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Wednesday, April 6, 2011

Initial Strategy

First came the release of product SALT:



The two key components of our strategy all throughout the game were one perfect product per segment and high contribution margin. These two components are the foundation for all the decisions we made during the game.



At the beginning of the game, our team had the choice of using two different strategies: a competitive-based strategy that consists of undercutting rivals’ prices, or a segmentation-based strategy that aims to increase the contribution margin as much as possible. We decided to use a segmentation-based strategy, which requires constant adaptation to position our products according to shifts in consumer ideal values.



Our segmentation strategy is to have one perfect product for segment, so by the end of the game we would have one perfect product for each of the five segments in the Sonite Market. The reason is because market segments have unique defining characteristics, so we should tailor our products according to their ideal values of characteristics in order to gain the most market share. We do not recommend having two products per segment, though. Doing so could cannibalize sales. To create perfect products for each segment requires R&D by reposition, withdraw, or introduce products. Existing products require positioning to change perception of brand since customers make purchase decisions based on their perception of the brands, so we positioned products based on characteristics important to our product market. Since preferences change, we have to constantly adapt our products through R&D, which includes assessing consumer needs and estimating how brands are perceived. Semantic scales study and multidimensional scaling study are helpful. We did not end up producing a product for the Buffs segment, because the segment was shrinking. Since Buffs are extremely sensitive, producing a product for them would deviate from our strategy of obtaining high contribution margin (see below). However, this decision might have negatively affected our performance, since winning the game requires not only high contribution, but also high market share. Not having a product for Buffs meant we didn’t have any market share in that segment.



Since we want to have the highest contribution margin possible all throughout the game, we decided that it’s important for us to produce perfect products for Pros and High-Earners as soon as possible. Since these two segments are less price sensitive we can charge a higher price (and thus earn high contribution margins) if we make perfect products for them. Another reason why we want to have high contribution margin is because we want to gain as much budget as possible near the beginning of the game, so once R&D opens, we can start to put a small amount of budget into Vodite every period. This is very important since we predicted that Vodite requires a high amount of budget, so it’s important for us to start putting money into it as soon as possible. This is crucial since we wanted to be the first company to enter the Vodite market in order to get a high market share.

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