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Abstract

This paper explores the team-based decisions throughout the Pharmasim marketing simulator program. The simulator was segmented into eight periods each consisting of one year at a pharmaceutical company for an over-the-counter cold medicine (OCM). As the team progressed through the simulation program, the team made decisions as to the manufacturer’s suggested retail price, volume discounts, and promotional allowances. Options were considered for the advertising budget as to the best choice for each product line, and an advertising agency selected for each. The relative emphasis on the four types of advertising messages is herein discussed as well as the teams’ promotion budget with allocations to cooperative advertising and the three types of consumer promotions. Finally, the sales force decisions, segmentation, line extensions and the influence of these decisions on the cumulative net income and final stock price discussed. Inferences were made throughout the simulation program as to causation and the team strategically managed outcomes through manipulating the allocations for the aforementioned variables to arrive at the desired goals.

Allround Brand Management Final Report – Group B

The brand management team report describes the organizational conditions and external factors that influenced its decisions and the results acquired at the end of each period. Also, the team shares the individual and team learning experience earned through this process and its contrast to the Initial Strategy Plan. The initial strategy plan was identified as the main issue complicating out decisions. To address that, the team evolved the initial marketing strategy which focused heavily on increasing net income and stock prices and instead focused on strategies of differentiation to meet and exceed customer preferences. This adjustment aligned the team’s decisions with choices that were profitable for the company, as customers perceived a greater value in the products and the company sold an increasing number of units with each period progression. The information herein highlights this evolution as well as offers predictions as to what would have happened had there been advancement to period nine.

Manufacturer’s Suggested Retail Price

Customers rarely concern themselves with the costs that a company incurs to produce a given product, for them it is the value of the product or service that it provides and how well their experience has been (Winer & Dhar, 2011, pp. 247). When we initially started in period zero, we decided to leave the price of Allround alone. The case study pointed out that during this period Allround's suggested retail price was higher than the competition but was not suffering in sales because of the effectiveness, high recognition, and consumer loyalty (James, Kinnear & Deighan, 2015). These elements combined allowed Allround to dominate and maintain price leadership in the market. We also felt that Allround was in a different market space relative to its competitors. The focus moved to other marketing operations. Throughout the following three periods we used that mindset to drive our decisions about pricing, which differed from our initial strategy report but became a sound strategy.

During period four, there was no budget available to spend on marketing decisions. The assumption developed that all of the budgeted funds were spent on the capacity utilization expenditure, which was 24% over. Compared to competitors, Allround’s stock price was average; however, its capacity utilization was 20% higher than Allround’s biggest competitor, B&B which led to the examination of price inflation throughout the periods that had passed. Period four marked the beginning of the repeated analysis of and consideration for inflation. In efforts to level and stabilize pricing and utilization, the inflation rate of 4.1% was doubled, and Allround’s price rose to $5.77. In period five, efforts were successful in cutting down capacity utilization by 25%, increasing net income, and increasing the stock price. From period five to seven the price of Allround was raised each period to avoid the same pitfall. Reports were purchased to assess and adjust for market trends including competitor's pricing, inflation, and consumer preferences from the conjoint analysis to help gauge our customer's pricing sensitivity. The MSRP of Allround successfully rose to $6.11 by the end of period seven.

Period three saw the introduction of Allround+, and the MSRP was set at $5.01. This price point was arrived at due to the uniqueness of the product, and formula comparisons suggested that the price was a good starting point from which we could later adjust if need be. During period four, inflation was accommodated for with price increases for Allround and Allround+ of Allround+. From period five to period seven we slowly increased the price to stay competitive and combat capacity utilization. Period seven ended with the price of Allround+ being $5.89. In period five, Allright was introduced to the market. This formulation was a four-hour, non-drowsy allergy medication which was the first-to-market. From the data reports, it was known that consumers showed a preference for fewer side effects and the preference to avoid over-medicating (James, et al., 2015). For these reasons, together with the cost of production per unit, the price was set at $5.95. During period six it was opted to not to increase the price of Allright as our brand awareness for the drug was only 17.4%. Instead, other areas continued to be focused on to improve brand awareness - such as promotions. In period seven, the price was raised to $6.12 to be reflective of competition and inflation. Had there been a period nine, inflation, consumer price preferences and cost would continue to influence the MSRP. However, it was agreed that more emphasis would be on these factors that had been placed on them during periods zero through eight.

