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PharmaSim Case — Page 13
The Allstar Brands Medicine Group
LLSTAR BRANDS CORPORATION IS ONE OF THE LEADING MANUFACTURERS of
packaged goods in the world. Since its founding in 1924, the company has acquired or
merged with a number of smaller packaged goods companies.
The Allround Brand
The management team at the over-the-counter cold medicine (OCM) group of Allstar Brands just
completed its third presentation in the past month to the Pharmaceuticals Division manager
regarding the status of the Allround cold medication. It is apparent, from all the attention the
team has received, that the Allround brand it manages is of strategic importance to the company.
Unfortunately for the team and the company, the fourth quarter performance reports for
Allround were not as positive as management expected. Therefore, the OCM team has been
under the intense scrutiny of senior management.
Overview
Allstar Brands’ Allround product is a market leader in the over-
the-counter (OTC) cold and allergy remedy market. The
consistent success of the brand in terms of profitability and
sales has made it a critical component of the Pharmaceuticals
Division’s long-term strategic plan. The division anticipates that
the brand’s cash flow in the coming periods will allow the
company to pursue new opportunities in emerging markets.
However, the division manager responsible for Allround has become concerned with the
competitive nature of the OTC cold remedy market. In the past three years, the industry has seen
several product introductions as well as major increases in promotional and advertising
expenditures. There is concern among senior management that this competitive activity will lead
to declining market share and profitability for Allround. The brand has lost one full share point in
the last year. Senior management expects that skillful marketing will prove pivotal to the long-
term success of Allstar Brands.
The Company
The company consists of three divisions: Consumer Products, International, and Pharmaceuticals.
The Consumer Products Division handles a number of packaged goods, such as laundry
detergent, shampoo, and bar soap. The International Division distributes Allstar products on a
global basis and has a large presence in the European market. The Pharmaceuticals Division is
responsible for the marketing and production of ethical and OTC medications. Ethical drugs are
available through pharmacies with a physician’s prescription, whereas OTC remedies are widely
distributed without the need for a prescription.
The management of Allstar’s Pharmaceuticals Division consists of a number of market related
groups, one of these being the OCM group. This group is concerned primarily with the marketing
activities of the Allround brand and any line extensions or new product introductions that might
A
Allstar Brands Corporation is
one of the leading
manufacturers of packaged
goods in the world. Since its
founding in 1924, the company
has acquired or merged with a
number of smaller packaged
goods companies.
− 14 − PharmaSim Student Manual
fall under the same category. An overview of the corporate structure of Allstar Brands is
presented in Exhibit 1.1.
Exhibit 1.1: Allstar Brands
Consumer
Products
Pharmaceuticals International
Division Level
OCM Group
Allround Brand
Group Level
The Brand Management Group at OCM
The marketing management group responsible for Allround consists of a brand manager, an
assistant brand manager, and a brand assistant who is a recent business school graduate. They
work together as a team on all of the marketing decisions related to the OTC cold and allergy
remedy market. The three managers are concerned with developing the Allround marketing mix
strategy each period, including any reformulation or line extension options. In addition, if Allstar’s
research department develops any promising new product ideas for the cold medicine market,
this team will be responsible for the new product launch. Although all product and marketing
decisions are made as a group, each member of the brand management group has a different
role.
The brand assistant has major input on decisions related to
retail price, promotional allowances, consumer and trade
promotional expenditures, advertising expenditures, and the
number of direct and indirect sales force personnel committed
to the Allround brand. The brand manager thought it would be
best for the brand assistant to gain experience by understanding the basic marketing variables
before becoming more involved in the detailed implementation of the marketing plan.
The assistant brand manager has input to the aforementioned issues but is also required to make
more in-depth marketing decisions. For example, the assistant brand manager makes
recommendations concerning the allocation of the sales force to retailers and across direct and
indirect channels. This person is also concerned with the development of the pricing discount
structure, as well as more of the specifics of promotional programs, including the advertising
message, advertising agency, and trade and consumer promotions.
The brand manager is responsible for all aspects of the marketing decisions for the Allround
brand. In addition to the decision areas above, the brand manager is responsible for more
detailed aspects of the advertising message, including which competitor to position against, the
During the simulation, decision
levels progress from brand
assistant to brand manager.
