense of
SERI, as the two brands of Firm 2
 - 43 -

Exhibit 3.4

PERCEPTUAL MAPPING IN PERIOD 0

Axis 2
Higher Power

+ 20 .

Lower Economy
Higher Economy

- 20 2 + 20
Axis 1

-20 .
Lower Power

- 44 -

are closely positioned. On the other hand, it may be difficult for SERI to keep its market share
against two other strong brands, SUTE and SOLO, as well as against new competition which
will inevitably be attracted by the potential and high profitability of segments 3 and 4. Firm 2
may thus try to milk SEFA or to reposition it closer to segments 3 and 4 to support SERI. In
the latter case, SEFA should be repositioned close to competitive brands and Axis 2 as far as
possible from SERI to reduce cannibalization. The sales force may Higher Power have to be
reallocated partially from channel I to channel 3 if segments 3 and 4 become the prime
targets. With its high level of profitability, Firm 2 may design new products for segments 4
and 2, and may be the leader in developing the Vodite market. Resources will however be
needed to protect the highly profitable brand SERI.

Firm 3 dominates segment 5 with its two brands SIMO and SICA which together SERI
account for 47% of the unit sales in this segment. SICA is the strongest of the two brands with
15 1 of the total Sonite market and a unit contribution equal to $106, nearly double the unit
contribution of SIMO. It is the leading brand in segment 2 and close second to SAKA in
segment 5. SIMO is the lowest price Sonite and retails at $ 195. Although SIMO appears to
be positioned closer to the ideal point of segment 5 than SAHA or SICA, its market share in
this segment is approximately half the share of any of these two brands. One of the main
reasons for this is certainly the poor performance of SIMO on a third dimension, Design,
which does not appear on the perceptual map. This is clearly shown in the semantic scales
ratings gathered through Marketing Research Study 4 and which are reproduced in Exhibit
3.5. SIMO is an inexpensive brand and its low cost has certainly been obtained at the Axis I
expense of design. SICA and SIMO have the highest awareness levels in the Sonite
market. It would be difficult to increase awareness beyond these levels, SATO or to try
repositioning these brands through advertising. Instead, SIMO should be improved in its
design, and the power of SICA should be increased. This would improve the position of
SIMO in segment 5, and SICA would be more precisely directed at segment 2, thus
decreasing cannibalization of the two brands. In addition, the price of SIMO could be
increased by as much as 15 Z without any significant market share loss, given the price
differential between SIMO and the next lowest priced brand, SUXI. Firm 3 should certainly
concentrate on segments 2 and 5 where its high market share and the effects SAKA of
experience on cost reduction, give it a strong cospetitive advantage in this low-price segment.
The temptation will however be high to enter the more profitable segments3 and 4 with new
products.

- 45 -

Exhibit 3.5

SEMANTIC SCALE RATINGS IN PERIOD 0

Economy Power Design

Ideal value segment 1…………………… 3.6 6.4 5.2

Ideal value segment 2…………………… 3.2 3.9 5.5
Ideal value segment 3…………………… 5.2 5.2 5.5
Ideal value segment 4…………………… 5.7 4.6 5.8
Ideal value segment 5…………………… 2.1 2.5 5.8
SAKA ………………………………… 2.8 1.6 6.1
SATO …………………………………… 5.0 3.1 6.5
SERI …………………………………… 5.5 5.7 6.1
SEFA …………………………………… 6.4 6.5 3.9
SIMO …………………………………… 1.8 1.8 2.4
SICA …………………………………….. 3.4 2.3 6.3
SOLO ………………………………….. 6.0 5.4 5.5
SONO ………………………………….. 5.4 6.5 5.5
SUXI ……………………………………. 2.3 2.7 2.5
SUTE ……………………………………. 6.0 5.6 4.9

Note : Higher ratings correspond to lower economy, higher power, and better design.

Firm 4 has a strong brand, SOLO, with IS X of the total Sonite market in units. SOLO is the
leading brand in segment 4 and has strong shares oil 1 and 3. It is also the most profitable
Sonite brand with a total gross marketing contribution of $ 16 million. SONO represents 6 1
of the total Sonite market in units and is among the leading brands in segment 2. It has,
however, the smallest unit contribution of all brands (16 X of selling price) and a relatively
low awareness (37 X). It barely breaks even overall and is clearly a problem brand. One
alternative would be to increase its price and milk it, in which case SONO will be in a
situation very similar to Firm 2 SEFA. Another alternative would be to decrease its cost
through R & D, position it closer to segment I, and get a better profitability through sales
volume and experience effects. Yet another alternative would be to keep the SONO brand
name to launch a new product with lower power, and geared at segment 3. This could be
combined with a repositioning of SOLO more towards segment 4 to decrease cannibalization
effects. Overall, the situation of Firm 4 looks very good in terms of market share and
profitability. It has however a problematic brand, and will have to face strong competition as
new brands will certainly be introduced in the. highly profitable segments 3 and 4.

The two brands commercialized by Firm 5 are highly differentiated and serve different
segments. SUTE is a direct competitor of SERI and SOLO, and it has significant market
shares in segments I, 3 and 4. It represents 14 % of the Sonite market in units and generate $
11 million in contribution. SUXI seems to be very well positioned on the perceptual map with
respect to the ideal points of segments 2 and 5. Its sales in these segments are however less
than one fourth those of the leading brands. Its global market share based on units SOLO is 4
% and it barely breaks even in terms of gross marketing contribution. The semantic scales
ratings in Exhibit 3.5 indicate that SUXI, like SIMO, has a design problem and consumers
apparently prefer to compromise in this case on economy and power by purchasing brands
such as SAKA and SICA. In addition, SUXI has the lowest awareness level (33 X) of all
lonite brands. It may, however, acquire a strong position in segments 2 and 5 with adequate
improvement in its design and marketing support. Firm 5 will need to cover several '
fronts with its two brands which aim at substantially different segments, and this may require
considerable resources. In particular, its sales force which is the smallest in the industry will
have to be increased.

- 47 -

CONCLUSIONS ON THE STARTING SITUATION

Each firm has different strengths and weaknesses in Period 0 of the simulation in
terms of product characteristics, brand awareness and positioning, market shares, distribution
coverage and profitability. This starting situation is, however, globally equitable for all five
firms in terms of difficulties and opportunities, and no firm has had a systematic competitive
advantage in previous administrations of Markestrated. In particular, each firm has a strong
brand and a more problematic one.

If one considers only the main Sonite brands, the firm/product/market situation in Period 0
may be summarized on the following matrix
 1 2 3 4 5
SONG
1 SERI SOLO SUTE

SAKA
2 SICA
SEGMENTS

SATO

3 SERI SOLO SUTE

4 SERI SOLO SUTE

5 SAKA SICA

This matrix clearly shows that there are two main groups of competing firms: 1-and 3 on one
hand, and 2, 4 and ', on the other hand, In addition it appears that the Markestrated firms have
not yet fully exploited the market segmentation in developing their marketing strategies. So
tar, it seems that a two-way segmentation has been adopted by most firms with segments 2
and 5 on one side and segments 1, 3, 4 on the other side. The perceptual map would seem to
indicate that these strategies have targeted most closely on segments 3 and 5. The brands
currently available on the market are far from satisfying the needs of segments 1, 2 and 4, and
there are certainly opportunities for better use of the segmentation in the growing Sonite
market.

