Discussion #8
This paper explores the team-based decisions throughout the Pharmasim marketing simulator program. The simulator was segmented into eight periods each consisting of one year at a pharmaceutical company for an over-the-counter cold medicine (OCM). As the team progressed through the simulation program, the team made decisions as to the manufacturer’s suggested retail price, volume discounts, and promotional allowances. Options were considered for the advertising budget as to the best choice for each product line, and an advertising agency selected for each. The relative emphasis on the four types of advertising messages is herein discussed as well as the teams’ promotion budget with allocations to cooperative advertising and the three types of consumer promotions. Finally, the sales force decisions, segmentation, line extensions and the influence of these decisions on the cumulative net income and final stock price discussed. Inferences were made throughout the simulation program as to causation and the team strategically managed outcomes through manipulating the allocations for the aforementioned variables to arrive at the desired goals.
Allround Brand Management Final Report – Group B
The brand management team report describes the organizational conditions and external factors that influenced its decisions and the results acquired at the end of each period. Also, the team shares the individual and team learning experience earned through this process and its contrast to the Initial Strategy Plan. The initial strategy plan was identified as the main issue complicating out decisions. To address that, the team evolved the initial marketing strategy which focused heavily on increasing net income and stock prices and instead focused on strategies of differentiation to meet and exceed customer preferences. This adjustment aligned the team’s decisions with choices that were profitable for the company, as customers perceived a greater value in the products and the company sold an increasing number of units with each period progression. The information herein highlights this evolution as well as offers predictions as to what would have happened had there been advancement to period nine.
Manufacturer’s Suggested Retail Price
Customers rarely concern themselves with the costs that a company incurs to produce a given product, for them it is the value of the product or service that it provides and how well their experience has been (Winer & Dhar, 2011, pp. 247). When we initially started in period zero, we decided to leave the price of Allround alone. The case study pointed out that during this period Allround's suggested retail price was higher than the competition but was not suffering in sales because of the effectiveness, high recognition, and consumer loyalty (James, Kinnear & Deighan, 2015). These elements combined allowed Allround to dominate and maintain price leadership in the market. We also felt that Allround was in a different market space relative to its competitors. The focus moved to other marketing operations. Throughout the following three periods we used that mindset to drive our decisions about pricing, which differed from our initial strategy report but became a sound strategy.
During period four, there was no budget available to spend on marketing decisions. The assumption developed that all of the budgeted funds were spent on the capacity utilization expenditure, which was 24% over. Compared to competitors, Allround’s stock price was average; however, its capacity utilization was 20% higher than Allround’s biggest competitor, B&B which led to the examination of price inflation throughout the periods that had passed. Period four marked the beginning of the repeated analysis of and consideration for inflation. In efforts to level and stabilize pricing and utilization, the inflation rate of 4.1% was doubled, and Allround’s price rose to $5.77. In period five, efforts were successful in cutting down capacity utilization by 25%, increasing net income, and increasing the stock price. From period five to seven the price of Allround was raised each period to avoid the same pitfall. Reports were purchased to assess and adjust for market trends including competitor's pricing, inflation, and consumer preferences from the conjoint analysis to help gauge our customer's pricing sensitivity. The MSRP of Allround successfully rose to $6.11 by the end of period seven.
Period three saw the introduction of Allround+, and the MSRP was set at $5.01. This price point was arrived at due to the uniqueness of the product, and formula comparisons suggested that the price was a good starting point from which we could later adjust if need be. During period four, inflation was accommodated for with price increases for Allround and Allround+ of Allround+. From period five to period seven we slowly increased the price to stay competitive and combat capacity utilization. Period seven ended with the price of Allround+ being $5.89. In period five, Allright was introduced to the market. This formulation was a four-hour, non-drowsy allergy medication which was the first-to-market. From the data reports, it was known that consumers showed a preference for fewer side effects and the preference to avoid over-medicating (James, et al., 2015). For these reasons, together with the cost of production per unit, the price was set at $5.95. During period six it was opted to not to increase the price of Allright as our brand awareness for the drug was only 17.4%. Instead, other areas continued to be focused on to improve brand awareness - such as promotions. In period seven, the price was raised to $6.12 to be reflective of competition and inflation. Had there been a period nine, inflation, consumer price preferences and cost would continue to influence the MSRP. However, it was agreed that more emphasis would be on these factors that had been placed on them during periods zero through eight.
