Pharmasim

Decision-Making

in PharmaSim

MARK4210 Spring 2014, L1/L2

2

Marketing Planning

Situation Analysis Use company reports and marketing research to better understand your current position. Uncover problems and opportunities.

Marketing Selection How will we segment the market? What are the characteristics of each segment? Who and how should we target?

Marketing Mix Specifics decisions: products, price, sales force, promotion, advertising budget and message?

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3Cs: Customers

• Nature of Demand

– What benefits do they want?

– Where do they buy?

– What criteria do they go by?

• Extent of Demand

– Market size and growth

– Market penetration and average usage

• Analyze on both an aggregate level and a segmented

basis

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3Cs: Competitors

• Track your competitors’ marketing mix decisions and

competitive position

• Whether you should benchmark with your competitor or

not?

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3Cs: Company

• Think about your products

– How well are they doing (e.g., sales, market share,

contribution)

– How do your consumers perceive your products (e.g., brand

awareness, perception, satisfaction)

• Your budget is based on your overall performance in

the last period – leftover budget is only carried over to

next period as net income (not carried over to new

budget)

• How well is your management team doing? How do you

divide workload? How do you make decisions?

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Segmentation, Targeting, Positioning

• Segmentation

– Life stage and benefits sought

– What are the characteristics of different segments?

– (e.g., decision criteria, brand perception, price sensitivity,

etc.)

• Targeting

– Which segment(s) to target?

• Positioning

– Price, benefits emphasized

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4Ps: Pricing

MSRP Manufacturer’s Suggested Retail Price

Volume Discounts Discounts (%) to purchaser based on quantity ordered

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4Ps: Pricing

• MSRP (Manufacturer’s Suggested Retail Price)

– Sets a reference price in the minds of consumers & retailers

– Basis for all discounts and allowances (always stated as % of

MSRP)

– Will rarely be the actual selling price

• Volume Discounts

– Provides incentives to purchase a larger quantity

– Provides larger discounts to more important, high volume,

channels

– Discount reflects % off MSRP

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4Ps: Pricing

• How to Determine Price to Charge?

– Customer (decision criteria, perception, price sensitivity)

– Competition

– Channel

– Economic situation (e.g., inflation)

• Which reports will help you understand these

dimensions?

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4Ps: Pricing

• The Decision Criteria

report under SURVEY

provides insight as to

what is important to

the customer when

choosing a particular

brand

• This report is

available on a cross-

section basis

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4Ps: Pricing

• Tradeoffs report under

SURVEY illustrates how

customers view the

trade-off between price

and symptom relief

• Remember, you do not

necessarily have to be

on the line – depends on

your positioning

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4Ps: Pricing

• Test Market study

(under Market)

estimates the impact

of changing price,

advertising and/or

promotion on

awareness, market

share & net

contribution

• Note that Test Market

is based on last

period’s decisions and

competition

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4Ps: Pricing

• Pricing Report under

MARKET provides the

MSRP and actual

average retail price in

each channel

• Provides information

on competitor pricing

and channel markups

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4Ps: Pricing

• And do not forget about expected increases in

competitor’s prices and inflation

Average Price Increase for OTC Cold Medication

Inflation Rate Your costs will increase by the general inflation rate

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4Ps: Promotion (Advertising)

Advertising Budget Total budget available for marketing expenditures

Agency Choice of agency and related cost (% of budget)

Target Segments Provides guidance to agency for media choice and message

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4Ps: Promotion (Advertising)

Comparison Choice of one other brand for head to head comparison

Ad Message % of effort allocated to each message type (adds to 100%)

Benefits to Promote Select the benefits to associate with your brand

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4Ps: Promotion (Advertising)

• How to determine advertising budget?

– Consider competition: Advertising Report provides the media

expenditures for each brand on the market

– Consider share of voice: your / industry expenditures

– Consider the marginal benefit of your advertising expenditure

– Test market: estimate the impact of changes in your overall

advertising spending on awareness, market share, net

contribution (Note: competitive & environmental factors, sales

force not considered; based on previous message and targets)

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4Ps: Promotion (Advertising)

• One way to measure

the strength of

advertising vs. in-

store and trade

promotion is to look at

the Purchase

Intentions report

• What does it mean if

intended is higher

than bought?

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4Ps: Promotion (Consumer, Trade)

• How much to allocate to promotion and which

promotional vehicles to emphasize?

– Promotion Report provides a comparison of consumer and trade

promotions used in the market during the past year

– Another approach is to base promotional spending on a % of

sales target

– Whether to emphasize on pull vs. push?

