Volume Discounts and Promotional Allowances
Introduction
Formulating the marketing strategy, which answers the question of “Where do we want to be?” was Team B’s strategy to guarantee the success for Allstar Brands. Throughout the simulation it was necessary to continually adjust this strategy given the challenges introduced each period. Appendix A provides a brief summary of the initial strategy for Allstar Brands and Appendix B provides a table which summarizes the results for each period. This paper provides a thorough review of the decisions made in each category throughout the product life cycles of Allround and Allround+.
Manufacturer’s Suggested Retail Price
Firms continually seek to maximize profits by pricing their products above marginal cost in a way that captures potential consumer surplus as profit (Brickley, Smith, & Zimmerman, 2009). There are numerous ways to price products, but the key is to remain the preferred provider of the good or service being produced and to possess market power that prohibits other competitors from increasing their market share. The only element in the marketing mix that produces revenue for a company is price and this element is the easiest to change (Kotler & Keller, 2012).
It is industry standard to suggest retail prices for retailers. The price that the consumer pays is ultimately set by the retailer and is influenced by volume discounts and promotional allowances which will be discussed in the next section of this paper. At the beginning of the simulation, the manufacturer’s suggested retail price (MSRP) for Allround was higher than the competition but was not effecting sales due to consumer loyalty and the brand’s effectiveness (James, Kinnear, & Deighan, 2014).
Team B’s pricing decisions are summarized in Table C1 (Allround) and Table C2 (Allround+) in Appendix C. In periods 4, 6, and 8 pricing surveys were purchased in order to compare the MSRP of Allround and Allround+ to their direct competition Besthelp for Allround and Coldcure for Allround+. The surveys provided valuable information for pricing decisions. Allround maintained its price leadership position throughout the simulation while Allround+ initially was priced lower than Coldcure to provide an incentive for consumers to try the new brand. In periods 7 and 8 Allround+ was prices slightly higher than Couldcure. Unit sales increased for Allround+ while Allround’s unit sales decreased initially and were up and down towards the end of the simulation. Volume discounts may have contributed to the decrease in sales.
We also found that the best strategy is to adjust each price to the previous year’s inflation rate. This allows Allround to remain competitive while recovering any potential losses due to rising inflation our industry trade-off grid has shown our prices have remained in the optimal zone.
Volume Discounts and Promotional Allowances
Each period we established the MSRP, and then we focused on the overall pricing strategy which included volume discounts and promotional allowances. We, as brand managers, thought sharing discounts and promotions to reward large volume customers, would improve our strategy, as a result profits and stocks failed horribly. With the over the counter cold remedy market, it is common industry practice for drug manufacturers to recommend to retailers what their suggested retail price for their product. However, the final determination of the final product price was made with the consumer in mind instead of profits and stock prices.
We lowered prices for manufacturers in order to provide an additional volume discount to retailers based on the volume quantities of products purchased (James, Kinnear & Deighan 2014). Once the volume discounts were established, there was little to no changes during the entire simulation. The strong brand equity and high demand for the Allround product line resulted in heavy discounting which lead to an eroded profitability. Consequently, pricing was managed primarily at the suggested retail price level once discounts were established.
Advertising Budget
Advertising budget for the Allround brand differed in the different periods of the simulation. Essentially, the total advertising budget was $15 million for the first period, which increased to $16 million for the second period. The budgets for the other periods in a successive manner were $15 million, $15 million, $10 million, $12.6 million, $13 million, $15 million and $15 million. These budgets were relatively similar because of the bigger size of the targeted markets for Allround. Furthermore, since the product was in its maturity stage, it had benefited immensely from economies of scale, a factor that informed the decisions not to increase the advertisement budget substantially.
For the new Allround+ brand, the advertising budget for the first and second periods was $6 million. This gradually increased to $6.5 million in the third and fourth periods while the figure reduced to $6.3 million for the fifth and sixth periods. We decided to increase the advertisement budget for Allround+ since we were still not getting the results that we required from the new product in terms of sales and revenues.