PharmaSim Case — 15 —
choice of target segments, and the details of how promotional allowances and promotions are
allocated across various distribution channels.
In general, the brand management group is responsible for making effective marketing decisions
in all marketing mix areas to maximize the long-term profitability of Allstar Brands’ OTC cold and
allergy remedy group.
Industry Overview
Allstar Brands competes with four other firms in the OTC cold and allergy market. These five firms
offer a total of 10 brands in five different product categories (cold liquid, cough liquid, allergy
capsule, cold capsule, and nasal spray) listed in Exhibit 1.2:
The OTC Cold Remedy Market
Cold remedies are designed to address five basic symptoms: aches and fever, nasal congestion,
chest congestion, runny nose, and cough. Although the cause is different, allergies share many
of the same symptoms and are therefore often grouped with cold remedies. However, products
formulated specifically for allergy relief medicines are available, and it is common in the industry
to consider relief from allergy symptoms as a separate consumer need from virus and flu related
illnesses. Chronic allergy sufferers tend to have different usage patterns and more concerns
about side effects because of the duration of the symptoms.
Brand Formulations
Products vary in the ingredients they contain, their form, and the duration of relief. In general,
various combinations of six basic types of ingredients are used to formulate OTC brands. Each
ingredient targets one of the five basic symptoms or is used as a base for the other ingredients.
The ingredients are:
Exhibit 1.2: Company and Brand Summary
Company Name
Sales $
(millions)
Brands on the Market
Allstar Brands 355 Allround: 4-hr multi-symptom cold liquid
B&B Health Care 286
Believe: 4-hr allergy capsule
Besthelp: 4-hr cold capsule
Curall Pharmaceuticals 199 Coughcure: 4-hr cough liquid
Driscol Corporation 255
Defogg: 4-hr allergy capsule
Dripstop: nasal cold spray
Dryup: 4-hr multi-symptom cold capsule
Ethik Incorporated 396
Effective: nasal cold spray
End: 4-hr cough liquid
Extra: 12-hr cold capsule
− 16 − PharmaSim Student Manual
• Analgesics: Provide relief for aches and fever. Common analgesics are aspirin and
acetaminophen (an aspirin substitute).
• Antihistamines: Reduce the secretions that cause runny nose and watery eyes.
• Decongestants: Reduce nasal congestion by shrinking the blood vessels in the nose lining
to clear the passages and restore free breathing.
• Cough suppressants: Reduce the cough reflex.
• Expectorants: Provide relief from chest congestion by loosening the phlegm, thereby
making each cough more efficient.
• Alcohol: Provides a base for the other ingredients in some products and helps the patient
rest. (Some consumers view alcohol as a negative attribute.)
A brand can be made available in one of three forms: liquid, capsule, or spray. A consumer’s
choice with regard to form is usually based on personal preference, but some general differences
are apparent. Nasal sprays contain only a topical nasal decongestant that provides faster relief
from sinus congestion than other forms. Capsule and liquid cold medications might contain any
combination of ingredients, although cough medicine is usually found in liquid form to help
soothe throat irritation. According to a recent survey, most consumers find that capsule form is
somewhat more convenient than liquid.
Two other basic considerations are duration of the product and possible side effects. Product
duration is typically either 4-hour or 12-hour. The government regulates the amount of
medication for various periods of relief, including the maximum for a 24-hour period without a
prescription. The maximum dosage used in 4-hour formulations cannot be taken more than four
times each day due to over-medication concerns. Twelve-hour formulations can contain twice
the dosage as 4-hour formulations, or half the daily maximum medication. Nasal sprays are
considered instant relief products because they act much faster than standard cold medicines,
but their effectiveness wears off faster.
OTC side effects have become a greater consideration in recent times because of the emphasis
on healthier lifestyles and concerns about performance under medication. Drowsiness due to
antihistamines or alcohol is the most often mentioned negative side effect, especially when these
products are used during the day. Other considerations include upset stomach, long-term effects
of nasal spray, and excessive medication.
