Music2go

Music2Go-Intro Players Manual (revision E)

© Smartsims International Ltd

Music2Go-Intro Players Manual 2

Getting Started ............................................................................................. 2 Single-Player vs Multi-Player ........................................................................... 2 Your Goal – Maximize Marketing Contribution .................................................... 3 Summary of the Music2Go Scenario ................................................................. 4 Key Reports Menu .......................................................................................... 7

Chapter 2: The Music2Go Scenario 8

Market Segment Overview .............................................................................. 8 Standard Segment ................................................................................. 8 Youth Segment ...................................................................................... 9 Sports Segment (Multi-Player only) .......................................................... 9 The Perceptual Map and Segment Movement over Time ............................. 10 Forecast Segment Demand .................................................................... 11

Advertising Media Selection............................................................................ 12 Advertising Reach and Media Viewing Preferences ..................................... 13

Distribution and Sales Promotion .................................................................... 14 Distribution and Retail Margin................................................................. 14 The Product Life Cycle ........................................................................... 15 Sales Promotion and the Product Life Cycle .............................................. 16 How do I choose a Sales Promotion Mix for my products? .......................... 19

Chapter 3 - The Decision Screens 20

Price ........................................................................................................... 20 Product Pricing Screen ........................................................................... 20 How do I set the price and margin for each product? ................................. 22

Advertising .................................................................................................. 23 Advertising Screen ................................................................................ 23

Sales Promotion ........................................................................................... 24 Sales Promotion Strategy Screen ............................................................ 24

Product Development .................................................................................... 25 Product Development Screen (Existing Product)........................................ 25 Launch New Product Screen ................................................................... 27

Chapter 4 - Market Research Reports 28

Market Research Report Screen .............................................................. 28 Market Research Reports Available .......................................................... 28 Free Market Research - Some Product Details Report ................................ 29 Free Market Research - Market Information Report ................................... 29

Chapter 5 - Key Reports 30

Key Reports Menu ......................................................................................... 30 Forecast Marketing Expenditure Budget ................................................... 30 Industry Benchmark Report ................................................................... 31 Product Contribution Report ................................................................... 34

Forecast Results ........................................................................................... 36

Chapter 6 - FAQs 37

Music2Go is a Principles of Marketing simulation where you will plan and implement a Sales and Marketing campaign for the MP3 Player division of a large Consumer Electronics Corporation.

Getting Started

1 Read this Players Manual in full. It contains hints and tips to get you started as well as a detailed overview of the Music2Go market segments, consumer preferences, and advertising reach and viewing habits. You will need this information.

2 Go to www.smartsims.com and log in using the login and password provided by your Instructor

3 Watch the Single-Player Overview video for Music2Go

4 Open your Single-Player and start practicing. This will allow you to get used to the simulation before your Multi-Player competition begins.

Single-Player vs Multi-Player

The Music2Go Single-Player allows you to practice against a single computer controlled competitor. You are able to roll forward into the next decision period / year, or roll back as you wish in order to test and change your decisions. Your goal is to generate more Marketing Contribution than your opponent.

All you have to do is to log into our website, go to the Music2Go menu, and click the blue Launch button to open your firm. Note – we may have to create this for you, so just let us know if you can’t find your Single-Player.

In the Multi-Player you will compete against other students in your class to create the highest Total Marketing Contribution (see ‘goals’ section below). Moving from one year (decision period) to the next is done by automatic rollover on preset dates chosen by your Instructor. Before each of these scheduled times you need to have all decisions for the upcoming year entered into the Multi-Player.

Note: In Multi-Player, your Instructor decides when the simulation will move from one decision period to the next (ie. rollovers). You can NOT roll the Multi-Player forward and backward yourself.

Music2Go-Intro Players Manual

http://www.smartsims.com/

Music2Go-Intro Players Manual 3

Your Goal – Maximize

Marketing Contribution

You are the Vice President of Marketing for the MP3 Player division of a Consumer Electronics Corporation. You will be competing against either a single computer controlled competitor (Single-Player), or your classmates (Multi-Player) who are marketing similar music players.

