MarketingSimulations.

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Introducing Hands-on Training into the Marketing Classroom

Marketing Management Simulation (MMS)

 

Purpose of the Simulation:

Marketing Management Simulator (MMS) is a marketing simulation program that allows marketing
students to take on the role of brand managers in charge of launching a new generation of anti-
pirate systems for small boats.  Students will make a sequence of decisions managing the
company’s marketing activities over a pre-specified time period.  They will determine pricing,
advertising, and promotional activities of the product.  They will also be provided with competitive
intelligence to inform their marketing decisions. 

Marketing Courses in Which MMS is Typically Used:

Marketing Management, Consumer Behavior, Marketing Strategy, Pricing.

Company Background:

The worldwide growth of pirate activities on international waters has given rise to concerns over the
financial and human impact of pirates.  It is estimated that every year approximately 500 vessels
are attacked and/or boarded by pirates.  In many cases human lives are lost in the process.  The
targets can range from large oil-containers to small vessels carrying families on their vacation trips
from coast to coast.  Furthermore, unlike ground-based transportation which takes place along
predictable paths on roads, the geographic dispersion of water vessels on the sea surface makes the
task of law enforcement a challenging one.  Dozens of human lives and well over $100 mil. are lost
every year due to pirate activities.  For this reason, most large corporations operating commercial
vessels have developed their own defensive systems against pirate activities, including the hiring of
private armies and the arming of their crew with heavy weapons.  While large commercial vessels
can have access to private security services to combat piracy, owners of smaller commercial and
private vessels do not have such resources.  For this reason, the ability to avoid pirates, and to
alarm other vessels in case of potential intrusion activity is critical to the survival of small privately
owned vessel operators. 

One of the most challenging tasks in combating pirate activity is detection.  The ability to anticipate
if a nearby vessel has hostile intentions would allow the boat captain to take evasive actions and if
needed to notify authorities in order to prevent the boarding of the boat by pirates.  Much of the
detection has to be carried out by the radar operator of the boat or by spotters utilizing binoculars,
or through movement detectors installed on the sides of the boat.  The operator-based and spotter-
based approaches described are often very inefficient, labor intensive and can result in
misidentification of vessels as pirates.  The alternative approach of using sonar and infra-red
movement detectors ranges in cost from $200-$1,500 per vessel.  These devices can be installed to
detect the movement of other boats within a 20 foot range of the boat.  While affordable, these
devices are often ineffective since they would typically alarm the operator too late in order to allow
for preventive measures to avoid the boarding of the boat by the intruders.   

To facilitate more efficient and effective detection of pirates, your company VeslEx has introduced
PirateEye.  It is an electronic device placed on small boats, typically in the range of 25-60ft in length
which alerts the boat captain of pirate movements within a specific radius of the vessel.  The
technology used in PirateEye was developed by a defense contractor in the United Kingdom and has
been patented under the label XnO.  The XnO technology connects to the radar system of a small
boat and allows the detection of potential pirate activities in a 5 mile radius.  Only two
manufacturers have been provided with the worldwide license to sell XnO-based anti-pirate products
-- your company VeslEx and a German company by the name of Hendrics Mobile (HM). 

VeslEx and Hendrics Mobile compete for the worldwide market for XnO-based anti-pirate systems. 
The two companies are the only to have been provided with the license to use this unique
technology and no other competitors are allowed into this market using XnO technology for at least
15 years, based on the licensing contract both companies have secured with the UK-based patent
holder.  Industry experts believe XnO to be the state-of-the art for pirate detection for many years to
come.  The trade name for PirateEye's competing product made by Hendrics Mobile is HM5000. 
Since both products use the same underlying technology their features and capabilities are
equivalent.  Both products are targeting ocean-bound boats in the range of 25-60ft length. 
Approximately 650,000 vessels that can be considered in this specifc target market exist worldwide. 