As can be seen in Exhibit 1.3, the Allround brand is a 4-hour liquid cold medicine that provides
multi-symptom relief. It contains an analgesic, an antihistamine, a decongestant, a cough
suppressant, and alcohol. Most consumers use this product for nighttime relief because of the
strength of the medication and because the alcohol and antihistamine help the patient rest.
Allround is viewed as one of the most effective brands on the market at reducing multiple cold
symptoms. However, consumer groups and some physicians have attacked the multi-symptom
“shot-gun” approach as providing excessive medication in many circumstances.
PharmaSim Case — 17 —
Market Segmentation and the Market Survey
The trade typically segments the OTC cold and allergy market based on how the brands are
labeled. The four standard product categories in the OTC market are cold, cough, allergy, and
nasal spray. The brand management group often uses the information presented in Exhibit 1.4
as a basis for determining the brand’s direct competition, but also realizes that the report fails to
account for the cross-usage of brands (e.g., using a cold medicine to relieve allergy symptoms).
Exhibit 1.3: Current Brand Formulations
Anal-
gesic
Anti-
hist.
Decn-
gest.
Cough
Supp.
Expect.
Alco-
hol
Description
Max Allow 1,000 4 60 30 200 20 (mg/4-hr dose)
Allround 1000 4 60 30 0 20 4-hr multi liquid
Believe 0 4 0 0 0 0 4-hr allergy capsule
Besthelp 0 4 60 0 0 0 4-hr cold capsule
Coughcure 0 0 30 30 0 10 4-hr cough liquid
Defogg 0 4 0 0 0 0 4-hr allergy capsule
Dripstop 0 0 60 0 0 0 cold spray
Dryup 1000 4 60 0 0 0 4-hr multi capsule
Effective 0 0 60 0 0 0 cold spray
End 0 0 0 0 200 10 4-hr cough liquid
Extra 0 0 120 0 0 0 12-hr cold capsule
Exhibit 1.4: Market Share by Product Category
Cold Cough Allergy Nasal Total
Mfr. Sales (M$) 879.7 366.4 126.1 119.1 1,491.2
Growth 6.6% 3.2% 5.9% 4.5% 5.1%
% % % % %
Allround 40.4 0.0 0.0 0.0 23.8
Believe 0.0 0.0 50.7 0.0 4.3
Besthelp 25.2 0.0 0.0 0.0 14.9
Coughcure 0.0 54.3 0.0 0.0 13.3
Defogg 0.0 0.0 49.3 0.0 4.2
Dripstop 0.0 0.0 0.0 52.0 4.2
Dryup 14.9 0.0 0.0 0.0 8.8
Effective 0.0 0.0 0.0 48.0 3.8
End 0.0 45.7 0.0 0.0 11.2
Extra 19.5 0.0 0.0 0.0 11.5
− 18 − PharmaSim Student Manual
A major marketing research firm offers a nationwide survey of OTC cold and allergy consumers.
The market research firm claims that this survey provides a great deal more information on how
consumers perceive and use cold and allergy products. The firm also suggests that demographic
segmentation could reveal important information about the market. Survey data are provided
with two segmentation options: illness (cold, cough, and allergy) and demographics (young
singles, young families, mature families, empty nesters, and retired). The marketing research firm
conducts this survey every period. (A Sample Market Survey Questionnaire concludes the case.)
Curious about possible new market insights, the OCM group obtained partial non-segmented
results of the market survey on a “free to examine” trial basis. If the group finds the sample data
informative, it may purchase the complete survey for $100,000. The OTC cold and allergy market
could then be analyzed based on any or all combinations of illness and demographics that the
OCM group desires.
Survey Data
The consumer survey consists of the following reports: 1) market share based on consumer brand
purchases; 2) purchase decision-making criteria used by consumers; 3) brand awareness, trial,
and repurchase percentages; 4) brand satisfaction; 5) a comparison of intended versus actual
purchases; 6) a comparison of brands based on consumers’ perceptions of their ability to relieve
symptoms; and 7) the tradeoff that consumers perceive between symptom relief and price. The
sample data for awareness, trial, and repurchase are presented in Exhibit 1.5.
The survey results on Brands Purchased, Purchase Intentions, and Satisfaction are based on units
sold. Brand Awareness, Decision Criteria, Brand Perception, and Tradeoffs are based on survey
population. This distinction reflects multiple purchases from one survey respondent (usage
rates).
