Strategic Marketing Management
AMN 445
Semester 2, 2019
Minnesota Micromotors
Harvard Marketing Simulation
Lecturer: Dr Sven Tuzovic
Introduction
This simulation is based on U.S. company Minnesota Micromotors which I have recently become the C.E.O of, and they are a division of Fractional Motors Limited. Our core business is manufacturing and selling small brushless direct current electric motors that are used in the medical fields, based generally around orthopaedic surgery devices, these motors are based around our research and development.
Micromotors operates in a saturated market with approximately 100 competitors, and while the have been making a reasonable revenue which has been growing at the market average, they are concerned for the future.
As a strategy, we look to increase market share in our target segments, review what we are selling, and the profits gained from these sales and focus on what we do best based around our value proposition.
Segment Profiles
Segment A
These customers are happy with our existing quality, feel they have sufficient contact with our sales team, find value in our power/size ratio of our motors and are brand loyal. They do feel that customisation is necessary going forward but are not price sensitive.
Segment B
Segment B has a demand for high speed and high quality and find that high thermal resistance is essential to their business offering. To service this customer, we would be required to invest in research and development and increase our customer service offering to this customer. The biggest problem is that this segment doesn’t purchase very much product, but the investment to service them is quite high in comparison and requires a product outside our skillset.
Segment C
Our offering to these customers is based around both high speed, and thermal resistance, and quality is of the upmost importance. Any offering that doesn’t met these requirements will be dropped at a moment’s notice. Their clients are such, that quality is more important than price, so they are willing to pay a premium for products that suit their exacting needs.
Segment D
These guys always are on the hunt for a discount, they are price sensitive, but if you can get the margins right, they can produce high turnover, and thus better revenue and profits through economies of scale. We look to get the price right, as they don’t require special features, and sell as hard as we can.
Small Volume Customers
Price sensitive, unable to scale and appreciates any research and development they can get. They have the ability to grow but require assistance in nearly every step as they don’t have the internal capabilities.
With these clients we are playing the game of inches.
Competitor Analysis
Market Share
Being only a small player in the surgical motors market, Micromotors hold 9% of the market, and move about 100,000 units per year. Mostly they fly under the radar of their competitors who strike back swiftly on companies that try to gain advantage on lower prices, but Micromotors have a quality product that has its limitations.
Product attributes
The value proposition from Micromotors is that of power vs size, with a wide range of speeds but limited thermal resistance. Also, the motors are brushless direct current motors, which are based on K/V and have longer life spans than that brushed motors. The speed that a brushless motor operates is based on revolutions per volt supplied, that is, it will rev twice as fast when 20 volts is delivered compared to when 10 volts is used.
Pricing
The average price of the competition is $118, which is difficult to compete with when Micromotors are just over 20% more at $142. Where we cannot compete on price, we look to gain advantage by supplying original equipment manufacturers with a great product at a competitive price based on quality. Within our 5 segments, we look to focus on demographics that suit our components, and not stretch ourselves beyond our means and capabilities. This in line with McCarthys 4/7 P’s of marketing theory.
Situation Analysis
We, Micromotors cannot compete on price, we know we have a great product but when we look to strategy, we are going to use components of game theory (Sinek, 2017), we are playing the long (infinite) game.
Questions
Q1. Who are MM’s target customers? Are all segments equally attractive to MM? If yes, why? If not, why not? How do the different segments’ needs and expectations evolve over time? Why?
Identifying that segments A and D were our strongest clients in that their needs that suit our capabilities and can handle our price point, and the ability to order large amounts of product was crucial to our success during the simulation. Segment A grew by 250% over the time period.
Dropping segment B was important, our product offering does not suit their needs, and for us to venture into that market was a risk not worth taking. Based on this decision, we limited any spending on thermal resistance, and focused on our strength of power vs size.
Q2. How does customer satisfaction change over time? How do you balance hard performance metrics such as revenue and profits with soft metrics such as customer satisfaction?
It’s a trick, a game of numbers. I need my client to have viability in their market, I have to offer a product at a price that meets a certain value, be that price, quality, efficiency, but within these values are other factors such as reliability, customer satisfaction, brand image and so on. Brands will vary over time, and this can depend on markets, advertising strategies, change in executive suite positions, crisis within the company, and external (Macro) factors.
Hilary here’s a question for you, could you work in a seasonal market like farming, could you handle making all your yearly profits in Spring and Summer, then run at a loss in Autumn and Winter. Can you look at the bigger picture and see that over the year you make a profit, and adjust your budgets to suit, hoping the rains come? It’s just business.
