Work-2

PFA

1.

Strategic Planning & Policy week 2 Discussion 2 PAGE APA format References need to be added: Wk 2 Discussion 1: The Role of the SWOT Analysis

Your initial response to the discussion question should be 250-300 words. Your initial post must incorporate the concepts we are covering this week that relate to our discussion and have our text and at least one scholarly/peer reviewed APA citation with in-text citations incorporated into the body of the post. Please respond to at least two peers on different days of the week from each other and from your initial post, in approximately 150-200 words. Provide response citations as appropriate.

There are several examples of the SWOT analysis online (use any search engine to find them by searching for “SWOT analysis”). Find one that is used within the automobile industry and provide the URL where it can be found online or attach it to your post. Then, in the body of your post, comment on how well you think the analysis distinguishes internal from external factors. What do you see as the importance of the SWOT analysis you have shared for a strategic planning process that this organization might undertake?

Textbook:

Thompson Jr. A. A, Peteraf, M. A., Gamble, J. E., and Strickland III, A. J. (2022).
Crafting & Executing Strategy: The Quest for Competitive Advantage: Concepts and Cases. 23rd Edition. McGraw-Hill. ISBN: 978-1-260-73517-8

2.
Strategic Planning & Policy week 2 Discussion 2 PAGE APA format References need to be added: Wk 2 Discussion 2: An Organization’s External Environment (PESTEL)

Consider your own organization or the organization you will form within your StratSim exercises. Using our coursework for the week and your own research, what are the strategically relevant factors in this macro-environment? Our text refers to this as a PESTEL analysis. What strategic moves are rivals likely to make? What factors are driving change in this industry? What cooperative forces are present in the industry and how can the company harness them to its advantage? Keeping in mind the role that interpreting environmental factors will play in analyzing a case, what do you see as the most important external data you would want this organization to have in any strategic planning process, and why?

StratSimManagement
The Strategic Management Simulation

Michael Deighan, Interpretive Simulations
Stuart W. James, Interpretive Simulations

Charlottesville, Virginia, USA

This manual and the simulation described in it are copyrighted with all rights reserved by
Interpretive Software, Inc. Under the copyright laws, neither this manual nor the software may
be copied, in whole or in part, without written consent of the authors, except in the normal use
of the simulation for educational purposes, and then only by those with a valid license for use.
The same proprietary and copyright notices must be affixed to any permitted copies as were
affixed to the original. This exception does not allow copies to be made for others, whether or
not sold. Under the law, copying includes translating into another language or format.

Purchasing the simulation experience gives the owner the right to participate in a unique learning
event. Each student or participant must purchase the simulation to take part in the event or the
institution sponsoring the event must purchase for the entire group participating in the event.

Limited Warranty on Media and Manuals
In no event, will Interpretive Software, Inc. be liable for direct, indirect, special, incidental, or
consequential damages resulting from any defect in the software or its documentation, even if
advised of the possibility of such damages. In particular, the authors shall have no liability for any
programs or data stored in or used with the computer products, including the cost of recovering
such programs or data.

This simulation experience is sold, “as is,” and you, the purchaser, are assuming the entire risk as
to its quality and performance. The warranty and remedies set forth above are exclusive and in
lieu of all other, oral or written, express or implied.

For more information about other products from Interpretive Software, please contact:

Interpretive Simulations
1421 Sachem Place, Suite 2
Charlottesville, VA 2290

Phone: (434) 979-0245
Fax: (434) 979-2454
Website: http://www.interpretive.com

Discover a Better Way to Learn. Active Learning through Business Simulations.

All rights reserved. Printed in the United States of America. No part of this book may be used or reproduced in any manner
whatsoever without written permission of Interpretive Software, Inc. Cover image © BigStock. Incident images, audio, and video
© iStockPhoto, GettyImages, and BigStock. Graphic images used in manuals © BigStock and iStockPhoto.

Interpretive Simulations: Real-World Business Simulations for Engaging Learning

iii

Contents

Introduction

1
StratSimManagment Quick Start Guide 3
StratSimManagement Manual 4

StratSimManagement Case

5
Industry Overview 6
Vehicle Attributes 7
Vehicle Classes 8
Consumer Segments 10
Consumer Purchase Process 11
Firm Decisions 12
Company Reports 19
Industry Reports and Tools 21
Next Steps 22
Summary of Decisions 23
Product Class Examples 24
Segment Descriptions 29

Managing for Success in StratSim

Fundamentals of Strategy 33
The Profit Equation 36
Monitoring Performance and Pro-Forma 44
Long-Term Planning in StratSim 45
Timelines 45

Operations Guide

Simulation Navigation 54
Introduction 57
Company 57
Market 64
Competition 73
Tools 81
Decisions 88

Appendix

115
Glossary

116

Index

118

Print Date June 17, 2021

Acknowledgements

We have always considered our customers to be the most important part of our product development
team, and we are fortunate that they put their time and effort into improving our products through their
feedback and experiences. We will continue to incorporate suggested improvements into up-coming
releases of this product, and welcome your comments and suggestions.

There are many people to thank for their assistance on this project and we would like to single out a few
who significantly contributed to the content of this product over the years. In particular, Interpretive
would like to thank Tom Kinnear from the University of Michigan, who provided a great deal of guidance
and feedback with regard to original content of the project and later joined us as coauthor. In addition,
the original B2B module design was derived in part from a customized project with Volkswagen, where
we collaborated with James Thorne of Market Focus and Doug Dean of Volkswagen.

The most recent release of the browser-based version of StratSim was a team effort over several years
and we especially would like to thank the development and support group at Interpretive: Clayton
Shumate, Patrick Neeley, Anne Louque, Caleb Sancken, Matt Travis, Tim Sams, Andrew Roy, and Holly
Miller.

Prior to this latest release, we have been fortunate to have many people provide feedback and advice to
help StratSim get to where it is today. At Interpretive, Erin Simpson, Tony Naidu, Payton James-Amberg,
Susan Christmas, Marjorie Adams, Gabriel Buddenbrock, Mary Deighan, Bill Luers, and Laura Simroth all
contributed their talents and experience along the way. Faculty users have been the source of countless
suggested improvements and StratSim is a significantly stronger product because of their thoughtful
insights. In particular, we’d like to thank Paul Arsenault, Torsten Ringberg, Glenn Christensen, Christine
Moorman, Marian Moore, Ron Wilcox, Paul Farris, Jeff Lefebvre, Larry Feick, Marty Roth, Robert Dooley,
Marc Filion, Ujwal Kayande, Rick Leininger, Sam Certo, Sunil Gupta, Gerald Fryxell, and Juan Antonio
Fernandez.

The section on Market-Based Management in the manual has benefited from interactions with many
outstanding faculty colleagues at the Ross School of Business at the University of Michigan, and those
participating in executive programs at General Electric, Kodak, CIM, and many more organizations. We
especially want to recognize Gene Anderson, George Day, Chris Puto, Adrian Ryans, and Jim Taylor. This
section has also been formed from discussions with literally thousands of senior corporate executive
participating in executive education program over many years. We are grateful for the contributions they
all have made to the development of this material.

Finally, we would be remiss if we failed to thank all the students and executives who have experienced
StratSim in one form or another over the years. In particular, we appreciate the executives in programs at
Volkswagen, Michigan EP, and McKinsey & Company. We’ve also been fortunate to have some extremely
competitive and insightful students put StratSim through the wringer. The students in the Michigan EMBA,
and Darden MBA and Executive programs are always extremely thorough in their analysis and some of
their questions have led to improvements introduced in this version.

We look forward to hearing your comments and suggestions on our latest release and best wishes for a
great experience with StratSimManagement.

Stu James
Mike Deighan

Introduction

STRATSIMMANAGEMENT

StratSimManagement is an integrated strategy simulation game
based on the automobile industry. Needless to say, much of the
complexity of the industry has been simplified to allow
participants to focus their time and energy on strategic issues.
However, we’ve retained as much realism as possible to make it
easier to quickly understand the overall environment.

StratSimManagement addresses the following issues:

• Developing a business definition and implementing a profitable long-term business
strategy

• Identifying market opportunities and creating product offerings to satisfy them
• Analyzing competitors and understanding their strategic intent
• Developing the corporate infrastructure necessary to sustain growth
• Allocating scarce resources among products, functions, and other investment alternatives
• Exploring international market and sourcing opportunities (optional module)

In the simulation, you will be making decisions as part of a
management team and competing directly against other teams.
For up to 10 simulated years, you will make decisions in product
research and development, vehicle pricing, advertising and
promotion, distribution, manufacturing and finance. In
addition, you may have to respond to issues raised by
“incidents” (mini-cases), and complete supplemental
assignments chosen by your instructor. By working together with
your team in each of these areas, you will learn much about
developing and executing a strategic plan.

You will need to understand your business in order to create a
plan and make good decisions. Take time to familiarize yourself
with the case before beginning the simulation. While working
through your decisions, you will find it helpful to refer to the
manual for information and management tips.

To get the most out of the StratSim experience, we recommend
the approach outlined on the following page.

StratSim gives you a
“hands on” experience
with strategy in a
dynamic setting.

You compete against
your peers in a StratSim
industry for up to 10
simulated years.

As you make your
decisions and evaluate
results, you will gain
experience with
strategic management.

StratSimManagment Quick Start Guide

PERIOD DECISIONS
• Marketing decisions
• Distribution decisions
• Manufacturing decisions
• R&D decisions
• Finance decisions

SIM ADVANCES
• Check Schedule for times
• Complete Decisions BEFORE Deadline

SIMULATION ENDS
• Evaluate team performance
• Review what you have learned

STARTUP DECISION
• Access simulation from course website
• Watch introductory video
• Enter first period decisions

READ THE CASE
• Industry background
• Company starting situation

Your instructor may require additional assignments during the simulation.
Check the schedule and messages on your course website for details.

DECISION ANALYSIS
• Tools
• Timeline
• Pro-forma

EVALUATE RESULTS
• Company reports
• Environment
• Competitive reports

StratSimManagement Manual

The remainder of this manual is divided into sections described below. Understanding and
success in StratSim will be greatly enhanced by reading this manual before you begin the
simulation. The sections listed below will answer most of the questions students typically have
during the simulation experience, and reading them has the added benefit of improving your
competitiveness. Finally, the operations guide and StratSim case are also available on-line in the
simulation software.

Section 1: StratSim Case presents the StratSim industry in a form similar to a business school
case. It also serves as an introduction to the situation when starting the simulation. Following the
case are examples of the various product classes and segment descriptions.

Section 2: Managing for Success provides a basic framework for how to create a strategy and
introduces several approaches to keeping your company on track during the simulation. The
section also provides a number of helpful hints on how to improve your performance.

Section 3: StratSim Operations Guide provides guidance on how to use StratSim, including a
detailed description of each menu option.

Appendix: This section contains several appendices that provide you with information on how
to export data to a spreadsheet, a glossary, and an index.

StratSimManagement
Case

STRATSIMMANAGEMENT

Congratulations on your recent appointment to manage one of the firms in StratSim. Though
your primary objective will of course be to learn, you will also be setting other goals and
objectives for your firm. Those may be to become the market leader, or perhaps to maximize
shareholder return, or possibly to generate the most net income over the course of the game.
Selecting objectives is up to your instructor and your group. However, you will find that the
firms who do best in StratSim have a market-oriented strategy and execute it better than their
competitors. This is far easier to say than to achieve. That is the challenge faced by all
marketing managers and executives.

The case provides background information on the industry in which you will be competing. The
data that appear in this case may not match your particular scenario. Be sure to use the reports
in the simulation for exact numbers.

Industry Overview

Your firm is one of five competitors in the StratSim environment. At the start of the simulation
each firm is in a unique starting position, with three vehicles targeting different market segments.
All revenues are generated through sales of cars and trucks to automobile dealers, who sell to
consumers in the StratSim world. Additional revenues may be possible through business-to-
business sales as the simulation progresses. Industry sales in the most recent year were 4.4
million units, and some growth is expected in the next year. An overview of the five firms and
the vehicles they manufacture at the start of the simulation is provided in Exhibit 1.1 below. Note
that the first letter of each vehicle matches the first letter of its manufacturer for easy
identification.

Exhibit 1.1: Company Overview

Firm Name Vehicles
Sales

(000s units)
Sales

(billions)
Income

(billions)
(A) Amazing Cars Alec, Alfa, Awesome, 1,278 $21.9 $1.3
(B) Best Motor Works Beaut, Boffo, Buzzy 374 $11.7 $1.2
(C) Cool Cars Cafav, Camini, Climax 482 $13.3 $1.2
(D) Driven Motor Co. Defy, Delite, Detonka 1,128 $20.0 $1.3
(E) Efficient Motors Efizz, Estruck, Euro 1,099 $21.3 $1.3

Vehicle Attributes

Vehicles have attributes that can be measured and compared. In StratSim, these include price,
as well as size, performance, interior, styling, safety, and quality. Each attribute has a range of
values based on what can feasibly be designed and built by a firm. The interior, styling, safety,
and quality attributes (ISSQ) have a maximum value dependent upon the firm’s technology

capability

in that area. Currently, the maximum values are somewhere between 3 and 8,
depending on the firm and the attribute. Vehicles with higher attributes in these four dimensions
are more appealing to customers, all other things being equal. Customers may find a particular
attribute more important (i.e. consider it a “hot button”), depending on their needs and
preferences. In evaluating vehicles, customers weigh the ISSQ attributes against the price of the
product, while also considering the size and engine performance of the vehicle. Exhibit 1.2
summarizes vehicle attributes and the range of values associated with each.

Exhibit 1.2: Vehicle Attribute Descriptions

The current vehicle attributes and manufacturer’s suggested retail price (MSRP) are summarized
in Exhibit 1.3, ordered by vehicle class.

Attribute Description Range of Values

Price
Manufacturer’s Suggested Retail Price (MSRP). Actual (retail)
selling price to customer will vary from MSRP.

Generally ranges
from $10,000–

$50,000

Size
Length and width of vehicle, which includes passenger and
cargo space. Size is measured on a scale of 1–100.

1–100
(smallest to largest)

Performance Measured by engine horsepower (HP).
50–300 HP
(low to high

performance)

Interior
Comfort, visibility, instrumentation, music systems,
ergonomics.

1 to maximum firm

capability

Styling General curb appeal, styling, handling, finish / workmanship.
1 to maximum firm

capability

Safety Structural design, braking systems, safety features.
1 to maximum firm

capability

Quality Overall reliability, durability, consistency of products.
1 to maximum firm

capability

Exhibit 1.3: Vehicle Attributes/Characteristics by Class and Name

CLASS NAME MSRP SIZE HORSEPOWER INTERIOR STYLING SAFETY QUALITY

Economy
Alec $ 15,351 14 135 2 1 3 2
Delite $ 11,293 5 85 1 1 1 1

Family

Alfa $ 24,084 28 165 2 1 3 2
Boffo $ 35,003 49 200 4 3 2 2
Cafav $ 31,361 49 165 4 2 2 2
Defy $ 25,922 43 165 2 1 3 2
Efizz $ 18,869 35 140 1 1 2 1

Luxury
Beaut $ 38,385 62 240 2 4 2 2
Climax $ 45,997 74 240 4 2 2 2

Minivan Camini $ 24,144 82 200 2 1 2 1
Sports Buzzy $ 34,652 54 190 3 3 2 3

Truck
Detonka $ 19,572 66 185 1 1 1 1
Estruck $ 21,843 75 280 1 1 1 2

Utility
Awesome $ 21,149 40 220 1 1 1 1
Euro $ 26,528 59 200 1 3 1 1

Vehicle Classes

The industry has historically been broken into seven vehicle classes — Economy (E), Family (F),
Luxury (L), Sports (S), Minivan (M), Truck (T), and Utility (U). However, one new class offers future
potential if developed and marketed well – the AEV (A) vehicle, which is a new breakthrough in
drive technology. Each of these classes represents a unique configuration that requires a
significant expenditure in R&D to develop. Exhibit 1.4 provides a brief description of each class
of vehicle, along with typical ranges for price, size, and engine at the beginning of the simulation.
The product class examples following the case provide a detailed description of each vehicle
class, along with a sample picture.

See Exhibit 1.4 on the following page.

Exhibit 1.4: Vehicle Classes

Vehicle
Class

Description
Expected

Price
Typical

Size
Typical
Engine

Sales
(000s
units)

Vehicles
(with share of

class)

Economy
(E)

Small, basic car that
is inexpensive to
buy and operate.

Under
$20,000

1–30
Under
150 hp

872
Alec (68%)
Delite (32%)

Family (F)

Mid-sized car for
reliable, safe
transportation at a
reasonable price.

$15,000 to
$38,000

30–65
120–200

hp
1,457

Alfa (24%)
Boffo (6%)
Cafav (10%)
Defy (33%)
Efizz (27%)

Luxury (L)

High-end vehicle
with top of the line
features and
performance.

Above
$35,000

45–75
Over 150

hp
273

Beaut (53%)
Climax (47%)

Sports (S)

Cars emphasizing
performance and
style. Size and price
range widely, but
all are fun to drive.

$14,000 to
over $35,000

15–60
Over 150

hp
144 Buzzy (100%)

AEV (A)

Alternative-energy-
drive vehicles use
new drive
technology that is
energy efficient and
low polluting.

Above
$20,000

1–50
70–150

hp
0

No vehicles
introduced.

Minivan
(M)

Family-oriented
vehicles with lots of
passenger and
storage room.

$18,000 to
$35,000

50–

100

120–240

hp
214 Camini (100%)

Utility (U)
Classified as a truck,
but more passenger
room and style.

$17,000 to
$40,000

30–90
Over 150

hp
710

Awesome
(47%)
Euro (53%)

Truck (T)

Traditionally
working vehicles,
trucks are finding
broader appeal as
second vehicles and
alternatives to sport
cars.

$15,000 to
$35,000

30–90
Over 150

hp
690

Detonka (53%)
Estruck (47%)

Consumer Segments

There are two broad approaches to analyzing the StratSim market — by vehicle class and
consumer segment. Each approach offers advantages, and both should be considered. There are
five consumer segments in StratSim, numbered 1 through 5. Some consumers have a strong
preference for a particular vehicle class. For others, there are two or more vehicle classes that
would meet their needs. However, it should be noted that if a consumer finds another vehicle
class that provides a better solution to their needs and budget, they might purchase that other
vehicle class instead.

Exhibit 1.5 provides an overview of each consumer segment. More detailed descriptions are
provided in the section following the case.

Exhibit 1.5: Consumer Market Segments

Segment Description
Sales
(000s

Units)*

Preferred Vehicle
Class**

(1) Value Seekers

Value seekers have basic transportation needs,
using their vehicle for commuting or as an all-
purpose vehicle. Quality and safety are
important to these price sensitive buyers.

768
Economy and
Truck

(2) Families

Families have somewhat basic transportation
needs, but require flexible vehicles with both
people and cargo-carrying capabilities. Safety
and quality are most important to these fairly
price sensitive buyers.

1,724
Economy, Family
and Minivan

(3) Singles

The singles market is young, and tends to spend
a fairly high percentage of disposable income on
their vehicles. Singles look for vehicles that are
fun to drive. Styling and performance are
important to this segment.

865
Sports, Truck, and
Utility

(4) High Income

This segment includes families, professionals, or
retirees. With high disposable income, they are
willing to spend more for extra features. Interior,
styling, and safety are important attributes.

381
Family, Luxury,
Sports and
Minivan

(5) Enterprisers

Enterprisers see their vehicle as an extension of
their business and personal aspirations. They
use their vehicles for business and also to
impress. Styling and performance are important.

621
Utility, Luxury and
AEV

*NOTE: Segment unit sales shown are per firm at startup. Actual market size varies with number of firms, and will
change over time based on underlying market conditions and competitive dynamics.

