Market share simulation allround answers

TABLE OF CONTENTS

1. Mission Statement: Page 2

2. Marketing Objectives: Page 2

3. SWOT Analysis: Pages 2-4

4. Target Market: Page 4-5

5. Marketing Activities: Pages 5-7

6. Lessons Learned: Pages 7-15

a) Year 1

b) Year 2

c) Year 3

d) Year 4

e) Year 5

f) Year 6

g) Year 7

h) Year 8

i) Year 9

j) Year 10

7. Summary: Pages 16-17

1. MISSION STATEMENT:

To establish Allstar Brands as a market leader of Over-The-Counter multi-symptom cold/allergy relief, while maintaining the highest level of customer satisfaction through product effectiveness, quality and affordability.

2. MARKETING OBJECTIVES:

· To increase the stock price by 3 points every 2 years

· To maintain a combined direct/indirect sales force of no less than 140

· To increase net income to $40 million in the next 2 years

· To increase brand awareness by 5% yearly for all products of Allstar toward a long-term goal of 85%, thereafter any increase is found sufficient

· To maintain advertising budget expenditure above $26 million, minimum $10 million toward Allround, Allround+ and minimum $9 million toward Allright

· Introduce one new product within every 3-year period according to appropriate market trends and characteristics of demand

· To keep promotional allowance at or above 14% for all products

· To increase customer satisfaction to 60% for all Allstar Brand products within the next 2 years

3. SWOT:

Strengths:

· Allstar Brands have a competitive advantage which is based on the lowest price in the cold/allergy market

· Brand awareness for the products of Allstar Brands is one of the highest among the competitors

· Product mix targets variety of ailments (Allround – multi-symptom, Allround+ - cold and allergy, Allright – cough and cold)

· Customer satisfaction for Allstar products ranges from 54% to 61%

· Allround is the second highest brand purchased among the OTC medicine and has the second largest market share of manufacturing sales

· Allround Brand perception of cough and ache medicine is the highest among the competitors

· Steady rise of product contribution for Allright and Allround+

· Allstar offers relief for all of the most frequent symptoms of ailments: aches, coughing, and chest congestion

· Allright attains largest market share based on manufacturing sales of 14.9% in the cough medicine market

Weaknesses:

· Low sales force

· Steep drop off of stock price after year five

· Allround has the lowest net income among the competitors

· Advertising budget for every product is not sufficient for leading a proper advertising campaign to increase brand awareness

· A stronger competitor Besthelp keeps Allround from being the leader of brands purchased

· Low budget allocated to promotional mix of all 3 products

· Current customer’s intentions to buy Allround, Allround+ and Allright are larger than Allstar can produce

· Annual fall of Allround’s total sales and product contribution since year 5

· Constant fall of trade ratings for Allright and Allround+

· Allstar Brands takes third place in retail sales

· Medium quality of advertising due to advertising agency S&R hired

Opportunities:

· Introduction of new products in the future

· Investment in Research and Development to improve composition of existing and new products

· Becoming the highest brand purchased among OTC medicine and reaching the highest marketing share in manufacture sales

· Changing brand formulation of products according to existing market needs

· Population growth rate of 1.6%

· Industry growth rate 5.9%

· Penetrating international markets

Threats:

· Strong competition in cold/allergy market

· Loss in stock price and net income of Allstar brands

· Economic instability

· Unfavorable market fluctuations

· Poor choice of advertising agency to lead advertising campaigns for the Company products

· Inflation rate increase

· Unfavorable Governmental regulations toward OTC products

· Competitor advantage in Research and Development

· Lack of adequate sales force

4. TARGET MARKET:

Providing Over-The-Counter medicine Allstar targets people who have common health problems. The best way to segment Allstar’s customers would be by the following two major categories: illness (cold, cough, allergy) and demographics (young singles, young families, mature families, empty nesters, retired). Allstar Brands invests in marketing research to learn about the ever changing preferences and trends of the market. The information the Company gathers from this research is then used to make according decisions to satisfy each particular category of customer.

5. MARKETING ACTIVITIES:

In order to achieve our first marketing objective, we recommend the following activities: Keep producing high quality, positive image products that satisfy customer’s needs. Secondly, the team must maintain direct and indirect sales force of no less than 140 and plan in advance in order to have the budget to do so. We also recommend offering employee fringe benefits to encourage long term positions in the company.

