You want to get product development projects right the first time as this can be a costly mistake. It can mean either your Unit Prime Cost is higher than you want and/or your specifications are not as you wanted resulting in a lower demand for your product if they are wrong.
There could be two reasons why your project failed:
1. The project/budget expenditure was too low and/or 2. The requested unit prime cost was unrealistically low
As in real life, you do not want to commit to a product development project without checking that it was appropriately funded and that it would be able to provide an acceptable return on investment.
In addition, you have to be careful that the specifications you enter for your new product actually fall close to the ideal point of the segment you are targeting. Look under Key Reports for Perceptual Map of Market Segments to check this. Products outside the radius of influence (i.e. outside the circles) will not sell at all.
How do we conduct successful development projects?
We will walk you through an example where we develop the design for a racers bike. While the specifics and calculations may change, the steps you follow will be the same:
1. View the Indicative Values for Market Segments within the Product Development Scenario Information report to view the ideal product attribute levels desired by each segment.
(Note: These desired product attributes by each market segment change slightly from year to year so be sure to keep monitoring for the changes.)
2. Take the current Style/Tech Specs of your closest existing Design Project and calculate the required change in Style/Design and Technical Specs.
In our example, the closest existing Design Project is our Adventurer Bike. You can view the Product Development Project Results Report to view your closest existing design paying attention to the Style/Design and Technical Specs:
3. Calculate the difference in Style and Technical Specifications between the desired design and the closest existing design.
As you can see, in this example, our only and closest existing design project is our Adventurer product. This features specifications of 50 Style and 60 Technical. Our desired design project has targeted specifications of 20 Style and 86 Technical.
So the difference is 30 Style and 26 Technical.
We can see on the Product Development Scenario Information report that each unit of Style development costs $1000 and each unit of Technical development costs $20,000.
Our example calculation will be:
30 x $1,000 added to 26 x $20,000 = $550,000
Therefore, our design cost would be $550,000 on the new design to achieve 20 Style and 86 echnical.
4. Calculate your prime cost.
From the table above we can see that the prime cost will be calculated at roughly $0.1 to $0.15 per design and $4.50 to $5.00 per technical specification. We want a racers bike with 20 style/design and 86 technical specifications.
A conservative calculation would therefore be:
0.15 x 20 added to 5.00 x 86 = $433
If we enter any additional expenditure on to our design cost this will be used to further reduce the Prime Cost.
Note:This does NOT mean you should always aim super low with target Prime Cost. If you aim too low, then your project won’t have enough money to achieve its objectives and you will miss your style / tech spec targets as well as your prime cost target.
How do I correct a failed product design?
A failed product design is a design that shows anything less than 100% success rate within the Product Development Results Report. Unfortunately this means you will need to design the design again. However! The failed design is likely to be a lot closer to your desired specifications than the previous closest design, thus it means it is likely to be cheaper to invest in. Simply follow the process above again working off the new closest existing design (even if the closest existing design is a failure).
Three periods into the simulation and you will be given control of your firm’s Customer Relationship Management strategy. Customer Relationship Management or CRM is an approach to manage a company’s interaction with current and potential customers.
The purpose of a Customer Relationship Management strategy in the AdSim Advertising Simulation is to decide which policies you will implement to try and keep Existing Customers loyal to your brand.
In AdSim you are required to make decisions about four elements of your Customer Relationship Management strategy:
CRM SYSTEM
Decide whether or not you want to invest in a Customer Relationship Management database system? And if so what type? Entry level, Mid-Level or Custom Built.
WARRANTY
What length of Warranty that you want to offer your customers? 90 Days, 180 Days, One Year or Two Years.
SUPPORT
What level of a customer service do you want to provide? A manual, a knowledge base, Support Center, SmartCare.
LOYALTY
What type of customer loyalty program do you want to administer? A regular newsletter, a photo contest, video contest.
You are required to choose which option you think best targets your customers within your budgetary constraints.
You will be able to measure the effectiveness of your Customer Relationship Management strategy through the Market Demand report and the Market Survey of Customer Needs. These are available on the CRM decision screen.
Disruptor Daily featured Smartsims’ CEO, Dennis Gain to understand how Smartsims is using AI to transform education, and what the future of the education industry holds.
Smartsims began as we wanted to provide students with an experiential learning environment to bridge theories and concepts taught in class with real-life experience (you can read more about our history here).
We use Artificial Intelligence in our simulations through our use of robot competitors to replicate human competitors. This is most especially helpful in online courses that want to replicate a similar experience to students in campus.