Discounts and Allowances

Volume Discounts

Volume discounts for the Allround, Allround+, and Allright brand remained consistent for the first five periods. In period five however, volume discounts were reduced from 25% to 22% for quantities between 250 and 2500. Volume discounts offered were too high and the decrease was made to drive sales to other volume categories for Allound. The volume discounts were then continued at the new 22% rate through the final period. Providing volume discounts to retailers based on quantity purchased incentivizes retailers to carry and stock the product. However, providing too high of a discount causes a loss of profits for the manufacturer and is not reflective of the same rate of benefits as smaller volume discounts. Had there been a period nine, it would be expected that the same strategy for volume discounts would be followed, as the initial discount rate reduced the potential profits for the company.

Allowances

As stated in our initial strategy report our plan was to use a push/ pull strategy to increase sales. "Trade promotions can be best understood as part of an overall channel management strategy based on an accurate perception of both market power and the relative power of the channel participants" (Kasulis, Morgan, Griffith & Kenderdine, 1999). To achieve this, starting in period one, all category allowances were set to 17%, to arrive at some consistency, as the team became more familiar with the effects of decisions made. Allowances were matched for each of the product line allowance categories because allowances were the most poorly understood tool throughout the simulation. The choices that were arrived at were made to gain an advantage from offering higher than the competitor’s average promotional allowances. “Retailers or other distributors want to be assured that you will spend sufficient money and pay attention to persuading the customers to want your brand. These two activities draw an important distinction between two kinds of basic activities of channel management: push(getting channels to carry and sell the product) and pull(motivating customers to ask for your brand by name)” (Winer & Dhar, 2015).

During period three, the promotional allowances were decreased for independent drugstores and convenience stores as the discounts were not the best manner for stimulating these channels as demonstrated by poor performance compared with other distribution channels. With the introduction of Allright in period five, all distribution channel allowances increased to 20%. That decision was carried through to period eight where it was found again, that the higher promotional allowances were not as beneficial to the results as had been expected. Promotional allowances were reduced by 2% across the board which still allow for the highest allocation among competitors while also being of more significant benefit to the company by increasing the net income. Had there been a period nine, efforts would continue to have competitive allowances which also maximize the return for the company as the group continued to gain and better understand leverage with allowance manipulations.

Advertising Budget

The initial advertising budget for Allstar brands' Allround 4-hour multi-symptom cold & cough medication started at $20 million. However, the market update during the introductory period showed a $3.3 million increase in advertising spending (James, et al., 2015). Therefore, we determined that the Allround advertising budget should be increased to $23.1 million, as it was important to stimulate brand awareness and have aggressive advertising campaigns to maintain a market share (Kerin, Hartley, & Rudelius, 2011, pp. 486). During the first and second periods, the market update showed a $20.8 million and $11.3 million increase for each respective period. The marketing team determined that Allround’s advertising budget was amongst the highest during these periods and gave a small increase to $27.1 million during the first period with no additional adjustment during the second period as funds were allocated to other areas of the company (i.e. sales force & promotional discounts). The third period provided the opportunity for a product introduction of Allround+, as 12-hour multi-symptom liquid medication. To accommodate this new product line the team decreased the Allround advertising budget to $20 million despite an $18.5 million increase in advertising spend according to the market update as we were trying to keep overhead costs down. Therefore, Allround+ was provided a smaller initial advertising budget of $8 million during this period. The fourth period showed a $4.9 million decline in advertising spend, however, the marketing team decided to keep the advertising budget steady at $20 million for Allround and $8 million for Allround+ (James, et al., 2015).

