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Team Members:Anastasiya Yanushevska, Ashlie Cramer


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Raging Horse

Team Report

Team Members:Anastasiya Yanushevska, Ashlie Cramer

Student IDs:T00048927, T00534616

Due Date: November 27, 2014


Table of Contents

Team Strategy and Performance. 3

Summary of Our Strategy. 3

Target Market. 3

Performance Comparison. 4

Competitive Environment Discussion.. 4

Competitors. 4

Research Reports. 4

Manufacturing Strategy. 5

Research and Development Strategy. 6

Sales and Marketing Strategy. 7

Human Resources Strategy. 8

Reflection.. 9

Appendix: Strategy Journal. 10


Team Strategy and Performance

Summary of Our Strategy

Our strategy in the first few months was to increase our profit by increasing our prices. When we realized our market is not that big, we revised our strategy and chose to cut our prices and give a discount. Still, we did not start earning profit yet. The last strategy, apparently, was the best: we decided to go back to spending less. In the end, we decreased our investment of money in things that did not play much role, such as Research and Development or Marketing. We believe that if we had a few more periods in this stimulation, we would have succeeded in actually making profit. Nevertheless, we ranked #15 out of #27, which is quite close to what we planned to get.

Target Market

We assumed going in the United States and Mexico would be a good idea, so, in addition to Canada, we started selling our product in those countries in the first month. Knowing that many people would rather concentrate on taste, we mostly concentrated on developing healthy products. In other words, we were interested in getting customers that cared about their health more. However, we decided to spend some money on taste, too, so that we would not leave out any other possible market. In the end though, it did not matter how much we invested in either taste or health, but rather mattered what price we set and whether we had a discount. At first, we did not concentrate on price-sensitive customers, but in the end we switched to lower price and provided discounts. These actions attracted more customers, which usually cared about the pricing. Customers that cared about brand equity were also under our radar.

Performance Comparison

When we started the simulation, we wanted to be in the top-ten companies. However, either because our strategies were poorly chosen or because our target market was not big enough, we ended up in top 15 companies from Profit side. Another reason for our poor performance is the fact that we did not spend as much time as we wanted on discussing our strategy and choices but rather concentrated on each person taking care of “her” month. We also did not try out many new strategies very often, and, in the end, returned to the original strategy of “spend less, sell more.”

Competitive Environment Discussion

Competitors

Our primary competitors were companies ahead of us. We mainly differed from them in our pricing: it was too high for such small market. We also did not invest as much in Research and Development and invested much more in Advertisement and Brand Equity. Unlike many of the precedent companies, we wanted to keep our ethics in a range between average and above average. We also invested a lot of money in providing necessary training and benefits for our employees.



Research Reports

We have bought: (1) Product Competitiveness and (2) Media Research for month four, (3) Product Competitiveness for month seven, and (4) Market Share and Size for month eight. We bought the researches to compare our company to other companies in more detail. We wanted to see how our decisions influenced the market and what we should do to influence it even further. These reports helped us revise our strategy and understand the market of our product a little better. However, we did not concentrate our attention on the reports, therefore, we were not well aware of our market.

Manufacturing Strategy

Month

Price

Discount

$3.60

10%

$5.00

$6.99

$2.45

30%

$3.50

$2.10

30%

$3.00

$2.48

10%

$2.25

We decided to manufacture products only as we needed them or, in the beginning of the simulation, when we had some extra money we did not want to waste. In total, we manufactured 906,272 energy drinks, but did not sell 42,975. Unfortunately, there was a month when we missed sales of almost 400,000 units. However, we could not predict we will be able to sell all our inventory in one month. Thus, generally, our manufacturing strategy worked out just fine. For period one, our price was $3.60, and we sold 22,800 units only in one country―in Canada. In the second period, our price went up to $5.00, and we were able to sale 27,510 units. In period three, we set our price at $6.99, and sold less: only 12,978. In period four, we decreased our price to $2.45, so we actually sold more units in all countries: 36,056 in Canada, 21,634 in the United States and 14,422 in Mexico. In addition, we missed a lot of sales due to the lack of our product in inventory. Luckily, it was the only month we missed any sales. During period five, we could not set the discount because we used it in period four, so our price went up to $3.50 and we sold 44.434 units only to Canadian customers. We set a discount for period six again, so our price was $2.10 we sold 230,038 units. For period seven our price went back up, but we slightly decreased it again in comparison to month five: $3.00 and we sold 67,680 products. In period eight, we set our price at $2.48 and sold 170,911 units. Finally, during the last period we decreased our price to $2.25 and sold 214,834 units. To summarize, the number of units sold highly depended on the price we set.

