Pharmasim period 2 decisions

Team A

Introduction......................................................................................................................................3

Manufacturer's Suggested Retail Price............................................................................................4

Volume Discount and Promotional Allowances..............................................................................5

Advertising Budget..........................................................................................................................5

Advertising Agency.........................................................................................................................6

Advertising Messages......................................................................................................................6

Promotions.......................................................................................................................................7

Sales Force.....................................................................................................................................10

Segmentation..................................................................................................................................11

Line Extensions..............................................................................................................................12

Cumulative Net Income and Stock Price.......................................................................................14

Period Nine....................................................................................................................................15

Conclusion.....................................................................................................................................16

References......................................................................................................................................17

Appendix A....................................................................................................................................19

Initial Strategy....................................................................................................................19

Decisions, Results, and Interpretations..............................................................................21

Appendix B....................................................................................................................................28

Net Income Graphs and Charts..........................................................................................28

Manufacturer Sales and Stock Price Graphs and Charts...................................................29

Introduction

Marketing strategies only result in superior returns for an organization when they are implemented successfully. Kotler (1997) describes implementing a marketing strategy as the process that turns plans into action. Team A’s PharmaSim plan was to utilize the initial strategy report as a template for decisions and adjust accordingly based on market conditions and performance. Accordingly, the team’s initial short-term strategy was to steal market share in the cough segment by adjusting the advertising, segmentation, and demographics and competing against the market leader Coughcure. This strategy proved ineffective, most likely due to the competitor pursuing a focus strategy that allowed them to achieve an even greater differentiation in the cough market segment.

The team then altered the strategy to strive to improve Allround's market share and sales by further penetrating the existing market base. Kokemuller (2016) contends that this approach requires additional marketing and more focused sales efforts to penetrate more deeply into an existing customer base. This approach worked, only after a significant amount of additional money was invested in the sales force and promotions.

In the early stages of the simulation the team acted conservatively in terms of budget and was hesitant to spend resources on research or analytics. Over two consecutive periods, the stock price lagged and net income declined. Therefore, in an effort to identify the issues, the team began to invest in reports relevant to the performance challenges so that educated decisions could be made. McClymont and Jocumsen (2003) suggest that the use of customer research to pursue segmentation and targeting strategies has afforded opportunities to significantly improve marketing effectiveness and reduce costs. This proved to be an effective use of resources and performance improved.

Having learned from Allround’s performance, and making the necessary strategy adjustments, Team A was prepared to implement the long-term marketing strategy and launch Allright. The team purchased and reviewed numerous reports, aligned the pricing and advertising to enter the market as a pioneer in the product life cycle, and adjusted the sales force and promotions accordingly. The Allright launch was a success. The Allstar brand experienced rapid revenue growth and the stock price increased. This formula subsequently served as the foundation in making the remainder of the PharmaSim decisions. “The road to successful execution is full of potholes that must be negotiated for execution success” (Hrebiniak, 2005, p. 5).

Manufacturer’s Suggested Retail Price

In marketing a product many key factors should be considered, the price is amongst one of the most important. There are several important things to consider such as the target group purchasing the product, the effectiveness of the product, and brand loyalty. Pricing of a product depends on all these things and can be detrimental to an upcoming product if you don’t get it just right.

The team decided to increase the price in period 1 after purchasing the pricing report. The pricing report allowed us to compare our price to our competitors and adjust accordingly. We quickly learned how sensitive changes in pricing could be in period 2 when we increased our price significantly from $5.39 to $5.61. In the PharmaSim report for that period we were told that our MSRP was too high also evidenced in the decline in stock price from $49.82 to $39.89. Consumers did not react well to the price increase and as a result, our net income and stock price significantly decreased. In the following period we lowered our price down to $5.61 in response to the negative feedback we received.

We purchased the pricing report in period 5 in order to establish a price for our new non-drowsy product, Allright. We set the beginning price conservatively at $5.50 for Allright based on other allergy products on the market but soon realized that this was not the best approach since Allright had the pioneer advantage of a new unique product. We purchased the pricing report again in period 6 when we got the feedback that our price was too low and increased Allright's price a whole dollar to $5.50.

