pro101

Deja Harris, Jessica Henderson, Zontayvia Jiles,

Patricia King, Odetta JohnsonShepherd, David Milot, & Joseph Moore

MBA 565

Saint Leo University

Introduction

The initial strategy for the Allround Brand Cold Medicine was to market cold medicine to families that have colds and cold symptoms. In order to remain competitive against our two main competitors Coughcure and Besthelp, Allstar considered converting Allround from a liquid to a capsule. We also planned to increase new customers by target advertising and promoting a new product line, Allround+. In order to ensure Allstar Brands Corporation remains one of the leading manufacturers of packaged goods in the world the team was extremely successful in showcasing the marketing strategies learned resulting in the weekly increase in net income, cumulative net income, stock price and other various market growth areas. This report will detail the strategies used to formulate decision selections while applying the information provided by the PharmaSim Marketing Interpretive Simulation.

Pricing

Manufacturer’s Suggested Retail Price

Allround.

In the initial stages of the PharmaSim our pricing decisions were geared toward benchmarking against our competitors Coughcure and End. We met some pitfalls with this approach as our stock price plummeted significantly forcing us to rethink our pricing strategy. We realized that while the competitor bench marking approach works in some instances, it was not within the best interest of the Allround brand. Our value proposition, product positioning, the product life cycle, customer’s behaviors, industry outlook, and other elements were critical to consider when deciding on a price for our brand.

Allround+.

In period 4, we introduced the new product line Allround+. Our beginning MSRP of $4.75 was intended to gain market share quickly since this was a new product in a mature market. With our strategy of market penetration, we determined the high volume discounts sales could be stimulated faster and the low prices would be passed on to the customer. As customers raved about its value, we increased the price in small increments to accommodate this increased perceived value.

BCG Theory – Growth-Share Matrix (Allround and Allround+).

By period 5, we noticed that Allround was a Star and Allround+ was a ‘Question mark’ using the narrow portfolio graph. Later in the PharmaSim game, Allround became a Cash Cow then back to being a Star. Stars have high growth and high market share. With this in mind, we could have made changes to the product’s position in the market to maximize profits. We could have lower of volume discounts since the customers were more inelastic to the price changes. More importantly, when Allround became a Cash Cow, we did not raise our prices high enough, as we were too conservative in our pricing decisions. This was an opportunity for us to generate more cash flow that could later be invested into Allround+ or a new product. Nonetheless, Allround+ was doing well for a new product; being a ‘?’ we were unsure of its future yet we decided to keep producing it because of the good reviews it had via social media. It became a dog in period 6, so we had to be moderate with the price to keep the product in a good standing. It later became a star in period 8 which indicates we did something right with the pricing of the product. Also, we think its gradual success was due to the already established Allround brand.

Psychology of Numbers (Allround and Allround+).

We learned about the psychological impact digits can have on the customer, wholesaler and retailers; the use of odd numbers make the product seemed less expensive. When we started setting our prices to end with the number 9, we started seeing increases in our overall sales, even though there were fewer complaints about our brand value in the market. Looking back at the Pricing Report for all periods, we realized that all our competitors had been practicing this tactic from inception.

Plant Capacity.

It was important to pay attention to our plant capacity since the fixed cost per unit are significantly lower when capacity is at 99% versus 80%. With that in mind, when we were challenged with the issue of overcapacity, we saw a causal relationship with price and plant capacity. We found that increasing our prices helped to mitigate or reduce our plant capacity to a cost effective level and thus allowing us to achieve some economies of scale. This theory was tested in period 5 when over capacity was running at 19.2% When we increased prices at a moderate amount by $0.30, capacity dropped to 90.7%. This price increase drove our sales to 6% growth and net income by 10.5%, and the stock prices rose from $70.19 to 76.92.

Product Life Cycle

We believe the product life cycle is very important in making decisions about what strategies to take for any brand. The Allround brand is believed to be it in the maturity stage. We introduced the Allround+ to supplement income for the Allstar brand and to strategically prevent our competitors from gaining market share from Allround. There was always a price war and idea of market penetration, market development was Allstar way of putting our best foot forward. Like Allstar, all the major companies in the OTC medicine industry like Curall Pharmaceuticals and Ethik Inc. have found ways to keep or increase their market share by introducing a new brand formulation.

