Personal Selling and Consumer Promotion Assignment
The NewShoes Industry The industry in NewShoes is made up of competing firms from your class, each selling one basic shoe. You have been hired as a member of the new marketing management team for your company. In the simulation, there are three regions representing different kinds of markets. The home region is a geographic sub-market, such as the Pacific Northwest in the United States or the Prairie Provinces in Canada.
The domestic region represents a national market, such as the entire United States or Canadian market, minus the home market. The foreign region is the entire international market outside the home and domestic regions. The home market is generally a smaller market than the domestic market, with the foreign market being the smallest market of the three, at least early in the simulation. It is not known what the full potential of the foreign market might be.
In NewShoes, athletic shoes are sold by manufacturers such as your company to distributors in a market, who then sell to consumers in retail stores. Price is a significant factor in sales, but how you market to distributors and consumers can also impact sales.
Through personal selling and dealer promotion, you can encourage distributors to “push” your product and increase sales. By advertising and offering consumer promotions, you can make consumers aware of your brand and persuade them to buy it. Each market is unique, with distributors and consumers responding to your marketing decisions in different ways, so your task is to find the correct marketing mix for each region.
When your team takes over marketing for the firm, there are two periods of results available for you to evaluate the condition of the company. A “period” in the world of NewShoes can be viewed as a month, a quarter, or a year of operations. It is simply a period of company operation and of competition with the other NewShoes company teams. At the beginning of the simulation, your company is struggling to make a profit.
After a loss of $2.4 million in Period –1, the previous marketing team decided to raise the price from $90 to $110 in the home market, and expand into the domestic market. The changes were a qualified success. Total revenue increased from $9.2 million to $19.2 million, but home sales dropped somewhat, and the company still lost $1.2 million. Table 1.0.A: Sales and Revenue (previous two periods)
Home Sales Domestic
Revenue COGS Expenses Net Profit
Period 0 $7.5 $11.7 $19.2 $7.9 $12.5 -$1.2
Period -1 $9.2 NA $9.2 $6.4 $5.2 -$2.4
As a member of the new marketing management team, you face challenging decisions concerning your product, its pricing and promotion, and new distribution opportunities. While the same product is sold into all the regions, you must make price and promotion decisions for each market.
Thus, you must consider the four Ps of marketing in managing your firm: product, price, promotion, and place. That is, you must decide where to distribute (place) your product, what price to charge, and how to promote it.
Product All companies begin with the “Basic Version” of athletic shoes and each firm sells only one version at any given time, in all regions. Investment in new product development can lead to a new version of your athletic shoes. The firm spent $800,000 on product development in Period –1, and $900,000 in Period 0.
Higher and more regular investments tend to result in shorter development times, but expenditures beyond $2 million in a given period have a diminishing effect on product development. As is true in the athletic shoe industry, there is some uncertainty as to when the next breakthrough in shoe development will occur.
A new version of your product can be developed from Version 1 up through Version 10, though it is unlikely that Version 10 will be attained in a NewShoes competition. Version 5 or 6 is usually the highest version that can be reached after 8 to 10 decision periods. Each time your company releases a new version, that new version is automatically distributed in all the regions where you have a presence, and each region receives approximately the same positive effect on sales.
Place Your firm is well established in the home market at the start of the simulation. Distributors have been carrying your brand for some time, so additional salespeople and dealer promotions are only marginally effective. Customers in this market are looking for a high-quality shoe with a price that is “just right”−not too high and not too low.
A drop in revenue after a recent price increase may be an indication that the current price is above what customers expect to pay. Advertising is a good way of reaching customers, and consumer promotion is also helpful. In the domestic region, your firm has just entered the market, and initial sales have met expectations, but it is not clear if the marketing mix chosen by the previous management team is optimal.
Early research indicates that customers in this market consider price an important factor in their decision, and they are not willing to pay as much as customers in the home market. Though advertising is helpful in reaching new customers in this market, they are more likely to pay attention to consumer promotions.
Access to distribution in the domestic market is more difficult than in the home market, and requires higher levels of salespeople and dealer promotions. As the simulation progresses, the foreign market may open up as an opportunity for your firm. Be aware that a marketing mix that works well in the home and domestic markets may not work well in the foreign market.
Customers interested in athletic shoes in the foreign region are looking for a high-quality product, and price is not much of an issue. They will not be swayed very much by advertising and consumer promotions. Getting your product distributed will be a big challenge, and requires spending on salespeople and dealer promotions. You may enter new markets when available, and leave market regions as you choose, though you do need to maintain a presence in at least one market. There is no charge for leaving a region.
