BRANDMAPS

FAQ’S

Frequently Asked Questions

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 Opening New Market Regions
Permanent Marketing Research For "All" Regions
[1] "After opening a new market region, one of my teams has reported that they are
not receiving some marketing research results for the new region. They previously
specified 'all' markets when ordering Marketing Research Study #36 and everything
was fine up to the most-recent quarter (when I opened a new market). What's going
on here?" [2] "I've opened a new market region and marketing research studies on
permanent order are not executing for the new market region. Why is that?"

When you open new regions, the "all" regions designation for some marketing research
studies does not adjust automatically. Software flags are set for each market region is
existence at the time the "all" pre-order is made. However, there's no way to read
students' minds regarding what is intended with the use of the "all" designation. Does
"all" mean every market region all of the time or does "all" mean all of the current
market regions at the time the permanent marketing research order was executed?
Rather than guess, the software makes no changes in the original "all" market regions
designation.

Advise your students to re-enter data for marketing research studies where "all" regions
had been previously ordered permanently and for which it is desired that "all" continue
to refer to all market regions now in existence (after the opening of the new market
region or regions). For temporary marketing research ordering, nothing special needs to
be done, since the correct breadth of regions will be specified when the next "all"
regions order is processed for any marketing research study.

Sales Forecasting
Sales Forecasting Accuracy and Inaccuracy
"Earlier today, I was discussing the team's problems (they're at 75% performance
level, losing sales revenue and market share) and they commented about their
disenchantment with Marketing Research Study #32 ('Brand Sales Forecasting'). The
report before their last decision suggested that for region 3 only about 9,000 units
would be sold. As it turned out nearly 20,000 units were sold. This affected not only
their sales forecasting accuracy percentage but resulted in a large share of unfilled
orders. The current forecasting report shows a low number of unit sales forecast with
a relatively small-size error. The students express little faith in the forecast, saying
what good is it, and then they use it, in part, to blame why their overall performance
in the simulation is bad. My response to them was that the sales forecast uses data as
described in the student manual. If there is much variability in industry sales by total
and region, forecasting may be less accurate (but the error term should be large also,
shouldn't it?) I also told them that the forecast is based on current competitor activity
and cannot anticipate what marketing decisions will be forthcoming. Consequently,
any new and dramatic 'moves' by competition is not accounted for in the forecast. It
is my opinion that they put too much faith in their sales forecast (they request only 3-

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4 marketing research studies) and don't temper it with other information available to
them or with reasonable intuition. I looked in your instructor's manual to learn what
factors go into the sales forecast other than historical industry sales data and
environmental factors, but could not find any discussion of the forecasting
methodology except what the student manual provided. What competitor activities are
factored into the forecast?"

The sales forecasting marketing research studies (#31 and #32) are merely short-term
extrapolations. As you note, they don't take competitive actions into account, except at
the most general level. This group apparently is not reading or not believing what they
read. Push them to justify their marketing decisions based on facts, evidence, analysis.
Don't let them get away with blaming the marketing research.

If the marketing research quality is low, then the students should make their own sales
volume forecasts. There's no requirement to purchase any particular marketing research
study. Indeed, if the value is lower than the cost, don't do it!

My experience with poorly performing teams is to require meetings with me prior to

every decision. Make them justify what they are doing and don't let them get away with
guessing and seat-of-the-pants decision making.

Sales Forecasting Accuracy Score

[1] "How is the Sales Forecasting Accuracy Score calculated?" [2] "Our Sales
Forecasting Accuracy Score for 5-2 in market region 5 is .00% but we sold 5,165 and
had a sales forecast of 15,000. I realize we weren't very accurate but it should be near
30%, not 0. This really hurt our average score and thus impacted our overhead. Why
the .00%?"

Sales Forecasting Accuracy Score is calculated in two steps. First, sales forecasting
error is calculated for each active product in every market region:

ERROR={FORECAST-(ACTUAL+UNFILLED)}/
{ACTUAL+UNFILLED}

where ERROR is the sales forecasting error (expressed as a proportion), FORECAST is

the sales volume forecast, ACTUAL is the actual sales volume, and UNFILLED is the
unfilled orders. Second, the Sales Forecasting Accuracy Score, SFAS, is then
calculated:

SFAS=100*(1-abs(ERROR))

where abs(.) is the absolute value function. Sales Forecasting Accuracy Scores are
calculated and accumulated whenever the volume market share for a product in a region
exceeds 2.5%.

With a forecast of 15,000 and actual sales of 5,165, the associated Sales Forecasting
Accuracy Score is calculated as (forecast-{actual+unfilled})/ {actual+unfilled},
adjusted to percentage terms. Relative to actual sales, the forecast was more than 100%
in error, thus the .00% Sales Forecasting Accuracy Score.

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Suppose that brand 4-1 in region 2 had a sales forecast of 9,000 and actual sales of
7,779. Applying the Sales Forecasting Accuracy Score definition yields the following
result: 100.0*{1-abs(9,000-7,779)/7,779} = 100.0*{1-abs(1,221/7,779) = 100.0*{1-
abs(0.1570)} = 100.0*{0.8430} = 84.30.

Sales Forecasting Accuracy Score Reporting on

Financial Statements
"One of my groups did not get a message about sales forecasting accuracy score for
one of the regions on the FINANCIAL AND OPERATING STATEMENT
MESSAGES page of the financial results. Their other brands are mentioned but not
this one. In the SALES FORECASTING ACCURACY REPORT, this brand is
included with an accuracy score of 89.77. They were concerned about whether by
some chance this score was not counted. Are the FINANCIAL AND OPERATING
STATEMENT MESSAGES only produced for performance outliers (i.e., for 'very
good' or 'very bad' cases) or for all cases?"

The FINANCIAL AND OPERATING STATEMENT MESSAGES part of the financial

results generally only reports exceptional and noteworthy things. It's meant to be the
beginning of an exception accounting style of report. For sales forecasting accuracy,
only extremes of sales forecasting performance are noted here.

Sales forecasting accuracy only counts (for the purposes of the Sales Forecasting
Accuracy Score) when a brand's regional market share is 2.5% or higher. Otherwise, it's
too difficult to accurately predict market shares, with a percentage-error loss function.
All "recorded" sales forecasts reported within the SALES FORECASTING
ACCURACY REPORT have been counted in the determination of the Sales
Forecasting Accuracy Score.

Sales Forecasts
"Are sales forecasts what customers purchase or what dealers are forecast to
purchase from manufacturers?"

The decision variable "Sales Forecast" refers to what dealers purchase from
manufacturers (i.e., manufacturer sales volume). Remember, dealers are the direct
customers of vaporware manufacturers, although they are not the final consumers of
vaporware.

Marketing research studies reference final-customers' purchases of vaporware (i.e.,

dealers' sales). Thus, marketing research studies that refer to sales forecasts are based on
final-customer sales volume. It follows, for example, that "Industry Sales Volume"
refers to the sales of all actively-distributed vaporware brands to final customers. Of
course, manufacturer sales volume only equals dealer sales volume for a brand if dealers
keep constant their vaporware brand inventory.

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Sales Forecasts For Q#2
"How should students make sales forecasts for Q#2? Because of the time lag involved
in obtaining marketing research studies, they can not make these forecasts based on
the results of Marketing Research Study #31. So, what information should be used to
create the Q#2 sales forecast?"

If a firm plans no decision variable changes for Q#2, then the best sales forecast for Q#2
is probably current (Q#1) sales levels. A firm planning some decision variable changes
(e.g., increasing advertising spending) should take the impact of the changes into
account (e.g., an advertising spending increase presumably leads to increases in sales
volume). Obviously, the Q#2 sales forecasting problem is a great challenge with very
limited data. However, all firms face the same problem so it's at least equitable (if
unpleasant) for everyone.

The biggest issue here is to look forward and assemble relevant data that will be helpful
in making future sales forecasts. Learning is crucial. Unless you know more tomorrow
than you do today, you're not moving forward and keeping up with your competitors.

Conjoint Analysis
Conjoint Analysis in a New Market Region
"Will a conjoint analysis be of any value for the new market region which just
opened? I was thinking that it wouldn't be useful now because the customers in the
new market region have not had any experience with vaporware."

Conjoint analysis is concerned with assessing underlying customer values for products
and services (product/service positioning and pricing, in particular). As such, it doesn't
explicitly reference already existing products/services. Remember, it is a concept testing
style of marketing research, involving the elicitation of customer reactions to
hypothetical products/services. Thus, conjoint analysis should work fine in a newly
opened market even though the customers have not yet personally experienced
vaporware. There may be a little more random noise in the conjoint analysis results
(reflecting customer inexperience with vaporware), but the basic pattern of the findings
should not be affected materially.

Conjoint Analysis in "All" Market Regions

"If a conjoint analysis is specified for 'all' market regions, are average results
reported or are individual results reported for each market region?"

"All" market regions for conjoint analysis means that the specified experimental design
(specified levels for each of the five raw materials, Compatibility, Warranty, and dealer
price) is executed independently in each market region with results being reported
separately for each market region. Although the student manual shows an example of
results only for a single market region, "all" means that there will be separate results for
each market region. Average results across market regions are not reported since they

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would have little meaning if regional variations exist. And, of course, students could
create their own averages if they thought that such numbers were meaningful.

Conjoint Analysis in Multiple Regions

"I ordered a conjoint analysis (Marketing Research Study #10) for market regions 2
and 4. However, I only received the results for market region 4. What gives?"

Marketing Research Study #10 (Conjoint Analysis) can be executed either for one
market region or for all market regions simultaneously. It cannot be executed for two
particular market regions in one quarter. Only the last entry (for market region 4) was
retained and executed. If you really want to execute conjoint analyses for two specific
market regions in one quarter, you will have to use Marketing Research Study #10 for
the first one and Marketing Research Study #34 for the second one.

Conjoint Analysis Relat ive Importances

"The conjoint analysis indicates that Glomp is the least important attribute to
customers (3.9% relative importance). Concept tests results indicate that customers
also prefer a standard vaporware weight (weight of the five raw materials sums to
about 100). Based on this, I developed a formulation with the other attributes at their
peak of desirability (per the conjoint) and plugged Glomp at 27 to get a standard
vaporware weight. The preference rating was a lot lower (30 points!) than other
formulations where the other attributes varied from their high points but Glomp was
in the range of 6-9. If Glomp has so little importance, why does it impact the
preference so significantly? I'm really getting confused here."

"Relative importance" in conjoints is within the range of the specified weights. If you
go well outside the range, then who knows what might happen. Be wary the "relative
importances." They can easily be misleading. Always look to the weights. They never
lie or mislead providing, of course, that you don't extrapolate too much outside the
range of the weights you specified for the design of the conjoint analysis study.

You are placing a lot of credence in the belief that "standard" vaporware (raw materials
sum to 100) is somehow important to customers. Customers want what they want. If
their wants happen to lead to a vaporware product whose raw materials to sum (or near)
100, that is incidental to customers' requirements for specific levels of the raw materials.
It's vaporware-industry talk that refers to vaporware as being "light," "standard," or
"heavy." Customers don't necessarily speak in such terms. The moral here should be
clear: don't worry about the sum of the raw materials (unless, of course, the sum
violated current vaporware technology limits).

Conjoint Analysis Weights

"The part-worth utilities obtained in conjoint analysis never have gone above 100 or
below 0. Yet, in textbook discussions and various articles about conjoint analysis,
there are examples where these values have different ranges and can even have
negative values. Can you provide some insight as to how the part-worth values are
determined in the conjoint analysis used in BRANDMAPS™?"

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Conjoint analysis yields only relative trade-off weights (the part-worth utilities), not
absolute weights. Technically, conjoint weights are intervally scaled, not ratio scaled.
Thus, differences in conjoint weights are meaningful but ratios are not. With intervally
scaled data, any positive linear transformation of the raw conjoint weights is
permissible. Relative differences are unaffected by such positive linear transformations.

I've chosen to scale the raw conjoint weights into the interval 0 to 100 for ease of
interpretation. Other researchers and authors use different intervals (0 to 1 or centering
the attribute-level weights on each attribute to sum to zero, thus yielding positive and
negative weights across the attribute-levels). None of these scaling approaches is "right"
or "wrong" in some fundamental sense. They're just different approaches to reporting
the same underlying raw conjoint weights. I continue to prefer the 0 to 100 approach,
and that's why it's the one you see in BRANDMAPS™.

Web-Based Supplementary Readings

"Can you recommend some web-based supplementary readings about conjoint
analysis?"

Yes, here are some nice web-based readings that you and your students can freely
access to learn more about conjoint analysis:

1. "Understanding Conjoint Analysis in 15 Minutes" (Quirk's Marketing Research

Review Jun/Jul '89), http://www.sawtooth.com/news/library/articles/15min.htm
2. "Conjoint Analysis: After the Basics" (Marketing Research: A Magazine of
Management & Applications),
http://www.sawtooth.com/news/library/articles/basics.htm
3. "Trade-Off Analysis of Consumer Values" (Journal of Marketing Research
May'74), http://www.sawtooth.com/news/library/articles/johnson.htm

Opening New Market Regions

Cost Consequences of Withdrawing a Brand
"What are the cost considerations that a firm should take into account when
contemplating withdrawing a brand from a region?"

There are no direct costs associated with dropping a brand from a region. However,
there are a lot of indirect cost-related considerations and a lot of implicit considerations
in brand withdrawal decisions.
Here's some counsel from Sam Gillespie (Texas A&M University) on this topic: "The
decision to withdraw a brand from a region needs to be well thought out. The upside to
withdrawing could be: (1) Concentrating limited resources on brands and regions
perceived to be more profitable; (2) Focusing brands in a single region; and (3) Inability
to gain market share in a region due to strong first-mover advantage of a competitor.
There are no direct product costs in withdrawing a brand from a region. However, if a
firm chooses to re-enter that market in a later quarter, there will be another introduction

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cost. New entries and re-entries are treated similarly and incur the same introduction
cost.
In withdrawing a brand from a region, it is important to remember to reduce to zero all
marketing support spending (advertising and promotion) associated with that brand in
that region. If there are other brands still active in that region, then sales force time
allocation must be shifted to still-active brands. If there are no other brands active in
that region, then the sales force size in that region must be set to zero to eliminate sales
costs.
If the sales force is retained in a region with no actively marketed brands, sales salaries
and overhead will continue to be charged to the firm. Firms need to decide if retaining
the sales force for future activity would outweigh the costs associated with firing and
hiring in the region from which the firm withdrew.
If the sales force is fired, a settlement fee equal to two months salary per salesperson
fired will be charged to the firm in that region. Additionally, a sales overhead charge of
the same amount will occur. For example, if the sales force size in the region is 50 and
monthly salary is $2,500, then sales force and sales overhead will incur charges of
50*($2,500*2) or $250,000 each."

Decision Variable
Capacity Order Payments
"When are payments for plant capacity orders charged?"

The full purchase price is due when plant capacity is ordered. Note that this is a
balance-sheet transaction only (a swap of cash for plant capacity), with no immediate
profit-and-loss implications until the plant capacity is put into actual use and
depreciation begins. Firms with insufficient cash to pay for a plant capacity order will,
of course, have automatic loans generated to provide such cash.

Correcting an Introducti on Request

"An erroneous introduction request was entered. The brand was erroneously
introduced into region 3 when it was meant to be introduced to region 4. What should
I do?"

As long as the game wasn't run, there's no problem. Just drop the brand from the
erroneous region and introduce it into the correct region. Of course, the brand will need
a complete marketing program (price, rebate, advertising, media content, etc.) for the
correct region.

Decision Variable Change Limits in BRANDMAPS™

"On p. 36 in the BRANDMAPS™ 4/e student manual, marketing decision variable
change limits are summarized. But, are they overall firm-wide limits, brand-specific
limits, or region-specific limits?"

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BRANDMAPS™ marketing decision variables have built-in limitations related to how
much they may change from one quarter to the next. For reference purposes, these
limitations are summarized in a table on p. 36 of the BRANDMAPS™ 4/e student
manual.
The summary table on p. 36 of the BRANDMAPS™ 4/e student manual does specify
these limits correctly, but the frame of reference is not indicated explicitly. For example,
the maximum possible increase in sales force size is specified as 50, implicitly
interpreted as "per market region" which is the natural frame of reference for sales force
size in BRANDMAPS™. (As a BRANDMAPS™ decision variable, sales force size is
always expressed in per-region terms. Similarly, promotion is always expressed in "per-
brand, per-region" terms.) In every case, these limits refer to the frame of reference
associated with the relevant decision variable in BRANDMAPS™, even though not
explicitly mentioned in the BRANDMAPS™ 4/e student manual. Advertising, for
example, is always specified at the brand-specific level in a market region. Thus, the
advertising change limit also refers to brand-specific and market-specific advertising.
These per-brand, per-region, and per-brand per-region decision variable change limits
are explicitly specified in the corresponding table on p. 25 of the BRANDS™ 2/e
student manual.

Decision Variable Checks

"When exiting the decision variable input program B_DV.EXE, the following
message appears on the screen: 'No decision variable check warnings for firm 1.'
What does this warning/error message mean?"

The B_DV.EXE software performs a variety of logical checks on decision variables

when the user exits the program. For example, the decision variable checks include
verifications that marketing support spending only occurs for active or to-be-introduced
brands and that marketing support spending is not too "small" (e.g., advertising of $10
would be flagged with a warning message, since values of advertising spending less
than $100,000 are rare). This message, "No decision variable check warnings for firm
1," just verifies that all internal decision checks have been satisfied for firm 1's decision
inputs. If there were any apparent problems based on the specific decision variable
checks encoded in the software, specific warning messages would be displayed on the
screen.

Dividend Policy in BRANDMAPS™

[1] "What is the right dividend policy in BRANDMAPS™?" [2] "How can I use
dividends effectively in BRANDMAPS™?"

Financial theory generally suggests that dividend policy is irrelevant to lots of things,
such as stock prices. In BRANDMAPS™, dividends are a dollar amount returned to
stock holders (not a per-share amount). Indeed, the number of outstanding shares of
each firm is not known information in BRANDMAPS™, so a per-share dividend
amount cannot be calculated.
The immediate impact for the dividend-paying BRANDMAPS™ firm is to reduce cash
and to reduce owner's equity. In general, then, excess cash invested automatically by the

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software at relatively low rates of return in marketable securities might be returned to
shareholders directly via dividends. This reduces the "I" part of ROI and can improve
ROI, if profitability remains high.
The bottom line is simply that firms should be able to earn more in the vaporware
market than in having cash automatically invested in marketable securities. Overall firm
ROI is a combination of return on investment from cash (0%), marketable securities,
and firm-wide profitability. Therefore, excess cash should be discarded and dividends
are the way to discard such excess cash. Note, however, that excess cash is also
available for use in funding inventory expansions, plant capacity expansions, and new
product launches which may lead to short-run negative profitability.