Volume Discounts and Promotional Allowances

When dealing with the volume discounts we quickly learned that it was very important to consider everyone that was offering his or her assistance. It was important to make sure that the retailers were supporting our brand and continued to do so. We also noticed that in the beginning we were steadily deemphasizing our allowances and discounts compared to competition.

For example, in period 2 the team adjusted the volume discounts for the 2500+ and < 2500 groups to 35% for period 3 based on data from the dashboard and a theory that this may improve Allround’s sales in other groups. This did not work, the 2500+ group produced 0.0% the following period and the volume discounts were realigned across all groups to be more even. We learned that supporting the people that support us is very important. As we began to make sure they had full support both our net income and stock price increased.

Advertising Budget

In the beginning of the simulation we were conservative with our spending and we often had additional funds remaining in our budget. When the team started with the simulation we considered Allround to be in the growth stage of the product life cycle and wanted to keep advertising effective. We kept the advertising budget at $20 million until period 2 when we decreased it to $15 million. The team brought it back up to $20 million in period 4 after we experienced a decrease in stock and net income in the last few periods.

In period 5 we brought the budget again down to $15 million so we could use another $15 million to introduce our new product, Allright. In order to help with the introduction of our new product, we were given additional funds to advertise and promote Allright. We then kept Allround's advertising budget steady at $17 million to maintain our advertising as we focused on Allright too. We were able to get a more comprehensive look at our competitions advertising budget once we purchased the advertising report in periods 4, 5, and 7. This helped us with our overall budget allocation as well as our message decisions.

Advertising Agency

Allround started the simulation with Brewster, Maxwell, & Wheeler as our advertising agency. We decided to switch to Sully and Rogers for period three. We made this decision based on our high brand recognition. According to the brand awareness portion of the purchase survey, Allround had 79.3% brand awareness. In addition to our strong brand recognition, we wanted to increase our net income. Allround continued to be represented by Sully and Rodgers for the remainder of the simulation which proved to be a positive decision. Our brand recognition continued to remain strong and our stock price and net income all increased. When we introduced our new product, Allright, we remained with Sully and Rogers and continued to be effective.

Advertising Messages

In the first few periods we opted to try and steal market share from Coughcure, primarily by altering our Advertising messages. We chose to compare to Coughcure with a 45% emphasis in the comparison message section. This strategy proved ineffective. Allround was known as a cold medicine and therefore we switched the comparison company to Besthelp, again with a 45% emphasis. Allrounds performance improved. The team often struggled with how to allocate the percentages amidst the messages and consequently did not always perform as well as we could. In period 2 we decided to reformulate Allround and removed the alcohol. At this point benefits was at 35% and we were promoting that Allround helps you rest. It wasn't until the following period that we changed this messaging to remove helps you rest and add minimizes side effects.

When we first introduced Allright in period 6, we put most of our advertising messages on primary since it was a new product and we needed to create awareness. The team decided that we could lower the primary message percentage by the second period since Allright was associated with Allround who already had great brand awareness. Allround's distinct presence in the medicine market offered a great advantage to our new allergy product. We also kept a lot of emphasis on benefits since Allright was a unique non-drowsy product that did not require a prescription. We compared to Believe because at the time, they had 70% of the allergy market share. By period 8, Allright had 43.9% and Believe decreased to 38.9%.

Promotions

Team A opted to invest in Cooperative (Co-Op) Advertising initially with a conservative approach spending $1.4M and allocating it to all retailers. Co-Op advertising is defined as an agreement between a manufacturer and a retailer, where the manufacturer pays for some of the costs of the retailer’s local advertising in an effort to promote their products (Bergen & John, 1997). This approach, in line with other marketing decisions, proved effective during the early stages of Allround's growth. In subsequent attempts, although increasing the Co-Op spend incrementally, the percent of retailers participating remained flat.

The team then opted to be more discerning in the channel it selected. For instance, convenient stores only accounted for 1.5% of total Allround sales; therefore this channel was eliminated from the co-op strategy. Additionally, the budget was increased from 1.7M, to 3M, to 4.5M resulting in improved retailer participation. When the team introduced Allright, all the sales channels were allocated Co-Op monies again, with the intent of hitting more immediate sales goals since the product was in its infancy in the product life cycle. Also, the team expected to improve consumer re-purchase with Allround. The retailers responded to the increased budget for one cycle, then flattened out. It was determined that the promotional budget would be better allocated elsewhere to earn a better retail conversion ratio.

