Final Simulation Report: Group A
This is the Final Simulation Report for Group A which will describe the results of the PharmaSim simulations entered as a team for Allstar Brands Corporation and the various Allround brands for the following categories: Manufacturer’s suggested retail price, volume discounts and promotional allowances, advertising budget, selected advertising agency, relative emphasis on the four types of advertising messages, promotion’s budget with allocations to cooperative advertising and the three types of consumer promotions, sales force (number allocated to the five types of retail stores as well as to wholesale and indirect support functions), segmentation, line extensions, cumulative net income throughout the simulation and final stock price and finally what we anticipate will happen to the various Allround brands in period nine. Also included are appendices A through C to provide supplemental report information.
Manufacturers’ Suggested Retail Price
Our team utilized three brands during our simulation, which include Allround, a 4 hour multi liquid, Allround+, a 12 hour multi capsule and Allright, a 4 hour allergy capsule. The Allround brand started off our simulation in period 1 and we maintained this product through the entire simulation. During period 3 we introduced the Allround+ brand and in period 6 we introduced our final brand, Allright. The Manufacturers’ Suggested Retail Price (MSRP) “is what is known as a “reference prince”. The reference price is used by consumers and the channel alike to set expectations in the mind of the consumer (e.g. the value the manufacturer believes the product to have)” (James, Kinnear, & Deighan, 2012, p. 109).
Throughout our simulation progress, we strategized to make small incremental changes which included a few cents above and below the MSRP as we saw fluctuations in stock price. In period 8 our team made the biggest increases to the MSRP and ordered a pricing report to help us make those decisions. The average MSRP price for Allround in period 8 was $5.23 and we chose a MSRP of $5.30, 7 cents higher than the average. The average MSRP for Allround+ in period 8 was $5.25 and we chose a MSRP of $5.30, 5 cents higher than the average. Finally, the average MSRP for Allright in period 8 was $5.20 and we chose a MSRP of $5.25, 5 cents higher than the average.
Volume Discounts and Promotional Allowances
Allround realized that there was a need to offer volume discounts and knew that the best way to accomplish this was to set there wholesale price based on the cost to produce the product in volume, the standard or typical wholesale price of your nearest competitors, and what your retailer is willing to pay. Allround has been a leader in the (OTC) cold and remedy market for some time and recognizes that volume discounts are part of doing business.
Our volume discount rate was set at <250 25%, <2500 30%, 2500+ 35% and wholesale 40% , with this volume discount rate Allround is still at a .75 profit at the <250 25% rate. Allround also had to determine what the company was willing to do with their promotional allowance. Allround was starting to lose ground with consumers and determined that they would begin to focus on promoting their cold medicine to a younger demographic. The promotion allowance was set at 29.1 Mil. of 67.2Mil allotted for total budget expenses. The 29.1 Mil was broken up between there areas. Allround, Allround + and Allright.
Advertising Budget
Group A’s initial advertising strategy was to keep Brewster, Maxwell and Wheeler (BMW) as Allround’s advertising agency because our long-term goal was to launch new products and it may have proved too risky to switch advertising agencies. The advertising report compared media expenditures, advertising agency and the basic message for each brand (James, Kinnear, & Deighan, 2012). Group A did not purchase this report during the entire course of the simulation but in hindsight it may have been very wise to do so. The ad message type was broken down into four categories: Primary (creates awareness and stimulates primary demand), benefits (emphasizes product benefits to consumer), comparison (compares product with competitor, and reminder (maintains awareness and stimulates repurchase (James, Kinnear, & Deighan, 2012). At the beginning of the simulation $20 million dollars was spent on Allround’s advertising campaign. Allround’s advertising was 5% primary demand, 45% benefits, 45% comparison, and 5% reminder (James, Kinnear, & Deighan, 2012).
