ADM 2320 Marketing (Section)

1. Overall Outcome

In our original strategic plan, we identified the following as our key objectives:

1.   Create a product and brand focused on durability, capacity, and weatherproofing to attract customers who lead an active outdoor-focused lifestyle.

2.   Balance costs and revenues to produce a product that satisfies our customers while making a sustainable profit.

3.   Monitor and measure our performance and the overall success of our competitors.

Overall, our team captured a respectable piece of the market share overall (see Appendix, Figure 1.), finishing strongly over at the Turn 6 quarter 22% market share level. Our return on marketing % sat at around 14%, indicating we had positive returns on our marketing campaigns. In comparison to the majority  of our competitors, with one exception, we believe this demonstrated that our marketing budget was well allocated and spent, validating our second goal of balancing costs and revenues to satisfy our customers. We made a cumulative net profit and finished the final turn in 2nd place in gross profit (see Appendix, Figure 2.), further speaking to the overall success of our group, despite fluctuations in both revenues and profits between years.

Throughout our simulation, one of the most significant changes in performance took place between turns with Return on Marketing. We can attribute the positive changes in advertising frequency and mediums to Turn 3. Our customer satisfaction stayed steady at 39% overall, reflecting that we kept our product consistent to best achieve our first stated strategic goal.

2. Turn Analysis Overview

Major Turn Decisions

T1: We used a concentrated marketing strategy to become the market leader in the outdoor enthusiast segment because it was the segment with the largest value and robust growth rate. We believed designing our product to cater to this segment would allow us to become market leaders and make sustainable profits. We set the price at $97 because our backpack is a premium product, reflecting this. We chose a message of ‘Peak Performance’ as it appealed to our target segment and advertised our message through Newspaper and Wilderness Cable Network as they had the greatest reach for our target market. We distributed our product through direct channels and the ‘High End Outdoor’ store as these channels allowed us to keep our price while making sustainable profit margins. While our product was top-rated among Outdoor Enthusiasts, and we dominated our target market by selling 121 units for a gross profit of $3,141, our advertising was ineffective. We ended with a -21% return on marketing spend, which made our net profit -$883 and forced us to adjust our marketing strategy.

T2: Going into Turn 2, our focus was to sell as many units as possible to solidify our position in the market while turning a profit. To increase unit sales, we began a sales promotion with ‘High End Outdoor’ and reduced our price to $94 to be more competitive with the other backpacks targeting Outdoor Enthusiasts. We were still the most expensive product, but we had the most features, and our design was a customer favourite in the market, which justified the higher price point. We also changed our marketing strategy due to the negative marketing return in Turn 1. We decided to reduce our advertising spend by 50% to $2,000 and focus entirely on Newspaper advertising because it is cost-efficient  and reaches  our  target market  effectively.  The  results proved to be  effective.  We increased our total revenue and units sold by 19% and 21%, respectively, while turning a net profit of $835. Our new marketing strategy was much more effective, as we increased our units sold while halving our marketing spend and achieving a 30% return on marketing.

T3: With the positive results from Turn 2, we decided to double down on our strategy to increase our total revenue and market share to become market leaders in our segment. We reduced our price to match our competitors more closely at $91 while maintaining the quality of the product. This made our product extremely competitive, as it was a similar price to our competition while also having a much higher average appeal score. We also experimented with different advertising platforms to optimize our advertising strategy. While maintaining our advertising spend, we adjusted our advertising from 2x Newspaper to 1x Newspaper and  1x Sports Talk Radio. This was an attempt to increase our return on marketing and advertise our product on our closest competitors’ mediums to maintain product awareness. Even though the  Sports  Talk Radio medium reached just  as many Outdoor Enthusiasts as the Newspaper, we held our marketing spend, and made our product more attractive by reducing our price, the campaign failed miserably. Our total revenue and units sold dropped by 45% and 44%, respectively. Our return on marketing was -23%, and we lost $558 in Turn 3.

T4: After the disappointing results from Turn 3, we had to make a change. With our product having the highest average appeal score, we suspected the issues lied in our pricing strategy and product awareness (advertising) strategy. To try to sell more backpacks, we further reduced our price from $91 to $88. We also invested $1000 in market development funds at the High-End Outdoor retailer. The goal of this investment was to drive up revenues through that channel, through which we sold a majority of our product and provided us with solid margins. The lower price also allowed us to distribute our product through two additional channels: online Discount Retailer and Department Store. While we made much smaller margins through these channels, we believed that we would increase  our  brand  awareness  and  fulfill  our  original  strategy  of  hyper-focusing  our  efforts  to dominate the Outdoor Enthusiast segment by being in more stores. We also reverted our advertising strategy to our Turn 2 strategy but dropped the advertising spend by 50% again, as we have been getting better results with lower advertising spending. Our results were very effective; we increased our total revenue and units sold by 300% and 355%, respectively, while netting $985 in profit. We also regained our positive return on marketing, ending at 35%.

