Capsim Marketing Department

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What documents does the Marketing Department need to make decisions?
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the Segment pages (pages 5-9) in the Capstone Courier
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Price
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the price of your product this year
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How does the customer’s expected price for this year change relative to the expected price for the previous year?
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This year’s price range will be 50 cents less than last year’s.
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Do the Segment Reports (pages 5-9) of the Capstone Courier provide you with the customer’s expected price for the current year?
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No. Remember that what you see in your reports is last year’s price range for each market segment.
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This year’s price range will be $____ less than what you see in your reports.
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0.50
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Every dollar above the price range will lose ____% demand for your product.
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20
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At $____ above the price range, demand will fall to zero.
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5
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Promo Budget
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promotion budget this year (in thousands)
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Why is the Promo Budget Important?
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Promotion drives customer Awareness. The more customers that are aware of your product, the more likely they will choose your product.
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How does Awareness change over time?
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Awareness decays over time. You lose about 1/3rd each year as customers forget the product.
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Can you spend money on Promotion once and then forget about it?
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No. If you spent $0 to promote the product, this year, you lose 1/3 of the Awareness you had last year.
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How does Accessibility help you against your competitors?
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If you and a competitor offer identical products, you are more likely to win the sale if your Accessibility is higher than your competitor’s.
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Diminishing Returns effect on Promo: Spending $1 million
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increases Awareness by 22%
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Diminishing Returns effect on Promo: Spending $2 million
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increases Awareness by another 23%
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Diminishing Returns effect on Promo: Spending $3 million
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increases Awareness by another 5%
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Sales Budget
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sales budget this year (in thousands)
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Why is the Sales Budget important?
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Sales budget drives Accessibility. Accessibility makes it easier for customers to find and buy your product.
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Can you spend money on Sales once and then forget about it?
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No. Accessibility decays over time. You lose about 1/3rd each year.
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Diminishing Returns effect on Sales Budget: For 1 product in a Segment, there is no additional benefit for spending more than $____.
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3M
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Diminishing Returns effect on Sales Budget: For 2 or more products in a Segment, there is no additional benefit for spending more than a combined $____.
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4.5M
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Benchmark Prediction
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estimates unit sales assuming your product competes with a standardized, mediocre playing field
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The Benchmark Prediction (does/does not) use your actual competitors products.
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does not
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The Benchmark Prediction is is (useful/useless) for experimenting with price, promo and sales budgets.
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useful
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The Benchmark Prediction is is (useful/useless) for forecasting.
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useless
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Your Forecast
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the number of units (in thousands) that you believe you will actually sell
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What happens when you don’t enter any input for Your Forecast?
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If you leave “Your Sales Forecast” at zero, the Proforma financial reports will use the computer’s Unit Sales Forecast.
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Why is Your Forecast Important? What must you do with it?
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It is important to develop a sales forecast for each product. Estimate your sales based upon current market conditions, then develop a best/worst case spread.
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Gross Revenue
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the revenue forecast for each product
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Gross Revenue Formula
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Price x Unit Sales
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What assumption does the Gross Revenue prediction make?
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assumes inventory will be available to meet demand
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How does Your Forecast affect the “Gross Revenue” and “Variable Costs” calculations?
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If Your Forecast is zero, the calculation uses the computer’s Benchmark Prediction.
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Variable Costs
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the variable cost forecast for each product
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Variable Costs Formula
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(Material Cost + Labor Cost + Inventory Carry Costs) x Unit Sales
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Contrib. Margin Formula
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Gross Revenue Forecast – Variable Costs
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Less Promo/Sales Formula
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Contribution Margin – Promo Budget – Sales Budget
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A/R Lag
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Accounts Receivable lag period in days; number of days you allow customers before you expect payment
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How does A/R Lag affect you?
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A more generous A/R period for your customers increases your demand.
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A/P Lag
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Accounts Payable lag period in days; number of days you wait before you pay your vendors
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How does A/P Lag affect you?
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The longer the lag period, the more likely it is that vendors will withhold parts deliveries.

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