For the next objective, which is to increase net income to $40 million in the next two years they must choose and maintain the suitable marketing/promotional mix. Offer diversity of products to meet every customer’s need and keep promotional allowance above 14% to encourage stores to carry our product. Give out trial sizes for new and existing products to increase brand awareness by 5% yearly which is objective number four. Also the advertising agency should be chosen carefully to ensure the highest quality of advertising campaign and strategy. The composition of the advertising message must be created according to the stage of the product’s life cycle. The key to achieving all of these advertising goals is to make sure the current and future budget will be great enough to cover these critical needs.

The key to reaching the objective of maintaining an advertising budget expenditure at least or above$26 million, $10 million and $8 million for Allround, Allround+ and Allright respectively is to keep up closely to the designed marketing plan. Spending no less than the minimal of what the plan says. Good quality forecasting is a useful tool to keep away from sudden changes in the market which could put the Allstar out of business. The company should maintain a miscellaneous budget to deal with sudden surprises that will occur.

To be able to introduce a new product within every 3 year period, Allstar Brands has to maintain existing profitable products so that there is an opportunity to put money into the development of new products. Unsuccessful products must be removed from Allstar production lists as well to keep an abundance of disposable income. For successful products already existing, advertising and promotion budget should not be cut as well as the sales force. In fact, while introducing a new product the sales force must be raised in proportion to the planned volume of the new product. It is essential to have a deep knowledge of the market, its characteristics and trends, customer needs and preferences, as well as economic and legal issues that might influence the product’s success. Thus a certain amount of money must be invested into marketing research concerning information about the marketing mix to be created.

From our experience, we can say that the amount of promotional allowance matters greatly to the overall promotional status as well as to the overall success of the product. To encourage the stores to carry out the product, promotional allowance must be maintained at 14% or above among all the products. The Company budget should be balanced in a way to dedicate the amount of money corresponding to the allowance percentage without disturbing regular budget distribution to products and activities of Allstar Brands. Maintaining a favorable cash flow is a key condition to reach the identified objective.

To increase customer satisfaction of the Allstar Brands products by 60%, firstly, the appropriate information should be collected on the product featured and benefit expectations of the current and potential customers. This information will help management make decisions for developing a new product image, features, and benefits to meet the current demand. The last objective implemented is advertising, which should be stressed to attract and inform the customers about the changes made. Trial sizes should play a big role in the improvement process. By receiving free trials, the customers will be more likely to experience the innovated product and see its advantages over other brands.

6. LESSONS LEARNED

image3.emf

0

5

10

15

20

25

30

35

40

45

50

1st

Qtr

3rd

Qtr

5th

Qtr

7th

Qtr

9th

Qtr

Allround

Allright

Allround +

Prediod

Retai

Promo

Adv

SF

Incom

Util%

Stock

Shelf

Allow

1

532.2

7.0

20.5

6.5

91.1

96.2

48.01

1.30

15.0

2

539.0

8.5

21.1

8.8

79.9

97.8

43.77

1.37

15.0

3

536.9

9.0

21.6

8.9

71.8

93.8

39.12

1.52

15.0

Year 1-3

Coming into the first period of our new company there were many uncertainties. We noticed that the price for Allround before we had acquired Allstar was set at $5.29. We decided to only raise the price by one cent putting it at $5.30, our justification for doing this was that we had seen how good the company was doing prior to our involvement so we left the price close to what it had been. We also kept our distribution relatively the same at 97 for Direct Sales and 40 for Indirect sales compared to 94, 33 respectively. We cut our Promotion allowance from 17% to 15%. We came to this decision due to our product being carried by many distributors for several years. Our product was not new and did not need a Promotion Allowance that was higher than 15%. We kept our consumer promotion at 5.6 and trade promotion at 1.4 and raised advertising from 20 to 20.5 million in hope to get our name out there more, since we were going to introduce a new product relatively soon in the future.

After the first period we were doing great. We were number one in the class for stock price and it looked like we knew what we were doing. Our income was 96.2 million and our sales force was a mere 6.5. We realized that making a few slight changes had made a positive influence on the company. Cutting our Promotion Allowance back 2% did not decrease sales at all and the $500,000 increase in advertising budget must have urged consumers to buy our product. We left our advertising agency at what it had been prior to our ownership, being the middle quality agency we figured it would be directed toward everyone and would also help us keep the MSRP low.

