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Pharmasim simulation report

Initial Strategy

Allstar Brands’ over-the-counter medicine (OTC), Allround is classified as a cold medicine that alleviates the following symptoms: aches, fever, runny nose, nasal congestion, cough. Allstar has limited its target market due to treating colds and using alcohol as an ingredient in Allround. To have a competitive advantage, we need more products on the market. Our current product/brand focuses on colds, while the other brands cover a wide scope of the OTC market: cough, allergy, and nasal. Our product formulation: analgesic, antihistamine, decongestant, cough suppressant and alcohol (see Appendix A). We will produce two new products: a non-drowsy cold medicine (a reformulation of Allround) and an allergy remedy.

Allround cold medicine is limited to night-time cold sufferers and is not kid-friendly due to the alcohol found in the product. Allround will be reformulated by removing alcohol and replacing the cough suppressant with an expectorant and will target day-time sufferers as well as children. Allstar has two main competitors in the allergy remedy market, B&B Health Care and Driscol Corporation. Both competitors produce a 4-hour allergy capsule; Allstar will create an allergy remedy in the form of a 4-hour allergy capsule (see Appendix B).

Though cold medicine can be used to treat allergy symptoms, our biggest competition that we face does not have a product in that market. Thus, by producing an allergy product we would have an advantage over our biggest competition.

To incorporate a new product successfully, our marketing needs to be geared towards those suffering from allergies in a wide age range. Many consumers are already aware of the Allround brand (74.1%) and Allround has the highest percentage in market share for cold products (40.4%). With the consumers already knowing our brand, implementing another product should be geared towards the same base demographics – young families and mature families. The issues that may arise would be steering our current consumers who typically purchase our cold medicine to help relieve their allergy symptoms, towards purchasing our new allergy medicine instead. Allround has a moderately high retention rate among its consumers. All of this speaks to the consumer’s loyalty for our product. We believe this is a good opportunity to market a new product and profit. Our performance objectives include boosting stock price 30%, increasing total sales by 3% as well as increasing market share by 5%. To obtain the projected increases, we will allocate more funds toward advertising, promotion and obtaining prime shelf space.

Stock Price

Exhibit A: Stock Price

Current Stock Price $38.35 Projected Stock Price $49.86

Sales: If Sales are increased by 3% - Net Income increases approximately 15.5%

PharmaSim Summary

Manufacturer’s Suggested Retail Price

Manufacturer’s suggested retail price (MSRP) is the suggested price that the manufacturer thinks that the product should be sold for. With our product Allround, the MSRP started at $5.29. There is heavy competition in the market for this product, so we decided to drop the price to $4.99 in the first period. That price remained $4.99 through period 9. In period 4, we reformulated the original Allround product and called it Allround+. This MSRP was started at $4.99. This price remained until period 7, when we decided to discontinue the product due to the lack of customer satisfaction with this product. We also introduced another product in period 6 called Allright. Allright’s MSRP started at $3.99 and ended at a MSRP of $4.65 in Period 8.

Advertising Budget

Allround started with an advertising budget of $20 million. In period 1, we decided to decrease that budget to $4.0 million and we also switched to another advertising agency, S&R. We kept this budget through period 2, but decided to increase that budget to $5.5 million in period 3 and we also decided to switch to another advertising agency, BMW. In period 4 we decided to increase the advertising budget for Allround to $7.0 million. With the addition of the new product, we had a separate advertising budget for that. Because it is a new product we wanted to go strong with the advertising in order to get the new product noticed; we started this advertising budget at $7.0 million. Unit sales continued to increase in period 5 for both products so we decided to continue to be aggressive with this budget and increase the Allround advertising budget to $10 million, but we decided to keep the advertising budget for Allround+ at $7.0 million. Unit sales for Allround did not increase in period 6 so we decided to increase the advertising budget again to $10.5 million. The unit sales for Allround+ increased, but we decided to keep the advertising budget for this product as is. This is the period that we added another product, Allright, and we started this budget at $5.0 million. To review the performance of Periods 1 through 8, see Appendix E.

