Mike's bikes distribution and branding

Reflection Report

Findings – How I can apply Mikes Bike in a real business world
Playing this business simulation – Miles Bike helped me develop necessary skills in a real world. And at the same time, I learned how difficult it is to set up a company and successfully run the business. Although what the players can do in the game is limited compared to the real business world, there were many challenges for me to learn from. Here are some skills that this simulation helped me improve.

Analytical skills
I think analytical skill is vital in this game. Without this skill, you cannot be successful. Firstly, analysing each index was quite challenging because each index has difference variables so what I had to do first was to analyse what variables affect the particular index such as awareness index that is affected by branding and advertising. And the second thing I worked on in terms of analysis is to determine how much I should invest to increase, for example, PR index to certain level, which I learned by a great deal of trial and error.

Of course, in the real world, there is no such things as indexes but there is some alternative information such as financial statements and so on; therefore, improving this skill is quite important for accountants.

Furthermore, to critically analyse my own performance is another thing I have learned from this game. The important thing is that you have to always look at the results with a critical eye even if you are at the 1 position in your world or the class. Once you stop critically analysing your performance and satisfied with the results, it means you stop moving forward. But all the successful business people are difference. They are always innovative, creative and seek improvements all the time.

Communication skills – Team Work
The second skill I have learned from this is communication skills. It was very nice to work with people who have difference cultural background and was challenging to find a way of how I can better adapt and communicate with them. For example, I had to communicate with my group members in the decision making process where we quite often had two different approaches and strategies and it was challenging to come to term with them and seek effective way of conveying my ideas and giving persuasive explanation to them. But as I and the group members started to seek the better way, the communication went smoother.

Again, this is essential skill as well in this globalised business world because Australia in particular has such a diverse culture. The important thing is to have an attitude to understand people and their culture, and to work as a team with others. This skill can be definitely applied in any work environment. According to Forbes (2015), the ability to work in a team structure is one of most important skills that employers look for in employees.

Here three actions points that I think would be useful to improve my future teamwork.

· The first action point would be not to take criticism personally and throw out ego

· The second action is to have mutual respect and understand cultural backgrounds of the team members

· The third action to communicate and actively share information and ideas and to ensure to have the same level of expectations

Decision Making
This is one of the most difficult areas in this game. As mentioned above, this is difficult because we had different ideas in approaches and sometimes hard to come to term, which is good thing in terms of critical analysis. But there are more aspects that make it difficult. Another thing is uncertainties because we always have to make decisions based on predictions in terms of what the others companies would do, for example, how much they would spend on PR, what are their index targets and what product they would launch. Only way I can reduce the level of uncertainties is to analyse the historical information in depth to the best of my ability and to ask my group members to find shortcomings in my decisions. So in order to make sound and collective decision, analytical skills and communication skills are essential and yet there are still uncertainties. For an accountant, it is important to be able to make informed decision and provide relevant information to directors of a company.

Website and Video
The last skills that I have obtained and are very useful in the real life. The game itself does not requires these skills, but throughout the subject, these skills were essential to be competitive with the others. Even if this is not compulsory requirement of the course, being able to make websites and videos is one of the essential skills in today’s business because all most all businesses have a website as a platform where they can promote their products or show their company’s profile. I am sure without these platform, a business would not be able to compete and survive. Furthermore, making websites and videos makes you creative. I think creativity is important when it comes to problem-solving because a creative person is able to see things from a different perspective and come up with new ideas, which is again very important as a business owner or even as an accountant.

Learn from each other
Lastly, one of the most important thing I have learned from this game and the subject is to learn from each other. I am so grateful that I was able to work with so many talented classmates that I can learn from. For example, some classmates have helped me make the websites and the other showed me a number of software to create videos. And also, I have shared my thoughts on the game with many other class mates from different worlds.

The benefit of learning from each other is significant and unlimited. It may be sometimes efficient to work on your own as there would be arguments or conflicts while making decisions, but working with others and learning from each other definitely helps me realise things I would not have realised had I not shared ideas, which encourages me to see things more critically and creatively. I am so glad that the subject and the game made me obtain a number of skills and ideas that I am sure will be my assets in my future career.