Going into round two we basically had to make the same decisions as round one. We still did not have much freedom to make many choices, so we focused on what we could. We noticed that convenience stores were showing the strongest growth and from this we decided to increase our direct sales from 97 to 118 and our indirect sales from 40 to 55. We left Allround’s product price at $5.30, focusing on making this year a sales growth period. Instead of raising the price, we focused on keeping our current loyal customers and hopefully gaining others through reasonable pricing. We left our Promotion Allowance at 15%. We increased our Trade Promotion from 1.4 to 2. We had also increased our Consumer promotion from 5.6 to 6 and our advertising up from 20.5 to 21.1 million. Once again all of these decisions were based on increasing our market share/sales growth which we hoped to obtain by increasing all promotional aspects.

After putting much money into promotion and waiting to see our income steadily rise we were shocked to see that it had fallen more than 10 million dollars. Our stock price also droped from 48.01 to 43.77. Our sales force had also risen from 6.5 to 8.8. The only change we saw that could be affecting our sales so greatly was the threats of the economy in which purchasing potential had dropped. Inflation had risen and customer’s disposable income had dropped since last year. Another factor that may have affected our decline in income was the increase in Sales Force and the failure to raise our MSRP.

Moving into round 3 we had the freedom to direct exactly how much Sales Force we wanted in each channel. This period forecasted a growth in Independent drugstores so we rasied our old SF of 7 in independent Drugstores to 12. We lowered our chain drugstores from 36 to 30 because we had risen independent drugstores so drastically. Grocery stores seemed to be giving us the biggest return so we increased our SF from 55 to 60. Our wholesale SF we saw as a great potential so we increase it from 25 to 40 in hopes to regain our number one spot in the class. This period we also raised the price of Allround from $5.30 to $5.40 once again in hopes that we could bring in some more income so that we could put it toward our future goal of introducing another product. We have left our sales promotion basically the same as period two which should be sufficient, considering that it worked the first period. This period we had control of what our advertising would be focused on. We left our primary advertising at 10% due to our product having a stable market share already and having been established several years prior. We raised our benefit from 10% to 15% so that we could win over new customers by showing how much better Allround was than our competitors. We lowered our Comparison from 40% to 30% so that we could raise our reminder from 40% to 45%. By raising our reminder we hoped consumers would realize we our still a strong competitor and have been in this business for many years.

Even after we increased our advertising budget from 21.1 million to 21.6 million we still are loosing money. Our sales force had only risen from 8.8 to 8.9. Our income also droped from 79.9 to 71.8 making us loose another nine million dollars. That is not all the bad news. Our stock price dropped from 43.77 to an even lower 39.14. We found our main problem to be our product discount which was not formulated properly. We had a 23% discount for <250, 28% discount for <2500, 33.5% discount for 2500+ and 38% discount for wholesale. We realized that our wholesale discount should have been somewhere around 42%, 2500+ around 39%, <2500 around 35% and <250 around 30%. This would have given us a competitive advantage over our competition for our retailers to carry our product.

image4.png Stock Price

Year 4-6

Period

Retai

Promo

Adv

SF

Incom

Util%

Stock

Shelf

Allow

4

584.6

13.4

26.0

8.5

62.0

103.2

41.07

2.15

15.0

5

609.1

11.5

23.1

9.0

72.8

100.8

42.05

2.05

12.3

6

596.7

15.9

31.5

10.4

36.3

97.9

30.50

3.01

14.1

One of the greatest lessons learned during Year four was to realize the importance of every part of the marketing mix while introducing a new product. The product can be successful when its 4Ps address current market demands and when the possibilities are used to their highest extent. We introduced Allround+ - 12hr Multi Capsule which contained: 1300 mg analgesics, 8 mg antihistamines, and 100 mg decongestant. To increase brand awareness, $9 was given to advertising budget, $5.9million spent on promotion (trial sizes, coupons, co-op ads, product displays). To make sure that the new product would make a positive impression on the market, the most expensive high quality performance advertising agency “Brewster, Maxwell and Wheeler” was chosen to lead the advertising campaign. The composition of our advertising message consisted of: Primary 40%, Benefit – 30%, Comparison 20% and Reminder – 10%. Allround+ was priced cheaply at $3 since it was a brand new product. The stock price for Allstar Brands in Year four rose from 39.12 to 41.07. This was strong evidence that our marketing mix was composed correctly, leading us in the right direction.