PharmaSim Simulation – Period 1

Prior to Period 1, Allround was priced at $5.29 and was geared towards all demographics. During this time Allstar Brand’s stock price was listed at $38.35. Our team decided to narrow our target market to young families and mature families with an emphasis on cold and allergy symptoms. To attract our new target market, we decided to use Sully and Rogers as our advertising agency to promote Allround’s benefits and used Dryup as a comparison in our advertisements. Within our advertising message, there was an emphasis on Benefits (45%) followed by the comparison with Dryup (35%) and equal parts primary message (10%) and product reminder (10%). Allstar’s total sales force allocation equaled 133 sales personnel (see Appendix C). To have a competitive advantage, we lowered the MSRP for Allround to $4.99 which is $0.10 cheaper than our main competitor – Dryup priced at $5.09. With a $4.99 MSRP we chose to have our volume discounts range from 15% to 30% (see Appendix D). Our promotional allowance consisted of 10% Independent Drugstores, 18% Chain Drugstores, 17% Grocery Stores, 18% Convenience Stores, 12% Mass Merchandisers and 15% Wholesalers. Coop advertising and point of purchase was allotted $1.4 million each along with $4.2 million invested in Coupons worth $0.75 and $0.3 in trial size.

PharmaSim Simulation – Period 2

The end of Period one, our stock price had increased to $66.99. During this period, there was a change to the benefits promoted for Allround the benefit we had promoted was “helps you rest”, now that benefit has been exchanged for “won’t cause drowsiness”. Allstar’s total sales force allocation equaled 136 sales personnel (see Appendix C). We choose to maintain a $4.99

MSRP as well as the volume discounts (see Appendix D). Our promotional allowance consisted of 10% Independent Drugstores, 18% Chain Drugstores, 17% Grocery Stores, 18% Convenience Stores, 12% Mass Merchandisers and 15% Wholesalers. Co-op advertising and point of purchase was allotted $1.4 million each along with $4.2 million invested in Coupons worth $0.75 and $0.3

in trial size.

PharmaSim Simulation – Period 3

The end of Period two, our stock price had decreased to $56.85. During Period Three, we decided to switch to Brewster, Maxwell & Wheeler to create our advertisements and increase our budget to $5.5 million. There was a change to the comparison portion of our ads due to Curall introducing Coldcure; we switched from Dryup to Coldcure and lowered the emphasis to 30%. Allstar’s total sales force allocation equaled 175 sales personnel (see Appendix C). We choose to maintain a $4.99 MSRP. The range of volume discounts was adjusted, 15% to 35% (see

Appendix D). Our promotional allowance consisted of 10% Independent Drugstores, 18% Chain

Drugstores, 17% Grocery Stores, 18% Convenience Stores, 12% Mass Merchandisers and 15% Wholesalers. Co-op advertising was increased to $1.5 million while point of purchase remained at $1.4 million with $4.2 million invested in Coupons worth $0.75 and $0.3 in trial size.

PharmaSim Simulation – Period 4

The end of Period three, our stock price had decreased to $49.66. Our advertising budget was increased to $7 million; no other changes were made with advertising. Allstar’s total sales force allocation equaled 173 sales personnel (see Appendix C). In this period, a line extension was introduced, Allround+. Allround+ was a reformulation of Allround by removing alcohol. We choose to maintain a $4.99 MSRP for Allround and set Allround+ at $4.99 MSRP. We choose to increase the range of the volume discounts, 20% to 35% (see Appendix D) and set the same discounts for Allround+ (see Appendix D-1). The promotional allowance for Allround consisted of 13% Independent Drugstores, 20% Chain Drugstores, 20% Grocery Stores, 20% Convenience Stores, 15% Mass Merchandisers and 18% Wholesalers. The promotional allowance for

Allround+ consisted of 13% Independent Drugstores, 20% Chain Drugstores, 20% Grocery Stores, 20% Convenience Stores, 15% Mass Merchandisers and 18% Wholesalers. Co-op advertising for both products were set to $2.5 million, point of purchase set to $2.0 million with $5 million invested in Coupons worth $0.75 and $2.0 in trial size.

PharmaSim Simulation – Period 5

The end of Period four, our stock price had decreased to $49.49. Our advertising budget was increased to $10 million only for Allround; no other changes were made with advertising. Allstar’s total sales force allocation equaled 196 sales personnel (see Appendix C). No changes were made to either product’s MSRP or volume discounts (see Appendix D/D-1). Allround’s promotional allowance consisted of 16% Independent Drugstores, 20% Chain Drugstores, 20%

Grocery Stores, 20% Convenience Stores, 20% Mass Merchandisers and 18% Wholesalers.

Allround+’s promotional allowance consisted of 16% Independent Drugstores, 20% Chain

Drugstores, 20% Grocery Stores, 20% Convenience Stores, 18% Mass Merchandisers and 18% Wholesalers. Co-op advertising for both products remained at $2.5 million, point of purchase remaining at $2.0 million with $5 million invested in Coupons worth $0.75 and $2.0 in trial size.