Since we expected to increase the market share and keep abreast of competitors, we also decided to increase the advertisement budget for Allround+ as we progressed through the periods. In addition, there was need to increase the advertising budget for the new product during the successive period in order to create brand awareness among the target market which mainly comprised of children suffering from colds and flu. In deciding the advertisement budget, some of the factors that warranted consideration included the competitive atmosphere, the available funds and the goal of the advertising, which is primarily to increase the awareness of potential customers about the existence of the brands.
The promotion allowance for both brands also had some variations. For the first five periods, the promotion allowance for Allround dropped substantially from 17.0% in the first period to 15.5%, 13.5%, 10.5% and 10.5% in succession. Since many consumers were already aware of this product, we decided that it was not necessary to allocate a majority of the advertisement budget to promotion allowance. For the sixth and seventh periods, the promotion allowance increased to 16.0% while for the period the allowance was 16.1%.
For the Allround+ brand, we decided to allocate promotion allowances in an ascending order, from 10% during the first period of simulation followed by 14.5%, 16% and 17.4% before reducing it to 13.0%. The decision to allocate the promotion allowances in an increasing manner stemmed from the rationale that since the brand was new and in the introduction stage, it would significantly benefit from increased promotion allowance geared towards enhancing brand awareness among the targeted consumers.
Selected Advertising Agency
The advertisement agency chosen for the Allround Brands during all the periods except the third period was Brewster, Maxwell, & Wheeler. For the third period, the agency chosen was Sully and Rogers. We thought that by reducing our advertising cost to a particular agency that we would increase sales for that period. However, we found that cheaper does not always mean better. The rationale for choosing Brewster, Maxwell, & Wheeler stemmed from the fact that the agency is a high cost agency; therefore, it is likely to generate higher quality ads (Kurtz & Boone, 2014). It was responsible for creating, handling and planning all the advertising initiatives at the organization. Moreover, the agency had the responsibility of handling overall branding strategies as well as sales promotions for the organization. As part of the advertising campaign, Brewster, Maxwell, & Wheeler also produced television and radio commercials, conducted mobile marketing, out of home advertising and online advertising. All these forms of advertising are essential for guaranteeing the success of the brands (Kotler & Keller, 2012).
Similarly, for the Allround+, Brewster, Maxwell, & Wheeler was the only advertising agency during all the periods. The team reasoned that the advertising agency would be responsible for commissioning surveys and market research, booking advertising time and providing other services that aid the organization to succeed in the targeted market. It also became apparent that the agency was highly knowledgeable about media placement and other aspects of business strategy, a factor that would be of great benefit to the organization and the Allround+ Brands. The advertisement and logo designed in period 2 can be viewed in Appendix D.
Advertising Messages
The team also placed huge emphasis on the four types of advertising messages. The four types of advertising messages are primary, benefits, comparison, and reminder. The major focus of the advertising and of the advertising strategy was promoting the benefits of the products. For the first year, the percentage of advertisement messages focusing on benefits was 40% for Allround, followed by 44%, 40%, 18%, 28%, 37%, 45%, 30% and 30% respectively for the other periods of the simulation. Some of the major benefits outlined during these periods included; reducing aches, clearing nasal congestion, drying up running nose, suppressing coughing, reducing chest congestion, relieving allergy symptoms and helping patients to rest. For this brand, reminder messages also increased throughout the periods in the hopes that we could retain our current customer base throughout the simulation.
For the new Allround+, the percentages of advertisement messages focusing on benefits in a successive order were 30%, 35%, 35%, 20% and 20%. Apart for the benefits highlighted for Allround, the messages for the new brand also emphasized the absence of severe side effects such as it would cause drowsiness from use of the product. The purpose of this message was to convince consumers about the safety of the product and potentially increase their willingness to try and receive needed rest while they were sick. Reminder advertising did not feature prominently in Allround+ since the product was in the initial phases of the product life cycle. The team did not allocate advertising dollars in an arbitrary manner, but rather based the decisions upon the stage of product life cycle. The stable transition from primary advertising to benefits advertising, comparison advertising, and then reminder advertising can help to yield the most of every advertising dollar (Kurtz & Boone, 2014). Because the product was new, we also decided to focus more on primary advertisement. The allocations for the primary messages were 35%, 30%, 25%, 25%, 20% and 20% for the respective periods. In addition, we decided to cut on sales promotion budget for Allround and allocated much of it to Allround+.
