Simulation Reflection Paper
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Over the past three weeks in the University of Phoenix Marketing Management class, I have completed three simulations based on real life marketing situations. The first simulation was titled, “Forecasting Market Demand.” This simulation discussed the importance of determining the future demand for your product in the voice commanded software industry. The marketing team for the new Listensoft software needed to accurately forecast the production capacity of the new product and the pricing strategy. This task is especially difficult because human behavior is difficult to predict. Forecasting behavior “Ðis about generating numbers out of expectations, opinions, statements, prior patterns and a host of other subjective elements” (Forecasting Market Demand, 2005).
The second simulation was titled “Service Added Based Differentiation.” This simulation discussed the importance of differentiating the new Camyo sports car in a mature market to increase sales and profitability. The current sales were 75,000 units per year, which was only 7% of the market share. The goal for the marketing team was to increase double the sales of this automobile within three years, while still maintaining
5-8% profitability.
The final simulation completed was “Channel Development and Pricing.” This simulation discussed the effectiveness of distribution channels and analyzed the importance of pricing to impact sales while expanding the Add Computers market share globally. Add Computers was looking to expand their retail and distribution market to include the sale of notebook computers in England. Currently before launching this product the notebook market in England encompassed 2 million units per year sold. Add Computers was estimating the first year of launching the computers in the United Kingdom would yield sales of 160,000 units. This would give Add Computers a market share of 8% while maintaining a 6% profit margin.
Forecasting Market Demand
My results for this simulation were exceptional during the first year of forecasting, however my ability declined the following two years. The first year I forecasted the sale of 100,000 units. This forecast was only 2,000 units short from the actual yearly sales. The reduction in the price to $225.00 per unit enabled me to almost reach this goal. Basic microeconomic principles show that a decrease in price in most cases will initiate an increase in sales. This forecasting was successful in the introductory stage of the product life cycle. The second year I failed to accurately forecast the sales to the physicians market. I was much closer with determining the sales to the IT departments and banking industry. The sales for the doctors I determined would be 50,000, however actual sales greatly exceeded that number by 19,500 totaling 69,500 units sold. The third year also I was focusing on the micro not macro economical principles, and missed the mark of sales when we decided to incorporate our software into OEM computers. I should have also considered the original product was within the maturity stages, and then we added a new distribution which therefore the demand for this product was much higher.
Forecasting the market demand of a new product or service is very difficult. As this simulation has shown, the introduction of a new product into the market place involves careful determination of sales forecasting and pricing strategy. The Marketing audit my group is completing is introducing a new voice activated system into the CSX transportation system. Within our marketing audit, no product is being monetarily sold, however this simulation shows the need to forecast the demand for this item. We need to forecast the demand to ensure that the internal CSX customer or employee is able to receive software and training for this program should their position require it.
The individual marketing plan I am completing directly relates to this simulation on many fronts. First, I am opening up a new store in a market that currently does not have a store specializing in the video game industry. I will need to forecast the sales and data based upon the past history of sales in a similar market, as well as analyze the sales of similar sized stores in a comparable industry. A comparable industry I have determined would be the movie sales and rental industry. The pricing of my items also will need to be compared to other larger retailers to ensure I am remaining within the industry average selling price, and the industry trade price.
Service Added Based Differentiation
In mature markets such as the luxury car industry, different companies own the market shares already. These companies sell similar items at comparable prices, so the key to success is to differentiate their item by adding a service that customers feel is valuable. I found the Service Added Based Differentiation Simulation very difficult. My results were less than optimal every time I attempted something different. My first attempt at the differentiation was to add the GPS System in all of the Camyo vehicles. My decision was poor because it appeared not to have added a higher value perception within my target market. The customers were able to assign a value to the GPS system, therefore it was not the best option. Although my actual unit sales were not optimal on my initial attempt, the profitability of the car was high since I raised the price. My second decision was made based upon the recommendation to add more than one option. Therefore I added the GPS system and the weekly car wash. The customers viewed the pair favorably however; this brought my profitability down to only .51%. This was significantly below the optimal level. Finally in the third scenario I added the collision insurance and the detailing of the cars as a service based differentiation. This also was viewed as optimal within the customers viewpoint, however the insufficient marketing budget allocation posed a serious threat.
The key concepts to remember when dealing with a mature market is that: “Differentiation is based on the view that charging a better price or profit on products or services is dependent on the ability to differentiate oneself from the pack and forge institutional identity” (Kalakota). To move into a mature market and attempt to gain a large market share, you must form some type of emotional bond with the customer to persuade them to purchase your item. Once that bond is established then the company must build on that bond and invoke loyalty to the brand.
In my marketing plan I have developed the concept of a “Retro” card. This hopefully will be a service added based differentiation