Your goal in Music2Go is to beat your competitors by maximizing the Total Marketing Contribution of your firm. Or, to put it in simple terms - you want to make as much money as possible!

To do this you will need to carefully plan your Marketing Strategy, decide which markets to enter, how to price each product, analyze market research, optimize your advertising mix for each product, promote your products at different stages of the product life-cycle, and respond to your competitors' actions.

Note: The Industry Benchmark Report under Key Reports shows how you are performing relative to your competitor(s) in terms of Marketing Contribution.

WHAT IS MARKETING CONTRIBUTION?

Marketing Contribution is a measure of how profitable a firm is as a result of its strategic marketing plan. It is the amount of profit remaining after manufacturing (cost of goods sold) and marketing expenditures have been deducted. The only costs still to be deducted are other functional overhead costs for the firm, e.g. finance, administration etc. Positive Marketing Contribution occurs when Net Sales Revenue is greater than Marketing Expenditure.

Marketing Contribution Example

Imagine that you spent $25m on Marketing Expenses. Then if you sold 2 million units at $50 each you would have $100m in sales. If each unit sold cost $30, then the cost of those goods would be $60m. This would give you Marketing Contribution of $15m as in the table below:

Sales $100m

Less Cost of Goods Sold $60m

Gross Margin $40m

Less Marketing Expenses $25m

Marketing Contribution $15m

Note: The Industry Benchmark Report under Key Reports shows how you are performing relative to your competitor(s) in terms of Marketing Contribution.

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Summary of the Music2Go

Scenario

You assume the role of the Vice President of Marketing for the MP3 Player division of a Consumer Electronics Corporation.

The most successful students will be those who can combine research from multiple sources to create an effective marketing campaign, and who continually review in order to refine their campaign.

YEAR AHEAD AND KEY REPORTS

After every rollover the Year Ahead report outlines new developments in the scenario and gives general hints and tips for the coming year. We strongly recommend you read the Year Ahead report after each rollover so you are aware of new developments in the Scenario.

The Key Reports menu contains important reports that you will need every year.

You will gradually be given more control of your firm as the simulation progresses:

 Year One One existing product selling to the Standard market segment. You make price, margin, sales forecast, and advertising mix decisions (TV, Digital Media, Newspapers, Magazines)

 Year Two (after 1st rollover) Same as above, plus Sales Promotion decisions.

 Year Three (after 2nd rollover) Same as above, plus Product Development. You can launch a second product into either the Youth or Sports segments, improve your existing product, and reduce the cost of your existing product

 Year Four (after 3rd rollover) Same as above, plus you can launch a 3rd product if you wish

 Year Five (after 4th rollover) Same as above, plus you can launch a 4th product if you wish

MARKETING BUDGET

You are given a fixed budget every year with which to plan and implement your Sales and Marketing campaign. The amount of your budget will vary depending on how successful you are and it is the larger of $25m or 50% of your gross margin up to a maximum of $50m. In addition, whenever a new product is launched your budget will increase by $10m for a single period to allow you to build initial awareness for your new product. (This can temporarily take you over the $50m budget limit.)

For example, if your Sales last year were $150m, and your Cost of Goods Sold was $90m, then your Gross Margin was $60m. So your marketing budget for this year will be 0.5 * $60m = $30m. However if you also choose to launch a new product this period, then your Marketing Budget will temporarily increase by $10m to a total of $40m to help you establish awareness for the new product.

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The Forecast Results->Budget Spending Report allows you to see what your current budget is, and how much you have used. It will also show the adjusted budget limit if you choose to launch a new product. You should always check this report after making your decisions to ensure you are within budget.

MARKET RESEARCH

There are a variety of Market Research reports available for purchase every year, and effective use of Market Research is critical to succeeding in Music2Go. We strongly recommend you familiarize yourself with the available Market Research reports in the Single-Player before your Multi-Player competition starts so you can purchase wisely.