To make their decisions for Period 1, the firms do not have all the information contained in
this chapter as marketing research studies are not available in Period 0. The situation may
have changed somewhat by the time they acquire these studies, but no drastic change in the
competitive positions should be expected in the first simulated years before new R & D inputs
are available.

- 49 -

Chapter IV

OPERATING THE MARKESTRATED COMPUTER PROGRAMS

The MARKESTRATED computer programs have been written in the BASIC language for the
Hewlett Packard 2000 Access computer. They have been designed in a modular fashion and
should be easily adapted to other computers as core memory requirement for each module is
small. To run the MARKESTRATED programs, your computer system should have a BASIC
compiler and lineprinter facility to generate the outputs. A computer terminal may be used but
the length of the output requires higher printing speeds to be feasible in most teaching
situations. If you are not familiar with your computer operations, you should give a copy of
Appendix IV, "Instructions for the implementation of the MARKESTRATED computer
programs" to your computer staff and ask them to load the programs on your system. In order
to accomodate more than 40 students in the MARKESTRATED exercise, several industries
running in parallel must be created. In this case, the simplest and safest approach is to use
different computer account numbers for each industry, each account containing a copy of the
MARKESTRATED system. For instance, the computer account numbers MOOT, M002 and
M003 could be used for industries 1, 2 and 3, respectively.

In designing the MARKESTRATED system, a particular effort has been made to facilitate the
work of the instructor. The game administrator does not need to have any computer
knowledge, except knowing how to run standard programs. Although the MARKESTRATED
system consists of 54 programs and files, the linkages are automatically performed and the
game administrator needs to know and use only 4 programs to run the simulation:

START to initialize the data files before period 0;

INPUT to enter decisions for each period;
LISINP to list the decisions entered and make any corrections if necessary;
MKGSTR to perform the simulation and generate the company reports, the
marketing research studies purchased by the firms, and a complete set
of outputs for the instructor.

- 50 -

In addition, the instructor may call on six other programs to facilitate his administration of the
game, although'their use is not necessary to run the simulation:

OUTPUT generates additional copies of the company reports for the last period
run, the marketing research studies purchasbd by .he firms, and the
complete set of outputs for the game administrator;

ADMOUT generates for the last period run additional copies of the complete set of
outputs for the game administrator;

PRESEN presents an analysis of selected simulation results over the entire

simulated horizon, both in tabular and graphiccal form;

INTEST allows the game administrator to use pre-recorded test decisions over
10 periods to familiarize himSEFA with the game;

RESET resets all files to the previous period situation in case an input error has
been noticed after the start of the simulation for the current period.

The following sections will describe the operations of these programs. All programs
are operated interactively in time-sharing from a computer terminal and the longer outputs are
generated on a lineprinter. The examples given as illustrations have been obtained on a
Hewlett Packard 2000 Access system. In these examples, items typed by the game adminis-
trator on the computer terminal have been underlined. The part of the text which is not
underlined has been generated automatically by the computer programs.
 EXHIBIT 4.1

INFORMATION GENERATED BY THE PRESEN PROGRAM

Tables
1. Total industry sales
2. Market share of Sonite brands (based on units)
3. Company market shares in Sonite market (based on units)
4. Company market shares in Sonite market (based on retail sales)
5. Market share of Vodite brands (based on units)
6. Company market shares in Vodite market (based on retail sales)
7. Global company market shares in Sonite and Vodite markets (based on retail sales)
8. Company net marketing contributions
9. Brand awareness for Sonite brands
10. Advertising expenses for Sonite brands 11. Company sales force sizes.
 - 63 -

Chapter V

THE STRUCTURE OF THE MARKESTRATED SIMULATION MODEL

This chapter describes the structure of the MARKESTRATED simulation model in a non-
technical way. Relationships are presented in a graphical fashion to provide an easy
visualization of the processes modelled. The mathematical expressions of these relationships
are given in Appendix V for the .interested reader.

The overall structure of the MARKESTRATED simulation model is presented in Exhibit 5.1
and each of its elements will be described in detail. This description is based on the standard
version of MARKESTRATED, i.e. the one corresponding to the parameter values set in the
MARKESTRATED package. These parameter values provide, in our opinion, the most
efficient pedagogical environment.

l. CORRECTIONS IN INPUT DECISIONS

The MARKESTRATED programs first check that the input decisions are consistent with
industry practices as defined in the student's manual, with corporate guidelines such as the
marketing budget, or environmental constraints such as price controls. if any inconsistency is
found, corrective action is automatically taken, and a message is issued to the corresponding
firm. 'rile possible massages are shown and described below.

YOU DID NOT RESPECT YOUR BUDGET CONSTRAINT

YOUR BUDGET WAS REDUCED ON – ADVERTISING
-R&D
- MARKETING RESEARCH
- SALES FORCE

If the marketing expenditures of a firm are more than 10% above the allowed marketing
budget (as specified in the company report of the previous period, or as modified by the
instructor), these expenditures are cut in the order indicated above, until the budget constraint
is satisfied.. The 10% leeway has been included to decrease the importance of artificial ac-
curracy in the specification of the marketing expenditures.
A BRAND INTRODUCTION OR MODIFICATION COULD NOT BE MADE FOR LACK
OF CORRESPONDING R&D PRODUCT

If an existing brand is modified or a new one introduced while the corresponding R &
D project does not exist or has not yet been successfully completed, this modification or
introduction is automatically cancelled.

REQUESTED MODIFICATION FOR BRAND HAS ALREADY BEEN

MADE IN A PREVIOUS PERIOD CURRENT MODIFICATION REDUNDANT
After a brand has been modified with a given R & D project, subsequent modifications of the
same, brand with the same R & D project are redundant and are cancelled.

A BRAND HAS BEEN DELETED FROM INPUT DATA DUE TO

INCONSISTENT DECISION

If a brand is kept in the product line and it is not made available for sale (i.e. initial inventory
and production plan are equal to zero), the brand is deleted automatically.

YOU LAUNCHED BRAND SEVERAL TIMES ONLY THE FIRST

PRODUCT INDICATED HAS BEEN RETAINED

If more than one product in the product line has the same brand name, only the first one is
kept and the others are deleted.

OBSOLETE INVENTORIES FOR DELETED OR MODIFIED BRAND (S) CHARGED AS

AN EXCEPTIONAL COST AT TRANSFER PRICE

When a brand for which inventories are still available is deleted or modified, the value of
these inventories is charged to the marketing department at transfer price and appear in the
contribution statement
as an exceptional cost. This may be compensated in part by an exceptional profit if the firm
has liquidated these stocks in markets outside the MARKESTRATED world, via the
instructor.
THE MARKET COULD NOT ACCEPT SUCH A HIGH PRICE
FOR BRAND :ITS PRICE HAS BEEN ADJUSTED TO

This message appears if the price of a brand has been increased by more than 30% within one
period without modification in the product, or if the price of the brand is more than four times
its cost. After negative consumer reactions to the high price level, the price is automatically
adjusted "by the marketing department" within the simulated period to a more reasonable
level equal at most to a 307. increase or to four times the cost of the product. A brand may be
priced more than four times its cost only through cost reductions. If a price increase is re-
quested in this case, the price is adjusted back to its previous level.

