Pharma Sim - Decision Summary Rationale

Year 1: Our overall strategy for year 0 was to spend most of our available budget, while still saving some money in the event that the results don’t come out as planned. We have a long-term goal of improving retention rates. Sales force: We decided to increase both the direct and indirect sales force, but not by too much. Although we initially wanted to increase both significantly for more of a push strategy, according to the market operating statistics report those who had a high sales force did not see the benefits reflected in their sales. The companies with the higher sales force budget had the least retail sales. Increased direct sales force by 6 changing it from 94 to 100, and increased indirect sales force by 6 changing it from 33 to 39. Brands: We want to reduce the alcohol in the formula for a future reformulation, because it tends to increase drowsiness and is commonly seen as a negative from the perspective of consumers (according to the consumer surveys available). When given the opportunity, we plan to act on that idea. Pricing: We wanted to keep the price ($5.29) the same, because consumers already saw the current price as high, relative to the effectiveness of Allround. We do not want to lose customers due to having too high of a price, but we also do not want to lower the price because we need to maintain the margins that we have. We are considering that instead of lowering the price, we will increase the consumer promotion budget gradually, which will be elaborated on in the promotion section. Advertising: We decided to decrease advertising by $1 million (down to $19 million total) so we could put more of the budget into digital. Allround has a high awareness and spends the most on advertising compared to its competitors; because of this we felt decreasing the advertising would not hurt sales significantly. Promotion: For this decision period, we decided to increase our trade promotion budget to $2 million. This will allow us to utilize the push strategy that was talked about in the case while also satisfying the wholesalers. Regarding Consumer Promotion for Allround, we decided to allocate $5.6 million (same amount) since reducing customer promotion would upset consumers, if changed it would either remain consistent or increase over time. Digital Marketing: We decided to allocate 5.5% of the budget ($3 million) to Digital Marketing since in today's age it is important to have a presence online. It is also important to establish an online presence to receive consumer feedback and at the same time is cost effective. Special decision: We decided to offer the additional discount because the losses we would suffer from losing that market share of 2 million units would be greater than the $1 million cost of the additional discount since our unit cost is $1.24 and our MSRP is $5.29. Not offering the additional discount would have resulted in an opportunity cost of a potential $8.1 in earnings, or $7.1 million after you subtract the $1 million cost of the additional discount. Year 2: Stock Price up to 51.32 from year 1 All other brands had higher sales force before year zero so we: Changed direct by 30, from 100 to 130 Indirect increase by 16, from 39 to 55 Brand Reformulation: Dropped alcohol based on consumer survey feedback Pricing: We started out with a higher price in year 0. Competitors increased price in year 0 and now our perceived price is average. Now we will increase our price by a small margin, from $5.29 to $5.49 Advertising: We thought we spent a lot on advertising but compared to competition, our ad budget was about average. We increased advertising budget to $23.5 million Promotion: Changed trade promotion budget from $2 million to $4 million - didn’t do well on selling @ mass merchandiser so we increased the budget Changed consumer budget from $5.6 million to $6.8 million because we increased the price Digital Marketing: Our digital marketing was high compared to competitors, at $2.5 million. We want to increase it to $4.5 million to gain more feedback from consumers and increase retention. Special Decision: We decided to sell to the jobber. We don’t want to tarnish relations with our distributors by doing something we know they don’t like. Selling to the jobber would not negatively affect relations with distributors and would also reduce our losses to only $50k. Creative: Added a tagline and a colorful product package to increase brand awareness. Year 3: Stock price went up to $53.21 Indep. Drug Chain Drug Grocery Convenience Mass Merch. $493.4/$2,504 .7= 19.7% * 185= 36 130= 26 $692.7/$2,504 .7=27.66%* 185= 51 130= 36 $962.4/$2,504 .7=38.42%* 185= 64 130= 49 $108.1/$2,504 .7=4.32% * 185= 8 130= 6 $248.1/$2,504 .7= 9.91% * 185= 18 130= 13 Total $2,504.7 185 = total sales force previously 130= direct sales force previously Sales Force: We are second lowest in both direct and indirect sales force. Customers statistically purchase our products from chain and grocery stores. We increased independent drugstores by 18 as they were a top performer for our sales, we kept chain the same, grocery we kept the same, convenience we increased by 3, and mass merchandisers we decreased by 1. Indirect: Increased by 5. Increased merchandisers by 3 and detailers by 2. Based on how many employees our competitors had, as we were a little below average. Indirect: 55 ---> 60 Direct: 130 → 150 Total salesforce was 185 --> 210. Brands: Not reformulating again because we found the first reformulation successful. Continuing to drop the alcohol, because customers have issues with the alcohol. It prevented them from using it during the day or giving it to children. Dropping the alcohol eases this issue, without affecting the performance of the medication. Pricing: Increased < 250 and 2500+ by 2% because they correspond to the different channels and they weren’t moving as many units as the other categories were. <250 was changed from 25% to 27%. 2500+ was changed from 35% to 37%. Advertising: We decided to drop down our advertising budget to 20 million so that we can allocate more into digital efforts. We also decided to keep our current ad agency as they have a reputation for producing high quality ads. We also decided to increase our benefits message rather than focusing on the primary and comparison message. Promotion: We chose to increase point of purchase as marketing promotion shows point of purchase for us is lower than competitors, and 4.4% of consumers participated. We also decided to increase our trial promotion to 3mil to test out how this could affect promotion performance. We kept out coupon allocation at 5.1mil as the coupon participation rate is average and brings in a decent percentage of our revenue. Digital: We decided to increase our digital marketing as we reduced our advertising. We chose to utilize all marketing channels to saturate our exposure methods and test what is the most effective for our specific brand. Special: We chose to choose the cough formula because a 12-hour capsule would cannibalize our current market for All-round since it is essentially the same product but would just need to be taken less often. It would be more of a product improvement than a line extension. We chose not to go with the children’s liquid because we have already taken out alcohol from our formula. Introducing a cough formula is a totally new product, specified to treat our customers number one reported symptom in the last year. Year 4: Indep. Drug Chain Drug Grocery Convenience Mass Merch. $490.0/$2,622 .2= 18.686599% * 150 = 28.0298985 $711.3/$2,622 .2= 27.1260773% * 150 = 40.68911595 $1,029.8/$2,6 22.2= 39.2723667% * 150= 58.90855005 $108.1/$2,622 .2= 0412249256% * 150 = 6.18373884 $283.0/$2,622 .2= 10.7924643% * 150 = 16.18869645 Total $2,622.2 1) Sales Force a) Overall we increased direct sales force from 150 to 175 (25 change). We did the same formula as the last round and decided to increase all of the categories because we have a new product this round. There was an estimated increase for the mass merchandise channel which was why we increased it by 9. b) We increased the indirect by 10 going from 60 to 70 because of the new product and in an attempt to keep up with our competitors. 2) Brands a) We decided to do a line extension that includes the Children’s 4 Hour Cold Liquid. We believed this would have the least amount of cannibalization as opposed to the other options. Also, there was little competition in the children’s market, so we thought we would have the opportunity to capitalize on this market. The duration of medicine is not as big as of a concern to the consumer at the moment. 