I was so struggling with making strategies about how to increase the profit margin. It was challenging because it could not be solved by simply offering more discounts to increase the unit sales, or by increasing the motor's price to receive high revenues. Besides those factors, the change of profit margin also involved the spending on features and the strength of sales force. Any one of them changed could lead to a significant difference in the change of profit margin. As the result that my profit margin experienced a big fall due to some bad strategic decisions.
Before further explaining the reasons, I would like to draw some interest findings and the corresponding marketing strategies that I made during the simulation. I would say I was well prepared for this strategic marketing simulation as I read through all the background information and instructions in order to understand what I was supposed to manage with the potential problems that I would face. Based on the background of MM manufacturing company, I tended to apply the skimming strategy, given that the MM motors have high quality with better performance relatively to that of its competitors.
As such a high-end products I decided to charge my customers a premium price to make as much as profit as possible. The other reason which also affected me to do so was that the customers from large segment A, B, C showed strong loyalty towards my product and mainly focused on the quality and performance of the motors. However, on the other side, the customer segment D and small customers valued that price level most as they would not have high requirements on the products’ features.
For such situation, I decided to increase the motor’s price and offered more discounts to customer from segment D as well as the small customers. Surprisingly, I received an increasing change in the profit margin, and the market share was also going up. Obviously, I was successful in the early stage of the simulation. As I have mentioned above, the majority of my customers had a relatively higher standard for the motors’ quality and performance. Particularly, the power-to-size and the thermal resistance were significantly important for their requirements.
As a CEO of MM, I wish my product could stand out in the marketplace. Since the fact that competitors always have certain strengths and abilities, in order to succeed, I must leverage the abilities to differentiate from similar motors in the industry. After checking the current performance of BLDC motors, I found that the level of power-to-size was leading among the competitors; however, the thermal resistance was somewhat below to that of my competitors. Thus, it was necessary for me to spend more on thermal resistance feature improvement to achieve a better performance.
The result after doing so was not as good as what I expected since the market share of customer segment B decreased by 0. 2 precent, although the profit margin was still going up consistently. The question arose in my head was ‘isn’t the change of market share positively related to that of product’s feature spending? ’ Even that I was still believing I was doing right, in order to find out whether such relationship did exist, I decided to invest a lot more on thermal resistance feature spending than power-to-size feature spending. For this point, i will discuss more in later section with details.
From the above point, of course, the change of the market share does not simply due to one factor. Customer satisfaction level may directly affect the unit sales thus to influence the overall marketing performance of the company. Therefore, increasing customer satisfaction was also an important action in the marketing strategies. Before attempting simulation, I used to regard customer satisfaction was strongly related to the sales force deployment as I thought the more effort put on sales force the higher customer satisfaction would reach.
In term of this point, I would like to give two specific examples to prove my previous thinking was not quite appropriate. One successful example was that the customer satisfaction of segment B was increased to ‘satisfied level’ by enhancing the sales force, as the representative of segment B was dissatisfied with the slow sales responses. However, increasing the sales force would not always increase the customer satisfaction level. I failed to satisfy the customer from segment D since they complained that ‘too much repetitive offering about motor’s features’.
The important failure was that I ignored their real need. The segment D customer was very sensitive to the price change instead of sales force. The correct action I should have taken was to offer more discounts to get them more satisfied. Customer satisfaction is crucial for marketing decision making, but the more important point is that we should get to know well about what the customers really need or what they are unsatisfied with.
Since the result for the early stage of the simulation was quite good as the market share was consistently increasing over the first 4 quarters, I decided to be more risky to achieve a higher level of performance. The result displayed that the thermal resistance level was still below to the competitors’ average, and customer from segment B never stopped requiring for a higher level of this feature, I decided to remove the spending of marketing research and added most of the budget into the thermal resistance feature spending.
Another reason for taking this action was that I thought marketing research may not necessarily be needed for every quarter. However, the result gave me a big lesson as the profit margin, market share and unit sales decreased by a large percent. I realised the importance of marketing research as it could help us understand the market and the company’s current performance, and also define any unexploited opportunities for growth.
The simulation incorporated 13 quarters and took me about 3 hours to attempt for the first run, as a marketing decision maker, my overall performance tended to go down due to tiredness and the lack of patience. These were important factors because a successful marketing decision maker should be able to keep rational and cautious, besides for being aware of the outstanding marketing knowledge. For example, go back to the primary strategy I applied which was the skimming strategy, I was supposed to lower the price over time as competition in encountered.
However, in the later stage of the simulation, I over valued the BLDC motors and kept increasing the price to $150 which was too high to achieve higher level of sales. In conclusion, the experience in attempting this simulation was interesting and adventurous; you would never know how the result would be after taking the decisions for each quarter. The game was tricky, to succeed in this simulation, you have to be well prepared before the game starts that requires you to read all the given materials and get to know well the current performance of the company.
During the simulation, it is very important for you to always stay awake, check every component of the results after each quarter and give a critical analysis towards every specific situation. There is always a trade-off when you make decisions. For instance, most of revenues were from the large customer segment A, B, C, D, where the small customer segment only provided less segment shares. When dealing with the sales budget, I had to allocate a lot more spending on large customer segments since they were the main sources of the company’s revenue.
In the meanwhile, some revenue from small customer segment had to be given up. However, the fact indicated that an over spending on large customer segments would not give much contributions to the overall sales revenue; sometimes it would have a negative impact on the sales. This happened when the increase sales from large customer segments would not be able to cover the loss of sales from small customer segment. Therefore, the key point is to set the most appropriate allocation on both large and small customer segments.