PMBA 623

Dr. Charles Noble

The University of Mississippi

Round 2 Decisions and Beyond in StratSim

Note: The first part of this note is similar to some guidance you’ve received in the past but the
second portion (“Making StratSim Decisions”) is new and should be valuable. However, these
notes are not meant to take the place of the Student Guide – your most important resource!

EVALUATING THE SITUATION

(A.) Analyzing Performance and the Environment:

The best thing to do to start looking things over each round is to think in terms of a “SWOT”
analysis (strengths, weaknesses, opportunities, threats). Below are some general suggestions to
better understand your firm and the competitive environment in StratSim:

(1) External Issues:

External are things outside your firm that may influence your present and future success. They
basically call into three categories:
 Economic factors – general state of the economy (GDP, inflation), gas prices, lending
rates, etc.
 Competitive Factors – what is the competition doing? Is anyone introducing a new
product that will compete with you? What kinds of R&D is the competition doing?
 Consumer factors – emerging customer markets (e.g., hybrids), growth or decline in size
of various consumer group, changing consumer tastes.

Understanding these factors will give you a better understanding of the world in which you
operate. No matter how great their products are, no company operates in a vacuum so
understanding the external world is critical.

To understand the external environment, review some of the following, keeping in mind your
product of interest:

Under “Market”:
- Industry News
- Economic Outlook
- Consumer Segments (focus on change %)
- New Customers – reflects opportunities for new business or repositioning current products.

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(2) Internal Issues:
These are factors that have to do with the strengths and weaknesses of your company and
products.

Under “Market”:
- Consumer Customers (purchase the report for your product-market combination! – Examine
how your product stacks up to competition and customer buying criteria). Who are your
competitors?

Under “Competition”:
- Market share
- Technology – Note how your capabilities stack up to the competition.
- Marketing Communications
- Distribution – look at each firm’s regional coverage.

*** All of this work should give you insights into which new products might be successful,
whether in existing product categories or in new ones (e.g., hybrids, delivery vehicles, other
categories in which you don’t currently compete). Decide at this point whether you think a
new vehicle needs to be developed.

MAKING STRATSIM DECISIONS

(B.) Product Development – Upgrades to Existing Products:

Note: This is just one way (and a pretty limited one at that) to use the various StratSim reports
and decision options. You will probably want to broaden your process once you feel
comfortable with this approach.

(1) Look at “Product Contribution” – Get a sense of how profitable your products are. You will
almost definitely want to enhance and improve (if possible) your most successful products. For
less successful or unprofitable products, you’ll want to improve or possibly consider killing them
off (i.e., discontinuing).

(2) Look at the “Products” report to see what product classes you are in.

(3) Purchase “Vehicle Sales by Customer” to identify the highest product – customer
combination (e.g., “5U”) for each of your products.

(4) Purchase the “Focus Group” report for each of your major combinations (the top one for
each product at least). This gives you a sense of how well people like your product – Where are
you weak / strong for each product? Note the “hot buttons” for each and be sure to emphasize
them in your development.

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(5) Purchase the “Consumer Customers” report for each product – customer combination. This
helps you determine the ideals that each group is looking for. Be sure to look at the “positioning
map” while there.

(6) Use “Conjoint Analysis” to help you understand the weight and desired levels of different
technology factors.

(7) Be sure to go through the process for all your products before deciding which ones are in
most need of the commitment of a Development Center (since you usually have fewer Centers
that products you’d like to develop or improve).

(8) Make any needed product improvements by going to the “Product Development” section of
the Decisions, then use the “Upgrade” button (see manual to determine whether you need
“major” or “minor”).

(C.) Pricing, Advertising and Promotions:

First, evaluate your Pricing on each product:

(1) The most useful thing to have here is probably the “Consumer Customers” report since it
tells you the current MSRP of your product and its competitors plus the desired price range for
that consumer market. Note that the most attractive price for the consumer group is the low end
of the range (below that and the product seems “cheap” to them). However, it’s important to
note that you probably can’t afford to sell at the low end of the range – managing profit margins
is critical in StratSim and in business!