**NOTE: Vehicle classes are listed in order of preference within the segment.

Promotion

Training/Support

Vehicle

Dealer
Invoice

Vehicle

Selling Price

Advertising Promotion

MSRP

Manufacturer Dealer

The needs of some consumer segments are not being met by the current selection of vehicles on
the market. Customers may be looking for a new vehicle class, such as an AEV, or a significantly
different configuration of an existing vehicle class. Firms must evaluate consumer needs and
competitors’ products to identify opportunities in the market. If a firm introduces a new vehicle
that satisfies these unmet needs, it may stimulate demand in the marketplace.

Consumer Purchase Process

What vehicle a consumer will ultimately purchase reflects a complex decision making process.

Consumers

typically start out looking for a specific kind of vehicle in the right price range, though
they may consider a couple of different kinds of vehicles. For example, a family buyer might
consider both a minivan and a family class sedan in the $25,000-$30,000 price range. When
consumers find a vehicle of the right type, they will then take a close look at the attributes of the
vehicle. Of course, the overall appeal of the vehicle is weighed against the price the customer
will ultimately pay. This trade-off between price and appeal is what creates value in the mind of
the buyer. Each consumer has different needs and also places a different importance on each
need. Some attributes may be very important to the consumer (“hot buttons”) while others are
less important. In some cases, consumers may want more of an attribute, while in other cases,
they may have a particular ideal in mind. Their decision will also be impacted by their knowledge
of the vehicle (awareness), experience at the dealership (dealer rating, dealer coverage), and
special promotional offers and activities.

The diagram in exhibit 1.6 illustrates the consumer purchase process for cars and trucks in
StratSim.

Exhibit 1.6: Vehicle Purchase Process

Consumers

Firm Decisions

Each period firms must make a number of decisions in StratSim. Your team will need to allocate
marketing expenditures for the corporation and products, maintain and grow your dealership
network, and set the production schedule. In addition, you must decide what technologies to
invest in, products to develop, whether to expand plant capacity, and ensure you have sufficient
resources to accomplish your goals. This section describes in more detail each of the decision
areas.

Marketing

In StratSim you will have to make marketing decisions for the corporation as a whole and for each
product. To make your marketing effective, you must first identify the kind of company you want
to be, then use advertising, promotion, and pricing decisions to project the appropriate corporate
image and generate interest in your products.

Corporate advertising budgets are set on a regional basis. These funds are spent on generating a
corporate identity in support of the dealer network in the regions. A public relations budget is
also set to support publicity events for the firm, corporate, and investor relations. Finally, direct
marketing can be used to generate interest within a particular target segment.

Product advertising plays an important role in establishing vehicle awareness and shaping
consumers’ perceptions of products. In the StratSim world, managers are responsible for setting
an advertising budget and an advertising theme. The majority of the budget is spent on media
buys, with the remainder on the creative input and theme. The theme emphasizes one of the
primary characteristics of the vehicle—performance, interior, styling, safety, or quality. Product
managers attempt to match the advertising theme with the “hot buttons” of their target
customer.

Promotional budgets are set at the product level and include special incentive programs and
general promotional activities. The purpose of special incentive programs is to move product
during slower periods of demand. Examples of incentives include consumer rebates, below
market financing, and dealer-oriented sales incentives. Examples of general promotional
activities include funds for brochures, advertising in support of incentive programs, mailings,
trade shows, and motivational contests.

Vehicle pricing and costing is complex and requires careful attention to detail. Depending on the
context, price can have several meanings. The manufacturer sets the vehicle MSRP
(Manufacturer’s Suggested Retail Price). This is the price that is posted in the window of the
vehicle, but is rarely the price that the customer actually pays. Average retail price is the average
of all the actual prices that customers pay. This price includes dealer mark-ups, promotional
discounts, haggling with the dealer, etc. The dealer invoice is what the dealer pays for the vehicle

and is the monetary value your firm receives as revenues. Finally, the manufacturing cost for the
vehicle is the cost associated with production of the vehicle. The dealer invoice less the unit cost
is the per unit margin the manufacturer receives for each sale.

Choosing the best marketing mix for a vehicle is a difficult task. Test markets allow marketers to
try different combinations of price, advertising, and promotion to determine their effects on sales
and profitability. In StratSim, test markets can be used with vehicles that have existing sales. A
test market condition is created in a particular city where levels of price, advertising, and
promotion are adjusted from your national levels and the change in the sales in that market is
measured. By extrapolating this change to national levels, a marketing manager can make better
judgments on how much to adjust the marketing mix variables for the coming year.

Dealer Distribution

While the purpose of advertising and promotion is to generate interest, create an image, and
communicate information about the vehicle, it is the automobile dealership that actually makes
the sale and provides follow-up services. In StratSim, each firm has a captive dealership
distribution structure organized on a regional basis. Each period firms must decide how many
dealerships to open or close in each region as well as allocate funds for training and support. You
may grow or shrink your dealership network by up to 10% of the total dealers in a single period.
Below is a table of the dealership network for each firm at the start of the simulation.

Exhibit 1.7: Dealers by Region

Firm
Number of Dealers

North South East West Total

A 120 120 120 120 480
B 65 75 65 75 280
C 80 95 85 90 350
D 70 100 110 120 400
E 100 130 70 80 380

The profitability and success of a dealership depends to a large extent on the popularity of the
manufacturer’s vehicles. However, the number of dealerships also plays a role. In StratSim, this
is referred to as dealer coverage, the number of dealers divided by the number of sales
territories in a region. Having too few dealerships can leave smaller cities and towns uncovered.
On the other hand, if coverage in a region exceeds 100%, sales can be spread too thinly across
dealerships and lead to overly competitive pricing within the region. Management often looks
to the sales, gross profit per dealer, and coverage as indicators of the proper balance. Dealer
ratings can also provide insight into the success of dealerships. A strong dealer gross is expected
to translate into a successful dealership, but training, support, and service revenues all
contribute as well.

Manufacturing

Having good products, effective marketing, and a strong dealership network are all essential to
creating demand for your products, but you must also produce enough vehicles to meet demand.
In the short term, managers have to decide how to use plant capacity to produce the best mix of
vehicles. Longer term, the firm must increase capacity to produce new vehicles and adjust to
changing demand for existing vehicles.

Capacity for each firm is fixed for a given year. However, changes of up to 50% of your current
capacity may be initiated at any time. The increase or decrease takes one year to take effect.
Thus, if you build additional capacity this year, next year you will be able to set production levels
based on the new plant capacity. It is important to coordinate capacity increases with the launch
of new products. In StratSim, firms may choose to set production levels above capacity in the
short-run by running extra shifts and paying overtime. An over-capacity charge will be incurred
if capacity utilization is over 100%.

If the international module is enabled, you have the ability to open a plant in one of the foreign
regions and produce vehicles there when the capacity becomes available. Each region has
associated costs and benefits. Added costs might include shipping and tariffs, while the benefit
may be lower cost of production. Please note that all production for a particular vehicle must
take place in one location—production cannot be split between plants in different regions.

Production within the constraint of capacity is fairly flexible. Firms must decide on production
volume for each product on the market. When the production level on a line is increased from
the previous period, the capacity now associated with that product is upgraded and retooled.
Retooling also occurs when current or new productive capacity is dedicated to a new product
line. Lower plant maintenance costs are likely when the factory is updated.

Firms may choose to use a flexible production option that increases or decreases production by
up to 10% from the firm’s target production value, depending on demand. If production volume
is insufficient for demand, consumers who are unable to purchase a vehicle at the end of the
period postpone their purchase decision until the beginning of the next year, purchase an
alternative brand, or buy a used vehicle.

Inventory levels should be considered when deciding on production schedules for the coming
year. Too little inventory can mean lost sales, and too much increases costs and puts downward
pressure on dealer margins. A reasonable target for inventory is 30 to 60 days. If a product is
being redesigned or discontinued, the current inventory will be sold in markets outside the
StratSim simulation at 90% of cost, so it is especially important to manage inventory levels when
upgrading a vehicle.

The costs for building plant capacity or retooling investment are recorded as an asset on the plant
and equipment line of the balance sheet. The plant assets are depreciated over ten years and the

expense included in the cost of manufacturing products each period. Cumulative depreciation is
shown below plant and equipment on the balance sheet.

Research and Development

Each firm in the StratSim world has technological capabilities that parallel the vehicle attributes
of interior, styling, safety, and quality (ISSQ). To keep measurement relatively straightforward,
these are rated from 1 to the current maximum (where 1 equals a poor rating on that attribute).
All firms in the industry start with different initial technology ISSQ capabilities. Firms have the
ability to expand their capabilities up to current industry technology limits through investments
in technology capabilities. These investments provide two advantages—first, the ability to
develop cars with enhanced features (e.g. higher ratings); and second, the lowering of costs to
develop a similar set of characteristics. For example, a firm with technology ISSQ capabilities of
8/8/8/8 would be able to produce a 4/4/4/4 car at a lower unit cost than a firm with a technology
profile of 6/6/6/6. The current technology profiles with the maximum limitations are displayed
below.

Exhibit 1.8: Technology Capabilities of Firms

Interior Styling Safety

Quality

Maximum: 9 11 9 11

( A ) Amazing Cars 5 5 4 6
( B ) Best Motor Works 7 8 5 8
( C ) Cool Cars 6 7 5 7
( D ) Driven Motor Co. 4 5 5 6
( E ) Efficient Motors 3 5 3 5

Note that having the capability to build a vehicle with certain attributes is not the same as actually
doing it. So increasing the firm technology capabilities does not automatically increase the
attributes of individual vehicles. To make changes to vehicles using the increased firm technology
capabilities requires starting new development projects, either to upgrade existing vehicles or
develop new ones.

As is the case with the automobile industry, product development in StratSim is expensive, time
consuming, and risky. However, the reward of having the leading vehicle within a product class
is often well worth the investment, and falling behind other vehicles in terms of styling,
performance, and appeal is dangerous. Additionally, new products are needed to take advantage
of opportunities in the market. For every development project, there is also an overall cost for
the development process, an estimated unit cost, and a time to complete.

Each firm has a limited number of product development centers affecting its ability to work on
multiple development projects (upgrades and new products) concurrently. You start with two
centers. Funding new centers increases your ability to develop more products at the same time.

This investment corresponds to hiring more product development engineers and expanding the
R&D facilities, allowing your firm to work on more new vehicles or upgrades at the same time.

Developing a new vehicle starts with a concept created by development engineers based on your
specifications. You can create as many concepts as you want, and there is no cost until you decide
to start development by moving the concept into one of the development centers. Concept
testing is an important step in the new product development process. This is an opportunity for
your firm to get early feedback on your potential product before the costly development cycle
begins. Spending some time up front with customers can save a tremendous amount of resources
down the road. New vehicles in a class in which you already have experience take two years to
develop, while a new class takes three.

Upgrades start with an existing vehicle, and make modifications to the platform to better suit
customer needs. Changes can be made to the ISSQ characteristics as well as the size and
horsepower. The modifications can be major or minor. Minor changes can be completed for the
next period, while major changes are ready in two periods. When an upgraded vehicle is put into
production, any existing inventory will be sold in markets outside the StratSim simulation at a
loss. Thus while a minor upgrade can be deployed quickly, any inventory will be written off
immediately. The extra period required for a major upgrade gives you time to get excess
inventory under control before it is written off.

All projects have an estimated unit cost based on 100,000 units of production (“base cost”), which
depends on the vehicle class and attributes. If actual production is less than 100,000 units, actual
unit costs will be higher than the estimate. If actual production is greater than projected, actual
unit costs will be lower than estimated base cost. In general, unit costs decrease with greater
production volumes due to the experience. You can also initiate a cost reduction upgrade to
reduce the base cost of a vehicle. A cost reduction upgrade makes changes to the vehicle design
and manufacturing process without affecting the attributes.

An overview of the product development paths is illustrated in Exhibit 1.10 on the following page.

Exhibit 1.9: Product Development Timelines

Current Period

Period + 1

Period + 2

Period + 3

Cost Reduction
$100-$200 Million

in current year

Put in Dev. Center
(no changes to specs

allowed)

IN MARKET
Retooling.

Results impacted.
(vehicle costs

reduced, no impact
on sales)

Minor Upgrade
$100-$300 Million

in current year

Put in Dev. Center
Tweak Specs*

Adjust Marketing Mix
Adjust Production

(Inventory disposed)

IN MARKET
Results impacted.
(Including sales,

retooling, inventory
write-off)

Major Upgrade
$250-$750 Million
Spread over 2 Yrs.

Put in Dev. Center
Modify Specs†

Build Add’l Capacity

Project in Dev. Center
Tweak Specs*

Adjust Marketing Mix
Adjust Production
(Inventory disposed)
IN MARKET
Results impacted.
(Including sales,
retooling, inventory
write-off)

New Product
(Existing class)

$250-$1,500 Mill.
Spread over 2 Yrs.

Create Concept
Put in Dev. Center

Name Product

Build Add’l Capacity

Project in Dev. Center
Tweak Specs*

Set Marketing Mix
Set Production

IN MARKET
Results impacted.
(Including sales,

retooling)

New Product
(New class)

$500-$2,500 Mill.
Spread over 3 Yrs.

Create Concept
Put in Dev. Center
Name Product
Project in Dev. Center
Tweak Specs*
Build Add’l Capacity
Project in Dev. Center
Tweak Specs*
Set Marketing Mix
Set Production
IN MARKET
Results impacted.
(Including sales,
retooling)

* Max change for each of the interior, styling, safety, and quality attributes (ISSQ) is 1; HP is 5; and size is 2.
† In the first period of a major upgrade, you’re allowed a max change of 2 for ISSQ, 20 for HP, and 10 for size.

Importing/Exporting

In addition to developing its own vehicles, a firm may choose to import to the domestic region
from firms in the Atlantic and Pacific regions. In this situation there are no development costs,
and vehicles are purchased at a fixed unit price. For example, Firm A might import a truck based
on the Omni80, which is produced by Oceanic, a computer-run firm in the Pacific region. The
product will be marketed under a new name, starting with “A”, such as Ant.

Likewise, a firm may export vehicles to the Atlantic and Pacific regions. If a computer-run firm in
an international region agrees to your pricing, it will buy a fixed number of units, turning around
and selling the vehicles in its home country under its name.

The Atlantic region is known for vehicles with excellent styling and features, while the Pacific
region is known for lower materials and labor costs for production. Although these regions may
bear some resemblance to actual regions, one should carefully analyze the vehicle information
and not rely on perceived similarities with actual countries or regions.

Importing a platform from another firm is something worth considering if a manufacturer lacks
experience in a vehicle class or has limited technological or development capabilities. Importing
may be a short-term measure until R&D is able to design a vehicle internally.

Exporting is a way to increase sales, especially if you see a gap you can fill in an international
market.

A firm cannot have more than four active import and four active export agreements. Please note
that importing and exporting are optional features that your instructor can choose to enable or
disable.

Financing

Financial management in StratSim is essential. In addition to choosing among investments in
technology, manufacturing, and product development, firms must also manage cash flow and
investor expectations.

A firm running low on cash has three options in StratSim: sell stock, issue bonds, or draw on a
revolving line of credit. Selling stock has the benefit of not creating an interest expense or
additional obligations. However, the drawback is dilution of the shares of stock that may lower
the share price at the time of issuance. In StratSim, you specify the amount of capital to raise,
and the appropriate number of shares will be sold at the current stock price in order to reach
your goal. Stock sales are recorded at a par value of $1 per share, with any amount above that
going to additional paid in capital on the balance sheet.

The second option for raising capital is to sell 10-year bonds, callable after three years. The
interest rate on the bonds will reflect current interest rates and the credit rating for the company.
AAA rated bonds offer the lowest investment risk and therefore the lowest interest rate. The
interest rate is fixed for the life of the bonds and interest is paid out automatically each period,
with the principle coming due at maturity (after the simulation is over). When bonds are sold,
the issue amount is added to long-term debt on the balance sheet. After three years, the bonds
can be called. Only one bond issue can be called in a period, the entire issue must be paid off at
once, and there is a one year interest penalty for calling the bonds.

StratSim firms must maintain a minimum amount of cash on hand to sustain operations, about
1% of revenue. If there are not enough funds available, a loan is automatically issued from a
revolving line of credit to make up the difference, adding to short-term debt on the balance
sheet. The interest rate on the line of credit tends to be higher than the rate on bonds, and will

vary with changes in the prime rate and company credit rating. Interest due each period is paid
automatically, but it is up to the finance manager to schedule repayment of the principal.

A firm with a surplus of cash has a number of options. In addition to investing the cash in
expanding the company, it can be used to purchase a one-year certificate of deposit, retire debt,
or distribute as a dividend to shareholders. If management thinks the firm’s stock is undervalued,
it may also be possible to repurchase stock with the extra cash. If stock repurchase is permitted,
the firm is limited to 20% of the current market value of the company.

Company Reports

Financial statements allow you to track company results and make better decisions. Shareholders
and lenders use a firm’s financial statements to evaluate its performance in setting a stock price
and bond rating. In StratSim, firms have access to the income statement and balance sheet of all
their competitors, allowing them to compare their own results against other firms in the industry.
A summary of the financial condition of all the firms in the industry at the beginning of the
simulation is provided in exhibit 1.10.

Exhibit 1.10: Financial Summary

Firm A Firm B Firm C Firm D Firm E
Val Mkt Share 24.8% 13.2% 15.1% 22.7% 24.1%
Unit Share 29.3% 8.6% 11.1% 25.9% 25.2%
Preference 19.3% 27.0% 20.3% 15.1% 18.3%

Sales $21,886 $11,675 $13,310 $20,041 $21,280
COGS $16,847 $7,738 $9,379 $14,926 $16,252
Marketing $378 $379 $376 $377 $384
R&D $1,029 $1,001 $820 $1,223 $1,182
G&A $897 $464 $528 $807 $790
Other $1,471 $869 $980 $1,408 $1,374
Income $1,264 $1,225 $1,228 $1,300 $1,299

Stock Price $48.87 $44.93 $46.17 $47.47 $48.09
Mkt Value $17,838 $10,783 $11,773 $15,902 $17,312
Total Debt $10,539 $3,489 $4,903 $9,444 $8,991

Note: Dollar amounts (except stock price) are in millions.

The Income Statement summarizes revenues and expenses for the company. Revenues in
StratSim consist of vehicle sales to dealers and direct sales to businesses. All costs directly
attributable to the production of the vehicles sold is shown under cost of goods sold (COGS). This
includes both the variable cost of materials and labor, as well as the fixed costs of the plant. The
Cost of Goods Sold detail shows how COGS is calculated. Subtracting COGS from revenue yields

the gross margin on vehicles sold. Low gross margins are a sign that products are priced too low,
or production costs are too high.

Some expenses, such as marketing, research and development, and general administrative
expense, are not directly attributable to production. Marketing expense includes corporate
advertising, product advertising and promotion, and sales force expenses. Research and
development shows the costs associated with product development and technology
improvements. General and administrative expense includes overhead from sales and the
dealership network. Dealership training and the cost of changes in the number of dealerships
are the result of your decisions, but most G&A expenses are not under your direct control.
Income from operations is calculated by subtracting these indirect expenses from gross
margin. Income from operations is a good measure of the health of the company’s core
business. If gross margin is healthy but operating profit is low, that may be due to ineffective
marketing, heavy investment in R&D, or rapid expansion of the dealer network.

Interest income and expense as well as extraordinary items are applied to operating income to
calculate income before tax. A high interest expense relative to income from operations could
be a sign that a firm is having trouble managing its debt. Finally, taxes are deducted, leaving
net income. Net income, less any dividends paid, is added to retained earnings on the balance
sheet each period. If net income is negative, retained earnings will be reduced. There is no
provision for tax loss carry-forward in StratSim.

