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Pricing and Cost

Can my vehicle end up being sold for more than my MSRP?


Yes, it typically happens in one or more of the following circumstances:
1. Demand is high relative to supply, allowing dealers to mark up prices.
2. Dealer margins are tight on the vehicle and so they mark it up closer to industry
standards for that product class.
3. Since dealers are independent businesses, they may look at market conditions and
realize that a higher price is advantageous to their interests.
How can I estimate unit cost from base cost if the production is less than 100,000 units?
Use the Pro-Forma report and select Product Contribution from the list of screens.
Remember to estimate production for accurate projections.
How do you change the MSRP of a product?
Go to DECISIONSMarketing and choose a vehicle to change the marketing mix decisions.
How do you determine the Manufacturing price and margins after making technology
investments?
Use the Pro-Forma report and select Product Contribution from the list of screens.
Remember to estimate production for accurate projections.
Is there a way to calculate the best price of a vehicle?
To find the best price for your vehicle, you must consider volume sales and profit margins.
There are several tools you can use when deciding on your price. The test market (TOOLS
Test Market) lets you see how customers view your current products' pricing, while concept
tests (TOOLSConcept Test optional) can give an idea of how they might view certain prices
on new products or upgrades. Of course, competition will likely change so these studies
provide guidance, but they can't anticipate competitive changes.
What impacts COGS in StratSim?
Some things that impact COGS are your product's design, your technology ratings and
product production volume. Also note that inflation is pushing your COGS up. You can
reduce COGS through vehicle upgrades, investing in technology, or by increasing production
levels. For more information, see Section 3 of the StratSim Student Manual under Unit
Margin: Cost of Goods Sold (COGS).
What is the difference between base cost and unit cost?
Base Cost = estimated unit cost based on 100,000 units of production.
Unit Cost (COGS) = actual cost to manufacture based on actual volume.

What is the expected price range?


The expected price range of a type of vehicle represents how much a customer thinks they
will have to pay for a type of vehicle. It reflects the beginning of the purchase process,
wherein preconceptions affect what vehicles a customer considers. In effect, expected price
range is primarily a positioning issue before the actual buying process begins.
Why am I being charged retooling costs?
Retooling costs are the cost of making alterations to your production equipment. You'll be
charged retooling costs if you upgrade OR increase production of a vehicle.

Technology
How can we estimate return on investment if we decide to increase the technological
capabilities?
On the input screen for technology, there is an Est. Cost Savings of Increase (mill). The
estimated savings is per year is for the entire firm, based on your current product line, sales
volume, and technology profile. Please note, that the technology investment only affects the
COGS, not the development costs. Also note that other factors also affect COGS (volume,
specifications, inflation, etc.).
What are the benefits of increasing our technological capabilities?
Investing in your technology capabilities has two benefits: your firm will be able to develop
products with better attributes, AND higher capabilities reduce the base cost of products, all
else being equal.
When I increase my technological capabilities, does this improve the attributes of my
current vehicles?
No, increasing your technology capabilities will not directly impact the specifications of any
existing product, but it will give you the capability to develop products with higher specs.
You must use upgrades in the development centers to change the attributes of your current
vehicles.
When upgrading the technology capabilities, what do "Est. cost savings of increase" apply
to?
The estimated savings are on a per year basis and apply to manufacturing (not development).
They impact the entire firm, based on your current product line, sales volume, and technology
profile. Note that investing in your technology capabilities has two benefits: Your firm will be
able to develop products with better attributes, and higher capabilities reduce the base cost of
products, all else being equal.

Why am I able to improve my technological capabilities in Interior, Styling, Safety, and


Quality, but not Size and Horsepower?
All companies can develop the full range of size and horsepower preferences for vehicles
throughout the course of the simulation. There is no need to further develop these capabilities,
only refine them to better meet the needs of particular customers.
Why don't people want more HP or Size, but do want more of the other attributes?
There is a difference between the Interior Styling, Safety, and Quality (I/S/S/Q) of a
vehicle, and the Size and Horsepower. For the former, more is always better. Who doesn't
want a better quality vehicle? But for Size and HP (performance), the customer does not
always want more (this goes for Price as well). If I am looking for an economy vehicle, I do
not want a 250 horsepower engine, because I won't be able to get the gas economy I want.
Likewise, a bigger car means more weight, different handling, and lower fuel economy. So,
on the I/S/S/Q, more is always better whereas, for size and performance, each customer has a
more specific preference.

Dealerships and Distribution


Can we control how many sales our dealerships make?
Not directly. Each of your dealerships is an independent business and their success impacts
your success. They make the actual sales to customers and are set up on a regional basis
(North, South, East, and West). You can help your dealers make sales by making certain
top-level decisions, like increasing regional and brand advertising, training and support
budgets, and dealer discount percentage. Other factors that affect how many sales are made
are the number of dealerships in your network and the quality and range of your vehicle
offerings.
How long does it take to increase our distribution network?
It takes 1 year to open/close a dealership, and another year for the increase/decrease in
distribution to impact results. As an example, if you make the decision to add dealerships in
Period 1 (results for Period 1), it will not impact results until the results for Period 3. Pending
dealership openings/closings will appear on the Scheduled Change line on the DECISIONS
Distribution screen, and the Planned Openings line in the INTERNALDistribution and
COMPETITIONDistribution screens.
How much does it cost to make changes to our distribution network?
Check the note at the bottom of the DECISIONSDistribution screen for the exact amount.
Part is an on-going cost and part is for the change.
Is there a sales benefit to increasing the number of dealerships in our network?
Yes, to a point. There is a limit to how many vehicles each dealership can sell in a given year,
so increasing the number of dealerships will allow you to sell more vehicles, all things being
equal. Increasing dealerships will also provide you with improved coverage in each region.

