Overall game
First Mover Strategy for Vodites
What was our strategy? = First Mover for Vodites
A big decision that must be made is whether resources should be used primarily for sonites initially, or if we should invest in R&D for vodites immediately. Although we were concerned that our sonite products would be less competitive, we believed that profits in the vodite market would be much more appealing. However, we always kept in mind to slowly grow the sonite market for stability and funding vodite R&D. When we had insufficient resources, we jumped at the first opportunity to take out a loan.
What was our strategy? = First Mover for Vodites
A big decision that must be made is whether resources should be used primarily for sonites initially, or if we should invest in R&D for vodites immediately. Although we were concerned that our sonite products would be less competitive, we believed that profits in the vodite market would be much more appealing. However, we always kept in mind to slowly grow the sonite market for stability and funding vodite R&D. When we had insufficient resources, we jumped at the first opportunity to take out a loan.
What did you learn? How can you use these strategies?
1. Make sure you have enough money to release your vodite by gradually investing into R&D.
We were very fortunate to have been the first group to release a vodite in the market. Oddly enough, team T seemingly finished their R&D at the same time, but did not release it during the same period. We believe this was because they didn't have enough money. With the lowest next period budget of $8.4 million, this was not even enough to keep their sonite expenditures constant. Team T did not invest enough into their sonites to secure revenue which could be used towards their vodites. Something to keep in mind is that you need to support existing brands so they produce cash that will support your vodite launch. Not only did they release their vodite one period later, they also were unable to purchase marketing research studies and had no insight into the market. Even though team T's connectivity and price (the two most important characteristics) was higher, they had limited success. Had they released their product at least one period before, their product could have been more competitive than ours. Even if acquiring sufficient funds for a vodite launch means taking out a loan from your instructor, we highly recommend doing this.
2. Being first mover allows you to be continuously one step ahead of the competition.
As is the case with most new products, brand awareness starts off very low initially; however, it grows as time goes on and marketing expenditures increase. By being first in the market, we were always one period ahead of other teams in several ways.
a. Advertising: Since we started advertising first, we have consistently spent more cumulative advertising expenditures for the vodite market. This meant that we would consistently have higher brand awareness in comparison to other teams.
b. Number of units produced: Since we produced the first vodite in the industry, we were able to begin the learning curve one period ahead of competitors and gain cost advantages faster.
c. Revenue: Since we released our vodite one period ahead, we were able to start gaining return on our investment. We broke even from our R&D investments in period 7, while other teams were just starting to repay their initial R&D investment.
3. Purely investing in sonites is a viable strategy, but as long as there is a first mover for vodites, it is unlikely to be a winning strategy.
Team R consistently did well each week as they heavily invested into their existing sonites, and only began R&D once their existing product positions were secured. Their SPI grew exponentially as they dominated the sonites market due to their heavy investment. Meanwhile, SPI for all other teams fluctuated (usually decreased) as market share and profit were lost to team R. However, R started facing diminishing marginal returns as they began over investing into their sonites. Eventually their SPI growth flattened. Before any vodites were released, team R's SPI was around 1600 points higher than the average of the industry, and 1300 points higher than ours. However, four periods after our vodite was released, we were ahead of R by 945 points. Keep in mind that we continuously under produced our vodite as well, so imagine how high our SPI could have been!
Overall, team R still did better than team T and M because since our team took up the majority of vodite market share, team T and M will find it difficult to increase their SPI to match R's. If the scenario was different and there was no first mover advantage, team R might have won because the remaining teams would've been fighting for market share and making no significant advances in SPI.
4. If you are the first mover, you automatically get 100% market share, and 100% purchase intentions. Take advantage by producing the total unit market size and pricing it ridiculously high.
Our group was not aware that we had first mover advantage, and we were also not aware that the first mover would get 100% purchase intentions automatically. Even though our product was priced higher than what any segment desired, it was the only product in the market. If you are lucky enough to know for certain that you will be the first mover next period, produce the total number of units in the market, and go crazy with price to take advantage of the high margins and the learning curve effect.