The Balance Sheet provides a snapshot of the firm’s assets, liabilities, and equity. In StratSim,
assets include cash, receivables, inventory, and plant and equipment less depreciation. The firm
must always keep enough cash on hand to pay current expenses, about 1% of revenues. Cash
does not earn interest, but investing in a one-year CD will make it more productive. Receivables
are the unpaid invoices owed by dealers. Dealers who are struggling will be slower to pay,
resulting in higher receivables as a percent of revenue. Rising inventory may indicate changes in
demand or competitive environment, while inventory that is too low could be resulting in lost
sales. Plant and equipment is the total investment in production facilities through expanded
capacity and line retooling; depreciation on the balance sheet represents the cumulative plant
depreciation expense shown on the income statement.

Liabilities consist of accounts payable, short-term debt and long-term debt. Accounts payable is
the amount owed to suppliers and payroll taxes collected but not yet paid to the government.
Short-term debt in StratSim is the balance on the revolving line of credit, while long-term debt is
the total of bonds issued.

Equity consists of the original value of stock at par, any additional paid in capital, and retained
earnings. Stock is sold at $1 par value per share. Your firm’s initial shares of stock outstanding
were all sold at par value. If stock is issued at a higher price, then the amount over par is shown
in a separate line item as additional paid in capital. Retained earnings show the cumulative net

income from the income statement, less any dividends distributed. Dividends may not be
distributed if you have negative retained earnings.

The Income Statement and Balance Sheet provide an overview of the financial health of the
company. Managers use them to identify potential problems in the business. Correcting
problems will require taking a closer look at additional reports. The Cash Flow statement, along
with the Product Contribution report are internal reports to help management make better
decisions.

The Cash Flow statement shows the sources and uses of the firm’s cash. The changes in the
amount of cash in the firm are calculated based on income from operations adjusted for
depreciation, inventory, payables, and receivables; investment activities such as capacity
increases, plant retooling, and CD investments; and financing activities such as stock or bonds
issued, changes in loan balance, or dividend payments. A healthy company will have positive cash
flow generated by core operations, though a negative cash flow as a result of investment in the
company could be a sign of future growth.

The reports discussed so far give an overview of the results for the entire company. The Product
Contribution report allows managers to identify which products are contributing toward the
success of the company, and which products need improvement in development or marketing.
When calculating product contribution, only revenues generated by the product and direct
variable costs, along with product advertising and promotion are considered. The report is very
helpful in prioritizing development projects and identifying the effectiveness of marketing for
specific products.

Industry Reports and Tools

StratSim provides a number of reports with information on the market environment and the
competition. Market reports include general news in the industry, market shares by vehicle,
regional analysis, and sales by consumer segment. Competitive reports are available on the
products in the market, technology capabilities of competitors, spending on marketing, dealer
networks, manufacturing capacity and utilization, and a summary of the financial results for each
firm. Analyzing data on the market, customers, and competitors will help managers make better
decisions.

Important! Since everyone on your team is sharing the same decision set, when there are a limited
number of studies that can be run, this total is for your ENTIRE team, not just you as an individual.
So be sure to coordinate purchase of research studies. Once someone on your team purchases a
study or tool, your entire team will have access to the results of that research.

There are a number of tools available in StratSim to help you convert data into knowledge and
to improve your ability to make good decisions. Some tools will help you with product design,
others will help you with resource allocation, and others may offer competitive insights not
available from public secondary sources. The exact tools that will be available to your team will
depend on the configuration of your game. New tools may also be introduced as the game is
advanced, so be aware of changes in availability. Most of these tools will cost money to use, just
as ordering and designing market research studies would in the real world. So you should spend
some time knowing when and where these tools will be of the most value to you.

Next Steps

The task of the management team is to maintain long-term profitability in the context of an
increasingly competitive and changing environment. Customer needs and tastes will evolve.
Competitors will be battling for market share and entering new product classes. Technologies
and cost structures for the firms will change over time.

Every simulated year, each firm will perform a situation analysis, identify problems and
opportunities, and generate alternative options for decisions. Finally, based on careful
consideration, persuasive presentation of competing ideas, and probably some arm-twisting,
your team will come to a consensus as to which set of decision is best and implement them.

Once your firm has a thorough understanding of the StratSim world, one of the first tasks should
be to define a strategy. A successful firm will likely have a strategy that is well thought out and
executed. Creating a sound strategy is the most important process your firm will undertake
because your strategy is the framework for all decision-making and firm organization. The
strategy should be a long-term vision for your firm that every member of your team can reference
when making decisions and analyzing data. Strategy is defining segments served and creating a
sustainable competitive advantage. It is your road map. It is where and how your firm chooses
to compete. It is essential.

Enjoy your tenure as a management team in the StratSim world. It should be an exciting and
challenging learning experience. Good luck and have fun!

Summary of Decisions

Each period your firm will need to make a large number of decisions. The table below provides a
summary of these decisions to help you track them.

Decision Category Firm Decision Product Decision

Marketing

 Corporate Advertising
• By Region
• Themes

 Social Media
 Direct Marketing

• Budget
• Target Segments

 Pricing
• MSRP
• Dealer Discounts

 Advertising
• Budget
• Theme

 Promotion

Distribution
 Dealer Openings / Closings

• By Region
 Training and Support

 Distribute in Market

Manufacturing  Capacity Change  Schedule Production
 Flexible Product On / Off

R&D

 Technology Investment
• Interior
• Styling
• Safety
• Quality

 New Development Center

 Vehicle Upgrade
• Major
• Minor
• Cost Reduction

 New Vehicle
• Create Concept
• Move to Development

Finance

 Sell Stock
 Issue Bonds
 Borrow / Repay Loan
 Purchase CD
 Distribute Dividends

Product Class Examples

The following pages provide a sample picture of a vehicle in each product class in StratSim as well
as a brief description of some of the features one can expect to find in each class. Please note
that the specifications are approximate and meant as a general guide to distinguishing product
classes.

Economy

Economy vehicles typically are small, low priced
cars with less powerful engines. Price in the
early periods is under $20,000. Engine
horsepower is likely to be under 150. Most
economy vehicles will have a hatchback and
sedan model option, and some may also offer a
small wagon. An economy car can usually seat
4 adults, though probably not comfortably. A
child may be able squeeze in the middle of the
back seat in a pinch. Legroom and storage
space are minimal. In StratSim, this
corresponds to a size of approximately 1–30.

Features on an economy car are also likely to be basic in order to keep the costs down. Some
consumers are willing to pay more for these features, but one should be careful not to provide
too many, driving up costs and eroding profitability. It is difficult to make significant money in
the economy segment, though production volumes are significant. Also, for many consumers,
an economy vehicle is their first car purchase, and therefore is an important part of your vehicle
line-up.

Examples of economy vehicles are the Honda Civic, Nissan Sentra, Hyundai Elantra, Kia Forte,

Volkswagen Golf, Toyota Corolla, Toyota Yaris, Fiat Panda, Peugeot 208, and Renault Clio.

Family

Family vehicles are mid-sized, medium priced
cars with mid-range engines. Price in the early
periods is between $15,000–$38,000. Engine
horsepower is likely to be 120–200. Most
family vehicles will have several different
model offerings, and most will have four doors.
A family car can usually seat 5 adults, though
those in the back seat may be a bit cramped.
Legroom and storage space are reasonable. In
StratSim, this corresponds to a size of
approximately 30–65.

Features on a family car are likely to focus on
safety and flexible storage. Customers who are in search of a family vehicle want a reliable, safe
means of transportation for their families at a reasonable cost. This vehicle is likely to be their primary
mode of transportation and should hold up well under the normal wear and tear of everyday family
life. Volumes for this class are significant, so it is important to create a vehicle with wide appeal.
Price and promotional deals have a significant impact on buyers of these vehicles.

Examples of family vehicles are the Toyota Camry, Honda Accord, Nissan Altima, Nissan Sylphy,

Skoda Octavia, and Volkswagen Lavida.
Luxury

Luxury vehicles are high priced cars with top of
the line features and performance. Price is
typically in excess of $35,000. Engine horsepower
is likely to be over 150. Luxury vehicles come in a
wide array of models including sedans, coupes,
and even wagons. A luxury car can usually seat 5
adults comfortably. Legroom and storage space
are ample. In StratSim, this corresponds to a size
of approximately 45–70.

Features on a luxury car are normally numerous.
Interior, styling, safety, and quality are all likely to
be quite high. Customers who are in search of a

luxury vehicle want the best and are willing to pay for it. Though volumes in this class are less, per
vehicle profit margins are high. These vehicles are also often the “flagship” brand for the company
and help create showroom traffic.

Examples of luxury vehicles include various vehicles manufactured by Lexus, BMW, Porsche,

Acura, Mercedes-Benz, and Audi.

Sports

Sports vehicles emphasize performance and
come in a range of prices and sizes. Typically
they appeal to the young and the young at
heart. An economy sports car might be priced
as low as $14,000, whereas a high-end sports
car may well be in excess of $35,000. Engine
horsepower is likely to be over 150. Sports cars
normally are coupes or hatchbacks. Some
sports cars have only two front seats while
others may have small back seats for additional
cramped seating. Legroom in the front is
reasonable, but there is typically little storage
space. In StratSim, this corresponds to a size of
approximately 15–60.

Features on sports cars usually are related to styling and performance. Customers who are in search
of a sports car want to be noticed and are willing to spend a good chunk of their disposable income
to that end. Though volumes in this class are less, per vehicle profit margins are pretty good. These
vehicles are also often high awareness brands for the company and help create showroom traffic.

Examples of sports cars are the Ford Mustang, Dodge Challenger, Chevy Camaro, Chevy Corvette,

Hyundai Veloster, and Porsche 911.

Alternative Energy Vehicle (AEV)

Alternative Energy Vehicles (AEVs) have more to
do with the technology used to power the vehicle
than the style and size of the vehicle. AEVs
encompass a wide range of technologies that
might be used to power the vehicle including
electricity only (rechargeable batteries), fuel cell,
hydrogen, solar, or some combination of these.
Though the technology is more expensive and
somewhat untested, it does lead to significantly
improved energy efficiency and lower pollution.
Power and/or range still remain a challenge.
Expected prices are from $20,000 and up. Engine
horsepower is likely to be 70–150, and size in
StratSim ranges from 0–50 depending upon the
application.

Examples of AEVs are the Tesla 3, Tesla Y, Wuling HongGuang Mini EV, Chevy Bolt, Nissan Leaf,
Renault Zoe, and Hyundai Kona.

Minivan

Minivans are family oriented vehicles that have
lots of passenger and storage room, but drive
more like a car than a truck. These are perfect
for families who need more space than a family
vehicle can offer. Price is typically between
$18,000–$35,000. Engine horsepower is likely
to be 120-240. Most minivans will have several
different model offerings, which mainly vary
seating capacity and cargo area. A minivan can
usually seat 7 adults, possibly more depending
on the seating configuration. Legroom and
storage space are excellent. In StratSim, this
corresponds to a size of approximately 50–100.

Like family vehicles, features on a minivan are likely to focus on safety and flexible storage.
Customers who are in search of a family vehicle want a reliable, safe means of transportation for their
families at a reasonable cost. This vehicle is likely to be their primary mode of transportation and
should hold up well under the normal wear and tear of everyday family life. Price and promotional
deals have a significant impact on buyers of these vehicles.

Examples of minivans include the Dodge Grand Caravan, Chrysler Pacifica, Honda Odyssey,
Toyota Sienna, and Wuling Hongguang.

Utility

Combine the attributes of a truck, minivan, and
sports car, and you get a utility vehicle. Utility
vehicles offer a little bit of fun and utility for those
who need more passenger room than a truck, but
don’t want to have the minivan “family” image.
Price starts at around $17,000 for small utility
vehicles, but fully loaded large ones will sell for
over $40,000. Engine horsepower is likely to
exceed 150. Legroom and storage space are
excellent on larger models, which can also seat 5
adults. In StratSim, sizes of utility vehicles range
from 30–90.

Features on utility vehicles usually are related to
styling and performance. Many of the high-end models come with leather seats and other amenities
normally found in luxury cars. Most customers prefer the 4-wheel drive models.

Examples of utility vehicles include the Toyota RAV4, Honda CR-V, Nissan Rogue, Ford Explorer,
Ford Escape, Jeep Cherokee, Jeep Wrangler, Chevy Equinox, Subaru Forester, Subaru Outback,

Peugeot 2008, and Haval H6.

Truck

At one time, trucks were reserved for farmers
and handymen, but no more. Truck sales
have taken off in recent years thanks to their
broadening appeal as an alternative to sports
cars and a great second vehicle. Truck prices
start at around $12,000 for small ones, but
fully loaded larger trucks will sell for $25,000
or more. Engine horsepower also has a wide
range depending on the size of the truck. Leg
and headroom is ample, and most trucks seat
2 or 3, though some new models are adding
back seats. In StratSim, sizes of trucks
correspond to a range of approximately 30–
90.

Features on trucks usually relate to styling and performance. Four-wheel drive models are very
popular as well. Truck buyers are quite brand-loyal.

Examples of trucks include the Ford F-Series, Chevy Silverado, Ram Pickup, and Toyota
Tacoma.

Segment Descriptions

The following pages provide a brief description of the five consumer segments in StratSim.

Value Seekers (1)

Value Seekers have basic transportation needs. They use their vehicle to commute to work, or
perhaps as a basic all-purpose vehicle. However, they don’t have as much disposable income as
other segments and are, therefore, more price sensitive. Quality and safety are especially
important to these buyers. Vehicle classes that may be of particular interest to value seekers
include economy and truck.

Families (2)

Families have flexible, but somewhat basic transportation needs. They need a combination of
people and cargo-carrying capabilities with perhaps a bit of family fun built in. However, they
don’t have as much disposable income as other segments and are, therefore, somewhat price
sensitive. Safety and quality are especially important to these buyers. Vehicle classes that may
be of particular interest to families include family, economy, and minivan.

Singles (3)

The singles market is young, with more disposable income to spend on transportation and a wide
variety of transportation needs. Styling and performance are most important to this segment.
Vehicle classes that may be of particular interest to singles include sports and truck.

High Income (4)

People with high incomes have more elaborate transportation needs. This segment may be
families, professionals, or retirees. They see their vehicle as an indication of their success in life.
Since they have more disposable income to spend on transportation, they are likely to purchase
vehicles with extra features and good performance. Vehicle classes that may be of particular
interest to the high-income segment include family and luxury.

Enterprisers (5)

Enterprisers see their vehicle as an extension of their business and personal aspirations.
Enterprisers use their vehicles for business transportation and also to impress potential clients.
Their vehicles may be company or privately-owned. Careers such as real estate, investments,
and sales are likely to fall in this category. Vehicle classes that may be of particular interest to
enterprisers are luxury/sports utility, and other high-end vehicles, depending on their business
needs.

Managing for Success
in StratSim

STRATSIMMANAGEMENT

StratSim is designed to be a challenging and realistic learning experience. We hope that you will
enjoy the challenge. The idea behind a simulation is that by striving to improve your performance
in an active way, you will better understand how to operate a business. This section of the
manual will provide you with insights that will help your StratSim team manage a successful
business while making decisions based on ambiguous information in a dynamic environment.

The first goal of StratSim is to allow you to develop, implement, and potentially adjust a strategy
in a dynamic environment over multiple years. What exactly does “dynamic environment” mean
in the context of business? It means that we can expect customers, competition, and macro-
economic conditions to change as time progresses. A good strategy must reflect current realities
while also assessing future paths to success in an ever-changing world.

The second goal of the simulation is to give you experience in strategic planning and making
decisions in an ambiguous environment. You will be leaving behind the comfort of structured
exercises and entering a situation where the road to success is not so clearly defined. Although
a company’s strategy is planned and implemented based on knowledge of the current situation,
a strategy is also based on certain assessments and judgments about the future. Furthermore,
decisions in StratSim are interrelated. Decisions should not be based solely on how one decision
in isolation will impact an outcome, but also take into consideration the context of your other
decisions as well as those of your competitors. How these decisions will interact is difficult to
predict. Remember as the simulation progresses that even if you do not “win” in the simulation,
gaining the experience of wrestling with these difficult decisions in an ambiguous environment is
an important part of the learning process. In fact, many participants of the simulation will say
that their greatest learning occurred when challenges were the greatest.

The third goal of StratSim is to give you experience in making decisions as a group where your
teammates will likely have different opinions about what your company should do. If this is your
first time experiencing a group decision-making process, it requires new skills in addition to
knowledge and judgment that focus on group and managerial processes. How will you organize
your group? How will you make decisions? Consensus? Delegation? Can you come to a shared
vision and mission for your company? Will you embrace your strategy or will you second guess
others if faced with obstacles? Managing people and organizations is indeed a challenge. Your
team should develop a written “charter” that describes the operating process that the team will
use to do analysis, divide labor, and make decisions. Use StratSim as an opportunity to gain
experience in this group process.

Before we jump into analysis for success in StratSim, let’s begin with a quick review of the
fundamentals of strategy, because a team with a well-reasoned strategy has a better chance of
succeeding than a team without one. Then we will discuss some points regarding execution of
strategy in the context of StratSim. These include measures that provide strategic insights and
helpful tips that should improve performance.

Fundamentals of Strategy

A successful strategy is based on two foundations. First is a good understanding of the business
situation, achieved from thorough internal and external analyses. Internal analysis is focused on
knowing the capabilities and resources of your organization. External analysis focuses on the
environment where your company chooses to do business. This will include both industry level
considerations (markets, channels, competition, suppliers, etc.) as well as macro considerations
(political, economic, socio-cultural, technological, environmental, and legal—sometimes referred
to as PESTEL). The goal here is to understand the forces at work that impact your company. One
framework that is often used to organize internal and external insights is SWOT analysis
(Strengths, Weaknesses, Opportunities and Threats).

The second foundation of a strategy is the formulation of a shared mission and vision that the
leadership sets for the company. This defines where and how it chooses to do business and also
provides the directive for setting corporate goals and objectives, and the measures that should
be used to evaluate performance and acceptable outcomes. Mission and vision are also the
primary drivers of corporate culture and organizational structure, and must be chosen with key
stakeholders in mind. Stakeholders are the people and organizations that stand to gain or lose
something based on the success of the organization. Typical stakeholders include owners,
employees, customers, partners, and suppliers.

Internal and External Analysis

Strategy
Shared Vision and Mission

In their 2001 article from the Academy of Management Executive, “Are you sure you have a
strategy?” Donald Hambrick and James Fredrickson provide an excellent framework that defines
five necessary elements of a strategy. The authors propose that an organization defines its
strategy by answering five questions:

• Arenas: Where will we be active?
• Vehicles: How will we get there?
• Differentiators: How will we win in the marketplace?
• Staging: What will be our speed and sequence of moves?
• Economic Logic: How will we obtain our returns?

These questions must be answered in the context of your internal and external analysis and your
organization’s vision and mission. Remember to be specific when addressing these questions.
Establishing well-defined and agreed upon directives will improve your group’s decision-making
process in StratSim, just as having a clearly articulated strategy improves the likelihood of an

organization’s strategy being executed successfully. In the following graphic, these five questions
are expanded and applied to StratSim to help guide your team’s strategic planning process.

The Elements of Strategy Applied to StratSim

The above provides only a brief overview into the process of designing a successful strategy. Your
instructor will likely provide additional resources for you to learn more about strategic planning.
To summarize, make sure your team has the following:

• A good grasp of the business situation through internal and external analysis
• An agreed upon vision and mission for your company
• An established process for group analysis and decision-making

Regardless of the framework used, the objective of strategy is to leverage a firm’s capabilities
and resources in the context of the external environment to create a sustainable competitive
advantage over both the short- and long-term. The remainder of this chapter will be devoted to
helping you improve your performance in StratSim.