Dropping a Product and Associated Inventory

Consequences
"If a team drops a brand from a market region (i.e., if they quite selling the brand in
a particular market region) in BRANDMAPS™, what happens to the finished goods
inventory on the balance sheet?"

Finished goods inventory on the balance sheet exists to service dealer requests for brand
purchases anywhere in the world. As long as a dropped brand is still active in at least
one other market region, the existing finished goods inventory will be used in those
still-active market regions. In BRANDMAPS™, there is only one plant and one
warehouse (located adjacent to that plant). Production and inventory of each brand is for
worldwide use, in all market regions in which brands are actively distributed.
If a dropped brand is no longer active anywhere, the existing finished goods inventory
will continue to remain on the balance sheet until a subsequent reformulation of that
brand. Of course, there are inventory charges associated with finished goods inventory
and those inventory charges continue to accrue as long as finished goods inventory
exists.

Emergency Production Limit Costs

"In BRANDMAPS™, what are the costs associated with having a non-zero
emergency production limit if emergency production turns out not to be needed in a
quarter?"
There are no costs associated with emergency production limits in BRANDMAPS™
unless emergency production is actually required.

Introduction and Reintroduction

"Brand 2 was previously in market region 3 but was dropped several quarters ago. If
the firm reintroduces brand 2 into market region 3, will it have to pay another
introduction charge?"
Yes. Introduction charges are incurred in the first quarter of an introduction. Here,
"introduction" is defined to be a situation where a brand is inactive in one quarter and is
active in the next quarter. A reintroduction of a brand is an introduction and
introduction charges accrue.

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Launching Other 30/30/30/5/5/5/5 Brands
"The game starts with a single brand active for each firm. Its formulation is
30/30/30/5/5/5/5. Is it correct that other brands can only be launched if they are
reformulated? Otherwise, won't there be patent infringements?"
All existing brands' patents are legal at initialization due to grandfathering clauses in the
vaporware patent laws. However, new reformulations must honor existing patent laws.
The initial formulations 30/30/..., for brand 1 and for other brands, are legal and can be
launched. But, it doesn't seem to make a lot of sense to launch another 30/30/... brand
when there are already a bunch of those out there.

Marketable Securities
"Are marketable securities in BRANDMAPS™ just another form of cash on hand? If
not, can they be liquidated?"
Marketable securities are another form of cash, although one that does earn interest. To
liquidate marketable securities, pay a dividend. But, be careful. Cash or marketable
securities are needed to fund operating losses, plant capacity purchases, and inventory
investments. In the absence of sufficient cash and/or marketable securities, loans are
automatically issued by the BRANDMAPS™ software.
Pre-Launch Marketing Support Spending
"One of my firms just tried to do pre-launch marketing support spending in the
quarter prior to reformulating and launching a new product. They spent $2,000,000
in advertising, promotion (sales representative training and dealer training), and
sales salaries. This spending was included on the firm's financial statements for the
quarter. However, the firm noticed that their brand was not listed on the Marketing
Research Study #8 ('Media Content Analysis') output. The firm is concerned that this
pre-launch marketing support spending was wasted. Please advise."

Pre-launch marketing support spending (e.g., advertising, research and development,

and sales force) is possible and does have some residual value beyond the quarter of
spending. However, pre-launch promotion makes no sense given its well-known short-
run nature. Of course, just because there is long-term value in advertising, research and
development, and sales force efforts doesn't imply that pre-launch spending is the most
profitable thing to do.
With regard to marketing research reports, only active brands are displayed. Since, by
definition, pre-launch spending is for inactive brands that are to be launched in the
future, their current market status will be masked until they are launched. To use a Star
Trek metaphor, pre-launch marketing support spending is "cloaked" (i.e., undetectable
or stealth) spending since it cannot be observed by competitors ahead of the time at
which such brands are activated. However, the pre-launch money is spent and there will
be some non-zero (although not necessarily profitable) impact on the market.

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Producing More Than Current Capacity
"Several of my students want to know if they can actually produce and sell more units
than they have capacity. Is this an option? Should I let them?"

Production orders are separate and independent of plant capacity. For example, if a firm
has 100,000 units of plant capacity and orders 110,000 units of production across its
various products, 110,000 units of production will be produced even though production
will be on an over-capacity basis. There will be accelerated depreciation in effect
associated with the units produced beyond 100,000, but it's not a big deal if the over-
capacity production is relatively modest (say less than 10% or so) and short term.
Repeated and substantial over-capacity usage can lead to plant capacity depreciating
faster than it can be replenished through normal plant capacity orders. See the
discussion on p. 38 of the BRANDMAPS™ student manual for details of the economics
associated with over-capacity usage. My recommendation is to permit the students to do
what they wish with regard to production ordering and capacity management. They will
suffer the consequences if they fail to coordinate production orders with plant capacity.

Promotional Type Equals Zero

"Promotional type is reported as being zero in some marketing research study reports.
However, promotional types equal to zero are impossible in BRANDMAPS™. What
gives?"

Promotional type is reported as being zero in marketing research study output when the
associated promotional spending is zero. After all, if there's no spending, there's no
promotional type of record at that moment, even if the software has a promotional type
recorded in it. Only when there is promotional spending is the promotional type
revealed to the world.

Promotions (Customer Rebates)

[1] "Suppose that a firm wished to give a $100 customer rebate. I do not believe that
there is a place in the input to assign a dollar amount per-unit sold for this type of
promotion. Instead, you must assign a total promotion budget. Therefore, by
assumption, if I input a $10,000,000 promotion budget with promotional type 9 and a
forecasted sales of 100,000 units, that would correspond to $100 rebate per unit. If
sales only reached 65,000 units, would that team be charged the entire $10,000,000
for promotion or $6,500,000 (i.e., $100 times 65,000 units)?" [2] "Product 1-1 had
sales volume of 0 in market region 4 this quarter. The firm had budgeted $10,000,000
in promotion for this quarter for 'customer rebates.' Where did the $10,000,000 in
'customer rebates' go if there were actual sales in this quarter?"

The total promotion dollars are always spent, regardless of the promotional type chosen
and regardless of the sales volume that occurs in the subsequent quarter. With customer
rebates, an estimate of sales volume is created to size the per-unit customer rebate that
would be appropriate. Such an estimate is required prior to the actual running of the
next quarter since the customer rebate level will influence the quarter's sales volume.

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If there are no actual sales in the quarter, there is an obvious problem because the
promotion dollars will all be spent. I suggest that you refund the promotion amount (as
a negative consulting fee). Also, promotion spending of $10,000,000 is certainly a huge
amount, even in large markets. You might wish to review with the particular team how
they arrived at that amount of promotion dollars. Did they actually calculate what this
would mean in terms of per-unit customer rebates (based, for example, on their actual
sales forecast for the particular quarter)?

Promotion Spending Not as Input

"Promotion spending as reported on the financial results is not equal to what my
students input on their disk. What's happening?"

BYESNO (line 349 in the game parameter file) is set equal to "2" for each firm in your
industry. Thus, quarterly budget constraints are in effect for marketing support spending
(advertising, promotion, research and development, and sales force). Your firms are
exceeding their marketing support spending limits and the software is automatically
reducing marketing support spending (to zero, if necessary), starting first with
promotion. Quarterly budget constraints are described in pp. 167-168 of the
BRANDMAPS™ student manual. If your students are using disk input, then the
software has been warning them about marketing support spending violations. Also, the
second last page of the financial results reports these software-based changes in
marketing support spending

Research and Development After a Reformulation

"When a currently-active brand is reformulated, does the R&D drop to $0 (i.e., they
can only spend a maximum of $250,000 in that quarter)? The manual doesn't seem
very clear on this."

Research and development spending does not automatically revert to $0 for a

reformulated brand. Research and development spending continues on from its previous
dollar amount, regardless of the reformulation status of a brand. After all, if a brand is
reformulated, then it's "new and improved" and research and development is still
appropriate to fine-tune its quality.
Sales Force Size Maximum Change
"Is the maximum possible sales force size change from one quarter to the next equal
to 50 across all market regions in total or equal to 50 per market region?"
The maximum possible increase in sales force size is 50 sales representatives per market
region per quarter.

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Definitions
Brand Quality Perceptions of Zero
"Is there any reason a brand should have a brand quality perception of 0.0 when
other brands of the firm have non-zero values?"

Research and development spending for the brand is $0. Since brand quality perception
is driven by research and development spending, $0 spending results in 0.0 brand
quality.

Cash
"Our current cash balance is about $3,000,000. Are our costs expensed at the
beginning of the next quarter or the end of the next quarter? The answer influences
our marketing support spending decisions, since we obviously don't want to spend
money before we have it."

Assume that all revenues and costs happen uniformly throughout the quarter. That is,
with a 90-day quarter, about 1/90 of the quarter's revenues and costs are attributable to
each day's operations. Thus, you do have revenue coming in regularly throughout the
quarter to pay for your various within-quarter operating costs. Thus, there's no need to
worry about within-quarter cash flow issues with regard to covering your operating
costs and within-quarter marketing support spending. Also, note that you do have access
to loans, as necessary, to cover shortages in cash.

Compatibility
"What is compatibility? How does low compatibility reduce the benefits that
customers derive from vaporware?"

Like "vaporware" itself, the product attribute "compatibility" is an abstract, generic

construct. The implication of building higher-compatible vaporware is clear: costs rise.
Cost-based consequences of compatibility for product costs are well described in the
student manual. But, what is "compatibility"? Vaporware is a durable, capital good with
a presumed lengthy life. Its useful life isn't exhausted in the first customer usage
occasion. If vaporware is an electronic product like a stereo system or personal
computer or high-definition digital television or color printer for personal computers or
a multi-purpose set-top box for TVs, then "compatibility" might refer to how easy it is
for a particular vaporware brand to interface with other system components. Vaporware
with high [low] compatibility would be easy [difficult] for the customer to use with
other system components. Low-compatible vaporware is less useful to customers than
high-compatible vaporware. Thus, compatibility is desirable and customers prefer
vaporware brands with higher compatibility.

13
Consumer Price Indices
"How should the Consumer Price Indices be interpreted?"

The Consumer Price Index is a relative measure of general prices. Values may be
compared across market regions and through time. One important use of Consumer
Price Indices is in the calculation of real income. If incomes grow in nominal terms less
than the rate of growth in the Consumer Price Index, then real incomes are falling. For
"normal" goods (in the economic sense), falling real incomes would be associated with
reductions in industry demand. Also, Consumer Price Indices are relevant in assessing
current vaporware price levels. Vaporware prices which rise faster than the growth in
the Consumer Price Index should be expected to result in decreased levels of demand
for vaporware, since all other goods and services are priced more attractively by
comparison.

Convenience
"What is 'convenience'?"

As described in the student manual (Marketing Research Study #21) in a very terse
fashion, "convenience" refers to convenience to buy and convenience to use after
purchasing. "Convenience" is, of course, perceptual so a brand's communications
program (particularly media content) would presumably influence such perceptions.
However, for a durable good like vaporware, it should be expected that more
engineering-like, objective variables are the principal drivers of convenience perception.
Convenience perception depends on the convenience of buying and using vaporware.
Brands that are convenient to buy would be stocked by lots of dealers (dealer
availability), would be well-known with easy top-of-mind awareness (customer brand
awareness), and would be in-stock (no or low or infrequent unfilled orders). In general,
the various components of marketing support spending (advertising, promotion, and
sales force) will be major drivers of the convenient-to-buy part of convenience
perception.
Easy-to-use vaporware brands would work well in their intended setting, be highly
compatible with existing systems and infrastructure, fail infrequently, and would be
well-warranted if they fail. Thus, the easy-to-use part of convenience perception
involves Compatibility, quality (as driven by research and development spending), and
Warranty.
To provide further insight into the drivers of convenience perception, the v4.07 software
(dated 02/01/99 or later) includes estimates of correlations of various drivers of
convenience perception as part of an expanded Marketing Research Study #21. These
correlations are provided on a regional basis, consistent with the display of each region's
perceptual map. Since correlations must be interpreted with caution, the following
interpretive notes are printed as the second-last page of marketing research results
whenever a marketing research study that includes correlations is reported: "These
marketing research results contain one or more research studies where correlations have
been reported as part of the marketing research output. Such correlations should be
interpreted with caution, as the following notes suggest.

14
 1. Correlations measure the strength of linear association between two variables.
Correlations run from -1.0 (exact negative relationship) to +1.0 (exact positive
relationship). A zero correlation implies that two variables are statistically
unrelated to one another.
2. These correlations are based on data from the last five quarters, to the extent that
such data exist in the historical archives of this industry. Sample sizes are
reported. Correlations based on less than five data points and/or negative
correlations are reported as 'n/s'.
3. These correlations are based on products with market shares of at least 2.5% in a
quarter. This avoids using data from products with small market shares that
might distort calculated correlations. Products with small market shares might
have unusual or extreme associated performance and convenience perception
driver-values.
4. Pairwise correlations can be influenced by other forces which are highly
correlated with the two variables for which correlations are calculated.
Correlation does not mean causation. These correlations, like all correlations,
should be interpreted with a measure of caution.
5. Only theoretically plausible drivers of the specific variables that are the subject
of interest are reported. For example, dealer price is not included among the
reported drivers of performance and convenience perceptions. While higher
dealer prices might well increase performance and convenience perception, a
simpler explanation exists: firms choose to set higher prices for products with
higher perceived performance or higher perceived convenience. Thus, causality
runs from performance and/or convenience to dealer price and not the other way
around. Of course, correlations do not establish the direction of causality but
merely the magnitude of a statistical association."

Customer Preference For Vaporware

"If you give customers more than what they want, will they like vaporware better?
Since we cannot customize our marketing research to target segments other than at
the regional level, it may simply be a software constraint that we must assume that
more is better (i.e., if you prefer 1/4 lb. of beef on your hamburger, you'll like 1/2 lb.
even better)."

What does your marketing research tell you about customer preferences for vaporware
product attributes? Is more always preferred to less? In addressing these questions, you
must distinguish between the physical raw materials (attributes 1-5) and the associated
vaporware product characteristics, Compatibility and Warranty (attributes 6 and 7).
The raw materials (attributes 1-5) are of the "I-want-what-I-want" variety, so you'll
normally be striving to provide customers with exactly the levels of these attributes that
they want (and are willing to pay for). Too much of attributes 1-5 is not necessarily
preferred to just the right amount.
For Compatibility and Warranty (attributes 6 and 7), "more-is-always-better" is
presumably the theoretically correct answer. Of course, cost considerations are relevant
too, so it's possible that customers may want more than they are really willing to pay
for.

15
Dealer Margin
"What is 'dealer margin'?"

"Dealer margin" is total dollars earned by dealers from selling a brand, which equals
volume times the sum of unit margin and unit rebates.

Dealer Price
"What's the difference between 'manufacturer price' and 'dealer price'?"

"Manufacturer price" is the price at which you sell to dealers/distributors, "dealer price"
is the price at which dealers sell to final customers. You only control the "manufacturer
price" not the "dealer price" (dealers markup your products some amount). The only
way to tell what the dealer markup rates are in the various market regions is to compare
your "manufacturer price" to the "dealer prices." Of course, you always know your own
"manufacturer price" but you will need marketing research to learn about "dealer
prices."

Depreciation
"How is depreciation calculated in BRANDMAPS™?"

To show all details of the calculation of total depreciation costs and physical plant-
capacity units in a quarter, the following worksheet/spreadsheet would be needed. This
simplified worksheet assumes that plant capacity utilization does not exceed 100%; if
so, then refer to Table 8 on page 38 of the BRANDMAPS™ 4/e student manual for
details on how to modify the value of plant capacity utilization rate shown in line (5)
below.
(1) Beginning-Quarter Capacity [Units] {from balance sheet}
(2) Beginning-Quarter Capacity Investment [$] {from balance sheet}
(3) Capacity Value Per Unit [$/unit] {divide line (2) by line (1)}
(4) Total Production (Regular and Emergency) For All Products [Units]
(5) Plant Capacity Utilization Rate {divide line (4) by line (1)}
(6) Calculation of Depreciation:
(a) Fixed Depreciation [Units] = 0.03 * line (1)
(b) Variable Depreciation [Units] = 0.12 * line (5)
(c) Total Depreciation [Units] = line (6a) + line (6b)
(7) Calculation of Depreciation Costs:
(a) Fixed Depreciation Costs [$]= line (3) * 0.03 * line (1)
(b) Variable Depreciation Costs [$] = line (3) * 0.12 * line (5)
(c) Total Depreciation Costs [$] = line (7a) + line (7b).

Disposal Sales
"What are disposal sales?"
After a minor or major reformulations in BRANDMAPS™, any available finished
goods inventory is immediately sold-off before the quarter occurs. A reformulated brand
always has zero inventory available for sale as the quarter begins. Thus, current-quarter

16
production after a reformulation will have to be sufficient to meet anticipated current-
quarter sales at the time of a reformulation. The appropriate disposal sale charge (5% of
the finished goods inventory value for a minor reformulation and 25% of the finished
goods inventory value for a major reformulation) is recorded on the DIVISIONAL
OPERATING STATEMENT as Disposal Sales.

Dividends
"Why are dividends reported as negative numbers on the DIVISIONAL BALANCE
SHEET?"
Dividends are reported on the DIVISIONAL BALANCE SHEET as negative numbers
since they represent cash outflows that effectively reduce owners' equity.

Emergency Production Limits

"We set our emergency production limit for product 5-1 to the maximum possible
value of 10%. However, we actually produced 14.2% emergency production last
quarter. What's happening here?"

The emergency production limit in BRANDMAPS™ is based on the total potential

sales (actual and unfilled), not on your production level. A "10% emergency production
level" means that a maximum of 10% of total potential sales (actual and unfilled) can be
produced on an emergency production basis.
If the emergency production limit was based on production, then a production order of
zero units would also mean that emergency production was zero units. This would be
non-intuitive and of no value to a firm wishing to reduce its current inventory level by
producing zero units but also wishing to have some flexibility in meeting demand in
case current-quarter demand exceeds existing inventory levels.

Industry Sales and Market Shares

"To calculate the total volume for a market region, I am dividing the number of units
we sold by our market share. I am unsure whether adding the unfilled orders to this
total would be a better reflection of the market volume had we produced sufficient
quantity. Any advice?"

Total sales in a market region is equal to your actual unit sales divided by your actual
market share (expressed in proportional not percentage terms). Market shares reflect
actual sales not unfilled orders. Your proposed recalculation of actual market share is a
reasonable thing to do to account for potential market share. You may wish to track both
actual market share and potential market share through time to monitor the performance
of your firm and of individual brands.

