The customer simulation exercise of Minnesota Micromotors Inc, was a very intriguing one. It exposed me to a variety of moving pieces that enable a successful business performance across different objectives and parameters.
The introductory note on the company and industry was helpful – in that it helped me to have a better understanding of the product and customer profile. This report also touched upon competition and growth prospects along with challenges.
My overall strategy was to ensure that I have a good customer satisfaction as product quality and performance was most critical. While we did have customers A and D who were large customers and value conscious – quality and performance across all segments were critical.
My goal was to ensure we have satisfied customers as such I ensured that we continue to invest in R&D specifically in increasing thermal resistance as our product was rated lower than competition and customer feedback.
As I reviewed different customer segments and their satisfaction levels – it was clear that customer A and D were contributing more than 55% of the business. I tried to allocate extra direct sales force time to these customers whose needs were customization along with value conscious purchase. For large customers B & C who were more quality conscious – my focus was to increase product quality and interaction along with technical support as per feedback from customers. While distributors who were being given expected margins covered small customers – I gradually reduced the amount of marketing spends on the small customers, as they were being taken care of by distributors – they also had a very high customer satisfaction score overall.
While at it – I had initially increased the number of Sales rep – however given drop in sales I had to consider reducing the number of sales rep and shift their time spends between large customers. A majority of the time was being split A& B and C& D got relatively less time as they were small and price conscious customers respectively.
The market research suggested different comparisons of product quality across MM and competitors and customer profile. While MM were overall better in power to size ratio, Competitors was better in thermal resistance feature – my focus was to increase R&D spends between the two and gradually increase spends on thermal resistance.
The Major turning point of the exercise was when I increased the top line list price of the product. While my thoughts was to increase the margins and discount as well – this did not turn out to be a success. Market shares dropped and some large customers reduced buying for that quarter. While I has simultaneously increased the margins and discount offering – this was not of much help.
I subsequently dropped the list price back to its original levels – and gained market share. This proved that changing list price was not a very good strategy in the given market context.
Moving on – Another major turning in the simulation was when I increased marketing spends on large customers – this increased sales as a result and I continued to keep the momentum. Increasing the marketing spends on large customers reduced the marketing spends on small customers which was considered as OK as they were covered by dealers. My assumption as that dealers who were making their average margins would be able to support the spends of small customers if at all.
During 2013 3Qtr and 4Qtr I also tried increasing spend on efficient manufacturing practices by allocating spends to R&D – as the per unit cost of cost of goods sold was increasing. My assumption was that this R&D spend would bring in efficiency and reduce the overall cost of goods sold. However this did not have much impact on the cost of goods sold and I stopped allocating R&D spends on this.
While allocating discounts to individual customers – I was conservative and didn’t change much initially – I made changes midway through the simulation by changing margins for D – the idea was to check if this could help bring in extra profits. Customer satisfaction report suggested our goods were expensive and I had to bring down levels of discount to initial level.
Meanwhile I tried to reduce discount level of customers A, B, C to compensate for the increase of discount offered to D – to ensure profitability of the overall business generated in the quarter. This ensured that profitability came back to regular levels.
While I increased the discount levels to 20% for D – I also reduced the sales force time allocation gradually specific to D. While this was on – surprisingly the customer satisfaction levels of D didn’t show much improvement.
Similarly – the customer satisfaction report of B & C were continuously suggesting more product improvement and sales consultation requirement. I tried to increase the sales force time allocation to them.
The training and marketing communication spends was something I played with and reduced as my allocation to R&D increased. This did affect the quality of interactions of the sales force – what I could have tried was to increase the spends.
While my effort was to ensure that I marry the product attributes and increase points of difference with increasing customer knowledge of the product – the reduction in sales volume and profitability impacted the spends on communication and training of sales force who could have helped bring in the points of differentiation.
As per the class materials – changes in the sales force availability is critical – I tried to reduce the number of sales people as the sales numbers could not support the same number of sales people who were very expensive. I gradually kept reducing the number of sales people ultimately ended up with 8. This was not a good strategy as this impacted the quality of interactions between the customers as shown in the customer satisfaction report.
In conclusion – If I were to play this simulation again – I would do the following things differently:
1.I would ensure that time allocated to customers is proportional to their size and demands immediately. This will ensure we don’t have spare capacity with customers who are small and may not need.
2.Increase in training and marketing communication spends – While we increase allocation of sales force timing to individual customers – I would consistently increase the training spends as well. This will ensure that the quality of sales force interaction are good and customers who need special attention are taken care off.
3.R&D spends – I would avoid any spends on manufacturing efficiencies as they have shown not to yield much in this context. The resource thus saved could be utilized elsewhere. Would also allocate more spends on the thermal resistance feature. I was conservative in my allocation to this feature – this ensured that MMs products were continuously below the competition.
4.The list price seems to be very sensitive – hence unless the sales show an upward trend I would not increase the list prices. This was detrimental to the sales performance when coupled with low satisfaction rates of some larger customers owing to quality of sales rep interaction and customization.
5.Sales force emphasis on different segments – Since D was highly satisfied with our quality and his focus was price – I would reduce the sales force emphasis on him early on and reallocate to other customers as required. Likewise customers B & C needed attention and they were not price conscious as well – It would have helped gained market share with them.
6.Market research spends would have to be allocated more consistently – given the declining sales and profitability – I reduced market research spends. A good strategy would be to allocated periodical spends and gauge market feedback building into the business strategy.
Overall it was a very interesting simulation – one that exposed me to the different moving pieces of a business enterprise. This helped me gain a good perspective of levers that a business can tweak to ensure performance and meet its objectives as planned. A good learning is that any changes that get incorporated especially with regards to R&D and Training and communication could take a longer time frame to show up as such continuously investing in them as applicable is important.