Marketplace Live Simulation Report PDF

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1. Introduction This report aims to reflect on the decisions made by my company, CYKEL, during the six quarters of the Live Marketplace Simulation. The focus of Quarter 1 was to lay down the base of our marketing division, this consisted of naming the company, reviewing the market research, selecting an initial target segment and opening a sales outlet for test marketing. CYKEL chose to target the Speed segment. This segment had the smallest commercial potential but consumers in this demographic are willing to pay the highest price for their goods, as seen in Figure 1. Given the smaller number of potential customers, the amount of competition was also likely to be small. New York City was chosen as the first sales outlet as it had the greatest market potential for our chosen segment.

Figure 1: Market Segments Among Bicycle Buyers from Marketplace Simulation, 2020, graph

2. Pricing Decisions 2.1.

Quarter 2

Quarter 2 saw our first brand, AEROCYKEL, go to test market. AEROCYKEL was designed with the speed segment in mind, prioritising aerodynamic and lightweight features. A price skimming strategy was considered as the projected number of competitors was low and this strategy would help establish a prestigious brand image. Ultimately, it was decided against as the product would be considered a luxury good and thus lead to an elastic demand. Given the desire for a status symbol and exclusivity in the consumers of our target segment, a customer value-based pricing strategy was implemented. This strategy was theorised to be most efficient considering the high willingness to pay of our target market. In addition to this, open communication channels and strong relationships with potential customers had already been established. As a result of this strategy CYKEL was able to inhabit 40% of the speed market in Quarter 3, however this only accounted for a 7% market share overall as seen in Figure 2 and 3 respectively. Oversights in the brand design coupled with inferior advertising allowed competitors in the speed segment to overtake AEROCYKEL in demand despite their higher price point. This low market share meant that CYKEL’s expenses outweighed their profits. Skillful adjustments would be necessary in Quarter 3 in order to attempt to increase these profits.

Figure 2: Speed Market Share from Marketplace Simulation, 2020, graph

Figure 3: Overall Market Share from Marketplace Simulation, 2020, graph

2.2.

Quarter 3

Based on the data received from the test market, a new brand was designed. AEROCYKEL 2.0 was carefully developed to improve on the shortcomings of the previous design. In order to generate more sales a promotional pricing strategy was selected for the new brand. Maintaining the previous price point of $1200, a special rebate of $100 was now being offered. This decision to include a rebate was also influenced by the competition as 75% of the market, including our direct competitior Strada Bikes, was offering a rebate. With expenses increasing, as we opened another store in Amsterdam and the enhanced, and more expensive, design of AEROCYKEL 2.0 went to market, our promotional pricing strategy was not enough to pull CYKEL into profitability. Despite increasing our share of the speed segment to 42%, our overall market share fell to 6%. I believe this was due to brands in the recreation segment absorbing more of the market and do not believe any pricing changes would have helped at this point.

2.3.

Quarter 4

The goal of Quarter 4 was to expand our market offering. We did this through the development of a second brand which would serve to target our secondary target market. The COMFORTCYKEL was designed to broaden our market reach by targeting the recreation segment of the market. As this was targeting a different segment than our previous brands, our pricing strategies had to change. With our profits in the negative and the large market potential for the recreation segment, a competition-based pricing strategy seemed most fitting. The goal of this strategy is not to match or beat competitors’ prices, but rather set prices according to the relative value created versus competitors. An analysis of the company with the largest recreation market share, Winged Wheels, would be necessary. With this in mind, the COMFORTCYKEL was priced at $800. This allowed the brand to maintain a sense of prestige as it was at the higher end of the recreation cycle price point while still beating out Winged Wheels more expensive bike. This pricing strategy, coupled with an increased advertising effort, allowed CYKEL to more than quadruple their gross profit from the previous quarter – bringing the net profit out of the negatives for the first time.

2.4.

Quarter 5 and 6

Both Quarter 5 and Quarter 6 were focused on further enhancing CYKEL’s market offering. A new brand was introduced in each quarter, a new speed bike (SPEEDCYKEL) in quarter 5 and a new recreation focused bike in quarter 6 (EASYCYKEL). By performing a break-even analysis on the two established brands, AEROCYKEL 2.0 and COMFORTCYKEL (seen in Figure 4 and 5), and referencing them with current sales (see Appendix) we see that there is room to lower their prices without creating losses.

Figure 4: Break-Even Analysis of AEROCYKEL 2.0

Figure 5: Break-Even Analysis of COMFORTCYKEL

Given that the newly developed features by the R&D department allow for the new brands to be more highly specialised, it also makes sense to have these new bikes sit at a higher price point. This would allow both the higher and lower ends of each target market to be accounted for. The theory behind the pricing strategy of the new brands is customer value-based pricing, specifically value-added pricing.

3. Conclusion Despite a slow start, CYKEL was able to continually improve its performance quarter over quarter. Unfortunately, this slow start allowed our competition to establish themselves and get ahead in the market, leaving us trailing behind. This simulation gave me the opportunity to work through specific business strategies and strengthen my understanding of marketing as a whole. I learnt the importance of market research for product design and development as well as the importance of sound pricing strategies. The entire process was a learning experience and I am sure that if I were to do it over again, I would continue to improve.

4. References Armstrong, G, Adam, S, Denize, S, Volkov, M & Kotler, P 2017, Principles of Marketing, 7th edn, Pearson, Melbourne, AUS. Claessens, M 2015, Cost-Based Pricing – Pricing Based On Costs, Marketing Insider, viewed 15 October 2020, . Dawson, T 2020, ‘Price Skimming: Definition, Advantages & Disadvantages, Strategy, And Examples’, Price Intelligently, blog post, August 16, viewed 16 October 2020, . Lumen Learning n.d., Reading: Examples of Elastic and Inelastic Demand, Lumen Learning, viewed 16 October 2020, . Marketplace Simulation 2020, Market Segments Among Bicycle Buyers, graph, Marketplace Simulation, viewed 15 October 2020, . Marketplace Simulation 2020, Overall Market Share, graph, Marketplace Simulation, viewed 15 October 2020, .

Marketplace Simulation 2020, Speed Market Share, graph, Marketplace Simulation, viewed 15 October 2020, . Varian, H, Microeconomic Analysis, 3rd edn, Norton, New York, USA....