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Research and Development Strategy

We started the simulation with spending a lot of money on Research and Development, but in the end, we cut our investment. We spend the following amount of money on Research and Development:

Month

Taste

Health

$5,000

$10,000

$20,000

$50,000

$10,000

$50,000

$7,500

$0

$0

$0

$7,500

$2,000

$10,000

$30,000

$3,000

$1,000

$4,000

$0

We did not expect Research and Development to be so unimportant. It seems like we invested a lot of money in something that, in the end, did not influence our number of units sold. It may have influenced the quality of our product, but still did not bring much more customers.

Our total investment of $143,000, in the end, was higher than average competitor investment of $103,980 for health and total investment of $67,000 was significantly lower than competitor’s average investment of $120,769 for taste.

We did not find a relationship between units sold and Research and Development investment. If there is one, then the correlation is not as strong as between units sold and price of the product.

Sales and Marketing Strategy

We started the simulation with investing up to $45,000 per country, but eventually cut the amount to a little under $10,000. In the end, total marketing investment equals to $142,000 for Canada, $141,100 for the Unites States and $92,000 for Mexico. This cost does not include discount advertisement. In total, we spent $3,500 to advertise our discounts. We believe our marketing investments were not worth that: these investments did not improve our overall performance. To sum up, we did not find a strong correlation between units sold and our advertisement costs.

Over the course of this simulation, we were the cumulative leaders in marketing advertisement. We spent much more money on advertisement than many of our competitors. However, in the end, we had only 40%, 34% and %27 for Brand Equity in Canada, the United States and Mexico respectively. We, like all other competitors, were 100% successful in distributing the advertisements according to the effectiveness of it in a specific country.


Human Resources Strategy

We adjusted the number of employees every months. Hence, we wasted a lot of money on hiring and firing people. Constant employee number change negatively impacted their morale: it went from 77% for the first month to 50% by the ninth month. The productivity also went down from 63% to 49%. We were not too surprised by these results, but these scores did not matter much to us.

We set employee training programs during the second month and slightly changed benefits a few times. Overall, we tried to keep both training and benefit costs steady.


Reflection

We were quite satisfied with our overall performance: it was hard to make profit in our market, but we think we have learned how to survive. Even though we wanted to reach at least rank 10, we are not too disappointed for failing. We believe if we had a little more time, we could have achieved it.

The simulation was an interesting and highly interactive way to learn more about business. We have learned the importance of working in teams and discussing possible strategies. We also realize it is important to balance every aspect of our business, i. e., we cannot set our price too high without adding any value to our product that other companies do not provide in hopes we can sell all our inventory and earn profit.

We would definitely change some things if we could go back in time. We would stick to our first strategy and improve it. Or, if we could, we would go back to the training simulation and try out other strategies, find best, and use it for actual stimulation. We would also spend more money and time on research reports that would have helped us more in our decision-making.

Appendix: Strategy Journal

Month #1: Because of our constant loss in practice simulation, we decided to not only to go in the States but also in Mexico to increase the number of our customers and our revenue. Because the last time we couldn't sell our inventory during the whole simulation, we decreased the number of products manufactured. Because this is our first month, we decided to give a discount to bring more customers in. We provided taste research with only $5,000 and health research with $10,000 because we decided to concentrate more on health development rather than taste. Our goal is to decrease losses and, eventually, to start making profit.

Month #2: Last month we made a profit of $57,456. We could increase our revenues by investing more money in R&D and Sales & Marketing. Because our employee's efficiency was at approximately 65%, we decided to provide some more trainings for them to increase the productivity. Also, to decrease our turnover further, we decided to provide our employees with team building programs. We have enough products to sell so far, so we decided not to manufacture any drinks this month: last month out of 100,000 cans 23% was sold, so, even if we can double the number of sales, all our inventory won't be sold and we won't miss any sales. This time, we decided to invest in taste development a bit more, and substantially increase the investment in health research and development. Because marketing is one of the most essential ways to sell our product, and last time we couldn't sell much or make profit, we decided to spend much more money on marketing. Our goal for the next period is to increase our revenues by increasing our product's price and our expenses. We decided to change our strategy because we realized we can spend all our money without worrying about saving it for the next time, even though we have less chances of making profit right now. However, our long-term goal is to actually make profit using different strategies and choosing the best one.

