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Pharmasim

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Pharmasim

Sections of report:

1. Executive summary: Summarize your objectives, strategy, key outcomes and overall learning.

2. Explain the objectives that you set for yourself. These are based on the information provided by the case but explain how your viewed them and which ones you focused on, etc.

3. Explain the overall marketing strategy that you adopted and why. Explain your decisions based on the context of the situation; as well as sequential learning over periods. Explain how your strategy worked over the course of simulation, any adaptation or changes to strategy, your overall insights regarding the strategy adopted.

4. Explain the overall marketing mix (the marketing program) that you used and why. In other words, which tools or combination of tools did you use the most, how, why. Explain your insights about the marketing mix that you used and its effects. Do not summarize per period.

5. Your overall learning from the marketing planning and implementation experience: Including how this learning related to and/or extended the overall course learning.

Executive Summary

In the ten year time period that we were managing the AllStar brand, we had to make numerous strategic marketing decisions based on the information available to us. Our task at hand was not only to revitalize AllRound but consider extending the line and launching a new product. What made it very interesting was that our competitors would counter our every move, just like in the real world and so we had to constantly track their activities.

Before we began the simulation, we collectively decided on a few guiding principles to help us in our decision making. One of them was to broaden our portfolio when given an opportunity, to preserve our reputation as a quality brand, and to work in incremental steps towards long term gains.

AllRound was our flagship product and our superstar. We removed the alcohol content to give it a broader appeal. The extension we launched in the 4th period, AllRound+, gave us a focused window into the cough market and helped us diversify our risk. In response to a growing demand for cold liquid for children and to stem the growing clout of ColdCure and End+ we launched AllRight with expectorant to distinguish us.

Ultimately, we wanted our customers to come to AllStar for all their cold medication needs. We delivered this strategy by offering our products at great value, sustaining our brand image with quality advertising and selling through the channels that customers were most buying from. The dynamic nature of the market and our customers changing preferences made finding the right mix of product, price, promotion and distribution a challenge. Changing some variables would dramatically change the income, while some others would hardly move the needle. We tried to keep track of what our competitors were doing and learning from the mistakes they made.

We were not always the highest over the first few periods but we did not lose hope and kept using innovative strategies to garner market share. In the long run, our plan was so successful that we made 1.238 billion dollars in cumulative net income over the ten periods, the highest among our peers. We were able to put all our marketing skills to work in this simulation - it truly was an exciting learning experience.

Objectives

The OCM group is confronted with a number of decisions in the ten year timespan under consideration. Its brief is to re-examine and revitalize the marketing strategy of Allstar Brands' Allround and decide on whether or not to reformulate, extend the line and introduce a new product. If extensions and products are launched, decisions about the formulation and marketing strategy would be required and segments to be targeted would need to be identified. The aim is to maximize the cumulative income over the ten periods. We chose to create a multi-product company moving from a broad target to specific niches while maintaining high margins to maximize the long-term wealth of AllStar..

Company

Allstar Brands' Pharmaceutical division is managed by the OCM group. Our task was to ensure and maintain the long-term profitability and market share in a environment of budding competition and a changing market. Given the dynamic situation, every year the company would need to examine its portfolio and make strategic marketing decisions in the areas of product choice, distribution, promotion and pricing in order to establish Allstar Brands as the leader in both profitability and market share in OTC medication.

Financially, the Allround product is a successful and profitable one already racking up sales of $355.3 million in the period before we began to manage the product. The net contribution of Allround is $67.2 million after shouldering some of the corporate overhead. Fixed costs are of some concern because as we increase sales, production must accordingly increase which sometimes necessitates a doubling in fixed costs.

However, despite being the market share leader, Allround is viewed by some as overkill because it contains the maximum allowable quantity of all the possible components of cold medication (with the exception of expectorant). In addition, Allround is Allstar's flagship and only product while the majority of the competition has either two or three products.

Competitors

Despite being the market leader, Allround has some formidable competition. B & B Health Care, Curall Pharmaceuticals, Driscoll Corporation and Ethik Incorporated all have products that in some way or other compete with Allstar's offering. The fact that Allround is a single 'shotgun' drug in comparison with the competitors' multiple specific formulations was also something to consider.

