Before the start of a new round, there are a few reflections. 3 things are worth summarizing.
Firstly, given our constrained resources, it is unrealistic to expect triumph in every market. Under the current market conditions, it seems imprudent to pursue every product line. The potential risks outweigh the prospective benefits. As for this moment, there is intense competition emerging in the traditional and low-end markets.
Secondly, I felt over-emphasized the company’s financial performance in early stage without first establishing a product advantage. As I believe for early round of 1st to 3rd, product positioning outweighs many other issues. I also need to acknowledge the fact that I might be biased due to my background on overvalue the product positioning and situational analysis.
While I unequivocally acknowledge the centrality of finance. I must stress that product differentiation and strategic positioning are pivotal. Without these, even the most “good looking” financial statements remain largely inconsequential. As there are so many real world examples I have in my collection of memory. While I appreciate the Capsim simulation, I find its representation of the stock market to be overly simplified. In the real-world stock market, numerous external factors can contribute to market fluctuations. In the simulation, however, the stock price behaves more as a representation of a purely logical market.
PS: A thought unrelated to the Capsim course, is the company with a higher stock price a better company? The answer is obviously no. A firm’s corporate strategy determines its financial strategy, subsequently influencing all financial indicators. Assume that a company’s strategy is positioned in the high-end, size and performance market, As this market niche constitutes merely a fragment of the larger market, it inherently restricts the magnitude of capital the company can attract. This scenario starkly contrasts with the low-end market, where there’s more need for expansive production lines or significant capital influxes.
When a company’s profitability and growth potential surpass its target market expectations, there ‘s a decision need to be made. Some might opt for retained earnings or reinvestments, while others might distribute a portion of the profits back to shareholders, thereby refining the firm’s asset structure. However, it’s pivotal to understand that shareholders typically evaluate not solely based on stock price returns. Their assessment matrix also encompasses overall return maximization, the profit ratio per capital investment, and the minimization of risks.
The third point I’d like to emphasize is base on my observation, many students approach gravitates towards a model of linear regression. Which I at this moment believe comprehension of game design mechanisms and game theory more important.
Market Situation
Disadvantage in High End Market R&D, with potential opportunity.
In my opinion, the most significant concern appears to be the team’s disadvantage in R&D, especially with higher-end products. This remains a major issue. Although we achieved significant success in the high-end market, it was primarily due to Andrew’s underproduction, as illustrated in Figure 1 (High-end market, Actual vs. Potential Market Share). While we capitalized on our competitor’s mistakes for the last two rounds, we cannot expect them to repeat the same errors indefinitely.
Figure 1, High-end market, Actual vs. Potential Market Share
On the positive side, our disadvantage in the high-end market this round was significantly less pronounced than in the previous round. As shown in Figure 2, Andrew and Ferris, teams that previously held a technological advantage, did not make any R&D improvements on their high-end products in Round 3. This has narrowed the gap in customer surveys.
Figure 2, High-end market, Market Segment Analysis R2 vs R3
Intensify competition in traditional market.
The problem of excess inventory has been exacerbated by overproduction. The traditional market features competition from 8 products, which has contributed to this overproduction. Nonetheless, our last round’s prediction of 2,583 was inflated, given that the total market demand was 8,809. A prediction of 2,583 would constitute 30% of the entire traditional market. Relying on benchmark predictions can be misleading, as such numbers in my opinion are only valuable if we can also obtain benchmark predictions from others.
Figure 3, Traditional market, Market Segment Round 3
Considering how ‘Eat’ is positioned and priced, as well as the decrease in MBTF, we should anticipate one more product entering the lower end for the next market prediction round. This means there will be a total of 7 products in the low end and 7 in the traditional market. Even though Team E’s robot isn’t making optimal decisions generally, it’s still expected to capture between 15% to 20% of the market in both the traditional and low-end sectors. This will likely reduce the intensity of competition in the other three markets.
