Strategy used in Game

Simulation

Service challenge an exploration of business

Group 2 Members:
Apurba Mukherjee (14P189)
Bharat C.V. (14P193)
Raghuveer Santosh (14P217)
Samiran Mathur (14P222)
Supreet S (14P232)
Sushma Talla (14P234)

Simulation Team: Alpha D02

Agenda
Success criteria
Marketing strategy
Snapshot of performance Marketing, Finance and Operations
perspective

Year wise decision and rationale

Expected results in year 6

Key learnings from simulation game

Success criteria
Why we chose sales growth ?

Target Set
Sales growth of at
least 6-8% every year

True reflection of our

decisions taken from a
marketing perspective
Better chance to apply our
learnings in the class room
Previous years sales growth
have been around 8%
Hence, a conservative
estimate of targeted sales
growth of 6 - 8 %

Target achieved
Sales rose from 4.29
million AU in year 0 to
12.37 million AU in
year 5
An increase of ~ 165%
over 5 years.
On an average sales
have increased by a
CAGR of 21.53 %

Service Segmentation Positioning

Service offered
Hotel services

Segmentation
Five Star hotel rooms (High end )
Three Star hotel rooms (Medium end)
Economic/Budget hotel rooms (Lower end)

Positioning
High quality hotel service provider (High quality acting as a
Point of Differentiation)

Strategy to drive sales

Retain existing clients
Retain existing
clients by
maintaining and
improving quality
standards of the
service provided

Attracting new clients

Overall strategy was
to attract new clients
with promotion and
low prices (level 2),
provide them high
quality service and
then raise prices
subsequently
Do not lower prices but
below a certain level so
that brand image
remains is not diluted

Increase demand per

client
It is far more
easier to increase
demand from
existing clients
rather than attract
new clients
Ensure adequate
capacity to meet the
demand from clients
and they don't
complain of
shortages

Decision making algorithm

Analyse
results of the
previous year
No. of existing
clients
No. of new clients
Capacity utilization
Demand/client
and Sales/client
Sales income and
Net Profit

Key decisions
for next year
Quality spends
Promotional
spends
Pricing decision
keeping our
objectives in mind

Supporting
Decisions for
next year
Estimate
Sales/client
Estimate
additional
resources required
Financial analysis
to estimate cash
available
Estimate loan
requirements, if
any

Prepare
expected
results for
next year
Sales income
Net Profit
Cash available etc.

Reassess in case
of mismatch
The above decision making algorithm was followed with the help of a financial model.

