Country Manager
...wo years (this varied by country) the creative execution score suffered because of this switch, but we chose to stay the course and press on with the repositioning effort. Over time the creative scores improved (reaching 100 by the last three turns) and demand for healthy products began to turn in our favor. We continued to market the Allstar brand as the healthy choice in every country even though the healthy toothpaste wasn’t as popular in countries like Mexico where price was a large factor in the decision-making process. There was some debate as to whether or not this was the right thing to do, but the consensus at the end was the fact that the end goal was to move demand from economy toothpastes to healthy toothpastes and that advertising the healthy message was the only way to do this. Realizing that demand wouldn’t switch over night, we compromised by offering greater allowances / promotional budgets to healthy products in countries that preferred the economy toothpaste in an effort to stimulate demand and incite the conversions. Product Strategy The initial strategy was to market a wide range of products and see which products appealed to the consumers. This factor, along with the assumption that Mexico would benefit from importuning products from Chile instead of the United States, led our group to make the fatal error of increasing capacity by 120 million units. We were now forced to continue to offer a wide variety of products in order to use up as much production capacity as possible and make up for the depreciation, while paying an extreme amount in administrative costs. We were locked into a bad choice very early on in the simulation and we certainly paid for it. On the positive side, we were able to increase our brand awareness by offering a wide range of products for the various needs of a toothpaste user, which ended up increasing our market share to the second largest in the class. In some markets we reduced our product offerings and were able to become profitable. For example, Chile posted its first profit of 1.2M in period four (see Appendix LINDA!) after we offered a smaller selection of products and the introduction of a new advertising message. From this period we learned that we needed to offer as many products as possible to utilize the massive amount of production capacity we had requested, but not to the point that expenses exceeded the profits generated by the product offering. It became painfully clear in countries such as Mexico and Peru that even the slightest change in price could spell disaster if it wasn’t done correctly. For example, if we decreased the price (usually the case for economy toothpaste which was priced at 27%, slightly more than breaking even) we sold too much product and the import/shipping costs ate up what little profit was to me made; if we increased the price no one bought the product at all. Since our manufacturing capability mandated a wide product offering, the solution came in two pieces: (1) we managed our expenses rather than manipulating prices, which meant a little less marketing in place of a price increase, and (2) the refinement of the product offering (which decreased sales volume, but also decreased administrative expense) followed by increased promotion efforts in channels with high sales potential (which increased the sales of the remaining products and helped meet our capacity issue). Financially, the end result was a wash, but it helped to maintain balance in countries that were price sensitive and had the unexpected result of strengthening Allsmile’s brand – particularly in the healthy category. Chile kept its healthy message in period five and stayed the course for its product lines and distribution channels, with some minor adjustments in price to account for an increased COGS. The increased price led to decreased sales volume, which in turn led to higher than expected advertising and promotional costs. At this point the BEI for Chile was unrivaled, but it was coming at a price that was quickly becoming too steep to manage, so it was agreed that advertising expense ought to be reduced by about 1/3 across the board. Even though this was against our better judgment, the end result ended up boosting the country’s contribution without affecting the popularity of the healthy product line. We employed this strategy in other countries where the healthy image was firmly established and realized similar results. This taught us that once an advertising campaign reaches its desired momentum, costs can be cut back and lesser effort can be used to maintain the figurative speed of the campaign without hurting the sales rates of the product being advertised. Promotional Strategy Our initial promotional strategy killed our company in the bottom line. We began by thinking that a large advertising budget coupled with an equally large promotional budget would allow us to gain a lot of market share in a short period of time. This killed us for the first half of the simulation, partly because the exchange rates weren’t used actively and we didn’t realize how much money we were actually spending on this two-pronged approach. A good example of this was period six, where we finally got our advertising and promotional costs under control in Argentina by actively applying the exchange rate; this reduced our promotional budget alone by more than 33%. We also decided to allocate the reduced budget based on sales force as opposed to total channel sales, which resulted in less wasted promotional materials and a more active traditional distribution channel. The end result was an amazing 6.4M profit as compared to the previous year's 2.1M with only a small difference of 1.9M increase in sales. In the end, we decided to focus our promotional efforts more in the traditional and self-service channels by allocating all of our promotional budgets based on sales force number or by disabling the promotional efforts in other channels that we distributed our product in completely. This proved especially effective in larger countries like Mexico and Brazil, which responded well in the traditional channels thanks to the increased