Discounts and Allowances
Volume Discounts
Volume discounts for the Allround, Allround+, and Allright brand remained consistent for the first five periods. In period five however, volume discounts were reduced from 25% to 22% for quantities between 250 and 2500. Volume discounts offered were too high and the decrease was made to drive sales to other volume categories for Allound. The volume discounts were then continued at the new 22% rate through the final period. Providing volume discounts to retailers based on quantity purchased incentivizes retailers to carry and stock the product. However, providing too high of a discount causes a loss of profits for the manufacturer and is not reflective of the same rate of benefits as smaller volume discounts. Had there been a period nine, it would be expected that the same strategy for volume discounts would be followed, as the initial discount rate reduced the potential profits for the company.
Allowances
As stated in our initial strategy report our plan was to use a push/ pull strategy to increase sales. "Trade promotions can be best understood as part of an overall channel management strategy based on an accurate perception of both market power and the relative power of the channel participants" (Kasulis, Morgan, Griffith & Kenderdine, 1999). To achieve this, starting in period one, all category allowances were set to 17%, to arrive at some consistency, as the team became more familiar with the effects of decisions made. Allowances were matched for each of the product line allowance categories because allowances were the most poorly understood tool throughout the simulation. The choices that were arrived at were made to gain an advantage from offering higher than the competitor’s average promotional allowances. “Retailers or other distributors want to be assured that you will spend sufficient money and pay attention to persuading the customers to want your brand. These two activities draw an important distinction between two kinds of basic activities of channel management: push (getting channels to carry and sell the product) and pull (motivating customers to ask for your brand by name)” (Winer & Dhar, 2015).
During period three, the promotional allowances were decreased for independent drugstores and convenience stores as the discounts were not the best manner for stimulating these channels as demonstrated by poor performance compared with other distribution channels. With the introduction of Allright in period five, all distribution channel allowances increased to 20%. That decision was carried through to period eight where it was found again, that the higher promotional allowances were not as beneficial to the results as had been expected. Promotional allowances were reduced by 2% across the board which still allow for the highest allocation among competitors while also being of more significant benefit to the company by increasing the net income. Had there been a period nine, efforts would continue to have competitive allowances which also maximize the return for the company as the group continued to gain and better understand leverage with allowance manipulations.
Advertising Budget
The initial advertising budget for Allstar brands' Allround 4-hour multi-symptom cold & cough medication started at $20 million. However, the market update during the introductory period showed a $3.3 million increase in advertising spending (James, et al., 2015). Therefore, we determined that the Allround advertising budget should be increased to $23.1 million, as it was important to stimulate brand awareness and have aggressive advertising campaigns to maintain a market share (Kerin, Hartley, & Rudelius, 2011, pp. 486). During the first and second periods, the market update showed a $20.8 million and $11.3 million increase for each respective period. The marketing team determined that Allround’s advertising budget was amongst the highest during these periods and gave a small increase to $27.1 million during the first period with no additional adjustment during the second period as funds were allocated to other areas of the company (i.e. sales force & promotional discounts). The third period provided the opportunity for a product introduction of Allround+, as 12-hour multi-symptom liquid medication. To accommodate this new product line the team decreased the Allround advertising budget to $20 million despite an $18.5 million increase in advertising spend according to the market update as we were trying to keep overhead costs down. Therefore, Allround+ was provided a smaller initial advertising budget of $8 million during this period. The fourth period showed a $4.9 million decline in advertising spend, however, the marketing team decided to keep the advertising budget steady at $20 million for Allround and $8 million for Allround+ (James, et al., 2015).
During the fifth period, advertising spending was up by $13.5 million, and Allstar introduced their third product Allright, a 4-hour non-drowsy allergy medication (James, et al., 2015). With the introduction of Allright, the Allround+ budget was slightly decreased to $6 million in their advertising budget, which was contributed to performance and the need to allocate funds towards Allright’s initial budget of $10 million. The initial advertising budget of Allright was set at a higher amount than Allround+ to help with brand awareness during the introduction period. Otherwise, no changes were made to Allround during this period due to its excellent performance in the market. The sixth period showed an increase of $5.4 million in advertising spending, so Allround+ and Allright's advertising budgets were increased to $7 million and $12 million respectively to better match the competition. The Allround budget saw no changes during this period and stayed at $20 million (James, et al., 2015).
Although the seventh period’s market updates showed a $5.3 million increase in advertising spending, no changes were made to either the Allround+ or Allright budgets due to steady performance. However, Allround’s budget had a slight increase to $22 million in retaliation to a rise in the Allround's primary competitor’s advertising budget, which the marketing team felt was necessary to maintain market share. The eighth and final period showed an increase of $4.2 million in advertising spending; however, Allstar's marketing team determined that all budgets were appropriate and made no changes. The same thought process would be applied to all products for a ninth period if it existed, so long as the advertising spend of competitors continued to incremental increases (James, et al., 2015).
