web business management part1

8/3/2019 Web Business Management Part1

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Copyright 2002 by Ernest R. Cadotte


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Business Management

Competing in theMarketplace

Ernie Cadotte


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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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Learning Strategy:Learn by Doing

Participants learn about all aspects of business by

managing a simulated business.

TheMarketplace scenario follows the life cycle

of a new product.

Business decisions are introduced as they becomerelevant in the evolution of the product.


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Key Benefits

Develop teamwork across functions & locations.

Promote better decision making by helping

participants see how their decisions can affectthe performance of others & the organization as

a whole.

Facilitate learning of important businessconcepts, principles and ways of thinking.


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Key Benefits

Discover how important it is to use market

data and competitive signals to adjust the

strategic plan and more tightly focusbusiness tactics.

Build confidence through knowledge and

experience.


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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.


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Business Team Market

Opponent

Opponent

Opponent

Opponent

Objective is to profitably capture

a dominant market position


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Business Teams

Each team member

assumes a tactical area of

responsibility.

MarketingFinance

ResearchProductionOverall Leadership


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How conducted?

Business team receives information on currentsituation.

Current situation is evaluated, strategy

formulated and tactics set in placed.

Tactical decisions are fed into theMarketplace

simulator, along with decisions of opponents.

Results of decisions are fed back to business

team.


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How conducted?

The business team can acquire information onwhat is happening in the marketplace through:

customer reaction to market decisions

competitor actions

Current situation is evaluated, strategy

formulated, and tactics are set in place. Tactical decisions are again fed into the

Marketplace simulator.


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Game Scenario

You and your business partners have decided to

enter the international microcomputer industry.

The microcomputer industry is in its

introductory stage of the product life cycle.

Several other international firms are entering

the market at the same time.


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Game Scenario

Your business strategy will be tightly focused ondirect sales to business customers.

You will not sell to the home market or through

retail stores.

You will sell through company-owned sales offices

in major metropolitan markets around the world.


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Marketplace isavailable via

Netscape and

Internet Explorer.

Go to:

marketplace6.com


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The step-by-step

process that walks

you through the

information and

decisions.

The softwarecontrols your

progression to

reduce your

uncertainty and tohelp you see the

logic of the

marketing process.


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Be sure to readthe directions

on how to use

theMarketplacesoftware.


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Sales Offices

ParisBerlin

Rome

London

Beijing

Shanghai

Guangzho

Tianjin

Curitiba

Rio de Janeiro

Sao Paulo

Belo Horizonte

Montreal

Toronto

Calgary

Vancouver

New York

Atlanta

Chicago

Los Angeles


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Market Segments(Market Structure)

Price

Performance

Cost Cutter

WorkHorse

Traveler

Innovator

Mercedes


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Chronology of Events

Q1: Organize the team, name the company

and contract for a survey of potentialcustomers.

Q2: Analyze market information, establish

strategic direction and set up shop (build

plant, design brands and set up sales offices).


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Q3: Test-market brands, prices, ad copy,

media campaigns, sales staffing. Determine

production schedule for each brand.

Q4: Study end user feedback, competition,

and financial performance and make

adjustments in strategy.


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Q5: Prepare a two-year business plan.

Present business plan and financial request to

venture capitalists and negotiate equity

investment.

Q5Q8: Initiate international roll-outcampaign.


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Q9: Prepare report to the Board regarding

second year performance

deviations from planjustification for departures

analysis of current market

plan for future


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Equity Financing (Q1-Q4)

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.

Forty thousand shares of stock will be issued to the

executive team in exchange for their 4,000,000.

The initial stock value is 100 per share.


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Equity Financing (Q5)

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.

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.


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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 adverse and will call in your

loan in part or whole if your debt capacity declines dueto unusual or extended losses.


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Special Financing Needs

The bank is intolerant of poor financialmanagement.

If a firm ends a quarter with a negative cashposition, the bank will contact a loan shark by the

name of Guido to obtain an emergency loan tocover the firm's checking account.


