Sunday, April 24, 2011
Company: Thirsty Marketing Co.
Company Goals: 1) Maximize profit; 2) Produce a quality soft drink beverage by creating a solid brand name and establishing customer loyalty.
Type of Market: Monopolistic Competition – Competition within an industry in which multiple firms sell similar, but not homogeneous, products and try to gain an edge on competitors by differentiating their product.
Marketing Simulation Report
Year 1: Quarter 1 Rank: 8th; 8th Profit & 12th Revenue Thirsty Marketing’s (TMC) first quarter was unsuccessful due to a timid market approach and crucial price calculation error that cost the firm to have a revenue of $20,000, a $ 4,990,000 total loss and a net loss of $4,970,000 . It was decided to price each unit at a meager $0.45, assuming that leader pricing would be the smartest way to attract customers in this competitive industry. In order to entice customers further, a 10% discount was offered lowering the price to $0.41. The logic behind this decision was sound, but the analysis was not. Had a break-even analysis been conducted, TMC would have realized individual unit cost was $0.80 resulting in a $0.39 loss per unit. In this regard, the timid market approach was a blessing in disguise because only 50,000 units were produced, so losses were minimal. Premium packaging was chosen in hopes of differentiating and establishing TMC’s product as superior to that of competitors. Indeed, it was a highly desirable good, largely due to its cheap cost, with over 75 million units in missed sales. In interest of a long-term reputation, strong ethics were chosen for company policy. At this early stage, it was decided to focus on the domestic market through advertising and sales promotion and not to invest in international markets. TMC allocated $1,200,000 into their research and development (R&D): $400,000 in taste, $400,000 in health, and $400,000 in innovation in hopes of creating a well-rounded product.
Year 1, Quarter 2 Rank: 10th; 10th Profit & 10th Revenue The first modification TMC made to its marketing mix in the new quarter was to increase production drastically. In the second quarter of year one, 15 million units were produced. The price was also increased from $0.45 to an even $1, making profit per unit $0.30. More units would have been manufactured, but due to the poor performance of the first quarter it was not possible to do so, resulting in 12,520,285 units of missed sales. Because TMC was trying to be as cost efficient as possible, packaging was changed from premium to standard allowing savings of $0.10 on every unit. Because funds were tight, R & D also took a small hit. Deemed the most crucial category of development by the Thirsty Marketing management, taste still received $400,000, but health and innovation were both reduced to $200,000. A strong ethics policy was maintained from the last quarter, as well as the decision to use advertising and sales promotions only in the domestic market of Ankra. The company was in no shape to expand operations after suffering the opening quarter loss. The second quarter resulted in revenues of $10,500,000 and combined cost of goods sold and expenses of $16,150,000, giving TMC a net loss of $5,650,000.
Year 1, Quarter 3 Rank: 9th; 9th Profit and 9th Revenue After enduring consecutive losses, it was apparent that a significant price increase had to happen if TMC was going to be a profitable operation. The price was tripled from the previous quarter’s $1.00 to $3.00, giving a $2.30 profit for every unit produced. Standard packaging was not changed. Manufacturing was once again limited by the previous quarter’s losses, and only 12 million units were produced, with only 1,423,188 million units of missed sales, significantly less than in both of the