Dealerships are first added to the locations that will have the biggest impact on sales. At a
certain point, however, the market will become saturated and some of these dealers will
overlap each other. This could hurt the sales from the surrounding dealerships and cause sales
per dealer to decrease, which can cause several negative side effects at the dealership level.
What affects our Dealer Rating and how can we improve it?
Dealer ratings (1-100 scale) reflect the customer experience at the dealership. Product
offerings, training, coverage, and profitability affect these ratings. Gross/Dealer is probably
the most important factor influencing your Dealer Rating because that represents the
revenues that the average dealer has to run their business. Gross/Dealer includes the margins
they make on vehicles sold (difference between retail price and dealer invoice), number of
vehicles sold, and revenues from the service department. So, if you improve margins and/or
increase sales volume (per dealer), ratings will eventually go up. Dealer ratings are long-term
in nature, so if you squeeze margins/lose sales in a given year, the ratings won't suffer
drastically, but in the long-run they will.
What is meant by "Support/Dealer?"
Support/Dealer in the INTERNALDistribution screen refers to how much is spent in
support of dealerships for training and regional advertising. It is calculated as follows:
Support/Dealer = (Regional Corp. Adv / # of dealers + Training and Support / Total Dealers)
* 1000

Manufacturing and Inventory


Can you upgrade a vehicle without writing off previous inventory?
For a minor upgrade, no. If inventory is very high, you may want to consider delaying the
minor upgrade a year and lowering production to minimize inventory levels before initiating
the upgrade or doing a major upgrade to give you an extra year to sell off inventory.
Do the development costs of a new vehicle cover increase in capacity, or do we need to also
factor that in and plan for it?
Development of a new vehicle does not automatically increase your capacity. If you believe
the sales/production of the new vehicle will take you over capacity, you will need to increase
capacity yourself.
How are the Consumer Customer forecasted sales determined?
The forecasts are based on the best economic forecasts money can buy, and are just as reliable
as those in the real world. Actual sales will be influenced by a number of decisions that
competitors in the industry will make (new products, upgrades, pricing, marketing, etc.)
Remember that vehicle forecasts on the pro-forma are based on what YOU enter.

How do you calculate Retooling costs?


The easiest way to calculate the cost of retooling your plant for changes in production is to go
to DECISIONSManufacturing, enter increased production for the vehicle, and see what the
retooling cost will be. Be sure to reduce the production input for the vehicle once you have
the information you need. The other way is to run a pro-forma based on estimated sales. This
is particularly helpful to determine the retooling cost of an upgrade. Click Select Report,
choose the Cash Flow Report, and click Plant Investment to see all estimated manufacturing
costs for next period.
How does flexible production work?
Flexible production helps mitigate over/underestimates in vehicle production levels by 10%.
Specifically, if demand is greater than supply, flex production will automatically increase
production up to 10% to help satisfy the unmet demand. Conversely, if your supply produces
more inventory than can be sold in 120 days, flex production will automatically decrease
production by up to 10% to meet the 120 days inventory. If production falls between 0-120
days inventory, production levels remains unchanged, as if the flex production checkbox was
disabled. Do note that if production is increased beyond your manufacturing capacity, you
will incur over-capacity charges.
Is my written-off inventory after an upgrade sold as a competing product?
No, these sales do not impact the marketplace. It is strictly a way to clear out the old model
quickly (selling off to car rental companies, CarMax, overseas, etc.). It does always result in a
loss to you (the % loss is based on how much inventory there is, higher amounts will result in
a higher loss percentage), but it does not compete for market share.
Should I check the flexible production box even if I think I can hit demand?
Generally, activating flex production makes sense. Just be sure to take into consideration
possible over-capacity charges.
We have a new product scheduled to launch next period, but we forgot to increase capacity.
What can we do?
You and your team can choose among the following options:
1. Postpone the launch. The cost is missing out on sales for that year, although you can
still advertise to build brand equity.
2. Produce over-capacity. Any production above capacity will be assessed an automatic
over-capacity charge.
3. Reallocate some manufacturing capacity from your current vehicle production to the
new one.
What are manufacturing overhead costs on the Income Statement and what factors impact
it?
The Manufacturing Overhead costs are the costs involved with the maintenance and general
upkeep of your manufacturing facilities, including repairs to the building, maintenance of

manufacturing equipment, etc. Part of the cost calculation is the age of the facilities and
equipment, so increases in your production capacity (adding newer, more efficient facilities
and equipment) will lower the manufacturing overhead costs.
The factors impacting manufacturing overhead are depreciation, maintenance costs, and
retooling costs.
Depreciation and maintenance goes up as capacity increases, and maintenance costs also go
up as the plant ages. Retooling also impacts depreciation and plant maintenance by adding to
plant investment and updates the plant, increasing depreciation and decreasing maintenance
costs somewhat.
What are the costs associated with the unsold inventory?
Unsold inventory ties up cash (see the Balance Sheet and Cash Flow Report), and runs the
risk of becoming obsolete resulting in an inventory write-off if the product is upgraded or
discontinued.
What happens when we sell off capacity? Will we get cash back?
When you reduce capacity, you will sell off your oldest (and most inefficient) plants. If they
are not fully depreciated, you will receive 50% of the remaining value on the plant and the
other 50% of that difference will be an exceptional loss. Because it takes one year to sell and
dispose of the plant, reduced depreciation and plant maintenance costs will begin the
following period.
What is meant by "Days Inventory?"
Days Inventory is an estimate of the number of days of inventory available at year-end based
on yearly sales and is derived by the formula (365 x units inventory / sales). Generally auto
companies aim for approximately 30 days of inventory, but this may vary based upon
development / upgrade plans for a particular vehicle.
What is the difference between a Development Center and a Manufacturing plant? And
how do these relate to our Technological capabilities?
A Development Center is used to create and develop concepts, and to upgrade existing
vehicles. The attributes of your vehicles (I/S/S/Q) are limited by your technological
capabilities. Once a concept or upgrade is ready to launch, it is sent to your manufacturing
plant for production.
Your Manufacturing plant produces your vehicles for sale in the consumer market. The
higher your technological capabilities, the cheaper it is to produce your vehicles due to
innovations and efficiencies in the production process and product design.
If your total production levels exceed your manufacturing capacity, you will receive an overcapacity charge. Keep in mind that it takes a year to build new capacity, so plan ahead.
Where can I find the expense line for over-capacity charges?
Overcapacity charges are found under Extraordinary Items on the Income Statement.

Will I always have between 0-120 days inventory if I have my flexible production box
checked?
No, the flexible production box will only modify up to 10%, so it is possible for inventory to
be outside the 0-120 day range. For example, if you end up with 240 days of inventory, the
10% flex production will only bring you down to around 215 days.