(2) Beyond knowing these MSRPs and the relevant ranges, it would he helpful to get a sense of
just how important price is to this consumer group. For some consumers, a small price
advantage can give you a great deal of additional sales; for some consumers who are less price
sensitive, a price edge will hurt your profit margins but won’t help you sell many additional cars.
Some reports and studies that give you a sense of the relative importance of pricing to the
consumer group are the “conjoint analysis” (though you’ll have to manipulate several variables),
the “concept test” (where you can test the attractiveness of your car at different price points –
though this can get expensive!), and the “test market” (more on that below).

(3) Throughout this decision, considering margins is critical. Keep a close eye on your “Product
Contribution” report and examine your contribution percentages. Remember that as you
introduce improved products they are likely to be more expensive to produce so you’ll need to
nudge up prices or lose your margin rate.

(4) To actually enter pricing decisions, go to the “Consumer Marketing Decisions” screen in
Decisions. Click on your product names one at a time and enter the MSRP. “Dealer Discount”
and MSRP determine how much revenue you’ll get for a product. I would suggest you be very
careful in changing the Dealer Discount percentage as it may have a dramatically negative effect

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on your performance, as raising it too much will effectively reduce your revenues per car and
lowering it too much may drastically reduce the dealers’ motivation to push your vehicles.
Unless you are absolutely sure what you are doing, leave the Dealer Discount % alone!
Promotion dollars can help sell cars but may reduce margins. ***Use the “Test Market” report to
consider the effects of different combinations of Price, Advertising, and Promotion – very
useful!***

(D.) Manufacturing (Production) Decisions:

Your goals here are to determine your desired production levels for various products and to
decide whether you need to adjust the overall capacity of your factories. You don’t want to
under-produce, as that means you lost sales during the year, but overproduction means you’ll
have expensive inventory sitting around your dealerships. The ideal scenario would probably be
having no inventory shortages but no more than 30 days worth of inventory on your lots (that
means one month’s worth of sales are on the lots).

(1) Look over the internal “Manufacturing” report for any comments on your inventory
situation. It will tell you about any shortages that occurred in the past year. Note the “Days
Inventory” figure – if you had more than 30 for any of your models, you wasted money on
carrying costs from overproducing. You’ll need to be careful in setting production for the next
year!

(2) Consider how many of each product you expect to sell in the next year. Basically you
would:
(a) Start with last year’s sales (not production!) as a baseline
(b) Go into the “Consumer Customers” report for each product and calculate the
expected change in the market. To do this, divide “projected demand” by “units
purchased” (from the prior year) as shown at the top of the customer detail. This give
you a growth rate you can apply to (a) above.
(c) Now consider any changes you have made to your product that might affect its
desirability – Did you lower prices, improve attributes, or increase HP? (all of these
should give sales a boost as long as they are in desired ranges). Did you have new
competitors show up or did you raise your prices significantly? (these may hurt sales).
Adjust your projected sales figures as best you can for these effects.

(3) Go to the “Manufacturing Decisions” screen and take the number you calculated in (2)
above, subtract any “current inventory” shown, and enter that figure in “scheduled production”.
Leave the plus/minus 10% box checked to give your manufacturing some flexibility.

(4) After entering the Scheduled Production for all of your products, examine the total for all
products on the “Manufacturing Decisions” screen. If it is more than “Current Capacity” shown
at the top of that screen, you need to click on “capacity change” and add some capacity – don’t
overdue it as you want to keep your factory as close to 100% in operations as possible.

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(E.) Distribution (Dealer Network) Decisions
In reassessing your dealer network, you can increase or decrease your number of dealerships
each year by a maximum of 10% in either direction. Note that it takes one year to open or close
a dealership. There are only two issues to work on in terms of coverage:

(1) “Dealer Rating” – This is a long-term assessment of customers’ experiences with your
dealerships (on average by region). The quality of your product offerings, training, education,
and dealer profitability all affect these ratings. So, having great products that customers want
and building in a nice profit margin for dealers is very important here. You can also influence
dealer ratings more directly by spending money on “dealer training and support” in the
Distribution Decisions screen.