Importance of Strategic Assessment and Judgment

The quality of strategic analysis is an essential part of success in StratSim. Be sure to take the
time and effort to fully understand the industry and your firm’s position within that industry. An
example where a team’s strategy could move in a non-optimal direction would be where your
analysis of the industry causes you to believe that your firm is a high-end provider of vehicles
when, in fact, your firm is more of a volume producer. That is different than saying that “although

our company is currently positioned as a volume producer, we want to reposition ourselves as a
high-end provider”. This latter statement at least acknowledges the strategic challenge. Then
the question becomes, how does the company reposition itself and is it viable to do so. A second
example might be concluding that your firm enjoys a cost advantage over its rivals, when, in fact,
the company does not have a true cost advantage where it can produce the same product at a
lower cost. Instead, it has low per unit costs due to poor product specifications (e.g. the design
has poor ISSQ—Interior, Styling, Safety, and Quality). In both of these examples, the decisions
your firm will make will reflect these underlying strategic assessments, which, in the above
examples, were not accurate. Poor assessment will often lead to poor performance. So, it is
worthwhile to take the time to question important assessments to make sure your strategy is
based on accurate information.

Another area to consider is the definition of competitive arena—both how the arena is defined
and where a company chooses to compete. There are several different ways to define the
competitive arena. Should it be vehicle class (e.g. utility, minivan)? Consumer Segment (e.g.
singles, families)? Microsegment (e.g. value seekers buying trucks, utility vehicles for
enterprisers)? Region (e.g. North, South)? Each approach has its merits, but focusing on one
arena definition alone may lead to an incomplete analysis. For example, one can leverage
experience in a vehicle class as it is less expensive and faster to develop another vehicle of the
same class than invest in an entirely new class of vehicle. But that may lead to cannibalization of
the current product line. A second example might be pursuing opportunities in the truck class,
without having thought through how the alignment of dealerships in particular regions factors
into your ultimate success. These are examples of how arena definition needs to support one’s
strategic assessments.

In terms of choice of arena, consider two companies—one which focuses on low-end economical
vehicles, and another that has been making high-end luxury and sports cars. Which do you think
would be more successful launching a high-end sports utility vehicle for $50,000? Would
customers wonder if the low-end company is capable of designing this vehicle? Is this potential
customer also looking for an element of the prestige associated with owning a particular brand
of vehicle? Remember that your company will have a perceived positioning in the marketplace
which should be taken into account when considering alternative strategic options. So, when
you move into new market spaces, remember that it may take more time and money to gain
success in areas that are far from your core experience. It can be done but requires resources
and patience.

Performance Success and Shortfalls

Most of the sources of poor financial performance fall into one of three areas: 1) not having
enough sales to sustain the on-going costs of running the business; 2) failing to understand the
financial structure of your company (e.g. too high product or fixed costs); and 3) failure to have
a long-term plan that takes into consideration the proper staging of actions and investments.
The remainder of this section will help you identify and diagnose sources of common
performance successes and shortfalls.

The Profit Equation

Because long-term profitability is one of the measures of financial performance for your
company, you should understand the drivers of profit. As the graphic below shows, unit sales
multiplied by unit margin less fixed costs equals your company’s profit. Put another way, if your
unit sales multiplied by your unit margin does not cover your fixed costs, your profit will be
negative. So, generally you will find that if your profit is negative, your unit sales are low, your
margin is low, or your fixed costs are high relative to industry standards. This should be straight
forward to business students, but easy to forget as the dynamics of your industry play out.

Unit Sales x Unit Margin – FC = PROFIT

(Market Size x Market Share) x (Selling Price – Variable Cost) – FC = PROFIT

We can further define unit sales as market size multiplied by a company’s share of the market.
We can also further define unit margin as the selling price less the cost of goods sold (COGS). We
will refer to this formula as the profit equation. Therefore, poor profit performance is caused by
some combination of low overall demand, low share, poor margins (the difference between
selling price and COGS), or high fixed costs. Let’s look at each of these factors in more detail for
potential causes of performance successes or shortfalls.

Unit Sales: Market Size

What are some of the factors that influence overall (or segment or microsegment) market size?
Three are presented in graphic below—base or intrinsic demand, current economic conditions,
and the competitor dynamics within the industry.

Unit Sales x Unit Margin – FC

(Market Size x Market Share) x (Selling Price –
Variable

Cost)
– FC

Base Demand

Economic Cycles
Industry Dynamics

Let’s consider some examples of each of these factors. Base demand depends on long-term
trends in population, the environment, or customer preferences. Separate from intrinsic trends
would be the impact of the economic environment on demand. The automobile industry
historically has been extremely cyclical. During recessions, new auto sales almost always slump
as people put off purchasing new vehicles if they are not immediately needed. Also, rising (or

declining) gas prices can negatively (or positively) impact the overall demand for vehicles and
cause a shift in the demand of specific customer groups or for specific vehicle classes. So, one
must consider how changes in the economy and gas prices will impact demand. Finally, how all
the firms compete in particular markets also has an impact on overall demand (or demand within
a segment). If all the firms innovate, advertise, expand distribution, etc., this will generally
stimulate demand overall. Industries where there is less investment in these areas will grow less,
all other things remaining equal.

So how do changes in demand impact profitability? In general, the more a company’s costs are
fixed rather than variable, the more dramatic the impact on profitability will be when demand
falls (or rises). As an example, for a firm with $100M of revenues, if variable costs are running at
60% of revenues ($60M) and fixed costs constitute 30% of revenues ($30M), profit will be 10%
of revenues ($10M). If demand falls by 10% resulting in revenues of $90M, the firm’s profits will
decline to 6% of revenues ($6M or $90-$54-$30). This represents a 40% decline in profit or four
times the magnitude of the sales decline. Had all costs had been fixed ($90M), there would have
been no profit with a 10% sales decline. Generally, if overall demand is down, all firms will see
their profits fall, but weaker firms (firms without a cost or differentiation advantage) will be hurt
the most as their gross margins are typically smaller.

Unit Sales: Market Share

If the size of the market is stable but your share of the market declines, a corresponding drop will
be seen in unit sales. After recognizing that your market share has dropped, analyze changes in
share at the vehicle class or segment level to find the root cause. What caused the drop in market
share in the family class or sales in the high income segment? Was it a new product launch by a
competitor? Did a competitor upgrade a product? Was it due to a change in the marketing mix
by either your firm or one of your competitors—pricing, advertising, or promotion? Was it due
to insufficient production or perhaps a competitor finally increasing their production to meet
demand? If you see that all of your vehicles are losing market share, perhaps the cause was more
at the corporate level, due to distribution or firm preference. Usually problems in these areas
will impact all your product lines more or less equally.

Unit Sales x Unit Margin – FC

(Market Size x Market Share) x (Selling Price – Variable Cost) – FC

Base Demand Product Fit
Economic Cycles Competition
Industry Dynamics Price
Relative Spending
Quality of Spending
Service / Distrib.
Preference

All of these issues are drivers of your market share. What makes it difficult to diagnose is that
there are normally changes in all of these factors each year, which can lead to very reactive
decision-making. Your firm’s strategy is what provides you with the long-term direction as to
how best to alter your tactics as the game progresses. Which target markets should receive our
limited resources? Do our products meet our target customer needs? Which competitors do we
need to understand and monitor most closely? What will be the most effective methods (levers)
to use to drive market share? Utilization of tools to help you better understand the customer
and competition, such as the “test market”, “focus group” and others, is critical for success.

Unit Sales: Forecasting Sales for a Product

Now that we have discussed the drivers of market size and market share, it is a good time to
consider how one might forecast unit sales. Why is this important? In StratSim, you will be asked
to enter a production plan for each vehicle. Though this can be adjusted by up to 10% each year
by selecting the flexible production option, it is important for your production decision to be as
accurate as possible to avoid either stockouts, where there is insufficient production to satisfy
demand, or having unsold inventory, where production plus existing inventory exceeds demand.
A stockout will result in lost sales and presumably, lost contribution. Unsold inventory ties up
cash and runs the risk of becoming obsolete resulting in an inventory write-off if the product is
upgraded or discontinued. Avoiding these conditions should be one of your company’s goals. Of
course, the production level for a vehicle should take into consideration the current level of
inventory available for sales of that brand.

Because the production plan should be based on next period’s expected sales adjusted for
inventory, the key to making an accurate production decision is having a good estimate of sales
for next year. This is not a trivial process and the techniques one would use in StratSim are
different for an existing product than for a new product. For both situations, however, the drivers
of the Market Size x Market Share part of the profit equation are the basis for the forecast. What
varies is the level of uncertainty and the tools one would use.

Forecasting the sales of a new vehicle class requires using a combination of information about
the vehicle class and consumer segments. The first step is to identify the market segment in which
the new vehicle will be competing. Next estimate the number of consumers in the segment that
have a preference for the vehicle class, and project the share of those consumers the firm can
expect to sell to with the new vehicle. Take as an example a firm developing a sports vehicle for
the singles market. The class preferences for the segment include utility, truck, and sports
vehicles (in that order). Based on this information, they might estimate that 25% of those
consumers would prefer a sports vehicle. Further, they project that 50% of those consumers will
buy their new sports car based on the results of their concept tests and the fact that no other
manufacturer is selling a vehicle in the class. If the size of the singles market is 1000 thousand
units, then the sales forecast would be:

sales forecast = 1000 thousand x 25% x 50% = 125 thousand units

For an existing product, there is the big advantage of knowing current sales as a base to start the
process. For purposes of this example, let us state that the product had achieved sales of 100,000
units. The first question to ask is whether or not there were any special circumstances regarding
production levels that impacted these sales. For example, was there a stockout situation either
for this product or one of its direct competitors? Check the manufacturing detail for your
company and the competitors to find this information. Read the message (some shortages:
<10%, significant shortages: 10%-30%, or extreme shortages: >30%) to get an idea of the
magnitude of the production shortfall. If, for example, you saw a message that stated “significant
shortages”, you may want to adjust your base to 120,000 units as an estimate of what you would
have sold had you produced sufficient volume to meet demand. In the same way, if a direct
competitor’s sales were affected by insufficient production, you may want to adjust your base
downward.

The potential impact of upgrades must also be taken into account. Conjoint analysis and concept
tests may be helpful analysis to estimate the potential increase in market share. These analyses
do not take into account any potential competitive product upgrades, however. Remember, as
well, that with a major or minor upgrade, any existing inventory will be liquidated.

Next, consider what decisions you are planning for the marketing mix. The potential impact of
changes in price, advertising, and promotion may be measured using the test market tool to help
you estimate the sensitivity to adjustments in these variables. Of course, this tool assumes that
there are no other changes to either your product or competition.

This brings us to the most difficult assessment you must make—what will the competition do and
how might this affect next period’s market share for the product? The most important issue to
note is whether a new competitor is entering into the same market or vehicle class as the
product. In the industry news report, all new products (new class) entries are announced one
period before the vehicle is sold in the market. This information is important to consider as it
will impact your sales forecast, and perhaps as importantly, create a much greater margin for
error in the forecast. However, upgrades and new products (same class) are not announced in
advance and these will also impact sales. By analyzing historical trends, available development
centers, and competitor past behavior and intent, you may be able to gain some insight as to
what the competitor is likely to do with regard to upgrades.

There are two final considerations when deciding on production volume. First is your assessment
of the risk of losing sales (due to under production) against the cost of holding excess inventory
(due to over production). Some of the factors to take into consideration when weighing lost sales
versus holding costs are the margin on the product, your plans to upgrade the product in the
future and thus obsolete current inventory, and the cost of capital used to build inventory. The
second consideration is the potential cost of retooling. Remember that anytime production is
increased from the previous period, a retooling charge is assessed. Therefore, a steady
production volume over time is preferable to one with significant variation, all things being equal.

Unit Margin

Unit margin is defined as the difference between your selling price (which in StratSim is your
MSRP less your dealer discount) and the unit variable cost or cost of goods sold (COGS). Unit
margin is how much your firm makes on each vehicle sold. In a business where the variable costs
are a high percentage of your selling price, pricing and unit cost savings are especially important.
This is certainly the situation in StratSim where COGS is often between 65-85% of revenues (or
on a per unit basis, of the selling price). Therefore, pay close attention to the impact of pricing
and variable costs on the profitability of your business. Let’s explore these two areas in more
detail.

Unit Margin: Selling Price

Pricing is one of the most critical issues facing a firm. This is because the pricing decision
influences all parts of this performance equation. In the profit equation, pricing affects the
revenue inflow side of the margin (what the firm receives when it sells a product or service). But
the pricing decision also impacts: 1) your market share due to price relative to the competition,
2) overall demand due to general price levels in the market, and 3) COGS due to potential changes
in volume sold (and produced).

Let’s briefly consider how important this margin is. Let’s say your business currently sells a
product for $100 and COGS is approximately 80% or $80. If you decide to reduce your price by
$10 and the COGS remains the same, you have also reduced your margin by $10. On a percentage
basis, however, you have cut your margin by 50% ($20 reduced to $10). This means that unless
unit sales doubles, your profits will decrease. So tactically, at least in the short-term, your firm
should be asking whether a 10% reduction in price will double your sales. Alternatively, consider
a $10 increase in price with the corresponding increase in margin of $10/unit. On a percentage
basis, you have increased your margin by 50% ($20 increased to $30). To maintain or increase
product contribution, your sales can decrease by 33% and be no worse off with regard to
contribution.

Examining the price expectations in consumer segments and utilizing tools such as “focus groups”
and the “test market” can help you evaluate these trade-offs. Basically, these tools are provided
to help you understand the price sensitivity or price elasticity for your target market. So, that is
the tactical nature of the pricing decision, but pricing has far greater strategic implications.

Unit Sales x Unit Margin – FC

(Market Size x Market Share) x (Selling Price – Variable Cost) – FC

Base Demand
Economic Cycles
Industry Dynamics

Product Fit
Competition
Price
Relative Spending
Quality of Spending
Service / Distrib.
Preference

(MSRP – %)
Value

Price Sensitivity
Positioning

Cost position in
industry

Let us consider some of the more strategic aspects to this pricing decision. Most of these have
to do with the dynamic nature of strategy. First, price advantage is often temporary. A
competitor can easily (and quickly) drop (or increase) prices if their cost position is equivalent. Is
this a dynamic that you want to engage in with your competition, or would other ways to
compete be more effective over the long-run? Second, consider the possible impact on the scale
of your business. Is it appropriate to assume that fixed costs will remain the same, or will a price
reduction require new investments in productive capacity? A third strategic consideration is how
you want to position yourself in the marketplace. Is it important to have a consistent message
as being a high-end or value provider? Price points send a message to consumers about what
they might expect from your company and vehicles (just make sure you deliver if you are high
end!)

You may want to frame the question of reducing (or increasing) price as one of many alternative
“investments.” For example, you might estimate that cutting price will cost $50 million in lost
margin. Are there better uses for that investment? Can you instead capture that value, and
reinvest it in either product (or service) enhancements or cost reduction opportunities? Or,
conversely, would your target customers be willing to pay more for product improvements?

The main point is to think carefully about pricing. Consider the impact on your profitability and
the potential for competitors to match the price. Think about consistency across your product
lines with regard to positioning. Always understand the financial implications of your pricing
choices. The pro- forma contribution and pro-forma income statement can be of great value in
trying out different scenarios.

Unit Margin: Cost of Goods Sold (COGS)

The other half of the margin equation is your cost of goods sold (COGS). What impacts these
costs? How can your firm strive to lower the unit cost of a product?

The cost of your vehicle is based on the specifications of the vehicle of size, HP, and ISSQ (which
is an abbreviation for interior, styling, safety and quality), the technology capabilities of your firm,

and the volume produced of that vehicle and vehicles in the same class (experience effects). All
firms in the industry are also impacted by changes in labor and materials costs over time.

Unit Sales x Unit Margin – FC

(Market Size x Market Share) x (Selling Price – Variable Cost) – FC

Base Demand
Economic Cycles
Industry Dynamics
Product Fit
Competition
Price
Relative Spending
Quality of Spending
Service / Distrib.
Preference

(MSRP – %)
Value
Price Sensitivity
Positioning
Cost position in
industry

Size, HP, ISSQ
Upgrades

Technology
Volume

There are several drivers of cost savings in StratSim including learning curve effects, cost savings
through product design, and investments in technology capabilities.

Experience Curve Effects. The experience effect shows that with each doubling of cumulative
volume, there is a fairly consistent percentage decrease in unit costs. In StratSim, there are
experience curve effects present at both the brand level and the class level. Therefore, all things
being equal, a firm that has higher production volume of a particular brand, or of a particular
vehicle class, will enjoy a cost advantage over those products or firms with lower production. For
example, if experience effects of 90% are present, and the unit cost of the 100,000th vehicle is
$10,000, the cost of the 200,000th vehicle produced will be $9,000 ($10,000 x .90).

Savings through Product Design. It is important to recognize that the product design process
has an impact on unit variable costs. Part of this is determined by the specifications of the
product, with higher values increasing the unit costs, all other things being equal. However, one
of the major sources of lowering unit costs is provided through the upgrade process. When a
vehicle is upgraded, along with creating the new product design, the engineers working on the
product also attempt to find ways to lower the cost of the product without sacrificing the value
that the customer perceives in the brand. Your firm can calculate the impact of the cost savings
of an upgrade by choosing a cost reduction project which, by definition, makes no changes to the
specifications, but only lowers costs via other design improvements. Compare the base cost on
the original (“previous”) product design with the upgrade.

Savings through Investment in Technology Capabilities. Finally, a firm may invest in technology
capabilities allowing a firm to create vehicles with higher specifications, while also decreasing
costs on existing vehicles. An estimate of the savings based on your current product portfolio
and projected sales is provided on the “technology capabilities” input screen. More specifically,
a firm with higher capabilities in ISSQ is able to produce an identically specified vehicle at a lower
cost than a firm with lesser capabilities in ISSQ.

It is essential that your firm considers the effectiveness of using these cost savings techniques in
the context of your overall strategy. Cost savings are a net positive whether they improve your
profit margin or are passed on to the customer in hopes of gaining more sales. However,
remember that it is implementation of “smart” cost savings that is ultimately rewarded. Having
the largest production capacity is only an effective cost savings if that capacity is used in
production (and sold). Having a low-cost vehicle is only effective if consumers still want to
purchase it. Thus, the successful manager is always looking for ways to lower cost, but keeps an
eye on whether that cost savings is ultimately rewarded by affecting the bottom line.

Fixed Costs

Fixed costs are costs which do not fluctuate based on units sold, even if those costs are
discretionary. Thus, investments in upgrades, new products, technology capabilities,
development centers, new capacity, distribution, advertising, etc., generally are the same
regardless of the level of unit sales in the market. This is not to say these investments will not
have an impact on unit sales. The firm makes these investments in the aggregate and then unit
sales occur. The amount of fixed cost per unit is just the division of the amount of fixed cost by
the number of units sold.

Unit Sales x Unit Margin – FC

(Market Size x Market Share) x (Selling Price – Variable Cost) – FC

Base Demand
Economic Cycles
Industry Dynamics

Product Fit
Competition
Price
Relative Spending
Quality of Spending
Service / Distrib.
Preference

(MSRP – %)
Value
Price Sensitivity
Positioning
Cost position in
industry

Size, HP, ISSQ
Upgrades
Technology
Volume

R & D
Capacity
Tech Invest.
Distrib.
Adv.
Interest
Tooling etc.

Strategic and tactical questions your group should discuss pertain to which of the fixed cost
investments should be made to positively influence the rest of the profit equation. Should the
focus be on product improvement, corporate infrastructure, technology, cost reduction,
marketing, distribution, etc.? Generally, over the course of the simulation, your firm will likely
invest in all of these areas, but the questions of priorities, direction, and financial benefit must
be reviewed in the context of your overall strategy and objectives. As a group, you will also have
to find the proper balance between short-term and long-term perspectives. Obviously, the best
way to maximize profit in the short-run is to not invest in any long-term projects that have no
immediate impact. The related corollary is also true, that a company that only makes short-term
investments will face long-term challenges. StratSim reflects this need for balance in time
horizons.