PharmaSim Simulation – Period 6

The end of Period four, our stock price had increased to $57.13. . Our advertising budget was increased to $10.5 million only for Allround, no other changes were made. Allstar’s total sales force allocation equaled 194 sales personnel (see Appendix C). During this period, we introduced a line extension, Allright, a 4-hour allergy capsule. We choose to maintain a $4.99 MSRP for Allround & Allround+ and set Allright at $3.99 MSRP We choose to maintain the range of the volume discounts, for Allround (see Appendix D) & Allround+ (see Appendix D-1) and set the same discounts for Allright (see Appendix D-2). Allround’s promotional allowance consisted of 18.5% Independent Drugstores, 20% Chain Drugstores, 20% Grocery Stores, 20% Convenience Stores, 20% Mass Merchandisers and 18% Wholesalers. Allround+’s promotional allowance remained the same as the previous period. Allright’s promotional allowance consisted of 15% Independent Drugstores, 16% Chain Drugstores, 10% Grocery Stores, 13% Convenience Stores, 18% Mass Merchandisers and 20% Wholesalers. Co-op advertising for Allround and Allround+ remained at $2.5 million, point of purchase increased to $3.0 million with $5 million invested in Coupons worth $0.75 and $2.0 in trial size. Allright’s Co-op advertising was set at $3 million, and point of purchase set to $3.0 million with $4 million invested in Coupons worth $0.75 and $3.0 in trial size.

PharmaSim Simulation – Period 7

The end of Period six, our stock price had decreased to $56.26. Our advertising budget was increased to $12 million only for Allround, no other changes were made. Allstar’s total sales force allocation equaled 200 sales personnel (see Appendix C). During this period, we decided to discontinue Allround+ due to lack of sales. We choose to maintain a $4.99 MSRP for Allround and increased Allright’s MSRP to $4.21. We choose to maintain the range of the volume discounts, for Allround (see Appendix D) and Allright’s discounts were altered due to the change in MSRP (see Appendix D-2). Allround’s promotional allowance consisted of 18.5%

Independent Drugstores, 20% Chain Drugstores, 20% Grocery Stores, 20% Convenience Stores, 20% Mass Merchandisers and 18% Wholesalers. Allright’s promotional allowance consisted of

15% Independent Drugstores, 16% Chain Drugstores, 12% Grocery Stores, 15% Convenience Stores, 18% Mass Merchandisers and 20% Wholesalers. Co-op advertising for Allround increased to $4.5 million, point of purchase increased to $6.0 million with $5 million invested in Coupons worth $0.75 and $2.0 in trial size. Allright’s Co-op advertising increased to $4 million, and point of purchase increased to $5.0 million with $4 million invested in Coupons worth $0.75 and $3.0 in trial size.

PharmaSim Simulation – Period 8

The end of Period seven, our stock price had decreased to $42.97. Our advertising budget increased to $13 million for Allround, no other changes were made. Allstar’s total sales force allocation equaled 200 sales personnel (see Appendix C). We choose to maintain a $4.99 MSRP for Allround and increased Allright’s MSRP to $4.65. We choose to maintain the range of the volume discounts, for Allround (see Appendix D) and Allright’s discounts were altered due to the change in MSRP (see Appendix D-2). Allround’s promotional allowance remained the same as the previous period. Allright’s promotional allowance consisted of 15% Independent Drugstores,

16% Chain Drugstores, 15% Grocery Stores, 15% Convenience Stores, 18% Mass

Merchandisers and 20% Wholesalers. We decided to decrease the amount of coupons for Allround to $3 million and reduce trial size to $1.5 million; we lowered Allright’s coupons to $2 million and trial size to $1.5 million

Conclusion

Throughout this simulation we de-emphasized advertising as a firm. We noticed that after period 2 we needed to make some changes in the advertising budget as a firm because there was still a de-emphasis on advertising. The de-emphasis put us below the industry norm when it came to advertising expenditures, which ended up being money wasted [Win11]. To help determine what companies should spend on advertising depends on certain conditions, some being:

  • There are many end-users
  • The typical purchase amount is small
  • The product or service has a small market share
  • Sales are made through channel intermediaries rather than directly to end-users (Winer &

Dhar, 2011)

Allstar met some of these conditions therefore we should have spent more on advertising, which meant we could have and should have been more aggressive with our advertising budget. Promotion money should be spent on product categories because the decision making for those products is routine and doesn’t take much processing (Winer & Dhar, 2011). We were able to effectively complete this with each of our products.