FOR BRAND THE GOVERNMENT COULD NOT ACCEPT SUCH A

DRASTIC PRICE INCREASE THE PRICE HAS BEEN ADJUSTED TO $

This message appears when price controls are enforced if the price of an unmodified existing
brand is increased beyond the imposed limits. The price of the brand is in this case adjusted
downwards to the highest allowed level.

A NEW R&D PROJECT HAS THE SAME NAME THAN ONE COMPLETED IN
THE PAST ITS NAME HAS BEEN CHANGED TO

If an R & D project is requested with the same name as a different project previously
specified, this new project is kept but its name is arbitrarily modified.

WARNING FROM THE R & D DEPARTMENT: R & D PROJECT

UNLIKELY TO SUCCEED.UNREALISTIC PHYSICAL CHARACTERISTIC
 VALUE.
This message is issued if the specified value of at least one physical characteristic for an R &
D project is smaller than the minimum limit or greater than I5OZ of the maximum limit of the
feasible range for this dimension, as indicated in Exhibit 3 of the participant's manual. The R
& D department has spent the budget allocated to the requested product and has reached the
conclusion that it will not be able to develop it, even with additional funds.
2. ENVIRONMENTAL CHANGES
Three environmental elements evolve over the course of the simulation: GNP growth,
inflation and price control. The MARKESTRATED industry has only
a minor impact on the general economy, and these elements are thus entirely exogeneous.
Their evolution is as follows:

The economic environment of MARKESTRATED is thus stable over the first four periods
and students can concentrate on other issues. In Period 5, the increases in the GNP growth and
inflation rates give them a warning that things are changing and that they should prepare
themselves. In Periods 7, 8 and 9, the higher GNP growth rate and the profit squeeze which
may result from a higher inflation and price controls will bring a new clyailenge to the firms
and test the. robustness of their strategies.

3. SCALING OF THE PERCEPTUAL MAP

Over the course of the simulation consumers' expectations in terms of the attributes of Sonite
products will evolve according to the characteristics of the set of available Sonite brands. For
instance, if the MARKESTRATED firms progressively increase the power of their brands, it
may be expected that the meaning of "high" or "low" perceived power will evolve over time.
This is achieved by modifying the scaling of the two main dimensions of the perceptual map
for Sonites: economy and power. What is meant by scaling here is the general relationship
between the range of coordinates on a perceptual scale (from -20 to +20) and the range of the
corresponding "physical" characteristic (price or power). The "scale" of a perceptual
dimension is defined as the maximum value of the corresponding physical characteristic
which may appear on the perceptual map, i.e. with a coordinate of +20, as illustrated below.

The price scale FI varies as follows from period (t-1) to period t:

Price scale (t) - Minimum value of:
. (I + inflation rate) x Price scale (t-1)
or . Highest Sonite Price (t) + 50 $.

The price scale can increase only if a new brand is introduced with a higher price than the
most expensive brand in the previous period. In this case, the maximum increase in the price
scale is determined by the inflation rate. Likewise, the price scale can decrease if the price of
the most expensive brand is decreased from one period to the next. In this fashion, the
perceptual space can gradually evolve over time under the actions of the MARKESTRATED
firms. A brand which would be introduced with a much higher price than the current most
expensive brands would, however, find-,itSEFA outside of this space, as the consumers are
not currently used to, and do not expect prices in this range.

Example. At the start of the game, the highest Sonite price in Period 0 is $ 635 and the price
scale in Period -1 is a parameter the value of which has been set to $ 600. The inflation rate is
equal to 0.09. The price .vale in Period 0 is thus $ 654 and a Sonite brand with this price
would be expected to be perceived at +20 on the economy scale. The three folIowlnr possible
situations in Period I will help illustrate the concept of seal lug of the perceptual map:

. Most expansive brand in Period I priced at $ 650.

The new price scale would change to 650 + 50 = 700, which represents an increase smaller
than inflation when compared to the previous period (654 x 1.09 - 113).

. Most expensive brand in Period I priced at $ 700.

The new price scale would change to 654 x 1.09 - 713 as this is lower than 700 + 50 - 750.

. Most expensive brand in Period I priced at $ 590.

 The new price scale would change to 590 + 50 = 640.
In these three cases, a "high" perceived price (corresponding to +20 on the economy
perceptual dimension) is respectively $ 700, $ 713 and $ 640. and this represents a change
compared to the previous period.

The power dimension is treated in a way similar to the price dimension, and the power
scale F2 varies as follows:

Power scale (t) = Minimum value of:

. (1 + "power inflation rate" x Power scale (t-1);
or
. Highest Sonite power (t) + 10 w.

The "power inflation rate" represents the maximum proportional increase in the power scale
over one year and is set equal to 0.06.

For the Vodites, the scales for the major perceptual dimensions (maximum frequency and
weight) remain constant and equal to the maximum limit of their feasible range as indicated in
Exhibit 3 of the student's manual (20,000 Hz and 100 g respectively). This reflects two
different phenomena in two different markets.

4. EVOLUTION OF SEGMENTS' NEEDS

In both the Sonite and Vodite markets, the "true" model of brand preferences and similarities
is represented as a three-dimensional space, with the same dimensions as those reported in the
semantic scales marketing research studies. In the Sonite perceptual map study,, only the first
two dimensions are reported and positions of the segments' ideal points and of the brands are
generated from the "true" model with some minor random errors.

The evolution of segments' needs is represented by changes in the positions of the segments'
ideal points on the three-dimensional space. These changes follow a linear trajectory from
Period I to Period 10, although this does not appear clearly in the comparison of successive
perceptual maps because of the random errors. The coordinates of the ideal points for the five
segments in the Sonite market in Periods I and 10 are the following (on -20 to +20 scales):

AXIS 1 AXIS 2 AXIS 3

SEGMENT (Economy) (Power) (Design)
Period 1 Period 10 Period 1 Period 10 Period 1 Period 10

Segment 1 -2 7 15.4 12.7 8 8

Segment 2 -6 10.5 0.4 11.2 10.4 12.2
Segment 3 9 19 8.4 14.7 9.6 7.8
Segment 4 10 6.5 3.4 -3.8 12.4 9.8
Segment 5 -13 -13 -9.2 -1.1 12.4 9.8

On the perceptual map reported in Marketing Research Study 5 which includes

only the two main dimensions Economy and Power, the trajectory of the ideal points
appears as follows:
This evolution in the positions of the ideal points may be interpreted as changes in the
underlying segments' needs, irrespective of the actions taken by the firms in the Sonite
market. The coordinates of the ideal points for a given period will be the same in different
administrations of the game. However, the meaning of the coordinates in terms of physical
characteristics values will change depending on the scales of the dimensions and consequently
on the features of the brands offered on the market, as described in the previous section. In
this sense, both the changes in the underlying segments' needs and the actions of the firms in
the market are reflected on the evolution of the ideal points.