In the previous round, we adopted a low-price strategy for the traditional market. Comparing “Baker” to “Daze”, we see an 8% disadvantage in accessibility on addition to a product research delay of one month. However, the low price strategy seems to have been somewhat effective, as 100 more unit was sold compare to “Daze”. Given our ongoing inventory issues, I believe we should persist with this strategy and keep the price at $25.50. This price falls within the Round 4 domain of $18.00 to $28.00. As the accessibility gap narrows in the upcoming round (82% for “Baker” compared to 88% for “Daze”, assuming both maintain their sales spending at $3,000), “Baker” might be in a position to capture a bit larger market share in the next round.
Figure 4, Baker vs Daze in round 3
Another interesting founding is three other teams seems not realized the relationship of spending on promotion and awareness, as they did not decrease spending in the last round as their awareness reach to 100% (Figure 5). At this moment, it seems like I spend way too much time on this and maybe over analyze them.
Figure 5, Awareness and Promotion spending R2 vs R3 in low end market
A major disadvantage in the size market, yet we were still successful?
In both the performance and size markets, we remain behind in terms of research and development. In the performance market, since the primary influencer for purchasing is the MBTF, our R&D disadvantage is not as pronounced as it is in the size market. It appears that the size market isn’t a focal point for “Chester”, and the success of other teams is largely attributed to “Andrew” under-producing
Our current market share of 24% for size market is, in my view, largely due to our advantage in customer accessibility and other teams was’t taking size market very seriously. If other teams decide to compete more aggressively in this market, we should anticipate this advantage diminishing within the next two rounds.
Figure 6, Size Market, R1, R2, R3
It’s important to note, as indicated in the above figure, that Teams F, D, and C either did not undertake product revisions in the last round or their revisions weren’t sufficient to close the gap with the ideal age of 1.5 years, which is a key buying criterion for size customers. Particularly, given Team F’s success over the last two rounds, it’s highly probable that all three teams will engage in R&D this round, potentially intensifying the competition.
Figure 7, Size Market, Actual vs. Potential Market Share, Round 3
Market Prediction
In terms of product prediction, given the introduction of new products in both the traditional and low-end markets, a more conservative approach is preferred. While I don’t see Team Erie having a significant impact, the implications of products entering and exiting a market cannot be ignored. In the traditional product category, we managed to secure 17% of the market share last year with 7 other products concurrently available in the market. As I anticipate one product exiting the market and given that R&D for traditional products has remained relatively stable, the December customer survey could serve as a reliable predictor for next year’s demand, which should be given greater weight in our considerations. Therefore, our projected number should be adjusted to approximately 1,900 units, representing 18% of the anticipated total demand of 10,504 units in the traditional market for next year. As our team has stock inventory carried from the last round, recommended production shall be set at around 1600 units. It will leave 2581 total units available for sale in round 4.
Figure 8, “Eat” positioning vs ideal R4 to R7
In the low-end market, we anticipate the introduction of another product with characteristics such as an age of 3.09, a PFMN of 5.5, and a size of 14.5, as shown in Figure 7. The impact of this new entry must be considered. This product is likely to capture a market share of 400 to 500 units (compared to 329 units in the low-end for R3). Consequently, the final sales are expected to be close to, if not below, the baseline of 2,451 units, compare to last rounds of 2266.
For the high-end and size, final sales will largely depend on whether “Andrew” underproduces again. A detailed financial analysis of their operations might be necessary to better understand the reasons behind their production falling short of its potential. Given the uncertainty about whether they’ll repeat the same production pattern, I recommend our team incorporate a 15% to 20% buffer. This way, if they overproduce, we’ll be positioned to capitalize on that opportunity. Conversely, if they address their production issues, our risk of overstocking will remain at a manageable level.
For performance, every team seems to be at its potential, and I don’t anticipate major surprises. I recommend relying on customer surveys and then factoring in the growth rate.
Figure 9, Final Prediction after adjustment.