promotional efforts and had minimal reductions in sales volume in the hypermarkets because of the decreased promotional efforts. Distribution Strategy We built our plant in Chile, primarily because the country had favorable trade conditions and the country was close to the other countries in the region and we thought this would help reduce total freight costs. We began by selling in every distribution channel and matching the number of staff of our competition to see what worked best. This strategy was not successful and we started customizing our distribution channels for every country. Each country responded differently to our distribution strategy, so managing the distribution in 5 countries towards the end was actually like playing five different games at once. For example, some countries favored newer forms of retailers (meaning they moved away from mom and pop shops toward the hypermarkets), some countries were spread out and required a larger sales forces, and others required a relatively smaller sales force to establish the same market share, coverage or volume. One of the biggest components of our success toward the end of the simulation was realizing how the discounts worked for the different distribution channels. Our primary focus had been on hypermarkets in countries where they were popular because we were attracted to the high volume produced by remaining active in this channel. We learned that the problem with hypermarkets is that they required such a high discount (about 40%) that the resulting profit was not nearly as large as we thought it was. We then discovered that we could actually make more money selling less product in traditional stores, which allowed for higher promotional latitude and stocking allowances. We didn’t want to switch from hypermarkets to traditional markets completely for fear of abandoning our market share for increased profit, so it became clear that we needed to find a balance in order to enjoy the best of both worlds. We began playing with different distribution strategies around period seven in Peru. We lost 0.5M while experimenting with the various distribution channels available for the country, and even though the results weren’t what we wanted the knowledge gained was invaluable. We learned that the wholesale channel was killing us and that a massive sales force in the traditional venue didn’t necessarily mean effective coverage of that area. We used this information to make adjustments and try a new distribution method in period eight, where we cut back on promotion in hypermarkets, dropped out of wholesale completely, an allocated our promotional efforts based on the sales force (this had the effect of focusing promotional items in traditional distribution channels and stimulated sales significantly.) We took this information and proliferated it across the various countries and by period 11 we quite literally turned the game around with this newly acquired knowledge. Another pleasant surprise came in the form of web-based sales, which did exceptionally well in countries that had a higher GDP, which inferred that they were more affluent and therefore had access to a computer and internet. Very little manpower was needed to maintain this channel and we realized high sales in Brazil, Argentina and Chile. What was also nice about the web sales was that we could promote the goods online and, thanks to our decision to allocate promotional goods based on sales force, the web initiatives left plenty of promotional goods in the traditional markets. This discovery came around period nine, just in time to pull us ahead and give us the nudge to have the highest period contribution out of any team in the entire game. Profitability and Market Share Analysis The biggest lesson learned from our Country Manager simulation is that a dollar spent on advertising doesn’t necessarily mean two dollars back in sales. Ultimately, it just means you spent a dollar on advertising. By overspending on advertising, our profits were dramatically reduced for the majority of the simulation. Currency was also a big factor in our advertising spending conundrum; in countries like Venezuela where inflation was amazingly high, we would spend as much as one billion VEN on advertising and have no concept of what we had done. We knew there was inflation, and we assumed that the money we were spending was nominal. A quick conversion would have shown us the true cost of our expenses, not to mention the fact it would have provided a lot more money toward our bottom line. Understanding where your target market prefers to shop and when they make their final purchase decision is extremely important. Less money should have been spent on television ads and more money should be spent on promotional items. This is primarily because consumers make their final decision when at the retailer, especially in countries where price is a major factor and there is limited access to media outlets. Once we understood this concept, we watched our ad budgets decrease while our profits increased. The large number of products we offered proved to be a problem for our group because it drove up our administrative expenses. Had we not locked ourselves into a large production capability early on, we would have seen more profit in every transaction and we could have focused our efforts on just one product line as opposed to four in every single market. The unexpected advantage that came with this was increased brand awareness and market share, since we were quite literally offering something for everyone by the time the game ended. Our large variety of products and our epiphany concerning distribution venues helped contribute the large market share that we had accumulated by the end of the game. Though we were a little embarrassed about the fact we had a factory capable of producing 150 million tubes of toothpaste, the need to meet this demand caused us to increase our offering and focus less on just one product line. Other teams did this, and even though it proved profitable their market share was not even close to what we ended up with. In the end, we were thankful for the mistake for brining us the