In its physical appearance, PirateEye looks very similar to a small desktop computer.  It connects
directly to the output lines of most radar systems used on water vessels.  The unique aspect of the
XnO technology used is its ability to detect unusual movements in nearby vessels.  Once connected
to the boat's radar system, the computer algorithm and electronics of PirateEye allow it to look for
patterns of movement that resemble the activities of pirate boats.  These patterns have been
preprogrammed into the system software based on law enforcement data and private studies of
such movements.  In addition, through a satellite link, PirateEye is able to update its algorithms and
more importantly obtain minute-by-minute alerts about pirate activities in the vicinity of the vessel.

 Marketing:

The target market for PirateEye are small boats, typically in the range of 25-60ft in length.  These
boats can cost anywhere between $80,000 to $750,000.  PirateEye is distributed through two
channels.  One channel consists of boat dealers who sell new or pre-owned boats.  These dealers
can be found in the larger coastal cities of most countries.  The other channel is  the network of
water vessel repair shops who maintain and upgrade equipment on boats.  The repair shops are
dispersed globally and are present in most marinas across the world, some with only a few repair
staff and others with as many as dozens of engineers and technicians.  VeslEx does not sell any of
its products, including PirateEye directly to boat owners in order to avoid compromising its
relationship with existing distributors.  However, to facilitate the selling process of PirateEye, VeslEx
has a sales force committed to the selling of PirateEye.  The sales staff visit various dealers and
repair shops and demonstrate the product in order to encourage the distributors to promote
PirateEye to their customers.  The sales force currently consists of sales people who visit the various
dealers and repair shops and sell PirateEye as well as other marine products carried by VeslEx. 

The sales staff are paid on a salary-basis, and the sales cost to PirateEye is a function of the amount
of effort and time a salesperson dedicates to selling PirateEye, often reflected in the number of
hours or days of work required, and is quantified as a dollar figure reflecting the portion of the
salesperson's salary dedicated to the selling of PirateEye.  The sales effort for  PirateEye can be
expanded by requesting the sales department to allocate more selling time to the product, and
compensating the sales department for such efforts.  The company policy is to ensure sufficient
sales effort is at work for PirateEye and to never reduce the sales force commitment below a
spending level of $50,000 per decision period (year).  This is done in order to assure sufficient
market exposure exists and that quality service is provided to PirateEye's distributors.

In addition to the sales force, VeslEx recently secured a large radio advertising agreement with a US-
based ad agency.  While the company's policies prevent the use of print advertising, recent hiring of
a marketing executive facilitated the brokering of a deal in which VeslEx has the option of using
radio spot ads to promote its many marine-based products, including PirateEye.  The ads typically
are 15 seconds long.  The radio commercial developed by the ad agency for PirateEye begins by
describing the distressed situation that a boat captain may face when the boat is being approached
by pirates.  The ad then provides the worldwide statistics on the incidents of piracy.  It then delivers
the pitch line, "PirateEye is your eye" and concludes with the 1-800 number for VeslEx.  The ad
agency can air the commercial on up to 250 radio stations in the United States and 3 English-
speaking European countries.  On average each 15 second ad will cost VeslEx $4,000 to air, and the
ad agency can find the best radio stations and times to run it on.

In addition to the radio commercials, PirateEye can be promoted through trade and consumer
promotions.  Trade promotions are incentives given to the distributors to more assertively promote
PirateEye.  For example, a boat dealer may be provided with a $5,000 lump sum payment in order to
place a product display of PirateEye in a prominent part of the sales showroom.  Prospective boat
buyers may then see the display and inquire about the product, resulting in additional sales of
PirateEye.  Consumer promotions are promotions directly targeting the end buyers of PirateEye.  For
example, $50 coupons can be mailed to the owner of a boat to incentivize her to have a PirateEye
unit installed on her boat. 