Market sureverys provided valuable information on what the competitors were doing. Information on pricing, advertising expenditures and distribution tactics told us what the competition was doing while the satisfaction, brand awareness and retention told us whether the competition's strategies were proving effective or not. Here are some of the things we were tracking for our close competitors :

  • Pricing and Promotional Allowances : Keeping this too low would make the retailers take the final price up thus making us less competitive, too high and we would lose too much money.
  • Advertising : The ad expenditures directly impacted awareness and the consumer's perception of the brand. As products were launched and matured, the mix of primary, benefits, comparison and reminder advertising needed to be tweaked.
  • Consumer and Trade Promotion : We found consumer and trade promotions to have a lesser impact on moving the income needle.
  • Sales Force : The support of the sales force was critical to the success of the brand, however, as with all things, it had diminishing returns beyond a point.
  • Channel Choices : Where consumers were buying their cold medication was a major factor in deciding where to offer allowances and target sales force.
  • Product Launches/Reformulations : The opportunity to extend the Allround line and launch a new product would give us a wider appeal and give us the expectorant-added product which was missing in our portfolio.

Customers

The firm also suggested that demographic segmentation could reveal important information about the market. We were presented with two segmentation options: illness (cold, cough, and allergy) and demographics (young singles, young families, mature families, empty nesters, and retired).

Information about the choices that consumers finally made were also available in the reports which told us more about our market share, consumers decision making criteria, brand awareness and satisfaction, intended vs. actual purchases, effectiveness of medicine and the tradeoff consumers were willing to make between symptom relief and price. Often we would notice evidence of cross-use, some consumers using one drug for a purpose not entirely intended - however this was generally small and we thought it to be uncontrollable.

As the most reported symptoms changed from year to year, we tried to push the products that the consumer would most want to see in the stores.

Overall Strategy

We wanted AllStar to be a multi-product company and decrease its risks by increasing its portfolio of products. We planned to reformulate Allround to better suit consumers' needs and introduce both a line extension and new product. In order to grow the two new additions to the AllStar product portfolio, we would harvest some of the profits from Allround and invest it into the new products. We will insist on continuing the high quality standards set by Allround. This will include keeping the best advertising agency and commanding a premium price for all products. The levels of advertising and promotions will be maintained at adequate levels aimed to be slightly above the market levels. The same distribution channels will be used and retailers will be approached in the same manner, regardless of the product.


Value Proposition

Use AllStar's products for all your cold medication needs - it provides you with affordable, high quality and effective drugs for multi symptom relief, coughing or a child's cold. In addition the drugs do not have any adverse side effects, making them convenient and the preferred choice.

Product

We began with the desire to remove the alcohol content of Allround as soon as possible, following perceptions that alcohol in medicine has possible side affects. This reformulation opportunity presented itself in year one. The reduced alcohol formula was also the only reformulation with a positive utility in the conjoint analysis bolstering our hypothesis.

In the fourth year, we had the opportunity to introduce a line extension and we chose the 4 hour cough liquid, Allround+. We felt this was a good investment for AllStar because of its good reputation for preventing coughing. Expanding our portfolio helped us diversify our risk. Allround+ also better fitted the needs of people with the cough illness versus using Allround. Some of the sales came from cannibalizing Allround sales but the overall increase in unit, dollar and market share far outweighed the loss from Allround (Exhibit 5a).

In the sixth year we decided to introduce a new product designed especially for children with colds, Allright. We felt that Coldcure had been dominating in this market niche and it had been very successful. So successful that End+ was introduced, 4 hour cold liquid for children. We wanted to target this market niche as well and in order to be successful, we had to enter the market before End+ gained too much of an advantage. We also hoped to regain the sales previously lost to Coldcure from the young and mature families segments. Our formulation for Allright was similar to Coldcure but it also included expectorant.

From the start, many physicians felt that Allround had too much medicine with the maximum allowed amount present for each of the symptoms. We attempted to gain more physician recommendations by using detailers. However, this did not help as the product’s formulation remained the same, making some uneasy about recommending Allround. We did get an opportunity to completely reformulate Allround on all its amounts but we chose to keep its high doses treating all the different symptoms because of its overall past, long-term success. We did however change the suppressant to the full amount of expectorant because Allround+ already had suppressant. Therefore, customers could then chose the product, from AllStar, that best suited their needs. We also hoped this would increase physician recommendations, stopping the decline in recommendations occurring since the first year.