17
Interest Expense
[1] "With a substantial investment in capacity this past quarter, we used up all of our
cash and marketable securities and took on $34M in debt. Normally, this interest
expense reduces the income tax liability but I do not see where this is shown on our
income statement. What gives?" [2] "Our company had quite a lot of loans already
on the DIVISIONAL BALANCE SHEET when we took over the firm. Why was our
non-operating expense from these loans only $723,242 in Q#8 and $10,410,855 in
Q#9? What would cause it to jump so dramatically?"

Interest expense is lagged a quarter. Next quarter, you pay interest on the outstanding
loans that were in effect at the end of this quarter. Incidentally, the same lagged process
works for marketable securities. Last quarter's marketable securities yield interest on
this quarter's profit-and-loss statement. Thus, for example, interest expenses reported on
the Q#9 financial statements reflect outstanding loans on the Q#8 DIVISIONAL
BALANCE SHEET.

Introduction Charges
[1] "Is the charge to introduce a brand the same regardless of the number of market
regions involved in the introduction or is the charge a per-region charge?" [2] "If I
stop selling a brand in a region and then later (after several quarters) decide to sell
the same brand with the same formulation, will that be treated as a new product
introduction (and be assessed the appropriate charges)?"

The new product introduction charge is per brand per region. It reflects the inevitable
setup costs incurred when a product is first launched into a market. Prior participation in
a market region is irrelevant to new product introduction charges. New product
introduction charges are automatically charged for any product that is active in the
current quarter and that was inactive in the previous quarter.

Inventory Charges
"How are inventory charges calculated in BRANDMAPS™?"

In BRANDMAPS™, product-specific inventory charges are based on the average of

beginning-quarter and ending-quarter inventory levels. Here, "beginning-quarter"
inventory refers to the inventory level at the end of the previous quarter and "ending-
quarter" inventory refers to the inventory level at the end of the current quarter. The
only time inventory charges will be zero is when both beginning-quarter and ending-
quarter inventory equal zero. (Since production is on "automatic" in BRANDS™, there
is never any inventory and associated inventory charges are always zero.)

18
Inventory Consequences of Reformulations
"Assume that firm 1 does a product modification on brand 1-3 in BRANDMAPS™.
They have 30,000 units of 1-3 finished goods inventory and dealers hold an additional
10,000 units in inventory. What happens to these inventories?"

On all reformulations, a firm's finished goods inventory is immediately sold at cost ("at
cost" on the DIVISIONAL BALANCE SHEET as of the previous quarter) as the
quarter begins. Thus, beginning-quarter finished goods inventory becomes zero when a
reformulation occurs. In addition, dealers' inventory is liquidated. "Old" inventory is
never converted to "new" inventory. Inventory disposal penalties are levied on the
current values of finished goods inventory and dealers' inventory, as described in the
BRANDMAPS™ student manual.

Loans
"How are loans paid back? Is it possible to accelerate loan repayment?"

Excess cash at the end of any quarter is used to retire existing loans. (The sources of
such excess cash to retire loans include profits from operations, reductions in plant
capacity investments, and reductions in investments in finished goods inventory.) If
there are no outstanding loans, the excess cash is invested in marketable securities.
These operations are conducted automatically by the game software, with no student or
instructor intervention required. Given this automation situation, accelerated repayment
of loans does not exist. Loans are already paid off as rapidly as available cash permits.

Manufacturer Price
"What's the difference between 'manufacturer price' and 'dealer price'?"

"Manufacturer price" is the price at which you sell to dealers/distributors, "dealer price"
is the price at which dealers sell to final customers. You only control the "manufacturer
price" not the "dealer price" (dealers markup your products some amount). The only
way to tell what the dealer markup rates are in the various market regions is to compare
your "manufacturer price" to the "dealer prices." Of course, you always know your own
"manufacturer price" but you will need marketing research to learn about "dealer
prices."

Non-Operating Income
"Would you please explain the non-operating income credit/charge on the Divisional
Operating Statement in more depth? The student manual explains that this charge is
the result of marketable securities (in our case since the groups were credited rather
than debited this amount). All the groups were credited the same amount: $925,620
(the game is in the second quarter)."

19
Positive non-operating income in Q#2 means that there were marketable securities on
the Q#1 balance sheet. This is why all the firms' numbers are identical in Q#2; all of the
firms' balance sheets were identical at initialization at Q#1. Through time, the non-
operating income will vary (positive if last quarter's balance sheet includes marketable
securities and negative if last quarter's balance sheet includes loans).

Patent Zones Next Quarter

"In BRANDMAPS™, a competitor's product has a current patent zone of 19. How
far away does my reformulation have to be to be successful when the game next
runs?"

The game run sequence is as follows: (1) the clock advances by one quarter; (2) all
patent zones are reduced by three units; (3) reformulations are processed; (4) the game
runs; and, (5) marketing research pre-orders are processed. Thus, you have to be 17
patent zone units away from this product's current formulation to be legal, since its
patent zone will be 16 units when the game next runs. Of course, you also have to be
outside all other products' patents, including those reformulated ahead of you at the start
of the next quarter.

Pending
[1] "When introducing a brand to a market, 'Inactive' is replaced by 'Pending' on the
decision variables change screen. What does 'Pending' mean?" [2] "One of my teams
has 'Pending' on a brand that it introduced in a previous quarter. Shouldn't the
'Pending' have already been replaced by 'Active' status?"

Introducing a brand actually means "order an introduction which will actually occur the
next time the game runs." Introduction does not occur at the time the introduce
command is given. The status "Pending" means that the introduction of the brand in the
specified region is pending and that it will occur in the next quarter.
Once a brand is introduced, it is "Active." If students mistakenly attempt to reintroduce
it, there's no harm caused. True, the activity status will show "Pending" on the decision
input screen prior to the next quarter being run. And, the software will introduce this
brand the next quarter. But, there will be no introduction charges because the software
will note that the brand was actually "Active" last quarter.
One other case could lead to "Pending" being reported for a brand that was introduced
in the previous quarter. That case involved a team disk that was not updated correctly
after the previous game run. The updating process copies the revised post-game files
back to the team's disk. If that operation doesn't occur (e.g., just didn't happen or disk
write errors occurred), then the team's disk doesn't contain the current status of all
decision variables. This would be a major problem and a replacement disk should be
created to permit the students to input their decision variable changes and marketing
research pre-orders for the next quarter.

20
Plant Capacity Sales
"When a team sells capacity to another team, is that capacity sold permanently or is it
leased for that quarter only?"

Such plant transactions, which must be implemented by the course instructor, are sales
not leases. The buying firm has permanent possession of the purchased plant capacity.

Promotional Type #10

"When we choose promotion type #10 in BRANDMAPS™, are there random
percentages of the promotional budget allocated to promotional types #1-#5 for
dealers or does promotional type #10 just mean a general promotion push on
dealers?"

In BRANDMAPS™, promotional type #10 means that the regional sales manager
chooses a particular promotional type for the next quarter. You should assume that
means your brand receives a more-or-less average kind of promotional selection,
"average" effectiveness of promotions upon which perhaps you could improve through
time with superior promotional type decisions.

Relative Product Desirability

"What is Relative Product Desirability (referenced in Marketing Research Study
#29)?"

Relative Product Desirability refers to the desirability of a product's formulation. It's

based on an implicit "n"-way preference test, for the "n" active brands in a market
region. High performance on Relative Product Desirability is consistent with a superior
product formulation, compared to competitors' formulations in a specific market region.

Return-on-Assets
"What is return-on-assets?"

Return-on-assets is equal to current-quarter profits from the divisional operating

statement divided by the previous quarter's assets from the firm's balance sheet,
expressed in percentage terms.
Note, also, the definition of return-on-equity: return-on-equity is equal to current-
quarter profits from the divisional operating statement divided by the previous quarter's
net equity (which equals total liabilities and equity minus loans) from the firm's balance
sheet, expressed in percentage terms. Return on assets will be equal to or less than
return on equity since the asset base of a firm will be greater than the equity base
whenever a firm as outstanding loans.

21
Return-on-Equity
"What is return-on-equity?"

Return-on-equity is equal to current-quarter profits from the divisional operating

statement divided by the previous quarter's net equity (which equals total liabilities and
equity minus loans) from the firm's balance sheet, expressed in percentage terms.
Note, also, the definition of return-on-assets: return-on-assets is equal to current-quarter
profits from the divisional operating statement divided by the previous quarter's assets
from the firm's balance sheet, expressed in percentage terms. Return on equity will be
equal to or greater than return on assets since the asset base of a firm will be greater
than the equity base whenever a firm as outstanding loans.

Return-On-Investment
"How should the ROI (return-on-investment) figures be calculated for individual
decision periods? Given the information on the DIVISIONAL BALANCE SHEET,
what data should be used to obtain the ROI for that quarter?"

Quarterly ROE (return-on-equity), which is also ROI (return-on-investment), equals

current-quarter net operating income divided by last quarter's net assets. Net assets are
assets minus loans. Another similar financial performance measure is ROA (return-on-
assets), with quarterly ROA being equal to current-quarter net operating income divided
by last quarter's total assets. Multiply these figures by 100 to express these figures in
percentage terms. multiply them by 100. Note that quarterly ROI (or quarterly ROE) is
not the same as annual or annualized ROI, which has to take into account when net
income and dividends for earlier quarters of the current year actually occurred.

Sales Force Salaries

"Our sales force salaries seem too high. For example, product 4-3 has a sales force
size of 115 people (it's only sold in one market region). No change was made to sales
force size or sales force salary between Q#8 and Q#9. Our sales salary is $2,600. As I
understand it, sales salaries should be (115)($2,600) = $299,000, but our current
product operating statement shows total salaries of $897,000. What's going on?"

Sales force salary is quoted is $/month terms as a decision variable but the financial
statements represent a full quarter's operations. Multiple your monthly sales force salary
decision variable by three to obtain your quarterly sales force salary expenses.

Sales Overhead
[1] "How is Sales Overhead defined?" [2] "I have a firm who have just received their
output from Q#2 and Sales Overhead went from about 1.6 million to about 3.6 million
although their sales had increased only about 13% from 70,000 to 79,000. The only
sales force decision that had been changed was sales commission, which went from
the default 1% to 4%. Why did their Sales Overhead increase so much?"

22
As defined in the student manual, Sales Overhead is equal to the sum of Sales Salaries
and Sales Commissions. Thus, every dollar of sales force compensation, whether in the
form of salary or commission, also has associated with it a dollar of sales overhead.
This 100% sales overhead rate covers a wide range of implicit and indirect sales force
representative costs such as benefits, selling expenses, office space and related
expenses, sales support, sales training, and administrative support and other indirect
expenses.

Seasonality
"When sales fluctuate due to seasonality, does the seasonality effect depend on the
brands' marketing efforts?"

Seasonality is an exogenous factor that influences industry sales volume. It happens

regardless of, and is independent of, the marketing activities of the firms in the
vaporware industry.

Smoothing Costs Associa ted With Reformulations

"We are planning a reformulation and have ordered 25,000 units of production with
the new formulation versus 28,000 units of production that we ordered last quarter
for the old formulation. When calculating production and labor smoothing costs in
BRANDMAPS™, should we assume that it is a 12% change or a 100% change, the
latter occurring if you zero out the old product and then start production up in the
new product formulation? Please advise."

The previous production order was 28K. This is all that matters in the smoothing cost
calculation in BRANDMAPS™. A reformulation is irrelevant to the calculation of
smoothing costs; only last quarter and current quarter production levels influence
smoothing costs. A change in production from 28K to 25K will have a 12% smoothing
adjustment cost associated with it.

Smoothing Costs When Previous Production Was Zero

"In BRANDMAPS™, if production of a product changes from zero to any positive
number in the next quarter, what are the associated smoothing costs?"

In moving a product's production from 0 in a quarter to any positive number in the

subsequent quarter, smoothing costs will hit their maximum values (since the base case
production level is 0 and the change in production always exceeds 100% of the base
case production level, by definition). Maximum smoothing costs are equal to current
production and current labor costs.

23
Transportation and Shipping Costs
"Are transportation and shipping costs reduced for lighter-weight vaporware
brands?"

No. Transportation and shipping costs are expressed in per-vaporware-unit terms.

Transportation and shipping costs are not based on the weight of the vaporware brand.

Unfilled Orders
[1] "What are unfilled orders?" [2] "In BRANDMAPS™, what happens to my
unfilled orders? Do they come back as sales in the next quarter?" [3] "On unfilled
orders, how do customers make their brand selections in the next quarter? Are they
guaranteed the product at the previous quarter's price, when they first wished to
purchase it?"

In BRANDMAPS™, if a brand's sales volume exceeds current-quarter production plus

emergency production plus beginning-of-quarter inventory, unfilled orders result. Some
part of a brand's unfilled orders shift to other available brands in the current quarter.
Unfilled orders are not backorders. Customers who are unable to purchase their first-
choice brand do one of three things: (1) wait until the next quarter to attempt a purchase
of their preferred brand; (2) switch to another brand that is available; or, (3) purchase no
brand now or in the next quarter. Thus, some part of your brand's "unfilled orders" shift
to competitors' brands in the current quarter, providing that the competitors' brands do
have available inventory to meet this shifted demand. However, some of your brand's
"unfilled orders" are truly backorders and return again next quarter. The division
between shifters and backorders is unknown.
For customers of the first type, a purchase in the next quarter is based on the brand's
relative standing at that time compared to all other brands available for purchase.
Presumably, customers of the first type are predisposed to purchasing their preferred
brand from the prior quarter. However, brand prices in the next quarter do influence
customers' brand choices. All transactions in the next quarter are at the prices in effect
in the next quarter.

Unfilled Orders Allocations

"How does BRANDMAPS™ allocate the production of a brand between regions in
instances when demand exceeds the available production and existing inventory?
Does it allocate on the basis of the region that has the highest margin or by some
other criteria?"

BRANDMAPS™ fills all dealer orders proportionately to total demand. Thus, unfilled
orders will always be a constant percentage of total possible sales (actual sales plus
unfilled orders). There is no way to direct orders to be filled in some prioritized fashion,
say by highest margin. All dealers are dealt with equally in this approach regardless of
their profit or margin potential.

24
Variable Depreciation
"Our Q6 DIVISIONAL BALANCE SHEET shows 116K units of plant capacity. Our
total production for all products in Q7 was 115K. Why is our variable depreciation
$90.68? Shouldn't it be $90.00 per unit (12% of $750)? It would seem that the extra
$0.68 per unit is a premium for producing over 100% of our capacity yet our
production volume was actually under 100%."

When you order plant capacity in BRANDMAPS™, there is a fixed cost per order in
addition to the variable cost of $750 per unit. That fixed cost is included within the
value of your plant capacity as recorded on the DIVISIONAL BALANCE SHEET,
since it appropriate to pro-rate this cost over the useful life of the plant capacity. Thus,
the effective cost per unit of plant capacity in BRANDMAPS™ will be a little above
$750 per unit.

Marketing Research
Advertising Program Experiments
"Is the cost of Marketing Research Study #35 (Advertising Experiment) per
experiment or the specified total for any number of experiments (one to ten)?"

The cost is per experiment. If you execute the maximum possible number of advertising
experiments in a quarter (10), the total cost would be ten times the stated per-
experiment cost.

Billings Records
"In some cases, the marketing research study billings records seem to report more
usage than the students claim to have ordered. Any help on this would be
appreciated."

Marketing research is run after the quarter has concluded and after the quarter's
financial statements have been assembled. It follows, then, that marketing research is
not billed until the next quarter's financial reports are generated. So, Q#2 marketing
research is billed with the Q#3 financial statements. See the footnotes at the
MARKETING RESEARCH BILLINGS records on the financial statements for
confirmation of this point. Direct your students to these footnotes, too.
Some marketing research studies are costed on a per-unit basis, where the "per-unit"
metric is not the same as executing the marketing research study once. This is done for
accounting purposes, so that the software only needs to track two items: frequency of
execution and cost per-unit of execution. As an example, Marketing Research Study #12
("Concept Testing") is recorded as being executed as many times as there are market
regions when the study is ordered for "all" market regions. In a four-region industry,
"all" implies that four concept tests are executed as far as the software is concerned.
However, students might think that only one concept test has been executed.

25
For marketing research studies where "all" regions have been selected for permanent
ordering (such as Marketing Research Study #41), teams must explicitly cancel market
regions in which they are no longer interested or else the "all" market regions order
continues to be in effect. Of course, even if a firm no longer has active brands in one or
more market regions, there is still some reason to monitor competitive developments in
non-active regions.

Concept and Preference Test Limits

"The student manual indicates that concept tests and each variety of preference tests
may be executed a maximum of 20 times per quarter. However, my students are
running into problems when they ask for more than 10 concept tests or more than 10
preference tests of any variety in a quarter. What's the problem?"

There are two constraints on the maximum number of concept tests and preference tests
of each variety. First, a maximum of 10 individual concept test or preference test (for
each type of preference test) requests may be pre-ordered in any quarter. This is a hard
constraint that reflects the maximum memory set aside in the software to store concept
and preference test pre-orders. Second, these concept tests and preference tests of each
variety can reference a maximum of 20 market regions.
Based on these constraints, 10 individual concept tests for a single market region
exhaust the available limit for pre-ordered studies in any quarter. Likewise, five concept
tests ordered in "all" regions of a four-region game exhaust the maximum limit of 20
concept tests in any quarter even though only five such individual concept tests have
been ordered. For marketing research billings purposes (and for the purposes of
enforcing the execution limit on the number of marketing research studies that may be
conducted in any quarter), a multiple-region test request counts for as many tests as
there are regions being tested.

Counts for Marketing Research Studies with Limited

Availability
"The student's manual states that up to 20 concept tests can be requested in any
quarter. A team requested 10 concept tests in various formulation/region
combinations. The screen reported 'All requests for study #12 are currently in use.
Cancel one or more study requests before processing a new request.' At first pass, it
seems as if her team should be able to do 10 more concept tests. If this is wrong, how
should they be 'counting' a concept test?"

For the concept and preference testing marketing research studies, each market region in
which a test is conducted counts as one test against the quarter's maximum limit. This is
also indicated in the "Availability" sub-section under the description for Marketing
Research Study #12: "A maximum of 20 concept tests may be requested in any quarter.
In a six-region industry, ordering this study for all market regions simultaneously results
in a total of six concept tests being conducted."
Given the amount of data entry required for these concept and preference testing
marketing research studies, it's rare for students to order more than a handful of tests at
one time. Often, of course, a single test is ordered for several regions and, as noted

26
above, each region counts as one test for the purposes of the availability limit. However,
the software only has the capability of storing a maximum of 10 separate test requests,
each for one or all regions. In the extreme, 10 concept test requests, each for a single
market region, would exhaust the internal storage capability of the program even though
the maximum of 20 concept tests in one quarter had not been reached.

