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Pharmasim Final Simulation Report

Group C

Saint Leo University

MBA 565 Marketing

OVERVIEW

As the simulation commenced, Allround was the leading multi-symptom over-the-counter (OTC) medication on the Market, which was a critical component of Allstar’s Pharmaceutical Division’s long-term strategic plan. The competitors had introduced new products, and Allround was concerned with the overall effect of the competitive nature of the OTC cold remedy market. The group developed research utilizing a SWOT analysis to ensure its stronghold within the market. In order to maintain Allround’s position in the market place, the OCM group placed concentrated efforts on targeting sales to maintain the majority of the market share.

MANUFACTURER’S SUGGESTED RETAIL PRICE

During the initial stage of the simulation, the decision was made to increase the price of Allround from $5.45 to $5.60 in hopes that the market would be supportive due to brand awareness, customer loyalty and the effectiveness of the product. However, as the simulation progressed, it was noted that inflation had a direct correlation to pricing, discounts, theft and price reductions. Research indicated that psychology was a factor in pricing determination. It was postulated that odd –pricing practice is used when setting a price to convince a consumer that prices ending in an odd number is a lower price, and is therefore fair. For example, a product priced as $5.09 versus $5.10. Additionally, reductions in pricing were made during the Maturity Stage of the Product Life Cycle based on customer feedback with the goal of increased purchases and, subsequently, revenues.

Allround+ was introduced as a new product with the intent to penetrate the children’s cold medicine market with top sales to match the Allround brand product. The pricing strategy during the introductory phase of the Product Life Cycle was to introduce the children’s medicine at a starting price that was well below the competition to have a positive impact on the industry and to create a loyal customer base. As the simulation advanced and brand awareness was strong, the price was increased to ensure the Allround+ brand wasn’t undervalued and would decrease the probability of profit loss.

Towards the end of the simulation as both products reached the Maturity Stage, Allround was priced slightly ahead of the competitors while Allround+ had a median price. The conclusion of the simulation was met with some challenges that forced necessary changes and the sales monitoring. Reflection of the simulation in its totality would suggest that the introduction of the Allround+ at a higher price point could have proved beneficial, along with some price skimming to recoup the costs of promotion for the realization of higher stock prices.

VOLUME DISCOUNTS AND PROMOTIONAL ALLOWANCE

The overall discount and promotional allowance strategy for Allround and Allround+ was to ensure that the product maintained warehouse and retail stock through promotional allowances, increased product awareness at retailer level through co-op advertising, used point-of-purchase displays to promote the products, offered trial sized products for promotion, and to use coupons to stimulate return customers. The simulation offered Allround as an established brand with a loyal customer base. We maintained a short term strategy in order to determine changes in the market. In order to entice new customers, trial sizes were implemented.

As the periods progressed, adjustments were made to promotional allowances as indicated from Promotional Market Research Reports, events, and major decision points. Coupons were employed to help maintain a customer base, especially when competitors dropped prices. Due to a reformulation in Period 2 based on consumer feedback, the strategy was adjusted to help promote the new formula. Upon addition of Allround+ in Period 4, an aggressive promotions strategy was deployed that included initial promotional allocation to 18%,

Co-Op Advertising at $1.5 million, Point of Purchase at $1.6 million, and Trial Size investments of $1 million. This strategy played out well in the market. By Period 4 the brand achieved a significant increase in stock value from $30.44 to $45.79. Lack of consumer promotion led to a disadvantage with the Allround brand, so allocations were adjusted from 15% to 17% in Period 5 and it was successful. By Period 6, Consumer Promotions for Allround still weren’t sufficient so 18% was designated to that area. Mass Merchandising was increased to 18.5% in period 5 for Allround+; as the result of a marketing message which indicated a change was needed to improve shelf spacing. In Period 7, a Promotions Marketing Report was purchased to gauge possible overspending on Allround+. Based on the revenues spent by direct competitor’s expenses were adjusted from 18% to 14.5% for the majority of categories for Allround+. In recognition of dismal use of coupons at only 3%, the provisions were significantly lowered to $1 million, which had a direct effect on increasing the stock value at the end of the period.

ADVERTISING BUDGET

Allstar’s products’ budget created a strong foundation for decisions to be made for simulation success. For Allround, the stock price attained initially was positive but soon declined due to underutilization of report purchasing. Instead, the decision was made to save money, which hindered sales and stock price. In Period 0, the budget was $39.3 million with $10.9 remaining for the entire brand at a stock price of $38.35. In Advancing, $15 million was designated to advertising and yielded a stock price of $52.20. The Maturity Stage of the Product Life Cycle focus was to maintain the market share attained. Further decisions led to a decrease in the advertising budget due to Allround being an established brand with a loyal customer base, and a retail sales growth of 20.7%. Market Updates in subsequent Periods eluded to the need for additional funding towards advertising based on complaints from retailers of poor sales support. Brand awareness and informing the consumer of the products advantages became the goal on an effort to increase sales.