Volume Discount and Promotion Allowances

Allround

For Allround, our first priority was to increase sales and our second priority was to stay ahead of the competition. We accomplished both by lowering the promotion allowance in small increments most period. This had the effect of increasing our gross margin, which resulted in increasing our net income. When we did slightly raise the promotion allowance, we saw the gained shelf space that was desired. The discounts provided by using coupons were directly proportional to sales. We also used point of purchase allowances to promote our product in displays in stores. The participation rate steadily increased over time as we incrementally increased the point of purchase allowance.

This was all in line with the performance objects established in the initial strategy, some of the objectives being to increase shelf space, brand recognition and loyalty. As Peter Drucker said, “Objectives define strategy, and strategy defines structure.” The motivation and strategy behind our lowering of the promotional allowance was to lower our costs without diluting our brand, all while keeping our allowances at a competitive point within the industry. With this product being in the growth stage of the life cycle, approaching maturity, we wanted to continue to promote it, but allow it to continue on the well-established path it was on. Some decisions were also made in the beginning periods, knowing the plan was to launch a new product, and desiring to save major changes for when we underwent the launch.

Allround+

For Allround+, we used a different approach since this was a new product. In order to increase the exposure of the new product quickly, we started off with a high promotion allowance and high allowances for coupons and trial sizes. Once the market share surpassed the other new product lines, we began to incrementally lower these allowances, while staying ahead of the competition. As this product proved to do well, some focus and budgeting was focused back to the original Allround. Although we wanted the new product to do well, measures were taken to avoid cannibalization.

These strategies proved to be successful. Sales steadily increased, as well as our trade rating for both products, shelf space was gained, and brand recognition and loyalty remained high, increasing slightly. The increase in sales and gross margin enabled our cumulative net income to increase steadily throughout the periods.

Advertising

At the beginning, the business budget was only $39.3 million and the advertising amount was a mere $19 million. Our decision to allocate funds depended on feedback from our customers, stores, social media and any other information received resulting in our decision to remain extremely modest with the advertising budget. As each period was introduced the team begin increasing the budget as new products and other information became available knowing we did not want to start out too aggressive.

The strategy for the advertising budget was to ensure we had sufficient funds required to promote Allround and Allround+ while maintaining a watchful eye on our competitors. We were able to gain new customers with our decision to remove the alcohol from the product. We selected Brewster, Maxwell & Wheeler (BMW) as our advertising agency because they are known as the best in the advertising business resulting in most businesses generating an increase in sales by 15%-20% against their competitors.

Allround required very little advertising budget changes because it was already number one in the market. However, the Allround+ budget had to be increased because it was a new product and we needed to introduce it to boost sales and create awareness.

Our strategy was to focus on types of customers (i.e. young singles & families, mature family, empty nesters and retired) because each of these targets benefit from the use of our product based on the symptoms that were being reported. The Allround decision to maintain the budget was merely due to the reported symptoms for cold and cough being the highest among all others but the Allround+ was selected because the antihistamine as an ingredient formulated for treating allergies and high decongestant for individuals with a cold.

Promotion

Allocation of Money to Advertising and Promotions

Our objectives for both products were the same: to increase sales and stay ahead of the competition. For Allround, both objectives were accomplished by steadily increasing the cooperative advertising budget and holding the trial size the same. The results were mixed. The participation rate for the cooperative advertising declined slightly during each period and dropped significantly when we lowered the budget. Although the trial size budget was kept at the same amount, the number of units mailed and converted steadily declined. This was expected since Allround was in the mature stage and usage of trials would expectedly decline.

For Allround+, we used the same method for the cooperative advertising and had the same results as the legacy product. But we had different results for the trial size. As we slowly increased the trial size budget, the amount mailed and converted exploded exponentially. The increase was expected since the product was at the beginning of its life cycle, and the great brand recognition provide by the original Allround.

Both of these strategies worked as the sales increase contributed to the cumulative net income amount. The trade rating and stock price also increased while we stayed ahead of the competition. It should also be noted that a competitive strategy was definitely part of our approach. Each period the competition would be analyzed, with research reports used for every decision.

Sales Force

A "sales force" is a group within a company that conducts sales. We had the job of making sure that we were in the ranking with the competition and our numbers stayed in line with them as well. After reviewing the market updates and the sales force report we were able to allocate the sales force. The weekly market updates allowed us to review the things that were issues in the week prior so that we could take them into consideration for the upcoming week. The sales force report allowed us to see were we stood in ranking with all of our competition. In making the decisions weekly to change or keep numbers the same we ensured that we stayed within the top three with each change.

