At the beginning of the simulation, all rival firms market two Sonite brands.

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Sonite Products
At the beginning of the simulation, all rival firms market two Sonite brands. Sonite products have existed for several years and the market has grown quite consistently since the introduction of the first Sonite brand. It is now a well-established market, with several strong brands at different price points covering a wide range of needs. Analysts believe that the Sonite market will continue to grow over the next five years.
A Sonite is a complex piece of equipment made up of several components. Although they can be evaluated along more than fifty attributes, Sonite brands are primarily differentiated in terms of five physical characteristics that are considered as the most important ones by industry experts. These characteristics are described below, and additional details are given in Figure 1
•Processing Power. This characteristic measures the speed of the internal processor. High processing power is critical for applications using extensive graphics or doing a lot of calculations. It also drives the ability of the Sonite product to process multiple tasks simultaneously. Processing power is given in gigaflops (billions of floating point operations per second), a standard and respected measure that takes several factors into account: number of “cores”, internal memory size, frequency, etc.
•Display Size. This is the size of the screen, in inches. This characteristic drives the ability of the Sonite product to display higher quality images or videos, or to display more information to the user at a given time.
•Design Index. This characteristic does not relate to the product esthetic but to the type of raw materials used (wood, plastic, metal ...), to the number of components (all-in-one type versus multiple-component type), to the aspect of its various components (position, size …). Therefore, a product rated 8 on the design scale is not better or easier-to-use than one rated 4 on the same scale.
•Battery Life.  This is the number of hours during which the Sonite product can operate without being connected to the main power.
•Features. This is the total number of features offered by the Sonite product. These features can be hardware related, such as the ability to connect various devices to your Sonite product, or software related.  There are a minimum number of core features that each Sonite product must offer. Additional ones are nice to have that may be of interest to some consumers.
It is important to understand that offering more of a certain characteristic is not necessarily better. For instance, high processing power processors may require a sophisticated cooling system that has an impact on weight, volume and noise. Consumers who do not need high power will certainly choose a less powerful Sonite that will be relatively small, light and quiet. Similarly, large screens may be highly attractive to some users, but not to others because of their higher weight and heavier power consumption. Similar advantages and drawbacks exist for most characteristics: long duration batteries are bulky and heavy; product with lots of features may be difficult to use and may confuse new or occasional users; etc.
The base cost is also an important factor; this is the cost at which each unit will be produced, based on an initial production batch of 100,000 units. The base cost is decided jointly by the Marketing department – which is mainly concerned with margin and profitability– and by the R&D department –which is mainly concerned with product feasibility.

Characteristic
Abbreviation
Unit
Range
Processing Power
Power
Gigaflops (GFLOPS)
5 – 100
Display Size
Display
Inches (“)
4 – 40
Design
Design
Index
3 – 10
Battery Life
Battery
Hours (H)
24 – 96
Number of Features
Features
Number (#)
5 – 20
Base Unit Cost
Base Cost
$
30+
Figure 1 – Sonite main physical characteristics




Sonite Customers
Sonite customers are adults who purchase the products for personal or professional use. Market research studies show that the Sonite market can be divided into five major groups of customers or segments, having similar needs and purchasing behavior.
•Explorers (Ex) – People in this segment show a high level of interest in Sonites and other similar products. They are extremely knowledgeable about Sonite technology and the different characteristics of the existing brands. Explorers were probably among the first to use Sonite products. They demand high-performance products, i.e. products with high processing power and/or large screens. They are less concerned with the convenience of the products (battery life, design or number of features) however they are quite price-sensitive, since they use Sonite products for their personal use and do not necessarily have high incomes.
•Shoppers (Sh) – As the name of this segment indicates, Shoppers do a lot of shopping. They have a good knowledge of marketed brands and do extensive product comparison. They look for products with a high quality –price ratio and average levels of both performance and convenience. Like Explorers, they use Sonite products for personal purposes and are quite price-sensitive.
•Professionals (Pr) – Individuals in this segment may use Sonite products for both personal and professional reasons. Consequently, they are looking for high quality, high-performance and easy-to-use products. They can afford expensive products and often view price as an indication of quality.
•High Earners (Hi) – This group is characterized by high incomes, using Sonite products on a private basis. Studies show that they usually buy fairly expensive products which they can afford, and that their purchase is partially motivated by social status. Although they tend to use their Sonites less than the average consumer, they demand performance and convenience from the products.
•Savers (Sa) – This segment includes all consumers who are cautious in the way they spend their money. Although this segment is the largest and is composed of several sub-groups, most customers have similar needs. They are looking for cheap, low-performance products with average convenience. Experts believe that the penetration of this segment is not as high as the other segments. Consequently, its future growth rate could exceed forecasts.
Each segment has specific needs in terms of physical characteristics and price. Awareness levels and purchase intentions vary significantly for existing products from one group to the other.  Market forecast studies show that the sizes and growth rates of the five segments are significantly different. This is explained in part by the development stage of each segment, by the varying product offerings, and by the intensity of marketing effort targeted at each segment.
Distribution Channels
Sonite and Vodite consumers tend to shop in the following three distribution channels:
•Specialty Stores – These stores are usually small and may not necessarily belong to organized chains. They are geographically close to their customers and can provide a high level of service and technical support. As they do not distribute many different product categories, Sonite products account for a large proportion of their sales. These stores usually carry a broad product line for each category, including the most expensive and/or high-performance products. Because of their high level of technological expertise, specialty stores are likely to be the preferred distribution channel for Vodite products.
•Mass Merchandisers – These stores operate on a low-price, high-volume basis and try to minimize overhead. Consequently, the level of service they offer is lower than that of the two other channels. While mass merchandisers carry many different product categories, the depth of each product line they carry is usually restricted to a few units. They often distribute the cheaper, low-performance products. Their lack of technical expertise and the low level of service may well prevent them from distributing Vodites in the early years.
•Online stores – This category of stores includes the web-only merchants (such as amazon.com and newegg.com) as well as the e-commerce websites of traditional retailers (BestBuy.com, Walmart.com, etc.). Although only a small percentage of consumer electronic sales are done on the web, this percentage is much higher for Sonites products, especially for highly connected consumers such as Shoppers. Convenience is the key advantage of online stores as consumers may shop from their home at the time of their choice. In addition, they have access to an almost unlimited choice and can compare features and prices very easily. Privacy and security are the primary concerns of online shoppers, but new mechanisms are put in place by banks and e-commerce sites to reduce fraud. Online stores are likely to become more important in the next 5 to 10 years.
Within the Sonite market, market research studies show that all three distribution channels are important; therefore, each of them should be visited by the companies’ commercial team. There are approximately 10,000 specialty stores, 6,000 mass merchandisers belonging to 6 different chains, and 1,000 online stores.
Differences between margins obtained by the stores in each of the three channels are mainly due to differences in the level of service and volume sold. These margins are applied to retail prices and are approximately constant across brands for a given channel. In Markstrat, the distributor margins are 40% for specialty stores and 30% for the other ones.