Selected Advertising Agency
At the beginning of the simulation we utilized a $22 million dollar budget with 58% of that amount going towards advertising. Group A used all 4 message types to promote Allround (primary 15.0%, benefit % 15.0%, comparison 30%, and reminder messages 40%). As the simulation progressed, specifically in Period 4 with the introduction of Allround+ we still used all 4 message types to promote our new product (primary 30%, benefit 30%, and comparison 20%, and reminder messages (20%), with an additional $8 million dolllars to spend. BMW was still being used as our advertising agency. Allright was introduced in Period 7 with an additional budget of $10 million. The message types were broken down as follows: primary 30.0%, benefit 30%, comparison 20% (with Effective), and reminder messages 20%. Due to our limited budget we decided to change advertising agencies to the less expensive agency Lester, Loebel & Company (LLC), realizing we already have a well-established brand and no longer being able to afford BMW. During these periods our stock prices fluctuated between $38 and $47 a share.
Relative Emphasis
Finally, during period 8 we decided it was best to not utilize all 4 messages of advertising for all of our products but to focus on two messages per product and to target a specific demographic which was young families. With Allround being the most successful established product, the focus was on benefit and reminder messages (50/50). With the newer product Allround+, it was best to focus on Comparison and reminder messages (50/50) to compete with competitors, and with Allright we used primary and benefit messages (50/50) because it was the first product of its kind on the market. We were rewarded as a result of these changes with a jump in stock price of approximately $70. Group A learned the importance of taking the time to research what competitors are doing in terms of advertising as well as experimenting with various combinations of advertising messages in order to reach our target consumer.
Promotion
The promotion component of PharmaSim allows users to input variations of the promotion allowance, allocate trade and consumer promotion, and make detailed changes to co-op advertising, point of purchase, trial size, and coupon promotions for the initial Allround brand and the line extensions of Allround+ and Allright. During periods one and two, Team A felt the strong brand recognition of Allround demonstrated success under current settings. The team decided to keep most allocations the same with minor changes to increase promotion allowance and allocate more funding for trial size (1.0 m) and coupon budgets (5.7 m). Based on the research data presented in the simulation, it seemed these areas needed increased allocations. Initially, these changes resulted in increased sales and performance. However, value started to decline during period 3.
As per Team A’s initial strategic plan, the team incorporated a line extension to include a cough product, Allround+. This category was dominated by only two other competitors and held the largest volume of sales potential. Team A believed that a small market share in this category would yield the greatest potential gain. Line extensions that utilize the strong recognition Allround already possessed and contained positive points of parity should allow the new extension to have a positive start-up response (Kotler & Keller, 2012). The promotions were initially set with a promotion allowance of 19% in order to gain better shelf space for brand awareness, co-op advertising of 1.4 m. to increase awareness among retailers, and consumer focus of 1.9 m on point of purchase, 1.0 m. on trial size, and 5.7 m on coupon budgets in order to create awareness and entice consumer trial. The initial strategy worked and sales continued to increase.
However, the increased sales were slow and the team attempted several strategies to improve sales. Allright was added as another line extension with successful gains. The promotion budgeting again focused on point of purchase, trial size, and coupons to stimulate initial awareness and trial. Sales improved again. Team A saw its largest increase of 79.9% growth. Team A focuses promotional attention for Allround on reminder, shelf space, and coupons to retain existing clients while still attracting new and maintaining brand awareness. The line extensions of Allround+ and Allright are focused on point of purchase, trial size, and coupons in order to stimulate awareness and connection with the existing brand. All brands utilized co-op advertising to increase awareness and maintain partnerships with retailers.
Sales Force
Period one of the PharmaSim simulation began with an increase to 94 direct and 40 indirect sales force members. Based on the initial case, Team A believed the indirect sales force needed increases due to reports of weak support of wholesalers, merchandisers, and detailers. The direct sales force would work with independent drug stores, chain drug stores, grocery stores, convenience stores, and mass merchandise. There are far more individual companies in this category than the indirect sales force deals with. Therefore, Team A believed the direct sales force needed the most allocation of employees. This initial strategy in combination with other changes allowed for initial high performance.