Promotion’s Budget
Allocation to cooperative advertising depended on a variety of factors. For Allround, the cooperative advertising allocations were $1.4M for the first period, followed by $1.5M, $1.5M, $1.6M, $2.5M, $2.7M, $2.0M, $2.0M and $2.0M in the successive simulations. During the first periods of the advertisement, the team decided to increase the allocations because of increased revenue generated from the steadfast sales of the product. There were also many brands willing to engage in cooperative advertising with the company. For Allround+, cooperative advertising allocations were $1.0M in the first period, followed by $1.3M, $1.3M, $1.3M and $750K in the following periods. The need to increase brand awareness for the Allaround+ brand also informed the decision to increase cooperative advertising allocations during the initial periods.
We also considered the three other types of consumer promotions, which included point of purchases, trial size, and coupon for both Allround and Allround+. For the point of purchases, we allocated Allround $1.4M during the first period, and then followed by $1.6M, $1.5M, $2.5M, $3.25M, $3.0M, $2.7M, $3.0M and finally $2.5 during the successive periods. For Allround+, the point of purchases allocation was $2.0M in the first period followed by $2.5, $2,.5M, $2.5M and $1.5M. Through using a variety of communication vehicles including in-store advertising, displays, innovative packaging, and sales persons in the point of purchase for both brands, the company was able to have drastic influence on the buying decisions of the customers.
Noteworthy, during the simulation, we decided to decrease coupons for Allround from $4.0M during the first period to $2.0M during the last period of simulation and increased coupons for Allround+ from $1.0M during the first period to $2.0M during the last period. This was primarily because we wanted to maintain our high conversion ratio with Allround. We also decided to increase trial sizes for the Allround+ brand because we felt that not many customers were trying the new product. Increasing trial sizes would help to motivate more people to sample the product, which would subsequently lead to increased brand awareness and sales. For the last period, we also increased coupons and reduced cooperative advertising and trial size in Allround+ in order to free up the budget and increase advertising due to the poisoning incident for the Allaround brand as a recovery measure.
Through improved conversion ratio and increased performance, the team realized the importance of trial sizes to initiate purchases for the new products such as Allround+. Similarly, coupons proved to be very beneficial for products such as Allround+ that were further on the life cycle. Since we aspired to increase brand awareness for the new product, we also had to increase trial sizes (Kotler & Keller, 2012). It is also important to mention that we also increased the advertising budget for Allround+ substantially as the simulations commenced while simultaneously reducing the budget for the original product because the brand was already well established.
Sales Force
The sales force plays a very important part toward achieving growth in sales and net profits and the success of the brand in the over the counter cold and allergy market. The sales force is responsible for building customer relationships by relationship marketing which can be best defined as constructing a satisfying long term relationship with customers in order to earn and retain their business (Kotler & Keller, 2012). The sales force has close physical proximity to the customers and retailers and can help in communicating the value of Allround and Allround+ (Clark, Rocco, & Bush, 2007). Each period, we decided on how many direct and indirect sales force would be needed. The direct sales force includes independent drug stores, chain drugstores, grocery stores, convenience stores and mass merchandisers. The indirect sales force includes wholesalers, merchandisers, and detailers.
In periods 1, 3, 5, 6, 7, and 8, sales force surveys were purchased in order to compare the allocation against the competition. We had two questions to address when it came to the sales force: how much money to allocate to the sales force and how to allocate and determine which channels and activities to support. The sales force surveys were helpful because they allowed us to understand what our main competitors were doing. The competition that we focused on was Besthelp (B & B Health Care) for Allround and Coldcure (Curall Pharmaceuticals) for Allround+ due to similarities in product features.