Price

Our pricing strategy relied on four key factors: (1) tradeoffs between price and symptom relief; (2) customers’ purchase decision criteria; (3) inflation; and (4) comparative analysis (relative to both competitors and previous years).

We paid close attention to the Tradeoffs plot to make sure we were either on or very close to the optimal line. This involved increasing our prices to keep up with inflation as well as some manual adjustments depending on the result from our previous price increases and the future state of the economy. The price would be increased more than inflation if it was below the line or if the economy was going to do well. On the other hand, it would be increased less than inflation if it was above the line or if the economy was going into a recession.

We also took into consideration the customers’ purchase decision criteria, which combined with the comparative analysis gave us information about whether to increase or decrease the price in the particular period. For Allround and Allright, the most important factor for purchasing decision was the product effectiveness, which we measured by the customer satisfaction and made sure that we were always above the competitors (Exhibit 1a, e). For Allround+ the most important criteria for purchasing decision was the price and we kept the price below competitors' prices (Exhibit 1d).

In the first period, the price of Allround was above the optimal line of the Tradeoff Plot (plotting price versus symptoms relief), so we did not want to increase our price too much, just enough to absorb some of the expected inflation. We decided on an increase of three cents. What we discovered was that our initial price increase was marginally small compared to how the industry worked. Later, we increased our price by thirty cents and it was still considered a conservative price increase. Given that our product had better formulation than the competitors and the number one decision criteria in this segment was product effectiveness, we decided to pay close attention to customers satisfaction and keep the price above the competitors (Exhibit 1a, b).

Allround+ was introduced at a price below the two cough medicines already being offered. This was decided based on our brand formulation, tradeoff plot and decision criteria. We had the better formula but 50% of the customer's decision relied on price. We kept the same price during the first three periods of the product launch in order to establish significant market presence. Afterwards, we looked at the tradeoff plot to see where the competitors were located and then found a price below theirs, even if we had the better formula. The price affect was then observed in the next year and adjusted accordingly, but always below the competitors. We used our overall pricing strategy except we continually aimed to be below the line due to the importance of price sesitivity on customers' decision. (Exhibit 1c, d)

With the introduction of Allright, we set our MRSP equal to that of Coldcure, even if our formula offered more benefits. End+ was initially priced too high and this had hurt not only their sales but reduced the time advantage they had versus Allright. In the years to come, the price was only adjusted for inflation and actually remained equal to that of Coldcure for the remainder of the years (Exhibit 1f). The most important criteria for purchasing decision, as in the case of Allround, was the product effectiveness and we made sure that the customer satisfaction was above that of competitors (Exhibit 1e).

Promotion

Channels

We began by decreasing the lowest volume discount and increasing the highest volume discount. By creating larger margins between the different volumes, we hoped to encourage buyers to trade up. This strategy worked beautifully and increased the purchases of both the middle and higher volumes. When Allround+ was introduced, we decided to enter the market using more conservative volume discounts in order to give out less of the revenue. However, the following year we realized that this strategy had not worked to our advantage so we increased the volume discounts to the same levels as Allround. When introducing Allright, we had learnt our lesson and went straight to using the Allround discounts. This strategy worked well for all products so we kept them for many years. After Allround+ and Allright had enough market presence, we were able to lower all the discounts and decrease some of the forgone profits without any negative consequences. However, we kept the same incremental changes between them.

To start with, we kept co-op advertising dollar amount the same, since only 1.2% of retailers were using them. This is just another form of advertising, letting customers know where our products are being sold. This is most important for grocery stores and chain and independent drug stores. Convenience stores may do some announcing in their window ads but do not have circulars. We wanted some co-op advertising for all the channels but we could not allocate different intensities for different retailers. Otherwise, we would have focused on those with circulars more than those without. A large initial budget was used for both Allround+ and Allright, especially in the introduction year. This was another way, besides straight advertising, of building brand awareness and also extending the retailers credibility to the new product. Allround+ kept this amount steady in order to compete with Coughcure’s co-op advertising budget. On the other hand, Allright’s budget was soon cut because competitors were spending only a small amount on this niche due to its smaller size within the cold market.