One of the key lessons in Music2Go is that information has a value. By spending on Market Research, you can make better decisions. You can save money by not purchasing Market Research, but you may find your competitors who invest in Market Research out-perform you.

MEDIA CHANNELS

There are four Media Channels in Music2Go that you can use to reach your customers – TV, Digital Media, Newspapers, and Magazines. Each market segment has different media viewing habits, so be sure to check the Advertising Reach curves and Segment Media Viewing preferences section in Chapter 2 of this manual.

MARKET SEGMENTS

There are three market segments in Music2Go – Standard, Youth, and Sports. (The Sports segment only appears in the Multi-Player, not the Single-Player).

These segments have different sizes, projected growth, and sensitivity to price, advertising, distribution, and product specs. Chapter 2 of this manual has important information on advertising reach and demographics.

THE PERCEPTUAL MAP AND SEGMENT MOVEMENT OVER TIME

The Perceptual Map is a convenient way of visualizing the differences between the different market segments in terms of the different levels of Style / Design and Technical Specifications that each of the market segments desire. The center of these circles represents an ‘ideal’ product for each market segment. So demand for your products will be higher if they are closer to the center of these circles.

The style / tech preferences of the market segments will change over time. The Standard segment moves relatively slowly, the Youth Segment moves at a moderate rate, and the Sports segment moves quickly on the perceptual map.

Perceptual Map of Market Segments at start of simulation

Perceptual Map of Market Segments after 10 rollovers

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PRODUCT DEVELOPMENT – SPEC IMPROVEMENT / COST REDUCTION

You start with a single MP3 Player product in the Standard market segment. But over time you and your competitors may improve your existing product, launch additional products into new market segments, and perform cost reduction projects to reduce the manufacturing cost of every unit sold. (Product Development is available after the 2nd rollover).

Note that the style / tech preferences of the markets change over time, so you may need to make some improvements to your existing products just to keep them attractive to your customers. How often you need to do this will depend on how sensitive each segment is to product specifications and how quickly each segment moves on the Perceptual Map.

Look at the Perceptual Map report under Key Reports to see approximately where your products sit within each segment, or purchase the All Product Details Market Research to see how your Product Specification Index compares to your competitors.

SALES FORECASTING AND INVENTORY MANAGEMENT

Accurate forecasting of demand and Inventory Management is important. If you purchase too little stock you miss out on easy sales. Too much, and you will incur inventory holding costs. Too much stock on hand also means that product modification can be expensive because you will have to dump any finished goods you have below cost before modifying your product.

All students have the Product Contribution Report under the Key Reports menu. This shows Starting Inventory, Planned vs Actual Units Ordered, Closing Inventory, and Estimated Lost Sales (excess demand) for each product. Students should use this report to aid them in forecasting demand for next period. Also see Key Reports -> Some Product Details report.

SALES PROMOTION AND THE PRODUCT LIFE CYCLE

Your Sales Promotion strategy will need to vary with the Life Cycle of your product. For instance, Trade Shows and Sales Force training will be important at a new product launch, but progressively less so as the product ages. Your existing product will be in the Mature phase of its life cycle for your first Sales Promotion decision. (Sales Promotion decisions are available after 1st rollover). See Chapter 2 for more information.

DISTRIBUTION

Some market segments value distribution more than others. You can influence distribution by modifying your retailer margin and by investing in Sales Promotion.

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Chapter 2 of this Players Manual gives a detailed overview of:

 Market segments

 Product life-cycle and sales promotion activities

 Advertising media channels

 Sales promotion activities

You WILL need the information in Chapter 2 to succeed in Music2Go.

Chapter 3 gives an overview of the decision screens

Chapter 4 gives an overview of how to evaluate your performance via the available reports and Market Research. This will assist you in assessing your progress and in making decisions for the next rollover.

Chapter 5 gives an overview of some other key reports

Chapter 6 has some FAQs (Frequently Asked Questions) that you may find useful

Key Reports Menu

The Key Reports menu contains important reports that you will need every year.