The above discussion relates to the strategic nature of alternative fixed investments. However,
there are also important operational elements to manage as well. For example, your firm may
find that fixed expenses are consistently running high and putting pressure on profits. How does
this occur? One fairly common source of trouble is having too large an operation for your level
of sales. To check for this, compare your sales with your capacity. If your sales are less than 70%
of your capacity, you have a large fixed asset that is not productive and only adding to your on-
going costs (depreciation and plant maintenance). If this is an on-going concern, you may want
to consider selling / writing-off some of your plant capacity. Although resulting in a one-period
loss, it may improve overall future performance. You also may want to check your expenditures
on R&D and marketing versus the industry averages. If you are significantly out of line and it is
not part of your strategy, you may want to rethink this level of expenditures.

Typically, firms that are struggling with high fixed costs relative to their total gross margin will
find themselves going into debt. The associated debt interest payments then become another
fixed cost to manage. The cost structure of the firm not only impacts the profit equation but also
the firm’s cash flow. Certain fixed costs that are charged to the fixed cost part of the profit
equation are amortizations of investment in capacity, development centers, etc. The cash
required for these investments is often expended earlier than the full charges to the profits
equation. Thus, the firm will need to be concerned with both the profit and cash flow aspects of
fixed costs.

Your firm will want to try to make sure that it has sufficient funds from operations available early
in the simulation to fund any long-term projects and weather any challenging periods. This may
not be possible and thus the appropriate use of the debt and equity markets to satisfy the firm’s
cash needs may be necessary.

Last, there are some “hidden” costs of doing business that you should try to control. These
include on-going inventory write-offs, high retooling costs and the like. Generally this is due to
poor forecasting, which, as was discussed earlier, is not a simple issue. However, as you gain
experience and make better use of the tools, you’ll find you can improve your ability to manage
these operational issues.

Monitoring Performance and Pro-Forma

The best way to analyze the profit equation during the decision-making process is by using the
pro-forma analysis. The pro-forma reports use your forecasts and the cost of your decisions and
allow you to calculate financial statements based on these assumptions. It is important to
recognize that your forecasts are what drive unit sales in the pro-forma analysis; the simulation
does not forecast sales for you. However, the pro-forma analysis will allow you to test your
assumptions about the profit equation and basically answer the question, “If we make these
decisions and achieve our forecasts, what will be the financial outcome?”

Note: All of the
examples below

are for a
simulation that is
in the 2nd round.
In other words,

teams are
reviewing second

period results
and making
decisions for

period 3.

Once you have made your decisions and the simulation is advanced, compare your estimate of
results from the pro-forma (sales, market share, net income, etc.) with actual results. If there is
a significant difference between the two, you should find out why. Sometimes results will be
better than expected. Other times (and probably more often), results will be less than you hoped.
Use downturns as motivation to better understand your business.

Long-Term Planning in StratSim

In StratSim and strategy in general, decisions often take time to implement and to have an impact
in the marketplace. This section discusses some of the most important timing and staging issues
in StratSim to allow you to plan your timeline accordingly. Some decision impacts are immediate
(that is, a decision made and after the simulation is advanced, it impacts the results) while the
initial impact of other decisions may be delayed for up to two additional advances. In addition,
some decisions have longer-term effects. New products sell for multiple periods; advertising has
both an immediate and long-term effect through building brand equity; investment in
technological capability, development centers, dealer capacity, plant capacity, etc. have longer
term impacts. Finally, remember that costs and cash flows do not always match up with these
effects, so one must also take into consideration availability of funding for various investments.
It is essential that you understand the staging of various decisions for planning purposes. The
graphics below should help you with this staging process. You may also want to review the table
in the case that covers product development. The following graphics also show related issues
that should also be considered (such as disposing of inventory and adjusting production when a
minor upgrade is implemented).

Timelines

Marketing Mix Decision Timeline (Immediate)

Marketing mix decisions (pricing, advertising, promotion) have immediate
impact on results and therefore production should be adjusted based on
the expected impact of the revised decision as shown below.

Capacity Decision Timeline (Capacity Available in the Following Year)

When adding capacity, cash is used to build the additional productive capacity immediately, but
the additional capacity cannot be used until the following decision period. Remember there is a
maximum change of 50% of current capacity in any period. When selling off capacity, the loss
shows up as an extraordinary item after the advance and there is a cash inflow of the sales price
of the plant (50% of book value).

Product Development Decision Timelines (Immediate to 3 years)

For all upgrades and new products shown below, a simple rule to remember is that:

A brand will become available for sale in the last year it is in the development center. On the
development center screen it will show a message such as “launch now”.

Now we will review each of the product development options in more detail.

Minor Upgrade (Launch Now)

Minor upgrades are the fastest way to get product changes into the market. Basically, the same
period you initiate the minor upgrade is the period you also prepare for the upgraded brand’s
introduction into the market for sale. The maximum change for a minor upgrade is 1 on the four
vehicle specifications, 5 on HP, and 2 on size. A minor upgrade is in a development center for one
period. Also remember that any existing inventory will be written off at a cost of approximately
10% and that production must be adjusted immediately upon initiating the minor upgrade.

Major Upgrade (Launch after 1 Advance)

Major upgrades take one period longer than minor upgrades, but also allow you to make more
significant changes to the product. They occupy a development center for two periods rather
than one period as in minor upgrades. The maximum change for a major upgrade in the first year
is 2 on the four vehicle specifications, 20 on HP, and 10 on size. These may be modified in the
second year. Because major upgrades take an extra period, you will be charged half of the total
development cost in the first period of development and the remainder in the second period.
Also note that you may make additional changes to the specifications in the second year of
development and that any existing inventory will be disposed in the second period when the
major upgraded vehicle is offered for sale in the market.

New Product in the Same Class (Launch after 1 Advance)

New product in the same class has the same timing as a major upgrade but without the
complication of potentially disposing of inventory. A development center will be occupied for
two decision periods and the development costs will be divided equally between the two periods.
The one additional consideration here may be adding capacity (if needed—it is not a requirement
if you have sufficient capacity to produce all your product lines). For a new product where you
already have developed a vehicle in the same class, the decision to add capacity should be done
in the same period that you start product development as shown below.

New Product in a New Class (Launch after 2 Advances)

New product in a new class works much the same way as a new product same class, except that
it takes one additional period to complete. In this situation, capacity (if needed) would be added
the period after the product development project is initiated. Also note that a development
center will be occupied for three rounds. So it is important to plan accordingly. Development
costs will be spread equally over the three periods it resides in the development center.

Development Centers (Center available after 1 advance)

If you find the need to add a development center, you must think ahead as it takes one period
before it is available to be used for development projects. However, the cash used to build the
center will be used and expensed immediately. The firm needs to make an assessment as to the
number of development centers that will be needed, when they will be needed, and how to raise
the funds necessary to build them. Only one new development center may be added in a given
period and there is a maximum of five total centers for any firm.

Technology Investments (New Limits available after 1 advance)

Investing in technology works much the same way. It will take one year to increase that
capability. Remember that investing in technology only increases your ability to design a vehicle
with higher specifications. It does not automatically implement those changes to your existing
vehicles. You must explicitly use upgrades to accomplish this. So again, it is important to plan
ahead.

Dealership Decision Timeline

Dealerships also take a year to build. This delay makes sense as it takes time to build new
buildings and hire personnel to expand your channel presence.

Conclusion

To summarize what was covered in this section, here are six key points to review with your group
as you work through the simulation.

• Understand the business situation through internal and external analysis
• Create an agreed upon vision and mission for your company
• Establish a process for group analysis and decision-making
• Use the concept of the profit equation to better understand the dynamics and financial

implications of your alternative decisions
• Use the pro-forma reports to check your sales and financial assumptions
• Make sure part of your long-term planning process takes into account the time required

to complete various strategic decisions

Using this strategic checklist will help your group stay on track strategically and help you avoid
many of the reactive pitfalls that naturally occur as competition intensifies. Best of luck managing
your company!

Operations Guide

STRATSIMMANAGEMENT

This chapter contains the information needed to make the decisions for each period and to
interpret the results found on the reports.

Simulation Navigation

This section gives an overview of the simulation interface.

The header of the simulation interface persists regardless of what page you’re viewing. The
header contains menu categories, the period selector, and four icons: Chat, Decision Alerts,
Decision History, and User Menu. A link to the Showroom is connected to the header. Under the
header, you may find additional options that depend on the page you’re on.

Menu Categories

This is the core of the simulation that gives you the information and tools you will need to analyze
your current position, plan a strategy, and input your decisions. The categories are Introduction,
Company, Market, Competition, Tools, and Decisions.

One of the easiest ways to find out more about an option is just to try it out. However, keep in
mind that you share a common set of decisions and report purchases with team members. Report
purchases cannot be undone, and there are restrictions on the quantity of each report a team

can purchase. On the other hand, decisions can be changed as much as you like until the
simulation advances to the next simulated year.

Period Selector

The period selector lets you choose which year, or period, in the simulation you would like to
view. It defaults to the current year. Changing from the current year allows you to view historical
information. You can only enter decisions in the current year (for the following year). You can
look at the past using the period selector, but it won’t let you change previous periods’ decisions.
Check your simulation schedule to see when the simulation will advance to each year.

Header Icons

Clicking the Chat icon allows you to communicate in real time with your teammates. You can also
view a history of previous conversations here.

The Decision Alerts icon has a badge that shows the number of errors and warnings with your
decisions. Click on the icon to see details of the alerts, which advise you of potential decision
input errors. These timely messages to your firm may warn you of no changes entered in your
product decisions, no launch information entered for new products, unused concepts that have
not been put into development, production of zero units, and no changes in non-product firm
decisions. While some of these may be your intent, it is always worth checking these messages
so you can enter any necessary adjustments to your decisions before the simulation is advanced.

The Decision History icon gives you a full history of who made what decision when. The log also
keeps track of advances, replays, and restarts.

The User Menu gives information about you (e.g., whether you have the leader role), let’s you
change your personal theme, and provides links to pages where you can export and print, en
masse, pages from the simulation.

Showroom

Click on “Showroom” to open a side panel that shows a list of all vehicles firms currently have
and information about the vehicles. The list of vehicles can be filtered by firm and class. Clicking
on a vehicle name expands the side panel to show more information about the vehicle. The
Showroom duplicates information from the Competition / Products report, making it easily
available while you’re making decisions.

Page-Specific Options

Most pages have a help icon. Click the question mark icon to open the operations guide to
information about the page you’re viewing. Most pages will also have a menu of other options.

These options typically include the ability to view the page’s contents in another window, print
the page, and export the page’s data to an Excel file. Decision pages have save and undo buttons.
Team leaders will see padlock icons they can click to lock decisions and purchases of reports.
Locking prevents other team members from making changes. It isn’t necessary to lock decisions.

Data in screenshots may not match your simulation. Also note that demand in a particular market
may change at any time. Costs are not fixed; they may increase or decrease without notice as the
simulation progresses.

Introduction

Introduction
This page helps orient you to the simulation.

Case
Prepare to make your first set of decisions by reading the simulation case, which presents the
simulation’s scenario in a form similar to a business school case. The time you invest in reviewing
the information in the case will help greatly in your decision-making process. Please read it
carefully.

Tour
The tour takes you through the simulation interface element by element and page by page,
offering a brief description of each.

Glossary
The glossary provides a list of important terms (and their definitions) for learning the principles
of strategy and competing in StratSim. The glossary also appears in the appendix of the StratSim
manual.

Accessibility
Here you can enable the Accessibility View, which is helpful, for example, if you can interact with
the simulation interface only with a keyboard or if you are visually impaired.

Company

Dashboard

The DASHBOARD has three parts: the Executive Dashboard, Industry News, and Special Decisions.
The Executive Dashboard summarizes important performance measures for your firm and
indicates the trend and relative rank within your industry for each measure selected. Industry
News is a great place to start the external, or environmental, analysis process as it provides
information on high level events shaping the industry. The Special Decisions section announces
new special decisions and the results of your response to previous special decisions, if any.

Executive Dashboard
You may add performance measures to your Executive Dashboard (and are encouraged to do
so!) based on what you find most important to monitor. Click the Edit button (top-right corner)
to add to or remove previously selected performance measures. A brief explanation of each

Dashboard performance measure is provided below. The first four measures are always shown
in the dashboard. The others are optional and based on your objectives.

Net Income ($)* Net Income after taxes
Cum. Net Income ($)* Total Net Income after taxes generated since the start of simulation
Stock Price ($)* Current stock price (in $)
Total Shareholder Return
(%)*

Annualized return based on the purchase of a firm’s stock at the beginning of
the simulation (included appreciation and dividends paid)

Cash (M$) Cash account balance from the Balance Sheet
Debt (M$) Combined short- and long-term debt outstanding from Balance Sheet
Firm Preference (%) Percent of consumers surveyed that prefer your company

Dealer Rating
Dealer experience on a scale of 1-100 based on a survey of those who visited
dealerships for service or new vehicle purchase.

Capacity Utilization (%) Actual vehicle production divided by firm capacity

Days Inventory
Current estimate of how many days of inventory remain in stock at period end
based on current demand for vehicle and inventory level.

Gross Margin (%) The difference (as % of sales) between sales and cost of goods sold.
Revenue (M$) Sales Revenue for the firm
Value Market Share % Sales Revenue for firm divided by sales revenue for entire industry
Unit Sales (000s) Vehicles sold for the firm
Unit Market Share (%) Vehicles sold for the firm divided by total vehicles sold for industry
Marketing (M$) Expenditures for corporate and brand advertising and promotion
R&D (M$) Expenditures in technology and product development for firm
Market Research (M$) Expenditures in market research and tools for firm
Earnings Per Share ($) Net Income divided by shares of stock outstanding
Shares Outstanding Number of shares of stock outstanding
Return on Sales (%) Net Income divided by sales revenue
Return on Equity (%) Net Income divided by equity
Return on Assets (%) Net Income divided by assets
Debt to Equity Ratio of total debt to equity

Industry News
Industry News highlights significant events that occurred throughout the industry in the previous
period and information about the state of the economy. News items include product launches
and upgrades, planned launches of new products into new classes, new development centers,
drastic changes in stock prices and market share, and other news of general interest. Finally, if
there are any incidents to address in the current decision period, these will be listed here with a
short description.

Less important information is not included in the report, such as minor fluctuations in stock prices
or market share. Links to important information, such as new product attributes, are embedded
in the text. New vehicle class launch plans of your competitors (3 year projects) are announced
in Industry News in the period before the launch, and licensing agreements are shown in the
period vehicles are launched.

Though the Industry News report is rather brief at the beginning of the simulation, you can be
assured this screen gets considerably longer as the game progresses!

Product Contribution

The PRODUCT CONTRIBUTION menu provides financial results at the product level. This report
is particularly beneficial for comparing the profitability of various product lines and provides
insight for pricing decisions from an internal perspective.

Three different analyses are accessible within this report via the tabs at the top: Total, Per Unit,
and Percent. These provide product level insights into pricing and costing factors. However, it
does not include any allocated overhead costs, only variable costs (COGS) and marketing costs
directly attributable to a product.

Total
Provides overall contribution based on total revenues for the product (dealer invoice multiplied
by units sold). Sales made other than through your own dealers (B2B, licensing) will appear in
the “Direct Sales” column. The sum of the “Revenue” and “Direct Sales” columns equals the
“Sales” value from the Income Statement. The cost of goods sold (COGS) and expenditures on
advertising and promotion are then subtracted to calculate the overall contribution of each
product.

Per Unit
In this report, the focus now shifts to product line profitability on a per unit basis, removing the
unit volume from the results. This answers the questions, what are my variable costs per unit,
how much are we spending on advertising and promotion per unit ($budget / volume), and what
is per unit contribution. Not that this report includes direct sales; so this analysis is based on
average revenue and margin over all sales including those to the B2B market.

Percent
The Percent button will now shift the report to a percentage basis which normalizes all values
relative to price. This report calculates the margin percent and contribution percent which are
helpful measures for pricing decisions.

Income Statement

The INCOME STATEMENT shows the firm’s overall results for the most recent year with major
expenditures broken out. Each line item is also displayed as a percent of manufacturer sales (not
retail sales) for year-to-year comparative purposes.

Sales
Sales are recognized at the time of purchase by the customer. The dollar amount
is based on dealer invoice, not retail price or MSRP. Click the link to see the
breakdown by product revenues.

COGS
Cost of goods sold (COGS) is the total manufacturing costs including fixed costs
related to production. Click the link to see COGS details.

Gross Margin
The difference between sales and cost of goods sold. Shareholders often analyze
the gross margin % year to year as one measure of profitability.

Marketing
The sum of corporate advertising, public relations, product advertising, product
promotion, and sales force.

Research &
Development

Research and Development are the costs associated with product development
and technology increases.

General and
Administrative

General and Administrative includes overhead from sales and the dealership
network. Dealership training and the cost of changes in the number of
dealerships are the result of your decisions, but most G&A expenses are not
under your direct control.

Income from
Operations

Results from deducting expenses from gross margin.

Interest Income Interest generated from CDs held.
Interest Expense Interest on long and short-term debt.
Extraordinary
Items

Includes plant and inventory write-offs.

Income before
Tax

Income from Operations less extraordinary items and interest expense.

Less Tax @ 35% Taxes charged at the rate for your industry environment.
Net Income Net Income less taxes.
Dividends Paid The dividends paid to stockholders.

Balance Sheet

The BALANCE SHEET shows the current account balances for assets, liabilities, and shareholder
equity at the most recent year-end. A sample screen is shown below.

Asset Categories

Cash
Current cash balance on the books. See the Cash Flow statement for more detail
on how cash is generated (or used).

1 Year CD Inv. Value of any CDs purchased for the year.
Receivables Outstanding invoices unpaid by dealers.
Inventory Current value of finished inventory.
Plant and
Equip.

Original value of the plant and equipment used in production of the vehicles. This
includes retooling investments.

Depreciation
Accumulated depreciation on assets. Plant, equipment, and retooling costs are
expensed over 10 years using straight-line depreciation.

Liability and Equity Categories
Accts Payable Amount currently owed to vendors.
Short-Term
Debt

Outstanding short-term lines of credit used to fund on-going operations, typically
resulting from underestimating cash needs in the current year.

Long-Term
Debt

Face value of long-term bonds that were issued.

Stock Original value of any stock issued at $1 par value.
Retained
Earnings

Accumulated net income from previous years.

NOTE: Please refer to DECISIONS: Financing in this section of the
manual for more information on debt and stocks.

Cash Flow

The CASH FLOW statement shows the sources and uses of the firm’s cash. Changes in the amount
of cash in the firm can be calculated based on cash flow from operating, investing, and financing
activities. Line items may have different context modifiers as indicated by parenthesis. Using the
Inventory line item as an example, a positive inventory cash flow amount indicates an increase
in cash due to a decrease in inventory, and a negative inventory cash flow amount indicates a
decrease in cash due to an increase in inventory. If a value is in parenthesis, it refers to negative
cash flow (cash out).

Cash Flow from
Operating Activities

Includes Income from Operations plus depreciation and any changes in
inventory, accounts receivable, and accounts payable.

Net Income This figure comes from the Income Statement.
Investment
Activities

Related to manufacturing or cash investments, such as increases in capacity
and retooling costs.

Financing Activities
Include proceeds from short-term loans and bonds or stock issues less
interest and dividends paid (see following page).

Net Increase
(Decrease) in Cash

Total of changes in cash from operating, investing, and financing activities.

Market

Economic Outlook

The ECONOMIC OUTLOOK report provides a very brief overview of the general economic
conditions for the current year, past year, and a forecast for the coming year to help with financial
decisions. Economic strength (based on GDP growth) and low interest rates typically have a
positive impact on car sales. The inflation rate and increases in material and labor costs should
be considered when making pricing decisions. The Prime Rate is the underlying index for most
loans and therefore is the basis of the borrowing rate for firms along with duration and risk. The
Cash Rate is the interest rate paid on 1 year CD investments.