Exhibit 1.5: Market Survey—Brand Awareness, Trials, and Repurchase
Brand
Brand
Awareness
Brand
Trials
Most Freq.
Purchased
Conversion
Ratio
Retention
Ratio
% % % % %
Allround 74.1 % 47.1 % 21.8 % 63.6 % 46.3 %
Believe 18.9 % 9.2 % 3.8 % 48.5 % 41.9 %
Besthelp 56.6 % 30.0 % 13.0 % 53.1 % 43.2 %
Coughcure 49.0 % 29.0 % 18.4 % 59.1 % 63.6 %
Defogg 24.1 % 13.0 % 4.1 % 53.9 % 31.8 %
Dripstop 20.2 % 11.3 % 3.6 % 56.1 % 31.4 %
Dryup 23.2 % 10.9 % 7.2 % 47.0 % 65.6 %
Effective 22.0 % 12.0 % 3.1 % 54.5 % 26.2 %
End 46.9 % 30.6 % 15.6 % 65.3 % 50.8 %
Extra 60.1 % 31.8 % 9.5 % 52.8 % 29.9 %
PharmaSim Case — 19 —
The OCM group found the data insightful. They were pleased that Allround had very high
awareness. The survey measures the percent of those queried who mentioned the Allround
brand without prompting, which is considered “unaided awareness.” In addition, the Allround
brand had the highest trial level and was the brand most frequently purchased. Allround’s
conversion ratio (the percentage of those aware of a brand who have tried it) is also high. The
brand manager noted that the retention ratio (the percentage of those who have tried the brand
who now purchase it most often) for Allround was lower than that for several other brands. The
OCM group wondered if this might be a signal of future problems, but the brand assistant recalled
that new brands and brands that fill very specific needs often have higher retention rates than
brands that are mature or not highly targeted.
Other Marketing Research
In addition to the survey data, other information about the market is available. Market trade
publications, similar to Exhibit 1.4, are free to the OCM group and provide data for industry
outlook on population, market growth rate, inflation, wholesale/direct distribution, and
symptoms reported by consumers. Other data concerning competition and distribution are
available for a fee. These include a comparison of relevant operating statistics for each company;
competitive estimates of sales force allocation, advertising expenditures, and message and
promotional programs; and studies of distribution regarding share of channel sales, pricing,
consumer shopping habits, average shelf space, and physician and pharmacist recommendations.
Assistant Brand Manager and above can also conduct test markets which allow you to experiment
with different combinations of price, advertising, and promotion. In some cases, Brand Managers
may be able to use a new conjoint study to help with product decisions.
The OCM group believes that the Marketing Research studies contain useful information, but
that they also need to examine the trade-off between the cost of these studies and the
information for decision-making that these studies provide. They also need to recognize that all
marketing research studies have some error in them.
− 20 − PharmaSim Student Manual
Industry Competition
Pricing and Promotional Allowances: It is industry
practice for manufacturers to suggest retail prices
to retailers, although retailers ultimately set the
price to consumers. Manufacturers commonly offer
volume discounts of 15-40 percent of the
manufacturer’s suggested retail price plus an
additional “promotional allowance” of 10-20 percent. Allowances are necessary to gain retail
distribution, obtain desired shelf facings in retail outlets, and gain retailer support for a brand in
advertisements and promotions undertaken by the retailer. Allowances are usually discussed
with retailers in conjunction with price levels but are also considered to be a type of promotional
expense. Thus, allowances appear on the income statement as a separate variable cost line item.
Exhibit 1.6 displays the current pricing policies for the Allround brand.
Exhibit 1.6: Price / Volume Discount Schedule for Allround ($)
By Discount Schedule
Direct
Volume
Discount
Price to
Channel
Units Sold
(M)
Dollars
Sold ($M)
% of Total
Sales
Suggested Retail: $ 5.29
<250 25 % $ 3.97 10.5 $ 41.8 11.8 %
<2500 30 % 3.70 35.4 131.2 36.9 %
2500 + 35 % 3.44 15.1 51.9 14.6 %
Indirect / Wholesale 40 % 3.17 41.1 130.3 36.7 %
NOTE: This information is only available at the Assistant Brand Manager level and above in the simulation.