Selected Advertising Agency
Brand awareness is the cornerstone of any product’s success; therefore, the selection of an advertising agency is as equally important as the advertising budget provided for a given product. The Allstar brands marketing team had three advertising agencies to choose from, Brewster, Maxwell, & Wheeler (BMW) who charged a 15% commission for their services; Sully & Rogers (S&R), who cost a 10% commission; and Lester, Loebol, and Company (LLC), who charged a 5% commission for their services (James, et al., 2015).
It is crucial that a product gains some market share during the introductory period, which is why the Allstar marketing team thought it was important that their products be perceived as the superior brand (Winer & Dhar, 2011, pp. 56). Additionally, it is crucial to select the right advertising agency that has a track record in promoting similar products and promoting to the target audiences for those products (Kerin, Hartley, & Rudelius, 2011, pp. 489). Therefore, the marketing team selected BMW for Allround in this introductory period, as they were perceived to be a superior agency for this market. During the first period, Allround managed to obtain 23.7% of the market, and in the second period, it decreased slightly to 22.5%. The subsequent periods maintained a similar amount with little variance; therefore, the marketing team stayed consistent in keeping Allround's advertising with the BMW agency since the product performance had done well in market surveys. During the third period, Allstar introduced Allround+ and the marketing team utilized the BMW agency again, in the hopes that this product's performance would be similar to that of Allround. However, this strategy did not perform as planned, so a switch to S&R was made for Allround+ to reduce some of the overhead expenses for Allstar during the fifth period since the market share was at 3.2%. This change resulted in an increase to 4.1% in the sixth period and 4.7% in the seventh period. Therefore, the market team kept Allround+ with S&R to maintain the incremental growth that was seen in the market share (James, et al., 2015).
During the fifth period, Allstar introduced another product line Allright, which was given to the BMW advertising agency for promotion in the hopes that this product would corner the allergy medication market due to it being the only non-drowsy option available. The channel sales report showed a 2% market share during its introductory period; however, this almost doubled to 3.7% during the seventh period. So the team kept Allright with BMW throughout these final periods and would have made no changes during the ninth period (had it existed), as long as the performance continued to maintain as it did (James, et al., 2015).
Relative Emphasis on the Four Types of Advertising Messages
The emphasis that was put on the advertising message was driven by the stage of the product’s life cycle and the strategic objective, both of which had to be reassessed throughout the simulation. Primary advertising messages were used to create awareness, benefits to highlight the value of the product function, comparison to showcase our product against our chosen competitor and the reminder to bolster awareness after the consumer was made aware of the product's primary features and benefits (James, et al., 2015). Posttests measuring brand awareness gauged the effectiveness of primary advertising messages, and the percentage of increase or decline in unit sales for the line was used to guide messaging efforts (Pride & Ferrell, 2014).
With the introduction of line extensions, the strategy was to drive awareness with primary messages at 40% for the first period for Allround+ and 30% for Allright. Allright’s stress on primary messaging was lower than Allround+ due to the uniqueness of the product where the team was comfortable putting equal importance on benefit at 30%, and a healthy 30% was allocated to reminder to stimulate repurchase for the year that exists within each period. This success was measured with brand awareness ratings.
In period zero, Allround had 74.1% brand awareness, and the decision was made to focus on stimulating repurchase, which was appropriate for Allround’s period in the life cycle. By period seven Allround comfortably rested with 10%, 20%, 30% and 40% allocated to primary, benefits, comparison, and reminder, respectfully. Adjustments were made to Allround's advertising message for period eight because an expectorant was added to Allround, where benefits were increased to 22% to promote this reformulation.
Allround+ was introduced in period four, and advertising messages were allocated with 40% to primary, 40% to benefits, 10% to comparison with Besthelp and 10% to reminder to stimulate repurchase during the one year to follow (James, et al., 2015). The reasoning for this allocation was to create awareness for the product as it enters the first stage of the product life cycle (Perreault Jr, Cannon & McCarthy, 2014) and to emphasize its benefits. The allotments were kept the same for period five and for period six they were adjusted so that 15% was set to primary awareness, 35% for benefits, 30% for comparison with Dryup and 20% for reminder messages. ThisThese changes were made because awareness had grown to 55.3% and Dryup appeared to be a good comparison as the brand formulations were quite similar (James, et al., 2015). The advertising benefits were shifted from primary to remind as awareness was high and stimulating repurchasing was needed to maintain sales. These allocations were maintained through period 7. In period eight, even greater emphasis was to be on repurchase, and therefore reminder was increased to 25%. The comparison product was also changed to Extra as it was decided that comparing Allround+ to another 12-hour OCM capsule was a sounder strategy.