T5: Since our results were so positive in Turn 4, we decided to stay the course and not change very much. We removed the $1000 investment in market development funds as we did not believe it was the most  effective  or  efficient use  of our  capital.  However, this proved to be  inaccurate. After removing the investment, our total revenue and units sold dropped by 36% and 34%, respectively. We expected our revenue and units sold to fall after removing the investment but did not expect our net profit to drop by 20%. Our return on marketing also increased from 35% to 56% despite not adjusting our marketing strategy from Turn 4.

T6: Now, knowing that an investment in marketing development funds was an effective use of our capital, we reinvested in the High End Outdoor store and added a $1000 MDF investment to our Direct channel. We also decided to readjust our price to reflect the quality of our product from $88 to $94. Initially, we believed that our higher price was a significant barrier to maximizing our revenue but discovered that other factors such as advertising and MDF investment made a more considerable difference. We regained confidence in our product and adjusted the price accordingly. Our results were somewhat unexpected. While our total revenue and units sold increased by 35% and 22%, our net profit  fell by  34%, and our return on marketing  fell to just  15%,  despite  not  adjusting  our advertising strategy. It appeared that the investment in MDF was effective for High End Outdoor and not for Direct, but we achieved our goal of becoming the market leaders in the Outdoor Enthusiast segment while turning a profit.

3. Target Market

Our target segment was the outdoor target segment. We started by evaluating our overall strategy and goals for our backpack within our planning process. Our initial mission statement was to “create a high-quality backpack that combines functionality with maximum capacity and durability. Our backpacks are tough enough to accompany you along any journey, anywhere”. In surveying the different market segments, we also felt that our value proposition was unique enough that we would face lower competition. We then identified the outdoors market as the best fit for the product, given its targeting of consumers with our shared values, with a demographic profile that we believed would fit well with our product. It is important to note that we did not go after any other markets, and we felt that solely focusing on this market segment would yield the best overall results.

In targeting this segment, our group evaluated the identity, reach, sustainability/profitability, and market  responsiveness.  In  terms  of  identity,  we  felt  that  we  had  well  identified  the  different customers within the segment and were poised to create a product that met their needs.

Regarding sustainability and profitability, we felt that the high growth rate of 5% indicated strong growth potential, and the  14,000  customers  (worth  $1.26  million)  indicated  a  large  enough  and profitable enough segment.

We used a concentrated (or niche) targeting strategy for the simulation. Our team focused on one market segment (Outdoor Enthusiasts) while ensuring we catered our product specifically to the segment’s overall needs. Our backpack is not meant for all consumers and picking a concentrated targeting strategy allowed us to shape the rest of our marketing strategies to best cater to them. We maintained this marketing strategy throughout the entire simulation. As a strategic choice, we made minimal alterations to our overall mission and target segmentation, and thus, our selected plans remained the best performing strategies for our team.

In developing our positioning, we used a few different strategies at the start of the simulation. We focused on our consumers' most critical product attributes (refer to the product section in Section 4). We also emphasized value, believing our price to features offered were reasonable for consumers. As the simulation continued, we discovered that a few other competitors were emerging, so we adopted a competition position strategy and put our product head-to-head against other companies selling backpacks in our select market segment.

Targeted Segments:

T1: Outdoors

T2: Outdoors

T3: Outdoors

T4: Outdoors

T5: Outdoors

T6: Outdoors

4. Marketing Mix

One of our key objectives was to create a high-quality product focused on durability, capacity, and weatherproofing. Our initial marketing mix translated to a high-quality backpack with features such as a large rectangular model, wide padded straps, waterproofing, the most durable material, and a water bottle holder. To that end, our product features and quality remained constant throughout the simulation, and our final product remained identical to what we had started with. We wanted to convey our commitment to being a premium outdoor backpack as a brand. We elected to stay true to that throughout the simulation, offering the best features in the market.

We initially priced our backpacks at $97 to reflect the above-average product we offer. The price was almost 10% higher than the segment's  average,  and we priced it so in hopes to invoke a psychological response to our product: premium  and high-quality.  Setting  the price higher than average would also have allowed us to run sales campaigns, making our product seem even more valuable  and  attractive.  Throughout  the  simulation,  while  we  still  aimed  to  balance  costs  and revenues to create a sustainable profit, we decided to lower the price by a few dollars to see if a lower price would impact our sales. However, as we could not deduce a solid correlation between a lower price and the number of sales, we elected to bring our price back up to $94 (almost the initial value) and have a greater profit margin while remaining competitive.