One of the benefits of this for students is they are able to demonstrate working in team environments, exemplify an understanding of business problem-solving and fully represent themselves as capable professional candidates.
Your objective is to create wealth for shareholders and so you will be evaluated on the cumulative change in Shareholder Value that your firm generates.
Being evaluated on shareholder wealth is significantly different from evaluation based on net profit, market share, or earnings per share.
Your Aim
You should aim to:
Maximize net profit
Minimize shareholder investment
Minimize risk (associated with high levels of debt)
Due to these multiple objectives, a small niche marketer consistently earning good margins and without much debt may outperform a large heavily-indebted firm with earnings several times greater.
Firms will need to carefully consider these objectives when developing their overall strategy, their marketing, operational and financial plans. Simply increasing in size will not necessarily lead to an increase in shareholder value. You should only invest money (for example in new plant, new product development, or on factory improvements) if you believe that the return on these investments will be greater than what shareholders could achieve elsewhere at the same level of risk (e.g. shareholders can earn returns of 8% by investing in a term deposit). If not, you should instead consider repaying debt, paying a dividend, or repurchasing issued shares.
Devon Palmer (pictured above), a student of Professor Harold Lowe from Nova Scotia Community College has previously used our MikesBikes Introduction simulation in his Business course. Upon completion, he was asked by Professor Lowe to also trial both Music2Go Marketing and AdSim Advertising simulations for his work placement.
The review below is written by Devon. He shares his point of view on the AdSim Advertising simulation and some advice on how to do well in the simulation. He also created a few videos on both Music2Go and AdSim business simulations, which you can watch at the end of his review.
“AdSim is a computer-based Advertising Simulation of the Digital Camera division of a Consumer Electronics Corporation. You get the opportunity to experience and understand many of the key decision required to plan and implement an Integrated Marketing Communications (IMC) Plan.
AdSim will give you the opportunity to have practical hands on experience at making critical advertising decisions and seeing the outcome in a live, interactive case study.”
The goal of the AdSim simulation is to maximize your Cumulative Net Marketing Contribution.
How do you do this?
The first step is renaming your firm. This is available to you both in Single-Player as well as Multi-Player. Being able to make this decision gives the simulation a personal feel, rather than just being “Company #12452”. Your two market segments that you get to advertise and sell your product to are the Existing and New markets. Unlike other simulations that allow you to have multiple products in multiple market segments, AdSim only has the one camera that goes into the two segments.
Media Planning
As this is the advertising simulation, your main contribution is the Advertising Plan. Your main goal is to set your advertising budget and allocate it among the five areas; TV, Radio, Magazines, Newspapers, and Interactive Digital Media. While other simulations, like MikesBikes or Music2Go, also give you this option, AdSim goes a step further allowing you to allocate within those five areas. This is more in-depth and a great addition, especially for an advertising class.
Within the TV advertising you may allocate to four segments, Network TV, National TV, Local Spot TV, and Cable TV. Even further, you can allocate your budget into the Network TV segment into six more segments. These range from Early Morning to Late Fringe times of day.
Newspapers have four segments as well, which include, General, Business, Tabloid, and Sunday.
You can also further allocate within the General segment to five geographical regions such as North and South East, North and South West, and Central.
Magazines have five categories that you can advertise in, Women’s Lifestyle, Men’s Lifestyle, Entertainment, Family, and News.
The Women’s and Men’s Lifestyle choice further breaks down into four more choices based on the age of the customer. These are, Youth 12-17, Adults 18-34, Adults 35-55, and Adults 55+.
Radio gives you six station formats to choose from, these are, Contemporary Hit Radio, Urban, Country, Rock, Adult Contemporary, and Newstalk.
The Country Station gives you the option of allocating your budget between the five geographical regions.
The Adult Contemporary Stations allocated between various peak listening times ranging from Morning Drive to Nighttime.
Finally, the Interactive segment is new and unknown in this simulation. It gives you two choices of allocation, Direct Mail and Internet. They recommend experimenting within this segment to see how effective it is.
After doing multiple simulations and seeing how the advertising plan selections work, I find that AdSim does it best out of all other Smartsims simulations I have used. The option to further allocate my budget into different areas is a great choice and would greatly benefit any other simulation. It is also very easy to use and understand as you just need to make sure your “pie-chart” equals 100%. Reading the reports for Chapter 2 of the Player’s Manual will put you in the right direction on how to effectively use each segment to their absolute best.