Dealer Markups
"The dealer markup for the market region 3 (Pacific) is stated to be 70% in the
student manual. However, in reviewing Marketing Research Study #41 output, one of
my groups has found a $4 deviation in what should have been a 70% markup. What's
going on here?"

Dealer prices are estimated based on a survey of dealers. Thus, they will exhibit a
measure of sampling error. The dealer prices reported in these marketing research
studies are estimates of the true average dealer price in a market region. It follows that
there could be some variation in observed markups from quarter to quarter due to the
randomness inherent in the survey-based estimates of average dealer prices.

Estimating a Competitor's Manufacturing Price

"Is it possible for a firm to estimate a competitor's manufacturer price by using a
combination of marketing research studies?"

A fairly direct approach exists to estimate a competitor's manufacturer price. Estimate

the regional markup rate by comparing your own manufacturer price to your own dealer
price (the price at which dealers sell to final customers). Then, using that markup rate
and your competitor's dealer price, it is possible to backout an estimate of a competitor's
manufacturer price. For example, if your manufacturer price is $723 and the associated
dealer price is $1,232, this implies a dealer markup of 70.4%. For a competitor with a
dealer price of $1,089, this implies an associated manufacturer price of ($1,089/1.704) =
$639.
Since dealer prices are estimated based on a survey of dealers, they will exhibit a
measure of sampling error. Thus, the dealer prices reported in various marketing
research studies are estimates of the true average dealer price in a region. It follows that
there could be some variation in observed markups from quarter to quarter due to the
randomness inherent in the estimates of average dealer prices.
In BRANDMAPS™, there are a wide variety of marketing research studies that provide
estimates of dealer prices (#25, #36, #40, #41, and #50). In BRANDS™, Marketing
Research Study #41 is the only source of dealer price estimates.

Marketing Research Printout Pagination

"We successfully downloaded and printed our marketing research results from the
course website. Our marketing research results begin on page 18. Does this make
sense? Are we missing anything?"

27
The marketing research results are paginated in sequence after the financial results.
Thus, with 17 pages of financial results, your marketing research printout would follow
starting on page 18. Note that the marketing research studies are printed in numerical
order (1, 2, etc.), but the only marketing research studies that are printed are the ones
that you actually ordered.

Marketing Research Study #1

"When I request Marketing Research Study #1 for my firm, the marketing research
report shows on the study title but provides no further information. What's going on
here?"

Marketing Research Study #1 is designed to report competitors' earnings and dividends,

not your own firm's data. Your own firm's earnings and dividends data are reported on
your balance sheet.

Marketing Research Study #10

"When I order a conjoint analysis for 'all' regions in BRANDMAPS™, do I receive
an overall set of aggregate conjoint results or do I receive conjoint analysis results for
each market region separately?"

A conjoint analysis ordered in "all" regions results in separate conjoint analyses being
executed in each market region with the results reported separately for each market
region.
"All" market regions for conjoint analysis means that the specified experimental design
(specified levels for each of the five raw materials, Compatibility, Warranty, and dealer
price) is executed independently in each market region with results being reported
separately for each market region. Although the student manual shows an example of
results only for a single market region, "all" means that there will be separate results for
each market region. Average results across market regions are not reported since they
would have little meaning if regional variations exist. And, of course, students could
create their own averages if they thought that such numbers were meaningful.

Marketing Research Study #12

"We ordered three concept tests (Marketing Research Study #12) for alternative
vaporware formulations in a particular market region. Each of the test scores yielded
0% interest in the tested formulations. Is this possible?"

Yes, this is possible. Apparently, these are terrible formulations relative to the needs of
the customers in this market region.

Marketing Research Study #18

"Does Marketing Research Study #18 in BRANDMAPS™ report on all existing
patents or only the patents held by other firms?"

28
In BRANDMAPS™, Marketing Research Study #18 and Marketing Research Study
#30 search over all existing patents, including those currently held by your firm. Thus, a
"false positive" could occur. A patent could be reported as existing but that patent could
be your own. On a reformulation, only other brands' existing patent zones are checked,
not the brand that is being reformulated. Thus, during a reformulation effort, you may
violate your own brand's patent (but not any of your other brands' patents), providing
that you don't also violate other brands' existing patents.
Note, also, that Marketing Research Study #18 and Marketing Research Study #30
search for patents now. But, when reformulations occur next quarter, all patent zones
decrease by three patent zone points prior to reformulation bid queue processing. Thus,
a patent violation now might actually not be a patent violation at the start of the start of
the next quarter.
The only way to know about patent zones is to track everyone's patents carefully with
the available marketing research resources within BRANDMAPS™. Of course, you
can't predict who will reformulate or how much they'll bid in the future, but you can at
least know where all the existing patents lie.

Sales Force Efficiency

"How can sales force efficiency be measured in the simulation?"

Test marketing (Marketing Research Study #20) may be used to test any elements of a
marketing program. Test marketing is not limited to just tests of product formulation
variations or new product launches. Thus, test marketing may be used to test variations
in sales force resource allocations. In addition to reporting sales, market share, and
profit estimates, test marketing also reports a variety of market-based diagnostics that
may be useful in assessing a brand's strengths and weaknesses (e.g., customer brand
awareness, dealer availability, and brand quality perceptions). Since sales force resource
allocations have a long-run character, multi-quarter test marketing experiments would
be the norm when testing alternative sales force resource deployments.

Test Marketing Results Are Missing

"Several student teams report ordering a multi-quarter test marketing study
(Marketing Research Study #20) but not receiving its results with the rest of their
marketing research results. Any advice that you have on this would be appreciated."

To do test marketing, students must both change the decision variables and order the
marketing research study. The usual reason for no test marketing results being reported
is that the students forgot to order the study, thinking (erroneously) that just changing
the decision variables was all that needed to be done. This two-part procedure is
described in the student manual.

29
Marketing Research Study #21 (Self -Reported
Importance Weights) and Pricing
"In Marketing Research Study #21, self-reported importance weights for perceived
performance, perceived convenience, and dealer price are reported. Even though
students are cautioned about the impreciseness of such self-reported importance
weights, the consistently high values of the relative importance for dealer prices
encourages students to pursue price cutting strategies sometimes to their detriment.
Do you have any advice on how to deal with this?"

The self-reported importance weights in Marketing Research Study #21 for perceived
performance, perceived convenience, and dealer price are fragile things. There is no
special magic to them. Presumably, they reflect customer brand choice behavior to a
degree. However, the track record of such self-reported weights is poor. It's easy for
customers to say they want it all, to avoid trade-offs, and to run to
convenient/transparent/obvious variables like price rather than make the necessary
trade-offs between price and product/service benefits.
There are many other marketing research resources available to assess the role of
pricing is customers choices and in brand/firm profitability. The key teaching issue is to
demand that your students focus on profitability and not just volume (market share)
issues.
The market position summaries provided in Marketing Research Study #41 ("Regional
Summary Analysis") suggest the salience of the performance, convenience, and price
market drivers. If, for example, the major market share brands are high in perceived
performance, that would suggest the relative supremacy of perceived performance in
this market region. On the other hand, if high performing brands differ widely in market
shares, then other factors (perceived convenience, dealer price, relative maturity of the
brand/formulation) must be relevant to explaining market share positions.
Preference testing with varying dealer prices is a simple way to quantify formulation-
price trade-offs, without relying on self-reported importance weights of questionable
quality. Test marketing major price changes is another important marketing research
resource to gauge the potential profitability of low-price strategies and tactics prior to
instituting them in the real vaporware market place. Indeed, some instructors have
required test marketing evidence to be presented prior to approving any reduction in
dealer price.
One effective teaching approach is to require teams to complete a pricing worksheet
prior to or in connection with any reductions in dealer prices. Such a one-page pricing
worksheet is provided in PRICING.DOC, a Word document listed on the home page.
The use of this pricing worksheet will force students to consider profitability and not
just volume in their pricing decisions. While there is no magic to this pricing worksheet,
its use does force profitability issues to the forefront. It also creates a wonderful
opportunity for instructor-student interaction about strategies and tactics, when the
instructor insists on a contemporaneous or post-quarter review of price reduction
decisions.
The broader teaching issue here is really differential advantage. Attempting to compete
by using low prices avoids the much harder challenge of offering a superior benefit
proposition to customers. Students should be forced to justify low-price strategies and
tactics in written analyses, oral presentations, etc. Are such strategies sustainable? How
will price wars be avoided? Are low-price strategies really the most profitable ones?

30
What combination of benefits (perceived performance and perceived convenience) and
price are most profitable in the long run?

Marketing Research Study #30

"Does Marketing Research Study #30 in BRANDMAPS™ report on all existing
patents or only the patents held by other firms?"

In BRANDMAPS™, Marketing Research Study #18 and Marketing Research Study

#30 search over all existing patents, including those currently held by your firm. Thus, a
"false positive" could occur. A patent could be reported as existing but that patent could
be your own. On a reformulation, only other brands' existing patent zones are checked,
not the brand that is being reformulated. Thus, during a reformulation effort, you may
violate your own brand's patent (but not any of your other brands' patents), providing
that you don't also violate other brands' existing patents.
Note, also, that Marketing Research Study #18 and Marketing Research Study #30
search for patents now. But, when reformulations occur next quarter, all patent zones
decrease by three patent zone points prior to reformulation bid queue processing. Thus,
a patent violation now might actually not be a patent violation at the start of the start of
the next quarter.
The only way to know about patent zones is to track everyone's patents carefully with
the available marketing research resources within BRANDMAPS™. Of course, you
can't predict who will reformulate or how much they'll bid in the future, but you can at
least know where all the existing patents lie.

Marketing Research Study #31

"We are considering ordering Marketing Research Study #31 ('Industry Sales
Volume Forecast') for a newly opened market region. We wonder if it will be relevant
since there are currently no industry sales and no historical industry sales data in the
newly opened market region. Can Marketing Research Study #31 still provide us with
an estimate of industry sales in a newly opened market region?"

Marketing Research Study #31 ("Industry Sales Volume Forecast") is indeed based on
historical data. Since a newly opened market region has, by definition, no past industry
sales data, an industry sales forecast about the future cannot be created in the absence of
such historical data. However, please do note the timing of the execution of Marketing
Research Study #31. Like all marketing research studies, Marketing Research Study #31
will be executed after the next game run. If there is at least one active brand in a new
market in the next quarter, then there will be some historical data available (one quarter
of data) on which to base a future industry sales volume forecast. On the other hand,
perhaps you would prefer to create your own industry sales volume forecast using
measures and criteria other than historical sales data.

31
Marketing Research Study #33 (Bidding Statistics)
"From BRANDMAPS™ Marketing Research Study #33, there were 7 bids submitted
with an average bid of $827,204 and a high bid of $5,300,000. However, our financial
reports show a reformulation charge of $2,843,568. Note that $827,207 times 7 equals
$5,790,428 for the total amount of the seven bids submitted. But, if I subtract the high
bid and our team's bid, I end up with a negative number. What's up?"

Your "reformulation" amount on your divisional operating statement includes the

$2,500,000 costs associated with a major reformulation. The reformulation bidding
statistics from Marketing Research Study #33 only refer to the amounts bid for position
in the reformulation queue, not to the subsequent reformulation costs.

Marketing Research #33 (Blank Reformulation)

"A current-quarter reformulation shows up blank on the output of Marketing
Research Study #33. Why is that?"

Marketing Research Study #33 reports the reformulations of products that have been
successfully reformulated in the current (i.e., just-completed) quarter. To conduct a
formulation analysis, products must be actively distributed in at least one market region.
(A sample unit must be purchased through normal distribution channels to conduct the
reverse engineering.) Apparently, this product was reformulated but was not introduced.
Once introduced into one or more market regions, this product's current formulation can
be accessed by reverse engineering it via Marketing Research Study #2.

Marketing Research Study #40 (Missing

Reformulations)
"Firm 2's BRANDMAPS™ output for Marketing Research Study #40 showed two
products (3-3 and 6-3) with formulations "**" when, in fact, both products had been
reformulated in the past and are currently active in at least one market region. Is
there an explanation for this missing data?"

Direct your students to carefully read the marketing research study description for
Marketing Research Study #40, especially the footnotes. This is NOT a core dump of all
existing formulations! These students didn't "know" the current formulations for
products 3-3 and 6-3 because they had not done the right marketing research in the past.
Tell them to do Marketing Research Study #2 if they want to "know" these formulations
now (and simultaneously update their firm's personal Marketing Research Study #40
formulation database).

Marketing Research Study #41 ("Industry" and

"Average")
"In Marketing Research Study #41, what do 'industry' and 'average' mean?"

32
In Marketing Research Study #41, "industry" means total (for all firms in the industry).
"Average" means average per-product.

Marketing Research Study #43

"One of my BRANDMAPS™ teams ran Marketing Research Study #43 ('Marketing
Spending Productivity') for all regions. Their report indicated that they had only one
product in market region 1 when they actually have two products active in that
region. I'm not sure why this happened. Can you solve this mystery?"

Marketing Research Study #43 only reports results for products whose market share is
at least 5.0%. Since this study is based on ratios of sales revenues, the "small-brand"
problem arises: brands with small sales revenues can lead to wildly large ratios, which
can result in average ratios that are uninterpretable. To avoid this problem, only larger
(i.e., greater than 5.0% market share) brands are included in this study.
As it turns out, this caveat is included in the "Other Comments" sub-section of the
description of this marketing research study in the BRANDMAPS™ student manual. As
is often the case, the answer turns out to be in the manual.
In cases where students have questions about marketing research study results, it is my
experience that asking them to re-read the manual description of the marketing research
study is usually helpful. Most student questions are resolved with a careful re-reading of
the manual.

Marketing Research Study #47 (Results

Interpretation)
"Is it correct to interpret the results from Marketing Research Study #47 in a
cumulating style? That is, if 12% of potential customers prefer a value of '8', 21%
prefer a value of "20", and 33% prefer a value of '32', then 12%+21%+33%=66%
prefer a value of '32.' After all, don't customers always want 'more' so a product with
an attribute value of 32 is always preferred to a product with an attribute value of
'20'?"

There are two different type of attributes which comprise vaporware. There are physical
raw materials, attributes #1-#5, and there are directional elements, attributes #6-#7
(Compatibility and Warranty). The physical raw materials are of the "ideal-point"
variety. Customers want what they want. Deviations, in either direction (too little or too
much), are bad. For directional attributes (Compatibility and Warranty, and Dealer Price
too), more-is-better or less-is-better are always the cases.
For physical raw materials (attributes #1-#5), too much or too little are presumably both
bad, although not necessarily with equal dispreference to customers. Do not cumulate
the percentages in Marketing Research Study #47. A value of "56" is NOT a preferred
value to those who really want "24"; 56 is a long-way from "24". "56" is just different
from "24."
Attributes #6-#7 are directional, with more always being better. All customers should
want high levels, "9"s if possible. Whether you should offer such a level is, of course,
another matter when you factor in cost considerations. Marketing Research Study #47
does not report self-attribute preferences for directional attributes, like Compatibility

33
and Warranty. Since more-is-always-better for Compatibility and Warranty, research is
not needed to learn that everyone prefers a value of "9" for vaporware attributes #6 and
#7.

Marketing Research Study #48

"Is a 100% brand satisfaction score possible? I've just found one, for a newly
launched product. Any comments?"

A 100% brand satisfaction score for a newly launched product presumably represents a
lot of statistical noise associated with the initial launch of one or more brands into a
market region. It's also possible that the very early buyers for a new product might be
somewhat different than later buyers who represent a broader and more realistic cross-
section of vaporware customers. After customers and channel members really get to
know a newly launched product and its associated marketing program after another
quarter or two, things will settle down to a more realistic brand satisfaction score.

Marketing Research Study #50

"I am troubled by Marketing Research Study #50 ('Price Sensitivity Analysis'). It
always seems to show that the lower the prices, the higher the profitability. What is
going on?"

Marketing Research Study #50 only predicts long-run market share, based on very
specific assumptions (see the marketing research study details in the student manual). It
is necessary to translate the long-run market share estimate into a profitability estimate
(a spreadsheet would be needed to do so). Obviously, lower prices would increase
market share, but lower prices also reduce margins. In addition, lower prices might
invite competitive retaliation and lead to all prices in the industry being lower, with
consequent lower margins and lower profitability for all.
Please do look carefully at your spreadsheet to ensure that profits are calculated
correctly. My experience is that most students' spreadsheets don't have profits calculated
correctly.
Several cautions are in order with regard to Marketing Research Study #50. First,
Marketing Research Study #50 ("Price Sensitivity Analysis") estimates market share
only based on price and product attributes. "Convenience" is not factored into this
estimate (price sensitivity analysis is equivalent to a choice simulation in conjoint
analysis). Second, price sensitivity analysis estimates could be quite unstable at the
beginning of a simulation, when the products are all so similarly positioned. Use caution
in commodity-like environments. Third, it might be appropriate to follow-up price
sensitivity analysis with a test marketing experiment, since that's a more reliable (albeit
expensive) form of long-term marketing mix evaluation.

Marketing Research Study #55

"What is Marketing Research Study #55? Firms appear to be billed for this study
automatically every quarter."

34
Marketing Research Study #55 represents the management information system charges
of $1,000 per page associated with all financial and marketing research reports. Q#2
charges will normally be the same for all firms, since the Q#1 financial reports will
normally be identical for all firms and no marketing research will have been ordered.
Starting at Q#3 (with the charges for Q#2 marketing research being recognized within
the Q#3 financial results), these management information system charges will vary
across firms due to the varying amounts of marketing research ordered by the firms.

Market Region "9"

"One of my student teams tried to do Marketing Research Study # 12 ('Concept
Testing') and there seems to be a problem. This industry has three market regions and
when the students selected all regions, the confirmation said they had ordered the
study for region 9. I had them use both the lower and upper case 'A' for all regions,
but the confirmation came back each time as region 9. They were able to enter one
region at a time. What's going on here?"

Region "9" is a valid market region number. It is actually an internal software code for
"all regions." For some of the marketing research studies, individual regions are listed
by number and a request for "all regions" results in each region being listed separately.
For other marketing research studies, region "9" is listed and that is the internal software
code for "all regions."

Patent Information Timing

"What is the timing of patent-related information provided in BRANDMAPS™
marketing research studies? Does it reflect the situation in the current quarter or in
the next quarter?"