Point of purchases were kept the same dollar amount except when we removed it from convenience stores since people rarely purchased medicine from these stores. Point of purchase is used to increase impulse purchases by buyers who see it and realize they have a need for it but they had not planned to buy it. It can also be used to persuade a buyer to buy this brand instead of the brand they had planned to purchase. Therefore, it is important when competition is intense and it can reduce sales if competitors have larger investments. Our strategy included staying at or above our main competitors investment. We used Besthelp as our comparison point for Allround and it worked relatively well. For the first seven years, we were playing tag with Besthelp – we would go ahead, then they were in front and so on. After year seven, Besthelp invested heavily in both point-of-purchase and co-op advertising. We were unable to keep up because we had two other products that also demanded funding for their co-op and point-of-purchase promotions and not enough budget. This also explains why Allround was slowly losing sales while Besthelp’s sales were increasing. For new product introduction – Allround+ and Allright – a large budget was used in order to increase visibility of the product and persuade people to switch from their intended purchase to the new product. Total promotional expenditure can be seen in Exhibit 3 for all three products and their competitors.

Customers

The first thing we did was to introduce some trial sizes of Allround in order to increase brand trials. Brand trials are especially useful when the product is unknown or new (low brand awareness). Therefore, a large budget was chosen for brand trials when Allround+ and Allright were introduced. Once the returns from the trials fell, it was time to stop them altogether. This occurred fairly early for Allright since it created very little conversions. We felt the brand trials would have been more successful if we could have chosen which segments to target. For example, sending Allright to empty nesters would be pointless and allowing us to target young families with the brand trials would have been more successful.

We initially decreased Allround’s coupons budget because it was to be a good year and coupons only increase short-term/temporary sales and reduce profits. Coupons should be used for product reformulations, line extensions and new product introductions because they help reduce the risk of trying the product. They can also be used during economic down times to stimulate sales and encourage customers to continuing buying the product even when they have less discretionary income. The same applies to increasing the coupon value. A high value coupon would be used at initial product launch and be decreased over time along with overall coupon expenditure. This was the exact strategy used for both the introduction of Allround+ and Allright.

Advertising

Our initial actions involved keeping a steady advertising budget. Allround already had the highest advertising expenditures of all products on the market. Our strategy became one of surpassing the competition without reaching a point of decreasing marginal returns. It was also increased during times of slow sales.

Since advertising has long-term affects, it was harder to measure its total impact. However, we measured it by using the Brand Awareness report. This was especially important for the introduction of new products. The initial advertising budget had to be higher than the competition in order to “get the ball rolling” and it would subsequently be cut back in the future, depending on competitor reactions. For Allround+, we aimed even higher and continued to increase it until we reached the same advertising level as our biggest competitor, Coughcure, who had been around for quite some time. On the other hand, with Allright we started at a fairly high level and decreased it to a more competitive level as brand awareness increased, which took longer because it was a completely different brand name than Allround, unlike Allround+. This means it could not piggyback on the past success of Allround brand name. Total yearly advertising expenditures for our products and their competitors are shown in Exhibit 2.

We decided to keep the same advertising agency, Brewster, Maxwell and Wheeler, because AllStar has a reputation for being the best, thereby making quality a central aspect in all that it does. Therefore, the BMW agency was used for all of AllStars products for every period. It did involve higher costs but we were unwilling to sacrifice quality to increase short-term margins.

We targeted the cold market because Allround is for multiple symptoms and cold is the largest market. This remained constant for the entire ten years. We even introduced another product for the cold market, Allright, a product made specifically for children’s colds. We were able to enter into the cough market with Allround+.

Even though Allround had the majority market share in the young families, we decided to target the other three segments – mature families, young singles and empty nesters. The reason we excluded the young families was because we new that Currell was introducing Coldcure – a cold medicine designed especially for children. We felt that we could not hold on to this segment without our own medicine, designed especially for children. We decided to focus our efforts elsewhere instead of slowly losing market share to Coldcure. Some market share from mature families would be lost to Coldcure but our product still fit their needs as the children were older and would require less specialized medicine. The retired were already one of our good customers and we felt they would remain even if we did not specifically target them. This placed us in direct competition with Besthelp – our strongest competitor – because it had the majority share in both empty nesters and young singles (Exhibit 4).

For Allround+, we did some switching of targets. The reason for these changes is that at first we did not want to cannibalize sales from Allround so we focused on the segments not targeted. We added empty nesters in an attempt to increase their sales of Allround+ but after evaluating it, decided that our product better targeted the retired segment. We finally settled on young and mature families and retired. Allright was naturally targeted at those segments with children including young and mature families.