The manufacturer’s suggested retail price (MSRP) for Allround is relatively high with volume
discounts ranging from 25–40%, not including promotional allowances. However, the OCM group
believes that Allround’s sales have not suffered because of the higher price. In fact, the brand’s
effectiveness, high recognition, and level of loyalty have allowed it to maintain a price leadership
role in the market. Exhibit 1.7 provides the MSRPs for all brands in the market.
Exhibit 1.7: Manufacturer’s Suggested Retail Prices
Allround $ 5.29 Dripstop $ 4.29
Believe 4.39 Dryup 5.09
Besthelp 4.89 Effective 4.39
Coughcure 5.49 End 5.29
Defogg 4.29 Extra 4.49
The OCM group monitors competitive activity
in a number of areas, including pricing and
promotional allowances, advertising,
consumer and trade promotion, and sales
force allocation.
NOTE: A market research
report showing the
average retail price by
channel is available for
$20,000.
PharmaSim Case — 21 —
Advertising
Advertising plays a major role in establishing brand awareness among consumers and in helping
to shape consumers’ perceptions of products. Last period, $20 million dollars was spent on
Allround’s advertising campaign, primarily for commercials aired on network television.
Competitive advertising budgets for last period ranged from $1 million for the Effective brand to
$16 million for Coughcure.
There are four basic advertising message types that the OCM
group considers potentially useful for Allround: a primary
demand stimulation to focus the advertising message on
increasing overall demand for OTC remedies while increasing
Allround’s unaided awareness; a benefits approach that
states the symptomatic relief properties of Allround; a
comparison approach that positions Allround against
another brand; and a reminder advertising message to
maintain consumer awareness and stimulate the repurchase of Allround. The advertising
message used in any period can be a combination of these types and Allround used all of them
to some extent last period in their campaigns. The advertising message can also target product
use (cold, cough, and/or allergy) and demographics (young singles, young families, mature
families, empty nesters, and/or retired). This targeting provides guidance to the advertising
agency for creative aspects of the ad design and selection of specific media placements.
The OCM group is considering the selection of a new advertising agency. Allround’s current
agency is Brewster, Maxwell, and Wheeler (BMW). This agency is known for its high quality work
but charges a 15 percent commission on media placements. There is some concern that BMW
costs too much and is having an adverse impact on Allround’s profits. The OCM group has
received solicitation from two other advertising agencies. Sully & Rodgers (S&R) has a reputation
of providing mid-range quality work but charges only 10 percent on media placements. Lester
Loebol & Company (LLC) charges only 5 percent on media placements, one-third as much as
BMW, but its advertising campaigns are of significantly lower quality. It could be argued that,
since the Allround name is well established, a decrease in the quality of advertising might not
hurt the brand significantly. Potential cost savings could result in an increase in profits, but the
group is concerned that lower quality advertising might cause irreparable damage to Allround’s
brand image.
Promotion
Trade promotions include promotional allowances and co-op
advertising. Promotional allowances, also discussed in the pricing
section, are an additional discount to the channel. Co-op advertising
provides incentives to the channel to feature a specific brand in their
own advertising. Money is made available to retailers to pay for a portion
of the retailer’s advertising when the relevant brand is promoted.
The OCM group must make three
basic advertising decisions each
period: the amount of dollars
allocated to the advertising
budget, the content of the
advertising message, and the
choice of an advertising agency.
Consumer and trade
promotions are a
significant part of
marketing in the
OTC cold and allergy
remedy market.
− 22 − PharmaSim Student Manual
Consumer promotions include distribution of free trial size
packages, coupons, and point-of-purchase displays. Trial sizes
come in smaller packages and allow consumers to try a product
before buying. Allround did not use trial size packaging last
period but may consider this option in the future. As the name
implies, trial size packaging usually contains a smaller dosage of
medicine and is provided to potential consumers free of
charge. This promotion can be used to attract potential
consumers to the Allround brand.
Coupons distributed to consumers in special newspaper or magazine supplements offer
additional discounts off the retail price when redeemed at the time of purchase. In the last
period, a part of Allround’s consumer promotion budget was spent on coupon support. This
included money spent on printing, inserts, and mailings.