During the fifth period, advertising spending was up by $13.5 million, and Allstar introduced their third product Allright, a 4-hour non-drowsy allergy medication (James, et al., 2015). With the introduction of Allright, the Allround+ budget was slightly decreased to $6 million in their advertising budget, which was contributed to performance and the need to allocate funds towards Allright’s initial budget of $10 million. The initial advertising budget of Allright was set at a higher amount than Allround+ to help with brand awareness during the introduction period. Otherwise, no changes were made to Allround during this period due to its excellent performance in the market. The sixth period showed an increase of $5.4 million in advertising spending, so Allround+ and Allright's advertising budgets were increased to $7 million and $12 million respectively to better match the competition. The Allround budget saw no changes during this period and stayed at $20 million (James, et al., 2015).

Although the seventh period’s market updates showed a $5.3 million increase in advertising spending, no changes were made to either the Allround+ or Allright budgets due to steady performance. However, Allround’s budget had a slight increase to $22 million in retaliation to a rise in the Allround's primary competitor’s advertising budget, which the marketing team felt was necessary to maintain market share. The eighth and final period showed an increase of $4.2 million in advertising spending; however, Allstar's marketing team determined that all budgets were appropriate and made no changes. The same thought process would be applied to all products for a ninth period if it existed, so long as the advertising spend of competitors continued to incremental increases (James, et al., 2015).

Selected Advertising Agency

Brand awareness is the cornerstone of any product’s success; therefore, the selection of an advertising agency is as equally important as the advertising budget provided for a given product. The Allstar brands marketing team had three advertising agencies to choose from, Brewster, Maxwell, & Wheeler (BMW) who charged a 15% commission for their services; Sully & Rogers (S&R), who cost a 10% commission; and Lester, Loebol, and Company (LLC), who charged a 5% commission for their services (James, et al., 2015).

It is crucial that a product gains some market share during the introductory period, which is why the Allstar marketing team thought it was important that their products be perceived as the superior brand (Winer & Dhar, 2011, pp. 56). Additionally, it is crucial to select the right advertising agency that has a track record in promoting similar products and promoting to the target audiences for those products (Kerin, Hartley, & Rudelius, 2011, pp. 489). Therefore, the marketing team selected BMW for Allround in this introductory period, as they were perceived to be a superior agency for this market. During the first period, Allround managed to obtain 23.7% of the market, and in the second period, it decreased slightly to 22.5%. The subsequent periods maintained a similar amount with little variance; therefore, the marketing team stayed consistent in keeping Allround's advertising with the BMW agency since the product performance had done well in market surveys. During the third period, Allstar introduced Allround+ and the marketing team utilized the BMW agency again, in the hopes that this product's performance would be similar to that of Allround. However, this strategy did not perform as planned, so a switch to S&R was made for Allround+ to reduce some of the overhead expenses for Allstar during the fifth period since the market share was at 3.2%. This change resulted in an increase to 4.1% in the sixth period and 4.7% in the seventh period. Therefore, the market team kept Allround+ with S&R to maintain the incremental growth that was seen in the market share (James, et al., 2015).

During the fifth period, Allstar introduced another product line Allright, which was given to the BMW advertising agency for promotion in the hopes that this product would corner the allergy medication market due to it being the only non-drowsy option available. The channel sales report showed a 2% market share during its introductory period; however, this almost doubled to 3.7% during the seventh period. So the team kept Allright with BMW throughout these final periods and would have made no changes during the ninth period (had it existed), as long as the performance continued to maintain as it did (James, et al., 2015).

Relative Emphasis on the Four Types of Advertising Messages

The emphasis that was put on the advertising message was driven by the stage of the product’s life cycle and the strategic objective, both of which had to be reassessed throughout the simulation. Primary advertising messages were used to create awareness, benefits to highlight the value of the product function, comparison to showcase our product against our chosen competitor and the reminder to bolster awareness after the consumer was made aware of the product's primary features and benefits (James, et al., 2015). Posttests measuring brand awareness gauged the effectiveness of primary advertising messages, and the percentage of increase or decline in unit sales for the line was used to guide messaging efforts (Pride & Ferrell, 2014).