Patent information provided is always as of the moment a marketing research study is

executed. Thus, a patent search on a specified formulation that reports a patent violation
reflects the situation as of that moment. When BRANDMAPS™ next runs, patent zones
are reduced by three units and such a formulation might then not violate existing
patents. On the other hand, a patent search on a specified formulation that reports no
violation means that such a reformulation is certainly patentable if the associated
reformulation request is the first one processed when the game next runs. To be the first
reformulation processed in BRANDMAPS™ requires, of course, that the reformulation
bid be the highest one submitted in connection with the next game run.
As an example, consider a reverse engineering study of a competitor's brand processed
in connection with the normal game run for quarter #8. Since the marketing research is
executed after the conclusion of quarter #8, results reflect the situation in quarter #8. A
competitor's brand that has just been reformulated will show a patent zone of 25 in the
Marketing Research Study #2 output. However, the effective patent zone is really 22,
since that is what will be the case when the next quarter runs and that is when
reformulations next occur in BRANDMAPS™. Between quarters #8 and #9, patent
zones for newly reformulated brands are 25. Patent zones decrease to 22 when quarter
#9 begins. Reformulation requests are the next thing that happens after the game's time
counter advances to quarter #9. After reformulation requests are process, the game runs.

35
Patent Searches
"My BRANDMAPS™ team was considering a minor reformulation and ran a patent
search. It reported a patent violation. Does the patent search ignore our team's
formulations in its patent searching?"

Patent searches associated with a reformulation (which are implicitly executed by the
BRANDMAPS™ software) check all patents other than the brand being reformulated.
Patent searches run independently of a reformulation do not distinguish between your
brands or your competitors' brands. Thus, your patent search could indeed be reporting a
violation of the brand you anticipate reformulating. The good news is that a failed minor
reformulation is not the end of the world, since the product would have only changed
modestly.
To preserve your ability to still reformulate elsewhere (another brand) when attempting
this minor reformulation, you could submit multiple reformulation requests for multiple
brands. The bids will be processed in bid order and the first one completed successfully
will knock the others out of the reformulation processing (but you still have to pay the
bid prices, of course). Thus, you could try for the minor reformulation, either before
(higher bid) of after (lower bid) another reformulation attempt. This would give you
more than once chance at a reformulation, in case the minor reformulation attempt ran
into someone else's patent.

Patent Searches Associated with Reformulations

"When a product is reformulated in BRANDMAPS™, I was under the impression
that the firm is required to order Marketing Research Study #18 ("Patent Search"). It
seems like we are being charged more than this marketing research study actually
costs. Can you please clarify if this marketing research study needs to be ordered
when we reformulate or is it ordered automatically?"

There is no need to order Marketing Research Study #18 in connection with a

reformulation. The software does this automatically as it processes your reformulation
request(s). This study needs to be ordered for each reformulation try that you make.
Thus, if your third reformulation try is the one that is successful, a total of three patent
searches will have been conducted to facilitate this reformulation (one for each of the
first, second, and third tries). Indeed, if you are unsuccessful in a reformulation effort,
you will still have incurred the costs associated with executing three patent searches.
The only time that you will be charged for only one patent search is if your first
reformulation try is successful.

Perceived Performance After a Reformulation

"I am in a quandary regarding customer perceived performance in region 3
regarding our brand 1-1. The conjoint analyses we performed shows that our
reformulated 1-1 should be very well received by customers in region 3, yet customers
seem to feel that it is simply average in perceived performance. Is there any way
(short of another reformulation) that I can improve customers' perceived
performance of 1-1? Any advice you can give me would be greatly appreciated."

36
Congratulations on your 1-1 reformulation. It must have been a non-trivial challenge to
get by all of the competitors' patent barriers. Now, of course, the real work begins -
making the brand profitable. Of course, with lots of entrenched and good competitors,
market share growth will be slow, particularly since you don't have a dominant
formulation, just one in the vicinity of the leaders in preference. But that's a major
accomplishment, given where your old brand 1-1 stood in the universe.
Such a substantial brand repositioning is likely to take a while to be fully realized in the
market place. Customers' perceptions may have to adjust through time. Is the direction
of movement what you expected, even if the final story hasn't been written on where
performance perceptions may end up?
If preference testing, conjoints, etc. show the brand fits the customer requirements, then
perhaps something else is amiss. What else drives perceived performance?
What about quality? How's your quality perception compared to competitors? How
much are you spending on R&D compared to your competitors? Are you using the right
media content, given your dramatic brand repositioning? Where's the evidence as to the
appropriateness of your current media content and media mix?
Keep your nose to the grindstone and your shoulder to the wheel. You are on the right
track. Keep going.

Pre-Ordered Marketing Research (Definition)

"What is pre-ordered marketing research?"

Since marketing research takes some time to conduct, there is a lag between ordering
and receipt of marketing research in the real world. In the simulation, that lag time is
simulated by requiring teams to pre-order marketing research (either temporarily or
permanently) along with their decision variable change requests. These marketing
research pre-order requests are either entered by the students on their disk (if disk-based
input is being used) or they are entered on the standard marketing research request
forms included in the participant's manual (if the Game Administrator inputs all
decision variable changes and marketing research pre-orders).

Pre-Ordering Procedures For Marketing Research

"Are you allowed to pre-order marketing research more than once or do you have to
enter all relevant marketing research pre-orders at the same time?"

Marketing research may be pre-ordered in stages. The marketing research pre-orders

accumulate until the game next runs and the marketing research pre-orders are
processed. Thus, there is no problem pre-ordering some marketing research today and
more marketing research tomorrow. Of course, the disk-based input programs
B_DV.EXE and/or B_PREMRS.EXE must be exited normally for all decision variable
changes and marketing research pre-orders to be saved correctly onto the disk.
Sometimes students just remove the disk and walk away from their PCs without saving
everything first.
Whatever is on the disk at the present time (i.e., when students access the disk) is what
the software understands to be true. If a previous decision variable change or marketing

37
research pre-order doesn't seem to be present on the disk, then the correct thing to do is
to re-enter the decision variable change or marketing research pre-order request.

Product-Specific Marketing Research Costs

"Is it possible to break out total marketing research costs into product-specific
marketing research costs, to facilitate product-line performance evaluations?"

No and it is probably unwise to do so. Such overhead allocations are going to be quite
arbitrary, no matter how they are done. Thus, it is better to view this as one (of many)
corporate-level unallocated overhead items that are only reported on the DIVISIONAL
OPERATING STATEMENT.

Test Marketing and Sales Forecasting

"Why do sales forecasts differ so much between test marketing and the sales
forecasting marketing research study?"

The test marketing study is based on the current brands in the market and their evolving
marketing programs. Only the tested brand's marketing program can vary in test
marketing. All other brands' marketing programs are held constant at their existing
values during test marketing. However, the dynamics of the market (e.g., evolving
dealer availability) are taken into account within test marketing. The sales forecasting
marketing research study is a pure extrapolation of recent trends. Since test marketing
takes many more things into account (and provides much more diagnostic information),
it is likely to be a much better sales forecasting tool than the very simple extrapolative
nature of the sales forecasting marketing research study. Naturally, test marketing is
considerably more expensive than a simple extrapolation of past sales realizations.

Timing of Marketing Res earch Billings

"My firm isn't being charged for the right marketing research. What's wrong?"

The MARKETING RESEARCH BILLINGS records are lagged a quarter on the

standard financial statements. For example, marketing research pre-orders in connection
with quarter #4 (i.e., submitted along with other decision variable changes for quarter
#4), are actually executed after the completion of quarter #4 and are billed, therefore,
with the quarter #5 financial statements. This lagged billings situation is described in the
financial statements in a footnote at the bottom of the page that reports the details of the
current quarter's marketing research billings.

38
Output Interpretation
Cash Balance
"What determines our ending cash balance? I would like to have $1M in cash and
the rest placed in marketable securities."

Ending cash balance must be at least a specified percentage of current quarter revenues.
See the student manual for details. If the natural ending cash balance does not meet the
minimum required level, a loan is automatically created to bring the adjusted ending
cash balance up to this minimum required level. The software automatically invests any
excess cash (above the maximum cash level, again tied to current quarter revenues) in
marketable securities. Your ability to control precisely the level of marketable securities
is limited given the automatic provisions built into the software. Over time, of course,
you may control the level of investment in marketable securities by issuing dividends
which require cash payments, thereby reducing cash and/or marketable securities.

Capacity Usage Situation

"I am not sure how to interpret the following capacity usage situation reported within
the financial reports:

• Current capacity is 115,010 units; pending capacity is 40,400 units.

• With no change in production, next quarter capacity usage will be 113.4%.
• Next quarter capacity is 133.0% of current quarter sales volume.
• Forecast capacity utilization is more than 100%
• ### Warning: Major Overcapacity Utilization Problem May Be Imminent ###

Their current divisional operating statement shows 86,502 units of sales for all
products in all regions. Their current production is 130,400 with an ending inventory
of 43,899 units."

The software does not know anything about the students' possible plans for the next
quarter. It is only reporting on the current status of things at the time this financial
report is created, immediately after the conclusion of the most-recent quarter's game
run. True, these students might conclude that they should reduce production next
quarter, in light of their current sales volume and their current inventory level. But, of
course, that is at the discretion of these students.
Pending capacity is not available next quarter. It becomes available at the end of the
next quarter, not at the beginning of the next quarter. Only the top-line capacity figure
on the DIVISIONAL BALANCE SHEET is available for use next quarter.
Current production of 130,400 obviously exceeds current capacity of 115,010. Thus,
this warning message is issued. Note that 130,400/115,010 = 113.4% capacity usage,
assuming that production next quarter is equal to the previous quarter's production level
(130,400).

39
Common Stock
"What are the number of shares of outstanding common stock for a firm?"

Assume that all firms had 1,000,000 shares of common stock at initialization (i.e., at
quarter 1). However, it's not clear that the number of outstanding shares is that crucial a
consideration to life on this planet. Indeed, if the answer to the question "how many
shares?" had been "unknown," how would decisions in marketing, operations, finance,
etc. change? Probably not at all. The key thing is return on assets deployed. Some form
of ROI (return-on-investment), or ROA (return-on-assets), or ROE (return-on-equity)
measure is the ultimate financial performance indicator. Think about NPV (net present
value) calculations for investments of corporate resources in products, markets, or
projects. Where in such calculations are the number of shares outstanding? However,
everywhere in such NPV calculations are returns (profits, net cash flows, etc.) and
assets deployed (investments) to realize these returns.

Cost Recognition Timing

"Could you explain why we had product costs of $10M this quarter in
BRANDMAPS™? We had an inventory of approximately 18K units with no
production order this quarter. The plan was to eliminate the inventory that had built
up over the previous quarters. I have always thought that product costs are incurred
during the quarter in which the product is produced."

The accounting principle of matching (i.e., matching revenues and costs) is key here.
You are charged for variable production costs ("product costs" in the simulation) when
it's sold not when it's produced. When the product is produced, it's a strict asset side
transaction on the financial statements with cash decreasing and finished goods
inventory increasing. There's no profit-and-loss implication of production. When the
product is sold, the balance sheet is affected with finished goods inventory decreasing
and cash increasing. On the profit-and-loss statement, the sale of the product has
associated with it product costs.

Cumulative Financial Statements

[1] "Our BRANDMAPS™ team changed financial reporting formats in Q#5. We now
get REGIONAL OPERATING STATEMENTS, which fits our team's structure. But
I've noticed a possible problem. Our Q#5 CUMULATIVE DIVISIONAL
OPERATING STATEMENT isn't cumulative. It excludes Q#1-Q#4 performance.
What's up?" [2] "Although all of my firms are profitable, the net income on the
cumulative financial statement in Q#5 is less than the corresponding figure in Q#4.
What's happening?" [3] "When I examined the financial reports generated with the
Q#5 game run, I discovered that each of the six firms in the industry has identical
cumulative and current product operating statements. Firm 3, for example, has both
current and cumulative operating income of $9,006,490 and firm 5 has $1,854,464 in
both categories. What's happening?"

40
"Cumulative" refers to year-to-date, not "cumulative from the beginning of time." Since
Q#5 is the beginning of the second year, the cumulative Q#5 figures are the same as the
current-quarter Q#5 figures since the current and the cumulative year-to-date figures are
always the same in the first quarter of each year.

Debt
"I have two BRANDMAPS™ teams with debt leverage of more than 50% and
another team with a debt leverage of 196.8%. Is this serious? How should this debt
problem be solved?"

Yes, this kind of high level of debt is a serious problem. Some remedial action on your
part is almost certainly necessary. High debt is a symptom of other problems and it's
those underlying problems that must be resolved.
The relative amount of debt compared to a firm's asset base determines their interest
rate on loans. High debt leverage (more than 50%) has associated with it 9% per quarter
interest rates.
What are the sources of debt? This is an interesting starting-point question since the
scenario files start the teams off in a positive profit and low/no debt situation. Debt has
these possible sources: (1) borrowing to fund plant capacity orders; (2) borrowing to
fund investment in finished goods inventories; (3) borrowing to fund the payment of
dividends; and, (4) borrowing to fund continuing large operating losses.
Firms who have debt problems normally ordered much too much plant capacity and
didn't stop ordering it when sales growth failed to materialize. A quite solution to help
out such a firm is to sell-off on-order plant (at the order cost per unit). This will free up
the capital allocated to that unneeded plant capacity order.
With regard to too-high finished goods inventory levels, push the firms to pay a lot
more attention to production ordering in light of realistic sales forecasts. If necessary,
you could alleviate finished goods inventory problems with disposal sales (at the current
cost per unit on the balance sheet, since you don't want such a firm to profit from such
an inventory disposal sale). Using disposal sales in this way also helps a team who feels
constrained not to reformulate until inventory levels are worked down to a more
manageable level.
If operating losses are the problem, look to firms that are grossly over extended with too
many undistinguished products in too many markets. Force them to focus their efforts
and demand that they quite chasing volume just of the sake of volume. Demand
profitability and demand it now.

Financial Statement Implications of Plant Capacity

"Explain the mechanics of plant capacity on the balance sheet and the cash flow
statement."

Plant capacity is an asset, so most of the interesting action associated with plant
capacity occurs on the balance sheet and on the cash flow statement, not on the profit-
and-loss statement.
A purchase of plant capacity is an exchange of cash for plant capacity, a purely asset-
side transaction on the balance sheet. If your firm has too little cash, a plant capacity

41
order may trigger a corresponding loan to replenish your cash to minimum required
levels. On the cash flow statement, a purchase of plant capacity is a "use" of funds.
(Other "uses" of funds are for covering operating losses, paying dividends, and funding
increases in investment in finished goods inventories.)
Depreciation reduces your investment in plant capacity, thereby increasing your
available cash. The variable part of depreciation is embedded into your product costs;
the fixed part of depreciation is a direct fixed cost to your firm, included in the
divisional profit-and-loss statement. You might care to think of depreciation as a "sale"
of some part of your plant capacity to the manufacturing side of your business, with the
receipts of that "sale" serving to increase your cash. On the cash flow statement,
depreciation is a "source" of funds. (Other "sources" of funds include profits from
operations and reductions in investments in finished goods inventories.)

Fixed Depreciation
"How is fixed depreciation calculated?"

Fixed depreciation is equal to 3% of the value of the current plant capacity, regardless
of the plant capacity usage (the total of all production orders, regular and emergency).
For example, if the initial (quarter 0) plant is 160,000 units and each unit of plant
capacity is valued at $750, then it follows that the fixed depreciation of $3,600,000
reported on the first-quarter divisional operation statement is equal to
(0.03)*($750/unit)*(160,000 units).

"Funny Numbers" and Rounding

"Some numbers on the financial reports seem 'funny' and inexact. For example,
depreciation is reported as $3,599,999 rather than the correct value of $3,600,000.
What's up?"

Since the software is written in FORTRAN, there are occasional rounding errors when
converting from real to integer values. This is one such example. If students ask, it's
best just to be honest and advise them of the possible existence of such minor rounding
errors

Production Equals Sales

"One of my teams sold exactly the amount of product that they produced in
successive quarters. Are they merely lucky or is something else going on here?"

Sales volume exactly equal to production plus inventory (resulting in no ending-

quarterly inventory) can happen in BRANDMAPS™ under these circumstances: (a)
pure coincidence; (b) if the brand's emergency production order is set to 0% and if sales
exceed production plus inventory, but this would lead to some amount of unfilled orders
being reported for the brand; or, (c) if another brand has unfilled orders and some
portion (the "switchers") of those unfilled orders were shifted to brands with available
inventory. However, in case (c), secondary unfilled orders do not occur in

42
BRANDMAPS™, so when the recipient brands for other brands' unfilled orders exhaust
current inventory, no further sales are made. This points out the need to monitor unfilled
sales via Marketing Research Study #39, for example. Otherwise, your current sales
volume could be due to competitors' brands having unfilled orders rather than to your
good marketing efforts.

Plant Capacity
"On my BRANDMAPS™ output, I have 91,000 units of current plant capacity and
15,500 units of 'Plant On Order For 1 Quarter Hence.' Can I produce up to 106,500
units next quarter without being invoking overcapacity usage depreciation
penalties?"

No, you only have 91,000 units of plant capacity available for use next quarter.
Production orders above 91,000 units will involve overcapacity usage depreciation
penalties as described in the student manual. Plant capacity listed on the DIVISIONAL
BALANCE SHEET as "Plant On Order For 1 Quarter Hence" is not available for use in
the next quarter. Only the top-line plant capacity amount listed under "Current Plant"
(91,000 in your case) is available for use in the next quarter. "Plant On Order For 1
Quarter Hence" becomes available at the end of the next quarter, not at the beginning of
the next quarter.

Variable Costs
"Why are my variable costs in the quarter profit-and-loss reports different that the
variable costs reported in the 'Product Cost Analysis Estimates' sub-report?"

Your quarterly variable costs reflect withdrawals from your finished goods inventory,
which are done on an average costing basis. The variable costs reported in the "Product
Cost Analysis Estimates" sub-report are estimates of next quarter's costs, under some
very specific and limiting assumptions. Sam Gillespie (Texas A & M University)
comments: "Not only does the Margin Analysis section of the 'Product Cost Analysis
Estimates' sub-report exclude transportation and shipping costs, it excludes sales
C=commissions. Both of these need to be factored back into the regional costs
estimates to get an accurate estimate of each brand's regional unit variable contribution
to margin (UVCM). Additionally, these costs need to be included in the 'Variable Cost'
line in a pricing worksheet when firms make price changes and attempt to estimate the
impact of this change on UVCM. These errors in cost calculation are easy to make if
the instructor doesn't remind students of the omission of these data, since only
divisional costs, not regional costs, are included in the cost calculation information
provided in the quarterly financial statements."

Variable Costs in BRANDMAPS™

[1] "The variable costs ('Product Costs') reported on the BRANDMAPS™ profit-and-
loss statements don't match the variable costs ('Total Variable Costs') reported on the

43
DETAILED VARIABLE COST CALCULATIONS report provided toward the end of
the regular financial statements. Could you please explain this discrepancy?" [2] "I
am having a difficulty explaining to my BRANDMAPS™? students the
circumstances under which total product costs will not be the simple product of total
variable costs times sales (units). Of course, emergency production would increase
total product costs. Yet, I am finding conditions where total product costs are higher
than variable costs times units sold in the absence of emergency production. In
addition, I am finding conditions where total product costs are less than this product.
Can you help me out on this?"