Q3. What does a focus on customer satisfaction illuminate and obscure in your marketing strategy? How does customer satisfaction relate to customer loyalty?
Customer satisfaction is important, but I’m not going to take continual hits to keep them happy, especially if it financially effects the business. Coles branded milk is a great example, Coles wanted to compete on the price of household basics and decided to have a strategy offering $1 per litre milk, but at the expense of the dairy farmer. As this went on, the cost to the farmer was to great and could no longer stay in business. This strategy went on for a few years but recently Coles branded milk has jumped 20% from $3.00 per 3 litres to $3.60 per 3 litres, in a space of 2 months. I feel this highlights that satisfying the customer at the expense of a business is poor practice. It’s better to compete on quality rather than price.
Q4. How do you expect MM’s competition to respond to changes you make in MM’s marketing and sales efforts? Why?
It’s difficult to say, a bigger company could look to buy Micromotors off of Fractional Motors Limited, but this would be difficult based on my performance as C.E.O. during the simulation, growing the revenue from $12mil per year to $78mil over 3 years (up over 200%), only a fool would sell. Other companies could invest heavily in R&D and look to compete on power vs size but given the advantage of Micromotors at the end of the simulation, we hold a very strong position even though we have a price premium.
Q5. How did you manage MM’s pricing? What does it take to justify price increases? How does price discounting affect the outcome?
I didn’t increase my price, I actually dropped it to $140, I increased the distributors discount to 18%, and once I identified that I didn’t need to target segment B, I reduced their discount back to about 5%, because I didn’t care that they limited their purchases, because I was making such big gains in other segments.
Q6. How do investments in market research affect your management of MM?
Initially I think that the information from the segments is very important, I ran through the simulation twice, and made $78 million in revenue the first time, but the second run through I sped through in about 10 minutes, sticking to my initial strategy, but the second time I did make a little more profit, but with less market share.
Once again sticking to your strategy paid dividends, literally. In the first simulation, I took a dive early, but went from strength to strength. On the second simulation, I learnt my lesson and smashed it J. I believe based on this, that it’s the reason I made more profit in the second simulation.
Q7. How does channel conflict figure into your pricing decisions? How do you minimize channel conflict?
I think early on, I didn’t change the price or percentages very much, and this turned out well. Being prepared to drop segment two meant that I could focus on the others, and straight away segment A and D showed their strengths. I maintained a discount of 20% for segment D, because they were always looking for discount, and I believed their margins were low, but given the large number of products they were able to move, we could still maintain good profits. You can sell 1 item for $100 profit, or you can sell 100 items for $1 profit, it amounts to the same. It was more important to Micromotors to suit the requirements of the suitable target segments rather than to get too weighed down of playing with numbers.
In the end, we could see from the data that we were getting continual growth and increased market share, especially in segment A, which grew by 250%.
Keeping prices confidential is the key.
Strategic Direction.
During the simulation, I definitely think we had a great approach to strategy, in the second round we were making about 8% profit on sales which was above market average, and most importantly we turned the company around. Future strategy would be to continue to grow and buy and existing business that is strong technically in the area of thermal resistance. We are already very strong in manufacturing and efficiency but gaining technical superiority in thermal resistance would help us move more easily into segment B and further increase sales, revenue and profit, as segment B is not price sensitive, and are willing to pay more for high quality including thermal resistance.
Commodity Play.
As I spoke about seasonal work earlier, it would not be unreasonable for Micromotors to use their efficient practices to manufacture popular product ahead of time and stockpile these assets. Costs of re-tooling machines and having efficient sized runs of manufacturing allows benefits in the long term and increases the company’s ability to deliver in full on time (DIFOT). This type of setup also helps the smaller players that cannot afford to buy a whole production run, and thus can just pull stock from inventory.
Results
Conclusion
Being newly appointed to the role of C.E.O., I am happy with the growth of the company over the time period and would look to further gain competitive advantage. I am surprised on the bonus structure of the salespeople, being that they can get up to $100,000 bonus on a $100,000 annual salary.
Whilst in the first simulation I took a dive, I did recover strongly, but the difference is highlighted in the outcome of the second simulation. Looking at the bell curve of sales and revenue, I feel that I reached the maximum for segment A as the data curve really started to flatten out. The question begs that if I had a premium offering, could I have further increased my premium price, but given the consistent gains financially, and increasing market share, I think it’s important not to become greedy, and open yourself to attacks from the strong competition.
References
Sinek, S. (2017, September 16). Youtube. Retrieved from https://www.youtube.com/watch?v=KbYzF6Zy5tY