Upgrades and New Product Development


Can you upgrade the specs of a new car while it is in development?
Yes, you can make minor changes to any major upgrades or new products in the 2nd year of
development (or 3rd if a new class vehicle). The change will not delay the launch of the
product or upgrade.
Do any firms have products in development at the start of the game?
No. All firms begin with 3 vehicles that have been in the market for a few years and no
upgrades or new vehicles in process (in the development centers).
Do we need to pay all development costs upfront for a multi-year project?
No, development costs are spread evenly over life of the project. However, 'tweaking' the
vehicle before launch will add more costs to the back-end, but will not delay the project.
Does StratSim take into account brand positioning?
Yes, StratSim does take into account a company's overall positioning. For example, it is much
more difficult for a firm that is known for its economy products to attain good sales for a new
luxury vehicle than for a firm with an established track record with higher end vehicles.
How do I upgrade a vehicle?
The DECISIONSProduct Development screen will allow you to upgrade a vehicle or create
a new one. To upgrade a vehicle, choose Upgrade from the list of choices. Then choose the
vehicle you want to upgrade and the type of upgrade (minor or major). This will bring you to
the upgrade screen. Notice that the specs of your vehicle have not changed, except for the
Base Cost (there is a slight reduction in COGS when a vehicle is upgraded that reflect reengineering the vehicle to save costs in the manufacturing process without affecting the
product's attributes. In order to change the attributes of your vehicle, you must click
MODIFY to change the specs. Your changes will be immediately displayed on the upgrade
screen, along with a new Base Cost and Development Cost. If you accept the changes, click
DEVELOP to complete the process. Otherwise, you can CANCEL PROJECT or TEST to
run a concept test of the upgraded vehicle.

How do the development timelines work in StratSim?


The development timelines can indeed be a bit confusing. You may find it helpful to look at
the Long Term Planning description in Section 3 of the StratSim manual for charts that
nicely illustrate the development timeline for vehicles.
In general, it is important to note that each round consists of a DECISION period, AND a
RESULTS period. In other words, the simulation begins in Period 1, with each firm making
decisions for Period 2. When viewing the INTERNAL, MARKET, COMPETITION, and
TOOLS sections, the screen will indicate the Current Period, or RESULTS period. When
viewing the Decision section, the screen will indicate the next period, aka, the DECISION
period.
As an example, when the manual states that a minor upgrade takes one year, it means the
upgrade will impact next period's results and will be in a development center for one decision
period. That is why it indicates Launch: NOW. Meaning the remaining inventory will be
written off, and pricing and production decisions should be set with the upgraded vehicle in
mind.
How do we find out the exact cost of the upgrade before approving it?
Once you have begun the upgrade process after going to DECISIONSProduct
Development, the Development Costs will be shown on the Upgrade screen, along with the
changes to the Base Cost of the vehicle. You can continue to make modifications on this page
until you are satisfied with the costs. When you are ready, click DEVELOP. To find out the
actual production cost, use the Pro-forma Product Contribution report which takes into
account the product changes, production volume and other future things that impact costs.
How long does it take for additional manufacturing capacity to be available?
It takes one year for increases in capacity to become available so plan accordingly. The
INTERNALManufacturing screen lists your current Capacity and your Coming on Line
capacity. If your Total capacity exceeds your current capacity, you will receive an overcapacity charge in the Extraordinary Items line on your Income Statement.
If we have a New product in a NEW CLASS currently in development, will we see a
reduction in development time if we develop another vehicle in that class?
No. The simulation only considers a vehicle an EXISTING class if it is currently being sold in
the market. In other words, you must wait until your first vehicle launches to see the benefit of
reduced development time for an existing class.
Is there any way to delay the launch of a model and free up a development center?
You may cancel a project to free up a development center, but you will have to start over
again when you decide to start developing it again. The other option is to begin building a
new development center (it will take one year to complete). You can delay the introduction of
a new model by setting the Price and Production level at 0 when it is scheduled to launch.

What does it mean when a product in development indicates "Launch Now"?


This means the project is complete. Before the vehicle can be sold, you must set Marketing
(price, dealer disc., etc.), and Manufacturing (production level) decisions. Once the
simulation is advanced, you will see sales results for this vehicle.
When performing a MAJOR upgrade, how much can I modify a vehicle?
A major upgrade allows you to modify a vehicle by: Size: +/-10 in the 1st year; +/-2 in the
2nd. HP: +/-20 in the 1st year; +/-5 in the 2nd. I/S/S/Q: +/-2 in the 1st year; +/-1 in the 2nd
(as long as your technology capabilities allow). Note that in the 2nd year, a 'tweak,' or minor
upgrade can be performed to allow additional modifications. A major upgrade takes 2 years
and can give you time to sell excess inventory before it is written off.
When performing a MINOR upgrade, how much can I modify a vehicle?
A minor upgrade allows you to modify a vehicle by: Size: +/-2 HP: +/-5 I/S/S/Q: +/-1 (as
long as your technology capabilities allow) A minor upgrade is the quickest way to upgrade a
vehicle. Sales will be impacted the very next period so be sure to set your Marketing and
Production decisions right away. Note that additional inventory will be written off at a loss.
Where can we find out if a competitor is upgrading a vehicle or launching a new one?
The MARKETIndustry News contains information about changes in the competitive
environment including any new, upgraded or licensed vehicles introduced this period. In
addition, there will be a message in Industry News one period in advance of the launch for
NEW CLASS vehicles only.
That said, you may want to think about other clues for discerning whether competing firms
are active in R&D development or not.
Why is the base cost of my concept different in the Product Development screen than in the
Pro-forma?
The base cost is an estimate of the per unit cost of the vehicle based on 100,000 units of
production. If you produce fewer units, the per unit cost will likely be higher, and if you
produce more units you can expect to have a lower per unit cost. You can enter your
manufacturing decisions and then view the Pro-forma Product Contribution report to see
what the estimated per unit cost would be at that production level.
Will I experience a reduction in the base cost of my vehicle when I upgrade?
It depends on what specs you are upgrading. If you do not improve the vehicle itself, you will
likely see a reduction in costs as the development team perfects the engineering process. If, on
the other hand, you are increasing the size, HP, and/or specs (I/S/S/Q) of the vehicle during
your upgrade, base unit costs will increase due to the improvements made. Correspondingly,
decreasing any of those attributes will lower the base unit costs.