Agency Selection
Another part of the AdSim simulation is the Agency Selection. Here you decide on either trusting yourself to choose your media selections in a custom plan. This is a high-risk, high-reward option in my opinion. As you may select the right numbers in the right segments, but if you don’t do that it can be disastrous. I recommend only using a Internal Plan if you do the research beforehand. The other three options for your agency include TV Magic, Print Works, and Radio Can. These have their obvious strengths in one area, or two in the case for Print Works, but are still better than the default plans for each segment. I recommend picking one of these three agencies as they will give you good results when used correctly.
Message Strategy
This is where you pick how you want your digital camera to appear on the market, as well as who you want to target. You have four decisions to make in each of the four categories, Target, Benefit, Proof, and Personality.
To make these decisions all you have to do is click the one you want and then click “Apply.” Target is who you are targeting to sell your camera to – Professional, Amateur, Recreational, or Family. Then you select the Benefit of your camera, Simplicity, Small Size, Picture Quality, or Feature Packed. After selecting your Benefit, you will need to select the Proof, which are, Lens, Focus, Digital Chip, or Direct Printing. The final message you will convey to your customers is the Personality of your camera. The options include Simple and Reliable, Fun and Exciting, Precise and Efficient, or Thoughtful and Nostalgic.
There are reports you can read that give you an insight on which choices to make to maximize in your desired market. Like the other choices you are able to make, these are extremely easy to make and understand as its just a simple click to decide.
Customer Relationships
Customer Relationships is another feature made available during the simulation. The options for these screens are: CRM System, Warranty, Support, and Loyalty. When choosing your CRM System, you are given four options, to not have one at all, an Entry-Level, a Mid-Level, or a Custom system. These decisions require a bit more research than others, but by reading the chapter section about CRM, as well as the reports about it, will help you in making your CRM, if you choose to have one.
The Warranty selection give you the choice of what kind of warranty you’d like to offer to your customers: 90 days, 180 days, 1 year, or 2 years. Support is how your customers will go about fixing any issues with the product. This is offered by a manual, a website tool, an email helpdesk, or a telephone helpdesk. The last option is the Loyalty program. You can choose not to have one, having a regular newsletter, a regular photo contest, or offering a Photo School. Information on making these decisions are available in various market research reports.
Marketing Communications
Later in the simulation, you will be given the opportunity to make the Marketing Communications decisions. This gives you the option of four choices, Sales Promotions, Trade Promotions, Sponsorships, and Public Relations.
Sales Promotions give the customer something a little extra when purchasing your product over the competitors, for example a bonus memory card. Trade Promotions are similar to Sales Promotions but give benefits to a Retailer instead. Sponsorships are a way to boost exposure for your product at a specific event. Public Relations is hiring PR consultants to attempt to promote towards journalist interest into writing reviews about your product. Again, there are reports you can read to give insight into which options to choose and when choosing the options, they are straightforward and simple to make.
Market Research
Market Research reports are available to purchase every year, with new and updated reports available every year. The price of these reports vary from $25,000 to $50,000 and can give you very valuable information that can help you win. Some reports are more important to buy than others, while some are not worth buying at all, so make sure you know what you’re looking for before purchasing.
I feel the price for these reports are very worth it, especially if you were to purchase a report you didn’t need or felt didn’t give you the right information. There are reports that the Player’s Manual recommends purchasing, and I completely agree as the information that is given is highly useful in dominating the market, especially early on.
Final Thoughts
In conclusion, I highly recommend the AdSim simulation by Smartsims for any class or business looking for business simulations that have a focus on Advertising. It gives you the right amount of content where it feels complete and spreads it out evenly throughout the rollovers.
For me personally, my class at NSCC Pictou would have greatly appreciated using this simulation during our first semester in our second year, as we had both an Advertising class as well as a Market Research class. It would have fit perfectly in our schedule as well as setting us up for our final semester where we challenged our Management counterparts to the MikesBikes simulation.
I give this simulation a 9.5/10 and again, highly recommend it to any classes or business that would like to use a business simulation to teach the fundamentals of advertising and its affect on the business.
Here are the videos that Devon created for both AdSim and Music2Go:
There are some real benefits from this short-term and intense competition between our teams. We do not have time to get complacent, we are doing two rollovers a week now and constantly have to be reevaluating and making new decisions. We are also establishing the brand for our company through our strategic focus.
This game makes us become self-aware of what we do not understand and need to review so we can be more successful in the next round. What changes we make in one area and how they may impact another area positively or negatively.
Each of us are also discovering our strengths within our teams and what we can focus on that sets our company apart. We are also learning how to better evaluate our competitors and analyze what data we can see from the other teams. This helps us make calculated decisions based on what we think their next move may be and plan accordingly.