Over time the performance diminished and the team looked to improve performance. The simulation allowed the team to specify companies for the sales force to be allocated. Team A chose to place individuals based on larger needs. Chain drug stores and grocery stores held the largest volume of sales and locations; therefore, Team A allocated the most direct sales force to these two categories. Team A continued with this line of allocation to conclude with the following distribution: Direct sales force- independent drugstores 7, chain drugstores 30, grocery stores 45, convenience stores 4, mass merchandise 16; Indirect sales force- wholesaler support 19, merchandisers 10, and detailers 14. This use of the direct and indirect sales force positions the sales force strategically with the highest volume dealers as priority while expanding supports to smaller independents.
Segmentation
Allround as stated has been an industry leader for many years and one of the main focuses for our strategy report is to expand the Allround brand. At the starting point Allround offered only one product. We determined that this should expand to have several products available for different needs. It was also noted that the demographic that we would focus on for our new product line would be young families with children.
It was decided that the new product would be advertised and marketed on the fact that it would not have an alcohol content in the formula. That aspect noted, Allround would have to use segmentation to break up its demographics. (Market segmentation strategies are generally used to identify and further define the target customers, and provide supporting data for marketing plan elements such as positioning to achieve certain marketing plan objectives. Businesses may develop product differentiation strategies, or an undifferentiated approach, involving specific products or product lines depending on the specific demand and attributes of the target segment (Hall, 2012).
Line Extensions
Allstar brands was a company that started in 1924. They were leading in the industry for many years but determined that they needed to expand their products and reach out to a new demographic as stated in the initial strategy report. When looking into a line extension our company was looking to extend off the initial success of the original product that they were currently successful with, this is the Allround cold medicine.
Allstar decided that it will do a line extension and market its new product to a younger demographic, young singles, young families, mature families and empty nesters. Line extensions create multiple brands in turn this will help the brand equity of the product. There are also several other reasons that line extensions are beneficial. One is the fact that the Allround brand will now have more shelf presence. It will also help attract consumers that are seeking variety, and also increasing internal competition within the company.
Cumulative Net Income
Our cumulative net income began at 67 million and steadily increased to 640 million. Even though we had a steady growth in cumulative net income, period’s three through seven had the smallest amount of growth from period to period. This time will be known as the maturity stage of the brand or product life cycle. In this stage, “the product is established and the aim for the manufacturer is now to maintain the market share they have built up” (Product Life Cycle, n.d.). This stage is known to be the most competitive stage for companies and many will try to alter or introduce new products to keep consumers. During periods three through seven, we introduce two new products, Allround+ and Allright to lengthen the maturity stage of our brand life cycle. Our final cumulative net income of 640 million can be attributed to some key decisions of introducing new products and increasing the overall selling price of each product.
Even though we had a steady growth in cumulative net income, our stock price was more vulnerable to our decisions. We initially seen a significant increase in our stock price in period one but then had a huge drop in period two and three. Our lowest stock price was seen in period three when it was only $40.20. After making the decision to increase our product prices by $0.05-0.07, our stock price rose significantly in period eight to a final price of $70.38.
Group Anticipation for Allround Brands in Period Nine
We believe that Allround would continue to see growth in the future if the prices of each product increase slightly to take in consideration the current inflation rates and the selling price of their competitors. Allround newest products, Allround+ is in the growth stage and will continue to contribute to the company’s success while Allright is in the introduction stage of its product life cycle which means it sales are still low and the cost for marketing and research and development is high. Allround is in the maturity stage of its product life cycle and will be the main source of income for the brand.
References
Brown, P. (2014, May 12). 6 Things to Know About What Your Competitors are Doing Right. Retrieved from http://www.inc.com/paul-brown/learning-from-what-the-competition-is-doing-right.html
James, S. W., Kinnear, T. C., & Deighan, M. (2012). Pharmasim: The Marketing Management Simulation. Charlottesville, VA: Interpretive Simulations.
Kotler, P., & Keller, K. L. (2012). Marketing management (14th ed.). Upper Saddle River, NJ:
Pearson Prentice Hall.