Economic Environment
You operate in an economy that currently has an average inflation rate of 2%. Inflation affects the production, advertising, commercial and market research costs of your company. It is unlikely that inflation will reach much higher levels in the future. Should this be the case, the government may decide to impose price control on all brands.
The Gross National Product (GNP) provides you with information about trends in the Markstrat economy. In the recent past, the overall economy has been growing at a rate of 4%.

FINANCIAL REPORT – FIRM MMT2019 – PERIOD 0

The financial statements of firm MMT2019 published for Period 0 have been prepared on December 31st, Period 0 in accordance with International Financial Reporting Standards (IFRS), as adopted in the Markstrat world.

Company Profit & Loss Statement

The table below shows the evolution of firm MMT2019 financial results in thousands of dollars, as well as the cumulative results since Period 0.
Period 0
Cumulative
Revenues
35,340
35,340
Cost of goods sold
-15,051
-15,051
Inventory costs
-557
-557
Contribution before marketing
19,733
19,733
Advertising expenditures
-4,000
-4,000
Commercial costs
-1,224
-1,224
Contribution after marketing
14,509
14,509
Market research studies
-245
-245
Research and development
0
0
Loan reimbursed
0
0
Loan received
0
0
Loan interest paid
0
0
Exceptional cost or profit
0
0
Earnings before taxes
14,264
14,264

Brand contribution

The table below shows a comparison of the net contribution generated by the brands marketed by firm MMT2019 in Period 0.
MOST
Sonites
MOVE
Sonites
Revenues
25,389
9,951
Cost of goods sold
-10,495
-4,556
Inventory holding cost
0
-557
Inventory disposal loss
0
0
Contribution before marketing
14,894
4,839
Advertising media
-1,440
-2,400
Advertising research
-60
-100
Commercial costs
-612
-612
Contribution after marketing
12,782
1,727

Revenues

MOSTMOVE28.2%71.8%
Revenues
MOST
25,388.676
MOVE
9,951.415
Note: brands with low revenues or contribution (< 5% total) are not shown on this chart

Contribution after Marketing

MOSTMOVE11.9%88.1%
Contribution after marketing
MOST
12,781.547
MOVE
1,727.162

Marketing results

The section below provides key marketing results for each of your marketed brands

Market Shares

MOST
Sonites
MOVE
Sonites
Volume Market Share
17.0 %
4.2 %
Value Market Share
11.1 %
4.5 %

Volume sold

The table below provides the volume sold for each of your marketed brands in each of the three distribution channels. Sales are given in thousands of units.
MOST
Sonites
MOVE
Sonites
Specialty Stores
35
15
Mass Merch.
105
16
Online Stores
16
7

Distribution Coverage

The distribution coverage figures in the chart and table below represent the proportion of distributors who carry a given product. The report gives the information for each brand currently on the market. The number of distributors in each distribution channel is provided as well.
MOST
Sonites
MOVE
Sonites
Specialty Stores
21 %
21 %
Mass Merch.
48 %
47 %
Online Stores
37 %
38 %
Specialty Stores
Mass Merch.
Online Stores

Number of distributors
10,000
6,000
1,000

Brand prices

The table below shows the prices in $ of your marketed brands. The Recommended Retail Price is the price that you specified in your marketing mix decisions. The Average Retail Price is the average end-user price, taking into account the discount offered by distributors. Finally, the Average Selling Price is equal to the Average Retail Price minus the distribution margins.
MOST
Sonites
MOVE
Sonites
Recommended Retail Price
$260
$420
Average Retail Price
$241
$399
Average Selling Price
$163
$262

Loans and Budget Changes

The left table below summarizes the loans and/or budget changes that were granted to your company by the instructor. The other table provides the past and future payments made by your company to reimburse the loans. The first column shows the reimbursement of the capital borrowed; the second columns shows the interests paid in the period; the third column indicates how much capital remains to be reimbursed at the end of the period.
Budget increase (K$)
Budget decrease (K$)
Loan capital borrowed (K$)
Loan Duration
Interest rate (%)
Period 0
Period 1
Period 2
Period 3
Period 4
Period 5
Period 6
Period 7
Period 8
Period 9
Period 10
Capital reimbursed (K$)
Interest paid (K$)
Capital remaining (K$)



































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