The third part of this series looks at actual marketing strategy and marketing mix decisions.
I won’t go into too much marketing strategy detail, plus a lot of these are my thoughts from playing only a single round.
Target one product for one market segment only, early on it may be tempting to target multiple segments, particularly due to initial market share in many segments and purchase intentions in multiple segments.
Make a decision to target the single segment, the segment that will return the largest contribution. Targeting a single segment makes it easier to target your product for that specific segment. Since each segment has a different ideal characteristic product.
The total estimated advertising expenditure is correct, but about 10% of the total is added to each individual segment, this shouldn’t matter too much since it can be assumed competitors will be targeting one product per segment. The estimated advertising expenditure is extremely useful for determine competitor advertising spend, as well as competitor target segments.
The estimated commercial team is spot on in number.
I have found that advertising is more important than commercial team. Depending on your strategy, aim to at least match or trump your segment competitors total advertising spend in order to gain greater market dominance. If there are two competitors, aim to match their total spend, if budget permits of course.
I haven’t found it necessary to ever use No Objectives, unless you are launching a new product. It is easier to use multidimensional scaling compared to semantic scales since with multidimensional scaling you can alter multiple dimensions at the same time. with semantic scales you are limited to a maximum of two of the five characteristics.
You can change the perceptions of price, normally, if you want to match your product to ideal price you would change the price directly, the advantage of changing the price perceptions is you can increase the price above the segments ideal price, and then change the consumers perception of the price back to their ideals. If that makes sense, or simply, use the perceptions of price when you want to increase price.
Note, when you change a perception of a characteristic, you are changing the perception of the entire products market. This is why some ideal perceptions change dramatically, other competitors are changing those perceptions.
Commercial Team possibly reaches a maximum, where any additional persons provide no additional benefit. I have observed a team with a third more commercial team not gain any additional market share; the market share was exactly proportional to advertising spent instead. A possibly reason is commercial team isn’t segment specific, but over the entire market, so whilst they may be a large difference between you and a competitor, over the larger market the difference is small.
With commercial team, it is critical to distribute the commercial team using the Shopping Habits of the target segment. Though, this contradicts the Experiments which I will discuss below.
The marketing experiments are useful for determining how to proportionate your budget. Though, it assumes the competitor actions remain the same, which is never the case.
I have contacted StratX to try and determine how they calculate estimated change in contribution, but they didn’t provide a definite answer, “Change in Contribution is equal to Expected additional revenues minus Additional costs of advertising or commercial team. I will attempt show how it is calculated below.
The Advertising Experiment calculates the increase in market share if advertising for a product was increased by 20%. An estimated expected change in contribution is provided, which is roughly calculated as Average Selling Price minus Average Unit Cost multiplies by the additional units sold (the addition of each segment of the Expected Change of Unit Market Share multiplied by the current period’s Market Size) subtract 20% of the current periods total Advertising spend.
Commercial Team Experiment
Similarly, the Commercial Team Experiment calculates the increase in market share if the commercial team was increased by 10 persons in each distribution channel.
This is where I haven’t got a definitive answer. The Expected Change in Number of Distributors is indirectly proportional to the Expected Change in Unit Market Share. This suggests that the Expected Change in Units Market Share is relevant to that specific distribution channel only. It even makes more sense, in that, when 10 persons are added to a distribution channel with low number of distributors compared to that with a high number of distributors, the increase in persons is a higher ratio, which explains why the units market share is higher (the indirect relationship).
What this means is, even though the percentage increase in Expected Change in Unit Market Share is the largest for a particular distribution channel, it doesn’t necessarily mean that is the distribution channel which should have the additional 10 persons.
The cost of 10 persons can be calculated using the market research, it is roughly $25,000.
The contribution of each distribution channel can be calculated as follows, using Savers segment as an example;
|MARKET : SONITES : SAVERS||Specialty Stores||Mass Merchandisers||Online Stores||Total|
|Expected Change in unit Market Share (%U)||0.4%||0.0%||0.2%|
|Shopping Habits of Savers||19%||63%||18%|
|Savers next period Expected Market Size||229,068||761,136||221,796||1,212,000|
|Expected Change in Savers units||916||0||444||1,360|
|CM (average selling price minus average unit cost)||116|
|Expected Change in Contribution||105,831||0||51,236||157,067|
|Cost of 10 persons||-250,000||-250,000||-250,000||-750,000|
Performing the above analysis on all products in all markets will give you an indication of where budget should be spent to maximise returns. It is also a good indication on where to decrease budget spend and even where you have overspent.
Using the experiments is only one indication, and should be used with previous competitor actions to determine the optimal strategy.