Minnesota Motors – Marketing Simulation Author: Anurag Gupta Executive summary The goal is to increase the overall market share and profits of MM’s Motors in the current market environment by targeting appropriate customer segments and proper allocation of marketing resources. Initial Strategy: Our initial strategy was to concentrate on segment A because of the following reasons * MM possesses a competitive position in this segment in terms of quality product offering and close customer relationships through high level of customer support. Also, the competitors’ new product was highly competitive in thermal resistance parameter which would make it difficult for MM to compete in segments B and C * The net price of MM motors for segment D is $119 as compared to industry net price of $111 (refer the exhibits). Since this segment is highly price sensitive, to increase market share in this segment would require MM to reduce its list price. The current market share of MM in segment A is 19% and our initial strategy was to increase this market share by allocating maximum resources ($200,000) to market research and 50 % sales force time to segment A.

The rest of the sales force time would be equally divided between the segments B, C and D. Change in Strategy: During simulation, we studied the effects of percentage increase of sales force time for each market segment individually along with decrease in list price. As we proceeded with the simulation, we found that * A decrease in list price and an increase in percentage sales force time for segment D would be more fruitful in the short run as it will increase the overall sales volume and overall profit much more than in the case where sales force concentrates more on segment A. This is because the overall market share of highly price sensitive customers in segment D and “small volume customers” is almost three times of segment A’s market share. * So, even though the profit margin in segment D and “small volume customers” is lesser than that for segment A, the overall profit was greater because of the scope of much higher sales volume. * Hence, we decided to increase the sales force percentage time for segment D to 40% and for segment A to 30%. We decreased the sales force time percentage for segments B and C to 15% each. Also, we reduced the list price from $142 to $136.

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Problem Analysis The segmentation has been done on the basis of buying behavior of the customers. Knowledge of segment buying behavior can help redirect marketing resources for profit gain. Buying behavior parameters of each segment is as follows. Customer Segment| Buying behavior parameter 1| Buying behavior parameter 2| Segment A| Power to size ratio| High level of sales support required| Segment B| Thermal resistance performance| Highly values market and technical knowledge| Segment C| Both thermal resistance and power to size ratio| Least price sensitive| Segment D| Highly price sensitive|  |

Small customers| Highly price sensitive|  | At present, segments A and D give the most revenue to MM. MM has 19% market share in segment A since MM’s mainline product “Orthopower Micromotor” has a highly competitive power to size ratio and MM maintains high quality relationships with its customers by providing high level of support in every department. Exhibit 1: List price = $142 (Before simulation) Customer segment| MM Market share| % of total MM revenue| MM Revenue per annum| MM Revenue per annum| MM Units per quarter| MM’s net price $| Industry average net price $| Price difference per unit $| Segment A| 9| 33| 4057500| 1014375| 8115| 125| 117| 8| Segment B| 4| 7. 7| 951584| 237896| 1816| 131| 120| 11| Segment C| 4| 7. 1| 874752| 218688| 1608| 136| 126| 10| Segment D| 7| 22. 5| 2764608| 691152| 5808| 119| 111| 8| Small volume customers| 12| 29. 7| 3651648| 912912| 6916| 132| 123| 9| Competitors’ position: Competitors’ product possesses high power and high level of thermal resistance. This poses serious competition to MM in segments B and C. Also, the price of MM motors is relatively high in comparison to that of competitors which is the main cause of low market share in segment D as well.

Challenges during simulation: During simulation, the primary challenge we faced was to decide on the key parameters that should be changed and the level of change in each of these parameters to get optimum profit and higher market share. Key decisions: Since our initial strategy was to increase the sales volume of segment A, we decided to concentrate on sales force time percentage parameter for each segment and the list price of the motors. We studied the effects of percentage increase of sales force time for each market segment individually along with decrease in list price on the overall profit of the company.

Solution Analysis Decrease in list price from $142 to $136 and increase in sales force time percentage to 40% for segment D and to 30% for segment A. As we proceeded with the simulation, we found that * A decrease in list price and an increase in percentage sales force time for segment D would be more fruitful in the short run as it will increase the overall sales volume and overall profit much more than in the case where sales force concentrates more on segment A. This is because the overall market share of highly price sensitive customers in segment D and “small volume customers” is almost three times of segment A’s market share. * So, even though the profit margin in segment D and “small volume customers” is lesser than that for segment A, the overall profit was greater because of the scope of much higher sales volume. * Segments B and C sales force time was reduced because of the high competition that MM faces in these categories on the basis of thermal resistance parameter.

Exhibit 2: List price = $136 (After simulation) Customer segment| MM Market share| % of total MM revenue| MM Revenue per annum| MM Revenue per annum| MM Units per quarter| MM’s net price| Industry average net price| Price difference per unit| Segment A| 19| 33| 4057500| 1014375| 8115| 120| 117| 3| Segment B| 4| 7. 7| 951584| 237896| 1816| 125| 120| 5| Segment C| 4| 7. 1| 874752| 218688| 1608| 131| 126| 5| Segment D| 7| 22. | 2764608| 691152| 5808| 114| 111| 3| Small volume customers| 12| 29. 7| 3651648| 912912| 6916| 128| 123| 5| We noted that the overall profit was the maximum for this scenario as it increased the overall sales volume in both segment C and “small volume customers”. Alternate approach: The alternate approach for MM can be to concentrate its market research funds and sales force more into segments A, B and C because these customers would be much more loyal and would not be price sensitive.

Hence, in the long run, MM can target for higher profit margins than for higher sales volume if it concentrates the sales and market research resources to segments A, B and C. The main challenge with this approach is that it would difficult to attract customers from these segments who are already loyal to competitors and would require much more effort from the sales team and the product development team to come up with a product that caters the needs of these segments especially segments B and C where MM has yet to prove its overall competitiveness.

Learning and experience This simulation exercise helped us to validate whether our suggested solution was an optimal one and also helped us to arrive at new solutions through experimentation which finally led to change in our overall decisions and strategy. It also showed us how varying a single parameter can change the overall market share and overall profits of the company. Finally, it reinforced the theory behind segmentation of customers according to their buying behavior to achieve optimal marketing strategies.