Point-of-purchase vehicles are special displays, such as retail sale racks, on-shelf advertisements,
or end-of-aisle displays that promote a brand to the consumer in the retail store. The OCM group
believes that these displays promote brand switching when the consumer is purchasing OTC
products. Point-of-purchase money is paid to the retailer, but the promotion targets the end
consumer. The brand manager may allocate these funds across retail channels depending on such
factors as shopping habits and channel needs. Exhibit 1.8 is a summary of last period’s
promotional activity for the Allround brand.
Exhibit 1.8: Promotional Activity
for the Allround Brand (in $000s)
Promo Allowances $ 60,400 (17.0%)
Co-op Advert 1,400
Point of Purchase 1,400
Trial Size 0
Coupons 4,200 ($0.50 / ea.)
Sales Force
The support of a manufacturer’s sales force is critical to the success of a brand in the OTC cold
and allergy market. Part of the sales force sells directly to retail outlets. This direct sales force is
responsible for maintaining relationships with current retailers and for developing new retail
accounts. The direct sales force also presents trade promotions, allowances, and new product
introductions to retailers.
Allstar Brands spent significant
amounts on consumer and
trade promotions for the
Allround brand last period. As
was the case in advertising,
the OCM group believes that
Allround has more
promotional support than any
other brand on the market.
The OCM group not only allocates money for
each of these promotional activities but also
determines the promotional effort across all
retail outlets within the various distribution
channels.
PharmaSim Case — 23 —
Wholesalers sell OTC brands to smaller, independent retailers
that are not reached by the direct sales force of the
manufacturer. Merchandisers provide special support to retailers
for their in-store activities, such as shelf location, pricing, and
compliance with special promotions. Detailers contact doctors
and pharmacists to provide information about their brand,
introduce new products, and encourage doctors or pharmacists
to recommend their brand to consumers.
The OCM group determines the total size of the sales force, including the proportion of direct
and indirect support. The brand manager allocates the direct sales force to each type of retail
outlet and the indirect sales force to its three components (wholesalers, merchandisers, and
detailers). The group must also be concerned with sales force hiring and training costs. The latter
is critical to the pharmaceuticals business, even in OTC drugs.
Channel Choices
As noted above, Allround uses both direct and indirect
channels of distribution. Generally, direct sales target larger
urban and suburban stores, as well as chain retail accounts.
Wholesalers typically serve smaller retail outlets and more
rural areas, where the revenues generated for Allround do not
support the cost of maintaining a salesperson. Wholesalers
carry many product lines and therefore have a broader revenue
base for supporting the cost of their sales force.
Gaining the support of the channel is an important part of a brand’s success, and shelf space
allocation and placement can have a significant effect on brand sales. The OCM group paid for a
study of average shelf space in retail channels and found that Allround did not receive the best
placement in all channels. The group wondered why Allround did not consistently receive the
best placement, since the brand typically generated higher volume than any other OTC
medication. Due to this concern, they asked their sales force to query retailers about shelf space
allocation among brands. The results from this informal survey showed that retailers considered
four basic factors regarding shelf space allocation: product turnover (number of units sold in a
given period of time), promotional allowances, sales force support, and co-op advertising
Exhibit 1.9: Allround – Sales Force Allocation
Direct # SF Indirect # SF
Independent Drugstores 6 Wholesalers 15
Chain Drugstores 28 Merchandisers 8
Grocery Stores 43 Detailers 10
Convenience Stores 3 Sub-Total (Indirect) 33
Mass Merchandisers 14
Sub-Total (Direct) 94 Total Sales Force 127
Manufacturers also maintain
an indirect sales force, which
includes wholesalers,
merchandisers, and
detailers, designed to sell
into and support the indirect
distribution system.
OTC cold and allergy remedies
are sold at retail in
independent and chain
drugstores, full-line grocery
stores, convenience stores (or
small roadside markets, such as
7-11), and mass merchandisers
(such as Kmart).