Regarding the place plan, we decided to consider only those distribution centers that generated positive profits and disregard those that devalued our product by significantly limiting our intended sales price. In line with this objective, we initially decided to distribute our product through our direct online store and high-end outdoor retailers, as they would not devalue or dilute our product and brand. However, throughout the simulation, we decided it would be beneficial to explore other distribution centers to make sure we were maximizing our reach and the sales generated. For this reason, we decided to start distribution deals with the online discount retailer and the department store as well. While these two channels did lower our retail price, we generated a significant profit per bag and strengthened our presence in the market.

To demonstrate to our target market that our backpack is a premium product built to handle anything thrown at it, we decided to use “Peak Performance” messaging to promote our product. This message appealed primarily to the Outdoor segment (with a 67% reach) and provided the greatest value in terms  of competitiveness,  consistency,  and  clarity.  For  these  reasons,  we  kept  this  positioning constant throughout the simulation. We initially decided to advertise our product on the Wilderness Network and the Newspaper, as these media segments reached the greatest number of our niche target audience - outdoor enthusiasts. However, after analyzing our metrics for Return on Marketing, this turned out to be false. We experimented with other media such as the Sports Talk Radio and various  advertising  frequencies.  In  the  end,  we  found  the  Newspaper  by  itself to  be  the  most profitable. During Turn 1, we also implemented a sales promotion within our Direct and High-End Outdoor distribution channels to encourage customers to purchase the product and left it throughout the simulation as it proved to be beneficial.

Initial Marketing Mix:

Product: High-quality backpack for outdoor enthusiasts (features include: a large rectangular model, wide padded straps, waterproofing, advanced material, and a water bottle mesh).

Price: $97

Place: High End Outdoor & Direct

Promotion: Newspaper & Wilderness Cable Network

Final Marketing Mix:

Product: High-quality backpack for outdoor enthusiasts (features include: a large rectangular model, wide padded straps, waterproofing, advanced material, and a water bottle mesh).

Price: $94

Place: High End Outdoor, Direct, Online Discount Retailer, & Department Store

Promotion: Newspaper

5. Competitive Analysis

One of our team's main priorities heading into this simulation was to maintain vital competitive intelligence, as we wanted to be informed on all of our competitors and their decisions. We worked to achieve this goal throughout the simulation by analyzing all the changes our competitors made after every turn. The primary analysis of the market that we performed was price analysis, target segment  analysis,  and  mimicking  spending. We observed price changes, advertising costs, promotional media, and distribution channels of our competitors. By doing so, we achieved a greater understanding of the market and what tactics were successful.

Our competitive intelligence efforts played a huge role in pricing our product. When starting the simulation, we expected to be the only team targeting outdoor enthusiasts; however, we learned of competition from two other teams within the first turn. This reaffirmed our goal to differentiate ourselves  as  a  premium  and  high-quality  brand  and  product,  providing  excellent  features  for  a reasonable price. However, with the progression of the turns, we found our competitors offering lower prices. While we did not want to compromise the quality of our product, we decided to forgo net profit in hopes to price match and increase our sales. We ultimately decided to bring our retail price back up to almost the initial value, as there were no concrete benefits from following our competitors’ suit in terms of pricing.

Another area of focus in our competitive intelligence efforts was the promotional aspect of our marketing mix. With each turn, we analyzed what media our competitors focusing on Outdoor Enthusiasts were using to see if we could implement it to our advantage as well. This led us to test out the  Sports  Talk  Radio  during  one  of the  turns;  however, it  failed to provide the return  on marketing we were hoping for. To analyze the effectiveness of the media, we used the KPI return on marketing which was something we strived to improve. We also analyzed the advertising expenses of our competitors. We learned that our advertising expense was far greater than the other teams (by thousands of dollars), so we lowered our spending to fall within the same range. This change was very beneficial to our team; we began seeing greater returns on marketing and ended the simulation with the third-highest cumulative return.

Competitive intelligence also played into the place aspect of our marketing mix.  Starting the simulation, we had decided to only distribute our product within the High End Outdoor and our Direct channels. Our main reasoning behind this decision was to avoid devaluing or diluting our product. However,  as the turns progressed,  we saw our competitors who also targeted outdoor enthusiasts to generate sales and reach by selling through various distribution channels. Seeing this helped our willingness to distribute in other locations, and we also added the Online Discount Retailer and the Department Store to our channels. This turned out to be a beneficial decision because these two channels made up a significant portion of our revenue.