In the Vodite market, no difference is observed in the needs and behavior of consumers in the
five segments isolated in the Sonite market. The differences which are reported in the
marketing research studies in the Vodite market are only due to random errors. The aggregate
ideal point in the Vodite market also follows a linear trajectory in the three dimensional
perceptual space, and its coordinates in Periods i and 10 are the following (on -20 to 20
scales):

AXIS I AXIS 2 AXIS 3

(Maximum Frequency) (Weight) (Economy)
Period I Period 10 Period 1 Period 10 Period 1 Period 10
Aggregate ideal
point coordinates -2 +11.5 -2 -1 -7 -16
in Vodite market

Finally, it is interesting to note that in the Sonita market, various brands may exparienca
positive or negative price elasticities depending on their positioning with respect to the
different segments. In the Vodite market, however, most brands should experience negative
price elasticities as the ideal point corresponds to a low price level.
5. NATURAL POSITIONING

The term"natural positioning” refers to the position that a new brand would take, relative to
others in the absence of communications programs which may influence the consumers'
perception of the brand. This is obviously a conceptual construct as in reality a brand would
hardly be perceived at all without communications. It isolates however the role of the physical
characteristics (including price) of the brand in its positioning. The natural positioning of a
brand is obtained by a transformation from the physical characteristic space to the perceptual
space. In this transformation, only the characteristics corresponding to the dimensions of the
perceptual map (price, power, design) are considered. For the price dimension, this
transformation is illustrated graphically bellow:

The physical characteristics are first standardized to obtain a scale from -1 to +1. With this
particular transformation, consumers are assumed to perceive more differences in the mid-
range of a physical characteristic than at the extremes. The same type of transformation
applies to all three dimensions, in the Sonite and Vodite markets.

One could be concerned that this simple monotonic transformation might be easily Inferred
from the perceptual maps provided in Marketing Research 91ody 1 for the Sonitee.
Distortions are introduced, however, because of random errors or changes in perception due to
advertising. For instance, it is pomsible that a 5ontte, SATO, which is less powerful than
Sonite SIMO, is perceived as being more powerful, which makes inference of the
transformation difficult, it not impossible.

6. REPOSITIONING

As mentioned above, the natural position of a brand is determined by its physical

characteristics. This brand can however be positioned differently during its introduction, and
repositioned in subsequent periods of the simulation. The modelling of the repositioning
process will be illustrated on the example represented graphically on Exhibit 5.2.

The point P represents the natural positioning of brand B. If its physical characteristics remain
unchanged, brand B will never be positioned outside a circle of radius 5 (in "perceptual" units
equivalent to each unit of the -20, +20 perceptual map dimensions) around its natural position
P. This represents the limits of advertising in changing consumer perceptions. In the previous
period, the brand was positioned at point Bt_, and the advertising agency has been given
perceptual objectives represented by point 0. It is obvious that these perceptual objectives will
not be completely reached, as point 0 lies outside the circle. The problem is to know where
brand B will be positioned at the end of the current period, i.e. where point Bt will be located.

The first step which the model takes is to determine the direction in which brand B will be
repositioned, and this direction may be different from the one desired if insufficient efforts
have been made in advertis-

Bt-1 = Positioning of brand B at period t-1

P = Natural positioning of brand B
O = Perceptual objective in period t
v = Maximum angle of deviation from objective given advertising research
expenditures, in time t
∝ = Angle of deviation from objective, randomly generated within ±v
r = Maximum possible distance from original positioning (5 perceptual" units)
M = Farthest repositioning possible given the direction n of repositioning
Bt = Repositioning of brand B at period t on the Bt-1, M line.
The distance of translation Bt-1, Bt depends on awareness of B and media
expenditures.

EXHIBIT 5.2

BRAND REPOSITIONING

ing research. The maximum angle of deviation v from the intended dire, tion varies with the
advertising research budget as follows:
The actual angle of deviation from the intended direction is then generated at random within +
v and - v. It is clear that if no money is spent on advertising research, one is only sure of not
repositioning the brand in the opposite direction than the one intended.

Now that the actual direction of repositioning has been determined, it mist be determined how
much the brand will move in this direction. The maximum repositioning distance is
determined by the circle boundary and is d = Bt-1 M. The actual repositioning distance will
depend on the awareness of the brand and the advertising budget. In particular, advertising
will be less efficient in repositioning the brand among consumers who already have a high
awareness of this brand. For this purpose, the fraction of the advertising budget "effective" for
repositioning purposes is determined as follows:

The actual repositioning distance Bt-1 Bt is then determined from the advertising budget as
follows:

If no perceptual objectives are given to the advertising agency for a given brand, it is assumed
that the advertising strategy only aims at building up awareness and the positioning of the
brand does not change.

If at least one physical characteristic of a brand (including its price) is modified, its natural
positioning P is changed, and the same procedure as above is applied.
7. BRAND AWARENESS

The awareness level of a brand is assumed to be identical across all market segments.
Changes in the awareness level may be obtained through advertising, and depend mainly on
copy efficiency and the advertising budget.

Copy efficiency is represented by an index which varies as follows, with the advertising
research budget:

where Standardized advertising = Advertising budget for the brand

research budget Standard brand advertising research
budget in the industry

The copy efficiency index is then used to compute the 'effective' vertising
ad budget:

Advertising budget for the brand x Copy efficiency index.

Standard brand advertising
budget in the industry

The impact of advertising on brand awareness can then be represented graphically a follows:

It is interesting to note that it is more difficult to increase brand awareness as it reaches a high
level , and it can never exceed 90%. For instance, an advertising budget equal to three times
the average advertising budget in the industry will generally result in: an awareness level of
382 after the first year of introduction of a new brand; an increase of 162 in the awareness
level for a brand with an initial awareness of 40%; an increase of 3% in the awareness level
for a brand with an initial awareness of 70%.The maximum forgetting effect from one period
to the next is limited to 102 of the awareness level. An interesting issue concerns the
allocation between the 'advertising research' budget (which is defined here broadly as
containing all the activities of an advertising agency apart from media purchasing) and the
1
'advertising media' budget, an issue which has been raised in particular by Irwin Gross. No
general rule can be given on this problem in the MARKESTRATED simulation, but in many
cases
• increase in the advertising research budget will deliver a higher effect of advertising on
brand awareness, especially if competitors do not follow in this direction.
1
Irwin Gross, An Analytical Approach to the Creative Aspects of Advertising Ope nations, unpublished PhD
dissertation, Case Institute of Technology, Cleveland, Ohio, 1967.

8. PURCHASE INTENTION
The purchase intention index for a given brand represents the proportion of the potential
buyers who intend to purchase that brand. The potential buyers are those who plan to buy a
Sonite (or a Vodite in the case of a Vodite brand) during the current year. The purchase
intention index for a brand is computed for each segment in the Sonite market, and globally in
the Vodite market where there are no inter-segment differences. For each segment the sum of
the purchase intention indexes of all brands available in the market is equal to one.