Product Life Cycle Stages. (n.d.). Retrieved from http://productlifecyclestages.com/
Appendix A
Initial Strategy Report: Group A
Allstar Brands Corporation was founded in 1924 and its brand Allround is a leading over-the-counter (OTC) product in the cold and remedy markets. Allstar competes with four other firms who also produce similar multi-symptom cold products, they are: B&B Health Care, Curall Pharmaceuticals, Driscol Corporation, and Ethik Incorporated. All four other firms have multiple brands in multiple forms to treat various allergy, nasal, and cold symptoms. Allstar has one product in the liquid form, its 4 hour multi-symptom cold liquid, which is a leading brand at treating multiple cold symptoms. Recent survey data from two segmentations of illness and demographics showed that 74% of those surveyed were familiar with the Allround brand for treating multi-cold symptoms, making Allround the most popular brand. Those surveyed included young singles and families, matures, adults whose children have left home, and retirees.
What appears to be an obvious market gap is the lack of offering a product to treat allergy symptoms, as “Chronic allergy sufferers tend to have different usage patterns and more concerns about side effects because of the duration of the symptoms” (James, Kinnear, & Deighan, 2012, p. 14). Allstar Brands is potentially losing customers to competitors such as B&B Health Care and Driscol, as these two competitors both offer allergy capsules to treat allergy symptoms specifically. Another market gap is the lack of providing different specific product categories such as nasal sprays and the lack of providing different forms, such as capsules and/or sprays. Allstar Brands currently only offers their multi-symptom product in liquid form, which limits users who would prefer other forms.
Allstar understands the importance of knowing the competitors and carefully evaluating them to gather viable information for decision making. Allround’s OTC medicine might be leading the
Appendix A
market but they still have some major competition within the industry. Ethik incorporated is Allround’s biggest competitor with 395 million dollars in sales for OTC medicine. This exceeds Allstar’s sales by about 40 million dollars. The next competitor that Allstar will need to examine will be B&B Healthcare who annually produces 286 million dollars in sales. According to a recent article, when analyzing the competition it is crucial for a company to not only look at the opportunities that their competitors are missing or where they are going wrong but to also examine what the competition is doing right. It is important to know that each of these competitors have multiple products on the market. One of the decisions Allstar must make is whether or not to expand their product line and based on the information presented in the case, it would be ideal for them to offer more products to compete against the other companies.
Allround’s only product is a 4-hour multi-symptom liquid whereas both of their competitors offer multiple products including a cold capsule medication. Another competitor, Dryup, offers a multi-symptom capsule that Allstar can capitalize on because there is only one competitor in this market and the capsule requires majority of the same ingredients of their liquid. It would be easier for Allstar to start producing this kind of product because they have the advantage of already offering the best multi-symptom medication on the market. Research has also shown that consumers prefer the convenience of a capsule over liquid medicine. Allstar should also examine the 12-hour medicine market because there is only one brand that offers this product, Ethik, who produces a 12-hour cold capsule. By producing a 12-hour multi-symptom capsule or liquid, Allstar would be the first to present this product to the market creating a competitive advantage that should generate an increase in sales. Allstar is a brand that could benefit from introducing new products to the market and providing a different form of their already leading product.
Appendix A
The firm’s performance goals are as follows. First, the marketing team will implement changes to the marketing plan to not only recapture the lost market share presented in the opening statement, but also increase the market share. Allstar decreased the trial budget and has not responded to changes in formulation demand. An adjustment in the formulation should improve consumer responsiveness. Trial samples can be used to gain new consumers. Finally, increased and/or changes to the coupon budgeting strategy can be utilized to retain loyal customers, increase return sales, and open sales to related product lines.
Allstar has failed to capture market shares in three other related product lines. By capitalizing on their branding value and utilizing current formulation capabilities, the marketing team will develop two new product lines over the ten periods. A product line for cough will be developed first due to the large annual sales of 366.4 million dollars a year. Capturing market shares with the name value will enable Allstar to obtain the most potential earnings in this product line.