The introduction of Allright was very similar and the product launch started with 30% primary, 30% benefits, 10% comparison and 30% reminder. The high reminder was favored despite being the launch of Allright because of the product’s uniqueness and the fact that each period was one year where it was hoped to capture some repurchases during that time. In periods seven and eight Allright’s customer satisfaction increased to 51.2% (James, et al., 2015) and this highlighted the importance of stimulating repurchasing. Our brand awareness was low at 23.2%, and the decision was made to equally address the areas of advertising with 25% allocated to each advertising message.
Should the simulation have progressed to period nine, it is reasonable to expect to see a similar pattern where with the continued need to assess the performance indicators before making decisions as to the best allocation for advertising messages.
Promotional Budget with Allocations and the Three Types of Consumer Promotions,
Point of Purchase and Co-op Advertising
Consumer promotions included point of purchase, trial size promotional products, and coupons. To increase sales in period four, we expanded our point of purchase budget from $1.7 million to $3 million. Point of purchase money is paid to the retailer but targets the end consumer. By increasing this budget, we were able to promote our products with display racks, sales rack, on-shelf advertisements and securing better product placement. Also, a greater emphasis focused on increasing the co-op advertising budget to help retailers promote Allround, Allround+ and Allright products to improve awareness through the different distribution channels.
At the beginning of the stimulation no funds had been allocated to trial size promotion allowance, and the trial size budget was set to allocating $700,000. The goal of trial size promotions is to attract potential new consumers to the Allround brand. We realized after period zero that we should focus our promotional budget on other areas as trial sizes were of the most benefit for new products and decreased the budget to $500,000 until period three and period five when Allround+ and Allright formulations were released.
Coupons
The team over budgeted for coupons, allocating 4.9 million dollars for the first two periods and then dropping it to 4.7 million until period four. The high budget for coupons intended to stimulate repurchase; however coupons were misused. Coupons are an area of consumer promotion that can be used to achieve different goals. "Coupons are an effective way to target discounts and other incentives to households that are particularly sensitive to price” (Winer & Dhar, 2011). The strategy when changing the coupon budget was to stimulate repurchase or to stimulate the initial purchase when there were brand extensions and reformulations. Had there been a period nine, a more conservative coupon strategy would help in keeping costs low.
Sales Force
There is no single best strategy to manage the sales force of a company because of the varying circumstances and consumer reaction in the market space, but research has shown that a larger sales force can have a positive benefit (Dalrymple & Thorelli, 1984). The group understood the benefit of giving support to the different distribution channels to dominate the market, stay competitive, and maintain brand awareness. A combination of reports from the sales report, sale force, channel sales, and shelf space reports were used to drive and support our decisions on staff allocation. In period zero comparisons were made among competitors and channels to discern points of sales and the percentage of total sales. This data was then used to adjust the sales force according to that data. Overall we increased the sales force in each channel to capitalize on supporting brand awareness, shopping habits and maintain our market presence.
In period one the importance of channels such as detailers and mass merchandisers was identified. The heavy focus on the sales force at the beginning of the stimulation led to the realization in period three that a large part of the marketing budget was being spent on the sales force and needed to either be reduced or at least frozen. The decision was made to freeze the total staff number, which was justified by acknowledging the possibility to allocate some of the sales force to the second product line, Allround+. During periods four through seven, staffing numbers stabilized which suggested that the company was within a range that continued to support the growth of the company, while also allowing the continuation of the company to dominate the market and successfully manage the budget. Throughout these periods, resources were reallocated to different channels and were compared against the competition. Competitors were used as an indicator as to whether staffing changes were necessary and this helped to gauge spending as well. Throughout the stimulation top performers such as grocery stores, drugstores, and wholesalers received heavier allocations of staffing. Had there been a period nine, competitors would continue to be monitored for staffing changes as Allstar looked to keep costs down by not overstaffing.
Segmentation
Initially, the group planned on targeting the population between 18-30 years of age. The idea behind this strategy was because the targeted population was technically savvy and could be in a financial situation where they were more inclined to go with over-the-counter medications rather than prescription medication. Infiniti Research (2018) makes similar conclusions when it comes to market segmentation because companies need to successfully market to segments that have spending power, which the group determined the 18 to 30-year-old group would have.