− 24 − PharmaSim Student Manual
allowances. In general, large grocery stores, mass merchandisers, and chain drugstores were
more apt to focus on turnover and allowances, whereas independent drugstores paid greater
attention to sales force support. The OCM group hoped that this information might prove useful
in determining how to allocate their resources across distribution channels.
Internal Product Development
The OCM group has important product development and management decisions to make over
the next decade and must work closely with the product research and development (R&D) area
within Allstar Brands. R&D can provide three major types of product development for the
Allround brand group: reformulation of the ingredients in Allround; line extensions of the basic
Allround brand; and development of a new brand. New brand options may include ingredients
currently available by prescription only should government regulations change. These
proprietary prescription only medications may offer Allstar Brands competitive advantages in the
OTC market.
After lengthy discussion, the OCM group and R&D agreed that the following schedule would
frame the group’s product development decisions. After the given period of time, these product
alternatives will not be available to the OCM group because R&D will be busy with other projects.
They simply will not have the time to work on these projects outside of this schedule.
Product Development Schedule
Two reformulations of the Allround brand will be available from R&D in Period 1 or 2. The two
options under consideration are dropping the alcohol or replacing the cough suppressant with
an expectorant. If used, the reformulation would replace the current product configuration. The
OCM group must decide by the end of Period 1 or 2 between these two reformulations (for
introduction in the market the following period). The opportunity to decide to reformulate will
not be available to the OCM group after Period 2.
Three potential line extensions will be available from R&D in Period 3 or 4. The three options
under consideration are a 4-hour cold liquid for children, a 12-hour multi-symptom capsule, or a
4-hour cough liquid. If introduced, the line extension will provide a new stock-keeping unit (SKU)
in addition to Allround, but also take advantage of Allround’s awareness. The OCM group must
decide by the end of Period 3 or 4 from among these three choices (for introduction in the market
the following period). The opportunity to decide on a line extension will not be available to the
OCM group after Period 4.
Three new product formulations will be available from R&D in Period 5 or 6. The three options
under consideration are a 4-hour allergy capsule, a cold spray, or one of the line extensions not
previously chosen (to be determined by R&D). The allergy medication is based on a unique, non-
drowsy product that is currently available by prescription only. However, the company is planning
to submit the product for government approval. The OCM group must decide by the end of Period
5 or 6 from among these three new product choices (for introduction in the market the following
period). The opportunity to launch a new product line will not be available to the OCM group
after Period 6.
PharmaSim Case — 25 —
R&D will be available in Periods 7 and 8 to reformulate Allround. The OCM group must decide by
the end of Period 7 and/or by the end of Period 8 (for introduction into the market the following
period) whether or not to reformulate Allround.
Allround Reformulation, Line Extension, and New Product Introduction Timeline
R R L L N N R R
Financial Situation
An income statement is presented in Exhibit 1.10. Allround is a successful and profitable brand
with sales of $355.3 million at the manufacturer’s level last period. The gross margin was $172.3
million, and the margin after advertising and promotional expenses was $145.3 million. The
margin after all marketing expenditures, including sales force and administrative costs, was
$129.5 million. The Allround brand also carries its share of fixed costs, including the plant where
Allround is produced and a share of corporate overhead charges. The OCM group knew that if
demand warranted, the plant would be expanded and fixed costs would increase based on the
increase in capacity. These fixed cost charges currently were $62.4 million, leaving a net income
of $67.2 million. Senior management of Allstar Brands expects the OCM group to make even
greater contributions in the future.
The OCM group has received a budget to make marketing decisions for the Allround brand. The
marketing budget must cover all sales force, advertising, and consumer and trade promotion
expenditures. In addition, any marketing research purchased is a budget expense. Promotion
allowance, however, is treated as a price discount and is not charged against the budget. Each
year, the marketing budget is adjusted up or down based on sales and net contribution
performance. If a line extension or new product is introduced, the group will receive additional
budget funds to help with the launch. Unused budget will not be carried forward to the next year,
and budget deficits are not permitted. The brand management group must determine the best
Note: Decisions on reformulations, line extensions, and new product introductions must be
made by the end of a given period (before advancing the simulation) for introduction at the
beginning of the following period.
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way to allocate the available funds, and can use the marketing efficiency index (ratio of net
income divided by marketing expenditures) to track performance.