We started period 1 with a total of 127 sales force personnel with 94 direct sales force personnel and 14 indirect sales force personnel. At the beginning of the product life cycle, we felt that we did not need to hire many sales force personnel and chose to allocate similar to the competition according to the sales force survey for period one. We slowly increased with each period as the product brand and awareness expanded. We felt that we needed to keep up with product demand and felt that it was logical to slowly increase sales force according to the surveys and recommendation. We ended the simulation with a total of 224 sales force personnel with 149 direct sales force personnel and 75 indirect sales force personnel with the ending of the product life cycle. We utilized the sales force survey, market updates, company sales reports, What If analysis, budget allocation analysis and the company dashboard for Allstar mostly to see whether we should increase or decrease certain areas in the sales force. One of the significant increases that we made to the sales force was from period four to period five which is shown in Table C3. In period five, we received the recommendation that the sales force is below industry norms at 1.6% vs. average 2.8%. We quickly realized that we had to increase the sales force if we wanted to make profits. For period five, we decided to increase the total sales force from 109 to 177.
We realized that our indirect sales force was way below norm according to the sales force survey so we decided to more than triple the indirect sales force from 16 to 58. We realized that the indirect sales force should be increased because they also play a vital role in spreading brand awareness and that there are some missed opportunities to increase net sales. The wholesaler role is to sell to small independent retailers and pharmacies that are not reached by the direct sales force. The merchandisers assist retailers by providing support for their in-store activities and the detailers contact doctors and encourage them to try our brand and recommend it to the patients. With periods five through eight, we decided to slowly increase the sales force but making sure that it was still within range and comparable to our sales and expenditures.
Segmentation
The segmentation was important to consider because we needed to understand who are the target consumers and which target symptoms should we focus on. There were a total of five groups: young singles, young families, mature families, empty nesters, and the retired. For Allround we targeted all of the segments at the beginning of the product life cycle in period one. We felt that it was very important to get our brand name out to as many different segments as possible. We believed that the cold and cough symptom targets would attract the most customers and chose not to spend additional money on the allergy symptom targets based on the Symptoms Reported Publication. According to the social media comments for Allround, consumers expressed that they liked to use Allround for the chest congestion, cough, fever, runny nose and nasal congestion.
For period three, we decided to only target the young singles, young families and mature families because it would allow for us to allocate more money and target the consumers that we felt were most profitable. We believe that the empty nesters and the retired are more likely to go to their doctor for cold and cough medicine. Children are more likely to get sick and spread the illness to their family and thus the parents are more likely to buy at a grocery store and other retailers. Eventually, in period six, we learned that we should also change our target symptoms to include all: cold, cough and allergy target symptoms because we noticed that our competitors were doing targeting all the symptom targets and their profits were increasing at a higher rate than our brand. In period four, Allround+ was introduced. For Allround+ we targeted young families and mature families since this was a cold medicine for children and only these two segments have children in their household. We chose to target cold and cough symptom targets because we felt that these symptoms were going to attract the most customers according to the Symptoms Reported Publication.
Line Extensions
In period four, we had a line extension of Allround+. We decided that Allround+ would be a child four hour cold liquid medicine. We felt that for children it would be easier to swallow a liquid than to swallow a pill and that there needed to be a separate cold medicine for children since adult cold medicine may be too strong for children. We believed that there is a market for this type of product. Also in period three, we had realized that the children’s liquid cold medicine would lead to the least amount of cannibalism of the Allround brand. In addition, there was a recent entry of Coldcure and we felt that the children’s liquid cold medicine would be a good counter to Coldcure.
Cumulative Net Income and Stock Price
The marketing task of the Allround brand management team was to maintain long-term profitability and market share in an increasingly competitive and changing environment. With great enthusiasm, Team B set out to do the job. Each member had separate assignments, but all were concerned with the performance of the Allround brand and any new brands that might be forthcoming. The group continually kept in mind that all decisions are interrelated and must be considered in context. Net income and stock price are good benchmarks to compare performance over the product life cycle. Table C4 in Appendix C summarizes net income, cummulative net income and stock price for each period. The changes in net income and the stock price are illustrated in graph format in Appendix B.
The Future of Allround Brands
We have learned it is important to increase the advertising budgets proportionally every year. A large increase is not necessary because all of the products have been on the market for a while and it is more important to increase your sales force every year. As products get older, it is better to take money away from product displays and co-op advertising and put it into coupons. Allround is a more mature product. We have found that co-op advertising is a waste of money. Only about one percent of the sales population utilized co-op advertising. Trial sizes are only necessary early in the life of a product.