We are also learning to plan far ahead to anticipate growth and expansion, not just focus on the rollover within the next few days. Another business mainstay we are strengthening is to always focus on what our customers need and want (Kittaneh, 2015).
We are lucky within this game because we get a lot of helpful data in this area, but our teams have to constantly look at where our bikes fall on the perceptual maps.
The Perceptual Map is a convenient way of visualizing the differences between the different market segments in terms of the different level of Style / Design and Technical Specifications that each of the market segments desire. The center of these circles represents an “ideal” product for each market segment. So demand for your products will be higher if they are closer to the center of these circles.
Segment Movement Over Time
The style/tech preferences of the market segments will change over time. The Standard Segment moves relatively slowly, the Youth Segment moves at a moderate rate and the Sports Segment moves quickly on the perceptual map.
Your market analyst in AdSim have suggested dividing the market into two segments: Existing Digital Camera owners and New Digital Camera owners.
Existing Customers
This is the base segment of market demand and as stated above the simulation starts off with approximately 1.7 million Existing Customers with approximately half of them expected to purchase a new Digital Camera each year.
Each year the number of Existing Customers will increase by the number of New
Customers purchasing Digital Cameras.
Existing Customers are characterized by being far more technologically savvy and more likely to be ready for a more complex Digital Camera with more features. They already know how to operate a Digital Camera so they are less impressed by firms’ support claims and more interested in Consumer Sales Promotions, Loyalty Programs and Warranty Lengths.
The initial Existing Customer base will largely be made up of technophile early
adopters, but this will change over time as the early majority swells the market from 1 million to 3 million annual sales per year. These adopters are less avid TV and Radio listeners than the general populations, and they read more.
In general, Existing Customers are a little more “price sensitive” than New Customers and they are looking for a deal.
Your firm anticipates approximately 15% growth per year in this market segment.
New Customers
The New Customers will initially be the early majority entering the market and by
the end of the simulation it will be the start of the late majority.
These customers will largely be “Middle America”, Families and Professionals wanting to digitally capture special moments in their life.
In general, New Customers are a little less “price sensitive” than Existing Customers; they are looking for an easy to use Digital Camera with good after sales support, and are prepared to pay a little more to guarantee that.
Your firm expects the number of new customers entering the market to grow by
approximately 15% per year.
Not sufficiently investing in training your staff, poorly paid workers and/or firing workers due to inaccurate capacity calculation will often result in a low skill and motivation index. In addition, another negative outcome of this is an increase in staff turnover rate, which means your products’ quality will also suffer.
So what should you do to ensure that your staff are highly motivated?
1. Pay your staff well
Workers are more motivated when they are paid well.
The average salary level you set will affect not only your bottom line, but also worker motivation and effectiveness. Factory workers are paid (on average) the rate you select. Administration staff are paid (on average) twice the rate. For comparison purposes, the average industry salary is $25,000 per year.
The graph below shows the motivation index achieved by changing the firm’s average salary from $25,000. The effect would be increased by sustaining the salary changes across succeeding years.
2. Train your staff
You need to think carefully about the relationship between your overall strategy and how employee motivation and employee skill levels relate to that, especially if your strategy is to be a low cost, high volume manufacturer.
In general, well trained and motivated workers are more productive than poorly trained workers, so you need to employ fewer workers to achieve a given level of worker capacity. If your workers are well trained and motivated you need fewer Administration staff.
Well trained workers are a significant factor in improving your internal quality. Workers are more motivated when they are paid more and when they are well trained. They are less motivated when you fire other workers as their feeling of job security decreases.
The graph below shows the effect of job cuts on morale and staff turnover rate.
Poorly motivated and poorly trained workers can contribute to significant staff
turnover (sometimes as high as 40% to 50% per year). That gets expensive because each worker than is replaced costs $4,000 to replace. Also each new worker arrives with a minimum level of training, so your average employee skill level is reduced which lowers your internal quality. So remember to maintain an appropriate balance in managing your workforce rather than using a ‘slave labor’ model even if your overall strategy is to be a low cost manufacturer.
3. Pay close attention to your workforce
Keep track of your staff’s Skill Index, Motivation Index and the Staff Turnover Rate by referring to the Manufacturing Quality Report every rollover. You can find this report in the Manufacturing menu > Reports tab and navigate down to the report.
Adrian Cenon is a Master’s student and MikesBikes Mentor from The University of Auckland. He was also recently invited by Audrea Warner, professor at the Graduate School of Management to share his experience using MikesBikes Advanced in the Managing People and Organizations course. We thought it would be a great idea for Adrian to share his experience with all of you.
