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Capsim Simulation Strategy: Cornering the Market in the Traditional and Low End Segments
Capsim Computer Simulation Strategy Cornering the Market in the Traditional and Low End Segments
I teach a Capsim Management Simulation Class during the summer and fall sessions, at Georgian Court University in Lakewood, NJ. Students form teams and play the game against each other on the Capsim Simulation Website. All teams begin the simulation with 5 products, one in each of the following segments: Traditional, Low End, High End, Performance and Size. The teams are Andrews, Baldwin, Chester, Digby, Erie and Ferris. The industry is the sensor production business. In this simulation there are the following modules: Research and Development; Marketing, Production and Finance.
All teams are equal at the beginning of the game in Round 0. The Ferris Team strategy is to corner the market in the Traditional and Low End Segments. Ferris begins the game with the following products: Fast-Traditional, Feat-Low End, Fist-High End, Foam-Performance and Fume Size.
In the Research and Development Module, Ferris will invent two new product sensors: Frost-Traditional and Fox-Low End. Ferris will cease development of Fist-High End, Foam-Performance and Fume-Size products. Research and Development makes product innovations to keep them current. R&D affects the age and reliability of products. R&D affects segments in the Production Module. Team Ferris makes adjustments in R&D that will take effect before January1 of the next year. By exiting the High End, Performance and Size segments, Ferris gets rid of those sensors that have high positioning costs. For example, to better position a High End product in each round you have to increase performance and decrease the size of the product. By eliminating the High End product, Ferris lowers expenses.
At the beginning of Round 1, Team Ferris makes adjustments for each product in the Marketing Module. Ferris will not market products in the High End, Performance and Size segments. Ferris will increase advertising and promotion and decrease pricing in the Fast-Traditional and Feat-Low End products. Ferris will set up marketing and advertising for the new products Frost-Traditional and Fox-Low End. The more products in a segment increase distribution channels for that segment. Ferris will adjust marketing each round to gain market share in the Traditional and Low End segments. The money saved by not marketing in the High End, Performance and Size segments contributes funds to increase advertising and promotion in the Traditional and Low-End segments. Ferris then attempts to make an accurate sales forecast in the Marketing Module.
In Round 1 in the Production Module, Ferris will make a sales unit forecast for each product, according to the sales forecast in marketing. Ferris will sell production capacity for the following segments: Fist-High End; Foam-Performance and Fume-Size. If all capacity is sold for a segment that segment is liquidated. Thus Ferris liquidates the High End, Performance and Size segments. The future unit sales forecast for these products will be zero units.
In the Production Module, Ferris buys capacity for the two new products Frost-Traditional and Fox-Low End. At the beginning of Round 1, Ferris may automate production in Fast-Traditional and Feat-Low End. These changes take effect in Round 2. Note that automation decreases the number of labor hours for production and lowers the unit price. Automation costs money and is reflected in the financial analysis. Ferris will increase the sales unit production forecast for Fast-Traditional, Frost-Traditional, Feat-Low End and Fox-Low End products.
In the Finance Module, Ferris will finance the development of these new products, Frost-Traditional and Fox-Low End by issuing stock and bonds. An example would be to issue $2 million of stock and a $2 million bonds to cover the development of the two new products. Ferris checks the proforma Income, Balance Sheet and Cash Flow Statements before making final decisions for the round. Ferris must make sure that their proforma Income Statement is in the black and Ferris will have net income.
Each team checks the outcome of the simulation in the Capstone Courier at the end of each round. All teams: Andrews, Baldwin, Chester, Digby, Erie and Ferris make strategy adjustments to improve their economic and financial positions for the next round by making new decisions in the Research and Development, Marketing, Production and Finance Modules. This simple explanation to corner the market in the Traditional and Low End segments should help students understand basic strategy.