1st Rollover – 04 Dec 2016, 23:59pm (Sun)
Decisions:

The price was set at $745 in order to maximise our margin and we expect that the other groups would increase their price rather than decrease. The level of production is determined based on the market information and set at 22,000 in order to achieve more than 20% market share. In terms of awareness, we aim at awareness index of between 32 and 34 on the assumption that the other groups would spend between $1.5 million and $2.5 million in advertising. To ensure that we take advantage in awareness, we set the budge at $3million and the allocation is as below:

Set the budget for product advertising at $3million

To determine the allocation in each media, market information was referred to all the time and we have found the formula to forecast awareness index. Using offline mode rollover and formula below, we could estimate the awareness index quite accurately and we are able to maximise awareness index with the mentioned allocation.

The amount of investment* % in chart data table* % of Media channel

As we have already spent $3million, no budget was allocated to PR.

Result:

Class Ranking: #10

Ranking in World 2: #2

The result was satisfactory to some extent that our ranking in world 2 is #2 although there is only $0.01 difference from the group ranked at 3rd place – Eagle Bike. However, there are many areas that we need to improve.

Our profit after tax was the highest $1,038,626 in the world, which resulted from our efficient allocation of budget on advertising. In other words, we have successfully maximise PAT with minimum expense, especially in advertising. The budget for ad is $3million which is 40% lower than Eagle bike, who spent $4.2million altogether in marketing and yet our SHV and PAT is higher than Eagle bike. As the result, we have the highest amount of cash for the next year - $3,360,041. Having said that, $3million was not sufficient to achieve the highest market share although we forecasted $3million would be highest amount in the world.

The price is one of our weaknesses. Our price - $745 unfortunately led to lowering our market share to only 17%. Compared to the top 2 groups, there is more than 2% difference in market share. Even if our awareness is only 0.01 behind Bike Up Distribution, our sales is much lower than them as seen below. It is clearly attributed to the highest price.

Awareness is competitive but the market share is too low due to the higher price

Another weakness identified is that PR was completely disregarded in our decision making just because it has low sensitivity. However, PR clearly affects the market share in spite of the low sensitivity. As seen above, our PR index is the lowest – 0.06, which is 0.04 lower than Product Dimension Preferences in Market Information as below.

1st roll over performance in comparison with preference index

Column1

Price

Awareness

PR

CoolMoonBikes

$745

0.32

0.06

Preference

$700

0.25

0.1

Market Average

$720

-

-

Results

Too far from Pre & Mkt price

0.07

-0.04

As the result, our sales did not reach 22,000 and left more than 600 inventory, which resulted in the demand forecast accuracy of 91% and incurred inventory holding cost.

For the next rollover, it is important to re-consider the price and PR. Furthermore, awareness index and advertisement need to be discussed again as overall spending on advertising exceeded our forecast and we have lost in the awareness. More importantly, as we have made a mistake in PR, Product Dimension Preferences should be used at the benchmark as well as the other groups’ performance.

2nd Rollover – 11 Dec 2016, 23:59pm (Sun)
Decision:

To successfully make the 2nd rollover, there are two main things in our decision making.

1. To overcome our weaknesses identified in the first rollover in relation to the market performance

2. To make decisions on the new area such as branding and distribution decisions

To overcome our first weakness, which is the price of $745, the price must be adjusted. As the market average price is $720 and we still want to keep our high margin, the price was set at $735 with the expectation of 24,000 sales. And also, the budget for advertising and PR was increased to be competitive with Eagle Bike and Bike Up Distribution as below:

Ad increased by $30,000

PR increased by $300,000

The amount for advertising is determined to achieve preference index of more than 0.40 awareness with $900,000 in branding as the two teams have already higher index than us and it is essential to get the higher awareness index for mountain bike. And also, $300,000 was allocated to PR magazines. By rolling over for a couple of times, it is found that it is very difficult to catch up with the other groups in any index if our index is far behind from theirs; therefore, we have minimised the expense in PR with the intention of catching up gradually and also not to overspend, which decreases SHV significantly.