Variable costs can vary in successive quarters for the same BRANDMAPS™
formulation due to inventory withdrawal effects, smoothing costs, experience curve
effects, the use of emergency production, and over-capacity usage. Current-quarter costs
of new production in BRANDMAPS™ are documented within the DETAILED
VARIABLE COST CALCULATION report in the financial statements. (However, note
that the DETAILED VARIABLE COST CALCULATION report doesn't include the
effects of emergency production, if any.) Smoothing costs, in particular, can have large
effects on variable costs.
The software tracks finished goods inventory in terms of both physical units and
associated dollar value of those physical units. Due to smoothing costs and experience
curve effects, the per-unit dollar value of this quarter's production volume will not
necessarily be equal to the per-unit dollar value in previous quarters, thus the need to
track both physical units and their dollar values.
Vaporware units sold to dealers in a quarter are withdrawn from available finished
goods inventory at the current quarter's average dollar value. FIFO and LIFO are not
employed due to the difficulty of tracking physical units of inventory with differing
dollar values.
The implications of these two points is that current variable costs as reported on the
profit-and-loss statements will generally not equal this quarter's variable costs for just-
produced inventory (as reported on the DETAILED VARIABLE COST
CALCULATIONS report). Only in the case of zero opening finished goods inventory in
a quarter will the two values be identical. An opening inventory of zero units can occur
under two circumstances: if a brand has unfilled sales in the last quarter (so that last
quarter's ending inventory was zero) or if a brand is reformulated in this quarter.

Variable Depreciation in the Financial Statements

"Where is variable depreciation recorded on the financial statements? I see that fixed
depreciation is reported on the DIVISIONAL OPERATING STATEMENT. However,
there's no such line-item for variable depreciation."

Variable depreciation is embedded within the variable costs associated with producing
each product. See the DETAILED VARIABLE COST CALCULATIONS report within
the financial statements for the inclusion of variable depreciation in variable costs.

44
Variable Depreciation (Per Unit)
[1] "Variable depreciation per unit always seems to be $90/unit in BRANDMAPS™,
regardless of the level of plant capacity usage. Why is this so?" [2] "I'm running
BRANDMAPS™ with production and capacity management set to "automatic" via
the switches in the game parameter file. Why is variable depreciation constant at $90?
Is this in effect 'fixed'?"

Two interrelated concepts are relevant here. Variable depreciation per unit refers to the
cost of depreciation that is imbedded into variable costs. Capacity usage determines the
amount of total plant capacity that depreciates in any quarter.
For total production orders (across all products, including both regular and emergency
production) that do not exceed current plant capacity as shown on the balance
(excluding pending capacity), variable depreciation is always 12% of current plant
capacity cost expressed in per-unit terms. With plant capacity costs of $750/unit,
variable depreciation is costed at (0.12)*($750/unit) = $90/unit. (Actually, plant
capacity costs per unit as shown on the DIVISIONAL BALANCE SHEET will differ
slightly from $750/unit due to the fixed plant capacity ordering costs included in plant
capacity orders.) With production and capacity management switches set to
"automatic," depreciation per unit is always $90/unit since the plant is, by definition,
always operating at full capacity under the "automatic" settings of these switches.
Variable depreciation cost is not related to the actual level of plant capacity usage
(provided that usage does not exceed 100%); it is always 12%. However, the level of
plant capacity usage does influence the total amount of plant capacity that depreciates in
any quarter. For example, with a plant capacity of 143,200 units and a production
volume of 105,000 units, plant capacity utilization would be 73.32% in a quarter. This
implies that total plant capacity depreciation in the quarter would be
0.03+((0.7332)*(0.12)) = 0.11798, or 11.798%. (The 0.03 figure corresponds to the
fixed plant capacity depreciation rate per quarter of 3%, regardless of plant capacity
utilization.) Note that this 11.798% figure refers to plant capacity deprecation, not
variable depreciation cost. The per-unit variable depreciation cost is still 12% of the
current per-unit plant capacity cost as recorded on the firm's DIVISIONAL BALANCE
SHEET.
If the cost of plant capacity changes from its initial value of $750/unit in
BRANDMAPS™, then the value of plant capacity on the firm's DIVISIONAL
BALANCE SHEET would, of course, change to reflect a blending or mixture of plant
capacity units purchased at different dollar values. Variable depreciation cost per unit
would then change from $90/unit to continue to reflect its cost of 12% of the current
per-unit cost of plant capacity as reflected on the firm's DIVISIONAL BALANCE
SHEET.

Patents
Minor Reformulations and Patent Zones
"It appears that patent zones may not be updating correctly after reformulations in
BRANDMAPS™. Sometimes the patent zones don't jump to their correct value of 25

45
after a successful reformulation. Rather, they just continue to decline by steps of
three every quarter. What's going on here?"

Reformulations in BRANDMAPS™ are of two types: minor (product modifications)

and major (product reformulations). Minor reformulations involve a maximum
formulation change of five units, at a correspondingly lower cost than major
reformulations. However, one of the aspects associated with minor reformulations is
that patent zones do not change to 25. Rather, they just continue to decrease by three
units per quarter just as if a reformulation had not occurred.
Patent zones are always centered around existing formulations. With a minor
reformulation, a patent zone shifts to remain centered around the new formulation even
though its size continues to decrease by three patent-zone points every quarter. For
example, a 30/20/40/5/5/5/5 formulation with a patent zone of 22 which is successful
with a minor reformulation to 31/20/40/5/5/5/5 has a patent zone of 19 in the subsequent
quarter and that patent zone is centered around the brand's new formulation,
31/20/40/5/5/5/5.

Overlapping Patent Zones

"Please explain overlapping patent zones in BRANDMAPS™. Why aren't patent
zones exclusive?"

Even though reformulations cannot violate existing patent zones at the time of a
reformulation, patent zones can and do overlap in BRANDMAPS™. For example, the
formulations 30/50/40/5/5/1/9 and 30/40/40/5/5/5/5 differ by 18 patent-zone points.
However, if each has a current patent zone greater than or equal to 13, it would be
impossible for either to reformulate to 30/45/40/5/5/5/5 since this reformulation attempt
violates both products' existing patents.
While a product can reformulate inside its own patent zone, other products' current
patent zones may overlap making even a minor reformulation impossible. Overlapping
patent zones are the reason why a marginal change (of, say, one unit) in a patent can
fail. True, patent searches for reformulation are conducted for all other products
excluding the one being reformulated at the moment. But, one or more other products'
patent zones could already overlap on the intended reformulation point.

"Own"-Brand Patent Violations

"Can a brand violate its own patent in BRANDMAPS™? I had a team hit gold with
an early formulation and they are asking whether they can reformulate on a regular
basis to protect their patent zone. They are talking about changing six or seven points
at a time to try to match any preference drift. Could they be deprived of their current
formulation via the bidding process if they try to reformulate and are unsuccessful?"

Yes, a team can violate its own patent zone for the brand being reformulated. Patent
searches are on all other brands' formulations (including other brands of the firm) except
the brand being reformulated. However, there is no guarantee that any particular minor
change would lead to a new formulation in the patent space that is available for
patenting, even if the brand being reformulated already covers that point with its current

46
patent. Due to overlapping patent zones, any particular formulation point in the patent
space could be covered by several brands' patents. However, since the firm is seeking to
tweak the formulation just a little, there's no real problem if the reformulation attempt
fails. The brand always retains its formulation until it is successfully reformulated.
Instead of being "new and improved" it would be "old but quite good already."

Patent Zone Reduction Timing

"When do BRANDMAPS™ patent zones change, before or after a game run?"
The full BRANDMAPS™ game-run sequence is: (i) quarter counter clicks forward; (ii)
patent zones decrease; (iii) reformulation requests are processed; and, (iv) the game
runs. Of course, the marketing research pre-order requests still have to be completed,
after the game run.
In the standard BRANDMAPS™ configuration, patent zones begin at 25 for just-
reformulated brands and decrease by 3 each subsequent quarter until the patent-zone
minimum of 7 is reached. Thus, in the quarter in which a brand is reformulated, it has a
patent zone of 25 with respect to those brands which are reformulated after it in the
reformulation bidding queue. In the next quarter, that brand has a patent zone of 22. For
example, if brand 2-3 is reformulated in Q#6, its patent zone is 25 in Q#6 (i.e., for the
rest of the Q#6 reformulation bid queue processing). In Q#7, brand 2-3 would have a
patent zone of 22 for the purposes of blocking other reformulations during the Q#7
reformulation bid queue processing.

Capacity
Controlling Over-Capacity Production Across
Products
"In our BRANDMAPS™ firm, product 1-1 has a high margin and product 1-2 has a
low margin. Our potential sales exceeds our current plant capacity so we'll be
ordering total production that exceeds capacity. We would prefer to control the
specific product that is involved in the over-capacity usage to maximize our margins.
How can we do that?"

There is no way to control which product is involved in over-capacity usage in

BRANDMAPS™. It's automatically done in a proportional fashion. For example, if
your production orders total 150,000 and your current plant capacity is only 125,000,
then 20% of each product's production will be on an over-capacity basis with associated
premium capacity-usage charges.
The use of emergency production limits in BRANDMAPS™ does offer a measure of
control over production of specific brands. However, emergency production limits have
nothing to do with plant capacity limits. Rather, emergency production limits provide
direction as to how to respond to situations where demand exceeds available inventory
plus current-quarter production (whether or not that production exceeds current plant
capacity).

47
Timing of Plant Capacity Availability
"On my BRANDMAPS™ output, I have 91,000 units of current plant capacity and
15,500 units of 'Plant On Order For 1 Quarter Hence.' Can I produce up to 106,500
units next quarter without being invoking overcapacity usage depreciation
penalties?"

No, you only have 91,000 units of plant capacity available for use next quarter.
Production orders above 91,000 units will involve overcapacity usage depreciation
penalties as described in the student manual. Plant capacity listed on the DIVISIONAL
BALANCE SHEET as "Plant On Order For 1 Quarter Hence" is not available for use in
the next quarter. Only the top-line plant capacity amount listed under "Current Plant"
(91,000 in your case) is available for use in the next quarter. "Plant On Order For 1
Quarter Hence" becomes available at the end of the next quarter, not at the beginning of
the next quarter.

Reformulation
Backup Marketing Plans in Case of a Failed
Reformulation
"Is there any way to put a backup marketing plan in place in BRANDMAPS™ that
would be enacted if a reformulation fails? For instance, our marketing plan will be
based on the premise that our reformulation request would be successful. However, if
it fails, our marketing strategy is meaningless and will result in losses."

I applaud you for thinking ahead and considering the full consequences of reformulation
actions. Brand repositionings (i.e., "reformulations" in BRANDMAPS™) are major
undertakings, with lots of associated risks, rewards, and costs. Repositionings are a
major management challenge, to plan and to execute.
In BRANDMAPS™, bidding high for your reformulation request is the only complete
protection you have to ensure a successful reformulation and to avoid marketing plan
problems with failed reformulation attempts. Of course, even if your reformulation bid
is highest, you must still have a technologically valid reformulation request and your
reformulation must not violate any existing patents at the time of the reformulation.
Thus, there's lots of detailed upfront analysis necessary to ensure that your
reformulation will be successful.
There is no capability in BRANDMAPS™ to have one marketing plan (i.e., set of
decision variables) in effect if you successfully reformulate and another marketing plan
(i.e., set of decision variables) in effect if your reformulation request is unsuccessful.
All marketing plans are unconditional. They happen whether or not your reformulation
is successful. (But, see the special exception of conditional introductions associated
with initial launches of products into market regions that also involve a reformulation.)
This is part of the challenge of doing launches, repositionings, and reformulations.
These marketing initiatives are very chaotic kinds of things with lots of potential for
adverse consequences.

48
You do, of course, have the ability to make ad subsequent quarter, to update your
marketing plans based on the outcome of a reformulation request. Thus, reformulation
consequences for marketing plans aren't permanent all-or-nothing propositions.
There are some ways you can purchase a measure of insurance to protect yourself from
the uncertainties associated with reformulation outcomes: (1) bid high; (2) conduct lots
of careful analysis to ensure that you know competitive brands' formulations and patent
zones when you form you reformulation request; (3) use the maximum emergency
production limit (10%) to provide a measure of production flexibility in case your sales
are unexpectedly high; (4) delay making major commitments of marketing support
spending to a brand until you are sure that it has been reformulated successfully; and,
(5) until you are sure that a reformulation has been successful, choose marketing
decision variables that are not sharply focused on a particular product positioning (e.g.,
promotional type of 10, standard media mix of 55555, $0 dealer rebate).
Price is normally a special challenge in reformulations if the costs of the new product
will be dramatically different than the old product. However, there's a logic in pricing
"low" during a reformulation attempt, regardless of the short-run financial
consequences. (Here, "low" refers to the lower of the prices associated with the old
reformulation and the new reformulation.) If your reformulation is successful, a "low"
price encourages trial of the new formulation. Since the reformulation is presumably
superior to the old, the "low" price yields faster market share gains. You will, of course,
expect to raise price someday to extract the superior financial performance that you
hoped to achieve in the first instance with the reformulation effort. If your reformulation
is unsuccessful, you were probably facing decreases in market share anyway so the
"low" price is a way to hold your market position in the face of a poor product
formulation.

Bidding on Minor Reformulations

"In BRANDMAPS™, is it necessary to bid for minor reformulations? Doesn't a firm
already own the patent zone within which a minor reformulation occurs?"

Bidding is required for all reformulations, minor and major. Firms do not own exclusive
rights to patent zones, since patent zones may overlap in BRANDMAPS™. Indeed,
many products' patents could cover the same patent-zone point. It seems prudent to bid
low for minor reformulations since the fallback position, the current formulation, is
normally satisfactory.

Goodwill Carryover After Reformulation

[1] "Suppose that a firm has a mature product in the U.S. If they choose to
reformulate that same product and reintroduce it into the U.S., how much of the
goodwill carries over to the new product? I realize that the student manual says
'some' does, but is the student manual referring to bringing a new product in while
the old one still exists? This question is relevant because the answer determines
whether a team should cultivate an old brand or reformulate a new and improved
brand." [2] "After reformulating, does the former position of the product influence
dealer support? Or, does the new formulation have to start from ground zero with
dealers?"

49
Whether a reformulation is for an old already-in-a-market product or for a new to-be-
introduced-to-a-market product, the same basic principle is at work. The former
positioning is generally remembered by customers and dealers. It follows that the
former positioning is taken into account in current purchase decisions. Reformulation
means "new and (presumably) improved" with carryover of previous standing with
customers (e.g., customer brand awareness) and dealers (e.g., dealer availability).
Well-known, well-entrenched products build off their previous market positions after a
reformulation, whether that reformulation is major or minor. Unknown products,
launched (i.e., introduced in a market region or regions) at the time of reformulation,
must build market presence. Awareness and distribution take time and cost money to
develop. That's the reason why a dominant new formulation ("dominant" according to
product design research) doesn't necessarily win the whole market immediately. It has
to build up awareness, distribution, reputation, and convenience perception after launch.
Two additional other observations are relevant here. First, an active brand that is
reformulated for its current market(s) only does not need to be introduced. It is already
active in its current markets. Introduction only occurs when a product is first launched
into a market region or regions. Second, carryover is brand-specific not firm-specific. If
you drop product 4-2 from a market and simultaneously introduce a reformulated
version of product 4-1 into that same market, there is no carryover present. As far as the
customers in that market are concerned, product 4-1 is a new product. It would have to
earn market position, awareness, distribution, etc. like any other completely new
product.

Introduction After Failed Reformulation

"One of my BRANDMAPS™ firms submitted a reformulation request and all three
reformulation variations violated pre-existing patents. However, the product was still
introduced into market region 1 with the exact same formulation as their original
product 6-1 (30/30/30/5/5/5/5). After all three of their reformulation requests failed,
the software introduced a second exactly identical product into market region 1. This
split their sales and increased their costs. Shouldn't the same formulation have been a
patent violation on their own existing product (6-1) in market region 1?"

Original (at initialization) formulations are grandfathered regarding BRANDMAPS™

patent laws. Their formulations are legal although all other reformulations must satisfy
patent laws. Since all products start off with the same formulation (30/30/30/5/5/5/5),
there are lots of apparent patent violations possible. Thus, the existence of this
grandfathering provision. Note also that minor reformulations (i.e.., changes of no more
than five) are not possible for the original formulations, until such time as all other
original-formulation products have been reformulated since patent laws include a
minimum patent zone of seven at all times.
Your students probably should have used a conditional introduction associated with this
reformulation request. That way, an unsuccessful reformulation attempt would have
resulted in the launch being canceled and the support spending being deleted. You
might suggest that all your students review the student manual regarding "conditional
introductions."
Note, also, that patents are universal, not region-specific. Thus, a patent protects a
formulation everywhere, not just in the limited number of market regions in which it
might happen to be actively distributed at the present time.

50
Reformulating for Specific Regions
"Product 4-2s current formulation is very desirable in region 1 but a complete misfit
in region 2. Is it possible to reformulate product 4-2 to match the requirements of
region 2 while maintaining the original formulation for region 1? Product 4-2 has an
ending inventory."

No, reformulations are product-specific not region-specific. Each product has one and
only one formulation regardless of the market regions in which it is actively distributed.
This is the reason for multiple products in the simulation. Each product can have its own
separate formulation and be targeted at the particular buying requirements of designated
customer segments (market regions).

Reformulation Bid Processing Problem

"I have a firm which introduced a new product (1-2) into one market region. They
requested a reformulation for this product, but none of their three requests were
accepted. Their reformulation requests included 13/35/14/32/5/6/4, 16/32/8/38/5/6/5,
and 10/32/8/35/5/6/5. They bid $200,017. They don't seem to be violating any patents.
The only other reformulated brands include 2-1 (15/90/20/44/5/3/3), 3-2
(32/5/26/32/5/5/5), and 4-2 (14/38/13/28/5/5/5). They don't seem to be violating any
technological constraints either. Why wasn't their reformulation bid successful?"

Actually, there is a patent zone violation problem here. These three reformulation
attempts are only 11, 24, and 23 patent zone points away from the 4-2 reformulation. If
4-2 bid more and was reformulated in this quarter, it has a patent zone of 25 and other
reformulations must be at least 26 patent zone points away (this quarter).

Reformulation Bidding in Test Marketing

"In a test market, is it necessary to put in a reformulation bid value for a product that
is being reformulated?"

A bid is not required for a reformulation attempt in test marketing. The first
reformulation try is automatically assumed to be successful in test marketing (i.e., no
patent searches are conducted).

Reformulation Bids (Minimum Bid)

"In BRANDMAPS™, is a reformulation bid of $0 permitted?"