1. Make sure you have enough money to release your vodite by gradually investing into R&D.
We were very fortunate to have been the first group to release a vodite in the market. Oddly enough, team T seemingly finished their R&D at the same time, but did not release it during the same period. We believe this was because they didn't have enough money. With the lowest next period budget of $8.4 million, this was not even enough to keep their sonite expenditures constant. Team T did not invest enough into their sonites to secure revenue which could be used towards their vodites. Something to keep in mind is that you need to support existing brands so they produce cash that will support your vodite launch. Not only did they release their vodite one period later, they also were unable to purchase marketing research studies and had no insight into the market. Even though team T's connectivity and price (the two most important characteristics) was higher, they had limited success. Had they released their product at least one period before, their product could have been more competitive than ours. Even if acquiring sufficient funds for a vodite launch means taking out a loan from your instructor, we highly recommend doing this.
2. Being first mover allows you to be continuously one step ahead of the competition.
As is the case with most new products, brand awareness starts off very low initially; however, it grows as time goes on and marketing expenditures increase. By being first in the market, we were always one period ahead of other teams in several ways.
a. Advertising: Since we started advertising first, we have consistently spent more cumulative advertising expenditures for the vodite market. This meant that we would consistently have higher brand awareness in comparison to other teams.
b. Number of units produced: Since we produced the first vodite in the industry, we were able to begin the learning curve one period ahead of competitors and gain cost advantages faster.
c. Revenue: Since we released our vodite one period ahead, we were able to start gaining return on our investment. We broke even from our R&D investments in period 7, while other teams were just starting to repay their initial R&D investment.
3. Purely investing in sonites is a viable strategy, but as long as there is a first mover for vodites, it is unlikely to be a winning strategy.
Team R consistently did well each week as they heavily invested into their existing sonites, and only began R&D once their existing product positions were secured. Their SPI grew exponentially as they dominated the sonites market due to their heavy investment. Meanwhile, SPI for all other teams fluctuated (usually decreased) as market share and profit were lost to team R. However, R started facing diminishing marginal returns as they began over investing into their sonites. Eventually their SPI growth flattened. Before any vodites were released, team R's SPI was around 1600 points higher than the average of the industry, and 1300 points higher than ours. However, four periods after our vodite was released, we were ahead of R by 945 points. Keep in mind that we continuously under produced our vodite as well, so imagine how high our SPI could have been!
Overall, team R still did better than team T and M because since our team took up the majority of vodite market share, team T and M will find it difficult to increase their SPI to match R's. If the scenario was different and there was no first mover advantage, team R might have won because the remaining teams would've been fighting for market share and making no significant advances in SPI.
4. If you are the first mover, you automatically get 100% market share, and 100% purchase intentions. Take advantage by producing the total unit market size and pricing it ridiculously high.
Our group was not aware that we had first mover advantage, and we were also not aware that the first mover would get 100% purchase intentions automatically. Even though our product was priced higher than what any segment desired, it was the only product in the market. If you are lucky enough to know for certain that you will be the first mover next period, produce the total number of units in the market, and go crazy with price to take advantage of the high margins and the learning curve effect.
Application to industry
Firms can apply what we learned by understanding that first mover advantages can lead to market dominance and higher cumulative profits. Firms need to ensure that they are able to capture first mover benefits. Our team was able to capture these benefits because there were not enough periods remaining for other teams to save money for R&D and adjust their vodite characteristics to better match consumer needs. The limited gaming period restricted Markstrat's ability to accurately represent the real world. For this reason, the results should be interpreted cautiously. If the game were to continue, followers would dominate the market and the firm to tap into this segment and meet their needs could reap high profits.
Ford illustrates how first mover advantages do not always last. Ford's Model T was known for being offered with no product variability. Consumers were told they could have the car in any color they wanted, as long as it was black. However, GM offered more colors and models to meet different consumer purposes. Similar to Ford, our vodite was fairly successful despite targeting all segments; however, we could not meet any segment's needs completely. If the game continued, firms would have been able to use this to their advantage and steal a particular segment's market share.