Full Support of $300,000 for Sports Stores

In terms of distribution, our decision is to support stores as much as possible in order to have the stores keep our products more than anyone else. Instead of maximising our margin by minimising each store’s margin, we have set the margin as above to be competitive in terms of distribution.

Result:

Class Ranking: #14

World 2 Ranking: #3

The result was not as good as expected. First of all, our SHV decreased from $12.72 to $12.41. Furthermore, our PAT and retail sales are much below the two top competitors - Eagle Bikes and Bike Up Distribution. As the result our class raking dropped from #10 to #14 and from #2 to #3 in World 2.

There are many areas that we have to improve for the next year.

The one of the possible reasons why our SHV decreased is overspending in support and setting retail margin too high. The average retailer margin of the top two groups is 25% and they spent only $180,000 much in support, which is only 18% of our spending in support; therefore, this way they have maximised their margin rather than focusing on distribution, thus maximised PAT.

Column1

Eagle Bikes

Bike Up Distribution

CoolMoonBikes

Average Retailer Margin

25%

25%

27%

Distribution Channel Support

$186,408

$180,268

$1,008,123

PAT

$2,102,253

$1,974,240

$1,127,202

As for the distribution index, as we aimed, our distribution index is the highest 0.44 in our world; however, the problem here is high distribution index did not really help us gain as much market share as we forecasted.

Distribution index was the highest in the market; but it does not reflect on Market share

In addition to the misunderstanding of the effect of distribution index, our market share is still below the top two groups even if we achieved the highest awareness index as aimed. And the possible reason is that our price $735 is still too high compared to the market price of $729 and our PR index is too low and does not even reach the preference index.

$735 is still too expensive compared to the market price

Market share still the 3rd

To summarise,

· Having higher distribution index is not as effective as price index although both indexes are medium sensitivity

· Awareness index is important but in our group, it is getting difficult to get ahead in awareness index as all the groups focus on increasing awareness index so we must stand out in a different way such as decreasing price significantly

· We still need to increase PR index

3rd Rollover – 18 Dec 2016, 23:59pm (Sun)
Decision:

To overcome the weaknesses in last rollover, we have decided to take bold decision by reducing the price from $735 to $713 which is the lowest in the market and increased PR Magazines to $800,000 in order to get the highest market share and sales. As the awareness index has been already the highest, we did not make significant change to it. With this improvement, we expect to sell around 26,000 and achieve approximately 20% market share as we have tried in offline mode.

Strategy to get 20% Market Share

Decreased from $735

And also, the retailer margin has been decreased to 25% to maximise our PAT and cut the amount of support significantly compared to the last year because in the last rollover, the distribution did not have as much effect on the market compared to lowering price. This way, even if we decreased the price, we can still increase our PAT. In total, the amount invested in the support was decreased by $650,000.

Last Year

This Year

Retail Margin decreased to the minimum of 25%

This is the first year we can adjust capacity planner. As for efficiency and quality, according to the instruction, they accumulate over time; therefore, we increased them from $150,000 to $250,000 with the intention of launching road bike next year, which has high sensitivity to quality. Although we have idle capacity, it is better to keep SCU at 20,000. This is because we need to launch a new product next rollover and it would cost more if we decrease it this year and increase it significantly next year than just to keep it at 20,000 and increase it as demanded.

Debt management is important factor this year. One of the findings is that the amount of repayment of debt does not affect PAT so it seems it would be no problem to repay full amount on the forecast result; however, what we need to focus on here is pro-forma cash-flow statement so must make sure whether we have sufficient cash to repay the debt or in the future, pay dividend or repurchase shares as we tried in single player. As we would have more than $6,000,000 cash after repayment of debt as below, it is better off repaying the full amount, which results in decrease in D/E ratio and increase in SHV.