The group adopted this strategy early in the simulation. In period two, the group removed empty nesters and retired individuals from demographic targets due to their low usage of the Allstar. However, Allstar saw declined sales between periods two and three. Due to this, the group decided to add empty nesters and retired individuals back into the targeted demographics for the remainder of the simulation to increase the brands market share.
With the introduction of Allround+, the decision was made to market the product to all demographics, which was sound as the product was in the introductory phase of the product life cycle. Winer & Dhar (2016) note that during the initial period of the product life cycle, a product is new and companies are attempting to establish the product in the marketplace. Therefore, by marketing Allround+ to all marketing segments, the company would be able to produce the most significant amount of initial market penetration. The same decision was also made to market to all segments for the group's third product, Allright.
For future weeks, the market segmentation would have stayed the same because, throughout the simulation, there was a steady increase in both stock price as well as income. Additionally, successful market segmentation caused sustained share of manufacture sales for Allround as well as continued growth for both Allround+ and Allright.
Line Extensions
The market for Allround had matured where there was little differentiation among brands, aggressive promotion and price dealing (Perreault Jr, et al., 2014). This created a need to differentiate through new product lines and the team introduced Allround+, a 12-hour OCM in period four and Allright, a four hour non-drowsy allergy capsule, in period six.
Increasing value and differentiation gave successful results as seen by the increased market shares of and differentiating our line to meet the needs and preferences of the various segments within the market became part of our strategy. It was understood that Allround+ would be competing with our original Allround 4-hour formula, and a percentage of the market for Allround decreased each period after the introduction of Allround+. However, Allround+ was also increasing in its share of retail sales at a rate higher than Allround was declining in the share of retail sales (James, et al., 2015). We saw this continue through periods five through eight. We interpreted this result as Allround+ gaining organic customers or those from other products as opposed to cannibalizing them all from Allround. This encouraged us to continue with the Allround+ line, and we would have likely done so into period nine, if that had been an option.
Allstar was the first company to get to market with a non-drowsy OCM for allergies, which gave us a competitive advantage. Customers showed preferences for fewer side effects and concern for over medicating (James, et al., 2015). We saw a strong satisfaction rating of 54.2% in our first period with Allright (James, et al., 2015), which shows good value for one of our key performance indicators. This satisfaction rating stayed above 51% for the remainder of periods seven and eight (James, et al., 2015).
Both of our line extensions were not cost effective when they were first introduced, but that is expected of new products (Winer & Dhar, 2015) and therefore did not cause alarm. Should there have been a period nine, continued growth and threat of entry would be expected with the Allright product.
Cumulative Net Income throughout the Simulation and Final Stock Price
Cumulative net income and stock price were essential factors throughout the simulation. Since all decisions made during the simulation directly affected both of these metrics, careful consideration was required to maintain consistent, positive growth for both numbers throughout the course of the simulation. The impact of marketing decisions on both cumulative net income and stock price has real-world applications, as noted by Kumar & Shah (2009). Kumar & Shar (2009) point out by successfully marketing to consumers with large consumer equity, a company can drive stock price in a positive direction.
At the beginning of the simulation, Allround was a market leader in its segment and in the maturity phase of the product life cycle as referenced by Winer & Dhar (2016). Since the maturity phase is categorized by a product being well known in the marketplace with a flattening sales curve, marketing decisions were made to ensure that Allround was stable and kept steady sales. This was accomplished through conservative changes in both sales force distribution as well as minimizing reformulations throughout the simulation. This conservative approach contrasted with a more aggressive marketing strategy for the other two products released throughout the simulation in terms of budgeting of sales force and marketing versus spending of competitors the products were in direct competition with. The reasoning behind the aggressive marketing for the new products was to ensure an immediate entry into the market with the goal of having a rapid growth in market share.
While the group was ultimately successful in raising both cumulative net income and stock price to $960.3 million and $141.43 respectively, there were lessons learned throughout the simulation. The group’s stock price and net income did not grow as rapidly as intended throughout the first half of the simulation. Retail price was not increased in the beginning to keep pace with inflation. Additionally, the group’s gross margin increased too much during the first half of the simulation. Both of these factors caused overproduction to occur. To counteract this, the group successfully brought spending in line and managed prices correctly to bring production levels to a profitable level.
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APPENDIX A
Pharmasim Period by Period Performance Summary and Interpretation
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Figure 1Net income over the eight periods of the simulation. Reproduced from James, Kinnear & Deighan, 2015. |
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Figure 2Stock price for the eight periods of the simulation. Reproduced from James, et al., 2015. |
Figure 3Pharmasim performance summary for period zero. Reproduced from James, et al., 2015.