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Guidos Financing Terms

Guido 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 100 which Guido places in your checking

account, he will take one share of stock in your firm.

The issuing of stock to Guido causes a dilution of yourstock value and your share of the company.


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Bankruptcy

A firm is technically bankrupt if its cumulative losses

exceed its equity investment.

Bankruptcy occurs when the sum of the retainedearnings 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.


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Performance Evaluation

Report to Board

Strategic thinking and tactical execution

Balanced Scorecard- cumulative score for

quarters 5 through 8

How well the company is prepared for the future


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Q1: Organize the Business

Name the company

Assign organizational responsibilities

Share personal learning goals

Establish team norms

Purchase survey of end users

Sell stock to executive team


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View Sample Decisions


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Learning Points for Quarter 1

Managing the team

Organizing the work Deciding what one wants from the learning

experience


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Quarter 2

Setting Up Shop

Establishing the Firms Strategic

Direction with a focus on brand

design considerations.


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Q2: Establish Strategic Direction

Analyze market information Establish strategic direction

select target segments

decide on competitive posture

Set up shop

design brands for target market segments

develop distribution strategy locate and build plant

open initial sales offices for test market


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Customers Buy Benefits,

Not Features


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Once you select

a segment, you

must design abrand to meet

the needs of the

segment.

What features would

make a computer more

attractive to the

Traveler segment?


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How far do you go in giving the

customers what they say they

want?

Is more speed, software applications,

memory, keys on the keyboard, etc.always valued?

Could more of some feature evenmake a customer unhappy?


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What is the elasticity of the

peanut?

Searching for the

Markets Response Function


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Suppose you could design the ideal

candy bar. How many peanuts

would you put in the candy bar tomake you the happiest?

None

A few?

A bunch?

A whole lot?


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Which Candy Bar has the

Most Peanuts?

Baby Ruth Snickers

Payday

Milky Way


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Which Candy Bar

Do You Like the Most?

Baby Ruth

Snickers

Payday

Milky Way


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What does your response

function look like for peanuts?

Is more always better?

Would your happiness increase withevery new peanut we added to the

candy bar?

Is there a limit?


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Number of Peanuts

Influence of peanuts on candy

bar enjoyment

None few lot whole bunch

Um-um good

Yuk


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What would be your response

function for the following?

Chocolate

Caramel Nougat

Coconut

Rice Peanut butter


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Here are a number of response

functions. Which one applies to

peanuts, chocolate, coconut, etc?

Hot

Cold

Less More

Hot

Cold

Less More

More is

always

better

More is good to a

point and then ceases

to add excitement


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A little is just

right, more only

takes away value

Cold

Hot

Less MoreLess

Hot

Cold

More

More adds

value to a point

& then takes

away value

Response Functions


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Hot

Cold

Less More

Little interest

until threshold

is crossed

Hot

Cold

Less More

Any amount is bad

Response Functions


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Hot

Cold

Less More

No reaction/indifferenceto having the feature

Response Functions

T k A PC S t


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Take Any PC Segment,

How Excited Will It

Become if You Provide.

More memory?

More functions on the keyboard?

More software?

More..?

Just like the candy bar ingredients, you must discover the

response function for each PC component.

S l h i ld


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Select components that yield

benefits for Travel PC segment

Rugged Micro- High Wireless 6-hour Low-profile, Compact Trackball Wrist rest

casement circuitry resolution modem battery built-in disk, keyboard mouse on keyboardflat LCD CD drives

display

Portability Use on road Connect to office Easy to use

M t l Di i li f M k t l


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Mental Discipline of Marketplace

Marketconditions

Marketingstrategy

Marketingtactics

Marketassessment

Marketobjectives

Marketperformance

Manufacturing

conditions

Manufacturing

strategy

Manufacturing

tactics

Manufacturing

assessment

Manufacturing

objectives

Manufacturing

performance

Environmental

Analysis

Business

Strategy

Feedback

Business

Performance

Assessment

of Business

Conditions BUSINES

SLEVEL

Strategy

Financialconditions

Financialtactics

Financialassessment

Financialobjectives

Financialperformance

Financialstrategy


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Market opportunity analysis

Segmentation and target marketing

Strategic and tactical planning

Financial management


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Game theory - competitive positioning