Availability: Always Available | Free | No Restrictions

Dealer Car Sales equals the total sales of economy, family, luxury, sports, and AEV classes. Dealer
Truck Sales equals the sales of minivan, truck, utility, and delivery classes. If enabled, B2B Direct
Sales total will also be shown in this report. Sales by vehicle class can be found in the MARKET:
Vehicle Sales report.

The graph displays data from this report over time. The default graph is a plot of the Economic
Indicators over time, but you may also select Gas Prices or Car, Truck and B2B Sales using the
drop-down list box as shown in the example to the left.

Vehicle Sales

VEHICLE SALES provides more detail on two standard industry categorizations – Region and
Vehicle Class. REGION ANALYSIS provides insights for distribution decisions while CLASS
ANALYSIS will help your firm assess the relative attractiveness of the various vehicle classes.

Availability: Always Available | Free | No Restrictions

Class Description
The CLASS DESCRIPTIONS report provides a graphic of the relative size of the vehicle classes
based on unit sales as well as a description of each vehicle class.

In StratSim, there are multiple vehicle classes as shown in the graphic to the left and other classes
may be developed and introduced as the simulation progresses.

Click the graphic (i.e., the slice of the pie chart associated with Utility vehicles) for description of
the vehicle class as displayed in the example at the left.

Region Analysis
VEHICLE SALES summarizes vehicle sales by class, region, and B2B (if selected). Click a vehicle
class (i.e., Economy) to view details of product unit sales by region and a graph illustrating
product market shares for that class (as shown on previous page). Click on a region (i.e., North)
to view dealerships and sales by firm on a regional basis. Vehicle detail available on a pop-up
basis.

Class Analysis
This report provides a selectable pie chart of unit market share by vehicle class. Clicking on a
piece of the pie (or into the class from the list at right) will provide more detailed information
about the products competing in that vehicle class. Several pull-down graphs are also available
for the selected class.

The link to a vehicle class (such as, Family) provides details of the vehicle class market share and
marketing information. This information includes vehicle sales (in units), share of class, overall
share for the vehicle, MSRP, advertising budget and theme, and promotional budget. It also will
open up some of the graphical analysis tools for this report, which is described in further detail
on the following page.

Clicking a vehicle name link will open a pop-up window with additional product details.

Class Analysis: Graphical Analysis
Associated with the vehicle classes are five analysis graphs: Units Sold, Unit Share, Positioning
Map, Advertising and Promotion. All but the positioning map are fairly straightforward
graphical aids.

The POSITION MAP provides a visual representation of expected Vehicle Size and MSRP ranges
for a particular class, including how vehicles in that class are positioned on these two dimensions.
In the example, the boxed area denotes the expected price and size ranges for the economy class.
The two economy class vehicles, Alec and Delite, are marked A and B and are listed in the legend
in the order of sales. Thus, the sales leader for this class is Alec. Based on this plot, one can say
that Alec is larger and higher priced than the Delite, that the expected price of an economy
vehicle appears to be under $20,000, and that the expected size of an economy vehicle is less
than 35.

Consumer Segments

CONSUMER SEGMENTS brings the consumer into your analysis at a high level. SEGMENT SALES
provides information about relative attractiveness (sales, growth and preferred vehicle class) of
each consumer segment and SEGMENT ANALYSIS provides information about segment
preferences.

Availability: Always Available | Free | No Restrictions

Segment Descriptions
The SEGMENT DESCRIPTIONS report provides a graphic of the relative size of the consumer
segments based on unit sales as well as a description of each segment.

In StratSim, there are five consumer segments labeled 1–5. Within each segment, there are
multiple microsegments with different transportation needs. Demographic and psychographic
characteristics also vary by segment. Click the graphic (i.e., the slice of the pie chart associated
with Families) for description of the segment as displayed in the example at the left.

To learn more about the preference of the various segments, use the SEGMENT ANALYSIS button
as described on the following page.

Segment Analysis
SEGMENT ANALYSIS provides additional information about each segment including the retail
sales, unit sales, and preferred vehicle class. Click a segment link (i.e., Families) for the Preferred
Vehicle Class and Firm Shares reports. The first report provides more preference details based
on the segment’s preferred vehicle class(es), including expected price range, preferred vehicle
size, most important vehicle attribute, and the top selling vehicle. The second report provides
additional detail based on the firm, including retail and unit sales, market share, and top selling
vehicles.

International

INTERNATIONAL compares economic conditions as well as vehicle production and delivery
characteristics for the Domestic, Pacific, and Atlantic regions. This information helps you assess
how attractive a region is for sourcing.

Availability: Instructor selected option | Free | No Restrictions

The quantitative comparisons among the regions update from period to period. All dollar values
in the simulation are in domestic currency. Using the data in the table, you can estimate fixed
and variable costs incurred for production in each region. Click the Pacific or Atlantic table
headings to view qualitative descriptions of the regions; the descriptions don’t change for the
duration of the simulation. Although the regions may bear some resemblance to actual regions,
one should carefully analyze the market information and not rely on perceived similarities with
actual countries or regions.

Competition

Products

The PRODUCTS report provides side-by-side comparisons of the main characteristics of each
vehicle in the market. Each vehicle’s class, price, size, engine, interior, styling, safety and quality
are displayed along with its overall market share. Click a column title link to reorganize the data
by vehicle Name, Class, Units Share, MSRP, or Size.

Availability: Always Available | Free | No Restrictions

View in-depth product details by clicking a vehicle name link (such as Alec or Boffo). The detail
report includes all relevant information on a particular vehicle, including current attributes,
prices, and marketing strategies, along with attributes over time.

Technology

This report displays the current Interior, Styling, Safety, and Quality (ISSQ) technological
capabilities and the development center count for each firm. These values represent the
maximum ISSQ the firm can achieve in the current period using product development. The
current maximum feasible limit for ISSQ for any firm is also shown. The maximum limit may
change over time if new breakthroughs are discovered and represents the highest value any firm
can achieve long-term through investments in technology capabilities.

Availability: Always Available | Free | No Restrictions

This example shows the most appealing product Firm A can create is one with interior of 5, styling
of 5, safety of 4, and quality of 6. All customers find higher values in these areas more appealing
than lower values. Should a firm consider the investment worthwhile, increases in ratings can be
achieved long-term through investments in technology capabilities up to the current maximum
feasible of 9, 11, 9, 11.

For insight into a firm’s possible future vehicle generations, click a firm link (Firm A through Firm
E). These details contain the history of the firm’s investment in technology capability.

Definitions
Interior (I) Flexibility of the cargo space.
Styling (S) General curb appeal, styling, handling, finish.
Safety (S) Structural design, braking systems, safety features.
Quality (Q) Overall reliability, durability, consistency of product.

Marketing Communications

The MARKETING COMMUNICATIONS report summarizes information on marketing expenditures
and firm brand equity as measured by market share and firm preference. Brand Advertising and
Brand Promotion are the total of individual products. Val. Market Share equals firm sales ($)
divided by total industry sales ($) at the manufacturer’s level (not retail). Unit Market Share
equals firm sales (units) divided by industry sales (units). Firm Preference is the measure of
customers that showed an overall preference for doing business with a particular firm based on
vehicles offered, dealership reputation, and other factors. Historical Graphs include
Communications Expense, Unit Share, and Firm Preference all available using the drop-down
box.

Availability: Always Available | Free | No Restrictions

Click a firm name link to display that firm’s marketing expenditures and decisions broken down
by category, and vehicle-specific marketing mix decisions.

To re-display the firm level graphs after viewing details, click the X at the top right corner of the
Marketing Details section.

Click a vehicle name link (e.g. Defy) to display that vehicle’s Product Detail screen which provides
information on key marketing details over time.

Distribution

The DISTRIBUTION report summarizes information about the dealer networks for all firms. These
include current and previous number of dealerships, scheduled openings, spending on dealer
training/support, dealer ratings, and inventory data.

Availability: Always Available | Free | No Restrictions

Historical Graphs include Dealer Rating, Inventory, Dealers, and Dealer Training over time.
Dealer Rating is a customer satisfaction index from a leading market research company and
ranges from 1–100, where 100 corresponds to highest satisfaction. Dealer ratings provide insight
into the success of dealerships based on the customer experience during sales and service visits.

To view a firm’s Distribution Details report which includes dealership performance on a regional
basis, click the firm name link (e.g. Firm A through Firm E). Details include the coverage ratio,

planned openings, sales and support per dealer, dealer ratings, and specific vehicle sales by
region.

Coverage is the number of dealers divided by the number of sales territories in a region. Thus,
coverage of 45% would imply that 45% of the sales territories are served by dealerships in a
particular region.

Gross/Dealer represents the average amount of money (gross) that a dealer has to operate their
business.

Manufacturing

The MANUFACTURING report displays production capacity, actual production, capacity
utilization, sales, and inventory (in 000s and days) for each firm. Comments may also be displayed
including alerts for product shortages, production greater than demand, or demand being greater

than capacity. Graphs including Plant Utilization, Units Sold, Inventory, Production, and
Capacity display data over time for all firms in the industry.

Firm-specific manufacturing details can be viewed by clicking a firm name link. The Details report
provides Production, Sales, Inventory, and Days Inventory for each product line. Days Inventory
is an estimate of the number of days of inventory available at year-end based on yearly sales and
is derived by the formula (365 x units inventory / sales).

In the Comment field, a number of messages may appear including estimates of shortages, sales
exceeding planned production, and if a product is upgraded or new.

Financial Summary

This report provides a comparison of key financial and market performance data for all
competitors, such as market share, firm preference, sales, COGS, income, stock price, and debt
level. Click a Firm name to access all three publicly available financial statements (Income
Statement, Balance Sheet, and Cash Flow described earlier under Results and Decisions).

Mkt Value is the stock price times the number of shares outstanding. Note that each firm has a
different number of shares outstanding at the start (and may issue or buy back shares).

Graphs display historical graphs on key performance data for all firms.

Val Mkt Share Firm sales divided by total industry sales at the manufacturer’s level (not retail).
Unit Share A firm’s vehicle sales in units divided by industry unit sales.

Preference
Firm preference is a measure of customers surveyed who show a decided
preference for a particular firm. This is based on overall vehicle offerings,
dealership reputation, and firm awareness.

Sales ($)
Sales are recognized at the time of purchase by the end customer. The dollar
amount is based on dealer price, not retail price or MSRP.

COGS ($)
Cost of goods sold (COGS) is the total variable manufacturing cost for the product
sold. This is based on the R&D unit cost and the cumulative production.

Marketing
The sum of corporate advertising, public relations, product advertising, product
promotion, and sales force.

R&D
Research and Development are the costs associated with product and
technology development including process improvement costs.

G&A

Other ($) Licensing fees, interest expense, plant and inventory write-offs, and income taxes.
Income ($) Income after taxes.
Stock Price ($) Current per share market value of the firm.

Mkt Value ($)
Stock price times the number of shares outstanding. Each firm has a different
number of shares outstanding and can issue new shares, so this is a better
indicator of the relative value of the company than stock price alone.

Total Debt ($) Combined long and short-term debt.

Tools

Focus Groups ($)

A focus group is typically a gathering of six to ten people with a facilitator designed to learn what
participants think about particular product/service attributes, how they make purchase
decisions, or any other information that may be relevant to the company.

Availability: Instructor selected option | $50,000 each | No restriction on number of studies per
period

Data is organized by customer segment and vehicle class and is summarized from focus group
discussions throughout all regions of the StratSim world. To purchase a report, select the
segment and vehicle class and click on the [Purchase the Selected Reports] button to see the
focus group results as show below.

The STUDY RESULTS show the market share and customer opinions for the top selling vehicles
purchased by the particular segment and class combination during the most recent period. Their
responses provide descriptive measurements about the attractiveness of various vehicles to aid
in R&D and competitive analysis. The columns marked “hot” indicate the most important
attributes for the selected segment.

Sales by Segment ($)

The Vehicle SALES BY SEGMENT tool reports which customer segments are buying a particular
vehicle and how many they are buying. This information identifies those customers most
interested in a particular vehicle.

Availability: Instructor selected option | $25,000 each | Maximum of 10 studies per period

Data for this study is collected through a consumer survey of car buyers and and broken down
by customer segments.

On the initial screen, select one or more vehicles from the list box. Clicking the [Purchase the
Selected Reports] button will charge you for study and display the report, as shown below. Each
column may be sorted by clicking on the column header.

Units are the unit sales to that segment. Percent of Vehicle Sales calculates the sales of a
vehicle to a particular segment relative to all consumer sales of that vehicle (e.g., sales of a
particular vehicle to segment / total sales of that vehicle). The Unit Share of Segment column
calculates the sales of a particular vehicle sales relative to the total purchases by that segment
(e.g., sales of a particular vehicle to a segment / all vehicles purchased by that segment).

Concept Tests ($)

CONCEPT TESTS allow firms to get early feedback on development products in the concept stage
or that are already in development (upgrades and new products). Spending time with customers
early in the process can save a tremendous amount of resources down the road.

Availability: Instructor selected option | $100,000 each | Maximum of 10 studies per period

Concepts, upgrades, and new products must be first created under RESULTS & DECISIONS:
PRODUCT DEVELOPMENT before a test can be run. Once created, development projects and
concepts can be tested against a segment/class combination and price point at a time. Within
the context of the CONCEPT TEST study, the MSRP and retail selling price is the same. In reality,
the actual retail selling price is rarely the same as the MSRP as the dealer decides on the retail
selling price, often on an individual basis.

To run a CONCEPT TEST, select the Segment, Vehicle Class, Project (Concept), enter Price and
click the [Create Study] button. Each price, segment, class, and concept combination is a new
study.

Study Results provide two helpful pieces of information on the development project. First is a
summary of the target segment’s feedback on your vehicle similar to the focus group study.
Second is the estimate of the percentage of people who are likely to purchase the product based
on current competitive products and pricing. This estimate does not take into account
competitive differences in distribution, advertising, preference, etc. Nor does it include potential
sales to customers described by other segment/class combinations. Use the “Likely to buy”
result only as a starting point in product launch production forecasts. For example, if the likely
to buy is 20% and the target segment is forecast for 100K units, a good starting point for your
forecast would be 20K (.20 * 100K) units.

Competitive Mapping ($)

The COMPETITIVE MAPPING tool is used to graphically track competitive movement on key
decision variables over time, and becomes more valuable as the simulation progresses.

Availability: Instructor selected option | $25,000 each | Maximum of 20 studies per period

Compare your product to a competitor’s, or compare competitor products to each other. Select
two products and two dimensions from among important marketing variables and product
development specifications. Clicking [Create the Study] will charge you for the study and display
the comparison grid similar to the example below.

In the Study Results, selected products are represented as shapes and positioned based on the
values associated with the dimensions chosen. Shape size scales with unit sales for the products
selected. Movement reflects changing decisions by the associated company over time.

Test Market ($)

The TEST MARKET tool estimates the impact of changes in price, advertising, and/or promotion
on awareness, market share, and contribution based on either simulated test markets or city
level experiments that scale well to the national level. The test market study should mainly be
used for estimating the sensitivity to changes in these marketing variables not as a forecast itself,
as the sales forecast will be influenced by many other factors such as competitors’ decisions,
product upgrades, etc.

Availability: Instructor selected option | $100,000 each | Maximum of 10 studies per period

Select a product and enter the price (MSRP), advertising, and promotion levels (as if done
nationally). The maximum change in price is +/- 10%. Advertising and promotion can be run at
levels representing $50 million or double the current levels, whichever is greater. Clicking the
[Run Study] button will charge you for the test, run the test market, and display the results.

STUDY RESULTS show the current marketing expenditure levels as a Baseline, but may vary from
national conditions. The Test column will show the test market conditions and resulting
awareness, market share, and net contribution.

Note that these results are only estimates based on the test market and don’t factor in
other changes in the market or competitive landscape that may occur in the decision period.

Portfolio Analysis

The PORTFOLIO ANALYSIS displays your current product portfolio in a 2 x 2 growth-share matrix
using the standard Boston Consulting Group (BCG) definitions (growth rate and relative market
share) and terminology (star, cash cow, dog, question mark). The growth-share may be used to
better understand the relative market and competitive position of the products in your portfolio
and potentially to help determine resource allocation across a company’s product lines. A
considerable amount of information is captured in this single graphic including a product’s:

• market attractiveness based on vehicle class or segment growth (vertical position)
• relative competitive performance based on relative market share (horizontal position)
• relative importance to the company based on sales (circle size)

This analysis may be run on a market definition of vehicle class or segment.

By Vehicle Class
Click the [By Vehicle Class] button to select the market definition to vehicle class. This view
displays an overview of your competitive position relative to other products in the same vehicle
class.

By Segment
Click the [By Segment] button to change your market definition to customer segment. Doing so
will repopulate the analysis based on the customer segment that purchases the most of a
particular vehicle. Growth and relative share are also adjusted accordingly.

Market Attractiveness: Growth rates for product classes are found in the MARKET: VEHICLE
SALES reports and analysis. Growth rates for segments are found under MARKET: CONSUMER
SEGMENTS.

Relative Share: In this study, relative market share is used as the measure of a product’s
performance. Relative Share is calculated by dividing a product’s market share by the market
share of its largest competitor. Obviously, share of market would be dependent upon the
definition of market (as described above). Share of each brand for a product class is found in the
MARKET: VEHICLE SALES -> Class Analysis and then clicking on a vehicle class. Share of segment
is found in the MARKET: CONSUMER SEGMENTS and then clicking on a particular segment.

As an example for how to calculate relative marketing share, if a utility vehicle has 47% of the
utility class and its largest competitor has 19% of that same class, its relative market share is 47
/ 19 = 2.47, placing it to the left of the vertical line. Thus, those products that are centered to
the left of the vertical line are market leaders; those to the right are market followers (based on
this definition of market).

Decisions

Technology

TECHNOLOGY decisions consist of investing in the four basic technical capabilities of the firm, an
important long-term decision. Higher technical capabilities bring two significant competitive
advantages. First, your firm is able to develop vehicles with better characteristics, which is likely
to be important to some customers. Second, the base cost of projects is lower with greater
technical capabilities. In other words, a vehicle with attributes of 2, 2, 2, 2 (interior, styling,
safety, and quality) costs less on a per unit basis for a firm with greater technical capabilities,
given the same production levels.

Select the checkbox on the line “Increase Attribute” to invest in one or more of these areas. The
cost of each of these enhanced capabilities in $millions is provided in the “Cost to Increase to
increase by 1” line. The estimated annual benefit of the increase in capability is also displayed.
Note that the simulation uses the decisions you are in the process of making to estimate the
benefits. For example, an increase or decrease in your scheduled production of a particular
vehicle will be reflected in the estimated annual benefit. You may “undo” any changes to these
decisions until the simulation decision deadline.

Product Development

The PRODUCT DEVELOPMENT screen summarizes all activity in your development centers.
Decisions include adding a development center, upgrading current vehicles, creating new vehicle
concepts, and putting new concepts into development. Development costs are expensed in the
current period, except multi-period development projects (major upgrades and new products) in
which costs are spread over the time the project remains in the development center.

Decisions: Projects
The sample screen at right shows a firm with two active development centers, one of which is
being used to develop a new Economy class vehicle that will be called the Enigma when it is
released into the market. The specifications of the Enigma are listed to the right as well as the
cost (this period only) for developing the product. The second development center is currently
available for another project and could be used for a major or minor upgrade, or for another new
product.

To add a development center, click the checkbox labeled “Construct a new center for $XXX
Million”. You may add only one development center each period, up to the total maximum of 5
centers over the course of the simulation. There is a one-time cost associated with building a
new center, and it takes one year to become operational.