Despite the drop in stock price during periods 2, 3, and 4, the future of Allstar Brands is optimistic moving forward. The late reformulation of the Allround product line adding an expectorant demonstrated solid performance and the team will continue to monitor its progress. The Allstar Brands product is projected and trending to increase overall success going forward. Allround will continue to generate strong cash flow. It has been reported that there is a lack of consumer promotion for Allround and the team will continue to monitor this moving forward to maintain sales. The recent “Product Tampering” scare was handled effectively and did not have a significant impact on sales. Going forward we are optimistic because our retail sales grew by $224.8 million, or 6.7%.
Conclusion
Our PharmaSim marketing strategy, began with answering the question of “Where do we want to be?” This was an important part of the success of the marketing plan for Allstar Brands. Our primary brand for the marketing initiative was Allround Brand, which did not show the success that we initially planned. We had a great 2nd year/period that was followed by 3 bad years/periods that were the result of bad decisions. The next 3 years/periods we began to make better decisions that increased profits and stocks. Instead of increasing the company’s profitability and market share for the 8th year/period we fell a bit short. Our brand management team had the task of making decisions and managing resources for the key areas of advertising, sales force allocation, promotions, and pricing. Sticking to the initial strategy plan proved to be unsuccessful in the long run. Our execution only became successful towards the end because we began to focus on the company and the challenges that were presented within each period of the simulation.
References
Brickley, J. A., Smith, C. W., & Zimmerman, J. L. (2009). Managerial Economics and Organizational Architecture. New York: McGraw Hill.
Clark, P., Rocco, R. & Bush, A. (2007). Sales Force Automation Systems and Sales Force
Productivity: Critical Issues and Research Agenda. Journal of Relationship Marketing. 6(2). Retrieved from http://web.b.ebscohost.com.ezproxy.saintleo.edu/ehost/pdfviewer/pdfviewer?vid=11&sid=65bee642-510c-44cf-93eb-6ee6efb388f7%40sessionmgr105&hid=116
James, S., Kinnear, T., & Deighan, M. (2014). PharmaSim: The Marketing Management Simulation. Charlottesville: Interpretivesimulations.
Holbert, Kenny. (2013) Retrieved from: http://kenhmk640.blogspot.com/
Kotler, P., & Keller, K. (2012). Marketing management (14 ed.). Upper Saddle River, NJ: Pearson Prentice Hall.
Kurtz, D., & Boone, L. (2014). Contemporary Marketing. Boston, MA: Cengage Learning.
Appendix A
Initial Strategy Report
Formulating the marketing strategy, which answers the question of “Where do we want to be?” is an important undertaking that will aid to guarantee the success of the marketing plan for Allstar Brands. The primary brand targeted for the marketing initiative is the Allround Brand, which has shown great potential for increasing the company’s profitability and market share. From the case study, it is apparent that Allround has the highest ‘unaided awareness’ among consumers, with a 74.1% rating (PharmaSim Student Manual, 2006, p. 6). The major target segment will include consumers from the developed nations including the US and the EU as well as customers from emerging countries who depend on the over-the-counter cold medication. Because the global operations of the company have been hugely successful in EU countries, the Pharmaceuticals Division can leverage on this advantage to make more introductions of Allround among this segment of consumers, thereby increasing market share.
Similarly, diversifying into emerging markets will aid to tap new consumers, which is consistent with Allstar’s goal of expanding market share in increasing competitive environments. Noteworthy, the rapid economic growth in emerging countries such as those in the BRICs block have meant that consumers have higher purchasing and spending power. Hence, these are indeed lucrative markets for Allstar products. The drug also targets individuals from all racial background since they are all susceptible to developing colds and allergies. In addition, it targets customers from all income brackets because the OTC medications manufactured by Allstar including the Allround medication are considerably cost-effective. For instance, the recommended retail price for the brand is $5.29, which is relatively affordable to most consumers in the developed nations and in the emerging countries (PharmaSim Student Manual, 2006, p. 7). For the Allround Brand, the company will primarily target families in need of effective and quick relief from cold symptoms. This is because the remedy works on a 4-hour dosage and relieves the symptoms faster as compared to many similar products in the market.