Result:

Class Ranking: #12

../../../Volumes/Lexar/KOI/5%20Trimester%20Nov%202016/BUS%20303%20Business%20Project/Assessment%204%20Final%20Indivisual%20Relection%20Jounal%2020%20marks/Meeting%20M World 2 Ranking: #3

What paid off was that we have achieved the highest PAT by minimising expenses such as store support and decreasing retailer margin to the lowest, and also SHV increased to $15.35 – 23% increase. Having said that, we still did not achieve the aimed market share and still approximately $2 behind Eagle Bikes that has $17.10.

One of the reasons is that the effect of decreasing the price to the lowest in the market was offset by the competitors’ higher quality index as both indexes are medium sensitivity; therefore, sales did not increase as much as forecasted. We forecasted to sell 26,000 but ended up selling only 25,400.

It seems that Eagle and Bike Up Distribution overspent as their retail sales is much higher than us and yet PAT is much lower than us. However, they in fact have a good long-term strategy as seen in the amount invested in the quality and efficiency. The biggest concern is that the top two group have spent more than $2million in efficiency and quality. From this information, we assume that they would launch road bike next year as it is highly sensitive to quality index. Their quality index is already at 0.85 and 0.87 which is only 0.03 from the preference index for road bike. And our index is behind the two companies as below.

We must spend more expense year in order not to get behind any further

Therefore, it would be very hard for us to gain more market share in road bike market as they have already advantage in quality index unless we spend a lot in quality next year.

To summarise

· Our quality index is far behind from the top two groups

· We should focus on long-term strategy as well.

· We still need to make improvement in overall performance for mountain bike

4th Rollover – 25 Dec 2016, 23:59pm (Sun)
Decision:

On top of overcoming our weaknesses found in the last over, launching a new product is very important for us to improve our performance.

For the mountain bike, in the last year, we could not achieve the highest sales due to less investment in quality.

Column1

Price

Awareness

PR

Quality

Market Share

Sales

Eagle Bikes

$720

0.45

0.18

0.85

19.7%

27,320

Bike Up Distribution

$720

0.46

0.18

0.87

20.0%

27,722

CoolMoonBikes

$713

0.45

0.13

0.76

18.3%

25,400

As seen in the table above, our strength is only the price and far behind in quality and PR. In order to take more advantage,

· The price is lowered to $705 in order to take more market share

· Branding is increased from $700,000 to $1,200,000 to increase overall brand awareness, which is beneficial for a new product launch as well.

· Spent $4,150,000 in quality to have quality index of 0.90, which is also expected to significantly increase our sales of road bikes as well as mountain.

In short, with this strategy, we will have the highest index in most of them.

As for a new product, we have decided to launch road bike because:

· It is high sensitivity to spec therefore, if we launch a road bike and keep developing our road bike, we will have advantage of having higher spec for the rest of rollovers as other groups are unable to develop it next year.

· The market demand is only less than youth bike; therefore, we do not need to produce a lot, which dilute our quality index significantly.

The most difficult part is to decide the production level as we only can assume the number of the other companies who would launch a road bike. We have set up the production level at 8,500 out of 30,000 forecast demand, which is about 28% market share. We assume that at least 3 companies would launch a road bike; therefore, it is not wise to take a risk of overproducing the products as we will develop the product next year.

Spent more than 4$million to ensure the highest market share

The highest possible price as it is low sensitivity

Expecting 28% market share

The budget allocation for our road bike is as above. Our spending in PR is very important to ensure our market share is the highest. This allocation will give us approximately 0.37 PR index, which is much higher than the preference index of 0.30. And also, the price of road bike is set at $2500. The price is low sensitivity according to market information and we need to have high gross margin as we spent more than $4million in PR. With the strategy, we can still keep more than 50% gross margin overall.

Result:

Class Ranking: #13

World 2 Ranking: #3

The first thing to note is that as opposed to our forecast, only two companies have launched the road bike. Consequently, we have sold more than we have expected and obtained the higher sales then the other – Fitness bike. We forecasted to sell only 8,500 on the assumption that more than 3 companies would launch the road bike however, we sold 9,350 as only two companies have launched it.

More than our forecast, which were only 8,500.