To change one or more of product specifications of a vehicle in a development center, choose an
existing vehicle to upgrade, select the type of upgrade to implement (minor, major, or cost
reduction), and click the “Create Project” button. An upgrade also attempts to reduce your per
unit cost of goods sold. A minor upgrade allows you to change each of the four vehicle
specifications by 1, HP by 5, and size by 2. A major upgrade allows a maximum change of 2 for
the ISSQ attributes, 20 for HP, and 10 for size; small changes can be made to the specifications in
the second year. A minor product upgrade is in a development center for 1 period and launches
immediately. A major upgrade allows a wider range of changes for each attribute to the vehicle
but is in the development center for two years (launched the following period). A cost reduction
upgrade attempts to reduce only the unit cost of the vehicle through changes to the vehicle that
do not impact specifications or perception in the market.

Note: In the period a major or minor upgrade is launched, any current
inventory will be sold off at a loss, and your firm will also incur a retooling

charge.

Decisions: Concepts
There are two categories of new product concepts—a new product within a class where the firm
has experience, or a new product in a class that is new to the firm. The first step in launching a
new product is the creation of a product concept. A concept in StratSim is a set of potential
specifications for a vehicle to give to the R&D department for further study. Concept creation is
not used to upgrade or change an existing vehicle; it is only used for new vehicles. There is no
cost associated with the creation of a concept. Costs are only incurred once the concept is move
into development.

To create a concept, click the [Add a New Concept] button, select the vehicle class and
specifications, and click the [Save] button. Once created, you will get feedback from R&D
regarding the expected unit cost (at 100,000 units of production), the overall cost of the
development project if you decide to move it from concept to development, and the number of
years required for development.

Before deciding whether to further develop the concept (expensive!), you may want to see what
your target market(s) think of the potential vehicle. You may do this using the TOOLS: Concept
Tests. Please review the description of the tool elsewhere in this guide for details on how to run
and interpret concept tests.

Based on the results from the concept testing process, you may decide to change the concept.
There is no additional expense to modify a concept at this stage. Therefore, get it right before
moving ahead to the product development stage.

Once you are satisfied with your concept and have decided it is worth the investment to put it
into development, click the build button (to the right of the concept) which will move the concept
into development and occupy one of your development centers for two or three years
(depending on the length of the project).

Important: You must move a product from the concept stage into
the development center; otherwise the product will never come to market.

When you move a concept into development, you will be asked to name the project. This will
ultimately become the name of your product in the market and is limited to 12 characters. The
product name has no impact on the sales of your product, although civility is appreciated in
playing the game.

You may choose to cancel development at any time if you change your mind about the viability
of the project. Remember that development centers are limited, and product development is a
time-consuming and costly process, so choose wisely.

Analysis
The Analysis button provides a graphical view of past, present, and future use of development
centers to aid with product development planning. Development centers in StratSim are among
a firm’s most valuable resources for strategic differentiation.

Marketing

MARKETING decisions consist of corporate marketing decisions and vehicle product mix
decisions. The marketing function is also responsible for product sales forecasts for the coming
year. These forecasts will be used in generating Pro Forma results.

Decisions: Corporate Marketing
Corporate marketing decisions are concerned with your firm’s overall corporate image and
message. Corporate advertising funds are allocated on a regional basis, helping to create
awareness and preference for your firm, while also providing advertising support for your
dealerships. You may select an overall corporate image Ad Theme.

Social Media expenditures help stimulate interest in your firm’s new and future product
offerings, allowing you to target particular consumer segments via various social media vehicles.

Direct Marketing funds target particular consumer segments, for example, postcards and emails
telling them about dealership special promotions.

Decisions: Product Marketing
Product marketing decisions are the marketing mix decisions for each vehicle in your product
line: price (MSRP), dealer discount, advertising budget and theme, promotional budget, and sales
forecast (used in the pro-forma and analysis.

MSRP is important because it sets price expectations in the mind of the consumer (positioning)
and is the basis for setting your firm’s actual revenues after dealer discounts are taken. For
example, if MSRP is $20,000 and dealer discount is 10%, your actual revenues will be $20,000 x
(1 – 0.10) = $18,000. Typically, the retail price (what the customer pays) for the vehicle will be
between the price to the dealer ($18,000) and the MSRP ($20,000), and will vary depending on
promotional programs, demand / inventory, target markets, etc.

Product advertising and advertising theme play an important role in establishing vehicle
awareness and shaping customers’ perceptions of products. The majority of the advertising
budget is spent on media buys, with the remainder on creative input and theme, and serves three
primary purposes in StratSim:
1) Creates general awareness for the vehicle and establishes brand/product identity:

Whether or not the consumer knows the product name and its general positioning in the
market.

2) Creates top-of-mind awareness: Loosely interpreted as a “share of voice” measure. For
example, if consumers are asked to name a utility vehicle, the utility vehicle(s) they are most
likely to mention have the greatest awareness and share of voice.

3) Establishes advertising message content: A vehicle aspect that is emphasized in advertising
(interior, styling, safety, quality or performance). Match your product’s ad theme with what

is most important to the target customer(s) and that represents that vehicle’s competitive
advantage.

Promotion budget is used for special dealer or consumer promotions, such as below market
financing rates, consumer rebates (additional price discounts), and dealer incentives (i.e.,
additional dealer discount if certain sales goals are met). Some of the promotional budget will
also be used to generate awareness through product brochures, mailings, contests, etc.

Check the Export Only—sometimes called Remove From Market—checkbox to stop selling a
vehicle to consumers. If you are discontinuing a vehicle, you may wish to sell off remaining
inventory before taking the vehicle off the market.

Analysis
The Marketing analysis projects your company product line’s contribution using your decisions
and your forecast, providing insight into price and volume options. You may want to use the
TOOLS: Test Market to learn more about the sensitivity of price, advertising, and promotion
changes on your sales volume. These projected contributions include any export sales and are
displayed on both an overall and per unit basis.

Distribution

Decisions
Enter dealership management decisions, such as opening or closing dealerships on a regional
basis and setting an overall dealership training and support budget. It takes one year to build /
staff a new dealership or close an old one. Not having enough dealerships can leave markets
uncovered, but having too many dealerships can lead to poor results due to overly competitive
pricing and sales being spread thin.

For each region, enter a change in the number of dealerships as a positive or a negative number.
The maximum allowable change is 10% of your current total number of dealerships. So, if you
have 600 dealerships, and you add 30 in one region and decrease by 30 in another region, you
have reached your maximum allowable change (of 60 in the example).

Coverage (dealerships in a region / sales areas in a region or full coverage) is calculated in two
places. One with the scheduled change (dealerships added in the previous period) as well as with
the current decisions.

Training and Support: These expenditures are spread equally across all dealerships. The
allocation of this resource is targeted to improve the experience the customers will have at the
dealership in the long run.

NOTE: It takes 1 year to open or close a dealership. For example, if you make the decision to add
dealerships in the initial period, it will not impact results until the results are generated for period 2.
Pending dealership openings and closings will appear on the “Sched. Change” line.

Analysis
This screen provides further insight into the performance of your dealer network, including
dealer coverage and financial performance by region, planned openings, sales and support per
dealer, and dealer ratings.

Full coverage: The number of sales areas in each region. Thus, coverage of 45% would imply that
45% of the sales areas are covered in a particular region by dealerships.

Gross/Dealer: The average amount of money (gross) a dealer in a region has to operate their
business. This amount equals the difference between the dealer invoice (what the dealer pays
for the vehicle) and the actual retail price for all vehicles sold in their dealership. These are, in
effect, the revenues for the dealership. The more revenues for the dealership, the better
salespeople and support staff they can hire, the more they can reinvest in their facilities, etc.
Thus, the gross/dealer amount is a good indicator of their success as a business, which, along
with training and support, will likely translate into higher dealer ratings.

Dealer Rating: Customer satisfaction index from a leading market research company (range 1–
100, with 100 corresponding to highest satisfaction). Dealer ratings provide insight into the
success of dealerships. The success and coverage of your dealerships is an important aspect of
your firm’s overall success. Your firm should think of your dealership network as a key strategic
partner who shares in your success. Generally, the more successful your dealerships are, the
more successful you will be, and vice versa.

Unit Sales: Displays vehicle sales at the product level by region. Differences by region may be
due to underlying demand overall, demand for a particular type of vehicle, differences in
distribution, and differences in competitor intensity.

You may access this same information on your competitors under the COMPETITION: Distribution
menu.

Importing & Exporting (Instructor Selected Option)

Part of the international component of StratSim, the IMPORTING & EXPORTING page allows you
to source existing vehicles from firms in other regions for import to the domestic region, and it
allows you to sell your vehicles to foreign firms.

Importing
You can choose up to four vehicles to import from a list of all vehicles available for import. The
list includes the source, attributes, and base cost per unit for each vehicle. The base cost is unit
cost in domestic currency for a purchase of 100,000 units, including shipping and tariffs. A firm
can import from the Atlantic and Pacific regions. There are several computer-run firms in each
region to choose from, and each firm produces multiple vehicles. Thus, there are many potential
vehicles to choose from, each with different characteristics and costs.

To create a new import agreement, select the vehicle your firm has chosen; enter the number of
units, in thousands, you’d like to order; and enter a name for the vehicle to sell under. Remember
to enter marketing decisions for a newly-imported vehicle. Note that the same vehicle may be
imported by multiple firms under different names.

After saving, you’ll see the actual cost you’ll pay per vehicle based on the number you’re
purchasing. The cost is in domestic currency and includes shipping and tariffs. You can change
the status of an agreement to “cancel” if you don’t want it to go into effect for the next period.
Import agreements are automatically renewed each period unless you cancel them. At any point
you may change the number of units requested in an agreement. Current inventory of imported
vehicles is listed on the MANUFACTURING page.

While importing a vehicle from another firm, you may develop your own platform to bring
production of the vehicle in-house. Imported vehicles show up on the bottom of the PRODUCT
DEVELOPMENT page as transferrable products. You can create a development project for them
in much the same way as you would create a project for a concept. When a project is ready,
decisions for the imported vehicle will be transferred to the newly developed platform, and the
import agreement will be terminated.

Exporting

You can sell into international markets by exporting to a firm that has agreed to sell your
automobiles under its name. The exporting tab allows you to manage your export agreements
and shows you the vehicles that are currently being sold by firms in the Atlantic and Pacific
regions with their specifications, unit sales, and MSRPs.

You can create up to four export agreements with computer-run firms in the Atlantic and Pacific
regions. To get started, enter your desired terms for the agreement: the foreign firm you’d like
to sell to, the vehicle you’d like to sell, and the price per vehicle. The price you enter is your
desired revenue per vehicle. The foreign firms are responsible for shipping and tariffs for any
vehicles they import.

Once you save, you will immediately see the foreign firm’s response in your Active Agreements:
Accepted or Rejected. An accepted agreement shows the number of units the firm will buy at the
price you offered. Make sure you have accounted for accepted export agreements in your
manufacturing decisions by checking your pro-forma inventory analysis.

You may renegotiate the price on an accepted agreement to try for better terms, and you may
offer a different price on a rejected agreement to see if you can get it accepted. To do so, click
the price on the agreement. Whether the agreement is accepted or not, you can only make a
total of three price offers on it; that is, after you create an agreement, you have two more
chances to change the price. If your third offer is rejected, you have to wait until the next period
to try again with that firm and vehicle—even if previous offers had been accepted.

Change the status of an agreement to “cancel” if you do not want it to go into effect or to remove
a rejected “agreement” to make room for others. You can change the status to “restore” for a
cancelled agreement to make a new offer on it and make it active again. If you’ve used up all your
offers on an agreement, you will not be able to make it active again. So, if you have an agreement
accepted on your final offer and then cancel it, you will have to wait until the following period to
make the agreement active again.

Each vehicle can only have one active agreement in a region, so you can only have as many
agreements in a region as you have autos. Each foreign firm will make a maximum of one
agreement for each vehicle class. Therefore if you want to export in a period, you may wish to
make that decision early so that you can establish agreements before your competitors
potentially establish agreements with the same foreign firms and vehicle classes as you were
planning.

When the simulation advances, sales from accepted export agreements will be reflected in your
reports. Foreign and domestic sales are listed separately on the Product Contribution report, but
they are combined on other reports, such as the Income Statement. Export agreements last only
one simulated year. Change the price on an agreement with the “Negotiating Renewal” status to
make an offer for another year. You don’t get any special status with a foreign firm because they

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had accepted an agreement with you in the past; if you are slow to renew, it is possible that a
competitor will take your place.

Manufacturing

Use the MANUFACTURING menu to enter decisions for product line production and overall firm
capacity. The decisions and analysis screens provide supportive information regarding previous
sales, inventory levels, and projections based on previous results, your decisions, and your
forecasts. Based on your decisions, you may incur retooling, over-capacity charges, and / or the
costs associated with building new capacity, all of which will be displayed here. Analyze your
manufacturing process including scheduled product line planned production, flexible production,
and overall plant capacity.

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Decisions: Production
At the product level, there are two manufacturing decisions to be made: Scheduled (or Planned)
Production and flexible production. Previous sales and current inventory levels are noted to help
in your planning process, as are retooling costs, if applicable. Flexible production increases or
decreases production by up to 10% to meet demand if the box is enabled. In general, the car
industry aims to have 30–60 days of inventory available, but may have less if a firm is planning to
upgrade or discontinue a vehicle.

NOTE: when upgrading a vehicle, the current inventory will not be sold in the market, but instead
will be written off at a loss to the company.

By default, the Flexible Production checkbox is enabled. Flexible Production will not change
production if inventory levels are projected to be between 0 and 120 days. However, if
anticipated demand is greater than supply, the simulation will attempt to make up the difference
by increasing production up to 10%. If anticipated supply is greater than 120 days, the simulation
will reduce production by up to 10% in an attempt to limit inventory to 120 days. Since Flex
Production is based on anticipated, rather than actual, supply and demand, it is possible for
production to flex too much or not enough. If the Flexible Production checkbox is disabled, your
firm will produce exactly what you have entered in the Scheduled Production field.

Note: If the sum of all production (including flexible) exceeds capacity, you will be charged any
over-capacity charges that apply. The over-capacity charge represents running extra shifts and
paying overtime.

Retooling costs are based on new platforms or increases in the production of an existing model,
where existing capacity needs to be changed from one model to another. Thus, careful planning
with regard to forecasting demand and production helps keep retooling costs lower.

Decisions: Capacity
To build or sell off overall firm capacity, enter the change in capacity (positive or negative). A
capacity increase takes one year to build and cannot exceed 50% of the current capacity. The
cost of the increased capacity is depreciated over ten years. The estimated cost of an additional
100,000 units of production is displayed, though you are not restricted to blocks of 100,000 units.
The additional capacity becomes available for production decisions the following period. You
may decrease capacity by entering a negative number. This sells off the least efficient plant
capacity at 50% of remaining book value (if any). Increases and decreases are limited to 50% of
your current capacity.

Alternatively, you may choose to produce over capacity at a charge dependent upon the number
of units produced beyond the firm’s base capacity. This value is shown in the plant capacity
section of the screen as “Over-capacity Charge ($M)”.

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Offshore Plants
Depending on how your instructor has chosen to configure the simulation, you may be able to
produce vehicles offshore. Enabling the “Build” checkbox under the Pacific or Atlantic headings
and entering the initial capacity you’d like to build will start a new plant in the corresponding
region. The timeline and limit for capacity changes are the same for offshore plants as they are
domestic ones. The initial capacity for each of the offshore plants may be as few as 50 thousand
and as many as 1 million vehicles per year.

Click the region name in the vehicle production decisions to change the region in which the
vehicle is produced. You can choose to transfer production to a plant the period after you choose
to open it. A vehicle can only be produced in one plant at a time. Your firm must decide the best
single location for manufacturing each vehicle. If production exceeds capacity for a plant, you will
incur expenses for running over capacity. You will incur retooling costs when you switch plants,
even if you do not change production levels.

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Analysis
The top half of the screen shows results from the most recent period; the bottom projects
inventory levels based on your current decisions and forecasts.

“Days inventory” is an estimate of the number of days of inventory available at year-end based
on yearly sales; derived by the formula (365 x units inventory / sales). Generally, auto companies
aim for approximately 30 days of inventory, but this may vary based upon development / upgrade
plans for a particular vehicle.

In the Comment column you may see, for example, a note about a new or upgraded product or
if sales have exceeded planned production.

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You may find this same information on your competitors under the COMPETITION:
Manufacturing menu.

Financing

Decisions
The financing decision screen is for all decisions related to the financial aspect of managing your
firm, with a particular focus on cash flow and shareholder equity. You may select alternative
financial instruments to raise funds, choose to invest extra cash in CDs, issue dividends to
shareholders, and potentially buy back stock or call long-term bonds. Often, these decisions will
be made after you have used the pro-forma [Analysis] to forecast your cash flow and financing
needs. All values are entered in millions; thus, 2000 equals $2 Billion.

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Cash: Current Cash Balance represents funds currently available for investment. Cash may be
invested in a 1-year CD to earn interest.

Stock: Issuing stock is one method of raising cash for the company, however issuing additional
shares may dilute shareholder value. If stock buy-back is enabled, cash may be used to
repurchase up to 20% of the outstanding shares by entering a negative number. Enter
shareholder dividend amount, should you choose to offer a dividend. The shares outstanding
will remain constant unless your team chooses to sell or buy back stock.

Debt: Short-Term Debt represents a revolving line of credit at variable interest rates that is
automatically issued if the firm runs out of cash. Reducing your short-term debt is a decision that
you must make in the context of having sufficient cash available. Long-Term Debt bonds with a
term of 10 years have lower interest rates than short-term loans. Bonds are eligible to be called
after 3 years, but do not have to be. An interest penalty of 1 year is applied when they are called.
Bonds must be paid off in full if called. No partial calls are allowed. Bond rating will vary based
on the financial position of your company. Short- and long-term interest rates will vary based on
your bond rating and general interest rates. Bonds are rated from D (lowest) to AAA (highest),
where higher ratings correspond to lower interest rates. If your bond rating improves, the
interest rate the market requires from your debt issues will decrease, all other things being equal.

Analysis
Results shown in the FINANCING: ANALYSIS reflect your decision inputs and projections from the
current period using the format of the Cash Flow Statement, but adding the starting and
projected balance in the cash account from the balance sheet. Review this report carefully to
assess and forecast your cash flow and financing needs for the coming period.

106

Special Decisions (Instructor Selected Option)

If your instructor chooses, you may be faced with special decisions based on “incidents”.
Generally, there is no correct answer as it often depends on your firm’s particular situation as to
what the best option would be. Some decisions have financial implications, others don’t. A
special decision is a required option – you must select one from the list of options available in
that period. The full incident description will be shown when you select the Special Decision
menu choice. There is also a short video related to the incident. Feedback on your choice will
be displayed under Industry News.

107

Decision Summary

The DECISION SUMAMRY screen provides a summary of all your decisions for the current period.
View this report at the end of your decision process and before the decision deadline, making
sure all choices have been entered correctly. With the exception of the purchase of market
research or tools, all decisions for the period can be changed until the simulation is advanced.
After the simulation has been advanced, you will not be able to correct any input errors, so take
the time to double check your entries before the deadline. You may also want to print out a
copy. Select a different period in the top toolbar to view previous period decisions.

When the simulation has been advanced to the next period, your course website and the
simulation interface will be updated with the latest results; refresh your browser window to view
the updated results. The simulation will now be in the next period (reflected at the top of the
StratSim window).

Timeline

The TIMELINE displays important events during the simulation related to decisions your company
makes. The timeline may highlight dealership, production, development, manufacturing, and, if
enabled, international decisions.

108

Pro-Forma

PRO-FORMA uses your decisions and product forecasts to project inventory, income statement,
balance sheet, cash flow, and product contribution for the upcoming year. Estimating the
financial implications of decisions is an important part of the decision process. If the estimated
values do not meet your expectations, you may want to reconsider your decisions or forecasts
(or possibly, your expectations).