The team instituted a similar approach for the point of purchase (POP) strategy, allocating the channels based on sales performance, however added consumer-shopping preferences to the mix. For instance, the shopping habits report (period 5) stated that over 83% of consumers preferred to purchase cold medicine in independent and chain drugstores as well as grocery stores. Chain drugstores, grocery stores, and wholesalers accounted for over 63% of the sales therefore, the point of purchase channels selected most frequently were chain drugstores and grocery stores. This channel strategy approach in line with incremental budget increases proved successful accounting for increased retail participation. In an effort to stimulate sales for the new introduction of Allright in period 5, half of Allrounds POP funds were allocated to the new allergy product. Interestingly, not only did the retailers respond well to Allright, the percent participating for Allround increased 2.6% even though, 1.3M less was spent and sales rose. This may be due to Allround hitting its stride in the growth phase of the product life cycle in which “sales rise much faster than promotional expenditures”, causing a desirable decline in the promotion-sales ratio (Kotler & Keller, 2012, p. 313).

Initially, the A Team budgeted 4.2M for Allround for consumer coupons in fifty-cent increments ($.50). The consumers’ response was flat, over multiple periods and then declined representing approximately 3.4% in total sales. This could be the result of consumers’ disposition towards excessive promotional offerings. Consumers are regularly pummeled with price breaks, deals, rebates, and coupons. They may simply be oblivious to another promotional offering. Consumers may also not be as inclined to utilize a coupon especially if the buyers are loyal to another brand. Kotler and Keller (2012) contend that advertising has more of an impact on expanding brand loyalty and that consumers that are loyal to one brand tend not to alter their buying habits based on a promotional offering by a competitor. Conversely, when Allright was introduced in period 5, the $2M coupon ($.50 increments) promotion resulted in 7.2% of redeemed sales. An additional $1M increase for a total $3M budget for Allright, with seventy-five cents off ($.75) further resulted in a total of 9.2% in redeemed sales. These results may in part be due to Allright acting as a “market pioneer”, by being the first to sell in the new non-drowsy OTC allergy market category (Kotler & Keller, 2012, p. 312). Early users will remember the pioneer’s brand name assuming the product satisfies them translating into more effective marketing spend and higher rates of repeat purchases (Kotler & Keller, 2012).

Monetary promotions directly influence the cost benefit relation of a product, such as utilizing price discounts like coupons or free trials. Buttner, Florack, and Goritz (2015) purpose that the influence of monetary promotions in retail environments seems to be the best strategy for promotions at a mass-market level. This was significantly evidenced when Team A introduced Allright and launched a trial size promotion. To date, Team A had not employed trial sizes for Allround since it was the market leader in the cold category and the product was well known and had good brand awareness. The initial trial spend for Allright was $2M and resulted in over a 50% conversion ratio, making it the most effective promotional offering to date. This decision partnered with other strategic marketing decisions led to a significant increase in revenue, gross margins, and net income. In addition, the stock price moved from $48.30 to $62.69. Overall, Team A learned that sales promotions expenditures should increase as a percent of the overall marketing budget expenditures to keep on pace with the product life cycle and account for costs while attempting to gain market share.

Sales Force

The sales force (SF) allocation was modest initially, starting at 127 and adding 11 for a total of 138. At this juncture, Allround was in the growth or “rapid market acceptance” phase of the product life cycle (PLC) and the moderate SF designation was satisfactory. Market share grew and the stock price increased.

The team’s strategy was to then base the SF on the distribution channel’s performance with data gathered from the sales report. For instance, if in the prior period the indirect/wholesale group contributed the biggest percent of sales, SF staff was added in that category in an attempt to increase that particular channels sales success. When implemented, Allround as a whole performed poorly, dropping over ten dollars in stock price and losing market share. Zoltners, Sinha, and Lorimer (2006) state that although the growth phase of a company’s product life cycle is often rewarding organizations still make crucial errors in sizing their sales forces resulting in lost opportunities.