market share we need to be the second place team in the class. Critical Decisions Managing our margins proved to be the most difficult task for our group during the majority of the simulation. Finding the right mix of promotion, advertising, and sales force was extremely expensive. We did not understand how to implement these variable costs and it cost our group a lot of money. However, it did give our company a great head start on the brand equity index. The thought that we should err on the side of too much advertising since the worst that could happen was that we became too popular proved to be incredibly wrong, though the resulting net contribution sheets helped us understand where we ought to be in terms of the various expenses expressed as a percentage of revenue. Once we got all of our expenses in check we were able to focus less on price, which led to increased sales, which led to our ultimate success. We initially ignored the key issues of inflation rates and exchange rates. Markets such as Venezuela (during the entire simulation) and Brazil (mainly in the beginning) went through some tough times financially. When this occurs, it is essential that the company make changes to the existing marketing plan. For example, we should have recognized that Brazil’s inflation required us to cut our prices while cutting costs to make up for the difference. In this case, advertising should have been cut down dramatically. The lack of understanding of how inflation impacts demand caused us to lose out, but as the country stabilized toward the end of the game we more than made us for our mistakes. When making decisions in a foreign country, a company must understand the conditions and conversion rate of the local currency. When we later ran some of the conversions on the advertising budgets, we realized how big our mistake with advertising had really been. It would have been wise to convert every monetary decision we made in order to truly understand what we were actually doing. We began doing this around period 8, and the results turned dramatically in our favor. One tool we believe could have been more useful was the forecasting model. It appeared that sometimes it would have been more productive to roll the dice when forecasting rather than rely on the computer to predict things like an estimated discount. The forecast either was dead on and we made a fortune, or it was completely off and we lost two fortunes (such was the case in Mexico). Larger markets like Mexico were extremely sensitive to price, so making an adjustments as small as 0.05MXN altered the demand. In the end, we built our own forecasting equation to estimate the cost by using anticipated/desired margins around turn 8 or 9. This helped us turn countries like Argentina, Mexico and Brazil into extremely profitable markets. The last issue was our distribution channel decision process. By dramatically increasing our capacity, we incurred a fixed cost that hurt our bottom line. We believe we over-shot our increase in capacity by about 80 million units. The initial reaction to our high volumes of production was to us to focus on hypermarkets as the key to success. Somewhere around the last two turns, a look into the 80-some page user manual revealed a much higher discount rate for those markets when compared to the web and self service markets. So, a healthy mix of both was needed to keep the costs of business down. Also, promotional items given to consumers in the less developed markets increased our sales, while little impact was created by reducing promotional efforts in the hypermarkets. Advice for the Next Brand Manager Just because something does not make sense or does not seem applicable at first does not mean you should disregard it all together, as seen with the loads of information provided by our very detailed user manual. This information or strategy could prove to be invaluable at some point, so revisiting your resources on a regular basis is always a good idea. Also, figuring out a way to reduce our excessive factory capacity would be a very helpful (perhaps subletting). The last piece of advice we would give is the realization that, while there may be a pretty narrow parameter for success in terms of percentage spent on advertising, cost of goods sold, or the sales force, it is what you do with that percentage that makes the difference. Different countries have different needs and tastes. For example, a comparison of costs against revenues earned showed that Mexico preferred hypermarkets with a large sales force in order to be successful, while Brazil preferred web-based retailers with a small sales force. The percentage used does not consider these differences, so it is imperative that you discover which variables work in each market without getting discouraged. YEARLY SUMMARIES **PERIOD TWO SUMMARY** Built plant in Chile, primarily because the country had favorable trade conditions and in terms of freight the country was mostly close to the other countries in the region, which should help to reduce total freight costs. Also, in playing with the country manager during the "try out" period, Chile seemed to be the most stable economically, since the initial favored site was Brazil (because of the large population) but the government kept collapsing so the conditions were not favorable. Mexico was not an option since the company could import product there at a reduced rate so building a factory to sell to other Latin American countries didn't make sense. Chile was the best alternative. We started off selling everything but the kitchen sink, mostly just to see what would stick. We kept getting different numbers on the cost estimator so we figured that by pricing our goods near the prices of our competitors, we ought to at least break even. We sold in every distribution channel, matching the maximum number of staff present for any company, again with the logic to see what would stick. The end result was a net loss of 1.7 million, plus plant depreciation of 3.1 million. Administrative expense was ginormous (2.7mil) as were the promotional, advertising and sales force expenses; the BEI achieved for this turn was