Good Morning !!!!

INDUSTRAT
The Strategic
Industrial
Marketing
Simulation

Jean-Claude Larrch & David Weinstein

 The next few slides
Objectives

Features of the INDUSTRAT world

Administrative structure of the

INDUSTRAT firm

The simulation process

First period decisions

Industrial Marketing Strategy
 Industrial Marketing Mix

Organizational Communication
purchasing behavior Pricing
Sales Force
Individuals involved Product Management

The interaction

Production
R&D
 Objectives of
INDUSTRAT
Review of strategic concepts

Application in an industrial
marketing context

Focus on prime industrial

marketing issues
The basic scenario begins with firms
starting in different positions
Position of the firms
INDUSTRAT
Features
Strategic Marketing
Long term perspective
Marketing as a profit centre
Marketing strategy based on segmentation,
positioning and portfolio approach
Marketing mix decisions secondary to
strategic decisions
Competitive environment
INDUSTRAT
Features
Industrial Context
Product/non product needs
Choice of macrosegmentation schemes
Microsegmentation - DMU concept
Industrial adoption process
Corporate communication
Sales force management
Technical support
Distinction between research and development
Licensing and joint ventures
Market segmentation research
The Pedagogical Approach

A Simulated Environment
We can afford this !!!!
The Economic Environment

Population: 250 million

The Economic Environment
1. Highly developed, industrialized
country
2. Monetary unit is IM
3. Population is 250 mn
4. Annual growth of 1% last 10 years
5. Emerging from a recession
6. GNP rate of 3%
7. Inflation of 10%
8. Support for free enterprise
 Each firm can compete in
TWO product markets

Korex Lome
x
 Korex Products
Multipurpose radiochemistry based product

In the market for last 15 yrs.

Physical form according to application
4 Korex products for each firm,page 11
 Korex Products
Strategic Product Attributes
Resistance: Ohms ()
Suspension: Micro-seconds (Msc)
Frequency: Kilo-hertz (KHz)
Density: Micro-grams per cubic (MGC)
millimeter
Non Strategic Product Attributes, e.g
Liquid Powder Fibre Solid
 Lomex Products
Strategic Attributes
Convexity: Degrees (De)

Conductivity: Micro-Seconds (MSc)

Purity: Percent (%)

Maximum Energy: Micro Watts (MW)

 Each firm can compete in
TWO product markets

Independent
Not substitutes
Not complements

Korex Lome
x
 Each firm can compete in
TWO product markets

Independent
Not substitutes
Not complements

Korex Lome
x
Maximum 10 brands per firm marketed at a time
 Each firm can compete in
TWO product markets

Resource allocation

Korex Lome
x
Maximum 10 brands per firm marketed at a time
The Fierce battle
Evolution of competitive scenario through the actions
of all the firms.Direction of the competitive scenario
 INDUSTRATs Competitors

KARR KERR

Firm 1 Firm 2
KIRR

Firm 3

KORR KURR
Firm 4 Firm 5
 Industry Dynamics
Market growth
Korex

? Lomex

Competition No new competitors

Introduction of Lomex
Collaboration

Technology No further scientific innovation expected

Four Korex technologies
One Lomex technology

Economic Growing GNP

Inflation
environment Anti-trust intervention
Market Segments
Market Segments
Geographic segment

WEST CENTRAL EAST

Geographic segment

WEST CENTRAL EAST

Growing
 Account Size

Small

Medium

Large
End-Product Applications

Communication Instrumentation Consumer Goods

 End-Product Applications

Communication Instrumentation Consumer Goods

Largest End Measuring Least
use segment instruments
Telephone,
explored to
Second date
Satellite and
networks
largest
Korex Market t i on
on er
i
Macrosegmentation ca at m
i t u
un en n
o od
s s
m u m c
om s tr g o
c in

large

medium
east
small central
west
 The Adoption Process
Awareness Testing

KAR
R

Supplementary Supplier

Major Supplier
Purchasing Process Dynamics

DMUs
Korex Market: Microsegmentation
General Manager

Production Engineering Purchasing

Dynamics of the Purchasing Process
Awareness Testing Supplementary Major

General 100%

Production

Purchasing

Engineering
0%
Dynamics of the Purchasing Process
Awareness Testing Supplementary Major

General 100%

Production

Purchasing

Engineering

Page 18 0%
Direct Selling and Distribution
Administrative Structure
Corporate Resource Allocation

Marketing
Expenditure Marketing = Profit Center Net Marketing
Budget Contribution
What is Marketing responsible for?