References

James S. W., Kinnear, T. C., & Deighan, M. (1990). PharmaSim: the marketing management simulation. Charlottesville, VA: Interpretive Software, Inc. (Exhibit 1.3).

Winer, R. S., & Dhar, R. (2011). Marketing Management(4th ed.). Boston, MA: Prentice

Appendix A

Table 1: Future Allstar Pharmaceutical Formulations

Analgesi Antihist Decn- Cough Expect Alcohol Description

  • . Supp. .

Max Allow 1,000 4 60 30 200 20 (mg/4-hr dose)

Allround 1000 4 60 30 0 20 4-hr multi liquid

Allround+ 1000 4 60 0 200 0 4-hr multi liquid

Allright 0 4 0 0 0 0 4-hr allergy capsule

Appendix C

Independe Chain Grocer

Perio nt Drugstore y Convenien Mass Wholesale Merchandise Detailer

  • Drugstores s Stores ce Stores Merch r Support rs s Total

1

8

31

42

3

17

16

9

7

133

2

8

31

42

3

17

16

9

10

136

3

11

34

45

4

20

18

13

30

175

4

11

34

45

4

18

18

13

30

173

5

15

36

48

7

22

20

16

32

196

6

15

36

48

7

20

20

16

32

194

7

15

36

52

11

20

20

16

30

200

8

15

37

55

11

18

18

16

30

200

Appendix D

Est.

unit MSR <250 <250 <250 <2500 2500+ 2500 Wholesal Wholesal

Period Cost P (%) ($) 0 (%) ($) (%) + ($) e (%) e ($)

1

$

1.24

$

4.99

15%

$

4.24

30%

$

30.00

30%

$

3.49

30%

$

3.49

2

$

1.16

$

4.99

15%

$

4.24

25%

$

3.74

30%

$

3.49

30%

$

3.49

3

$

1.20

$

4.99

15%

$

4.24

25%

$

3.74

30%

$

3.49

35%

$

3.24

4

$

1.25

$

4.99

20%

$

3.99

25%

$

3.74

30%

$

3.49

35%

$

3.24

5

$

1.31

$

4.99

20%

$

3.99

25%

$

3.74

30%

$

3.49

35%

$

3.24

6

$

1.35

$

4.99

20%

$

3.99

25%

$

3.74

30%

$

3.49

35%

$

3.24

7

$

1.35

$

4.99

20%

$

3.99

25%

$

3.74

30%

$

3.49

35%

$

3.24

8

$

1.53

$

4.99

20%

$

3.99

25%

$

3.74

30%

$

3.49

35%

$

3.24

Appendix D-1

Est.

unit MSR <250 <250 <250 <2500 2500+ 2500 Wholesal Wholesal

Period Cost P (%) ($) 0 (%) ($) (%) + ($) e (%) e ($)

4

$

1.15

$

4.99

20%

$

3.99

25%

$

3.74

30%

$

3.49

35%

$

3.24

5

$

1.20

$

4.99

20%

$

3.99

25%

$

3.74

30%

$

3.49

35%

$

3.24

6

$

1.24

$

4.99

20%

$

3.99

25%

$

3.74

30%

$

3.49

35%

$

3.24

Appendix D-2

Est.

unit MSR <250 <250 <250 <2500 2500+ 2500 Wholesal Wholesal

Period Cost P (%) ($) 0 (%) ($) (%) + ($) e (%) e ($)

6

$

2.04

$

3.99

20%

$

3.19

25%

$

2.99

30%

$

2.79

35%

$

2.59

7

$

2.01

$

4.21

15%

$

3.58

25%

$

3.16

30%

$

2.95

35%

$

2.74

8

$

2.06

$

4.65

15%

$

3.95

25%

$

3.49

30%

$

3.26

35%

$

3.05

Appendix E

Cum.

Manufacturer Cum. Net Share of Stock

Compan Perio Manufacturer Net Income

Sales Income Manufacturer Price

y d Sales (millions$)

(millions$) (millions$) Sales (%) ($)

(millions$)

A

0

355

355

67

67

23.8

38.35

A

1

450

805

135

203

24.5

66.99

A

2

416

1,221

124

327

22.2

56.85

A

3

408

1,629

105

432

21.2

49.66

A

4

463

2,092

82

514

22.8

49.49

A

5

516

2,609

88

602

23.6

57.13

A

6

572

3,181

61

663

25.6

56.26

A

7

536

3,717

43

706

23.2

42.97

A

8

565

4,282

25

731

23.2

38.29

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