 Industry Benchmark. This compares the Sales, Costs, and Marketing Contribution of every firm in the Industry.

 Market Information. This summarizes all of the useful facts and figures from Chapter 2 of the Players Manual. This includes information on segment size and price ranges, what factors the segments are sensitive to, media viewing habits and advertising sensitivity for each segment, and the ideal sales promotion mix for each stage of the product life cycle. You should consider printing out this report to refer to when you make your decisions.

 Some Product Details. A comparison of all products in the Music2Go market including price and sales volume as well as more detailed information for your own products including Estimated Lost Sales.

 Product Contribution. Compare the performance of each of your products.

 Budgeted Expenditure Report. Shows your budget for this year and how much you have remaining to spend.

 Current Decisions. Shows the decisions you have entered for the upcoming rollover. You should review this report each period to ensure that you have entered all of your decisions correctly.

Market Segment Overview

There are three market segments in Music2Go – Standard, Youth, and Sports (Multi-Player only). These segments have different sizes, projected growth, and sensitivity to price, advertising, distribution, and product specs.

You start with a single MP3 Player product in the Standard market segment. But starting in Year 3 (after 2nd rollover) you may improve your existing product and / or launch additional products into new market segments (up to a maximum of 4 products by Year 6). Part of the challenge of Music2Go is in being able to balance the needs of your products within your limited marketing budget.

Standard Segment

Consumers in this segment tend to be less active than those in the sports segment and thus do not require the high level of technological specifications inherent in sports designs. Thus while young adults in this segment share the purchasing ability of their sports counterparts they are more price conscious, which is reflected in the relative pricing between these two segments.

 Medium priced ($85 - $100) with high price sensitivity

 Price range is $40 to $120, but the recommended range is $85 to $100.

 Medium sensitivity to advertising

 High sensitivity to distribution coverage

 Low sensitivity to product specifications

 Consumer style / tech spec preferences change slowly, so segment moves slowly on perceptual map.

Because consumers in this segment are highly price sensitive, you can expect some price competition. Plan for this with cost reduction projects to maintain acceptable unit margins. But be careful of engaging in a price war. No-one wins a war.

This is the slowest moving segment and has low sensitivity to product specs. So you may only require a single product spec improvement project midway through the simulation to remain competitive. It is the largest of the three segments but has minimal underlying growth.

You will be selling a single standard segment music player in the first 2 years of the simulation. After the 2nd rollover you may launch additional products into the Youth and Sports segments (Multi-Player only).

Chapter 2: The Music2Go Scenario

Chapter 2: The Music2Go Scenario 9

Youth Segment

The Youth segment is representative of the high style emphasis, fashion conscious youth purchaser (less than 18 years of age) of MP3 Players in the Music2Go market. Most purchases will be made by older age groups on behalf of children / youths.

 Competitively priced ($55 - $65) with medium price sensitivity

 Price range is $20 to $80, but the recommended range is $55 to $65.

 High sensitivity to advertising

 Medium sensitivity to distribution coverage

 Medium sensitivity to product specifications

 Purchase decision is heavily influenced by Television and Digital Media.

 Consumer style / tech spec preferences are fashion driven and change moderately quickly, so segment moves at a moderate rate on perceptual map.

Although the Youth Market has medium price sensitivity, it has a smaller price range ($20 to $80), so margins are tight and there is still likely to be some price competition. Make sure you maintain a sufficient unit margin by investing in cost reduction projects.

This segment has medium sensitivity to product specs and moves at a moderate rate, so successful firms will undertake product spec improvement projects every second year or so. The Youth segment starts off smaller than the standard segment, but has high underlying growth as the market develops.

Sports Segment (Multi-Player only)

The Sports segment is comprised of young, physically active individuals. They require a high degree of technological sophistication in their music players in order to cope with the physical demands they place on their MP3 Player when in use with sports/recreation activities. As such, these players can command a premium price in the market, and are thus popular with young adults (18-34) who have begun work but are not yet subject to the family commitments of older age groupings.