The sales force was agreed to be reduced so that a great amount of money could be invested in advertising. Thus number of employees in Chain Drug Stores, Mass Merchandisers and Wholesales was decreased by 5, which brought down our total ratio of Sales Force from 8.9 to 8.5. We learned later that the reduction of our sales force hurted the company more than anticipated.

The decisions must be made in a way to create the balance within the company, between different products and areas of activities. If we decrease price, we should also decrease discounts to receive the same or larger amount of sales depending on elasticity of demand. As the price for Allround was reduced from $5.4 to $5.2 and average discounts were lowered from 32.3% to 28.1%, manufacturing sales grew by 10 points.

Year 5 may be characterized as one of the most successful years in the life cycle of the Allstar brand in relation to net income earned and stock price attained, which accounted for $72.8 million, and 42.05 points respectively. Retail Sales rose from $584.6 to $609.1 million.

These positive results followed after the corrective decisions made concerning the marketing mix of the both products. The major decisions of this period were to increase the prices for both products: Allround ($5.2 to $5.3) and Allround+ ($3.0 to $4.25) along with a slight decrease in discounting.

As the new product was on its growth stage and needed a lot of input, we decided to increase the sales force from 8.5 to 9.0, specifically increasing the number of employees in independent drugstores, mass merchandisers, while decreasing chain drug stores, wholesale, and detailers.

To promote Allround+, a certain amount of money was taken away from promotional and advertising budget of Allround and put into Allround+. That turned out to be a poor decision. By strengthening the new product, we weakened the established Allround. The lesson is to not sacrifice the product that provides the major cash flow in the company for the sake of the newly introduced one.

The largest event during Year 6 was the introduction of another new product of Allstar Brands – Allright. Allright was introduced as the medicine to cure the common cough. The decision was made to set its price at $5.45 due to the product being the most expensive to produce. Having another product required having more personnel available to work on it; thus, the sales force was increased from 9 to 10.4.

The drastic fall of net income for this period from $72.8 to $36.3 million occurred because of the introduction of the new product. A large increase in advertising, a decrease in promotional and sales force expenditures caused this financial regress in the company. The stock price fell from 42.05 to 30.50. The share of retail sales fell by 0.7%, and share of manufacturing sales fell by 0.5%, although share of unit sales stayed the same.

At that point Allright was the weakest product of Allstar Brands, its product contribution consisted of -7.5, while Allround+ had 13.4, and Allround 143.4. A lack of funding caused there to be little room for advertising and promotional growth making a successful development for the three products impossible. The new product of Allright should not have been introduced so early after Allround+ was introduced. The Company needed some time to deal with changes, and to acquire a stable flow of business. Investing into marketing research to learn about the current market situation would have helped the company stay away from unfavorable changes.

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YEAR 7 & 8

Period

Retai

Promo

Adv

SF

Incom

Util%

Stock

Shelf

Allow

7

573.2

10.5

25.0

10.7

31.7

94.2

28.20

3.14

14.9

8

573.5

7.6

22.6

9.3

41.9

91.8

28.95

3.02

13.5

We fell to the bottom, now recovery is the only choice in the years of seven and eight. Our goal was to pull through our slumping stock price and performance. As year 7 began things were getting worse. From year 6 to year 8 our retail price went from 596.7 to 573.5 a drop of 22%. We had changed our promotions from 15.9 to 7.6 which made our retail price drop. We saw that the more promotion is dedicated to the product, the higher the product awareness will rise. During this year we had a small sales force at 10.4% due to the fact that our income was always in the negative. Once we cut our promotion and advertising, our stock price dropped from 30.50 to 28.95. After the 7th decision, we realized that we were not utilizing the full potential of our sales force. By the end of year 8 our sales force got smaller. We learned that our MSRP was low in price, we lacked the number of employees required in distribution channels, had internal financial problems, and poor performance causing the loss of market share. Our market strategy was poor because of the inability to capitalize on product improvements and retain or expand our customer base. In year seven and eight we were cutting more money than we were investing into improvement of our products. We focused more on advertising than on sales force, which we cut every time when we needed money to put to something else. By year seven, we increased our sales force by about 0.3% and wanted to increase it in year 8, but due to negative budgets, we were forced to decrease it.

