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Business War Game Competing in the Marketplace INSTRUCTOR SLIDES, PART 1

Business War Game Competing in the Marketplace INSTRUCTOR SLIDES, PART 1. Learning Strategy . Business war games are a form of combative training where participants pit their business skills against those of formidable opponents under the watchful eye of a training coach. .

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Business War Game Competing in the Marketplace INSTRUCTOR SLIDES, PART 1

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  1. Business War GameCompeting in the MarketplaceINSTRUCTOR SLIDES, PART 1

  2. Learning Strategy Business war games are a form of combative training where participants pit their business skills against those of formidable opponents under the watchful eye of a training coach.

  3. Learning Strategy:Learn by Doing • Participants learn about all aspects of business by managing a simulated business. • The Marketplace scenario follows the life cycle of a new product. • Business decisions are introduced as they become relevant in the evolution of the product.

  4. Key Benefits • Develop teamwork. • Promote better decision making by helping participants see how their decisions can affect the performance of others and the organization as a whole. • Facilitate learning of basic business concepts, principles and ways of thinking

  5. Key Benefits • Develop strategic planning and execution skills within a rapidly changing environment. • Instill a bottom line focus and the simultaneous need to deliver customer value. • Develop financial management skills.

  6. Key Benefits • Discover how important it is to use market data and competitive signals to adjust the strategic plan and more tightly focus business tactics. • Build confidence through knowledge and experience.

  7. How is the business war game conducted? • Teams are placed in a war game scenario, starting up and running a new business venture. • The opposition is played out by competing teams.

  8. Business Team Market Opponent Opponent Opponent Opponent Opponent Objective: to profitably capture a dominant market position

  9. Business teams Each team member assumes a tactical area of responsibility. marketing finance research production overall leadership

  10. How conducted? • Business team receives information on current situation. • Current situation is evaluated, strategy formulated, and tactics set in place. • Tactical decisions are fed into the Marketplace simulator, along with decisions of opponents. • Results of decisions are returned to business team.

  11. How conducted? • The business team can acquire information on what is happening in the Marketplace: • customer reaction to market decisions • competitor actions • Current situation is evaluated, strategy formulated, and tactics set in place. • Tactical decisions are again fed into the Marketplace simulator.

  12. Game Scenario • The product line is microcomputers. • The year is sometime in the early 1980s. • The market is Europe, United States, Canada, Brazil, and Japan. • The microcomputer industry is in its introductory stage of the product life cycle.

  13. Game Scenario • Several new venture firms are entering the market. • These new manufacturers will sell through company owned sales offices in major metropolitan markets. • 95% of the potential demand is expected to come from the business sector.

  14. Sales Offices Montreal Toronto Calgary Vancouver New York Atlanta Chicago Los Angeles London Paris Berlin Rome Osaka Tokyo Yokohama Sapporo Curitiba Rio de Janeiro Sao Paulo Belo Horizonte

  15. Market Structure Price Mercedes Traveler Innovator Performance Work Horse Cost Cutter

  16. Business War GameCompeting in the MarketplaceINSTRUCTOR SLIDES, PART 2

  17. Chronology of Events • Q1, organize the team, name the company and contract for a survey of potential customers. • Q2, analyze market information, establish strategic direction and set up shop (build plant, design brands and set up sales offices).

  18. Chronology of Events • Q3, Q4, test market brands, prices, ad copy, media campaigns, sales staffing. Study competition and make adjustments in strategy.

  19. Chronology of Events • Q5, prepare a two-year business plan. Present business plan and financial request to venture capitalists and negotiate equity investment. • Q5 - Q8, initiate international roll-out campaign.

  20. Chronology of Events • Q9, present report to the Board regarding • second year performance, • deviations from plan, • justification for departures, • analysis of current market, and • plan for third year.

  21. Equity Financing • The initial capitalization is 4,000,000 which is being invested by the executive team in 1,000,000 increments over the first 4 quarters. • The executive team owns 100% of the company. • Four thousand shares of stock will be issued to the executive team in exchange for their 4,000,000. • The initial stock value is 1000 per share.

  22. Equity Financing (continued) • At the end of the first year of business, the executive team will have the opportunity to request up to 5,000,000 from a venture capitalist (instructor). • The venture capitalist will expect an outline of the strategic plan for the second year in business, including target markets, geographic expansion, R&D, plant expansion, etc.

  23. Bank Debt Financing (Q5 and beyond) • The bank will extend a line of credit to the executive team equal to one and a half times the firm’s equity position in the previous quarter, • The bank is highly risk averse and will call in your loan in part or whole if your debt capacity declines due to unusual or extended losses.