In order to appeal to the needs of the targeted segments and enhance brand awareness, Allstar will embark on vibrant advertisement and promotional campaigns using both traditional mediums and new mediums such as internet/social media advertisement. Continued emphasis on research and development (R&D) is also an important component of the marketing strategy since it will ensure that the pharmaceutical company continues to develop superior products that have minimal side effects. Through this, the company will be able to create high brand awareness and shape consumer’s perceptions about the brand, a factor that will subsequently translate to increased market share (PharmaSim Student Manual, 2006, p. 11). Moreover, extensive R&D will ultimately help in addressing the consumers’ needs for improved product safety. Allstar Brands aspires to sell the OTC cold and allergy medications retail in grocery stores, drugstores and to mass merchandisers. By channel, the grocery stores have registered the highest consumer purchases; therefore, this will be the best channel to sell the products to the targeted consumers and segments. Cumulatively, an ingenious marketing strategy will aid to beat stiff competition from industry rivals such as B&B Health Care, Driscol Corporation, Curall Pharmaceuticals and Ethik Incorporated. See Appendix A for more information about Allstar.
Rationale
The primary segment that Allround aims to attract includes consumers from the developed nations including the US and the EU, and also consumers from emerging countries who depend on the over-the-counter cold medication. All customers segments will be closely watched and focused on and this includes young singles, young families, mature families, empty nesters, and the retired because there is a need for cold medication for people regardless of their phase of life or living situation (PharmaSim Student Manual, 2006, p. 13). It is also important to note that each customer will exhibit different buyer behavior in their decision on which brand of cold medicine to purchase. Some customers like the retired individuals may focus more on price since they live on a limited income, but young families may focus on the relief of symptoms as a factor in the decision making process since their children may have varied symptoms (PharmaSim Student Manual, 2006, p. 15).
Competitive Advantage
There are four firms that compete directly with AllStar Brands in the over the counter (OTC) cold and allergy market. The competition is: B&B Health Care, Curall Pharmaceuticals, Driscol Corporation, and Ethik Incorporated. AllStar Brands produces Allround, a 4-hr multi-symptom cold liquid. Retail sales place Allround second behind Ethik Incorporated by approximately $40 million. While the brand management team is pleased with these results, their goal is to outperform their competitors and gain a higher share of the market. The Allround brand contains an analgesic, an antihistamine, a decongestant, a cough suppressant, and alcohol. Customers prefer to use Allround at night because the strength of the medication helps them rest. Allround is viewed as one of the most effective brands treating multi-symptoms on the market, providing Allround a competitive advantage in this category of OTC cold medications (James, Kinnear, & Deighan, 2014, p. 16).
While Allround is the preferred medication for consumers with multi-symptoms, many consumers and physicians argue that patients are often over medicated when using multi-symptom products (James, Kinnear, & Deighan, 2014, p. 17). In addition, the alcohol in Allround causes drowsiness in some patients. In order to gain market share from its competitors, AllStar Brands must take advantage of the brand recognition it has previously established and develop products that target more specific symptoms. There is also opportunity to develop a capsule form of the medication. A recent survey indicates that capsules are often preferred by consumers over liquid (James, Kinnear, & Deighan, 2014, p. 17).
Because Allround is labeled as multi-symptom cold medication, it falls into the cold category. After a thorough review of the market share data, there is opportunity to capture market share in the cough, allergy and nasal categories. See table 1 below (James, Kinnear, & Deighan, 2014, p. 18).
Table 1
The brand management team recommends the purchase of survey information offered by a national marketing research firm which will provide a more thorough report of information regarding the use of allergy and cold medication. In addition, the report will provide demographic information that might provide insightful information regarding who is purchasing these products. The team suspects that there are segments of the market that are not being reached and as the team considers opportunities for development of new products there may be opportunities in specific demographics. The cost of the survey is $100,000. The team is requesting consideration for the purchase of this information within the next few years to assist in their future decision making (James, Kinnear, & Deighan, 2014, p. 19) .