Yes. Within the software, a reformulation (whether minor or major) is indicated by the
presence of a reformulation attempt (a valid set of raw materials, compatibility, and
warranty), not the presence of a reformulation bid. A blank (missing) reformulation bid
is interpreted as a bid of $0 by the software.

51
Reformulation Charges
"One of my BRANDMAPS™ teams bid $1,700,001 for a reformulation but was
actually charged $4,200,001 on the DIVISIONAL OPERATING STATEMENT.
What's going on?"

BRANDMAPS™ reformulation costs on the DIVISIONAL OPERATING

STATEMENT include both the reformulation bid (charged regardless of whether the
reformulation is successful) and the reformulation cost ($500,000 for a minor
reformulation and $2,500,000 for a major reformulation, in the fourth edition of
BRANDMAPS™). In your case, the correct number is indeed $4,200,001 for a major
reformulation involving a reformulation bid of $1,700,001.

Reformulation Consequences For a Brand' s Marketing

Program
"If a reformulation is ordered for an active brand and it fails in BRANDMAPS™,
what happens to the currently active brand? Does it go on with the marketing
decisions from the previous quarter? Is it simply dropped?"

If a brand reformulation attempt fails, the existing formulation and the rest of the
brand's marketing support program continues to be in effect. Conditional introduction is
only an option when introducing a brand into one or more market regions in association
with a reformulation. There is no such thing as a "conditional drop" (a brand is dropped
from one or more regions if a reformulation fails).

Reformulations and "New" Products

"We'd like to reformulate an existing brand and also launch a new brand in the same
quarter. However, the input software is warning us that two reformulations are being
requested. What's going on?"

All brands always have formulations at all times, whether or not they are currently
actively marketed. Even your "new" brand has an existing formulation. Note that
reformulation and introduction are independent decisions. You can reformulate without
introducing and you can introduce (an existing formulation) without reformulating. You
may, of course, also reformulate and introduce at the same time.
To introduce a "new" brand and reformulate it (presumably a wise thing to do, since
there's no reason to believe that the original formulations for all brands are good ones)
does count as a reformulation. Thus, a reformulation request for brand #1 at the same
time as attempting to launch and reformulate brand #2 does, indeed, constitute two
reformulation requests in the same quarter. The mistake is to believe that a formulation
for brand #2 doesn't exist and that the associated attempt to give it a formulation doesn't
count as a reformulation. That belief is incorrect, since all brands always have a
formulation at all times.

52
You may introduce any number of brands into any number of market regions at any
time. However, you may only reformulate one brand per quarter, according to the limit
described in the student manual.

Reformulation of a 30/30/30/5/5/5/5 Product

"Is it possible to do a minor reformulation of 3?1 in BRANDMAPS™? All ?-1
products are formulated 30/30/30/5/5/5 and patent zone violations were grandfathered
in. Our understanding is that a minor reformulation is 5 or less points away from the
previous formulation. If we did a minor reformulation, we would violate all other ?-1
patent zones of 7, unless our grandfather clause allows any violation of the patent
zones for ?-1 products by another -1 product."

You could only do a minor reformulation of 30/30/... if all other such formulations have
already been changed via major reformulations. The only "grandfathering" is on the
original patents, not on anything else. Existence of any other 30/30/... would mean that a
minor reformulation is impossible due to their patent zones being at the minimum of 7
... any change of a 30/30/... by no more than 5 would violate another 30/30/...'s patent.

Reformulation Sequencing and Overlapping Patent

Zones
"Assume that product 5-1, currently distributed in France only, has a patent zone of
22. Now further assume that the company reformulates it with a totally new
formulation targeted to an entirely different market region. What happens to the
'original' patent for 5-1? Does that patent zone of 22 still apply even though there is
no brand attached to it? Further, can this company now reformulate product 5-2 with
a formulation that 'violates' the 'old' 5-1 patent, now that 5-1 is a totally new
formulation? If this is possible and it all took place in one quarter, then is it
contingent upon the order of the bids which then determines the order of the new
patents? Do patent zones 'disappear' prematurely if the product is reformulated to
something altogether different?"

Reformulation sequence is totally determined by bids, regardless of the source (firm) of

the bids. The highest bid is processed first. The first of the highest bidder's
reformulation alternatives to satisfy patent constraints is accepted and its patent (for the
reformulation) immediately becomes 25. All succeeding reformulations must honor all
patent zones, including patent zones of newly reformulated products.
On reformulation, the previous patent no longer exists. Thus, its patent zone is up for
grabs PROVIDED that no other existing patent (for any firm) already overlaps on the
former patent zone. This is the rub and the potential problem. Any particular patent
point (i.e., formulation) can actually be covered by multiple products' patent zones. For
example, assume that the two reformulations 10/20/30/40/5/5/5 and 10/46/30/40/5/5/5
are submitted in one game run and both are successful. Their patent zones begin at the
usual 25 points so other reformulations must be at least a 26 patent zone point
difference. Note that these two formulations are 26 patent zone points apart and, thus,
they would not conflict with each other. However, both formulations cover the patent

53
point 10/33/30/40/5/5/5, prohibiting any other product - including themselves - from
reformulating to that particular formulation.
Indeed, overlapping patent zones are the reason why a marginal change (of, say, one
unit) in a patent can fail. True, patent searches for reformulation are conducted for all
other products excluding the one being reformulated at the moment. But, one or more
other products' patent zones could already overlap on the intended reformulation point.
In summary, the answers to your specific questions are as follows: (1) The "original"
patent of 5-1 disappears when 5-1 is reformulated. That patent zone of 22 no longer
exists the moment after 5-1 reformulates. (2) 5-2 can be reformulated to the now
nonexistent "original" formulation of 5-1 PROVIDED that no other products' patent
zones overlap that point in the patent space. (3) This sequence of events could all
happen within a single game run involving multiple reformulations. Reformulation bids
determine the sequencing of reformulation activity.
Chris Puto (Georgetown University) suggests that this "... is quite similar to trademark
rights. Once you establish a trademark, you must continue to use it regularly or run the
risk of losing it. The same forces are at work here. Once you reformulate, you are no
longer in a position to use [protect via patent] the 'old' formulation."

Strategy
Brand Equity Across the Vaporware Product Line
"In managing brand equity of a firm's line of vaporware products, is there an obvious
problem in having multiple brands at different price points in the same market
region?"

It might appear problematic to have lower-priced and higher-priced vaporware brands

of the same firm marketed in the same region simultaneously. Does the low-priced, low-
performance brand somehow tarnish the brand equity (brand image) associated with the
high-priced, high-performance brand? "Maybe and maybe not" is perhaps the best
answer that can be offered on a priori grounds. It is an empirical question whether
customers see the differentiation across multiple brands in a product line as being
meaningful. It is also an empirical question whether customers' perceptions of one brand
from a firm are influenced by the presence of another brand from the same firm.
Lots of real markets feature multiple brands and/or brand variants from the same firm
arrayed along a price-performance frontier. Providing that customers recognize the
product line variations as delivering difference performance levels, there is no obvious
problem with having multiple brands in the same market region simultaneously.
Underlying segment structure presumably plays a major role in this matter. If the
various brands in a firm's product line clearly appeal to one and only one sub-segment
of customers, then the presence of another of the firm's brands in the market presumably
has little or no impact on pre-existing brands' market positions.
It might be possible to examine this issue via test marketing. The diagnostics provided
by the test marketing experiment (particularly perceived performance and perceived
convenience), as well as hard performance measures like market share, provide a rich
set of indicators of the impacts associated with launching an additional brand or brands
from the same firm into a market region which already includes at least one of the firm's
brands.

54
Cost and Volume Management
"To improve profitability, is it better to counsel students to work toward improving
top-line results (i.e., increasing market share, volume, and revenue) or improving
bottom-line results (i.e., decreasing variable and fixed costs)?"

My short answer is "yes" to both cost structure management efforts and to top-line
volume-related improvement efforts. But, that's not overly helpful advice, relative to the
specific nature of your question. Here's a much more thoughtful answer by Sam
Gillespie (Texas A&M University): "In mature, saturated, and very competitive
markets, it is often much easier to squeeze out a dollar of profit on the cost reduction
side than it is on the sales revenue side of the profit equation. For example, with a
percentage variable gross margin is 33%, a firm needs to find $3 of additional revenue
for every dollar of cost reduction to generate the same level of profits. If such a firm can
lower expenses $250,000 while retaining the same level of sales volume, it is the same
as finding $750,000 of additional sales revenue holding all fixed costs constant. Closely
assessing the marginal value of a dollar's worth of spending (marketing or non-
marketing expenditures) is an important element of prudent management and
budgeting. This is not to diminish the importance of an effective marketing program (in
amount and mix), but it does focus attention on how productive these expenditures
really are. It is not unusual, in the context described above, for the various market
sensitivities associated with marketing mix variables to be less elastic than one is led or
wishes to believe, particularly when the current ratio of regional industry expenditures
to regional dollar-volume revenue is high relative to prior quarters or years. It is
possible that the slope of the marketing productivity curve is approaching zero. Prudent
budgeting and attention to cost structure management issues may be the right advice to
offer."

Failed New Product Launch

"Last quarter, we launched a new product in two regions. I don't believe that we
made any data entry errors in our submission and our customer brand and dealer
awareness numbers appear strong. That being said, having zero sales volume puzzles
me. I could understand having an unsuccessful launch, but zero sales volume leads
me to believe that we may have committed a serious error in inputting our decisions
or made a procedural error relating to the launch. I would think that, due to
randomness, we would have had positive sales volume in at least one of the regions.
Did we commit a serious input error or was it just a serious error of judgement?"

Please review your original logic in launching this product. What was the basis of your
belief that this launch was a good thing to do in these particular market regions? What
differential advantage did you expect to offer to customers? Where's the evidence to
support these beliefs?
Check your marketing research results. In both market regions, your perceived
performance is 0.0 and your price is substantially higher than any other brand in these
markets. Based on this, why should anyone purchase your product? What marketing
research indicated that this product with this particular formulation (priced as high as
you priced it) would be well received by customers?

55
First Mover Advantages
[1] "One of my teams commented that they felt the game rewarded disproportionately
firms who early in the game got into the market with a better product. In one case,
and probably the one to which the team was referring, the new reformulation
achieved 100% market share. The complaining team then drew the conclusion that if
a firm gets a good product, it is impossible (at least for several quarters) for another
firm to get a competitive share of the market. This led the complaining team to believe
that the game was not sensitive to other products in the region, particularly if one
firm had a superior product. What comments do you have on this?" [2] "A student in
one high-performing group noticed a possible trend or bias in the simulation. The
group established a solid leadership position in Q#3 and have been able to sustain it
ever since with a consistent strategy over the quarters of raising price resulting in
selling more. Through informal discussions with other groups, the leading team
believes that some of the other groups have tried what seem to be very logical and well
strategized moves in the vaporware marketplace to little avail. It seems that no matter
how hard the other teams tried after Q#3, they could not overtake the leading firm. Is
there a feature of the simulation where firm establishing a solid leadership position
by Q#3 are virtually ensured a leadership position throughout the simulation
regardless of rival firm attempts?"

These stories sound like perfect examples of first-mover advantage, and that is an
important lesson for students to learn. It's difficult to catch up, particularly if the leader
has a good product which is well-marketed with substantial marketing support spending.
Difficult to catch up is not, however, the same as being impossible to catch up.
It should take time and sustained effort for followers to overcome leaders. That's how
real markets work and it's an important lesson for students to absorb. The real problem
arises with followers who merely emulate leaders rather than offering a superior value
proposition. Without significant differential advantage (in product, price, or marketing
support spending), why should followers quickly overtake leaders? Push your students
to seek out greater differential advantage. Of course, as the bar is raised with regard to
product-fit with customer preferences, product itself will become less crucial and price,
compatibility, warranty, and marketing support spending become more important, by
definition. By the sixth quarter or so, students are in the grind-it-out-for-profitability
phase of the simulation. It is important to push all teams (leaders and followers) to focus
on profitability not volume. This is an important aspect of the marketing management
task.
The substantive question is really "Was it skill or luck?" A careful assessment of
customer requirements can easily lead to the conclusion that vaporware customers in at
least some market regions are not well served by the original 30/30/30/5/5/5/5
formulations. In market regions where customers really dislike the original
formulations, there is obviously lots of room for improvement, and lots of room to
dominate the market if one is first with a reasonable product. ("Reasonable" dominates
"terrible" any day in any market.) Usually, though, the original launches are only
approximately what customers require, based on rough marketing research. Followers
can improve upon the reformulation efforts of the first movers, but of course the first
movers are already there and the followers have to catch up.
Additionally, there's no reason to believe that every market is driven purely by product
considerations (performance perceptions). Price and convenience also matter. Perhaps
the right approach is to seek out price-sensitive and convenience-sensitive customers.

56
Personally, I'm quite unsympathetic to those who moan and complain that the leaders
had an unfair advantage. That's life in real markets. Try competing against Microsoft.
It's no fun, and, to compete, it becomes a grind-it-out-for-nickles-and-dimes-advantages
kind of marketing problem.
On the specific issue of a dominant product launch, Sam Gillespie (Texas A&M
University) goes on to offer the following commentary: "Even though the new entry
firm has an excellent product, the simulation is not structured to give all of its business
to only one product, albeit a superior one. What appears to have happened is that other
firms do not have a reasonably close competitive product and the market is not willing
to consider these alternatives favorably. The task of competing firms is to develop a
systematic program of product development which will locate market opportunities,
identify acceptable/marketable alternative product formulations, and support them with
effective communication and distribution programs. I emphasize that the game is not
structured to reward only superior product formulations marketed effectively and that
competitors can survive profitably with lesser formulations that are marketed properly."
Well said, and absolutely correct both in the real world and in the simulation.

New Product Developmen t

"What are the logical steps toward developing new products in this simulation?"
The simulation parallels the real world with reactive and proactive new product
development strategies existing. While proactive leaders do create some entry barriers
(for example, market presence), a vigilant nimble follower can be successful in the
simulation. Note that the information lags in identifying and reacting to leaders'
proactive new product development efforts represent an implicit first-move advantage to
innovators.
Reactive new product developers emulate successful competitors' brands. They watch
for dramatic share rises (or improvements in performance perceptions), reverse engineer
such formulations, perhaps using customer preference marketing research to check for
slight variations that might lead to marked improvements in competitors' formulations,
and then attempt to reformulate around all of the leaders' existing patent barriers. Matt
Sauber (Eastern Michigan University) describes this as being "the bandit approach,
waiting until a competitor successfully launches a new formulation and then
reformulating around it, given the patent zone." While the reactive approach is seen by
many to be lower risk, it assumes that patent barriers will be surmountable and it also
overlooks the amount of time involved to notice a competitor's successful
reformulation, reverse engineer it, develop a clone, and launch the clone successfully.
And, the leader has had the benefit of a number of early quarters of market penetration
with attendant profitability (and, of course, risk of failure). The leader also has the
market position/presence (in the channel and in the minds of the customers) and if the
follower is merely an emulator without meaningful differential advantage then the
follower's market share will take much time to catch up with the leader's market share.
Proactive new product developers must select attractive markets to target (presumably
using criteria such as market size and growth rate, market sociodemographics, degree of
current and like future competitiveness, price sensitivity, unmet customer requirements,
etc.) and then design/launch new products successfully. The design stage involves a
delicate balancing of easy-to-get and low-cost marketing intelligence, such as
competitors' formulations (via Marketing Research Studies #2 or #33) and overall
customer preferences (via Marketing Research Study #47), with sophisticated customer

57
reverse engineering tools (concept tests and preference tests). Launch activities can
potentially be helped with selective use of the admittedly expensive test marketing
experiment (Marketing Research Study #20). Note, however, that all of these marketing
research studies take time and cost money to conduct.

Segmentation Strategy and Tactic s

[1] "Is there a way to segment the market regions based on customer demographics
(consumer/industrial, income, lifestyle, etc.)? Currently, every team seems to target a
particular product formulation that will attract the largest part of the market. In
essence, everyone seems to target the same market niche. We would be interested in
targeting a small percentage of the market that would be willing to pay a high price,
but we are not sure how to find these potential buyers. For example, a conjoint
analysis tells you what a majority of the population wants, but doesn't identify
different niches." [2] "I can see no easy way to segment the market within any one
region. There seems to be no market research available that would allow us to
understand, as an example, the distribution of income within the population, all that's
available is a per capita figure."

These are good and thoughtful questions. The continual pursuit of differential advantage
with finer and finer customer niches is the essence of skillful marketing, especially
when all obvious segments are served and served well by existing competitors.
However, please don't make the common mistake of assuming that, since all products
are similar in physical (objective) senses, there are no further interesting marketing
issues. There's more to marketing life that just "product." In fact, I've heard that there's a
whole marketing mix to worry about.
Some of the segmentation that you are asking about is normally done at a lower
organizational level than is included within this marketing simulation game. Remember,
this is a marketing strategy simulation and at some point a line has to be drawn on
which details to include and which details to leave for "others" (advertising agency,
regional sales managers, plant managers, etc.) to implement. While a vaporware
advertising manager or advertising agency would need to know a lot about specific
media vehicles (e.g., audience size, demographics, buying habits, etc.) to place
vaporware ads in appropriate publications, television shows, and the like, the vaporware
marketing manager is really just setting overall strategy direction and policy. Others
(e.g., advertising manager, advertising agency, media buyer, etc.) implement the
specific tactical details associated with these marketing strategies, policies, and
initiatives.
The geographic market regions are, of course, one type of segmentation. Whether there
are further sub-segments (niches) within these market regions is an interesting question.
If you're uncomfortable with regional segments, try this thought exercise, if you wish.
Think of the market regions as demographic segments. For example, perhaps "region 1"
is really "high technophiles" and region 2 is "elder roamers." Now, has anything
material really changed in how your students should approach the vaporware marketing
challenge? Not as far as I can see. To be sure, other simulations use different public
segmentation labels (masking, perhaps, whether further underlying segments also exist),
but the marketing management principles associated with marketing a range of products
and services to multiple market segments are common.