Snapshot of performance Marketing Perspective

Client Base - Level 1
800

Sales income and Sales growth

1400000

27.8%

30%
24.8%

1000000

25%

15%
600000

10%

400000

5%
-1.6%

-5%
Year 1 Year 2 Year 3 Year 4 Year 5
Total Sales Income

1200
1000
800
600
400
200
0

0%

0
Sales Growth

116

177

235

48
212

202

268

331

Year 1

Year 2

Year 3

Year 4

144

New
Clients

444

Existing
Clients

Year 5

Client Base - Level 2

20%

800000

200000

200

Accounting Units

1200000

400

35%

31.9%
28.1%

600

452
284
110
173

167
206

329

Year 1

Year 2

Year 3

521

Year 4

206

New
Clients

737

Existing
Clients

Year 5

Client Base - Level 3

300
200
100

259

225

202

180

0
145

Year 1

Year 2

Year 3

Year 4

Year 5

New
Clients
Existing
Clients

Snapshot of performance Finance Perspective

450000

406788

55

400000

53

51

51

40

50

50

350000

30

200000

35

150000 129881

30

100000

25

50000

20

36
32

Year 1

32

29
26
24

25

30

29
24

27
20

Year 1

33

40

250000

35
31

45

300000

37

35

47

Accounting Units

ROE and ROA

Gross and Operating profit

margins

Net Profit

Year 2

Year 3

Year 4

Year 2 Year 3 Year 4 Year 5

Gross Profit Margin

Net Profit

Operating Profit Margin

Year 5

19

15
Year 1

Year 2

Return on Assets

Year 3

Year 4

Year 5

Return on Equity

Snapshot of performance Operations Perspective

Building Resources

Capacity Utilization

140

140

120

120
51

100
41

20

25

35

49

69

81

Year 2
Resource A

105

40
20
0

0
Year 1

99

60

32
30

106

80

35

60

94

103
91

122
108

80

40

100

120

Year 3

Year 4

Resource B

Year 5

Year 1 Year 2 Year 3 Year 4 Year 5

Resource A

Resource B

Year 1 decisions and rationale

Year 1
Criteria

Decision
Level 1

Price

60

Level 2

45

Level 3

30

Level 1

20000

Level 2

16000

Level 3

15000

New
Resources

Quality
Improvement

25000

15000

Promotion

Loans Taken

Reason

Kept the same decisions as the previous

years to see how the market behaves

We wanted to test how the market responds

to increase in promotional spends. Hence,
we increased promotional spends on level 2
by 1000 AU.

Being uncertain of the market we did not

acquire new resources

We kept the quality spends same as

previous years.

We did not take loans as we did not acquire

new resources.

Understandings based on
analysis
Despite spending 15000 AU
on promotion in level 3 no. of
new clients did not increase.
This indicates that level 3 is
a declining market.
No. of existing clients in level
1 and 2 decreased, despite
spending on quality
improvement. This indicates
that our quality is low in
comparison to
competitors.
Capacity utilization of level 1
was 120%. This indicates
shortage of resource A.

Year 2 decisions and rationale

Year 2
Criteria

Decision
Level 1
60
Level 2
44

Price

Promotion
New
Resources

Quality
Improvement

Level 3

30

Level 1
Level 2
Level 3
A
B
A

25000
18000
0
10
2
30000
12500

Increased promotional spends in level 1 and

2 to attract new clients

Acquired resources to meet estimated

market demand
Improved quality spend to increase the level
of quality of our service and retain existing
clients
Since, new resources are being acquired we
decided to borrow 80000 AU as per our
calculations

Loans Taken

80000

Reason
By observing prices of competitor and their
market shares, we understood level 1 and
level 3 were not majorly price sensitive
However, level 2 seemed to be price
sensitive. To test this we decreased price by
1 AU

Understandings based on
analysis

Sales growth increased by

28% due to increase in sales
of level 1 and level 2
Declining existing clients in
level 3 confirms that the
market in level 3 is declining
Market share increased
in level 2 confirming that it
is price sensitive
Decline in existing clients in
level 1 and 2 indicated that
our quality was still not
the best among
competitors

Year 3 decisions and rationale

Year 3
Criteria

Price

Decision
Level 1
62
Level 2
42
Level 3

Loans
Taken

28

30000
25000

Level 1
Promotion Level 2
Level 3
New
Resources
Quality
Improvem
ent

Reason

5000

A
B
A

14

3
45000

20000

Our strategy was to retain existing clients in level 1 and

attract new clients in level 2
In level 3 we tried to capture more clients by reducing
prices and increasing promotional spends in a declining
market
Increased promotional spends in level 1 and 2 to attract
new clients
In level 3 we reduced prices and increased promotional
spends to see if we can get new clients in a declining
market
Acquired new resources to meet the expected increase in
demand from clients
Improved quality spends further to increase the level of
quality of our service and retain existing clients
Based on our financial model we estimated that we would
not need any further loan and cash required for acquiring
new resources could be met from existing current assets.