Costs:

The licensing agreement for PirateEye has already been secured by VeslEx for a 15 year period. 
Since this agreement provides access to the XnO technology, there are no product development
costs associated with PirateEye.  However, fixed and variable costs related to the production of the
units exist.  The unit manufacturing cost of a single PirateEye unit is $810 and the fixed costs
associated with the product, including management salaries and office resources are estimated at
$600,000 per year.  At the time of the initial launch of PirateEye, the brand management team is
provided with an additional $250,000 as the annual marketing budget, which can be used to secure
advertising, pay for the sales force, and fund consumer and trade promotions.  This budget can
expand or shrink from one year to the next, depending on the market performance and profitability
of PirateEye.

Competition:

PirateEye and its only direct competitor, HM5000 are being launched at the exact same time.  The
managers at Hendrics Mobile, the manufacturer of HM5000 are methodical marketers who spend a
great deal of effort in planning out and executing aggressive marketing strategies.  In some markets
Hendrics has overtaken all competition, and at times it has been warned by several regulatory
bodies in Europe about its aggressive marketing practices in marine technology product markets. 
The company heavily utilizes marketing means such as its highly trained and motivated sales force
and large advertising budget to inform potential buyers of the range of products it offers.  Similar to
VeslEx it has worldwide distribution in over 100 countries.

Market intelligence collected by consultants suggests that the HM5000 will be launched for the first
year at a price of approximately $1,900.  As you plan out your decisions, you have to determine
what you will price PirateEye for its launch year.  You will have to also determine your budgets for
advertising , trade promotions and consumer promotions, as well as your sales force spending level. 
As you proceed from one decision period (year) to the next, you will be able to observe the activities
of your competitor.  Also, as you manage this business, it is essential that you maintain a minimum
level of market share with respect to HM5000.  Senior management require that your average
market share (across all the years) should be at least 20%.   

Logging on and the Main Menu

In order to start MMS click on the green "Run Marketing Management Simulator" button at the
bottom of this page.  You may be prompted several times for various add-on software downloads
and prerequisites which are required to run the simulation.  This process may take several minutes
(as long as 10 minutes) to complete.  Having responded to these prompts you will then be able to
enter the simulation’s log-in page, as shown below.  Please enter your name and any team
members’ names (note that the simulation allows up to seven individuals to participate as part of
the team; however if your team has less than seven members, or if you are working on your own,
you can also proceed to use the simulation). If you have more than seven team members you can
insert multiple names in each text box.  Please note that entering names is optional and you can
proceed without entering any names into the provided boxes.  However it allows you and your
instructor to keep track of your results at the simulation end-point when a summary report is
produced.  You must also select the number of years (decision cycles) you will be running the
simulation for.  The default is 8 years.  Please consult your instructor if a different number of years is
being used for your class. 
 Once you have pressed the “Accept” button, the Main Menu of the simulation will appear. 

Main Menu of the Simulation

Having logged on to the simulation, you will have access to the Main Menu.  From this menu, you will
be able to take the following five actions:

(1)   View the General Market Information report for this year.

(2)   View the Last Year's Income Statement.

(3)   View the Competitive Information report for this year.

(4)   View the Last Year's Decisions.

(5)  Enter your decisions for the current year, and by doing so proceed to the next
year.

 
 

 Entering Your Decisions:

Your task is to manage the marketing of PrivateEye.  To do so, each year (decision period), you will
be making the following decisions:

1. The Price of PrivateEye: This figure can range from a low of $250 to a high of
$5,000.  In setting the price you need to consider your costs, your overall competitive
strategy, your competitor's prices, and the market segments you intend to appeal to. 
The price reflects the selling price to dealers and third parties that eventually resell
the product to boat owners.
 
2. Advertising Budget.  This amount can range from a low of $1,000 per year to a high
of $250,000.  While you have control over the budget, you do not have control over
the creative components of the radio commercials and the selling propositions used,
as these are determined by the ad agency.  
 
3. Trade Promotions.  This figure reflects the total amount of financial incentives that
you provide to your distributors for promoting PirateEye to their customers.
 