Will we receive a cost reduction when we develop and produce 'similar' vehicles, for
example, a truck and an SUV?
No, the simulation does not account for synergies between vehicle classes. You will, however,
receive an advantage when producing vehicles of the same class. That is, the 2nd (and
subsequent) vehicle you develop within a class will take less time and cost less money to
develop.

Finance
Are bonds deductible on corporate tax returns in the simulation?
Bonds do not reduce taxable income, but the interest paid on them does.
Are there any downsides to offsetting my short-term debt by issuing bonds?
The rate for the long-term bonds will always be less than short-term loans. However, there are
some "risks" associated with bonds. For one, your current interest rate may change by the
time the bonds are issued, meaning your fixed rate may go up. The second is a penalty for
calling bonds early. You are not required to call your bonds by the end of the game, but if you
do you will be charged one year of interest expenses. Remember all the bonds that were
issued together must be called together (no partial calls).
Are we required to call our bonds before the end of the simulation?
No. The bonds are long-term bonds that mature beyond the time-frame of the simulation,
therefore, you only have to be concerned with making the interest payments. You may call
them if you like, but remember there is a penalty equivalent to one year's interest payments
for calling them early.
Does increasing dividends improve our stock price? How will this impact our market
value?
Increasing dividends may or may not increase the share priceit depends on whether
investors are more interested in income or growth. That said, an increase in stock price would
increase the market value of the firm, since the number of shares is unchanged.
Does stock price impact customer preferences?
No, stock price itself does not impact customer preferences. However, it is frequently an
indication of other factors that do impact the likelihood your vehicles will be purchased.
Does the StratSim program include a tax shield for depreciation in the financial
calculations?
If you are referring to the tax shield benefits of interest or depreciation, yes, they are
definitely included. However, there is no loss-carry forward effect in StratSim.

How can I raise my firm's stock price?


Stock price is an indicator of the current position of the firm. Profitability, growth, future
potential, as well as market risk, are all factored into stock price. Please carefully consider
your current position, your strategy, and the execution of your strategy. Since stock price is an
overall measure of the current position of your firm, you will want to consider all factors that
go into making your firm a profitable one, thinking long-term.
How do I perform an NPV analysis within the simulation? I seem to be missing several
inputs . . .
First, remember that in this simulation, as in the real world, you are making decisions in an
uncertain environment with less than perfect information. That can be difficult and frustrating.
But there are very few situations where all of the inputs of an NPV calculation are truly
known. If they are "known," it just means that someone has gone through the work of coming
up with the assumptions and estimates, which is what you will have to do to some extent
when you play the simulation.
Second, with regard to the risk-free rate, you'll need to make an assumption about
approximately what it would be, based on the cash rate (what interest rate they can get in a
money market account) and the prime rate. You can use a range of rates here to determine
sensitivity or pick something that is "average." You are correct that Beta is not provided. As
you know, Betas are estimates of risk in the financial world as well; they are not known
constants. To get out of the dark completely, you could use the Beta estimate of one of the
auto companies, although because the simulation is a bit more volatile than the real world, I'd
probably increase it a bit from that. Using the "real world" is generally not advised in the
simulation, but this might be better than nothing if you need a benchmark.
With regard to future cash flows of a project, you will have to make estimates beyond a year.
(Note that the first year forecast is also an estimate.) Depending on the particular investment
you are considering, your estimates may be fairly accurate or more difficult to nail down.
How do we improve our bond rating?
Generally, the bond rating reflects your current default risk as a company. The best way to
improve it is to have a successful strategy and execute it well. This will improve your ability
to generate a stream of income, etc. and improve your bond rating. Restructuring might help,
but perhaps at the expense of your stock price.
How do you pay off short-term debt?
You may replace short-term debt with either long-term debt or cash raised by issuing stock.
Alternatively, income from operations, improvements in managing inventory, etc. will also
improve your cash position. Think of short-term debt as a revolving line of creditit is
automatically issued if needed and automatically paid off each period.
If we issue more shares, will our stock price fall?
If all other things remain unchanged, yes.

If we reduce capacity, will it reduce my depreciation expenses?


When you reduce capacity, you are actually selling off some of your plant and equipment. So
your plant depreciation will continue, but the amount will be lower due to selling off
equipment unless the plant was already fully depreciated (as oldest plant and equipment are
sold off first).
Is a discount rate used when calculating cumulative net income?
We use straight cumulative net income no discount rate.
Is the long-term interest rate dependent on the size of the debt issued?
The interest rate will depend on the market's evaluation of the risk of your firm. In the proforma, you can experiment with different levels of debt to see probable impacts on the interest
rate. Note, however, that the final rate is also dependent upon how things go during the year,
and it will always be less than the short-term debt.
The manual states that depreciation will remain constant unless PP&E is purchased or
sold. Does that mean that we assume that depreciation goes into infinity?
No, plant depreciation occurs over a 10 year straight line. Since the game is played up to 10
years, you can count on depreciation remaining constant (unless you increase capacity) over
the course of the game.
What are G&A expenses?
G&A is a catch all for a number of indirect expenses such as admin costs for each vehicle
sold and for each new or pre-existing dealership. Training and support for dealerships is also
included, as well as factors related to receivables and payables that you can't directly control.
What happens if we run out of cash? Will we go bankrupt?
If operations, current cash, and bonds/stocks issued do not provide sufficient cash for you to
cover expenses, a short-term loan will be automatically issued for the amount necessary to
cover any shortfalls. The short-term borrowing will be at a higher rate of interest than longterm debt, so it is to your advantage to plan cash flow needs accordingly. If you continue to
see high short-term debt, it is an indicator that you do not have enough cash to fund all your
expenses and you should consider ways to increase your cash position. Section 3 of the
StratSim manual describes these ways in detail. Running a pro-forma may help you determine
your cash needs for the next period.
What is the difference between Cash Rate and Prime Rate in the Economic Outlook
screen?
The cash rate is interest a firm receives on short-term cash balances; prime rate is the rate a
firm pays on short term loans (if it is a "prime" customer).