Understandings based on
analysis
Sales growth increased by
32% due to increase in sales of
level 1 and level 2
Market share increased in
level 2 reaffirming that it is
price sensitive
Quality spends were effective
in retaining a higher share
of existing clients but still
not the best among
competitors
Capacity utilization beat our
estimates and was slightly more
than 100 %. This confirmed that
there was increasing demand
for our services

Year 4 decisions and rationale

Year 4
Criteria
Price

Decision
Level 1
63
Level 2
41
Level 3
Level 1
Level 2

28

35000
40000

Promotion
Level 3
New
Resources
Quality
Improvem
ent
Loans
Taken

Reason

A
B
A

20

6
60000

30000
50000

We increased price in level 1 by 1 AU as we felt higher price

was justified due to higher quality
Price in level 2 was reduced further by 1 AU to attract new
clients
We made significant increase in level 1 and 2 promotional
spends to attract new clients
We assumed that in level 1 and 2 clients would be attracted
due to higher quality and reasonable price
Since level 2 is highly price sensitive we wanted to
increase client base by decreasing prices slightly and then
retain them by providing quality of service
Acquired new resources to meet the expected increase in
demand from clients

Improved quality spends further to increase the level of

quality of our service and retain existing clients

Based on our financial model we estimated that we need a

further loan of 50000 to acquire new resources

Understandings based on analysis

Sales growth increased by 28%

due to increase in sales of level 1
and level 2
Market share increased in
level 2 to 21 %. New clients were
attracted by reduced prices,
increased promotional spends and
high quality of service.
Retained a higher share of
existing clients
Capacity utilization beat our
estimates and was more than 100
%. We were not able to meet
high demand in level 2 and
capacity utilization of
resource B was high at 122%

Year 5 decisions and rationale

Year 5
Criteria

Decision
Level 1
63
Level 2
42

Level 3

Price

Promotion
New
Resources
Quality
Improvem
ent
Loans
Taken

Level 1
Level 2

29

Reason

30000
30000

Level 3

A
B
A

12
10
75000

60000

50000

Level 2 and 3 prices were increased by 1 unit.

Since client base was large in level 2 and quality spends
were high we felt we could retain clients even if we raised
prices slightly
Since level 3 was a declining market with no new clients in
level 3 also we estimated that we can raise price by 1 AU
without losing many clients
Promotional spends in level 1 were slightly reduced and
level 2 kept as it is as we wanted to keep demand in check
so that clients do not complain of shortages

Acquired new resources to meet the expected increase in

demand from clients

Improved quality spends further to increase the level of

quality of our service and retain existing clients

Based on our financial model we estimated that we need a

further loan of 75000 to acquire new resources

Understandings based on
analysis
Sales growth increased by
25% due to increase in sales
of level 1 and level 2. Level 2
sales increased significantly
by 34.7%
Market share increased in
level 2 to 23 %. New clients
were attracted by promotional
spends and high quality of
service
Capacity utilization met our
estimates. Both resource A
and B were optimally
utilized at 99%.
Demand/client was equal
to sales/client

Year 6 decisions and rationale

Year 6
Criteria
Price

Decision
Level 1
64

Level 2
42
Level 3
28
Level 1 45000
Level 2 45000

Promotion
Level 3
New
Resources

Quality
Improvement

A
B

5000

15

8
9000
0

A
B

75000

Loans Taken

Reason
We increased price in level 1 by 1 AU as we felt
higher price was justified due to higher quality
Promotional spends were increased further to
attract new clients based on quality of service at
reasonable prices
To test if the market in level 3 is cyclical we
made a promotional spend of 5000 AU in level 3
Acquired new resources to meet the expected
increase in demand from clients
Improved quality spends further to increase the
level of quality of our service and retain existing
clients. Objective was to be the best quality of
service in the industry
Based on our financial model we estimated cash
required for acquiring new resources could be
met from existing current assets

Expected results in year 6

Parameter
Value
Sales Income

1527960

Total resource
cost

502000

Depreciation

2250095

Operating
Expenses

227500

Operating
Profit

573565

Financial
Expenses
Net Profit
Sales Growth
Net Profit
Margin

32800
540565
23.46 %
35.38 %

Key learnings from simulation game

Taking decisions in a declining market
Taking decisions in a price sensitive market
Attracting and retaining customers in a service industry
Importance of trust and quality in a premium segment

Thank you