There is, however, a $750,000 start-up charge each time you enter or re-enter a region. All you have to do to enter or re-enter a region is to input marketing decisions for the region, being sure to choose a marketing mix that is appropriate for the region. If your entry into a region has not been successful, and you would like to concentrate on other markets, you can leave a region by zeroing out the decision variables for that market.
Remember, it costs $750,000 to enter a new market or re-enter a market you previously left, so think carefully before abandoning a region. The firm entered the domestic market in Period 0, and along with the consumer and dealer promotion expenses, there was a charge of $750,000 for the period.
That amount is included in the total expenses shown for the Period 0 results. In addition to selling into the regular distribution channels, a major retailer may ask you to bid on a contract to sell a large quantity of shoes directly to them so they can market them as a store brand of athletic shoe. This means the purchaser will put its own brand name on the product, and your brand name will not appear on the shoes. Contracts are awarded based on the lowest
bid, and sales to the contract winner are guaranteed. In case of a tie bid, the contract will be split equally between the companies submitting the winning bids. In NewShoes, contract sales have no impact on sales in the regular distribution channels. You may choose to bid or not to bid on these contracts if they become available. You may also have the opportunity to sell directly to consumers by establishing a presence on the web and setting up an order processing system. The potential for direct sales to consumers is estimated to be about 10% of sales through the retail channels in the home and domestic markets. Foreign market customers will not be able to buy direct.
Price Different selling prices can be charges for each region in which you are operating. For Period 0, the previous marketing team set a price of $110.00 in the home market and $90.00 in the domestic market. Decisions on selling price are in dollars and cents, as opposed to the other NewShoes variables, which are entered in whole dollars (or numbers) only. The price you set represents the price to the distributors in the region, and there is no discounting decision in NewShoes. Although you do not have control over the actual price that retailers will charge for your products, retail prices will reflect the price you set, and consumers will respond to any changes you make.
The decision you make on selling price is very important and has a major impact not just on sales of your shoes, but on your company’s profitability. Your pricing decision should take into account a number of factors:
Company objectives, such as growth and profitability o Fixed expenses and unit costs o Competitors’ pricing o Market response to price
The previous marketing team had thought that raising the price in the home market from $90.00 in Period −1 to $110.00 in Period 0 would help the bottom line without hurting sales too much. While losses were not as great, home sales dropped more than expected, from $9.2 to $7.5 million, and management wants your team to re-evaluate pricing, particularly in the home market. If you have the opportunity to bid on a contract or sell directly to consumers on the web, you will have additional pricing decisions to make. When selling to another business rather than into the retail market, pricing becomes especially important. You must set your price low enough to win the contract, but high enough to make the contract profitable. If your price is too high, you will
A word of caution: While each market responds differently to the selling price you set, prices over $150 can cause a rapid decrease in sales in any NewShoes market region.
get no sales. Too low, and you will lose money on the deal, and possibly face charges of predatory pricing. Bypassing retail channels by selling directly to consumers over the web brings additional issues to the pricing decision. Undercutting the retail distribution channels can cause some stores to drop your product and reduce sales in the channel. In NewShoes, pricing for direct sales needs to be coordinated with the prices set for the home and domestic markets. Customers in the foreign market cannot purchase your product from the website, so the direct pricing decision will not have an impact on sales there.
Promotion is often divided into two general categories: consumer promotion (e.g. promotion targeting consumers/end-users) and channel or dealer promotion (e.g. promotion targeting the distribution channel).
In NewShoes, there are two consumer-oriented decisions and two channel promotion decisions to be made in each region. The following are brief descriptions and some guidelines regarding decisions for the four different types of promotion in NewShoes. Consumer Promotion Consumer advertising is money spent on promotion presented through the media (television, radio, newspapers, magazines, websites etc.) that targets the consumers of your product. In Period 0, advertising expenditures were $1.5 million in the home and $2.0 million in the domestic market.
You need to enter the dollar amount for consumer advertising for each region, but be aware that expenditures over $2.0 million per period in a market will have little marginal effect on sales. Consumer sales promotion is money spent in promotional items aimed at the consumer, such as rebates, contests, and premiums. You will need to enter a dollar amount appropriate for the market. Period 0 amounts were $2.5 million in the home market, and $1.5 million in the domestic market.
Management thinks the previous marketing team placed too much emphasis on consumer sales promotion, and wants your team to take a look at these expenditures. It is thought that spending more than $1.0 million per period in any market will have little effect on generating additional sales.
Channel or Dealer Promotion Personal selling involves having a salesperson from your company contact a distributor to persuade them to carry your product. Salespeople only call on middle-people in the distribution channel and do not deal with consumers or end users of your product. You must decide the number of the salespeople in each region. The effect of your salespeople varies by region, but