Exhibit 1.10: OCM Group Income Statement
$ (M) $ (M) %
Manufacturer Sales 355.3 100.0
Promotional Allowance 60.4 17.0
Cost of Goods Sold 122.6 34.5
Gross Margin 172.3 48.5
Consumer & Trade Promotions 7.0 2.0
Advertising 20.0 5.6
Sales Force 6.0 1.7
Administrative 9.8 2.7
Total Marketing Expenses 42.8 12.0
Contr. after Marketing 129.5 36.5
Fixed Costs 62.4 17.6
Net Income 67.2 18.9
The Marketing Task
The task of the Allround brand management team is to maintain long-term profitability and
market share in an increasingly competitive and changing environment. With great enthusiasm,
the OCM group sets out to do the job. Each member has separate assignments, but all are
concerned with the performance of the Allround brand and any new brands that might be
forthcoming. It will be necessary to use the information presented in the exhibits and possibly
other marketing research studies to assess Allround’s situation. After completing its analysis of
the situation, the group will then make decisions in the areas of product choice, distribution,
promotion, and pricing. The group must keep in mind that all decisions are interrelated and must
be considered in context. It will repeat this process over the coming 10 periods as it attempts to
establish AllStar Brands as the leader in both profitability and market share in OTC cold
medication.
PharmaSim Case — 27 —
Sample
Market Survey Questionnaire
This market survey questionnaire was designed to be asked to consumers at the point of
purchase (drugstore, grocery store, convenience store).
Market Survey Questionnaire
PURCHASE INFORMATION
1. Did you purchase any cold medicine? YES NO
— If you answered “NO” above, go to question 5 —
2. Which brand of cold medicine did you purchase? __________________________
3. Which brand of cold medicine did you intend to buy? __________________________
SATISFACTION
4. Overall, are you satisfied with the product you just purchased? YES NO
5. Which brands of cold medicine have you heard
of?
Allround Besthelp Believe
Coldcure Coughcure Dripstop
Defogg Effective Extra
End Other
6. Which brands of cold medicine have you tried?
Allround Besthelp Believe
Coldcure Coughcure Dripstop
Defogg Effective Extra
End Other
7. Which brand of cold medicine do you purchase
most frequently?
Allround Besthelp Believe
Coldcure Coughcure Dripstop
Defogg Effective Extra
End Other
(Continued on next page…)
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(Continued from previous page.)
DECISION CRITERIA
8. Please rank the following product attributes in order of importance in your decision to
purchase cold medicine:
______________________ Product Effectiveness
______________________ Side Effects
______________________ Price
______________________ Form
______________________ Duration
BRAND PERCEPTIONS / TRADEOFFS
9. Of the brands you mentioned having heard of (from question 5), how effective would you
rate the ________________ brand of cold medicine in relieving the following symptoms:
< Not At
All
Effective
Extremely
Effective >
Aches 1 2 3 4 5
Nasal Congestion 1 2 3 4 5
Chest 1 2 3 4 5
Runny Nose 1 2 3 4 5
Cough 1 2 3 4 5
Allergy 1 2 3 4 5
10. What is your perception of the price
of ____________ brand?
Inexpensive Affordable Expensive
Price 1 2 3 4 5
SEGMENT INFORMATION
11. Age: ___________
12. Household Size: _______________
13. What illness are you suffering from? Cold Cough Allergy
PharmaSim Case — 29 —
- 1: PharmaSim Case
The Brand Management Group at OCM
Industry Overview
The OTC Cold Remedy Market
Market Segmentation and the Market Survey
Industry Competition
Internal Product Development
Financial Situation
The Marketing Task
Sample Market Survey Questionnaire
Welcome to Allstar Brands! As a new Marketing Assistant Trainee you have a lot to learn before you can take over management of one of our most important brands, Allround. One key to developing effective marketing strategies is to make informed decisions based on thorough analysis of research information.
Write your Competitive analysis based on the reports below. Your analysis must include:
· A list of the main competitors you face in your industry (or niche)
· A summary of all of their products or services
· An analysis of all of the strengths and weaknesses of your competition (and your own company)
· An overview of the strategies being used by the competition to achieve their objectives
· An overview of the market, and projections for the future