Consistent declines in stock price alerted the brand managers to the need for a change once the all-time low of $33.75 was reported. The purchase and use of available reports would have undoubtedly provided a measure of relief however, budgetary concerns did not allow for the expense. The Product Life Cycle product positioning as it relates to the market were analyzed and the decision was made to introduce an additional product to capture a different market segment. Allround+ entered the market to appeal to parents of sick children in need of a 4-hour cough liquid. The advertising budget was set at $17.9 million. Major changes were made to improve the industry outlook as the conservative approach did not yield the desired results. Since the company recognized the approach of the declining stage of the Product Life Cycle, the company began with securing advertising reports and examining the top 3 competitors in the market. Procuring the advertising reports were advantageous as the stock inflated to a final price of $60.22.

Ultimately, the correct marketing strategy was realized for the Allstar brands.

Although the Market Updates were being used to make marketing mix determinations during advancement opportunities, the company was still receiving complaints of poor sales support. Allround's weaknesses centered on its retention and line extension. Allround+ was a huge weakness for the Allstar brand as it was considered a dog within the BCG Matrix theory, while Allround generated the most income. Even with the investments into promotions and advertising, Allround+ failed to increase revenues necessary for the brand to triumph in sales and market share.

SELECTED ADVERTISING AGENCY

We decided to continue using Brewster, Maxwell, & Wheeler as our desired advertising agency simply because the agency is known for their high-quality work. OCM group was concern with the cost being too high, 15 percent commission, but it’s an agency we have worked with before and know their work. Even though we received two other offer from Sully & Rodgers (S&R) and Loebol & Company (LLC), at a lower commission rate, the firm didn’t want to risk the quality of work. Main concern, with the two-other agency, was their lower quality advertising could cause unrepairable damage to our brand.

RELATIVE EMPHASIS ON THE FOUR TYPES OF ADVERTISING MESSAGES

With strong positive sales growth in the first phase and continued consumer satisfaction, all numbers pointed to a strong positive future in sells. To maintain the positive growth, Allround focused its advertising message on reminding and comparing our product against leading competitor. The advertising goal was to keep the budget low without impeding the overall budget. To achieve a decrease in expenditures, Allround monitored competitors and customers to stay ahead of any potential risks, to remain proactive instead of reactive in the event of a threat.

Allround’s 4-hour multi-symptom medication advertising initial strategy and advertising message did not resonate with the target customers, which caused a decrease in sales. Allround’s advertising message wasn't precise which lead to customers receiving mixed signals. Customers could not distinguish the true meaning of the message for the reason that our advertising was too broad. Instead of focusing our message on specific areas, Allround tried to cover a wide-range of topics. Topic which included: primary, benefits, comparisons, and reminders. Three periods had progressed before Allround reacted and invested in the Advertising Report to realign the advertising strategy. The report allowed the firm to gain insightful knowledge regarding the market average advertising expenses and the closest competitor's spending habits. Allround realigned their advertising message to focus mainly on comparison and reminder advertising messages.

PROMOTIONS BUDGET & THE THREE TYPES OF CONSUMER PROMOTIONS

Among pricing, promotion, and sales; advertising also played a considerable role in brand

awareness. In phase 0, Allround was spending $20 million dollars in an advertising campaign,

primarily for commercials. The favorable brand recognition and loyal customer base of the Allround medication brand lead to the decision to decrease advertising from $20 million to $15 million; which was a 25% cut. The decision was based solely on Allround 4-hour multi-symptom

medication having an unaltered formula and well-established reputation with all its consumers.

Initially, Allround targeted those individuals looking for multi-symptom relief medication that

allowed them to sleep through the night. Since Allround was already established, the decision was made to decrease advertising and allot greater funding towards sales and promotion. The Allround brand product life cycle was in its maturity stage indicating the sales curve had flattened and had difficulty in gaining new customers.

SALES FORCE

The Sales Force was critical to the success of the brand in the market. A number of data sources were used to determine the direct and indirect sales force to include the Dashboard Performance, Decision Summary, Market Update, and Sales Reports. Each report was carefully examined to measure the need for management. Sales Fore allocations were based primarily on the importance of needs. The total size of the Sales Force was flexed to reflect a proportionate amount of direct and indirect support; as well, the Market Outlook Report provided key performance indicators that allowed informed decisions on allocating staff appropriately. Sales Force hiring and training expenditures were also monitored closely for budgetary purposes. The direct Sales Force was responsible for maintaining relationships with independent drugstores, chain drugstores, grocery stores, convenient stores, and mass merchandiser channels. The indirect Sales Force was responsible for indirect channels that included wholesalers, merchandisers, and detailers. It was important to adjust Sales Force appropriately to effectively deploy a marketing strategy; as it generally resulted in profits. The Sales Force was a revenue generator for Allstar. The Sales Force decisions that were made partially correlated to stock price values in each Period. Proper support of its distribution channels helped to improve overall consumer sales.

