Having recently completed the Markstrat strategic marketing simulation, I thought I would share some tips and tricks learnt along the way.
When initially starting Markstrat, all the data can be quite daunting, as you progress through the periods you get a feel for what to concentrate on.
A multiple-part series, the first part will look at Market Forecast and Market Segment selection.
Start by looking at the market forecast, determine which segments are the high-growth segments, get into these segments early. This has two benefits, establishing segment dominance and control which makes it difficult for competitors to enter the segment, secondly, the high-volumes help to decrease unit costs over time.
Plotted is the market forecast of each segment with an exponential trend line, forecasted additional three periods in the future. Shoppers and Savers clearly have the highest market growth in this example.
Integrate the equations between period 0 and 8 to get total volume.
|Segment||Equation||Total over 8 periods|
|Explorers||y = 231764e-0.029x||1,654,717|
|Shoppers||y = 176438e0.2592x||4,733,251|
|Professionals||y = 160089e0.1414x||2,376,865|
|High Earners||y = 146295e0.1815x||2,637,148|
|Savers||y = 280506e0.1738x||4,868,505|
One thing to consider is these two segments also have the smallest margins.
An estimated simple Contribution Margin can be calculated using Recommended Retail Price minus Base Cost for each existing product. The summation of market share of each product multiplied by the calculated CM of each product gives as estimated CM per market segment.
Using the total volume of each segment multiplied by CM of each segment, we get the following segment total CM.
When semantic scales are available from period one, we can associate price perceptions to actual prices, adding in an exponential trend gives a rough price perception to actual price equation. Semantic scales will be discussed in more detail next part.
Using ideal values for each segment, we can get a rough price for each segment.
|Segment||Ideal Values||RRP = 147.77e0.1955x|
An estimated base cost for each segment can be determined by summing the products of individual product’s base cost and individual product’s segment market share. With the estimated segment product cost and estimated base cost, the estimated contribution margin per segment can be calculated.
|Product||Est. CM = 147.77e0.1955x||Est. Base Cost||Est. Total CM|
Again, the Professionals and High Earners segments, as expected, have the highest contribution margins.
Finally, plotting the total contribution of each market segment calculated by the segment CM multiplied by the total segment size. It can be seen that Shoppers and Savers are still the higher earning segments, even though Professionals and High Earners have higher contribution margins, though the contribution growth is slightly slower.
It should be noted that spending more budget in a Market Segment naturally increases the market segment size. Companies moving into the high-growth segments will naturally fuel the segment’s growth in a virtuous circle, while the abandoned low-growth segments continue to die in a vicious circle.