With the introduction of line extensions, the strategy was to drive awareness with primary messages at 40% for the first period for Allround+ and 30% for Allright. Allright’s stress on primary messaging was lower than Allround+ due to the uniqueness of the product where the team was comfortable putting equal importance on benefit at 30%, and a healthy 30% was allocated to reminder to stimulate repurchase for the year that exists within each period. This success was measured with brand awareness ratings.

In period zero, Allround had 74.1% brand awareness, and the decision was made to focus on stimulating repurchase, which was appropriate for Allround’s period in the life cycle. By period seven Allround comfortably rested with 10%, 20%, 30% and 40% allocated to primary, benefits, comparison, and reminder, respectfully. Adjustments were made to Allround's advertising message for period eight because an expectorant was added to Allround, where benefits were increased to 22% to promote this reformulation.

Allround+ was introduced in period four, and advertising messages were allocated with 40% to primary, 40% to benefits, 10% to comparison with Besthelp and 10% to reminder to stimulate repurchase during the one year to follow (James, et al., 2015). The reasoning for this allocation was to create awareness for the product as it enters the first stage of the product life cycle (Perreault Jr, Cannon & McCarthy, 2014) and to emphasize its benefits. The allotments were kept the same for period five and for period six they were adjusted so that 15% was set to primary awareness, 35% for benefits, 30% for comparison with Dryup and 20% for reminder messages. ThisThese changes were made because awareness had grown to 55.3% and Dryup appeared to be a good comparison as the brand formulations were quite similar (James, et al., 2015). The advertising benefits were shifted from primary to remind as awareness was high and stimulating repurchasing was needed to maintain sales. These allocations were maintained through period 7. In period eight, even greater emphasis was to be on repurchase, and therefore reminder was increased to 25%. The comparison product was also changed to Extra as it was decided that comparing Allround+ to another 12-hour OCM capsule was a sounder strategy.

The introduction of Allright was very similar and the product launch started with 30% primary, 30% benefits, 10% comparison and 30% reminder. The high reminder was favored despite being the launch of Allright because of the product’s uniqueness and the fact that each period was one year where it was hoped to capture some repurchases during that time. In periods seven and eight Allright’s customer satisfaction increased to 51.2% (James, et al., 2015) and this highlighted the importance of stimulating repurchasing. Our brand awareness was low at 23.2%, and the decision was made to equally address the areas of advertising with 25% allocated to each advertising message.

Should the simulation have progressed to period nine, it is reasonable to expect to see a similar pattern where with the continued need to assess the performance indicators before making decisions as to the best allocation for advertising messages.

Promotional Budget with Allocations and the Three Types of Consumer Promotions,

Point of Purchase and Co-op Advertising

Consumer promotions included point of purchase, trial size promotional products, and coupons. To increase sales in period four, we expanded our point of purchase budget from $1.7 million to $3 million. Point of purchase money is paid to the retailer but targets the end consumer. By increasing this budget, we were able to promote our products with display racks, sales rack, on-shelf advertisements and securing better product placement. Also, a greater emphasis focused on increasing the co-op advertising budget to help retailers promote Allround, Allround+ and Allright products to improve awareness through the different distribution channels.

At the beginning of the stimulation no funds had been allocated to trial size promotion allowance, and the trial size budget was set to allocating $700,000. The goal of trial size promotions is to attract potential new consumers to the Allround brand. We realized after period zero that we should focus our promotional budget on other areas as trial sizes were of the most benefit for new products and decreased the budget to $500,000 until period three and period five when Allround+ and Allright formulations were released.

Coupons

The team over budgeted for coupons, allocating 4.9 million dollars for the first two periods and then dropping it to 4.7 million until period four. The high budget for coupons intended to stimulate repurchase; however coupons were misused. Coupons are an area of consumer promotion that can be used to achieve different goals. "Coupons are an effective way to target discounts and other incentives to households that are particularly sensitive to price” (Winer & Dhar, 2011). The strategy when changing the coupon budget was to stimulate repurchase or to stimulate the initial purchase when there were brand extensions and reformulations. Had there been a period nine, a more conservative coupon strategy would help in keeping costs low.