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Business Strategy Game (BSG)
Quiz 1 Review
Business Strategy Game (BSG) Overview
The Business Strategy Game (BSG) is an online simulation that mirrors the competitive dynamics of the global athletic footwear industry. Participants manage a company, competing against others run by classmates. The goal is to develop a winning strategy that leverages consumer interest in athletic footwear, maintains industry leadership, and achieves consistent earnings growth.
Key Performance Indicators
Earnings per share, ROE, stock price, credit rating, and image rating are crucial indicators of a company's success.
Production Facilities
Going into Year 11, the company has production facilities to make athletic footwear in the Asia-Pacific region and North America.
Geographic Market Regions
The four geographic market regions are Asia-Pacific, Europe-Africa, North America, and Latin America. All footwear companies started with equal market shares in each of these regions.
Production Capacity
The company's production facilities in Asia-Pacific and North America each have sufficient footwear-making equipment to currently produce 4.8 million pairs with full use of overtime.
Production Operations
Standard and superior materials are sourced from outside suppliers at prices that vary according to global demand-supply conditions. Production workers are compensated with base pay and incentive payments per non- defective pair produced.
Workforce Compensation
Compensation includes base wages, incentive payments per non-defective pair produced, and overtime pay.
Factors Affecting Worker Productivity
Worker productivity is influenced by the emphasis on incentive compensation and the annual expenditure per worker for best practice training.
Decision-Making Areas
Each period, decisions are made regarding branded and private-label footwear production, facility expansion and improvements, workforce compensation and training, shipping and distribution, pricing and marketing, celebrity endorsements, corporate social responsibility, and company financing.
Sales Projections
In Year 11, companies can expect to sell an average of 4.84 million branded pairs and 800,000 private-label pairs. However, sales may vary based on competitive efforts.
Market Growth Projections for Branded
Athletic Footwear
Years 11-15: 7%-9% annually worldwide. Years 16-20: 5%-7% annually worldwide. Years 11-15: 9-11% annually in Latin America and the Asia-Pacific. Years 16-20: 7-9% annually in Latin America and the Asia-Pacific.
Market Growth Projections for Private-Label
Athletic Footwear
Years 11-15: 10-12% annually in North America and Europe-Africa. Years 11-15: 12-14% annually in Latin America and the Asia-Pacific. Years 11-15: 11-13% annually worldwide. Years 16-20: 8.5% annually in Latin America and the Asia-Pacific. Years 16-20: 10% annually in North America and Europe-Africa.
Online Sales
Branded footwear sales through the company's website are projected to increase from 15% of total branded sales in Year 10 to 25% by Year 20.
Information Resources
Detailed information and feedback are provided in the Footwear Industry Report, the Competitive Intelligence Report, and the Company Operating Reports. These resources offer insights into company performance, industry outcomes, demand forecasts, competitive standing, and other statistics.
Factors Affecting Styling/Quality (S/Q) Rating
International Footwear Federation (IFF) Assessment
The IFF assesses and rates the styling and quality of footwear from all companies annually. This involves comparing models and brands available in the market and rating the shoes produced at each facility.
Determinants of S/Q Rating
The IFF's S/Q rating is influenced by five key factors: * Current-year spending per footwear model for new features and styling. * The percentage of superior materials used in production. * Current-year expenditures for Total Quality Management (TQM) and/or Six Sigma quality control programs. * Cumulative expenditures for TQM/Six Sigma quality control efforts, reflecting learning and experience curve effects. * Current-year and cumulative expenditures to train workers in using best practices in footwear assembly.
Regional S/Q Ratings
S/Q ratings are calculated for each company in each geographic region where its shoes are sold. This means companies can have up to eight S/Q ratings, covering branded and private-label pairs in North America, Europe- Africa, Asia-Pacific, and Latin America.
Distribution Channels for Athletic Footwear
Primary Channels
Athletic footwear manufacturers access consumers through three main distribution channels: * Wholesale sales to independent footwear retailers. * Online sales to consumers via the company's website. * Private-label sales to large multi-outlet retailers.
Traditional Channel
The traditional primary distribution channel for selling branded footwear is wholesale sales to independent footwear retailers.
Retail Markups
Retail markups on wholesale prices can vary significantly, ranging from 40% at discount chains to as high as 100% at premium retailers.
Online Sales Growth
Online sales of branded footwear have been steadily increasing, accounting for 15% of total branded sales in each geographic region. This percentage is projected to reach 25% by Year 20. Management teams can adjust their emphasis on promoting online sales, potentially resulting in sales above or below the industry average.
Private Label Sales
The growth in private-label sales is driven by multi-outlet chains using lower-priced private-label goods to attract price-conscious consumers. These retailers outsource production through competitive bids.
Benefits of Private Label Production
Producing private-label pairs allows manufacturers to utilize production capacity more efficiently, reducing overall costs per pair. For example, a manufacturer with a capacity of 11 million pairs selling only 9 million branded pairs can use the remaining capacity for private-label production.
Competitive Factors
Factors Influencing Buyer Attraction
Footwear companies compete for buyers based on 11 factors: * Pricing. * Styling and product quality (mirrored in competitors' S/Q ratings). * Breadth of product selection. * Celebrity endorsements. * Advertising. * Brand image and reputation. * Size of footwear retailer networks. * Merchandising and promotional support to retailers. * Mail-in rebates. * Order delivery speed. * Sales efforts at company websites.
Material Grades
Suppliers offer two grades of materials: standard and superior.
Importance of Training
Training production workers in best practices is crucial for minimizing reject rates.
Exchange Rate Adjustments
All footwear companies face exchange rate adjustments at two points: * When footwear is shipped from a facility to distribution warehouses in a
Less Influential Factors
The competitive advantages/disadvantages associated with differences in delivery times, mail-in rebates, and retailer support weigh the least in determining buyer brand preferences and regional unit sales/market share.
Impact of Price Differences
As the price difference between the highest and lowest-priced companies decreases, the impact of price differences on unit sales/market share weakens, and other competitive factors become more significant. If all companies charge the same price, price becomes a nonfactor, and sales/ market share differences stem entirely from the other 12 competitive factors.
Relative Importance of Competitive Factors
The impact of a competitive factor on sales/market share depends on the magnitude of the difference between companies on that factor relative to the differences on other factors.
Impact of Best Practices Training
Expenditures for best practices training have four positive benefits: * Helping curb reject rates associated with defective workmanship. * Helping improve S/Q ratings for both branded and private-label footwear. * Curtailing materials waste and potentially lowering material costs by up to 20% annually. * Increasing worker productivity.
Factors Determining Reject Rates
The Factors that Determine Reject Rates: * The size of the incentive payment per non-defective pair produced. * Spending for TQM/Six Sigma quality control efforts. * Best practices training. * The number of models/ styles comprising the company's product line. * The use of new equipment (as opposed to refurbished equipment even if the refurbished equipment has been recently purchased). * Whether Production Improvement Option A has been installed.
Forecasting Production Needs
The forecast of the approximate number of pairs that need to be produced is updated each time: * you make adjustments in your company's prices, advertising, and other levels of competitive effort to sell footwear online and to footwear retailers. * you make changes in the assumed levels of competitive efforts of rivals (whether rivals, on average will raise/lower prices, advertising, etc., thus presenting your company with stronger/ weaker competition than in the prior year).
Benefits of New Equipment
New equipment offers three key benefits: * Improved quality control, increasing the S/Q rating by 0.5 stars. * Higher operating speeds, increasing worker productivity by 500 pairs per year. * Reduced reject rates by 20%. The magnitude of these benefits is proportional to the percentage of new equipment installed at a facility.
