Assessment of Final Market Position Regalto: We started with a strong position in the Alpha and Beta segment, and with an overall market share of 17. 2%. From then on our market share declined, reaching a low of 6. 9% in period 4. We launched new products in period 5, namely Fly, targeting the Delta segment and Spark, refocusing on the Alpha segment. This helped us increase our overall market share to 9. 7% in period 5. The key takeaway from this decline is that we were not quick enough to launch R&D of new products that would exactly target specific customer segments.
This allowed our competition (particularly Purple) to steal market share in segments (Alpha, Beta) where we originally had maximum penetration. Innovo: Our decisions for Regalto had a significant impact on our strategy and final market position in the Innovo market. As planned, we launched Sinatra targeting Sigma in period 4. We targeted Sigma because market forecasts suggested it was the fastest growing segment (35% growth estimated for period 3) and price wasn’t the most important attribute unlike for other segments.
We also felt that our competitors would introduce products in period 3 targeted at the higher volume segments Kappa and Lambda. We priced Sinatra at the high-end hoping to improve margins by taking advantage of the relative price-insensitivity of our target consumers. Given that Innovo was a relatively new market, we assumed that direct and special would be the channels of choice. Unfortunately, our financial position constrained us from advertising enough to build brand awareness and staffing it with an adequate sales force.
We tried to compensate for the sales force shortage by spending on training; this back-fired in that it took them away from their job of selling when the product was introduced. Sigma did not take-off as forecasted with among the highest forecast errors in the entire simulation (see Appendix). At launch, while Sinatra’s preference was the highest in Sigma, its awareness was low. Moreover, our competitors had between 2 to 7x more salespeople. Sigma customers also preferred the Chain and Department channels. This led to Sinatra’s low market share and forced us to incur significant holding costs.
Share eroded further when Green iLose launched in period 5. We reallocated our sales force to Regalto to focus on our new products Spark and LastDitch. Strengths & Weaknesses Currently, our key strength has been the ability to conduct reasonably cost-effective R&D in the Regalto market. We spent $945k to invest in the R&D project for our new product Fly, which received a preference of 27. 7% in the Delta segment. In addition, it achieved an overall market preference of 7. 8%, making it the best product on the market in period 5.
Even with a disappointing 3. 4% market share, it turned out to be our most profitable product. To capitalize on this strength, our new marketing management team can rapidly invest in new Regalto R&D projects to replace older products such as Lake when product preference begins to decline. Our current key weakness is the inability to generate sales volume and capture more market share, even with good products. Due to low profits in previous periods, our budget has been small and has subsequently limited our advert-ising spending and sales force expansion.
Even though Fly in Regalto and Sinatra in Innovo had good preference, we could not spend more in advertising or sales to capture market share. Another weakness for us was that Innovo R&D projects were very expensive, with products having high unit costs. In hindsight With the benefit of hindsight, the decisions we would make/change are: * Invest in R&D as soon as we realized that our Regalto products did not hit any particular segment. When Purple came out with well-targeted Panda, our price and revenue-leader Ocean dropped off. Manage inventories very carefully; we stocked-out when there was demand for our products and had excess inventory when demand slacked off. Holding costs hurt us significantly. * Pull laggards off the market sooner so there was no dilution of sales and advertizing dollars. We accurately recognized a key strength lay in our inexpensive Regalto R&D capabilities. However, endowed with strong products with strong awareness, we were too passive early on in generating new products to take advantage of that strength.
We also underestimated the speed with which competitors would come to market with products that eroded our market share, and as a result, were faced with large holding costs that ate into our Net Contribution, lowering our budget to turn from our ineffective passive strategy to a more aggressive R&D strategy. Halfway through the simulation, we had no pipeline for new products. We were again wrong when looking to Innovo to escape our Regalto tailspin. We hypothesized that by being one of a very few products in Innovo we could gain substantial market share and grow our Net Contribution.
However, Sinatra was started too late and was underfunded. While it met certain segment needs well, our manufacturing cost was so high that we lost money on each unit sold. Obviously, our market share did nothing to help our Net Contribution, and the product launch was a failure. By Period 4, we recognized the growth/decline trajectory of each segment in Regalto and had developed a strong model for predicting product preference by segment, allowing us to optimize our R&D spend in Regalto to target our strongest competition and give us the biggest bang for our limited buck.
We also realized that our competition’s sales force had outpaced ours substantially over the early periods in which we were floundering, putting us at a huge disadvantage for the later periods. We spent as much of our resources as possible to offset this, helped by the fact that our still-strong awareness in products was sticky enough to let us work off inventory without substantial investment in new advertising. Our initial low manufacturing cost and high margin for these legacy products meant that it was more profitable to work the inventory off than it was to dispose of it. Looking Ahead: Strategies ; Tactics
In Regalto, we have retired Ocean and Sky, our original products that have seen their target markets’ preferences drift away from the product attributes. In Innovo, we are trying to work off inventory of the unprofitable Sinatra. In our current portfolio of Regalto products, Lake has strong preference in the Gamma segment, and Fly has strong preference in the Delta segment. Spark and LastDich were products from the same R&D Project because Alpha and Epsilon shared enough important attribute preferences that one project would serve both at two vastly different price points.
We launched Spark first to target Alpha, and then LastDich to target Epsilon. Future strategy should be centered around building awareness and distribution of the key Regalto products Lake, Fly, Spark and LastDich. As Net Contribution grows, we would invest additional dollars in advertising and sales force expansion, focusing on products that are in growing segments or seeing the fewest strong competitors. Now that most of the segments are declining, other competitors with higher R&D costs might be hesitant to enter with new products.
Since we launched our products most recently, our attributes are closest to the segment ideals, and we are positioned to be the last man standing in each segment niche. Innovo is a more uncertain market. Multi-period R&D projects are substantial risks until the market segments’ preferences start to stabilize. Until we have the funds to conduct R;D, or the segments’ preferences change less dramatically from period to period, we should focus our energies, funds and sales staff in Regalto.
Ultimately, we would accept not re-entering the Innovo market if we successfully corner the declining Regalto market. Appendix Figure 1 Figure 2 Market Share in Regalto| | | | | | | | P0| P1| P2| P3| P4| P5| Red| 15. 21| 12. 19| 12. 25| 16. 64| 13. 49| 11. 71| Orange| 16. 59| 15. 75| 11. 19| 10. 01| 16. 73| 19. 52| Yellow| 16. 30| 18. 70| 18. 36| 20. 00| 15. 12| 10. 21| Green| 17. 02| 21. 12| 17. 98| 14. 16| 9. 06| 5. 48| Blue| 17. 24| 15. 88| 14. 32| 11. 95| 6. 90| 9. 68| Purple| 17. 64| 16. 37| 25. 90| 27. 23| 38. 71| 43. 40|