Our strategy on mountain bike went well this year as we forecasted. We have the highest sales and market share for mountain bike – 31,834 and 21.6%. Compared to the last year, we have the higher indexes in the most of indexes as below.

Mountain Bike Index:

Firm

Sales

Market Share*

Retail Price

Awareness

PR

Quality

Eagle Bikes

29,836

20.30%

$722

0.48

0.20

0.83

Fitness Bike

11,868

8.10%

$785

0.30

0.05

0.74

Ultimate

23,928

16.30%

$730

0.47

0.11

0.68

CoolMoonBikes

31,834

21.60%

$705

0.50

0.19

0.90

Bike Up Distribution

30,440

20.70%

$720

0.49

0.21

0.82

Crossfire Bikes

19,324

13.10%

$725

0.42

0.07

0.66

As the result, our SHV almost doubled from $15.38 to $31.00.

However, our SHV is still too low in comparison with the other companies in our world and in the class. The reason for this is that our spending is much higher than the other companies. The total spending in Ad, PR, quality and efficiency is as follow:

Column1

Eagle Bikes

Bike Up Distribution

CoolMoonBikes

Total Advertising

$5,360,000

$5,400,000

$3,900,000

Total PR

$1,430,000

$1,700,000

$5,400,000

Quality and Efficiency

$3,560,000

$3,000,000

$6,350,000

Total

$10,350,000

$10,100,000

$15,650,000

Our spending is much higher than our competitors – more than $5million. This significantly decreased our PAT to $2.4million while the competitors have more than $3million PAT. This is definitely is area that we have to improve in next rollover to maximise SHV.

Furthermore, we have had more than 7,000 lost sales in road bike as we set the production level assuming more than 3 companies would enter into the market while our competitors – Fitness bike produced just right amount and had not lost sales, which led the company to the highest SHV of $34.49

To summarise:

· Our indexes are improving in comparison with the others and market shares are the highest this year in both mountain and road bikes

· Now that we have strong market share, we need to focus more on spending less in order to increase PAT and SHV

5th Rollover – 01 Jan 2017, 23:59pm (Sun)
Decision:

As we analysed our performance in the last rollover, our focus this year is to maximise PAT and SHV as we have strong market share in mountain and road bikes.

For mountain bikes, in order to increase gross margin, we have increased the price to $725 with the sales forecast of 35,000 and we are still able to maintain 23% of market share with improvement in other companies in the market considered.

In terms of Road bike, even if only two companies are in the market, there will be definitely more than five companies in the market. In other words, we cannot expect to sell as much as the last year where there were only two companies. As the forecast demand is 32,000 and we have a lot of advantage in indexes that are high sensitive to road bike such as spec, PR and quality, we expect to sell approximately 9000 units and obtain approximately 29% of market share. And also, with these advantages in this market, we are able to reduce expenses on PR and still able to keep the highest market share. PR spending was decreased from $4.5m to $4m with the view of maximising PAT.

As for youth bike, we have decided not to spend a lot of expenses in the bike as we have found the market is not as profitable as the other two markets. We can expect to have more than 50% gross margin in Road and Mountain bike markets while it would be only 33% gross margin in youth bike. On top of that, after all advertising and PR expense, and development cost, the profit would only be approximately $700,000. Instead of spending a lot on youth, it is better off securing our sales and profit from Road and Mountain bikes.

Since the price is high sensitivity, we can obtain high market share without spending much in PR and advertising. As the market price in the existing market is $357 and the companies would decrease the price, we have set the price at $337 with the expectation of selling 31,000, which is approximately 17% market share. And in terms of adverting and PR, we just aimed at the preference index according to market information.

Spent much less compared to the other bikes

Decreased the price to the lowest in the market

As above, we have spent much less on advertising and PR compared to the other two products in order to maximise profit from youth bike.

Expense on quality index is one of the most important aspect in this year. We have decided to increase the spending even if we have the highest quality index. The reason is that most of companies will launch road bike this year therefore, they will definitely focus on increasing quality index as it is high sensitive to road bike. We should not be satisfied with the current index of 0.90 but should keep improving the index as the other companies will try to beat our index. Thus our expense on quality is increased from $4,150,000 to $4,400,000 to obtain 0.93 quality index.