The purchase intention index for brand B in segment S is inversely pro.ortional to the souared
weighted Euclidean distance DBS between the position of the ideal point for segment S and
the position of brand B, in the three-dimensional perceptual space. In the computation of
DBS, the following weights are used for each dimension, reflecting their relative importance:

Sonite Market Vodita Market

Dimension 1 0.8 0.8
Dimension 2 0.6 0.4
Dimension 3 0.2 0.3

The purchase intention index for a given brand is also proportional to its awareness, and the
exact formula used for its computation is:

Purchase intention index = Awareness of brand B / DBS

for brand B in segment S Ó Awareness of brand b/ DbS
All available
brands b

Example. Although the actual computations of the purchase intention indexes are based on the
three-dimensional perceptual space, the following example on two dimensions will illustrate
the procedure. Only one segment and three brands are considered for simplification. The
positions of the segment's ideal point and of the brands are represented by I, B1, B2, and B3,
respectively.
One possible problem with this formulation is that the purchase intention index of a brand in a
segment could be equal to I if the brand was positioned exactly on the ideal point of this
segment. This would be unrealistic. Conceptually, this would not be sound as a segment's
ideal point hides individual consumer differences. Indeed, different consumers in a given
segment will always have varying preferences for the brands available on a market. This
problem has been solved by limiting ;he minimum distance between an ideal point and a
brand position to 1.5 units on each coordinate. The maximum purchase intention index
attainable by a given brand in a particular segment depends on the competitive situation but
will rarely exceed 0.70.

9. DISTRIBUTION COVERAGE
The distribution coverage of a given brand in a given channel is equal to the fraction of outlets
in this channel which carry the brand. This is dependent upon the level of advertising for the
brand, the number of salesmen of the company allocated to the channel and the trend of the
brand'. market share over the last two years. The effects of those thane .'Iem.nta are
represented by indexes varying between 0 and I. These thre. (ud.s.• are applied
multiplicatively to the tutai number of distribution to tit. channel to determine the number of
distributors cm-tying the btsml.

The effects of the salesforce, advertising budget and market share trend on distribution
coverage of the brand may be represented as follows:
An upper limit is put on the number of salesmen considered in each channel for each firm in
the computation of, the salesforce effect. This limit represents the saturation level of a
distribution channel by a salesforce and has been fixed at 100 for Channels I and 3 and 200
for Channel 2. If a firm employs for instance 110 salesmen in Channel 3, only 100 will be
considered in the computation of the sales force effatt. Students may discover this saturation
effect in analyzing the t.sults or the • aleslurce experiment in Marketing Research Study 14.

The distribution coverage or a brand in a channel is computed by multiplying the three

indexes corresponding to the salesforce, advertising and market share hand effects. The
maximum distribution coverage attainable is thus 1.0 x 0.95 x 0.95 - 0.90.

10. MARKET DEMAND

The size of each segment in the Sonite market and of the Vodite market will evolve according
to the underlying needs of the consumers and the actions of the firms. The maximum market
sizes, i.e. the maximum volume of Sonite or Vodite which could be SOLO given consumer
needs, are represented graphically in Exhibit 5.3. These graphs give an idea of the life cycle
that these segments would follow if the firms' strategies remained stable over the years. All
segments start in a growth period, except Segment I which is in the declining phase. Segments
3 and 5 will reach maturity first and will then decline slowly while Segments 2 and 5 will
keep a slow growth after Period 5. The Vodite market will be in a growth phase during all the
course of the simulation, but it is up to the firms to decide when they will open this market by
introducing the first Vodite brands.

The market demand in these markets will however depend on GNP growth, industry
advertising levels and industry price levels. The effect of GNP growth on market demand is
directly obtained by multiplying the maximum market size by the GNP growth rate. The
effects of industry advertising and industry price levels on market demand in a given period
can be represented as follows:

Other actions of the firms such-as the development of brands suited to the needs of each
market, distribution and the availability of products in stock will influence the extent to which
this market damand can be met, i.e. they will determine the actual murkat o(aan. Exhibit 5.4
gives the actual sizes of the markets in a simulation. The lifecycles of these segments will
have a different pattern in different administrations of the game according to the actions of the
competing firms, but they will always be below the maximum market sizes.
 EXHIBIT 5.3

MAXIMUM MARKET SIZES

 EXHIBIT 5.4

EXAMPLE OF ACTUAL MARKET SIZES IN ONE ADMINISTRATION

OF MARKESTRATED

11. BRAND ATTRACTION POWER

The overall attraction power of a brand in the markets in which it is SOLO is computed as the
average purchase intention index of this brand in all segments, weighted by the market
demand in this segment. The Brand Attraction Power takes a value between 0 and I. It is used
in the determination of the effective distribution of a brand as described below.

12. EFFECTIVE DISTRIBUTION

The effective distribution cat a brand represents the likelihood that a consumer intending to
buy thin brand finds an outlet which carries it.

If a consumer does not find in a given outlet the brand which he intends to buy, he may search
for it in other outlets. His willingness to search for the brand in other outlets is considered as
dependent on the Attraction Power of the brand, and his visiting several outlets may be
conceptualized as an "inflation" of the physical distribution coverage of the brand. This is
formalized as:
Inflated distribution Distribution Brand Distribution
coverage of a brand = coverage of + Attraction (1 - coverage of )
the brand Power the brand
On the other hand, if a brand is distributed in a channel where the consumers in a given
segment tend not to go, the relevant distribution coverage for this brand in this segment is
smaller than the numeric distribution coverage. The shopping habits of consumers in each
segment should thus be considered in determining the effective distribution of a brand in a
segment. The shopping habit matrix used in the simulation is the following: '

Segments in Sonite Market Vodite

1 2 3 4 5 Market

Channel 1 .6 .4 .05 .2 .1 .8
Channel 2 .1 .2 .6 .5 .3 0
Channel 3 .3 .2 .35 .3 .6 .2
1.0 1.0 1.0 1.0 1.0 1.0

The absence of shopping in Channel 2 for the Vodite market reflects the fact that this channel,
the Electric Appliances Stores, will refuse to carry the Vodite brands. This has been
introduced to force the teams to reconsider the allocation of their sales force and possible
synergy effects when diversifying into the Vodite market. For simplification purposes, this
shopping matrix is kept fixed over the course of the simulation. Differences which may
appear between periods in the shopping habits data obtained from Marketing Research
Studies I or 7 are only due to random errors.

The effective distribution of a brand in a segment is obtained by computing the average

inflated distribution coverage of the brand in all three channels, weighted for each channel by
the proportion of consumers in this segment expressing a preference to shop in this channel.
The effective distribution of a brand in a segment takes a value between 0 and 1.