Period zero allowed the group to familiarize themselves with the current standing of Allround and assess how to manipulate starting figures and monies as seen in Figure 3 in order to achieve the goals set out in the initial strategy report (see Appendix B).
Figure 4Pharmasim performance summary for period one. Reproduced from James, et al., 2015.
In period one, slight changes were made so that the market response to our decisions could be observed. In this period, an overall advertising budget of around $23.1 million was allocated for Allround, and BMW advertising agency was selected for advertising, as seen in Figure 4. The purpose of these decisions was to present the company as a brand offering quality products of high value. As a result of the decision in this period, there was an increase in net income from $67million to $80 million and a stock price increase from $38 to $48.
Figure 5Pharmasim performance summary for period two. Reproduced from James, et al., 2015.
In period two, it was decided to increase the sales force allocation of chain drug stores, grocery stores, and wholesaler support. The price and discounts were kept constant to examine any effect this would have on the net income. There was an incident this period about quality assurance, and it was decided to dispose of the expiring batch with a decision cost of $100,000 to avoid the risk of damage to the brand image. These choices led to a slight increase in the net income and stock price as seen in Figure 5.
Figure 6Pharmasim performance summary for period three. Reproduced from James, et al., 2015.
In period three, sales force spending was again increased, while the budget for advertising was decreased to 53.3% of the total budget. The price and discounts were kept at the same level. This period generated an incident of cannibalization, meaning that the sale of one product is decreasing the sales of another product. The decision was made to introduce the 12-hour multi-capsule. The decisions at this period were not optimal as the company experienced a decline in the net income and the stock price as seen in Figure 6. This may be because fixed costs were increased and the MSRP was not adjusted for inflation.
Figure 7Pharmasim performance summary for period four. Reproduced from James, et al., 2015.
In period four, it was decided that the budget allocations ought to be reassessed and reallocated to optimize the benefits of where the budget is being spent. Part of this assessment and reallocation included the decrease of the advertising budget for Allround from $27.1 million to $20 million and reallocating those monies together with an additional $0.9 million towards the advertising budget for the new product line, Allround+. BMW advertising agency was kept for both product lines. To aid in launching the new line extension Allround+, the promotion budget for this product was initially set higher than Allround, particularly with trial sizes as seen in Figure 7. These decisions lead to a positive change in net income and stock price.
Figure 8Pharmasim performance summary for period five. Reproduced from James, et al., 2015.
In the period five, the overutilization of capacity was addressed as operations were at 124.7% of the capacity as seen in Figure 8. Knowing the impact of such utilization, it was expected to negatively impact the net income if not addressed. Therefore, it was decided to increase the price to decrease the number of units produced and sold. As a result of the price increase, the net income experienced a solid increase to $116 million; utilization came down to 99.5%. Furthermore, these changes translated into an increase in stock price to $76.16.
Figure 9Pharmasim performance summary for period six. Reproduced from James, et al., 2015.
For period six, the price of Allround was kept at $5.77, and the price for Allround+ was increased from $5.18 to $5.35. In comparison to Allround, Allround+ was performing poorly for the amount that was invested in the product’s advertising and promotion as seen in Figure 9. Without being able to come to a consensus and to increase the efficiency of the advertising budget, the advertising agency for Allround+ was changed to S&R advertising agency, and the advertising budget was decreased by $2 million. In addition, a new product line called Allright was introduced. The MSRP was set at $5.95 and $10 million was allocated for this product’s advertising budget. The decisions made during this period generated an increase of net income to $127 million and a stock price increase to $99.09.
Figure 10Pharmasim performance summary for period seven. Reproduced from James, et al., 2015.
In period seven, the price was increased conservatively for three of the products to adjust for inflation, while keeping the discounts brackets the same. The advertising budget was also increased for Allright and Allround+ while keeping the budget for Allround the same. As for the promotion strategy, we tried to balance the budget for all three products. These decisions lead to a further increase in net income to $150 and a further increase in stock price to $123.76 as seen in Figure 10.
Figure 11Pharmasim performance summary for period eight. Reproduced from James, et al., 2015.
For the period eight, the prices for Allround and Allright were increased, while keeping the discount levels the same with the intention of improving the gross margins. An increase of 10% was added to the adverting budget for Allround and the other two products remained as they were in period seven. During this period, the incident of product tampering was addressed. In dealing with this incident, a statement of sympathy was issued for the victims; all damaged products were removed from the shelves at the cost of $100,000 and compensation was offered to victims at the cost of $500,000. Despite these additional costs, the decisions for this period generated a net income increase to $170 and a stock price increase to $141.43 as seen in Figure 11.