3) Pricing a) Based on the pricing of other brands we decided to raise the price of allround by 10 cents changing the price to $5.59. The suggested retail price of Allround plus is $5.89. We decided on this because it was a better version of our product and felt it should be offered at a higher price. 4) Advertising a) We have decided to lower the Advertising budget of Allround from 20 million to $18 million with the agency Brewster, Maxwell, & Wheeler b) We also decided to change the percentages for ad messages i) Primary we changed from 15 to 10 ii) Benefits we changed from 20 to 25 iii) Comparison we changed from 30 to 25 iv) Reminder we changed from 35 to 40 c) For AllroundPlus, we made the advertising budget $15 million with the same ad agency, BMW i) The Ad messages are as follows (1) Primary = 40% (2) Benefits = 40% (3) Comparison = 15% (4) Reminder = 5% 5) Promotion a) For Allround, we kept the allowance the same at 17% and then co-op advertising we lowered from $4 million to $3.7 b) Consumer promotion for Allround original i) PoP = $2.5 -> $2.6 ii) Trial Size = $3 -> $3.1 iii) Coupon Budget = $5.1 -> $5.5 c) For AllroundPlus, we made the promotion allowance 15%, so that we can maximize revenue from the new line while still using our push strategy. We also gave $2 million to co-op advertising. i) PoP = $1.5 ii) Trial Size = 2.5 iii) Coupon Budget = 1 6) Digital a) For All Round original, we lowered our budget to $3.5 million, to make room on the budget for AllroundPlus digital. We kept the channels the same for Allround original, but added all channels for AllroundPlus. The budget for Allround Plus was set to 2.5M and also went with the BMW agency. 7) Special a) We went with option 4 to “Check the page often and respond to comments.” We felt this was the least destructive and most cost efficient. Year 5: Indep. Drug Chain Drug Grocery Convenience Mass Merch. $498.9/$2,797 .5= 17.83378% * 175 = 31.2091153 $748.4/$2,797 .5= 26.7524576% * 175 = 46.8168008 $1,131.8/$2,7 97.5= 40.4575514% * 175= 70.80071495 $108.9/$2,797 .5= 03.89276139 % * 175 = 6.8123324325 $309.4/$2,797 .5= 0.110598749 % * 175 = 19.354781075 Total $2,797.5 1) Sales Force we did not change the amount of direct sales force, only reallocated them based on the previous formula. 2) Brands a) We did not change anything in the brands section. - decided to keep both products 3) Pricing a) We kept the price of Allround Original the same, but we decreased the price of AllroundPlus from $5.89 to $5.79. However, for Allround Original, we decreased the Volume Discounts from: i) <250: 27% -> 26% ii) <2500: 30% -> 30% iii) 2500+: 37% -> 36% iv) Wholesale: 40% -> 39% 4) Advertising a) We cut our advertising budget for Allround Original from $18 million to $15 million to cover $3 million, because we were $3.7 million over total budget. b) We kept the messaging for Allround Original the same, but we wanted to change the messaging for AllroundPlus i) Primary: 40% -> 25% ii) Benefits: 40% -> 35% iii) Comparison: 15% -> 30% iv) Reminder: 5% -> 10% 5) Promotion a) We dropped our Promotional Allowance for Allround Original from 17% to 16% and AllroundPlus from 15% to 14.5%. We also reduced the amount of Co-op advertising for Allround Original from $5.5 million to $3 million. b) Allround Original i) PoP = $2.6 -> $2.6 ii) Trial Size = $3.1 -> $2.6 iii) Coupon Budget = $5.5 -> $3.5 c) AllroundPlus i) PoP = $1.5 -> $2.5 ii) Trial Size = $2.5 -> $3 iii) Coupon Budget = $1 -> $3.5 6) Digital a) We wanted to free up more money from digital, so we cut the budget from $3.5 million to $2 million. We are decreasing AllroundPlus from $2.5 million → 2.1mil 7) Special a) We decided to redefine the territories based on workload, because Steve seemed more adept, and redefining based on revenues would force him to lose relationships with customers. Year 6 Indep. Drug Chain Drug Grocery Convenience Mass Merch. $553.2/$3,073 $819.6/$3,073 $1,239.1/$3,0 $105.7/$3,073 $356.3$3,073. Total $3,073.8 .88 = 17.9967988% * 180 = 32.3942379 ● Brands .8 = 26.664064%* 180 = 47.9953152 73.8 = 40.4575514% * 180= 72.56099934 .8 = 03.89276139 % * 175 = 6.18973258 (changed to 5 instead) 8= 0.110598749 % * 175 = 20.8647277 ● a. We decided to introduce a new product, AllRight, a 1 hour cold spray. There was not a lot of competition in this market, so we wanted to take a hold of the growing cold market (growing ~12%). Pricing a. AllRound Original i. We increased our price by 5¢ to $5.64 to keep up with the increase in unit cost