At first, the advertising message was redistributed to increase the focus on benefits and reminder. We felt that Allround is the brand leader and therefore does not need to compare itself to others. The focus should be on its many benefits and on reminder advertising in order to increase retention. The benefit advertising for Allround was especially important when it was reformulated in order to get the word out about its improvement. We did not remove comparison altogether and, once Besthelp became more of a competitive threat, we started increasing our comparison advertising. Reminder advertising continually became more important as the product continued to mature. This was true for all three products. We began with heavy primary and benefit with some comparison. Over time, the emphasis moved from primary – once brand awareness reached an acceptable level – to benefits and reminder. For Allround+, we kept a higher amount in comparison because Coughcure was the market leader in the cough market and that is what Allround+ aspired to reach. Allright required a larger amount in primary for more periods than Allround+ due to it being a completely new brand name.

In Allround's first period, we reduced the benefits we would promote in order to create a simpler, easier to remember message. We removed “dries up runny nose” because we already had an attribute dealing with helping nasal congestion. We also exchanged “helps you rest” for “minimizes side affects” because people are worried about the alcohol content and we wanted to take the attention away from this component. Once the alcohol was removed, we advertised the “won’t cause drowsiness” benefit to promote our reformulation that now better fit customers desires. After the second Allroung reformulation - changed the suppressant for expectorant - we promoted “reduces chest congestions” instead of “suppresses cough”.

When Allround+ was introduced, only “suppresses coughing” and “helps you rest” benefits were advertised. Later we added “minimizes side affects”, once again to decrease people’s anxiety. Allright had just as many benefits as Allround, however, we promoted more of them due to parent's desire to treat as many of their children’s symptoms as possible.

Distribution

In the beginning, we increased the independent drugstores sales force because research showed that they value sales force support, not promotional allowances, which was subsequently lowered. On the other hand, the grocery stores and chain drugstores sales force valued allowances and turnover, not sales force, so, promotional allowances were increased. We doubled the number of detailers because they are in charge of getting physicians to recommend AllStar’s product.

Our recommendation percentage was below that of our biggest competitor and, since it is an important part of getting people to use our product, we felt it was important to increase it. The AllStar sales force was the second lowest of all its competitors so we decided to grow our sales force over the next few years to a level closer to that of the other companies. This involved increasing the sales force for the retailers with the highest growth. This would continue until we felt we had a large enough sales force relative to competitors and also in relation to the number of products we were offering. More products means more sales force is necessary. After ten years, we had the second largest sales force (Exhibit 5b). One thing we felt would have helped us in our decisions regarding the sales force was information about the work level of our workers and how much capacity we were using. For example, if a worker was working at capacity, the sales force would be at 100%, below capacity (not enough work) less than 100% and would possibly require layoffs and above capacity (overworked) more than 100% and may require hiring.

Overall Learning Experience

In order for the company to have enduring success, it should have a long term strategy which might not be the best short-term option but pays off in the end. In the beginning, we invested a lot of money in advertising, sales force, and promotions. Our spending levels were above competitors because the economy was in a recession and the others did not spend much money in these areas. This negatively impacted short-term net income but paid off in the long-term.

Every decision impacts the overall performance. To make good decisions, the company has to know their impact and to align them with its objectives. For example, in order to decide how much to spend on advertising and how to divide this budget among the different types of ads, we had to analyze not only the competitors reactions, but also how our decisions impact the retention ratio, the brand awareness, the purchases, etc. This way the company can identify its weaknesses and strengthen them.

The most important thing for the company is to know and understand its customers, their decision making criteria, their preferences, and to cater to their needs. It is not necessary for the company to be the best in every aspect, but it should know what the customer's need and make that its priority. We analyzed the tradeoffs of every decision and tried to align our decisions with the customer's needs. We took a look at the most important purchase decision criteria for every product and we made it our order winner. It is important for the company to know its competitors and their strategies, so that it could differentiate itself from them. Knowing the competitor is half the battle.

We had the opportunity to apply all the topics covered in the book and the cases simultaneously - not as individual factors - during the simulation. It provided the foundation on which we based our debates and decisions and allowed us to out-preform the competitors in the simulated market.

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