Brand design

linking product features to customer benefits

finding the customers response functions

Marketing & manufacturing tradeoff - satisfythe customer or run the most efficient factory

Financial liquidity - cash versus assets Logistics of plant location - production

versus shipping economies


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Quarter 3Go To Test Market


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Q3: Go to Test Market

The Goal is to Maximize

Learning and Not Profits


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Q3: Go to Test Market

Set selling prices

Develop advertising campaign

design 2 ads, one for each branddetermine number of placements per ad

Develop distribution strategy

hire sales force for quarteropen new sales offices for Q4


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Q3: Test Market

Schedule production

forecast demand by brand

run factory simulation, check numbers

Contract for market research on customers

and competition

Check pro forma financial statements - All

Y k t k t


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You are a market maker, not a

market taker

The market is not waiting for you to take their orders.

You must create the market

Sell brands that customers want and at a price they arewilling to pay

Locate sales offices where the largest number of customerscan be found

Inform and persuade customers to buy a PC through

advertising Hire sales people to go out and find customers and

persuade them to buy your PC


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How to Set Price?

Costs (production, marketing, overhead) Profit goals

What market will bear

Competition


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In the beginning, you will not be

able to price above your costs

There are many startup costs which will

exceed your revenues.

Your production volumes will be very low,

resulting in high per unit costs.


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No Early Profits

Money

0Time

Costs to setup

& grow the

business

+

Revenues will fall below costs


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Revenues will fall below costs

at outset of new business

Money

0

Time

Costs to setup

& grow the

business

Revenue

+


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Profits will come later

Profits

come

later

You are here

Profit Profits

0

Time

Costs to setup

& grow the

business

Revenue

+

-

Your goal is to speed up the


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Your goal is to speed up the

adoption rate

Demand

Time

introduction

growth

maturity

decline

You are here,

high costs-low demand


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What will the market bear?

You must discover the marketresponse function regarding price.

What is the markets price


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What is the market s price

response function?

Your

Demand

Your

Price

Elastic (demand drops fast

with increasing prices)

Inelastic

(price is not a big factor)


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Maybe it looks like this?

Your

Demand

Your

Price

Demand drops slowly with small

price increases and then drops

dramatically with larger priceincreases

A differential advantage can


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A differential advantage can

reduce price elasticity

Your

Demand

Price premium for your brand

Less Elastic

Elastic

Differential advantage

shifts demand curve and

reduces price elasticity

H ill th k t d t


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How will the market respond to

competitor prices?

Your

Demand

Competitors Price

Low competitor prices

will kill your demand


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How to create ads?

Low priceEasy to use

More productiveFast

Office applicationsPicture office workers

Most important

Order of priority

implies importance of

message to customer

Order of priority tells

the ad agency what to

stress in the ad

Your Ad

Least important

H h t i d?


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How much to say in an ad?What number of benefits?

Which response function is at work?

or

More is good to a

point and then ceases

to add excitement

Hot

Cold

Less More

Hot

Cold

Less More

More adds

value to a point

& then takesaway value


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How often do you advertise?

Your

Demand

Number of ads

Diminishing

returns

Too little

B t it l d d h t


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But it also depends on what

your competitors do.

Your

Demand

Competitors Advertising

Strong competitor

advertising

will steal away

your customers


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How many sales people?

YourDemand

Number of sales people

Too many

Diminishing

returns

Too few


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YourDemand

Number of sales people

Shift the response function

upwards with better brands,

prices, advertising, sales

force placement

The response function is dynamic!


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Execution of a coherent strategy

Management of cash in the face of greatuncertainty

Learning to walk before you run


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Marketing strategy - coordinating a host of tactics

Pricing - balancing costs, profit, what the market

will bear, and competition

Testing the market - discovering the markets

many response functions

Production - managing capacity, inventories, and

costs in light of demand goals

web business management part1

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