Last year

This year

About financial management, even if we have fund shortage of $13,000,000, we are expecting to have at least $5million after this rollover if our forecast is close enough to the actual sales.

Result:

Class Ranking: #9

World 2 Ranking: #1

We have finally taken the 1st position in our world with SHV of $42.31, which is 35% increase, as our strategy of maximising SHV paid off to some extent. The upside is that three companies have negative profit and four companies have negative cash amount; therefore, we still have a great advantage for the next rollover.

However, here are some concerns and areas that need to be improved for the next rollover.

First of all, our cash position is not as good as expected. We have forecasted to have at least $5million cash after this rollover in order to have sufficient funds for the next year; however, we ended up keeping only $1,668,854 cash. Although it is the highest cash amount in our world as seen in the below table, it is not sufficient to

Eagle Bikes

Fitness Bike

Ultimate

CoolMoonBikes

Bike Up Distribution

Crossfire Bikes

Cash

-$1,612,015

-$7,146,040

-$10,105

$1,668,854

$768,435

-$185,854

The main reason why our cash is must less than expected is that we have overestimated the sales volume and made decision on our total expenses based on the wrong forecast. Here is the summary of variance between our forecast and actual figures. The negative variance represents our inability of forecasting the sales volume accurately as below.

Sales volume Variance:

Column1

Forecast

Actual

Variance

Road

9000

8,342

-658

Mountain

35,000

31,022

-3,978

Youth

31,000

27,024

-3,976

Revenue, Gross Margin and Net Income Variance:

Much worse than expected and all indicators have minus variance

Youth Bike

Operated at a loss unexpectedly

The variance in net income is unexpectedly more than $2.5million, which put us in the difficult cash position. And in the next decision, this problem has to be prioritised.

Furthermore, youth bikes was not profitable at all it rather has made a loss and taken the profit out of the other two bikes. It was made negative product contribution of $746,583 even if we expected youth bike to make approximately $700,000 profit after development.

To avoid this in the future, we have to consider the amount of expenses for youth bike as it does not have as high gross margin as the other two bikes and the wrong forecast easily leads us to producing and marketing youth bike at a loss.

To summarise

· Improve our cash position next year or consider debt or equity finance

· Improve demand forecast accuracy in order to avoid unexpected loss in sales, profit and cash.

· Youth bike must be produced at a profit after all expenses and development for next year

6th Rollover – 08 Jan 2017, 23:59pm (Sun)
Decision:

This year, we must address three issues identified in the last operation in order to keep the 1st position in our world and obtain higher position in the class ranking.

Considering that most of companies do not have much cash, we expect that the other company would reduce their spending and we have to do the same to improve our cash position. To achieve this at the same time as increasing our market share and profit after tax, we have decided to decrease our price dramatically as below:

Column1

Last year

This year

Expected Market share

Road Bike

$2,500

$1,950

35%

Mountain Bike

$725

$695

21%

Youth Bike

$337

$330

16%

We can still expect more than $6million profit after tax with this price drop as our production costs decrease as the result of product development. This is the only way we can increase market share and decrease expenses.

As mentioned above, the expenses are reduced to nearly $0 where it is low sensitivity, which is expected to maximise our profit after tax of $6million.

Expense reduced to $0

· Road Ad

· Youth PR

The most important finding in this making decision is how to improve our forecast accuracy, which is one of our weaknesses from last year. What we have found is that, historically, our actual production is lower than our forecast because of the other companies’ improvement in their performance. Therefore, to make it as accurate as possible, we have to take it into accounting when setting production level of each product. In other words, it is better to have some lost sales in offline mode because the lost sales will be offset by their improvement for sure. Using this principle, we have set the production level as below.

Offline Mode

Overproduction

BUT

Online Mode

Reasonable amount

C:\Users\11501400\Desktop\Capture.PNG

In offline mode, each product has around 1,000 lost sales, which means the figure above is overproduction in offline mode; however, in online mode, it will be quite accurate enough to reach at least 95% forecast accuracy %. The benefit of reaching higher percentage is that we could avoid unexpected loss of sales.