What is the rate of return we'll earn on our excess cash after we've paid off our short-term
debt?
See the MARKETEconomic Outlook report (where GDP and other economic data are
listed) for the current cash rate.
What would be the impact to our stock price if we cut our dividends?
All other factors being equal, cutting dividends will have a negative impact on stock price, but
if the cash that is freed up is used to boost income (and therefore equity), then it could
improve stock price. In short, it depends on what you do with the money saved by cutting
dividends.
Which of my expenses are depreciated over time?
In general, the simulation tries to keep expenditures as current as possible, so opening
dealerships and increasing technology capabilities are expensed in the current period. R&D is
expensed over the course of the product development project (1, 2, or 3 years) and production
capacity is depreciated over 10 years. The simulation speeds up depreciation/amortization
rates mainly to make sure most investment decisions impact the firm during the simulation
rather than after they've retired. This may not be in compliance with GAAP, but it improves
accountability for decisions in the simulation.
Will my available cash ever drop to zero?
No, there is a minimum amount of cash that the company requires for on-going operations.
This varies depending on the operating conditions of the company and cash needs.

Entering Decisions
Can a team be charged twice for the same report?
No. Once a report is purchased, it can be viewed by anyone on the team for no additional cost.
However, the output from many of the reports is based on parameters set by your team.
Although you won't be charged for creating an exact duplicate, it is important to coordinate
with your teammates so you don't accidentally produce a similar report you don't need.
How do I discontinue a vehicle model?
Discontinuing a vehicle is a two-step process. First, go to the DECISIONSManufacturing
screen and set production to 0 for that model. Then go to the DECISIONSMarketing screen
for that model and uncheck the box labeled Sell in Consumer Market. These options also
give you the flexibility of a) selling off your inventory while not manufacturing any vehicles
(setting production to 0 but still offering the vehicle for sale in the consumer market; or b)
ONLY selling your vehicle into the B2B market (by unchecking the Sell In Consumer
Market box and bidding on B2B contracts and manufacturing the appropriate number of
vehicles for the contracts).

How do I export simulation data to a spreadsheet?


There are a few ways to do this. You can choose File in the top left corner and click [Print
Reports] to see predetermined selection of pages to export (You must check the Export to
Spreadsheet box at the bottom unless you want to print them). If the page you want is not
listed there, you can simply open the page you want to export and click the Copy icon in the
upper menu bar of the simulation, or use Ctrl+C to make a copy. Then simply paste it into a
spreadsheet. The copy function is optimized for Excel, so if you are using a different program,
you may need to use Paste Special to make it tab-delimited.
Is it possible to undo a decision?
Yes, you can undo most decisions and change them BEFORE the decision round due date.
The exceptions are market research studies, and optional licensing and International
agreements, which are binding once purchased/accepted. Once the decision round has been
advanced to the next period, however, you cannot retroactively change anything. It is
important, therefore, to review, and possibly print-, take a screenshot, or export your Decision
Summary before each round ends to verify everything is correct. If you are playing as a team,
remember that your teammates can make changes also, so you will want to coordinate your
efforts.
We accidentally purchased market research we don't need; can we receive a refund?
Unfortunately not. Once purchased, studies cannot be returned or refunded. Any member of a
team can purchase reports, so it is important that you coordinate with your team and carefully
consider the research you want. Keep in mind that your company is making billion-dollar
decisions each period; $50,000 for a report is miniscule by comparison.

Tools, Research, and Customers


Can I sell a Delivery vehicle in the consumer market?
No. The Delivery class is only for the fleet buyer (B2B) and has no impact on the consumer
market.
Can our competitors see what market research we've purchased?
No. Your market research tests are private and can only be viewed by members of your team.
Do consumer preferences change over time?
Yes, just like in real life, both customer preferences and competition changes each year. In
some periods there will be more change than others.
Does the New Customers list change every period or is it static?
The new customer list stays the same until a new customer emerges, and then it is replaced
with the next one. As a general rule, there will always be 3 new customers available.

Does the Test Market analysis use the current vehicle or the upgrade in development when
producing results?
The Test Market is used to determine the impact of price, advertising, and promotion on
sales, where the product features are held constant. The characteristics of the existing product
are used, not any planned changes (upgrades).
How accurate is the "likely to buy" percentage in the Concept Test?
The likely to buy percentage is a good way to begin to estimate demand, but note that this
study is run "unbranded" and therefore does not take into account distribution, awareness,
advertising, promotion, firm preference, etc (see the Concept Tests page of the manual in the
TOOLS section).
How can we make a new customer market emerge?
There is no surefire way to make a new customer market emerge. The key is providing the
customer with a good product at the right price with good awareness. The MARKETNew
Customer screen provides the only information available for new customers, though it is
somewhat limited. You may also want to use some of the market research to learn more about
the emerging customers. Also note that only one new customer can emerge each period. The
new market will go to the vehicle that provides the best fit, and the best support. Other factors
such as the size of the market and advertising budget also play a role.
How do I create a useful Conjoint Analysis?
For a start on choosing good values for the study, carefully read TOOLSConjoint Analysis,
in the Operations Guide section of the manual. The idea behind conjoint is to find out what
trade-offs your customers are willing to make, so you'll want to design the study such that it
yields that type of information. For instance, you might choose 1/1/1/1 and 2/2/2/2 and prices
of $15,000 and $16,000 to see if a particular consumer is willing to pay $1000 for the
improvement in vehicle specifications. On the specifications in particular, you might select
3/1/1/1 and 1/3/1/1 to help you analyze which higher attribute is preferred.
How do we determine customer perceptions?
In StratSim there are two primary ways to learn about how a particular customer segment
perceives an existing product the focus group and the perceptual map. For new concepts,
products in development, or upgrades, you would need to use concept tests.
How do you identify which vehicle class has the highest growth potential?
All of the information you need is found in the MARKET section. You'll want to look at the
forecast units under CONSUMER-Customers (forward looking) as well as analyze historical
trends and consider customers who are interested in that class and their expected growth rates.
Remember when analyzing historical market data that vehicle stockouts impact sales.

Is it possible for a customer to have two "desired classes?"