1.Monitoring market and

competitive environment
What is Marketing responsible for?

2. Periodically evaluating the

firms own strengths and
weaknesses
What is Marketing responsible for?

3. Determining which product

should be offered in the long
run? What should be the
annual R & D effort to develop
them.
What is Marketing responsible for?

4. Determining which products,

at what prices, should be
offered in the short run.
What is Marketing responsible for?

5. Establishing an annual sales

forecast
What is Marketing responsible for?

6. Negotiating with competitors

about licensing or other
collaborative agreements
What is Marketing responsible for?

7. Determining the allocation of

promotional and support
efforts in the field and
influencing the orientation of
the sales and technical forces
 Administrative Structure
Internal Transactions
Production Finance R&D Sales Technical Corporate
Dept. Dept. Dept. Dept. Dept. Marketing
Dept.
R&D Salesforce Technical
Manufacturing Inventory
Costs Holding Expend- Expenditure Support Corporate
Costs diture Communication
Commissions Expenses

Marketing = Profit Center

 Administrative Structure
External Transactions

Marketing = Profit Center

Sales Advertising Promotional Market Licensing Licensing

RevenuesExpenditure Expenditure Research Fees Revenues

Client Advertising Promotional Market Licensors Licencees

Companies Agency House Research
Firm
Administrative Structure
External Transactions

Marketing = Profit Center

Obsolete
Joint R&D Loans Loans Repayments
Funds Inventory + Interest
Sales
Partners
Exporters The Bank
 The Flow
Reports

Entering of decisions Analysis and

Decisions

Decisions
 External Documents
Company report
Financial results
Marketing results
Sales and technical force
Messages
Research and development
Cumulative results
newsletter
Decision form
Marketing research studies
Product management
Sales force management
Technical force management
Corporate marketing
Research
Development
Licensing out
Licensing in
Market research studies
Your objective in managing your company
is to maximize your Share Price Index
To do that, you will have to
optimize:
Market share
Sales growth
Net Marketing Contribution
(NMC)
Cumulative NMC
R & D investments
Your objective in managing your company
is to maximize your Share Price Index
To do that, you will have to
optimize:
Market share
Sales growth
Net Marketing Contribution
(NMC)
Cumulative NMC
R & D investments

.but the main objective is to

LEARN!
Market research studies provide market
data it is up to you to prioritize,
digest, and interpret them

Objectives:
Understanding
Markets
Monitoring
Identifying threats
& opportunities
Forecasting

Methodology: Market Segmentation:

Analysis of Survey Data None, Specified or
Statistical Optimum
You will need to do a certain amount of
analysis, before setting a strategic
direction for your firm
Strategic
Strategic
Data
Data Information
Information Options
Options
Once your strategy is clear, you
should proceed to make a number of
tactical decisions
1)Production each year
planning
2)Inventory disposal
3)Pricing
4)Mass communication
5)Sales and Technical force allocation
6)Market research
Your production department will automatically
adjust production levels up to 20% (+ or -)
against your plan
Market
Market
demand
demand Inventory Lost
(assuming zero
inventory level)
build-up sales

Number of
Units

Production
Production QP QP
(1-20%) QP
QP (1+20%)
Requested
Requested
production
production
level
level
Comparison of purchase intent with
market share can give you a feel for
the size of "lost sales."
Purchase
Purchase
Intent
Intent - Market
Market
Share
Share Lost
Lost
Sales
Sales

Competitors

Order-book

? Lost to industry
 Organizing & managing the group process

Time
pressure
Information
overload

Conflicting
opinions
Decisions for your First Period
Rules!