The second product line will can be in either Allergy or Nasal categories. The annual sales are relatively the same with Allergy generating an additional seven million dollars in sales. The Allergy category includes B&B and Curall as the competition controlling the market share. Both of these companies have a lower brand awareness and conversion ratio than Allstar. Allstar’s branding should help gain a good portion of the Allergy market share. Ethik leads the Nasal category. Ethik has a stronger brand awareness and conversion ratio that might cause slower growth potential for Allstar’s new product.
Overall, as Allstar supports the current Cold product line in order to increase sales and market share, it should continue to capitalize on its brand awareness and develop new products. Cough
Appendix A
should be the first product followed by Allergy and potentially Nasal later on. The Cold and Cough categories contain the most profit potential. With each new product development, brand awareness increases for each product, store shelf space will increase, retained customers will have more choice and are likely to purchase related products, and new customers will have more choice in selecting a brand more specific to their needs and as an alternative to the competitors. The Cough, Alergy, and Nasal categories only have two competitors in each. This means consumers only have two choices for these categories including Allstar’s loyal customers. Allstar should be able to grow quickly in these related product categories and provide their current customers and new customers an alternate provider.
Allround has been successful with their multisystem cold liquid buts feels that they will need to make some decisions in order to re built the decreasing profits. A major market research firm conducted a consumer survey and claimed that the survey would provide helpful data for Allround. This data reveled that although Allround was a very successful cold medicine, the products retention ratio was lower than most of the companies that were surveyed. It was noted that this was due to consumers being drawn to brands that fill a specific need; not ones that are multisystem as Allround.
This information, along with a recent attack from physicians claiming that a multi system (shot gun) approach is too much medication to put in one liquid triggered Allround to consider making more aggressive decisions on initiating a new product line. Allround feels that this may not only help the retention ratio, but also gain new costumers that are looking for a single formula product to handle more specific needs. This in turn it may actually aid in the shelf space allocation of Allround that has been not so attractive up to this point.
Appendix A
Allround has decide to become aggressive with allocating funds to determine which single form of cold medicine that it will launch first. It has been determined that consumers tend to be attracted to capsules because of convenience so they have decided that they will start with two forms of capsules each targeting a specific symptom.
The key factors in keeping Allstar ahead of the competition is to remain customer focused and respond proactively to the strategies of its competitors. Allstar's overall marketing strategy will be focused based in order to best leverage the customer relationship. Preliminary research has shown that consumers respond to products that address specific symptoms and are partial to capsule forms over liquid medicine. Therefore, Allstar’s new product line will be in capsule form. Targeting the allergy market is critical because allergies are a year round problem for many consumers. Because of Allstar’s high brand awareness and financial success the company can afford to be more innovative and proactive rather than reactive to its competitors. A 12 hour capsule for cold and one for allergies can be introduced to gain an edge over the competition. Allstar’s strategy is to gradually introduce new products over time and to target young families who are more open to change and are likely to be more loyal to the brand over a longer period of time.
Allstar has decided to keep BMW as its advertising agency because they are the best and when launching new products it can be too risky to switch agencies. Advertising messages will focus on the benefits and reminder approach targeting product use and demographics. Allocating more funds to Allstar’s direct sales force with the introduction of trial sizes and coupons should prove to be a success for the brand.
Team A’s Decisions, Results and Interpretation of Results for Each of the Eight Periods
Minor changes to the MSRP were made throughout all the periods and we slowly introduced new products. Not until period 8 did we make our biggest changes which included MSRP price increases, removing alcohol from Allround, changing advertising to target young families only (this was the plan in our initial strategy report) with only two messages per product which
included: Allround (reminder 50% and benefits 50%), Allround+ (primary 50% and comparison 50%), and Allright (Primary 50% and benefits 50%).
It is very obvious to our group that our strategy to remain less aggressive with changing the MSRP and for introducing new product lines hindered our ability to increase our stock prices, overall. Once we made significant changes in period 8 we seen our biggest stock increases and had we been more aggressive earlier in the simulation, our final stock prices might have been much higher than what we ended up with. Also, it was noted that in business you must be willing to get aggressive at times. It wasn’t about are we going to take a risk, it was about how much of a risk are we were willing to take.
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