Result:

Class Ranking: #7

World 2 Ranking: #1

We have maintained the 1st position in our world and our class ranking is now the 7th position. Our SHV has increased by 43% and reached $62.11.

Road Bike

672

Mountain Bike

210

Youth Bike

540

In terms of the areas that we focused on while decision making, our performance was satisfactory overall. Our demand forecast accuracy improved to 96% with no lost sales as expected. As the result, we had only few closing inventory although we can still improve it.

Closing Inventory of each product

Therefore, our performance was almost the same as what we expected. In fact, it is even better than our forecast by 3% as shown below.

Not much variance as our forecast strategy paid off

We have also overcome one of our weaknesses of unprofitable youth bike by reducing PR and advertising expenses. It was minus $746,583 last year and this year youth bike produced $1,789,294 profit.

Youth is not operating at a loss any more

And our cash position has improved significantly from $1,668,854 to $4,754,769.

In terms of market share and indexes, our strategy seems to have worked out. In road bike, we have achieved 30.9% market share by decreasing the sales price and yet we have almost $5million profit and also in mountain bike, our market share increased to 20.4% generating more than $9million profit.

To improve our performance in next year, we need to focus on road and mountain bike as they are the main source of our income. Our strategy is to further improve market share in both markets. Especially, some index such as awareness for mountain bike is behind the other companies. This is definitely the area we have to improve as mountain bike market is much more competitive than the other two markets.

To summarise:

· The strategy of reducing price to maximise market share was successful

· Demand forecast accuracy has improved with the principle we have found

· Overcome weaknesses identified last year

· Cut too many expenses especially on mountain bike therefore, we got behind in terms of awareness index

7th Rollover – 15 Jan 2017, 23:59pm (Sun)
Decision:

This year, our focus is to reduce the expenses as much as possible at the same time as achieving the higher profit than last year. And we keep the same strategy of setting product at the lowest price in the market.

There is no major change in the price of our products as we already have the lowest prices in each market. The major change in this year is that we do not develop product except for Road Bike spec because this year we have to minimise our spending and we already have higher product spec for mountain bike than the others. This way we can minimise the expenses and maximise PAT and still keep high market share.

Only $1million in product development as increasing indexes is not as important in this year. We should focus more than profit

As for mountain bike which is the most competitive market, we have increased the advertising expenses because:

· We still have 2 rollovers including this year

· If the expense decreases significantly, we cannot expect much sales in the final year as it accumulates

· Our awareness index is still behind the Eagle and Bike Up Distribution

Total: $3.6million

Total: $4.1million

With this decision, we expect to have more than $85 SHV and $7.5million PAT

Result:

Class Ranking: #9

World 2 Ranking: #1

We have maintained the 1st position in our world; however, our class ranking went down to the 9th position from 7th.

Our forecast accuracy improved as we have achieved 97% accuracy and we have achieved our target SHV of above $85 and PAT of $8.5million. But our PAT is 3rd in our world. Although we have achieved our target, the improvement of the other companies is more than expected.

· Bike Up Distribution increased SHV from $42.61 to $75.47, which is $32.86 increase

· Eagle Bike increased SHV from $36.91 to$69.32, which is $32.41 increase

On the other hand, we have only increased $25.16 from $62.11 to $87.27. The reason is that the companies did not spend any on development while we have spent $1million. And also, they dropped Process spending (Quality and Efficiency) significantly, which helped them increase their PAT and SHV.

Another thing is that all the other companies have started to decrease the price and reduce the expenses, which is exactly the same strategy as us. This can be seen especially in road bike market. The market price of road bike has decreased by more than $100.

This Year

Last Year

More than $100 change

As the result of this, we have lost our market share. It decreased from 30.4% to 26.9%.