58
Within the simulation, all existing marketing research is at the regional level, so it may
be difficult to find sub-segments within vaporware market regions even if they do exist.
A number of possible approaches exist to identify the existence of sub-segments or
strategy variants to address the concerns raised in Question #1.
First, it's appropriate to begin by focusing on profitability. Volume and market shares
are not the only games in town. Profitability is crucial. Even if everyone has about the
same products (in product-attribute terms), everyone may not have the same bottom-line
outcome. Continue to manage your brands for maximum profitability.
Second, are your limited brands (product formulations) deployed in the right market
regions? Less attractive market regions might be vacated in favor of more attractive
regions. In the historical archives of this simulation, there have been cases of successful
market leaders who have concluded that a region-leading brand in a small market region
would be better deployed in another much larger market region. Think long and hard
about what makes a region "attractive" in the long run. There are more market regions
than brands so choices have to be made. And, there's no rule that says you can't have
more than one brand targeted at a particular market region.
Third, can off-region launches yield incremental profits? Here, "off-region launches"
refers to launching brands customized for one region into some other region or regions.
Since these brands are not well-formulated for the "off-regions" by definition, their lack
of product-attribute fit must be offset by significantly lower prices. This could be
thought of as a bottom-fishing strategy, attempting to attract the most price sensitive
customers who may be prepared to trade-off product attributes for price. This bottom-
fishing strategy will probably work best for low-cost light-weight product formulations
where there is lots of room for price moves while still retaining some margin. Such off-
region launches can also disrupt high-priced, high-margin competitors in these other
markets.
Fourth, at the macro level, one might imagine that each market region consists of a
mixture of performance, convenience, and price sensitive customers. Perhaps one
should concentrate on excelling on a dimension other than performance (which
presumably is principally driven by product attributes). Even if everyone's more-or-less
tied on performance perception, there's still convenience and price to work on.
Fifth, with regard to product attribute segmentation, Marketing Research Study #47
("Self-Reported Attribute Preferences") might identify sub-segments within market
regions, if they exist and are significant. Multiple preference peaks would indicate the
presence of product attribute sub-segments. Alternatively, one might search in particular
product-space regions for multiple peaks with targeted conjoint analyses. Chris Puto
(Georgetown University) offers the following comments on attribute-based
segmentation: "Segmenting by demographics is only effective when you can trace the
demographic characteristics down to a specific need. I don't think there is enough
information available to do that. However, need-based segmentation is possible if you
use attribute preferences as surrogates for needs (not an unreasonable approach). So,
one could do a self-reported attribute preference study and see if there were multiple
levels of preference within a region. Then, one could do a conjoint study to see if it
further substantiated multiple preferences within a region. If so, then there are multiple
segments. If not, then that particular market may be undifferentiated on demand for
products attributes."
Sixth, keep looking carefully at customer preferences. Be watchful for systematic
customer preference drifts. Try to reformulate ahead of systematic customer preference
drifts to maximize the life of a specific product formulation.

59
Seventh, it is possible to compete at various points on the price-performance spectrum.
While the first five product attributes (the raw materials) might all be similar across
leading brands, competition on compatibility and warranty is still possible. One possible
approach is to seek to bracket the market with low-end and high-end offerings, both of
which are relatively similar on raw materials mix but differ vastly on compatibility and
warranty. For example, the low-end brand might have "1/1" and the high end brand
might have "8/8" on compatibility and warranty, respectively. Given the existing
vaporware cost structure, such brand formulations would have significant cost
differences, thus opening up the possibility of significant price differences. However, be
careful to assess customers' price-performance trade-offs before blindly reformulating to
low or high levels of compatibility and warranty. Of course, such an approach requires
the commitment of two brands to a market region. But, for larger market regions, this
might be viable. Note, also, that such a bracketing strategy builds up patent barriers
increasing competitors' reformulation difficulties.
If none of the above yield fruitful results, then you are clearly in a grind-it-out toe-to-toe
competitive mode, not unlike the commodity-like product category that economists like
to talk about. True, the competitive offerings are quite good at meeting current customer
requirements and so it seems a little harsh to label such brands as being commodities.
But, that's the nature of competitive advantage. Competitive advantages are short-lived
not permanent. Efficient cost structure management would be crucial in such
circumstances. Marketing support spending efficiencies would be of paramount interest
(and there's lots of marketing research available to help you work on this). Product
reengineering may still be needed, to get some costs out without sacrificing too much
preference. And, of course, customer preferences can change, new markets can become
available, technology can change, and costs can change. All in all, there is much to do
and a need for continued vigilance even if the only meaningful segments are at the level
of market regions.

Winning and Losing Strategies (Abridged)

"Is it possible to characterize winning and losing strategies in the simulation?"

Here's a try to do so, with minimum text. Please do note the parallels between the
simulation and real markets.
The following approach seems to work well in the simulation and in real life: enter the
market early with a good but not necessarily great product (but one that clearly
dominates existing offerings at the time of entry), support that product with liberal does
of marketing support spending, innovate continuously updating product formulation as
customer preferences dictate, nurture the channel, have consistent strategies and tactics
through time, and aim for a premium price positioning for your strong brand.
For followers, the following strategy surely dooms a brand to a poor market and
financial performance: enter a market late with a me-too or inferior product, fail to
provide adequate marketing support spending, ignore the channel, and have erratic
strategies and tactics (varying marketing mix decision variables widely from quarter to
quarter) especially with regard to price.

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Teaching Strategies and Tactics
Causes of Poor Team Performance
"In your experience, what are the causes of poor team performance in the
simulation?"

In my experience, the principal causes of poor team performance in the simulation are a
combination of the following factors:

1. not really meeting customer requirements for vaporware (i.e., failure to establish
any meaningful differential advantage, particularly regarding product
formulation);
2. lack of focus, by trying to be all things to all markets (capacity, reformulation,
time, and human resource constraints combine to favor concentrated effort in
fewer than "all" market regions);
3. failure to have a complete and coordinated marketing program, managing all
elements that influence perceived performance and perceived convenience (after
all, the only real value that customers derive from vaporware is based on the
perceived performance and the perceived convenience that accrues from the
vaporware that they purchase);
4. limited marketing research and/or limited efforts to interpret the marketing
research that is available;
5. limited attention to competitive developments (i.e., lack of in-depth competitor
analysis to discover the underlying drivers of vaporware market behavior);
6. financial mismanagement related to cost structure management (variable and
fixed costs management, covering corporate-wide overheads, etc.), smoothing
costs, production and inventory levels, and capacity management;
7. not really understanding the game structure and environment (i.e., treating the
manual in a cursory fashion rather than something to be studied in detail and
referenced regularly);
8. poor work ethic (not spending enough time on the game); and,
9. team mismanagement (not spending enough time thinking about and discussing
team management issues and related human resource deployment strategies and
tactics).

Predatory Pricing For Money -Losing Firms

"One of my undergraduate teams sent me the following message: 'After viewing the
results for Q#7 and analyzing firm 8's performance (especially its stock price and
ROI), I believe that this firm should be either sold at bargain basement prices or be
liquidated. In the real world, the stockholders would sue the board of directors for
mismanagement or the Federal Government would step in to stop their predatory
pricing. And the firm would either fold or be subject to federal restrictions. Why isn't
that happening in the simulation? Can we sue them for predatory pricing?' What, if
anything, should I do here?"

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Lawsuits are a fact of real life too, so I would not arbitrarily rule them out. But, the
instructor needs to think through exactly how the lawsuit process would be managed
(and what its goals are).
If the offending firm is not making money and has low prices, then the instructor
normally needs to be very forceful with them. For example, perhaps such a firm would
be limited to no new introductions or reformulations or plant capacity orders until
positive profits return. In addition, the instructor might force prices to be raised by at
least 50% immediately. Don't allow a team to be unprofitable for long, especially if they
have substantial market share but little, no, or negative profits. Such performance is
unacceptable in the real world, and so too should it be unacceptable in the simulation. In
short, the instructor needs to be proactive, call the team in, and read them the riot act
regarding responsible business behavior. No profits means failure in real life, and so too
should that be the case in the simulation.
If necessary, declare them bankrupt and sell off the firm to others (through open
bidding). The bankrupt team would, of course, would need to be assigned alternative
work to make up for their absence from the game.

Teams
Managing the Non-Performing Group Member
"What hints do you have for managing a non-performing group member?"

Here are some suggestions from Ginger Howerton (University of Texas at Dallas,
Masters in International Management Studies program) for managing a non-performing
"lazy" team member. This advice appears to be useful for all situations involving
student groups. It would appear to be especially valuable reading for students in team-
based simulations where the group-work nature of the simulation may extend
throughout a course.
Working with others is often challenging, whether within a family unit or a group at
work. However, in those situations, working together is rarely an option and almost
always a requirement. In today's educational system, students are often required to work
together in groups to simulate the work setting, thereby gaining skills that assist them to
function better in the 'real world.'
Group participation is often a tremendous source of frustration among students.
Frequently, one student in the group fails to carry his own weight in the course, but
receives a high grade as a result of his group members' hard work, discipline, and
dedication to delivering the required project. This frustration leaves students feeling as
though they have been used and that the 'lazy' student has not learned the skills required
to receive a passing grade. The team fears reporting the student to the professor because
they don't want to jeopardize the student's career, but resent the student for his lack of
participation.
A key to leading the team to success is participation by all members. The first challenge
is to identify the person who has the potential for being 'lazy.' Signs of a potential 'lazy'
team member include: (1) a person who sits back in his chair and offers no sign of
active participation in the groups discussion; (2) a person who has a conflict with all
attempts to identify group meeting time; (3) a person who can not understand the
objective or assignments in the course and generally sees no value to the course; (4) a

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person who monopolizes team meetings with personal accounts of his active social life;
(5) a person who fails complete assigned work on time or ever; and, (5) a person who
frequently calls other team members to get guidance on how to complete his portion of
the assignment.
Once the 'lazy' team member has been identified, immediate and decisive intervention
must be taken to save the team from frustration and resentment. To engage the 'lazy'
team member will require patience and consistency of the entire team, but ultimately,
one person will need to continually pressure the potentially 'lazy' team member into
participation.
Some useful techniques include the following:

• Identify the 'lazy' person's strengths and weaknesses. Stroke the strengths and
supplement his weaknesses by another team member's strengths.
• Pair the 'lazy' person with another team member whose strengths include
motivation, persuasion, and accountability skills.
• Set very specific expectations and offer to demonstrate how to carry out the
project or map out an approach to complete the project.
• This type of person may suffer from low self esteem, so frequent praise and
encouragement by the team may stimulate performance.
• Contact the 'lazy' person frequently to keep him on track and encourage success.
• Allow the person to identify one meeting time that meets his needs only and then
require him to attend meetings that meet the scheduling needs of the other team
members.
• Allow the 'lazy' member to share his portion of the project first, since often a
short attention span precludes the person's participation after a long meeting.
• Engage the 'lazy' person in participation by requiring each team member to
identify strengths and weaknesses of other team members contributions to the
project.
• Often, when the 'lazy' team member feels successful early in the group sessions,
participation in future projects will come more naturally.

In the event engaging the 'lazy' team member fails to gain the required results,
disciplinary action should be taken. Disciplinary action is often difficult in the student
setting because students feel they lack the authority to hold others at their same level
accountable. However, just as in a healthy work environment, peer accountability often
gains the best results.
Disciplinary action should begin with the first offense of 'laziness.' Failure to show up
prepared or failure to show up at all should invoke a coaching session from the team.
The coaching session should include the specific issue or problem, specific expectations
for next assignment or meeting, impact of not meeting expectations on the group and
consequences of the failure to meet the expectations.
The second level of disciplinary action should be at the written level. Failure to meet the
expectations of the team a second time should prompt a written response to the team
member with a copy forwarded to the professor. The written response should be a joint
effort by the rest of the team and signed by all. The written response should include the
date of the first coaching session and it's outcome, the specific issue or problem,
expectations, impact on the team and consequences should the student continue to fail to
meet his obligation to the team.
If the student continues to fail to meet the group's expectations, the time commitment to
assist this team member becomes damaging to the entire team's opportunity to learn and

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grow together. Finally, as a group, the team must confront the 'lazy' team member and
request that they voluntarily drop the course or request a transfer to another team.
Again, this should be documented in writing to the student with a copy forwarded to the
professor. The same information should be documented with the student's response. The
team may prefer to ask the professor to participate in the confrontation session with the
'lazy' student so he may see first-hand group dynamics and facilitate the group through
any conflict that may arise.
Many reasons for 'laziness' among students exist. Unfortunately, many times the student
truly isn't lazy, but paralyzed by the amount of work, fear of failure, or true lack of
understanding. Although understandable, these explanations for lack of participation
can not be tolerated because they only lead to frustration by all involved.
Encouragement and role modeling are the best motivators. If the 'lazy' student can not
engage and participate with group members offering support and guidance, then most
likely they are too 'lazy' to take the course and they should be required to drop or suffer
the consequences of the grade they earned (an 'F')."

Test Marketing
Test Marketing Decision Variables
[1] "When I try to input test marketing decision variable changes, the changes don't
seem to be saved on their disks. After I input the decision variable changes for the test
marketing experiment and exit the program, I get a message that reads 'Inputing
Original Firm 1 Marketing Decision Variables.' Going back into the test marketing
decision variable input screen then confirms that none of the changes were saved.
What's up?" [2] "When you change decision variables under test marketing and then
update them and go back to see what the decisions look like, the software resets the
variables back to their 'original' values, so you can not really see what decisions
you've made (unless you print them out). Is it supposed to be like that?"

Regular and test marketing decision variables are stored in separate files. Only one set
of decision variables, either regular or test marketing, is in the active program's memory
at any point in time. Test marketing decision variables are created from the current
values of the regular decision variables when the program begins. On exiting, the test
marketing decision variables are stored in the appropriate file on disk. And, on exiting,
the regular decision variables are read back into the program, which explains the
presence of the message "Inputing Original Firm 1 Marketing Decision Variables."
It is not possible to go back into the test marketing decision variables and check them
out. Test marketing decision variables always start with the base case of the current
non-test decision variables. (Otherwise, students could go back and inadvertently
change the base-case decision variables without making the corresponding adjustments
in the test marketing decision variables.) Changes in the base-case current decision
variables are then made to establish the desired values for test marketing purposes. In
re-entering the test marketing decision variables change program, previous changes are
lost.
To see the status of test marketing decision variables, look at file DVTESTn.D_i (for
firm "n" in industry "i"). This file is viewable via the SeeFile option included within the
software. This is an ASCII-text file which contains current test marketing decision
variables.

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If a change in test marketing decision variables is needed, all test marketing decision
variables must be re-entered. This re-entry problem is not, however, too daunting, since
test marketing normally involves relatively few decision variable changes. Otherwise, it
would be difficult to detect what's driving the differences between the control and the
experimental cases.

Test Marketing a New Product

"We've setup the test marketing decision variables for a new product launch in a
particular market region but the product doesn't appear when the test marketing
experiment is executed. What's happening?"

In addition to making any desired changes in test marketing decision variables, a new
product must also be introduced in test marketing mode if it is to be actively distributed
during the test marketing experiment. (Already-active products do not have to be re-
introduced if the intention is that such already-active products are to continue to be
actively distributed during the test marketing experiment.) The presence of marketing
support spending is not interpreted by the software as a signal that a product should be
automatically introduced. Such marketing support spending could merely be pre-launch
spending in preparation for a subsequent launch. The software treats all decision
variables as being independent of each other; you must construct the interrelationships
via your explicit decision variable changes. You must explicitly introduce products that
are to be launched in test marketing mode.

Test Marketing Costs

"Our test marketing experiment for a new product launch shows results for both the
new product and another product already actively distributed in that market region.
Are we being charged extra for this two-product test marketing experiment?"

Test marketing experiments may be executed in one or in all market regions in any
quarter. Test marketing experiments are region-specific, not product-specific. Thus, a
test market experiment reports results for all active products at the time the test
marketing experiment is executed. If there are multiple products active in a region
targeted for a test marketing experiment, test marketing results will be reported for all of
these products. The cost of a test marketing experiment is based regions tested and
length of the test marketing experiment not on number of active products involved in
the test.

Test Marketing in Multiple Regions

[1] "Is it possible to run two test marketing experiments in a single region? This
assumes that the two are independent of each other. For example, can a firm run a
test marketing experiment for 5-1 in region 1 and another test marketing experiment
for brand 5-2 in region 2?" [2] "Assume that firm 5 wants to test market 5-1 in region
1 and test market 5-2 in regions 2 and 3. Currently, 5-1 is active in all regions and 5-2
is not active in any region. Since firm 5 wants only to test in region 1, must it de-

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activate 5-1 in the other regions?" [3] "Assume that firm 5 wishes to test market 5-2
in market regions 2 and 3, but not in market region 1. How can this be done?"

Some general remarks address some of the issues raised in these questions. Then,
specific comments follow address each of these questions.
First, there are only two possible options when running test marketing experiments. Test
marketing experiments may be run for a single market region or for all market regions
simultaneously. A test marketing experiment cannot be run in two specific market
regions (unless your industry only consists of two market region at the time of the test
marketing experiment).
Second, test marketing is conducted on a market region, not for a specific product or
products. It's true that the test marketing decision variables are loaded in for designated
products in a targeted test marketing region or in all market regions. However, the test
marketing experiment is conducted on a market region (or on all market regions) and,
therefore, includes all products that are active in that market region (or in all market
regions) at the time of the test marketing experiment.
Third, there are no cost implications associated with multiple products being active in a
market region during a test marketing experiment. As described in the student manual,
test marketing experiment costs depend only on test marketing length and whether the
test marketing experiment in run in one specified market region or in all market regions.
With regard to the specific questions raised, here are some relevant responses. [1] Yes,
this is possible if a test marketing experiment is executed for all market regions. These
test marketing experiments are independent of each other in the same sense that the
market regions are independent of each other. [2] Run the test marketing experiment in
market region 1 only. All other markets, and the activity status of 5-1, is irrelevant for
the purposes of a test marketing experiment in market region 1. [3] A two-region test
marketing experiment in a three-region industry can only be done by ordering the test
marketing experiment for all regions. In such a situation, there is no need to make any
changes to the products that are currently active in market region 1. (In particular, there
is no need to deactivate brands in market region 1.) The results from market region 1
may still, of course, be of interest even though no changes were made in the marketing
programs associated with the products that are currently active in that market region. In
addition to the testing aspect of the test marketing experiment, it also provides a
sophisticated form of sales forecasting, with associated market diagnostics.

Test Marketing Results Don't Include All Decision

Variable Changes
"Our test marketing results don't include all of the changes that we requested, only
some of them. What happened?"

While you can order the test marketing study either before or after you input your
regular decision variable changes and test marketing decision variable changes, there is
one constraint on the order of data entry. You must complete all regular decision
variable changes before entering your test marketing decision variable changes. To
establish the base decision variables for test marketing purposes, the software uses all
current decision variables. (If it didn't do this via copying, then you would have to
manually enter all decision variables, and this would be both time consuming and error
prone.) Then, the software stores your test marketing changes in a separate file.

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Obviously, there is a problem if, after setting up your test marketing decision variables,
you go back and make additional changes to your regular decision variables.
The moral here is clear: the last thing that you do must be do is to setup your test
marketing decision variables. If you change your regular decision variables after you
have setup your test marketing decision variables, then you must re-enter all of your test
marketing decision variables. Fortunately, test marketing typically involves the change
of only a few variables, so it's not that big a deal to do over.

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