Month #3: Our revenue increased to more than $150,000. Our expenses, though, increased, too, due to the fact that we started spending twice as much. Still it is a good start. We decided to increase our company's advertising even more because so far, comparing to our competitors, the percentage of our brand equity is relatively low. We increased the advertising in Canada in Mexico to $30,000 and the USA to $45,000. We also had to increase price to make sure we have a chance at profiting if selling more than 86% of our product. The main goal now is to increase sales, which, unfortunately, didn't improve much comparing to the last months. On the money left, like last month, we decided to manufacture some more products.

Month #4: The total Revenue of all 3 months has increased to $217,000, we suffered losses of more than $646,000. The profit for the month was a loss of 274,000. We didn’t make as much revenue as the prior month which was a disappointment. It seemed by raising the price from $5.00 to $6.99 it has put us in a big loss and is making it hard to come out of debt. We found we need to improve on are on our pricing strategies, and how we spend our money. We found by pricing our drink high, and spending more money than we had caused had a big impact on our profit loss. We are changing are strategy this month to decreasing our expenses, Though we are making revenue we figure if we decrease our expenses we won’t have a loss. We are also going to decrease the price of the product, and have a discount so we can sell are inventory we already have. Even if we don’t make revenue we shouldn’t receive another loss.

Month #5: Previous month brought us to success: we were able to sell all our product, but, unfortunately, we missed sales worth of $300,000. So, we need to manufacture a large amount of product. However, we do not have enough money to only manufacture product, so we decided to manufacture the amount of missed sales. This, though, means we will not have any R&D investments for this month, and we will spend the rest of money on advertising. If we can sale 50% of our product, we will earn profit.

Month #6: Last month we invested more in inventory and advertising, we did this so we wouldn’t miss any sales and sell more unfortunately this did not help our situation as we only sold 15% of our inventory. We have accumulated more debt (-150,000) last month. We thought we would have sold more. We need to control our expenses, we are also spending more money than we make which is resulting in a net loss rather than breaking even or making money. Our strategy for the next period is to not spend all our money and try to sell as much inventory as possible. If our expenses are low it will be easier to break even and make a profit. We should not suffer another loss and it will be much easier to make a profit since our expenses are only 110,000. We tried this strategy 2 months ago, in month 4 and it was our best month so far.

Month #7: This month we have sold more product than the previous one, but our Revenue and Profit did not increase much: almost $800,000 and -$700,000 respectively. Because there is more cash available this month, we do not have to choose between spending it on production of new drinks and marketing it. We have decided to produce 350,000 drinks in addition to 26,000 of leftovers, spend $70,000 on advertising and use the rest for product improvement. If we are able to sell 68% of our product, we will be profitable.

Month #8: We went even further into debt last month. We have over 300,000 units left over from last month since we did not sell very many units, and went over -$200,000 more in debt due to bad decisions & excessive HR costs. Clearly when we spend all of our money (high expenses), we never make enough sales revenue to break even and out profit suffers because of this. I will focus on our budget, only spending $125,000 (expenses) this month so we only need to sell 20% of our inventory to break even. This strategy worked well on my last turn (Ashlie, month 6) as we sold the most units, made the most revenue, and actually made profit rather than losing more. Our strategy for this period is to not spend all our money and try to sell as much inventory as possible. If our expenses are low it will be easier to break even and make a profit. We will not suffer another loss and it will be much easier to make a profit since our expenses are only 125,000. We tried this strategy 2 months ago, in month 6 and it was our best month so far.

Month #9: Last month was very successful. We turned a profit, and further proved our theory that keeping lower expenses, and selling more inventory at a lower price results in profit rather than a loss as we saw in other months. Again this month we will I will focus on our budget, only spending $160,000 (expenses) and learning from the previous months and mistakes where we went over $200,000 in debt due to unnecessary expenses. Our strategy for this period is the same as last, to operate on lower expenses and sell a large amount of inventory by selling at a low cost. We spent $160,000 and will need to sell 40% of our inventory to break even. Every sale after that will make us profit. We manufactured 115,000 units this month and hope to sell all of these and the remaining portion of our inventory.


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