Brand awareness is very high for Allround. In addition, consumers are more likely to mention the brand when questioned about cold medications. However, the team is concerned about the brand’s retention ratio because it was lower than other brands. This may be because brands who target specific symptoms are more likely to be repurchased over multi-symptom brands like Allround. Again, the team sees opportunity for AllStar Brands by taking advantage of the brand’s awareness among consumers and creating a product that targets more specific symptoms for targeted demographics (James, Kinnear, & Deighan, 2014, p. 20).
Performance Objectives
A company must understand their position in the market before determining their metrics. It is important to understand who your customers are and what your position is in the market. Allround is the market leader is over the counter cold medicines so using market share as a metric would make sense (James, Kinnear, & Deighan, 2014).
Completing the competitive analysis will provide our team with a complete understanding of our position in PharmaSim. Determining a better pricing strategy may help to increase profits. Since the situation analysis allows the purchase of marketing reports, data will be provided to use in the decision making processes. The reported symptoms, brand perception and purchasing decisions reports will provide information on how to better understand how the customers picked a product and how we can better address our target market (James, Kinnear, & Deighan, 2014).. The most important decision the team will have to make in PharamSim is price. If the price is increased, the team predicts a rise in revenue, gross margin and net income. Selling Allround at the low price will create operating over capacity by 2- 17%. This increases costs of goods sold tremendously and decreases gross margin and net income. With the higher price, unit sales and gross margin will decrease. This allow for a better bottom line. In the first four periods the team must sell high, and then moderate, then low it is very important to our strategy (Holbert, 2013).
Next, marketing and innovation produce results and all other aspects are costs. Making sure the team stays on schedule and within costs keeps our customers satisfied. There are various aspects of innovation during the project that can help us tackle obstacles. Marketing and innovation during the project will contribute to the success of the team (Holbert, 2013).
When bringing new products to the market there are two useful strategies. First is the skimming strategy. Second is the penetration strategy. Skimming is the process of pricing a new product high when it first enters the market and then lower the price overtime. (Holbert, 2013). This strategy could work when introducing a new product to market. Next is the penetration strategy. This strategy is the process of bringing a new product to the market where a competitor’s product is very similar (James, Kinnear, & Deighan, 2014). Using this strategy, will allow Allround to steal customers from our competition.
Net marketing contribution is a measure of contribution to company profits after marketing and sales expenses are accounted for. The net marketing contribution formula is NMC = Market demand, Market share, Selling price, Consumer demand, Margin percentage, and Marketing expenses. Different pricing strategies will affect how a company views their NMC (Holbert, 2013). Companies using a pricing strategy of profit oriented will analyze the entire NMC and look for higher contributions. Sales oriented companies will look for a high market share. Companies that are customer oriented will look at market demand and market share while competitor oriented companies will look at market share and selling price (James, Kinnear, & Deighan, 2014). Based on the company’s pricing strategy the NMC will be different. The NMC will be used to determine if the marketing strategy can cover the total costs associated with marketing, advertising and sales (Holbert, 2013).
Key Success Factors
The Allround brand will continue to be successful in the US and EU markets by continuing to reach customers from all income brackets. The OTC medications manufactured by Allstar including the Allround medication, are considerably cost-effective. By continuing with a retail price for our brand at $5.29, the company can remain affordable to most consumers in the developed nations and in the emerging countries (PharmaSim Student Manual, 2006, p. 7). By maintaining the focus on supplying a great quality product, the sales profit is forecasted of $400 million next year. The company will still intend on remaining leaders with the 4-hr cold liquid and will begin to challenge Ethik Inc. in the next few years when it comes to nasal spray, 12-hour capsule, and maybe even an allergy capsule.
Conclusion
The company has the technology, tenacity, skills and experience to achieve and surpass period 1 sales levels. The company’s promotional campaign is designed to target Mega markets that are interested in selling the product and maintaining a business venture as well as other products that will be explored to develop a business plan to see how that affects the bottom line. These entities will provide the power to generate revenue through multiple locations to all consumer segments. The greater number of stores will ultimately dictate the price that can be charged to sponsors for placing advertisements on the company’s Web Site.