  24. Debt Financing (continued) • Other financial institutions will also buy long-term notes at 2 points over conventional bank loans. The acceptable debt capacity is two times the firm’s equity position in the previous quarter. • Long-term debt is for 5 years with little possibility of the financial institution calling in the note due to short-term swings in income.

  25. Special Financing Needs • The bank is intolerant of poor financial management. • If a firm ends a quarter with a negative cash position, the bank will contact a loan shark to obtain an emergency loan to cover the firm’s checking account.

  26. Loan Shark’s Financing Terms • Loan shark requires repayment in the next quarter • The emergency loan interest rate is a sliding scale which begins at 10% per quarter and may go as high as 25% per quarter. • For each 1000 which the loan shark places in your checking account, he will take one share of stock in your firm. • The issuing of stock to a loan shark causes a dilution of your stock value and your share of the company.

  27. Bankruptcy • A firm is technically bankrupt if its cumulative losses exceed its equity investment. • Bankruptcy occurs when the sum of the retained earnings and the common and preferred stock is a negative number. • Stated differently, the management has used up all of the equity of the firm when the negative value of the retained earnings exceeds the value of the common and preferred stock .

  28. Performance Evaluation • Report to Board • Strategic thinking and tactical execution • Market performance • market share in targeted markets • total profit as measured by retained earnings • cash management (avoidance of loan sharks) • How well company is prepared for the future

  29. Business War GameCompeting in the MarketplaceINSTRUCTOR SLIDES, PART 3

  30. View Sample Decisions

  31. Hot Hot More is always better More is good to a point and then ceases to add excitement Cold Cold Less More Less More Market Reactions to More of a Feature

  32. Hot Hot More adds value to a point & then takes away value A little is just right, more only takes away value Cold Cold Less More Less More

  33. Hot Any amount is bad Cold Less More Hot Little interest until threshold is crossed Cold Less More

  34. Hot No reaction/indifference to having the feature Cold Less More

  35. Q2, Establish Strategic Direction • Analyze market information, • Establish strategic direction • select target segments • decide on competitive posture • Set up shop • develop distribution strategy • locate and build plant, • open initial sales offices for test market • design brands for target market segments

  36. Learning Points for Quarter 2 • Managing the team • Market opportunity analysis • Segmentation and target marketing • Strategic and tactical planning • Financial management

  37. Learning Points for Quarter 2 • Game theory: competitive positioning • Brand design: linking product features to customer benefits • Marketing and manufacturing tradeoff: satisfy the customer or run the most efficient factory, the issue of changeover • Financial liquidity: cash versus assets • Logistics of plant location: production versus shipping economies

  38. Marketplace Schedule • See handout

  39. Q3, Go to Test MarketThe Goal is to Maximize Learning, Not Profits. The following slides are for Quarter 3

  40. Q3, Go to Test Market • Set selling prices • Develop advertising campaign • design 2 ads, one for each brand • determine number of placements per ad • Develop distribution strategy • hire sales force for quarter • open new sales offices for Q4

  41. Q3, Test Market • Schedule production • set minimums and maximums for warehouse • forecast demand • run factory simulation, check numbers • Contract for market research on customers and competition • Check all pro forma financial statements

  42. Learning Points for Quarter 3 • Execution of a coherent strategy • Management of cash in the face of great uncertainty • Learning to walk before you run

  43. Learning Points for Quarter 3 • Marketing strategy: coordinating a host of tactics • Pricing: balancing costs, profit, what the market will bear, and competition • Testing the market: discovering the market response function • Production: managing capacity, inventories, and costs in light of demand goals

  44. Quarter 4 - The Skillful Adjustment The following slides are for the introduction to Q4 decisions.

  45. Q4, Evaluate Performance, Skillfully Adjust Strategy • Check customer reaction to brands, prices and advertising • Check financial performance • Check production operations - quality new • Check out competition • strategic direction • tactics • market’s response

  46. Q4, Skillfully Adjust Strategy • As needed, adjust • strategy • brand designs and prices • advertising • sales management • production plan • Check finances • Feed decisions into Marketplace simulator

  47. Business War GameCompeting in the MarketplaceINSTRUCTOR SLIDES, PART 4

  48. View Software

  49. Deceptive Advertising • Starting with Quarter 4 all advertising claims must be verifiable. • Claims must be true based upon facts from prior quarter. • A company can be sued if it makes false claims. • Lawsuits must be filed within 90 minutes of the start of the quarter.

  50. Deceptive Advertising • To file a lawsuit, you must put in writing • which ad had a false claim • which ad had a false claim • in which city the ad was placed • why the claim was false • A copy of the lawsuit must be given to • the company being sued • your industry’s coach/instructor

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