First year, Sales Force comprised of direct and indirect sales team with expenditures in salary of $3.8 million, expenses $1.9 million, and training $300,000. It reflected 127 sales staff that included a direct sales force team of (7) independent drugstores, (33) chain drugstores, (51) grocery stores, (4) convenience stores, and (15) mass merchandisers; as well as an indirect sales force team of (8) wholesaler support, (3) merchandisers, and (6) detailers. Sales Force had to remain agile through the years to react to the market trends and competition. In Period 8, the Sales Force was stabilized with direct and indirect support staff totaling 290; which encompassed a direct Sales Force team of (20) independent drugstores, (55) chain drugstores, (95) grocery stores, (10) convenience stores, and (25) mass merchandisers. The indirect Sales Force was comprised of (30) wholesaler support, (20) merchandisers, and (35) detailers.  Upon review, the Sales Force team was doubled to possess a competitive advantage by retaining a highly- trained sales team and to also provide adequate sales support to the distribution channels. Unsurprisingly, employing additional staff led to increased expenditures in salary at $11.6 million, expenses at $5.8 million and training at $800,000.

In the Introductory Stage of the Product Life Cycle, a 127 Sales Force team was adequate for the products. In the Growth Stage, the Sales Force had to be agile by increasing and appropriately allocating the direct and indirect sales team within our channels of distribution. Varying feedback from customers, the market, and distribution partners support the adequate sales force position. However, the limited purchasing of market intelligence reports during this phase subsequently demonstrated the need for it based on performance results. The maturity phase challenged the sales force team to again rethink proper allocation, especially while balancing Allround and Allround+ brands simultaneously. Through careful and deliberate management review, deep diving market intelligence reports, and industry analysis, the declination phase of the Product Life Cycle in sales force experienced a stock value increase at Period 8.

SEGMENTATION

Allround and Allround+ used a multi-segment strategy since both medications targeted different consumers. Allround provided a 4-hour cough liquid and catered to adults; whereas Allround+ was a child’s 4-hour cough liquid. The market was based on defining consumers in terms of the demographic segmentation in regards to family size and age. The segmentation strategy influenced the use of social media marketing. This cost-effective and simple communication strategy allowed for active and prospective customers to communicate with the business while providing a huge platform for marketing efforts; such as the broadcasting of company changes, reformulations, sales, and promotions for brand awareness.

LINE EXTENSION

After analyzing the market, Allround concluded that there was a need for a child’s cold

medication, so Allround introduced the Allround+ 4-hour cold medicine. The new product enabled the firm to expand the target customer base to include families with young

children. When the introduction of Allround+ occurred, the initial reaction was to rely heavily on

advertising, and the decision was made to purchase a report to compare the new product line to the competition to establish comparative pricing.

CUMULATIVE NET INCOME & FINAL STOCK PRICE

Cumulative net income began at $67.16 million in Period 0 and increased each Period

thereafter due to management decisions. We experienced an increase in cumulative net income each Period, the smallest of which in Period 4; which was $45.55 million. There was also a decrease in stock price during this Period as well. Reports and Marketing messages were analyzed for the purpose of making more informed business decisions to grow revenue. Upon accessing and reviewing available resources, adjustments were made to price, advertising and promotions, which subsequently increased cumulative net income to $87.61 million in Period 5 with marked improvement. The most notable increase occurring in Period 6, which reached $128.12 million. Period 6 also recognized the highest stock price of $61.04. The increase experienced in Period 7 was a marked improvement as well at $108.32 million. The steady increases confirmed the necessity to purchase reports for the success of the project and simulation.

The stock prices declined for three continuous Periods, which ultimately ended at $60.20. Although the final simulation price was not the highest attained, it is reflective of an overall increase of $21.85 from commencement to cessation of the simulation. The market report resources provided for purchase as well as an understanding of the outcomes from decisions made, were imperative to the success of each Period and to the simulation as a whole to make educated and relevant business decisions. The allotment of additional time would have afforded the opportunity to employ learned practices for continued success.

Appendixes

Appendix A – Period Interpretation

Appendix B – Graphs

Group C performance

Net Income (M$) 0 1 2 3 4 5 6 7 8 67.2 106.2 88.4 71.599999999999994 45.5 87.6 128.1 108.3 107.1 Stock Price ($) 0 1 2 3 4 5 6 7 8 38.35 52.2 41.02 33.75 30.44 45.79 61.04 59.22 60.2

Net Income (M$) 0 1 2 3 4 5 6 7 8 67.2 106.2 88.4 71.599999999999994 45.5 87.6 128.1 108.3 107.1