13. PURCHASE PROBABILITIES

The purchase probability for a brand in a segment is obtained by weighting the purchase
intentions by the effective distribution coverage. Purchase probabilities can be considered as
being the new purchase intention, given distribution coverage. They are computed as:

Effective distribution Purchase inten-

coverage of brand B tion index for
Purchase probability in Segment S X Brand B
for brand B in Segment S = in Segment S .
Sum for Effective distribu- Purchase in-
all tion coverage in X tention index
brands of Segment S in Segment S

This formulation automatically creates a transfer of purchase probability from some brands to
others according to their relative effective distribution coverage.
14. POTENTIAL SALES

Potential sales of a brand represent the expected salon Invvl o1 1111.1 brand if adequate
supplies are available for all brands ,it 1ha ulalpal. The potential sales of a given brand in a
given segment i• equal to lba total demand in the segment multiplied by the purchase
prubability of the brand in the segment. Total potential sales of a given brand are equal to the
sum of the potential sales of the brand in each augment.

15. ACTUAL SALES AND MARKET SHARES

Actual sales may differ from potential sales because of inadequate supply of some brands on
the market. They may be lower than potential sales for a given brand if this brand has been
out of stock. They may be higher than potential sales for a given brand if this brand has
benefited from the unavailability of competing brands.

In computing actual sales, the production level can be adjusted within a ±20% limit to reflect
adaptation of the production planning during the simulated year. If potential sales are higher
than forecasted sales (i.e. the production planning level plus the inventory at the end of the
previous period), production planning may be adjusted up to 20% to satisfy the higher
demand. _If despite these production adjustments some brands incur lost sales, 50% of these
lost sales are shifted to other brands, proportional to their market shares, and up to their
maximum production capacity. If potential sales are lower than forecasted sales, the
production planning level is adjusted downwards within the –20% limit to decrease excess in-
ventory.

Market share is then computed directly as the ratio of brand sales divided by,market sales in
the market of reference.

16. R & D ACTIVITIES

When a project is submitted to the R & D department, its characteristics are compared with
those of the existing products of thee firm. If the first five characteristics of the new project
are identical to those of an existing brand or to those of a previously completed project, the
new R & D project is clearly aimed at improving the cost of an available product. The present
cost of this product is either its transfer price if it is commercialized and has therefore already
benefited from manufacturing learning effects, or the sixth characteristic of the R & D project
which has led to its development if it is not yet produced. The "normal" budget which would
insure the successful completion of the now R 6 0 project is computed as $10,000 for each
reduction of $1.00 in the production cost and adjusted far inflation. For example, a reduction
of $50 In the cost of a product would normally require an R & D budget equal to $500,000 in
Period 0 and $650,000 in Period 3, taking into account the 0.09 average inflation rate.

If the requested R & D project differs on at least one of the first five characteristics of the
firm's existing products, this indicates that it requires the development of a new product, not
merely a reduction in the cost of an existing product. In this case, no reference production cost
is available for the desired product. A "standard" production cost is computed as a linear
function of the first five characteristics. For instance, an increase of one unit (Watt) in the
fifth physical characteristic (Power) is expected to increase production cost by $1.5/unit. The
increases in the standard production cost resulting from an increment of one unit in each
characteristic are the following, for Period 0:

Physical Characteristics
1 2 3 4 5
Sonites .15 4.7 .25 .8 1.5
Vodites 1 4 1 5 2

The transfer prices of the available brands in Period 0 are approximately equal to their
"standard" cost, computed on the basis of these coefficients, and the procedure to calculate the
"standard" cost of a product before its development may be conceptually interpreted as a rule
of thumb developed with experience. As an illustration, the standard cost of brand SAKA (as
commercialized at the start of the game) may be computed as:

10 x .15 + 8 x 4.7 + 30 x .25 + 25 x .8 + 10 x 1.5 = $82

while its transfer price in Period 0 is $100.

The smallest difference between each of the first five characteristics of the desired product
and the corresponding characteristic of all the firm's existing products are then computed. For
each characteristic, this difference is used to represent the effort to be made by the R & D
department to develop the new product, given the technology available with the existing
products. Similarly, in the sixth characteristic (cost), the differenp's between the requested
cost and the standard cost computed above is used to represent the effort to be made by the R
& D department in the ac.lertlnu of raw materials and production processes.

The "normal" R & D budget needed to successfully complete the new project is computed on
the basis of the uffort required to change each characteristic compared to existing products, or
to reduce the cost below the standard production cost. For instance, increasing by one unit
(1000 Hz) the value of the fourth characteristic (Maximum Frequency) for a Sonite would
require an R & D budget of $20,000 in Period 0. The budgets required to change by one unit
each of the first five characteristics and to reduce by one unit the sixth characteristic, cost, are
the following:

Physical Characteristics

1 2 3 4 5 6
Sonites 30,000 70,000 15,000 20,000 20,000 10,000
Vodites 30,000 70,000 15,000 20,000 20,000 10,000

The same values have been kept for Sonites and Vodites for simplification. The "normal" R &
D budget needed to successfully complete the desired project is computed as a linear
combination of the budgets required for changing each characteristic. This normal budget as
well as the standard cost are always adjusted for inflation.

Example. Firm I has two commercialized brands, SAKA andoSATO and a successfully
completed project PSARO which has not yet been marketed. In Period 4, it requests a new
project PSATO from the R & D department. The computation of the normal R & D budget to
successfully complete PSATO goes as follows:
 - 91 -

Physical Characteristics

1 2 3 4 5 6
SAKA 10 8 30 25 10 -
SATO 12 9 37 25 30 -
PSARO 15 9 40 20 60 -
PSATO 18 9 25 30 50 190

Standard cost for

desired product in (10x.15+9x4.7+25x.25+30x.8+50x1.5) x 1.094 = 210
PSATO

Minimum difference
between PSATO and
the firm's existing
product 3 0 5 5 10 20

The production cost of the firm's existing products are not taken into account as PSATO is not
merely a cost reduction project but requests changes in the first five physical characteristics.
The standard cost of the desired product in PSATO was computed as described above. It has
been adjusted by inflation as the parameters are defined for Period 0 and the budget was
requested in Period 3.

The normal budget to successfully complete ptojact PSATO in ralrulated as follows,

correcting for the 0.09 average inflation rate between Periods 0 and 3:

(3x30000+0x70000+5x15000+5x20000+10x20000+20x10000) x 1.094 = 940,000 $.

Once the "normal" budget to successfully complete an R & D project has been computed, the
probability that the project will be completed in the current period can be determined. In
addition, some problems may prevent the successful completion of the project. A request for a
project to the R & D department can in fact result in one of the four following outcomes:

. Unrealistic characteristics requested. If at least one of the characteristics specified on the

requested project is below the lower bound of its feasible range (as stated in Exhibit 3 of the
student's manual) or more than 50% above the upper bound of its feasible range, the pro ject is
rejected by„the R & D department as unfeasible.

. Requested production cost too low. If the requested production cost is more than 30Z lower
than the computed standard cost, or than the present cost in the case of a cost reduction
project for an existing product, the project cannon be successfully completed. The R & D
department issues a message specifying the minimum realistic cost and the budget needed to
complete the project if the cost requirement is modified. The R & D project can be pursued in
the next period, keeping the same project name and the same values for the first five
characteristics, but changing the cost characteristic.
. Allocated budget greater than normal budget for the project. If the cumulative budget
allocated to the project equals. or exceeds the "normal" budget as computed above, the project
will be successfully completed.