The biggest concern for the final rollover is that Eagle and Bike up Distribution are catching up with us. We had more than $20 difference in the last year but we have only $12 difference from Bike UP Distribution. The focus in the final year will definitely to reduce as many expenses as possible at the same time as maintaining the sales. So the SHV may increase based on the amount of expenses decreased, which increases PAT dramatically. The disadvantage here is that the two companies are currently spending more than us so in other words, they have more opportunities to increase their SHV. Here is the total expense of top 3 companies in world 2

Column1

Eagle Bike

Bike Up Distribution

CoolMoonBikes

Brand Ad

$1,400,000

$1,000,000

$1,600,000

Product Ad

$5,900,000

$6,000,000

$4,900,000

Product PR

$4,900,000

$5,000,000

$4,000,000

Process

$2,100,000

$1,300,000

$2,500,000

Total Exp

$14,300,000

$13,300,000

$13,000,000

And also, the key in the final year would be the amount of dividend and the reason why the two companies are just behind us is they started to pay the dividend in full amount. Here is the dividend history.

Column1

Eagle Bike

Bike Up Distribution

CoolMoonBikes

2023

$7.13

$4.94

$4.93

2022

$0.50

$5.40

$4.93

2021

$1.55

$1.50

$3.00

2020

$0.13

$0.20

$1.00

Total dividend

$9.31

$12.04

$13.86

The two companies are now able to pay more dividend than us. It is possible that they would pay more dividends and would take the 1st position in our world.

To summarise:

· We are losing the market share gradually in road bike market

· The two companies are right behind us in terms of SHV and have more PAT

· Key for the final rollover is how efficiently we can decrease our expenses at the same time as maintaining sales level

8th Rollover – 22 Jan 2017, 23:59pm (Sun) – Final Rollover
Decision:

As this year is the final rollover, our focus is to maximise the SHV by reducing expenses at the same time as keeping certain level sales with the idea that there would be no trading next year. With this in my mind, I have reduced the quality and efficiency expenses.

· Quality - educed quality expense to $0 from $2.3million, which only decreases the quality index by 0.01 therefore, there would not be much effect on overall sales

· Efficiency – reduced to $0 because this expense does not directly affect the profit. Plus, we have enough idle capacity.

Efficiency and Quality reduced to $0

The challenge is to determine how much advertising and PR expenses we should reduce by. It’s better not that we reduce it to $0 in case that the others take the opposite strategy to increase expenses to obtain more market share. In the that case, we would lose the market share and sales significantly; therefore, we decided to spend around $1million on two major products, which is road and mountain bikes. And as for youth bike, the adverting and PR expenses were reduced to $0 as we can still sell only by reducing the price to the lowest in the market, which is $310.

· Advertising reduced by $3.9million from $4.9million to $1million

· PR reduced by $2.7million form $4million to $1.3million

Reduced to $1m

Reduced to $1.3m

After the reductions, we expect our SHV to increase by $47 to $134.68 and PAT $14,188,682. And we also found that the in order to increase SHV, we should not just focus on PAT but focus on Retail sales as well because even if we achieved that higher PAT, SHV is lower than when the retail sales is higher.

Column1

Maximise only PAT

Balance between Retail and PAT

Retail Sales

$39,847,140

$43,579,210

PAT

$14,558,817

$14,188,682

SHV

$134.05

$134.63

As shown in the table above, even if the PAT is lower, we can achieve higher SHV if retail sales gets higher. So it is important to keep both retail sales and PAT at high level.

The Final Result:

Class Ranking: #8

World 2 Ranking: #1

Global Ranking: #311

Global Percentile: 98.3%

We finished the game at the 1st position in the World 2, at the 8th in the class ranking and also achieved the highest profit of $13,935,099.

However, surprisingly, the other groups did not reduce their expense to maximise their PAT and SHV; therefore the result is almost the same as what we got in the offline mode. As the result, we have more closing inventory than we expected because we expect the others to decrease their expenses and our sales to increase more.

Apart from the variance mentioned above, our prediction was quite accurate as the industry benchmark report shows 98%.

One of the most important achievements is that our profit growth has never decreased since year 2 while the PAT of the other companies fluctuate at some points

No decline since year 2

The other companies fluctuate a lot