Overall, the firm managed to create an average stock increase of around 18% for each of the eight periods, which can be considered as a solid return for the investors.
APPENDIX B
Allstar Brand Initial Strategy Report
Allstar Brand Initial Strategy Report
Group B: Andrew Carroll, Kelly Decker, Kerline Desir, Abigail Espeut, Alexander Fullerton, Diane Giewat & Vince Hamm
Saint Leo University
MBA 565
James Womick
Student Signature: [Andrew Carroll, Kelly Decker, Kerline Desir, Abigail Espeut, Alexander Fullerton, Diane Giewat & Vince Hamm]
Allstar Brands Corporation was founded in 1924 and since then has acquired smaller packaged good companies making it one of the leading manufacturers in the world. The Pharmaceuticals Division of the company has made Allstar Brand’s Allround a critical element in the future success of the company. Allround is a market leader in over-the-counter cold and allergy medications. To meet the expectations of the division and participate in the innovation and future success of the company, Allround’s product line will need to develop a strategy that aids in the decision-making process. This process and plan will support the growth needed to increase cash flows, the presence required to maintain a competitive advantage, and the customer service needed to build long-lasting relationships with consumers.
Allround brand produces a four-hour liquid cold medicine that provides a multi-symptom relief; this relief comes from a formula that includes an analgesic, an antihistamine, a decongestant, a cough suppressant, and alcohol. Each of these ingredients focuses on a specific type of ailment: analgesics provide pain relief, antihistamines reduce secretions from nose and eyes, decongestants reduce nasal congestion, cough suppressants reduce the cough reflex, and alcohol provides a base for the other ingredients and helps a person recuperate. This is important because these ingredients give Allround brand a foundation for the type of consumers they want to serve, people who are experiencing one or more of these symptoms and are willing to try an over-the-counter remedy. The targeted group will be a younger population of 18-30 years of age because they more aware of drug uses, looking for a one pill fix, technologically savvy, not afraid to research treatment options, and can be struggling financially or have no medical insurance leading to the inclination to try over-the-counter medication (OCM).
Allstar’s longevity, global sales, economies of scale and experience curve are the foundation for its competitive advantage. It is a trusted household name, having been manufacturing household products since 1924 (James, Kinnear & Deighan, 2014). When it comes to over-the-counter medication, brand recognition can be a key determinant in consumer purchasing decisions. Allround’s short term competitive advantage will focus on differentiation and its long-term competitive advantage will be supported by operational effectiveness and adaptability.
To gain a short-term competitive advantage, Allround will employ value-adding practices. These practices will be realized though adding the perception of greater value by utilizing comparative marketing measures, which highlight that Allround does in one bottle what competitors do in several competing formulas from different brands. “Why fuss with all the clutter of multiple bottles when you can get the relief that you’re looking for with just one trusted (name)’ will be a message that we portray to consumers to help add value to the Allround formula. The appropriateness of this will be revisited with each term and/or when new formulas and revisions are being considered. Given that our target consumers are looking for convenient and less expensive products, having two or more product features/benefits fused into one can be a major advantage for our sales.
Price point is important and must be taken into consideration with perceived value. When consumers perceive products as being equal with all other attributes, price becomes the primary consideration in the purchase decision (Winer, 2016). Allround’s manufacturer's suggested retail price (MSRP) point of $5.29 is not the highest among competing brands with high market share manufacturers such as Coughcure at $5.49 and End at $5.29 with 63.6% and 46.3% of the OCM market share respectively (James, et al., 2014). Coughcure and End, having comparable prices but limited formulations and limited product benefits, allow for Allround to have competitive leverage with comparative marketing and therefore is not considering a change in MSRP. Economies of scale state that Allstar’s global position will help to reduce costs of production for Allround through large-scale operations and Allstar’s experience curve will help to keep costs of production low through learned innovative measures and time spent streamlining the process (Winer, et al. 2016) giving Allround a price-based advantage.
Allround is the current leader in market share for cold products with 40.4% of the market (James, et al., 2014) however is it notable to mention that Allround does not hold a share in other cold product categories targeting symptoms such as nasal and cough for which Allround is suitable for (James, et al., 2014). Allround will maintain its competitive advantage long-term through adaptability to consumer preferences. Consumer preferences and trends will be taken into consideration with each proposed formula revision as well as at each term.