the highest of any group (62) so this affirmed the belief that advertising spends were a little high. Strategy to this point was to match or fall just short of the highest spender in the market. **PERIOD THREE SUMMARY** Favorable trade conditions with Argentina as well as a population that appeared to desire a premium toothpaste gave rise to the entrance into this market. The same strategy was used here as in Chile, which was to try a variety of products and see what took. The same was true for the distribution channels, with increased attention in the hypermarkets but still the majority of staff servicing the traditional areas. A huge advertising budget coupled with a massive underestimation of the cost of producing and importing goods into this country led to a loss of 7.2mil. Advertising and promotional costs were cut across the board for Chile, but a balloon in COGS by nearly 10% set the loss at a new high (2.7M). It became clear that advertising and other expenses needed to get cut and the message they projected refined in order to recover the BEI lead; our team was down to 52 (5th place) from the first position. **PERIOD FOUR SUMMARY** At the urging of Dr. Denning, we entered Mexico and on the first turn garnered 22% of total mfr sales, bringing in 9.8M in profit. The country responded well due to increased understanding of consumer preferences gained from the previous two turns, plus a refined product selection and selective channel distribution methods. The new understanding of income versus desired advertising spends was also employed here, allowing for some much needed revenue and a boost in the team spirit. Argentina continued to flounder, even with reduced admin expenses in the form of a narrower product selection and seemingly lowered product allowances. The advertising expense in this country was needed to keep the products moving off the shelves given the country's dependence on mom and pop shops, but the manpower necessary to run the traditional distribution channels was high. Argentina reported a loss of 2.9M for a cumulative contribution of -10.1M. Chile posted its first profit of 1.2M. This was due to a smaller selection of products and the introduction of a new advertising message - a shift in focus from economy to healthy since the population was a little less sensitive to price than Mexico and other relatively poorer nations. Staff was reduced in the distribution channels and the efforts focused on the hypermarkets where more product was sold much faster. **PERIOD FIVE SUMMARY** It was decided that much attention needed to be focused on the three existing markets that the company was doing business in, especially since the thought that smaller countries couldn't do much damage was proven to be false. For this reason, this turn was used to stabilize the Chilean and Argentinean markets while still commanding a strong lead in the Mexican market. Argentina reported its first profit at 2.1M with adjustments in distribution channels and advertiding/promotional venues. Something on the cost predicting spreadsheet was still off, as seen by the country's mind-boggling 15% advertising expense. It was also determined that the company couldn't compete at the economy product level, so the advertising message was changed to promote the healthy series of products; additionally, the product line was refined to contain only the healthy and white versions of toothpaste. Chile kept its healthy message and stayed the course for its product lines and distribution channels, with some minor adjustments in price to account for an increased COGS. The increased price led to decreased sales volume, which in turn led to higher than expected advertising and promotional costs. At this point the BEI for Chile was unrivaled, but it was coming at a price that was quickly becoming too steep to manage, so it was agreed that advertising expense ought to be reduced by about 1/3 across the board. Mexico did well with increased margins but falling market share. This turn we learned that toying with prices - even by just a few pesos here and there - can really impact the expected outcome for sales. Last turn showed a total sales volume of 111.8M units, which prompted the increase of 120M units to the Chilean plant in anticipation of moving into the Brazilian market and increasing market shares of the current markets. This number would turn out to be incredibly high, only too late did we realize that of the 111.1M units sold during the last turn 52M belonged to Mexico, which we had planned to keep sourcing products through the United States. We were also tied for first place in terms of BEI, holding at a firm 60. **PERIOD SIX SUMMARY** This turn marked the biggest change that the company had seen to date, with every market finally being entered and with unexpected consequences. Argentina finally got its advertising, promotion, and sales force under control and posted an amazing 6.4M profit as compared to the previous year's 2.1M with only a small difference of 1.9M increase in sales. Brazil was entered and the company lost 4.2M. This was in large part due to an effort to establish a presence in the market by spending more than usual on advertising and perhaps products that were priced too high in order to make up for the difference. The program also docked us money for developing an advertisement in Spanish that we thought we cancelled because we didn't intend to use it. Chile posted another strong year, weighing in at 2.5M in profits. Allowances, promotions and advertisements were cut using the 1/3 rule and with amazing results. Sales suffered slightly, though. Mexico showed the strongest year ever with a contribution of 16.9M after reigning in promotional and advertising expenses, as well as the sales force staff and the choice to distribute the products in most areas but to promote them in select channels - specifically, the hypermarkets. The consumers responded to this effort and purchased more with the added incentives in the hypermarket stores. Peru had very little competition, so efforts made by Allstar turned out very well with the first year commanding 24.1% of the total market and showi...