During Periods 1 and 4 we faced challenges of making decisions. After reviewing the reports we were not comfortable as the sales force director to make changes due to uncertainty. However, as a group, the group felt it was necessary to make the changes. The group decision was a great move as our sales numbers increased. Overall, we felt that the sales force played a major part in the overall growth and success of our products. For eight period, of the eight only once did the sales force net fall it fell from 11.6 to 11.4. This fall was not a great fall but, a fall is a fall no matter how small it is.

Segmentation

The segmentation for us was families, ages, different forms, and convenience of the product. We picked these different segments due to families needing diversity in products. Most will agree that they prefer one products for all things and a product that works but comes in different forms is a winner within a modern household. Lifestyle has an impact on a person’s decision on where and how they buy, so we felt it was reasonable to segment the market on that dimension. Overall, the segmentation seemed that it must work for a family and not just one person to ensure we kept and groomed a lifelong customer. As a team, we reviewed what we thought most families would want and need from a medication because people seek great results when purchasing medications.

Line Extensions

During period 3, the decision was made to extend the product line to Allround+. Allround+ is a 12 hour multi-capsule that targets cold and allergy users. It promotes benefits to relieve aches, clears nasal congestion, reduces chest congestion, dries up runny nose, relieves allergy symptoms, and won’t cause drowsiness. By adding this extension and based on the demand of the consumers, our stock price increased and continued to have a steady increase thereafter. There were ample opportunities to add additional product extensions, and we decided against it because there was no major demand for an allergy product such as Allright.

Cumulative Net Income and Final Stock Price

To reiterate, the overall objective of the team was to maintain long-term profitability and market share in an increasingly competitive and changing environment. We wanted to achieve a cumulative net income beyond $950M and we achieved that with an overall net income of $1,037M. From periods 0-4, the biggest growth we saw was in period 1 when net income and stock price rose by 23.6% and 32.2% respectively, leaving cumulative net income at $150M. The team believed this was attributed to reducing our MSRP from $5.29 to $5.04 as customers were complaining that the price was too high compared to its perceived effect. We also analyzed the marketplace and decided to increase our promotional allowance as well as our sales force since we foresaw large growth in retail sales and convenient stores. In period 2, the cumulative net income barely rose by 0.8% while stock price dropped by 4% from $50.68 to $48.58. Period 3 net income grew by 12.9%, and the team believed this was attributed to our decision to drop alcohol from the Allround brand which resulted in the cost of production to be cheaper. This growth was coupled with a significant price increase as well as an increase in sales force for detailers so that doctors and pharmacists could recommend our brand to customers.

Our cumulative net income had a negative growth of 1.2% in period 4. This was expected since we introduced a new product line called Allround+. Our stock price continued to dip, the largest dip of 23% coming from two consecutive periods of negative growth. From thereon, the Allstar brands welcomed steady increases over the next four (4) periods. Cumulative net income saw the largest growth in period 5 of $551M, 38% increase and stock price rose by 47% ending at $70.19. By this time the Allround brand was positioned to be a Star in the BCG matrix with relative growth to market share being high. Advertising and promotional allowance increased to accommodate the new product, Allround+ which was a question mark (?) so that it would be well received by the market.

The next three periods the team saw exponential growth in our cumulative net income from $551M to $1037M; we doubled our cumulative net income. Period 7 when Allround became a cash cow, it was an opportunity to generate cash flow that could later be invested into other brands. We played our figures too conservative and maybe if we had introduced Allright, our stock price would be seen a greater push beyond $101.63. With the successes we were seeing, the team was reluctant to make any drastic change as we were of the notion, ‘don’t fix what is not broken’. Overall the team’s effort were well collaborated to get our cumulative net income to where it is. Through the learning curves, the team became more equipped to analyze the results and make smart decisions.

Conclusion

Although we had success in our goals and objectives of improving the Allround brand and increasing our customer base, we had mixed results as we attempted to adjust our budget for advertising, promotion, and sales. We had great success in increasing our net income and stock price, but we could have done better if we had started another product line, which would have demonstrated health within the firm. Our team’s goal was to remain focused on customer satisfaction and brand awareness. We found the Market Update and Reports to be two of our best assets for guiding and determining factor for the items for in each period. We were able to see that without the reports we had nothing to go by each week, it then became a must and detrimental factor for making decisions each week.

Appendix A, Period Interpretations

Appendix B, Graphs