Yes. In the Consumer Customers report, each consumer market has a primary and secondary
'desired class.' This means the customer will consider both vehicle classes when making
purchasing decisions. Usually, the first vehicle class listed (primary) is somewhat preferred
over the second (secondary).
We want to discontinue a vehicle so our firm is better positioned as a high-end
manufacturerwhat are the downsides to this?
Dropping a brand should be done with care, since you have built up equity in the brand that
can only be replaced at great expense over a long period of time. Consider the fact that BMW
thought it better to buy the Mini Cooper and build on it rather than develop its own brand
from scratch.
When you take over management of a firm, you inherit its customer base, product portfolio,
competitors, development capabilities and financial position. In addition, you also inherit
people's perception of your firm based on years of experience. Your future vision of the
company may or may not match the current company that you are managing, and changes that
you make will not change others' view of the company overnight. So, repositioning of your
firm, though achievable, does take time.
What are the measures of customer satisfaction in StratSim?
The main measures of customer satisfaction in StratSim are:

Consumer preference: Overall satisfaction measure for the firm. In effect, which
company do consumers prefer to do business with?

Dealer Ratings: A measure of consumer satisfaction with the dealership experience

Focus groups: specific feedback on various aspects of the product

What is included in the MARKETConsumer Customers report?


Consumer customers are the intersection of consumer segments (report: INDUSTRY
Consumer Segments) and vehicle classes (report: IndustryVehicle Classes), and allow finer
segmentation of the market. The Consumer Customers reports provide detailed information
about each customer's vehicle preferences.
When a new customer pops, does demand increase or is it at the expense of some of the
existing segments?
New customers represent new business and increase industry-wide demand.
When running a Concept Test, what price are we inputting: MSRP, Average Sale price, or
dealer price?
The price you enter on the concept test assumes that MSRP and the retail sales price to the
consumer are the same without any dealer discounting. This is unlikely to occur in reality, so
plan accordingly.

Where do market research costs appear on the Income Statement?


The cost for market research will show up under Extraordinary Items on the Income
Statement. The detail view will show the cost as Reports.
Why can't I run a focus group on an emerging customer?
Focus groups are only available for customers that have already emerged. However, you can
run a concept test on one of the emerging customer, which provides some similar information.
Why do the unit sales numbers differ between the MARKETVehicle Classes report and
the MARKETConsumer Customers report?
The Vehicle Class report shows, among other things, how many vehicles of each type of class
were purchased. The Consumer Customers report shows, among other things, how many
vehicles a particular customer-type purchased. Sometimes customers will purchase vehicles
outside of their primary, and even secondary, desired class. You can use the TOOLSSales
by Customer report for detailed information.
Will a new customer buy a vehicle that's different from its listed class?
Yes and no. A new or significantly upgraded vehicle MUST be created in the class that the
New Customer report indicates in order for the customer to pop. After the new customer pops,
they will buy other vehicles, including other classes, on the market that meet their needs, just
like the other consumer customers. The numbers will vary based on how well the new vehicle
meets their overall needs.

Development Centers
Can we license development centers and production plants from another team?
Sort of, and ONLY if the Licensing option is activated. If the Licensing option is activated
(instructor optional), you can license a vehicle from another firm. As part of the licensing
agreement, the licensor can develop, upgrade and/or produce a vehicle for your firm using
their facilities.
Can we remove a development center?
No, you can't remove a development center once it has been built, but there is no on-going
cost for having it if you don't use it. If the Development center has not yet been built, you may
"undo" the decision by going to DECISIONSProduct Development, clicking the [Dev.
Center] button and unchecking Add Development Center.
How long does it take to add a development center?
It takes one year to build the development center. If you make the decision to add a
development center in the current period, you will be able to use it next period.

What do we do if we don't have any more Development centers available?


All firms start with 2 development centers. If you need more, you can wait until one frees up,
or build a new one by clicking [Dev. Center] and checking the Add Development Center
box in the DECISIONSProduct Development Center. You can only add one per period and
can have a maximum of 5 over the course of the game. Remember that it takes one year to
build a new development center, so you will not have immediate access.

Miscellaneous
How realistic is the StratSim environment compared to the U.S.?
StratSim is based on the automobile industry and many of the scenarios are modeled to reflect
more mature markets such as North America, Europe, or Japan . Needless to say, much of the
complexity of the industry has been simplified to allow participants to focus their time and
energy on strategic issues. However, we've retained as much realism as possible to make it
easier to quickly understand the overall environment. That said, faculty and students should
only use historical perspectives as a way of relating to the market, rather than for analytical
purposes. The same is true for economic indicators in the simulation. Generally, what we are
trying to provide is an even opportunity experience for all teams that reflects, in a simplified
way, a realistic market and market dynamics.
Our team is trying to figure out how the simulation thinks about the end of the game, and
whether we should do a lot of cost cutting then, to try to maximize our position. What is the
best way to approach this?
Remember that your firm performance is a function of your performance within industry and
across industry on net income and market value. The stock market is determining the value of
your firm into the future by assessing the discounted value of your future cash flows. These
assessments are made each period, including the final period. In other words, even though we
are ending the game at Period 10, the market's assessments of your firm continues to be
forward looking as it has been throughout the game. So perhaps the question your team
should consider is what is impacting the market's assessment of your firm's future value.
What are the drivers of firm preference?
Firm preference is determined by dealer ratings, range of products offered, firm technology
capabilities, age of products, actual sales, and firm publicityin short, all the things that
make a customer want to do business with a firm.

B2B Marketing (Optional)


Are there any negative consequences to entering the B2B market?
While selling to fleet buyers does not impact the perception of your firm as measured by firm
preference, B2B contracts may impact your internal operations due to changes in production
levels of vehicles which may require retooling, or adding additional capacity. You should also
plan carefully regarding margins in the B2B markets.