– Remember to monitor the results of your promotion activities

(the Promotion Report under COMPANY)

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4Ps: Promotion (Consumer)

• Consumer promotion (POP display, trial size, coupon)

– When should you use each type? (repurchase vs. trial)

Choose which channels get POP displays and the coupon amount

How much to allocate for POP displays, trial size, and coupons

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4Ps: Promotion (Trade)

• Trade promotion (promotional allowance, co-op

advertising)

– Use Share of Channel sales report under MARKET to see how

your brand / competitors are selling in different channels

– Use Shelf Space report under MARKET to see how your brand’s

shelf space compares with other brands

Co-op Advertising Budget How much to make available to the selected channels

Promotion Allowance Additional discount off MSRP for each channel (must be 10-20%)

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4Ps: Channel

• How to motivate your channel members?

• Which channel(s) should you put emphasis on?

• What’s the role of direct vs. indirect sales

forces?

• What’s the role of doctors and pharmacists?

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4Ps: Channel (Sales force)

Direct Sales Force Number of Sales people who work directly with a particular channel

Indirect Sales Force Wholesale support, merchandisers and detailers

Salary, Expenses and Training Costs are automatically calculated and deducted from your overall budget; also note, the these costs will increase over time due to inflation

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4Ps: Channel (Sales force)

• How much to allocate to sales force and which channels

and activities to support?

– Use the Shopping Habits report to see which channels sell the

highest volume of each type of medicine

– You can also allocate based on your sales volume by channel –

Use the Channel Sales report under MARKET

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4Ps: Channel (Sales force)

x x

93.94M 507.66M

(18.5%)

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4Ps: Product

• You have 4 opportunities to change your

product line:

– Reformulation of Allround in period 1 or 2

– Introduction of a line extension in period 3 or 4

– New product launch in period 5 or 6

– Reformulation of Allround in period 7

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4Ps: Product

• For each product decision, you will have 2 periods to

make your decision, but then that opportunity is gone

• How to choose?

– Market opportunity and consumer needs

– Competition (how is your competitor’s products doing)

– Cannibalization

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Analysis (What if…?)

Don’t forget to check the budget allocation which helps you see at a glance how you’ve allocated budget across products and “Ps”

What if analysis allows you to calculate projected income based on your decisions and projected sales before the simulation is advanced

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PharmaSim Grading

• Performance

– 50% of the PharmaSim grade

– Calculated based Stock price

• Related to both Financials & Market share

– The goal is to maximize overall performance

– Points will be based on performance curve

across the course (ALL sections of Mark4210)

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PharmaSim Grading

• Final Report

– 50% of the PharmaSim grade

– Due: Last class, May 9, beginning of class

– See LMES for details

• ~4 pages report

• Using case concepts and methodologies, provide

rationale for your strategy/decisions (hint: assign

good secretary(s))

• Details to follow

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Grading: Peer Evaluation

• PharmaSim team members rate each

other (excluding self)

– 7 Points (%) to Final Grade

– Based on contribution to team effort

– Anonymous

– Online, details TBA later

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PharmaSim Tips

• Discover market drivers

• Think quantitatively and qualitatively:

understand the reasons & implications behind

the numbers

• But there are unknowns… your job is to make

the best decisions in an

ambiguous environment

• Don’t underestimate the importance

of teamwork

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Key Dates (Round 1)

• March 22 (Sat): Individual Practice End

• PharmaSim Team Live Play Round 1

– March 24 (Mon) @ 7am – April 14 (Mon) @ 8pm

– Periods 0-8; No replays, NO restarts

– Consultations (in class & appointment) ends April 11 (Fri), 6pm

(NOTE: NO consultations in Round 2)

• In-class team discussions (LSKG005) during Round 1

– April 2 (Wed)

– April 4 (Fri)

– Team internal discussions; individual team consultations

• [Round 2, April 22 @ 7am – May 8 @ 8pm; NO replay,

NO restarts, NO consultation]

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Let the Game Begin

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Announcement – Guest Speaker &

Class Schedule Change • Guest Speaker on April 23, Wednesday, 7-

820pm, venue TBA

– Mr. Larry CHAN, Digital Marketing Manager, L’Oreal

– Attendance checked (or valid documented excuse)

– Replaces afternoon session (no class)

• Class schedule (see course website for updated

syllabus) Wed 4.23 TBD Guest Speaker

– Apr 25: PharmaSim, in-class team discussions

– Apr 30: PharmaSim, in-class team discussions

– May 2: Competing in a Global Market

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End of Class

Next Class: March 26, Wednesday

Pricing Strategies