Forecast
Start the Pro-Forma process by entering your forecasts for each product. You may have done
this during the decision process, but you may update those values here. The default forecasts
are the sales during the prior year. Use the Sales Forecast links on this report to enter a forecast
for each product. The forecasts represent your sales estimate (in units) for the consumer market
for the coming year. When setting these forecasts, consider factors such as changes in your
product (upgrades), price (MSRP or discounts), marketing support (advertising and promotion),
expected demand, and, of course, the competition. Additionally, review any qualifying direct
sales. Once forecasts have been entered, you can view the pro-forma Product Inventory report
that calculates your projected inventory and retooling costs (if any), and Product Contribution
report. All pro-forma reports are based on your forecasts and production levels.

109

Note: These values are derived solely from your decisions and your forecasts; actual
results will differ from the figures displayed here after the simulation is advanced. The

pro-forma is for planning purposes only and has no actual impact on outcomes.

Reports
The Pro-Forma analysis provides five projection reports: Product Inventory, Income Statement,
Balance Sheet, Cash Flow and Production Contribution. These reports parallel the ones under the
Company menu but are based upon your forecasts and inputs. Please see those menus for a
more complete description of the content. Select the Reports tab to view the available reports.

Reports: Product Inventory
The inventory report levels on this report may be used to check planned production volume
decision for the coming year. This report uses product sales forecasts, existing inventory (taking
into consideration upgrades), and planned production volume to predict inventory levels for the
upcoming year. Good forecasts are key to making accurate production decisions.

110

Reports: Income Statement
The PRO-FORMA: Income Statement report shows projected overall financial results for the
upcoming year, based upon your current decisions. Click a line category link on this page to view
detail of the charges that comprise the total.

111

Reports: Balance Sheet
The PRO-FORMA: Balance Sheet report shows projected asset and liability account balances for
the upcoming year, based upon your decision inputs and forecasts this period.

112

Reports: Cash Flow
The CASH FLOW statement shows the sources and uses of the firm’s cash. Changes in the amount
of cash in the firm can be calculated based on cash flow from operating, investing, and financing
activities. Line items may have different context modifiers as indicated by parenthesis. Using the
Inventory line item as an example, a positive inventory cash flow amount indicates an increase
in cash due to a decrease in inventory, and a negative inventory cash flow amount indicates a
decrease in cash due to an increase in inventory. The modifier in parenthesis corresponds to the
negative cash flow amount.

113

Reports: Product Contribution
The PRO-FORMA: Product Contribution report shows projected financial results at the product
level, based on your current decision inputs and forecasts. This is an especially helpful report for
setting prices relative to costs as it takes into account any product upgrades, production volume,
and increases in material and labor costs for existing products and provides an accurate estimate
of variable manufacturing costs for new products. The estimated contribution ($) and percent is
valuable to compare across product lines.

Projections are provided overall (top) and on a per unit basis (bottom).

114

Decision Rationale

Enter the reasoning for your decisions on the My Rationale tab of this page. Your entries do not
affect your performance in the simulation, though your instructor can see them and may choose
to grade them. Unlike all the decisions in the simulation, each member of a team can enter his or
her own decision rationale. To see what your teammates have entered, click the View Rationale
tab.

115

Appendix

STRATSIMMANAGEMENT

116

Glossary

Advertising
Any paid form of non-personal presentation and promotion of
ideas, goods, or services by an identified sponsor.

Advertising Message
The point that an advertisement is trying to make, whether to build
a particular image, stress the benefits of the product, compare with
other brands, or maintain awareness.

Average Retail Price

The average price for a product charged by retailers, including both
those dealerships with higher prices due to increased personal
service, exclusive merchandise lines, attractive showroom
atmosphere, special promotions, convenient location, or special
services, and those who offer a no-frills, low-price approach.

Awareness
The level of consumer familiarity with a product, brand name or
advertisement.

Breakeven Analysis

An attempt to determine the volume of sales necessary (at various
prices) for the manufacturer or merchant to cover his or her costs
or to break even between revenue and costs. Breakeven analysis is
useful to help set prices, estimate profit or loss potentials, and to
help determine the discretionary costs that should be incurred.

Cannibalization
Sales of a new product that take away sales of another product in
the product line.

Capacity Utilization
The extent to which the physical production ability of a plant facility
is being used. Normally described as a percent of total capacity (i.e.
50% of capacity).

Channel of Distribution
Any firm or individual who participates in the flow of goods and
services as they move from producer to ultimate user (consumer or
industrial).

Competitive Analysis
The process of studying other companies who are vying to satisfy
similar consumer needs. This includes analyzing competitors’
strategy, product, pricing and channels of distribution.

Consumer Customer
The intersection of a consumer segment and a preferred vehicle
class. For example, 1E identifies those Value Seekers (1) who prefer
an Economy class vehicle (E).

Dealership
The retail distribution outlet where consumers purchase the
product (automobiles).

Demand The desire of consumers for a certain product.

Fixed Costs

Financial obligations of a firm that remain at the same level no
matter how many units of a product are produced and marketed.
Amortization charges for capital equipment and plant, plus such
charges as rent, executive salaries, property taxes, and insurance
are examples.

117

Gross Margin
Total revenue less product manufacturing costs (materials, labor,
plant and equipment).

Inflation
A general rise in the prices that people must pay for goods and
services.

Inventory Stock of a product that is already produced but not yet sold.
Margin The difference between the price of a product and its per unit cost.

Market
People or businesses with the potential interest, purchasing power,
and willingness to spend the money to buy a product or service that
satisfies a need.

Market Share
The percentage of sales of a certain product in a market in relation
to other products in that market (i.e. Brand X / Total sales in
market).

Marketing
The process of planning and executing the conception, pricing,
promotion, and distribution of ideas, goods, and services to create
exchanges that satisfy individual and organizational objectives.

Marketing Research
The systematic and objective approach to the development and
provision of information for marketing decision making.

Net Contribution The contribution after marketing less fixed costs.
Net Income The profit remaining after all costs are subtracted from revenues.

Price
The amount of money required for a product or brand in order for
an exchange of ownership to take place.

Product Mix All of the individual products available from an organization.

Promotion
The communication mechanism of marketing designed to inform
and to persuade consumers to respond.

Quality

The totality of features and characteristics of a product or service
that bear on its ability to satisfy stated or implied needs. In the
automobile industry, quality is sometimes more narrowly defined
and measured by defects per 1000 cars or reliability.

Research and
Development

Portion of a firm designated to research, analyze, and design
products to meet consumer and market needs.

Segmentation
The process of dividing large heterogeneous markets into smaller
homogeneous segments of people of businesses with similar
needs and / or responsiveness to marketing mix offerings.

Unit Sales The total volume of units sold by a manufacturer in a market.

Variable Costs
Costs directly tied to production including direct labor and raw
materials charges.

118

Index

A
accounts payable ………………………………………….. 20, 62, 63
accumulated depreciation ………………………………………… 62
action plan ………………………………………………………… 33, 34
advancing the simulation ………………………………………… 107
advertising …………………………………… 12, 60, 61, 75, 80, 92

budget …………………………………………………………. 12, 68
corporate …………………………………………………………… 12
message …………………………………………………………… 116
theme ………………………………………………………….. 12, 68

AEV vehicle …………………………………………………………….. 26
alternatives ………………………………………………………………. 4
Amazing Cars …………………………………………………. 6, 13, 15
appendix ………………………………………………………………….. 4
average retail price …………………………………………… 12, 116
awareness …………………………………………….. 12, 86, 92, 116

B
balance sheet ……………………………………………….. 14, 20, 62
base cost ………………………………………………………………… 88
Best Motor Works …………………………………………… 6, 13, 15
bond rating …………………………………………………………… 105
bonds …………………………………………………… 18, 62, 63, 105
breakeven analysis …………………………………………………. 116

C
cannibalization ………………………………………………………. 116
capabilities and resources ………………………………………… 33
capacity ………………………………………………… 14, 63, 77, 101

change …………………………………………………………….. 101
over-capacity charge …………………………………………. 101
utilization ……………………………………………………. 77, 116

cash …………………………………………………………… 18, 63, 112
cash flow ………………………………………………………………… 18
Cash Flow statement ………………………………………… 63, 112
cash rate ………………………………………………………………… 64
channel ………………………………………………. See distribution
competitive

advantage …………………………………………………….. 22, 88
analysis ……………………………………………………………. 116
arena ………………………………………………………………… 35
mapping …………………………………………………………….. 84

competitors ……………………………………………………………. 84
concept

test……………………………………………………………………. 83
consumer

customers ………………………………………………………… 116
consumer perceptions ……………………………………………… 12
contribution …………………………………………………….. 60, 117

Cool Cars ………………………………………………………. 6, 13, 15
cost

variable …………………………………………………………….. 60
cost of goods sold (COGS) ……………………………… 19, 60, 80

impacts on…………………………………………………………. 41
cost structure …………………………………………………………. 22
customer ………………………………………………………….. 74, 92

demand, effects on …………………………………………….. 36
needs………………………………………………………………… 22

customer needs ………………………………………………………. 15

D
Dashboard ……………………………………………………………… 57
dealer

coverage ……………………………………………………………. 11
invoice …………………………………………………………. 12, 60
markup ……………………………………………………………… 12
rating ……………………………………………………… 11, 76, 96
training ……………………………………………………………… 76

dealership ………………………………………… 13, 50, 62, 95, 116
debt ………………………………………………………………………. 80

long-term ………………………………………………………….. 62
decision analysis

decision review
alerts ……………………………………………………………. 55

pro-forma ………………………………………………………… 108
decisions ……………………………………………………. 22, 88, 109

concept creation ………………………………………………… 90
pro-forma, cash flow …………………………………………… 32
technology ………………………………………………………… 88

demand ……………………………………………….14, 78, 101, 116
depreciation ………………………………………………… 62, 63, 80
development center …………………………………………… 49, 89
distribution …………………………………………………………….. 76
dividend …………………………………………………………………. 63
Driven Motor Co ………………………………………………….. 6, 15
dynamic environment ……………………………………………… 32

E
economic

conditions …………………………………………………………. 64
outlook report ……………………………………………………. 64

economy ………………………………………………………………… 64
economy / familyvehicle ………………………………………….. 10
economy vehicle ……………………………………………. 8, 10, 24
Efficient Motors ……………………………………………… 6, 13, 15
engine ……………………………………………………………………… 7
enterprisers segment ………………………………………………. 29
equity ……………………………………………………………………. 20
experience curve effect ……………………………………………. 42
external analysis ……………………………………………………… 33

119

F
families segment ……………………………………………………… 29
family / luxury vehicle ………………………………………………. 10
family vehicle …………………………………………………. 8, 10, 25
financial

implications ……………………………………………………….. 18
financial statements ………………………………………………… 62
Financial Statements

Cash Flow ……………………………………………………. 63, 112
firm preference ………………………………………………….. 75, 80
fixed costs ……………………………………………………….. 43, 116
flexible production …………………………………………………… 14
forecast ……………………………………………………. 64, 108, 109

G
gross margin ………………………………………………. 20, 61, 117
group decision making ……………………………………………… 32
growth-share matrix ………………………………………………… 86

H
hidden costs ……………………………………………………………. 44
high income segment……………………………………………….. 29
horsepower (HP) ……………………………………………………. 7, 8
hot buttons ……………………………………………………….. 11, 12

I
ideals ……………………………………………………………………… 11
income …………………………………………………………………… 79

from operations …………………………………………….. 61, 63
income statement ……………………………………………………. 19
income taxes …………………………………………………………… 80
industry news …………………………………………………………. 58
inflation ………………………………………………………………… 117
interest

expense …………………………………………….. 18, 61, 63, 80
rates …………………………………………………………… 18, 105

interior ……………………………………………….. 8, 12, 15, 74, 88
internal analysis ………………………………………………………. 33
inventory …………………………………………. 14, 38, 62, 76, 117

days …………………………………………………………… 76, 101
write-offs ……………………………………………………… 61, 80

investment ……………………………………………………………… 15
alternatives ………………………………………………………… 18
risk ……………………………………………………………………. 18

investments ……………………………………………….. 15, 63, 112
plant …………………………………………………………………. 63
technology …………………………………………………………. 74

ISSQ ……………………………………………………………………….. 35

L
legends on graphs ……………………………………………………. 69
luxury / sports vehicle ………………………………………………. 10
luxury vehicle …………………………………………………. 8, 10, 25

M
major upgrade …………………………………………………… 17, 48
margin ……………………………. 13, 117, See also gross margin
market …………………………………………………………………. 117

growth rate …………………………………………………………. 6
share ………………………………………………..75, 80, 87, 117
share by region ………………………………………………….. 67
value…………………………………………………………………. 80

market share …………………………………………………….. 37, 86
effects on ………………………………………………………….. 37

marketing …………………………………………………………….. 117
communications …………………………………………………. 75
expenditures ………………………………………………… 61, 80
research ………………………………………………………….. 117

minivan vehicle ……………………………………………… 8, 10, 27
minor upgrade …………………………………………………… 17, 47
mission and vision …………………………………………………… 33
MSRP ………………………………………………………….. 12, 68, 92

N
naming your product ……………………………………………….. 91
net contribution ……………………………………………………… 86
net income ………………………………………………… 61, 62, 117
new class ……………………………………………………………….. 49
new customers ……………………………………………………….. 58
new platform …………………………………………………… 16, 101
new product ……………………………………………………… 17, 48

O
opportunities ………………………………………………………….. 22

P
performance

vehicle …………………………………………………………… 7, 12
PESTEL …………………………………………………………………… 33
plant maintenance ………………………………………………….. 14
platform

development ……………………………………………………… 74
portfolio analysis …………………………………………………….. 87
position map ………………………………………………………….. 69
positioning ……………………………………………………………… 69
price ………………………………………… 73, 117, See also MSRP
pricing

impacts of …………………………………………………………. 40
strategy …………………………………………………………….. 41

product
advertising ………………………………………………………… 12
class ………………………………………………………………….. 24
contribution ………………………………………………………. 59
detail report ………………………………………………………. 73
development ………………………………………………… 15, 16
development ……………………………………………………… 90
launch ………………………………………………………………. 58
name ………………………………………………………………… 91

120

portfolio …………………………………………………………….. 86
price …………………………………………………………. 8, 12, 73
production …………………………………………………………. 14

product mix …………………………………………………………… 117
production …………………………………………………… 14, 38, 77

capacity …………………………………………………………….. 14
costs……………………………………………………….. 16, 80, 88
volume ………………………………………………………………. 16

products report ……………………………………………………….. 73
profit equation ………………………………………………………… 36
pro-forma

analysis ……………………………………………………………… 44
promotion …………………… 11, 12, 60, 61, 68, 75, 80, 93, 117
public relations …………………………………………….. 12, 61, 80
purchase decision ………………………………………………. 11, 14

Q
quality ……………………………………. 8, 12, 15, 73, 74, 88, 117

R
R&D …………………………………………………………… 61, 80, 117
ranges ……………………………………………………………………. 69
receivables ……………………………………………………………… 62
regions …………………………………………………………………… 95
relative market share ……………………………………………….. 87
retained earnings ……………………………………………….. 20, 62
retooling ……………………………………………………… 39, 62, 63
revenues ……………………………………………………….. 6, 19, 60

S
safety …………………………………………………. 8, 12, 15, 74, 88
sales ……………………………………………………………. 60, 64, 80

units …………………………………………………………….. 60, 73
sales forecast ………………………………………………………….. 38
segmentation ………………………………………………………… 117
segments…………………………………………………………… 22, 29
short-term debt …………………………………………………. 62, 63
singles segment ………………………………………………………. 29
size ………………………………………………………………………. 7, 8
sports vehicle …………………………………………………. 8, 10, 26
stock………………………………………………………. 20, 62, 63, 80
stockouts

avoiding …………………………………………………………….. 38
strategic

analysis ……………………………………………………………… 34
planning ……………………………………………………………. 32

strategy …………………………………………………………………. 22
StratSim case ……………………………………………………………. 4
styling …………………………………………………. 8, 12, 15, 74, 88
SWOT analysis ………………………………………………………… 33

T
taxes ………………………………………………………………… 61, 80
technology

capabilities ……………………………………………… 15, 50, 74
maximum feasible limit ……………………………………….. 74

test market ……………………………………………………………… 85
timeline ……………………………………………………………….. 107

capacity increase ………………………………………………… 46
dealerships ………………………………………………………… 50
development center……………………………………………. 49
major upgrade……………………………………………………. 48
marketing mix ……………………………………………………. 45
minor upgrade …………………………………………………… 47
new class …………………………………………………………… 49
new product ………………………………………………………. 48
technology ………………………………………………………… 50

training and support ……………………………………… 13, 76, 95
truck / sports vehicle ……………………………………………….. 10
truck vehicle ………………………………………………….. 8, 10, 28

U
unit cost………………………………………………………. 15, 16, 80
unit margin …………………………………………………………….. 40
unit sales ……………………………………………………………… 117
upgrade ………………………………………………………….. 16, 101

effects on cost ……………………………………………………. 42
utility / sports vehicle ………………………………………………. 10
utility vehicle …………………………………………………. 8, 10, 27

V
value seekers segment …………………………………………….. 29
variable costs ……………………………………………… 13, 80, 117
vehicle

attributes …………………………………………………. 7, 73, 88
classes …………………………………………………………… 9, 24
names……………………………………………………………. 8, 73

Managing for Success in StratSim
Fundamentals of Strategy
Importance of Strategic Assessment and Judgment
Performance Success and Shortfalls
The Profit Equation
Unit Sales: Market Size
Unit Sales: Market Share
Unit Sales: Forecasting Sales for a Product
Unit Margin
Unit Margin: Selling Price
Unit Margin: Cost of Goods Sold (COGS)
Fixed Costs
Monitoring Performance and Pro-Forma
Long-Term Planning in StratSim
Timelines
Marketing Mix Decision Timeline (Immediate)
Capacity Decision Timeline (Capacity Available in the Following Year)
Product Development Decision Timelines (Immediate to 3 years)
Minor Upgrade (Launch Now)
Major Upgrade (Launch after 1 Advance)
New Product in the Same Class (Launch after 1 Advance)
New Product in a New Class (Launch after 2 Advances)
Development Centers (Center available after 1 advance)
Technology Investments (New Limits available after 1 advance)
Dealership Decision Timeline
Conclusion

Operations Guide
Simulation Navigation
Menu Categories
Period Selector
Header Icons
Showroom
Page-Specific Options
Introduction
Introduction
Case
Tour
Glossary
Accessibility
Company
Dashboard
Executive Dashboard
Industry News
Product Contribution
Total
Per Unit
Percent
Income Statement
Balance Sheet
Cash Flow
Market
Economic Outlook
Vehicle Sales
Class Description
Region Analysis
Class Analysis
Class Analysis: Graphical Analysis
Consumer Segments
Segment Descriptions
Segment Analysis
International
Competition
Products
Technology
Marketing Communications
Distribution
Manufacturing
Financial Summary
Tools
Focus Groups ($)
Sales by Segment ($)
Concept Tests ($)
Competitive Mapping ($)
Test Market ($)
Portfolio Analysis
By Vehicle Class
By Segment

Decisions
Technology
Product Development
Decisions: Projects
Decisions: Concepts
Analysis
Marketing
Decisions: Corporate Marketing
Decisions: Product Marketing
Analysis
Distribution
Decisions
Analysis
Importing & Exporting (Instructor Selected Option)
Importing
Exporting
Manufacturing
Decisions: Production
Decisions: Capacity
Offshore Plants
Analysis
Financing
Decisions
Analysis
Special Decisions (Instructor Selected Option)
Decision Summary
Timeline
Pro-Forma
Forecast
Reports
Reports: Product Inventory
Reports: Income Statement
Reports: Balance Sheet
Reports: Cash Flow
Reports: Product Contribution
Decision Rationale

Appendix
Glossary
Index

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