6. Lessons Learned

Our biggest challenge in this simulation was navigating the promotional aspects of the marketing mix. Even after selecting mediums that reached a sizable portion of our target audience, we were not necessarily  seeing a positive return on marketing figure, especially through the initial turns. To address this issue, we experimented with various media and frequencies throughout the simulation and, in the end, elected to take a simplistic approach. We used the Newspaper at a 1x frequency, ending with a return on marketing of 14%, which was overall second-highest in Turn 6 (see Figure 3.). From this experience, we learned that spending more does not necessarily equal better results. We  needed  to  keep  our  marketing  expenses  around  $2000  or  under  to  advertise  our  product effectively.

Another challenge we faced was our total costs. By the end of the simulation, we had the highest total costs of all the teams. These increased costs hurt our team because, with such high costs, it was difficult for us to achieve a substantial profit. If we redid the simulation, having lower costs would be a higher priority.

A third challenge we faced was determining an appropriate price for our product. Throughout the simulation, we adjusted the price many times to increase our units sold or net profit. Since we sold the highest quality product, with the greatest average appeal score for our target market, we initially priced our backpack higher than the segment average. However, we reduced the price on multiple occasions to remain competitive and to try to sell more units. However, we found that decreasing the price did not necessarily equate to more sales. For example, in Turn 3, we reduced our price by $3, but our revenue and units sold dropped significantly. In Turn 6, we increased our price by $6, yet our revenue and units sold increased. We learned from this that our pricing strategy affected our bottom line much less than our product and promotion strategy. We learned that our consumers were willing to purchase  our  product  over  competitors  despite  the  higher  price  point.  If we could redo the simulation, we would remain confident in the quality of our product and the strength of our brand by staying firm with our premium pricing strategy, which would have likely equated to a higher net profit.

One of our strengths was our Customer Satisfaction score,  which remained consistent at 39% throughout the simulation, placing us in the lead for this KPI. Since we analyzed what would appeal to our consumers and made sure always to prioritize these critical characteristics and our product’s quality in our decision-making, we were able to achieve and maintain this high score.

Target Market:

Upon reflection, if we were to restart a new game, we believe that a shift within our segmentation, targeting and positioning process may help us improve the overall success of our product within the market. To improve, we could modify our selected market to include another market segment, the commuters market  segment,  and  combine  it with  our  outdoors  segment to make  a product that appeals to both customer groups and expands the total target market. Since we had a 20% segment share by the final turn for a segment we weren’t intentionally targeting, our product had the potential to gain more traction within the commuter segment.

While we will have to modify our niche marketing strategy to appeal to consumers in both market segments, if it were possible in the simulation, adopting a differentiated targeting strategy would be ideal. Unfortunately, it is not possible to have several product variations within MSim.

Marketing Mix:

Product: As part of  the original simulation, we created a high-quality backpack for outdoor enthusiasts. We believe that we would add features that would enhance the user experience for our new targeting  strategy  in  a  new  game.  For  example,  we  could  increase  backpack  capacity  and durability. Current market research would suggest that the commuter’s segment isn’t satisfied with special features, pack size and pack colour, and the product would have to suit both markets instead of one.

Price: We may need to slightly lower the price point to better accommodate the shift in the target market. Currently, our pack is retailing at around $94.00, which is $4.00 above the ideal market price for our original consumer segment. Since the commuters’ customer feedback states that the price point is slightly high for that segment, we will make sure to modify the price to be a little more accessible for both segments. Despite the high price point, we feel that some early purchases from the commuter segment would indicate that the price point isn’t unreasonable to some consumers and that the new target market may be successful.

Place: Place is an element that we believe will not need as much modification. Many of our current distributors already have active customers within the segment, speaking to the potential interest in the product. We are currently within many distribution channels that already contain the revised target market. Depending on the extent of our pricing adjustment, we might add distribution channels such as a high-end store if it makes fiscal sense to do so.

Promotion: In the expansion of our target market, we would likely modify the overall message of our product to better target the mix of customer segments. Our current message explicitly focused on communicating a message to outdoor enthusiasts - “Peak Performance.” While this message was also 33% applicable to other consumers, we’d want to create a more market- inclusive message that would appeal to both customer segments, contributing to our overall mission of driving product profitability. Adding a second keyword may have helped boost our reach within the expanding target market. Our group would also explore a shift in advertising platforms, investigating which ones would yield the best reach towards our new target market and shifting advertising spend towards that.