YEAR 9 & 10

Period

Retai

Promo

Adv

SF

Incom

Util%

Stock

Shelf

Allow

9

559.6

6.8

20.2

10.1

32.9

89.7

24.59

3.12

13.6

10

587.8

6.9

17.4

10.4

25.1

97.8

24.54

3.04

14.0

We changed directions somewhat in the last two years in an attempt to recover our slumping stock price and over-all performance. We restructured our pricing such that there was a greater incentive in purchasing in larger quantities. We also made changes to the incremental increases in discounts to appropriately match the quantities purchased.

For example, in year seven for Allround+ we were giving purchasers of +2500, a 28% discount and for wholesalers an increase of only 2% rising it to 30%. We recognized the potential loss in sales as a result and changed it to 32% and 38% respectively. Had we done this years earlier, we may have been able to significantly increase sales.

We also changed our outlook towards the reminder portion of our advertising. As the years progressed and Allround and Allround+ aged, we thought that putting a greater percentage of the budget into reminder would serve us well and keep the product fresh in the minds of the consumers. We now think that we should have allocated more into benefit and comparison earlier on. Both of these two functions as their names suggest but also are reminders in themselves. Fortunately this was not an extreme problem for Allround+ and Allright because they were implemented later on.

Within the last two or three years we were faced with the task of cost cutting due to low revenues. This recent activity acted as a kind of downward spiral. In efforts to get ourselves out of the red, we felt forced to cut back on promotional allowances and even sales force. In this last year we didn’t have a single element of promotions over one million dollars and our sales force was cut to less than 140 from almost 160 in year seven. We believe, however, that these two areas are crucial in achieving strong sales growth. We hoped that if we could increase the unit price without greatly hurting consumer sales that we could make up a partial portion of our losses from the previously mentioned factors.

Fortunately for the incoming management, our mistakes can be their gains. We strongly recommend maintaining an adequate sales force and paying close attention to the market trends and acquiring the appropriate research.

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Summary

Make decisions carefully based on entering a new market because there may be an overabundance of other competitors already in that product branch. We had introduced two products after the well established Allround name. We introduced Allround+ in year?????

Another major problem that we faced was choosing the right MSRP for each product. Acquire competitor MSRP and price Allstar products appropriately. We priced our products at a minimum hoping to grab distributors attention but we unfortunately did not give enough of a discount to succeed. We lacked in this area where our competitors succeeded. We did price our products at a lower price but did not divide the discounts that the distributors would get accordingly.

We should have increased our MSRP to match our competitors or even a little less. The big concern is in the discount offered which is an incentive for our distributors to carry our brand. The discounts should range from 44% for wholesales and down to 25% for <250 having the percents split evenly over the rest of the distribution market so that the more they buy the cheaper it is for them per product. Also promotion allowance affects our retailers. Allowances are to help you gain retail distribution, shelf facing in retail outlets, and retail support for brand advertisements.

Another way to get your product out to consumers is by concentrating on the sales promotion. Things such as co-op ads which makes money available to retailers to pay for a portion of the retailers advertising when the relevant brand is promoted. We suggest keeping this number in the one and a half to two millions range especially if the product is being newly introduced. Point of purchase discounts are special displays such as retail sale racks.

We also suggest to keep this in the one and a half to two millions range. Point of purchase discounts are focused at the customer which usually gives the extra edge we need for a new customer to try our product. Trial size promotions are a key to get your new product out there and noticed. Trial sizes are smaller packages of our product that are given out to consumers in hope that they will like the result and purchase our brand over the competitors. Trial sizes are not necessary unless you are introducing a new product or you see a lag in brand awareness. We suggest putting two million dollars toward trial sizes when necessary.

The final sale promotion is coupons. Coupons are special discounts off of the retail price of a product which is taken off at time of purchase. You can find coupons in flyers, newspapers and magazines. We suggest keeping this a major focus on well established products as well as newer products. You can plan on putting around five million into this promotion.

Overall, many of our decisions were well thought out and worked towards the progress the company did have. However, the errors we made outweighed, to some extent, the positive decisions. Hopefully from our successes and failures Allstar can have a profitable future under the new incoming team.

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Distribution & Sales Force

0

20

40

60

12345678

Periods

# of

Employees

Ind Drugstores Chain Drugstores

Grocery Stores Convenience Stores

Mass Merchandisers Indirect/ Wholesalers

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20

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1st

Qtr

3rd

Qtr

5th

Qtr

7th

Qtr

9th

Qtr

Allround

Allright

Allround +

_1130863440.