No market research available

No R&D allowed
No licensing allowed
Avoid radical changes
Familiarization
Gather information
Decisions for your First Period

What do we do first when we

are inducted into a new
company?
 Rules for the
simulation!

Attendance well, you need to be present for your

groups sake It will be taken into account for evaluation
on an individual level
Participation in the group work will be an important part
of evaluation you are being watched!! i.e. there is an
individual and group component!
 1 hour for your decision

Attention
There are Fines !!!
The simulation is
programmed to close at
the appointed time.

It will generate data on its

own if firms dont submit!!!
Lets
Go!
Additional Decisions for
the Second Period

Technology research
Product development
Financial support
Collaboration
 Feasible Ranges of Physical
Characteristics
Min - Max
1 Resistance ( ) -
KOREX 2 Suspension (MSc) -
3 Frequency (KHz) -
4 Density (MGC) -

1 Convexity (DE) -
LOMEX 2 Conductivity (MSc) -
3 Purity (%) -
4 Maximum Energy (MW) -
 Max.

S
U
S
P
E
(MSc)
N
S
I
O
N

Min.
Min. Tech. limit Max.
RESISTANCE (0)
 Max.

S
U
S
P
E
(MSc)
N
S
I
O
N

Min.
Min. Tech. limit Max.
RESISTANCE (0)
 Technology Research
Minimum number
Gestation Period
of years
Know How
Critical Mass Minimum annual
investment

Prototype
Infrastructure of Additional Investment
Related Systems
 Research
Technology
Cumulative investment
Years above minimum
investment
Status
Minimum total
investment
Proposed total
investment
Minimum annual
investment
 Research
1 2 3 4 5

Technology
Cumulative invest 0 5500 8000 0 13050
Years above min inv 0 2 2 0 3
Status NO OK OK NO OK
Min total invest 3351 5585 5585 8936 11170
Prop total invest 6702 11170 11170 13404 16755
Min annual invest 1117 1675 1675 2234 2234
 Research and Development
Product Development
Period T: Project Specification: Project name
Technology
Budget
4 Physical characteristics
Production base cost

Period T+1: Message from Project status

Development: Feasibility of base cost
Additional budget
necessary
 Product Development
Budget Specification
Feasibility study
Past experience
Technology
Various characteristics = different problems
Uncertainty
Minimum according to industry experts
 Production Costs
Production
(transfer cost)

Base cost specified to R&D

Cumulative Production
 Production Costs
Production Shared
Cost
(transfer cost)

Actual Base Cost

Technology
Experience Experience
New Base Cost Transfer
Specifid to R&D

Actual Manufacturing
Method
New Manufacturing
Method

Cumulative Production
 Production Costs
Production
(transfer cost)
Actual Base Cost

New Base Cost

Actual Manufacturing
Specifid to R&D
Method

New Manufacturing
Method

Cumulative Production
 Development Projects
Project name

Modify existing
KIDU
Complete Introduce KIDA

Modify KIDU &

introduce KIDA

PKI33
Retain base cost
Continue PKI33
Incomplete (same tech Tighten base cost
and specs)
Relax base cost

Terminate project
 Brand Modification
Automatic
payment to
production
KIDD
KIDD department at
KIDD transfer cost
(exceptional
KIDD loss)
Period T Period T + 1
Product KIDD

KIDD
Modified KIDD
Loans are available
 Loans

For R&D only,

line of credit,
equal annual payments
interest on outstanding balance
 Collaboration

Negotiations Only within approved periods

Outcome Licensing and/or joint research
Terms Royalties: historically 3%, but deregulated now
Negotiated annual minimum royalties
Other fund transfers
Process Written contract and approval (arbitration in case of violation)
Implementation Compatible decisions entered by both parties
Risk Government invalidates contract in case of antitrust action