Stratsim Firm C

MBAC 508 Simulation Assignment 2                        

1. Analyze your company’s strategy/operational decisions and performance in the first 6 periods. What has gone well and what has not gone well? What are the reasons for these based on your analysis?

As stated in our first Simulation Assignment, “our (Firm C’s) primary business strategy is a differentiation strategy on a broad level,” a strategy which we chose because it was in line with our Mission Statement: “To deliver premium best in-class products and services, tailor-made to indulge our clientele.” We have followed this differentiation strategy from the beginning on the simulation, and all of our in-game decisions have stemmed from it. For example, round after round, we placed an emphasis on improving our technology (our firm I/S/S/Q levels are currently 11/11/9/10, respectively, see figure 1) and upgrading our vehicles to have the best-in-class attributes (for example, our Luxury car, the Climax, has an I/S/S/Q of 8/6/6/6, see figure 2).

To appropriate our (expensive) investment in differentiation, we also decided to sell our vehicles at a premium to the consumer segments that could afford it, the High Income and Enterprise. Of course, the classes of vehicles we decided to produce were the classes of vehicles that these two wealthier consumer segments were known to buy. Marketing also played a big role in these efforts as we knew that having strong brand recognition with consumers would be essential in selling high-end cars at a large premium, being careful to market the right message to our target segments (for example, the High Income segment’s preferred attribute is interior, so our marketing theme for all of our High Income class cars is “interior”). Since Round 1, we have had the highest spending on Corporate and Products marketing where we currently spend a combined $1.4 billion (Figure 3).

Using our luxury vehicle as an example again, as a result, we have been able to eat into our competitor's (the Beaut’s) market share and ultimately lead the class market with a 59.8% share  even whiling selling the Climax for MSRP $61,000, which is more than $22,000 more than the Beaut (Figure 4). Another important component of our differentiation strategy has been our emphasis on customer service, which we have also invested more money in than any other firm (currently a total of $222M or $396,429 per dealership). As a result, we have an industry leading average dealer rating of 73, which is undoubtedly helps sell cars (Figure 5 and 6).

Speaking of dealers, another important component of our round-by-round strategy has been to aggressively increase our number of dealerships and therefore our overall distribution, moving from 350 dealerships and 43.8% coverage in Round 0 to 513 and 64.1% coverage in Round 6 (Figure 7). We have made concomitant increases in production, moving from a capacity of 500,000 cars per year to start the simulation, to a capacity of 1,125,000 today all the while maintaining a utilization of 100% and an average days inventory of about 23 (although our current days inventory has crept up to 59 in Round 6, see figure 8).

All said, all of these aforementioned actions have gone well. Other strategic moves to mention include the production of a new AEV, which is a vehicle desired by the Enterprise consumer segment, and thus a vehicle we planned to produce from the beginning. In fact, we were sure to purchase a 4th development center in time for its entrance into the game (Figure 11).

However, there were some decisions that we could have made better. The first was to issue a $2B load in Round 0. Because our strategy was to invest heavily in technology, upgrades, and product differentiation, we spent all of our cash plus some in Round 0 which lead us to wrongly assume that we might lose money as we entered Round 1. Thus, we issued a large bond, only to discover a dip in our stock prices and plenty of cash in the beginning of Round 1, since we didn’t not account for the fact that we were going to be generating cash flows from the coming round’s sales (Figure 9).

In hindsight, we would not have issued this bond, most importantly to avoid the 6% interest we had to pay on it. Secondly, due to our aggressive marketing and distribution budgets to start the game, the production of our vehicles were consistently in shortages of greater than 30% because we did not invest proportionally to capacity.

1. What are your recommendations for the next two periods? Should your company reexamine its goals and/or strategies? Provide clear rationale for your strategy recommendations.

To reiterate, we are pleased with the on-going progress our company is demonstrating, as the strategy we have implemented from day one has being working effectively. For the next two rounds, we plan to go through our checklist of parameters to keep tabs on the threats of rivalry. This will enable us to ensure we dominate the luxury segment of the industry at a faster pace to gain a significant lead where our competitor’s aggressiveness will not affect us immensely.