Growth Dynamics in New Markets

Improving Decision Making through Model-Based Management

Martin F. G. Schaffernicht, Stefan N. Groesser

• Publisher: Wiley
• Year: 2018
• ISBN:
  9781119127413
• Edition: 1
• Topic: Business
• Subtopic: Decision Making
• Index: Business

An innovative simulation-based approach for strategic decision making when launching new products

Growth Dynamics in New Markets contains a dynamic case study and simulations that reveal what it takes to successfully introduce a product into a new market. Written by experts in the field, the text and companion website include a compelling simulation game and a variety of simulation models. Using the simulation game and computer models, readers are challenged to design and put in place a strategy about product introduction and competitive behavior. The simulation models build on each other to help to arrive at a comprehensive understanding of product uptake as well as market development and competitive dynamics. The authors present different approaches for enhancing the models and offer guidance for applying them to real-world problems.

This groundbreaking text clearly shows how to develop maps of dynamic systems, formulate candidate policies and evaluate them based on the simulations. It also reveals how to use computer simulations to understand what decisions could and should be made, when to make them and how intensive they should be. The authors present an interactive approach that:

• Contains an innovative combination of a case study, simulation game and simulation models for developing the skills to introduce a product to the marketplace
• Offers targeted questions that help to enhance the understanding of the material presented
• Presents detailed answers and solutions to a number or real-world business challenges
• Features video tutorials that explain how the simulation experiments are implemented and interpreted
• Aids in the development an action-oriented, pragmatic understanding of the underlying forces in business

Designed for students of business administration, management, industrial engineering, informatics, engineering, and public policy, Growth Dynamics in New Markets offers an innovative approach that combines the practice of dynamic reasoning and the use of simulation to design and test possible policies.

MARKET DYNAMICS WITH A COMPETITOR

7.1 Introduction

In this chapter, you are going to incorporate your competitor RivTel into the simulation model. What you have found out in the previous chapters will continue to be useful and, if it is possible to set the values of the decision variables to the values you found in Chapter 6, Accumulated profits will still be maximized. Now, however, the population and the profits will have to be split between you and RivTel.

• The Potential customers have a choice between NewTel and RivTel.
• Each company’s Current customers have the choice of switching to the respective other company.

This twofold choice has a consequence for the ways in which rival companies compete and we distinguish between two types of rivalry (Warren, 2008): rivalry type I refers to competing for Potential customers, while competition for each other’s Current customers is called rivalry type II.

We are going to adjust the model so that the simulation experiments help you to design a strategy to implement the optimal values of your decision variables and achieve the highest possible Accumulated profits at the end of the year. RivTel’s manager is not unknown to you: it is Mary Roamer, the person who preceded you at NewTel. It is plausible that you have a good grasp of how RivTel will go about competition – and RivTel’s management can be assumed to have as well a grasp on your approach to competition. As you might expect, there is a difference between competing for Potential customers and competing for your rival’s Current customers. So firstly we will analyse competition for Potential customers and then we will examine competition for Current customers. This process includes figuring out how RivTel will react to your decisions, which will be taken into account when making decisions for NewTel. The model will, therefore, also have to be adjusted to reflect how each company reacts to the other company’s decisions. Once these changes have been made, the simulation model will be ready for you to define policies, compare the resulting Accumulated profits, and decide which policy is most useful for your purpose.

7.2 Competing for Potential customers: rivalry type I

7.2.1 Structure

Initially, almost the entire population is available as a Potential customer: NewTel and RivTel each have 5000 Current customers; leaving 990 000 Potential customers to be persuaded to become Current customers. In such an immature market situation, it is simply not necessary to chase the rival company’s customers. Rather, you will first strive to attract Potential customers and you know that RivTel will do the same. In terms of the stocks and flows structure, this requires you to expand the latest version of the model (‘C6 Monopoly’) as shown in the Figure 7.1.

Figure 7.1 Rivalry type I means companies compete for Potential customers

The elements of the model representing with NewTel’s Current customers is duplicated for RivTel. Thus, the model has two stocks of Current customers, one for NewTel and one for RivTel. Moreover, there is a flow of new customersto each company’s Current customers stock and a flow of customers leaving from these two stocks back to the Potential customers stock. Each flow of new customers is driven by the respective company’s word‐of‐mouth dynamics, its advertising spending, and its effective monthly price. While each customers leaving flow is regulated by the company’s product life cycle duration.

You can decide the value of your decision variables each month and RivTel’s mana...

Table of contents

• Cover
• PREFACE
• ACKNOWLEDGMENTS
• ABOUT THE COMPANION WEBSITE
• INTRODUCING A DURABLE PRODUCT IN A NEW MARKET
• CAPTURING CUSTOMER DYNAMICS DRIVEN BY DIFFUSION
• EFFECTS OF A LIMITED PRODUCT LIFE CYCLE DURATION
• THE EFFECT OF ADVERTISING SPENDING
• FINANCIAL RESOURCES
• ANALYSING THE MARKET SITUATION WITH THE SIMULATION
• MARKET DYNAMICS WITH A COMPETITOR
• RELAXING ASSUMPTIONS AND ADDING RELEVANT ASPECTS OF REALITY
• SYSTEM DYNAMICS
• ABBREVIATIONS
• INDEX OF PRINCIPLES
• INDEX OF GUIDELINES
• INDEX OF MANAGEMENT INSIGHTS
• INDEX OF SYSTEMS INSIGHTS
• INDEX OF TOOLBOXES
• INDEX OF DIYS
• INDEX
• End User License Agreement