Can we sell a vehicle for different prices in the Consumer and B2B markets?
Yes. These are two different markets with different purchase processes. Whether or not a
vehicle is currently for sale in the Consumer market, you will be prompted to enter a separate
price in the DECISIONSB2B Marketing screen. This price has no effect on your vehicle
price in the DECISIONSMarketing screen.
Do all firms see the same B2B contracts available for bidding?
Yes. And all firms can qualify for the same contract if they fit the requirements. The preferred
supplier will win double the guaranteed units, and all other suppliers will be secondary and
win the guaranteed contract units. You can see which firms have qualified in the MARKET
B2B Contracts screen.
How do we become the PREFERRED supplier?
The preferred supplier is the one who meets all the requirements at the lowest price. If you are
the ONLY supplier, you will automatically become the preferred supplier as long as you
produce a sufficient amount of units. Please note that B2B units will be allocated before
consumer sales, so you should keep that in mind when setting production levels.
How do we qualify for a B2B contract? How does the process work?
Company fleet buyers have a significantly different purchase process than individuals. In
order to qualify for a contract, your company must meet ALL the requirements for that B2B
client.

The first step is to determine which contract(s) you wish to bid on. The requirements
for each B2B contract can be purchased in the MARKETB2B Contracts section.
You may already meet all of the qualifications, but also very likely you may need to
modify a current vehicle, build a new one, or increase your distribution coverage to
qualify.

The next step is to hire a sales force to build a relationship with the client and obtain a
request for quotation; this is done in the DECISIONSB2B Marketing screen. To
target particular client contracts, check the box next to the client's name. Please note it
takes one year to build a relationship. You may want to use this time to work on
meeting all requirements.

Once the simulation advances to the next period, you are ready to bid on a contract.
Go to the DECISIONSB2B Marketing screen to see your available contracts. You
will be prompted to choose a vehicle for the contract. If you meet all the requirements,
you will be awarded the guaranteed units for the contract. If not, you can continue to
try again each period, as long as you continue paying your sales force.

Please note if you are the only supplier, or offer the lowest vehicle price, you will become the
"preferred" supplier, and will be awarded DOUBLE the guaranteed units.

How long do B2B contracts last?


B2B contracts are awarded each period based on the bids received for the contracts. You can
expect the contracts to continue throughout the simulation, but the price requirements will
change to take into consideration inflation, and, of course, some of your competitors may
enter the B2B market which may impact preferred provider status.
How much does it cost to enter the B2B market?
The only direct cost is the sales force, which is around $500K per client. However, overhead,
retooling, product development, expanding distribution, etc., may all also come into play.
Where do we find information on B2B Contracts?
Two options. If the B2B module has been activated for your class (instructor-selected), you
can purchase contract information for each of the B2B clients in the MARKETB2B
Contracts section. Alternatively, when you hire sales force and target particular contracts,
your sales force will provide similar information the following period as part of the request
for quotation process.

Licensing (Optional)
Are there any fees associated with producing a vehicle for a licensee?
Not directly, but as licensor, there are several issues you want to keep in mind that can affect
your profits.

The most important is the unit price of the licensed vehicle. You may want to run a
pro-forma to determine if your margin will justify moving forward with the deal.

Any time you change your manufacturing mix, you will incur retooling costs. When
you produce a vehicle under license, you do not simply use the old production line and
slap a different nameplate on the vehicles as they come off the line. Instead, you create
a new production line. This allows you to upgrade the licensed vehicle (as per your
agreement) independent of your own products. While you do benefit from the
experience with the vehicle it is based on, you will incur some retooling costs.

Additionally, producing a vehicle under license will increase your overall production.
Make sure your manufacturing capacity can handle it or you will receive an overcapacity charge. Information on production and manufacturing can be found in the
INTERNALManufacturing screen, the COMPETITIONManufacturing screen,
and the DECISIONSManufacturing screen.

Lastly, the license agreement may include a License Fee. Typically, this benefits the
licensor for additional costs, but entering a negative number will benefit the licensee.
The license fees will appear on the Income Statement under Licensing Fees.

Can we bid for a B2B contract with a licensed vehicle?


Yes, as long as your license contract allows this.

How do I begin the licensing process?


Licensing is an instructor-selected option. If this option is activated, you can license vehicles
from other firms in your industry to sell under your brand. Research can be done within the
simulation (in the MARKET, COMPETITION and TOOLS section); however, negotiating
the contract will mostly take place outside of the simulation in person with the other team, or
by phone, email, Skype, etc. We do not dictate the terms of the contract, but keep in mind the
limitations within the simulation.
Once you agree on a contract, the licensee must go to the DECISIONSLicensing screen and
click Add to enter terms of the contract. First you must enter a name. (Note: this is the name
of the vehicle you will sell, not the vehicle you are licensing, so it must begin with the first
letter of your firm.). Then you are prompted to choose the vehicle you want to license.
Based on the contract you negotiated, you will enter the units, contract price, and vehicle
specs. As part of the contract, the licensor may need to modify the vehicle in question.
Expenses such as these can be factored in by entering a licensing FEE which is paid to the
licensor to offset additional costs. Once the contract has been entered, check the EXTEND
OFFER box.
After the offer is extended, the licensor must review the license requirements per the contract
and accept the agreement (or do nothing and ask the licensee to modify the license). This
should all happen in the SAME PERIOD. To accept, go to DECISIONSLicensing, click
Accept, and enter the vehicle model to license.
Once you click [OK], you CANNOT undo this decision, so keep an eye on price and units to
make sure they correct. As soon as you click [OK], the simulation will automatically add
production of the licensed vehicle to the licensor's plants. The Licensee then needs to pricing
and advertising budgets for the licensed vehicle in the DECISIONSMarketing screen.
Results from these sales will be available next period.
How do we penalize a team that doesn't comply with a licensing contract?
First, you will need to determine the consequence of non-compliance. How many sales were
potentially lost? How much money was potentially lost? Answering these questions is often
difficult to estimate. You will probably need to get the instructor involved and it is important
to have all terms agreed to in writing. If both parties can come to an agreement over potential
damages, we can reimburse and/or fine the parties involved WITH INSTRUCTOR
APPROVAL. Just have the instructor email us. Please note this is a last resort and it is our
hope that with instructor mediation, both parties can come to an amicable agreement.
How do we request an upgrade on a licensed vehicle?
When entering licensing decisions, just input your requested changes. For example, if you
want to upgrade Interior and the I/S/S/Q of the current vehicle is 4/3/2/2, enter 5/3/2/2. The
licensor will then have to upgrade the vehicle, or reject the contract. Please note that Major
upgrades will take two years and may delay a license. Therefore it may be a good idea to
discuss your expectations with the licensor. As licensor, you may want to include a License
fee in the agreement to offset potential development costs. Or charge more on a per unit basis.