ii. We kept the volume discounts the same b. AllRoundPlus i. We decided to keep the price at $5.79 because we saw in our consumer surveys that they believed that the price was high compared to the effectiveness ii. We kept the volume discounts the same iii. Because AllRight was much less expensive to produce, we wanted to keep the MSRP relatively low as well. Our competition had priced similar products at $4.99 MSRP, but our brand affords us the opportunity to price a little bit above our competition. i. We set the price for AllRight at $5.09 ii. <250 = 25% iii. <2500 = 30% iv. 2500+ = 35% v. Wholesale = 40% Advertising a. AllRound Original i. We kept our advertising budget the same as last round, $15 million ii. We also chose to advertise all symptoms, because it is a multi symptom liquid iii. Our targets are mainly focused on: 1. Mature Families 2. Empty Nesters 3. Retired c. ● iv. v. Our ad messaging The benefits we chose to promote are: 1. Relieves Aches 2. Clears Nasal Congestion 3. Reduces Chest Congestion 4. Dries Up Runny Nose 5. Suppresses Coughing 6. Relieves Allergies b. AllRoundPlus i. We increased our ad budget by $1 million, to $16 million ii. We only advertise Cold because it is only recommended as a cold relief iii. Our demographic targets are: because it is mainly effective for children 1. Young Families 2. Mature Families iv. Ad messaging 1. Primary: 25% -> 20% 2. Benefits: 35% -> 35% 3. Comparison: 30% -> 30% a. Competitive marketing with Besthelp 4. Reminder: 10% -> 15% v. Promote benefits: 1. Relieves Aches 2. Clears Nasal Congestion 3. Reduces Chest Congestion 4. Dries Up Runny Nose 5. Minimizes Side Effects c. AllRight i. We set our budget at $15 million ii. Our symptom targets are only Cold iii. Demographic Targets 1. Young Singles iv. v. ● 2. Young Families 3. Mature Families 4. Empty Nesters 5. Retired Promote Benefits 1. Clears Nasal Congestion 2. Reduces Side Effects 3. Won’t Cause Drowsiness Ad Messaging 1. Primary: 35% 2. Benefits: 40% 3. Comparison: 20% a. Competitive marketing with Effective, because they had the most sales in the 1hr Nasal Spray Cold market 4. Reminder: 5% Promotion a. AllRound Original i. Allowances and Co-op ($2.5) 1. Independent Drugstores a. A: 16% b. C: ✓ 2. Chain Drug Stores a. A: 16% b. C: ✓ 3. Grocery Stores a. A: 16% b. C: ✓ 4. Convenience Stores a. A: 16% b. C: ✓ 5. Mass Merchandisers a. A: 16% b. C: ✓ 6. Wholesalers a. A: 16% ii. Consumer Promotion 1. PoP = $2.5 a. Independent Drugstores b. Chain c. Grocery d. Convenience e. Mass 2. Trial Size = $1.7 3. Coupon Budget = $2.3 a. Coupon Amount: $0.50 b. Coupon Type i. Print ii. Checkout b. AllRound PLUS i. Allowances and Co-op ($2.5) 1. Independent Drugstores a. A: 14.5% b. C: ✓ 2. Chain Drug Stores a. A:14.5% b. C:✓ 3. Grocery Stores a. A:14.5% b. C:✓ 4. Convenience Stores a. A:14.5% b. C:✓ 5. Mass Merchandisers a. A:14.5% b. C: 6. Wholesalers a. A:14.5% ii. Consumer Promotion 1. PoP = $2.5 a. Independent Drugstores b. Chain c. Grocery d. Convenience e. Mass iii. Trial Size = $2.4 iv. Coupon Budget = $2.6 1. Coupon Amount: $0.25 2. Coupon Type a. Print no b. Digital yes c. Checkout yes c. AllRight i. Allowances and Co-op ($3.0) 1. Independent Drugstores a. A: 15% b. C: ✓ 2. Chain Drug Stores a. A: 16.3% b. C: ✓ 3. Grocery Stores a. A:15% b. C: ✓ 4. Convenience Stores a. A: 15% b. C: ✓ 5. Mass Merchandisers ii. a. A: 15% b. C: ✓ 6. Wholesalers a. A: 15% Consumer Promotion 1. PoP = ($2.0) a. Independent Drugstores b. Chain c. Grocery d. Convenience e. Mass 2. Trial Size = $2M 3. Coupon Budget = 1M a. Coupon Amount: $0.25 b. Coupon Type i. Digital ii. Checkout d. Digital i. AllRound Original ($2 million budget) 1. Channels a. Display b. SEM c. Social 2. Keywords a. AllRound b. Cold c. Allergy d. Cough e. Congestion f. CoughCure g. DryUp h. DryUpPlus i. Effective j. End ii. AllRoundPlus ($2 million budget) 1. Channels a. Display b. SEM c. Social 2. Keywords a. AllRoundPlus b. Cold c. Congestion d. ColdCure e. CoughCure f. End iii. ● AllRight ($2 million budget) 1. Channels a. Display b. SEM c. Social 2. Keywords a. Allright b. Cold c. Non-drowsy d. Dripstop e. Effective Special a. Option 3 - Sponsor a race car driver for the coming year. A logo will be placed on the vehicle for spectators to see. (Cost: $2.0 million) b. 4. Advertise in a crossword puzzle. You can buy a clue which has “Allround” as the solution. (Cost: $50,000)