Allstars performance objectives will focus on increasing our position within the market. In order to do this, we must penetrate the market. By increasing market penetration from the current 60% to 80%, sales would climb 33%. Current sales are $355.3 million, an expected 33% increase would bring sales to $472.5 increasing slightly over $117 million. Overall our projected return on investment is the most important factor when demonstrating our marketing effectiveness. Current market reports show there is room for growth in all the major product categories, including cold, cough, allergy and nasal. Allround history within the market shows on consumer surveys where they have the highest percentage in brand awareness, brand trails and most frequently purchased. While still being competitive in conversion ratio and retention ratio there is room for improvement and will be a focus of two of our intermediary metrics. Allstar’s will use Allround’s company history and current position in the market in order to penetrate the market and grow our share of it. Using a marketing mix and implementing a push/pull strategy will be the focus to increase sales. Strong brands are more appealing to channel partners, when using this method. The push strategy will focus on trade promotions, which would allow us to include a higher than average promotional allowance and offer volume discounts. On the pull side, our strategy will include additional money being budgeted for consumer promotions and advertising. Expanding distribution channels will be beneficial in attracting and retaining new consumers and increasing our sales force. Currently Allround distributes zero trial size promotional items. Adding additional promotional activities will attract potential consumers to our products after introducing it to them and offering a chance to experience their effects.
Product development will also be on the forefront of our strategy. Focusing on product reformulation, line extension and introducing new products in the hopes of attracting new consumers and improving our brand positioning. Allstar’s will focus on total conversion ratio which is referenced in consumer survey. “Total conversions is one of the most important metrics for measuring the profitability of your overall marketing efforts” (DeMers, 2014). Although customer retention is difficult to measure it will be a focus of our strategy because customer retention is needed for Allstar’s to be successful in the long run. Retaining existing consumers if more sustainable and cost-effective than actively pursuing new ones. Stock price and market share will provide a good indication of Allstar’s success throughout stimulation. Current stock price is $38.35. Allstar’s will focus efforts on marketing efficiency, share of unit sales, brand awareness, customer satisfaction, capacity utilization, market share and net income because these areas will influence our stock price.
For each period, the OCM team will analyze the available market and industry of information, along with surveys related to marketing behavior, competitor’s activities, consumer's opinion, and internal management goals. The OCM team will utilize this information to determine the allocation of the marketing budget, pricing, advertisement options, sale force distribution, retailers’ allowance and discounts percentage and customers’ promotions option. Special attention will be given to the two highest competitors for each period and the performance will also be considered when adjusting these decisions (Winer & Dhar, 2016, pp. 36). Furthermore, the OCM team will utilize current and potential customers feedback to determine the value proposition of the new products that are being introduced and in return, these sources of information for identifying market trends and patterns will help to determine if product usage has increased or decreased due to brand expansion. Each period will advance the promotion of positive marketing efforts and sustainability of this strategic marketing plan.
Period 1– Reformulate multi-symptom medication by replacing the cough suppressant with an expectorant.
Period 2– Line extension of children’s 4-hour liquid medication.
Period 3– Reformulate multi-symptom medication by dropping alcohol ingredient.
Period 4– Line extension of 12-hour multi-symptom capsule.
Period 5– New product introduction of cold spray.
Period 6– New product introduction of 4-hour allergy capsule.
Period 7– Reformulation of cold spray with addition of flavor offering.
Period 8– Reformulation of 4-hour allergy capsule with extension to 12-hour relief.
In summary, the Allstar’s product Allround is a segment leader in over-the-counter cold medicine. With a comprehensive formula, Allround has been successful in capturing 40.4% market share for cold medicine, but has not captured market share in the segments of nasal and cough. Therefore, Allstar will use its household name and brand appeal to increase market share through specific targeting of consumers aged 18-30. This will be accomplished through product development as well as by maximizing existing distribution channels and increasing spending in consumer promotions. Ultimately, by adopting the aforementioned to its strategy, Allstar is expected to increase its market share from 60% to 80%, with a projected sales increase of 33%.
References
Deighan, M., James, S., and Kinnear, T. (2018). “PharmaSim Decision Aids”. Interpretive Solutions.
DeMers, J. (2014, August 15). 10 Online Marketing Metrics You Need To Be Measuring. Retrieved January 15, 2019, from https://www.forbes.com/sites/jaysondemers/2014/08/15/10-online-marketing-metrics-you-need-to-be-measuring/
James, S.W., Kinnear, T. C., & Deighan, M. (2014). PharmaSim: The marketing management solution. Interpretive Software, Inc.
Winer, R. S. and Dhar, R. (2016). Marketing management (4th ed.). Boston, MA: Pearson Learning Solutions.