. Allocated budget smaller than normal budget for the project. In this case, the probability that
the project be successfully completed in the current period is equal to the ratio of the
cumulative budget allocated to the project, to the "normal" budget as computed above. Thus,
a project with the expenditures of 701 of "normal" budget has a 10Z chance of succeeding in
the given period. if the project is not successfully complated in the current period, the K 6 0
department will issue a message specifying Lhe additional budget required, equal to the
difference between the "normal" budget and the cumulative expenditures to date on this
project, adjusted for the estimated inflation in the next period. Pursuing the project with the
additional budget requested by the R & D department will ensure its successful completion in
the next period, provided that the cost characteristic be adjusted for inflation.

17. MARKETING RESEARCH

The information for the marketing research studies is directly extracted from the "true" model
in the simulation, with minor random variations. Only the three following studies may need
some further clarifications.

. Semantic Scales (Studies 4 and 10). These studies are generated from the three dimensional
perceptual map specified in the simulation model. The values on each semantic scale (from I
to 7) are obtained from the corresponding perceptual dimension (with values between -20 to
+20) through a straight linear transformation. A procedure is used to eliminate extreme values
on the semantic scales, so that the minimum and maximum observed values are practically
limited to 1.5 and 6.5 respectively.

. Market Forecast (Studies 6 and 11). These forecasts are obtained by applying the growth
rate of the maximum market size to the current sales level in each market, as defined in Step
10. These forecasts consequently assume no changes in the marketing practices of the
competing firms in the next period, with appropriate adjustments for inflation and
maintenance of relative competition.

. Sales Force and Advertising Experiments (Studies 14 and 15). The results of these
experiments are obtained by running the appropriate parts of the simulation model with,
respectively, five additional salesmen in each channel and an increase of 10% in the
advertising budget for each brand. In addition, the results of the sales force experiment are
systematically inflated by 20% to reflect a bias which may be generated by the special
attention given to the regional test market.

18. FINANCIAL RESULTS

The computation of the financial results is straightforward from the sales level for each brand.
The following points may however need some clarification.

. Productivity Gains. Production learning effects for a brand are represented by exponentially
decreasing transfer prices in function of cumulative production. The coefficient of the
exponential function is -0.234, which corresponds to a decrease in the transfer prices of t5%
every time the cumulative production is doubled. However, the transfer price is then adjusted
for inflation to take into account increases in raw materials and labor costs.

. Distribution Margins. The average selling price of a brand is obtained from its retail price
after subtraction of the average distributor margin weighted by the sales of the brand in each
of the three channels. The average selling price thus varies between 60 and 652 of the retail
price.

. Exceptional Cost. If a brand is modified or deleted from the product line, the obsolete
inventories of this brand will be charged at their transfer price to the marketing department
and this will appear as an exceptional cost. If the firm has negotiated the liquidation of these
obsolete inventories with the game administrator, the product of this deal will appear as an
exceptional profit which will compensate in part the exceptional loss.

. Inventory Holding Costs. The inventory holding costs are computed as a percentage of the
inventory value, based on the transfer price. This percentage which represents financial
charges is defined as 72 plus half the inflation rate, and thus varies between 11.5% and
14.5%.

. Marketing Budget for the Next Period. The marketing budget for the next period is a power
function of the net marketing contribution in the current period.
0.95
Marketing budget next = Net marketing contribution
Period current period

There is a minimum marketing budget equal to 7 millions $ in Period 0, which is regularly

adjusted for inflation. The relationship between the marketing budget and the net marketing
contribution can be represented as follows, with the minimum limit increasing over time.

This relationship is practically linear but represents, however, a decrease in the budget over
contribution ratio from 44% to 38% when the net marketing contribution increases from 16 to
500 million $. The budget as computed above represents a level of expenditures which is
automatically allocated to the marketing department based on its net marketing contribution
during the previous year. There are obvious pedagogical benefits in motivating the firms to
present detailed marketing plans to request budget increases beyond this automatic allocation.
 CONCLUSIONS

The structure of the model has been described in the present chapter in a non-technical
fashion. The reader should now have a reasonable understanding of the various interactions
modelled in the simulation. In particular, it is easy to comprehend the behavior of
subelements of the model from the graphical representation of the main relationships. This
will be especially useful to the instructor for anticipating the evolution of the simulation and
for presenting selected parts of the model to the students in the final debriefing session.

More importantly, it should appear from the above description and from experience in
administering the game, that the MARKS'I'RAT simula tion has the following attractive
characteristics.

1. It is reasonably complete for teaching marketing strategy concepts.

The completeness of MARKESTRATED compared to other games is illustrated by its
inclusion of segmentation and positioning concepts, the capability to modify existing brands
or introduce new ones, the marketing - R E D interface, the consideration of advertising
research and perceptual objectives in addition to the inevitable advertising budget, as well as
the availability of an extensive set of 15 marketing research studies.

2. It has an intricate structure. In MARKESTRATED there is no direct aggregate response

function between an element of the marketing mix and the final outcome, sales or market
share. Instead, an element of the marketing mix generally has several effects at various levels
and often in a non-obvius fashion. For instance, advertising will have an impact on
awareness, perception, preferences, purchase intentions, distribution, and primary demand.
Similarly, price will have an effect through its perception, modifying the perception of the
brand, preferences and purchase intentions, as well as primary demand. Students soon realize
that they cannot try to "beat the game" by determining the nature of an aggregate response
function between sales and an element of the marketing mix. Instead, they have to think about
the many interactions which may exist in the market place, and to investigate the various
consequences which may result from their actions.

3. It is realistic. Its behavior in the many situations which may prevail in the course of several
administrations of the game is consistent with the behavior of real markets.

4. It is robust. The simulation model behaves appropriately when extreme or irrealistic actions
are taken by the firms. This has been achieved in two ways. Firstly, by controlling and
correcting some of these actions, such as drastic price changes. In this case, the feedback
message sent to the firm is a good learning tool. Secondly, by using curvilinear response
functions (e.g. S-shaped), by decreasing the importance of extreme actions (for instance with
the use of the squared Euclidean distances in the perceptual map) or by setting safeguards
(such as the minimum distance between the positions of an ideal point and a brand on the
perceptual map, or the maximum number of effective salesmen in each distribution channel).
In this way as well, the students cannot "beat the game" by trying out extreme values in their
decisions.

5. It is flexible. Apart from the economic environmental factors (GNP growth rate, inflation,
price controls), no element of the simulation will take pre-determined values in the course of
the game. The market situation will evolve in different ways in various administrations of the
game according to the actions taken by the competing firms. In this sense, the
MARKESTRATED markets are modelled by the firms as they progress through the simulated
time horizon.

6. It is simple. Although the structure of the model is relatively complex, several choices have
been made so that each firm has a limited set of decisions to make (which are condensed on a
single sheet) for better pedagogical effectiveness. In addition, and as described in the previous
chapter, the use of the programs by the instructor when running the simulation has been made
as simple as possible, and assume no previous computer knowledge.

It is hoped that the description of the model's structure will have provided enough
information to the reader so that he may concentrate more on the pedagogical aspects of the
simulation than on its technical aspects. It will in particular be easier for the instructor, and
pedagogically more effective, if he follows the behavior of the simulation by rising his
knowledge of other marketing situations, than if he tries to analyze the implications of an
action from the model's structure.