(2) “Coverage”: The “established” figure and the “coverage %” reflect how close you are in
each region to your maximum (“full coverage”). You should probably add dealerships steadily
to try to approach these maximums, keeping in mind reports like “Regional Sales” and the detail
that goes with it – that will give you some indication of which regions you might want to
emphasize.

(F.) B2B Decisions (beginning Round 2)

Business-to-business (B2B) decisions involve selling large quantities of vehicles to “fleet”

buyers. These are to rental car companies, parcel carriers like FedEx, and other large fleet
groups such as the government. These customer segments are numbered 6, 7, and 8, respectively
in StratSim reports.

In some cases, these buyers may purchase the same vehicle models you sell to consumers. In
other cases, customers may have very specific needs that would require a customized platform
(e.g., delivery vehicles).

In addition to potentially having different product needs, fleet buyers may also have a very
different purchase process, such that:

(1) These buyers have specific requirements that must be met in order for a manufacturer to
qualify for a contract. These include:
 Meeting or being below a maximum price.
 Meeting or exceeding dealer coverage criteria in all regions to provide an adequate
service network.
 Being within a particular range for size and performance, and
 Meeting or exceeding particular attributes (interior, styling, safety, quality)

(2) Their purchase is direct from the manufacturer rather than through a dealership, so the price
that the customer pays also reflects revenues to the manufacturer since there is no dealer in the
middle of the process.

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(3) Getting an Invitation to Bid: To explore the possibility of B2B sales, you must firm learn
more about the particular contracts that are up for bid in the marketplace. You start by either:

(a) targeting contracts and hiring a sales force to learn more about the requirements of
particular contracts (you do this on the “B2B Marketing” decision screen), or

(b) by purchasing market research on the B2B market under the “Market – B2B
Contracts” report.

***Important B2B Stuff – You are eventually going to need a dedicated sales force to have any
sort of B2B relationship. If you start by just doing (a) above you won’t know anything about
that customer’s needs until next year when you receive an invitation to bid on a contract. So, any
product development that is required won’t get started until that time, possibly wasting a year. If
you purchase (a) and (b) above at the same time (probably buying (b) first to understand the
customer and market potential) you can start doing any necessary R&D right away while your
new sales force is getting to know the customer and trying to bring back that invitation to bid.
The second option here (doing both) is highly recommended!).

(4) Bidding on Contracts: The year after you have established your sales force, you will
receive an invitation to bid under the “Contracts to Bid On” section of the “B2B Marketing
Decisions” screen. You may already have a vehicle that is suitable for one of these contracts but
in most cases you will have to make modifications to an existing vehicle (or create a brand new
one) as well as possibly changing your distribution network. This is why it’s helpful to have
gotten a jump on these requirements by purchasing “Market – B2B Reports” in the prior year (as
described above).

***Note that you must meet ALL the minimum requirements for a contract or you won’t sell any
vehicles! If your offer to the company (price, performance, etc.) is deemed most appealing,
you’ll be given “preferred supplier” status and will be guaranteed double the sales of your closest
competitor.

(G.) Financing Decisions

There are just a few actual finance decisions you can make in the simulation. In general, you
cant get into too much trouble by just ignoring the financing decisions for the first couple rounds
of the simulation. However, there are a few things you can adjust if you’d care to:
 Issuing bonds – okay to do this to raise cash (should be cheaper than short-term loans)
 Issuing stock – not really recommended as this will likely hurt your stock price
 Issuing dividends – this is a reasonable thing to do as it will help your stock price but it’s
typically done later in the process when you have completed most of your expensive
technology and manufacturing spending. If you are crunched for cash, you may want to
cut back on the dividends already being paid at the start of the simulation

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 The pro-forma tool can help you play with various decision options but remember that it
is meaningless unless you adjust the sales forecast for different scenarios!