Get to know Adrian more in our interview below as he shares his MikesBikes experience, the challenges and lessons he learned from the simulation.
Tell us about yourself
Adrian: I’m currently a Master of Management, major in International Business student at The University of Auckland. I have finished a degree in Economics and Education, major in History at De La Salle University.
I have worked in Singapore as an Organizational Development Analyst and as a Global Learning Support Executive. In addition, I was also a Training and Research Officer.
What was your first impression about using a business simulation in the course?
Adrian: I was impressed that my first course in University of Auckland recognized that learning is enhanced by connecting the management theories discussed in class with the dynamic interactions within a team. As well as how they respond to real-life challenges and scenarios incorporated in MikesBikes. Through my previous work experience, I have been an advocate of the 70-20-10 model (by Eichenger and Lombardo) that has been widely used by management consultants and talent development professionals.
Furthermore, I heard a lot of feedback from the previous Cohort that the MikesBikes experience will be a challenging, fun and effective way to enhance my business acumen and leadership skills.
Did your impression of the simulation change as the course progressed?
Adrian: Yes, the whole learning journey was more immersive and challenging than what I expected. The level of competition among teams was intense and it required a lot of effort and focus to adapt our strategies based on market trends so we could gain an edge. I also didn’t expect that it would elicit extreme levels of happiness, excitement and sometimes disappointment as you view the results after each rollover.
How was your experience working on the simulation on your own and eventually with a team?
Adrian: I would say that MikesBikes engaged my team on a level where we felt that we were running our own company and were accountable for our roles. When I reflect on the experience, I am extremely proud of how our team performed because of four reasons:
We were genuinely passionate about our brand – WindChaser, and how it stood for “Chasing the Right Things” – identifying what is important and chasing it with the best of our abilities. Everyone participated in formulating our Team Goals and Key Performance Indicators (KPIs) and strategies.
We had a great team culture and believed in the capabilities of one another. The rigor of analysing various reports (eg. Marketing, Finance, Manufacturing, Research and Development and Human Resources), making decisions, and competing with other teams strengthened our realization that we could only achieve our goals if we functioned as a high performing team. We learned to foster interdependence by aligning our actions with our core values of Passion, Accountability, Respect and Trust.
Third, we dealt with conflicting priorities the right way and demonstrated integrity in how we competed with the other teams. Our team was aware of numerous “strategies” that we could pursue to get ahead and maximise our Shareholder Value (SHV) at all costs. But just like in the real world, you are sometimes faced with a choice to focus on the bottom line or preserve your reputation and relationship with others.
For example, heading to the final rollover, we had the option of extracting as much capital from our partner firm/ subsidiary. The problem was that applying this tactic would hurt their final SHV. Instead of taking full advantage, our team agreed to a reasonable rate with our subsidiary to ensure a sustainable SHV growth for both teams. In the end, this decision came at the expense of our team losing the European market by a narrow margin. However, we didn’t treat this as a setback because we stayed true to our values and enhanced our reputation and credibility among our peers.
4. Even though we didn’t win our market, we believed that the MikesBikes experience brought out the best in each one of us. As the CEO, I learned the importance of empowering your team members to perform their roles but at the same time providing guidance and support when they experience challenging situations. I am grateful to my team for believing in my capabilities and trusting me that we would become better individuals as a result of this learning journey.
Please share your experience in the course as a whole and how the simulation added value and impacted your learning.
Adrian: I consider MikesBikes as an effective platform that maximised the learning from the “Managing People and Organisations” course. The different scenarios and complexities provided various opportunities. I was able to utilise my previous work experience and theories I learned in class, and apply them in a simulated business environment.
The experience took me out of my comfort zone as it brought a lot of high and low points which required me to reflect and adapt to changes to effectively lead my team. I consider the lessons learned from the simulation and the course as vital “Deep Smarts” which I would be able to leverage when I continue my career in Organizational Development and Talent Management.
What advice would you give your past self (go back to the time when you were still doing the course and the simulation)? What do you wish you knew back then when you were doing the simulation?
Adrian: I would prefer not to give my past self any advice about the course and the simulation. I believe that the process of dealing with uncertainty provided the best opportunity to learn and more importantly, build character. There were several instances where our team spent a lot of time in figuring out how to drive our strategies because we recognized that a wrong move can have significant consequences. Ultimately, the ability to handle pressure, evaluate the effectiveness of decisions, and manage our mindset proved to be excellent learning points which are applicable in the real world.