How is market share determined for a licensed vehicle? Whose sales, the licensor or the
licensee, are reflected in their market share?
The sales of BOTH the licensor and the licensee are reflected in Value Market Share (% of
$). This is because Value Market Share (% of $) is based on share of manufacturer sales.
However, only the licensee (the firm who ultimately sells the vehicles in the consumer
market) will see their Unit Share (% of units) affected.
If one partner does not comply with the terms of the contract, will the simulation penalize
them?
No. Production and delivery of licensed vehicles, and deduction and addition of license fees
occur automatically in StratSim.
However, your contract may include details or requirements that cannot be enforced by the
simulation, such as non-compete clauses, upgrade intervals, distribution restrictions, etc.
Therefore, it is up to both parties to monitor each other and communicate to ensure everyone
adheres to the contract. Unless your instructor takes on the role of the legal system, there are
no lawyers, and there is no way to sue.
If our Licensing agreement has been accepted, can we make changes before the simulation
advances?
Once an agreement is accepted by the licensor it CANNOT be changed until the next period.
This means the contract price cannot be changed (selling price is set be licensee), units cannot
be returned, licensed vehicles cannot be upgraded or modified, etc. Carefully consider all
ramifications before entering into a contract. You will be able to change the license agreement
next period when it is up for renegotiation.
If the original vehicle our licensed vehicle is based off gets upgraded, will our licensed
vehicle get upgraded automatically?
No. Once a license is agreed on, the licensor produces a completely new vehicle (albeit a
vehicle based on a current product) with your name on it. The licensor is now producing two
separate vehicles: the original (with THEIR name), and the licensed vehicle (with YOUR
name). The licensor can choose to upgrade the original without any input from the licensee. In
other words, the development process is tied to the NAME of the vehicle. It is up to the
licensee to request an upgrade to the licensed vehicle using the DECISIONSLicensing
screen. The licensor will then need to perform an upgrade in the DECISIONSProduct
Development screen before they can accept the license in the DECISIONSLicensing screen.
If we do not sell all of the vehicles we license, who gets stuck with costs?
The licensee. The vehicles have your brand name and are sold in your dealerships therefore
you will be stuck with the vehicles if you don't sell all of them. While excess inventory may
temporarily increase costs on your end, you may continue selling them after the licensing
agreement has expired. For this reason it is important to carefully estimate demand when
projecting unit sales of a licensed vehicle.

What are the rules and restrictions for licensing in StratSim?


You should review the Licensing section of the StratSim manual for further details, but we've
included some important notes below:

A firm can only license a maximum of TWO vehicles FROM other firms. There is no
limit, however, on how many vehicles you can license TO other firms.

Once an agreement is accepted by the licensor it CANNOT be changed until the next
period. This means the contract price cannot be changed (selling price is set be
licensee), units cannot be returned, licensed vehicles cannot be modified, etc.
Carefully consider all ramifications before entering into a contract.

While a multi-year contract can be negotiated, licenses MUST be renewed each period
within the simulation. This means the licensee must re-offer the license AND the
licensor must re-accept the license every period. This is done in the DECISIONS
Licensing screen.

Classes with multiple competitive industries cannot license vehicles to or from other
industries.

License contracts can require that vehicles be upgraded once, or at set intervals
throughout the game. That said, the upgrades must be done BEFORE the licensing
contract is accepted. In other words, licensed vehicles must match what is in the
licensing agreement or the simulation will not allow the agreement to be offered.

Unit requirements must be set. In other words, no open-volume license contracts.

Inventory remaining after the licensing agreement ends can be sold by the licensee (as
long as the contract allows this). It cannot be returned to the licensor.

Lastly, production and delivery of licensed vehicles, and deduction and addition of
license fees occur automatically in StratSim. However, your contract may include
details or requirements that cannot be enforced by the simulation, such as noncompete clauses, scheduled upgrade intervals, distribution restrictions, etc. Therefore,
it is up to both parties to monitor each other and communicate to ensure everyone
adheres to the contract. Remember, there is no court system in StratSim, there are no
lawyers, and there is no way to sue. If a contract is broken, there may be no recourse.

What is the difference between the licensed vehicle and the original?
It is true that the specs of both vehicles will be identical. However, the licensed vehicle has
your firm's name on it, even though it is produced in your competitor's production plants.
Therefore it is seen as part of your product portfolio and gets the benefits (or drawbacks) of
your overall corporate profile (including perceptions such as dealer ratings, firm preference,
and corporate positioning.
When we license a vehicle to another firm, do we need to set production levels?
When you accept the license agreement (by clicking the [Accept] button), the licensed vehicle
and units will automatically be added to your production schedule, and you will not be able to
change the number, since you are bound by contract to deliver the vehicles. Increasing the

production capacity, on the other hand, is a decision you make separately. Keep in mind that
if you increase capacity this period, it will not be available until next decision period, so you
may be running over capacity for a year.

International
What is my manufacturing capacity in an overseas plant?
Your capacity in the international regions will be determined by your domestic plant capacity.
Each vehicle will be limited to twice the amount of your total domestic capacity. For
example: if your total domestic plant capacity is 1Meach vehicle will have a limit of 2M in
the international regions.
Where do I set production levels for a vehicle I'm marketing internationally?
In the DECISIONSManufacturing screen. You only set one production number for any
particular vehicle, so be sure to produce enough to meet expected demand in the domestic
region, as well as any international regions you have entered. If you do not produce enough,
demand will be met in the international market FIRST and in the domestic region second.
Who pays the tariff and shipping when sourcing from a partner?
The offshore partner pays the extra fees. That is, the price you enter for the agreement is the
cost per unit to you. The partner will calculate the tariff and shipping, and factor that it when
deciding if a deal is worth pursuing.
Why is my capacity utilization number so low when I am producing more than it says I
have capacity for?
If you are producing vehicles in a plant located abroad, these are not included in the totals and
thus are not affecting your capacity utilization percentage. Capacity utilization is looking at
the total domestic plant capacity and the total domestic vehicle production.