- 98 -
Appendix I

TYPICAL SCHEDULES

This appendix contain some typical schedules for administering MARKESTRATED

. in a trimester course over six weeks

. in a trimester course concentrated on four days

. in a 3-day SERInar

Reading assignments are not indicated as they can be selected from the .
bibliographies given in Chapter II.
 MARKESTRATED SCHEDULE IN A TRIMESTER COURSE
(any ,umber of industries)

Preliminary assignment : Read MARKESTRATED carefully before first session.

Classes Tuesday/Thursday from 13.00 to 14.15.

Jan. 11 (Tu) 13.00-14.15 Presentation of Markestrated

Organization of teams
Distribution of the starting situations (Company
Reports for Period 0)

Jan. 13 (Th) 12.00-13.00 Instructor available for consultation

13.00 Period 1 decisions due
18.00 Company Reports Period I available in students'
boxes

Jan. 18 (Tu) 12.00-13.00 Instructor available for consultation

13.00 Period 2 decisions due
13.00-14.15 Lecture/discussion : Segmentation and Positioning
Strategies
18.00 Company reports Period 2 available in students'
boxes

Jan. 20 (Th) 12.00-13.00 Instructor available for consultation

13.00 Period 3 decisions due
18.00 Company Reports Period I available in students'
boxes

Jan. 25 (Tu) 12.00-13.00 Instructor available for consultation

13.00 Period 4 decisions due
18.00 Company Reports Period 4 available in students'
boxes

Jan. 27 (Th) 12.00-13.00 Instructor available for consultation

13.00 Period 5 decisions due
18.00 Company Reports Period 5 available in-students'
boxes

Feb. 1 (Tu) 12.00-13.00 Instructor available for consultation

13.00 Period 6 decisions due
13.00-14.15 Lecture/discussion. : The Marketing Strategy Process
18.00 Company Reports Period.6 available in students'
boxes

Feb. 3 (Th) 12.00-13.00 Instructor available for consultation

13.00 Period 7 decisions due
18.00 Company Reports Period 7 available in students'
boxes
Feb. 8 (Tu) 12.00-13.00 Instructor available for consultation
13.00 Period 8 decisions due
18.00 Company Reports Period 8 available in students'
boxes

Feb. 10 (Th) 12.00-13.00 Instructor available for consultation

13.00 Period 9 decisions due
18.00 Company Reports Period 9 available in students'
boxes

Feb. 15 (Tu) 12.00-13.00 Instructor available for consultation

13.00 Period 10 decisions due
18.00 Company Reports Period 10 available in students'
boxes

Feb. 22 (Tu) 13.00 Group reports due

13.00-14.15 Selected group presentations
Description of the Markestrated model structure

- 101 -

MARKESTRATED SCHEDULE IN A TRIMESTER COURSE

MARKESTRATED SIMULATION OVER A 4 DAY PERIOD

(4 industries)

Preliminary assignment : Read MARKESTRATED carefully before first session.

A non-marketing class is scheduled every day from 8.30 to 9.45, for which students prepare
the previous evening.

Nov. 14 (M) 10.00 - 11.00 Presentation of Markestrated

Organization of teams
Distribution of the starting situations (Company
Reports for Period 0)
11.00 12.30 Group Work : Decisions for Period 1
15.00 16.00 Lecture/discussion : Operating a Markestrated Firm
16.00 18.00 Group Work : Decisions for Period 2

Nov. 15 (Tu) 10.00 - 12.00 Group Work : Decisions for Period 3

14.30 - 16.00 Lecture/discussion : Positioning Strategies
16.00 - 18.00 Group Work : Decisions for Period 4

Nov. 16 (W) 10.00 - 12.00 Group Work : Decisions for Period 5

14.30 - 16.00 Lecture/discussion : Implementation of the
Marketing Plan
16.00 - 18.00 Group Work : Decisions for Period 6
Nov. 17 (Th) 10.00 - 12.00 Group Wor1I : Decisions for Period 7
16.00 - 18.00 Group Work : Decisions for Period 8

Nov. 18 (F) 12.00 Company Reports Period 8 available in students' boxes

Nov. 28 (M) 8.30 Group reports due

8.30 - 9.45 Selected group presentations
Description of the Markestrated model S'tructure

MARKESTRATED SCHEDULE FOR A 3-DAY SERINAR

(one industry)

Preliminary assignment : Read MARKESTRATED carefully before first session.

December 15 (W) 8.30-10.00 Classroom :

Presentation of Markestrated.
Organization of teams
Distribution of the starting situation
(Company Reports for Period 0)
10.15-12.0 Group Work : Team decisions for Period 1
13.30-15.30 Group Work : Team decisions for Period 2
15.30-16.45 Lecture/discussion : Segmentation and
Positioning Strategies
17.00-19.0 Group Work : Team decisions for Period 3

December 16 (Th) 8.30-10.00 . Group Work : Team decisions for Period 4

10.15-11.30 . Lecture/discussion : The Marketing Strategy
Process
11.30-13.00 . Group Work Team decisions for Period 5
14.00-15.30 . Group Work Team decisions for Period 6
15.30-17.00 . Group Work Review of the Marketing Plan
17.00-19.00 . Group Work : Team decisions for Period 7

December 17 (F) 8.30-10.00 Group Work Team decisions for Period 8

10.15-11.30 Group Work : Analysis of the performance of the team
over the last 8 simulated years.
11.30-13.00 Group Work Team decisions for Period 9
14.00-16.00 Group Work : Preparation of the group presentation
16.15-18.00 Final classroom session
Presentation of general results
Group presentations
Description of the Markestrated model structure
 APPENDIX V

MATHEMATICAL FORMULATION OF THE MARKESTRATED MODEL

This appendix contains the main mathematical relations embodied in the MARKESTRATED
model. It is not necessary for the administration of the simulation, and the samem information
is contained in a non-technical form in Chapter V of this manual. The more mathematically
inclined reader will find here a concise summary of the model structure.

The mathematical formulation uses three kinds of variables noted by D for decision variable,
P for parameter and V for intermediate variable. A decision variable is defined as a variable
for which the value is given by the players in the decision form. The values of the parameters
are set in the data files. Intermediate variables are used for computing purposes. In order to
reduce notation complexity, the time subscript of intermediate variables is not indicated when
no confusion can arise (current period t is then assumed.)

STEP 1 - CORRECTION OF INPUT DECISIONS

STEP 2 - ENVIRONMENTAL CHANGES

STEP 3 - SCALING OF THE PERCEPTUAL MAP

STEP 4 - EVOLUTION OF SEGMENTS' NEEDS

4.a Xmi(t) = Xmi(t-1) + 0.1 (xmi(9) - Xmi (-1))

where Xmi(t) = Coordinate on axis i of segment m ideal point at

period t (V)

Xmi(9) = Coordinate on axis i of segment m ideal point at

period 9 (P)

Xmi(-1) = Coordinate on axis i of segment m ideal point aL

period -1 (P)

STEP 5 - NATURAL POSITIONING