Appendix B
Summary of the Decision Results from Each Period (Table and Graphs)
| Period Complete | Manufacturer Sales (millions$) | Cum. Manufacturer Sales (millions$) | Net Income (millions$) | Cum. Net Income (millions$) | Share of Manufacturer Sales (%) | Stock Price ($) |
| 1 | $411 | $766 | $112 | $179 | 22.1 | $49.94 |
| 2 | $342 | $1,109 | $75 | $254 | 18.3 | $31.03 |
| 3 | $300 | $1,409 | $58 | $312 | 15.3 | $21.33 |
| 4 | $334 | $1,743 | $46 | $358 | 16.2 | $22.47 |
| 5 | $429 | $2,172 | $78 | $436 | 18.6 | $36.11 |
| 6 | $458 | $2,630 | $89 | $525 | 18.9 | $40.13 |
| 7 | $479 | $3,109 | $109 | $634 | 18.6 | $42.13 |
| 8 | $489 | $3,598 | $99 | $733 | 17.8 | $40.42 |
Note: The information in the table summarizes the results of the decisions made throughout the simulation.
Appendix C
Table C1
| Allround Pricing Decisions | |||
| Est. Unit Cost | MSRP | Unit Sales (mill) | |
| Period 1 | $1.24 | $5.75 | 107.1 |
| Period 2 | $1.27 | $5.80 | 92.3 |
| Period 3 | $1.31 | $5.87 | 80.2 |
| Period 4 * | $1.37 | $5.25 | 89.4 |
| Period 5 | $1.43 | $5.45 | 93.7 |
| Period 6 * | $1.47 | $5.89 | 89.9 |
| Period 7 | $1.51 | $5.99 | 78.1 |
| Period 8 * | $1.71 | $6.40 | 80.7 |
Note: The information in the table summarizes pricing decisions for Allround and the effects of these decisions on unit sales. Pricing surveys were purchased in periods 4, 6, and 7 (*).
Table C2
| Allround+ Pricing Decisions | |||
| Est. Unit Cost | MSRP | Unit Sales (mill) | |
| Period 1 | |||
| Period 2 | |||
| Period 3 | |||
| Period 4 * | $1.15 | $5.40 | 6.4 |
| Period 5 | $1.20 | $5.40 | 15.9 |
| Period 6 * | $1.24 | $6.09 | 20.9 |
| Period 7 | $1.27 | $6.39 | 24.6 |
| Period 8 * | $1.33 | $6.30 | 27.5 |
Note: The information in the table summarizes pricing decisions for Allround+ and the effects of these decisions on unit sales. Pricing surveys were purchased in periods 4, 6, and 7 (*).
Table C3
| Sales Force Decisions | |||
| Sales Force Total | Direct Sales Force | Indirect Sales Force | |
| Period 1* | 108 | 94 | 14 |
| Period 2 | 100 | 84 | 16 |
| Period 3* | 133 | 111 | 22 |
| Period 4 | 109 | 93 | 16 |
| Period 5* | 177 | 119 | 58 |
| Period 6* | 221 | 138 | 83 |
| Period 7* | 215 | 140 | 75 |
| Period 8* | 224 | 149 | 75 |
Note: The information in the table summarizes sales force decisions for Allround. Sales force surveys were purchased in periods 1, 3, 5, 6, 7, and 8 (*).
Table C4
| Summary of Net Income and Stock Price | |||
| Net Income (millions$) | Cum. Net Income (millions$) | Stock Price ($) | |
| Period 1 | $112 | $179 | $49.94 |
| Period 2 | $75 | $254 | $31.03 |
| Period 3 | $58 | $312 | $21.33 |
| Period 4 | $46 | $358 | $22.47 |
| Period 5 | $78 | $436 | $36.11 |
| Period 6 | $89 | $525 | $40.13 |
| Period 7 | $109 | $634 | $42.13 |
| Period 8 | $99 | $733 | $40.42 |
Note: The information in the table summarizes net income, cummulative net income and stock price.
Appendix D
Advertisement and Logo for Allround in Period 2