4. Consumer Promotions.  This figure reflects the total amount of financial incentives
you provide directly to boat owners for installing PirateEye on their vessel.  An
example would be a $50 coupon or discount voucher mailed to a boat owner for future
purchase of a PirateEye system at a participating dealer.  
 
5. Sales Force Costs.  This figure reflects the amount of effort allocated to the selling
of PirateEye by the sales department at VeselEx.  This figure can range from a low of
$50,000 (minimum allowable sales effort based on company policies) to a high of
$250,000 (subject to marketing budget availability).
It is important to recognize that the total amount of marketing spending (sum of items 2 through 5)
is determined by your Marketing Budget.  This budget starts at $250,000 at the beginning of the
simulation and may shrink or grow as you proceed, depending on your profitability from year to
year.   

The exhibit below shows the layout of the Decision Input Screen:

  

Sources of Market Information:

From the Main Menu, you have access to the following pieces of information:

General Market Information:  Every year, you can obtain general information

about the market that you and your competitor operate in.  This information -- a
sample of which is shown below -- includes total market size, unit sales by you and
your competitor, as well as your market share.   
Competitive Information:  You will have access to HM5000's marketing decisions
through the Competitive Information button from the Main Menu.  A sample output is
shown below.  As can be seen, information related to the pricing, advertising, and
other marketing aspects of your competitor’s strategy can be accessed for each
year.  

Last Year's Decisions:  In order to revisit information related to your decisions in

the most recent year, you can utilize the Last Year's Decisions  button from the Main
Menu (sample shown below). 

   

Last Year's Income Statement:  In order to examine the financial impact of your
marketing decisions, you can access a simplified income statement for the previous
year, as shown below.   
Output of the Results:

The simulation output generated for each year includes both financial and market performance
measures.  Financial information such as revenues, profits and ROI will be shown.  In addition,
market performance measures such as unit sales and market share will be produced, as shown in
the sample output below.  Some of these items can also be accessed through the Competitive
Information and the Income Statement buttons from the Main Menu of the simulation. 

In addition, at the very end of the simulation (after completing all decision cycles), a summary
screen will appear which will report your overall results (cumulative profits, market share, etc.) for
the entire simulation, as well as your year-by-year decision history.  You should make a copy the
contents of this report for your records by cutting and pasting the contents into a Mircosoft Word file
and/or an email message.  You should also email a copy to your instructor.  The entire box from the
very top to the very bottom needs to be copied as it contains the necessary diagnostic information
for you and your instructor.

Tracking Your Decisions and Performance:

In order to record your thought process and sequence of decisions, the Decision Information
Table included in the Appendix (link provided at the bottom of this page) must be used.  For each
year, please keep a log of your decisions, your team’s underlying motivation behind these decisions,
and record the relevant results of the decisions.  The resulting information will help you and your
team develop a coherent presentation reflecting your thought process and your use of the market
information provided in the simulation.  
 

Your Objective:

Your objective in this simulation is to maximize your cumulative net income, subject to a minimum
of 20% market share averaged across all the decision periods).  When run in a competitive setting
(with other students/teams competing), the team that generates the highest cumulative net income
(net income summed across all the decision periods, subject to 20% market share requirement)
would be the winning team.  The cumulative net income and average market share are generated as
part of the final summary output of the simulation.

Running MMS

Please consult your systems administrator to ensure the .NET framework is installed or that you
have administrator-level access that would enable software updates and .NET prerequisites to be
installed on your computer.  Depending on the version of the operating system running on your
computer, you may need to install the Microsoft NET Framework software before running the
simulations posted on this site.  Users utilizing Mac systems must first install Windows emulation
software such as the Parallels system along with Windows to run this simulation.   For additional
guidance on running Windows applications on Mac computers please consult the Apple web site. 
You can then follow the link bellow to run the Marketing Management Simulator.