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Final

AFM131 Study Guide - Final Guide: Swot Analysis, Leading Edge, Forego


Department
Accounting & Financial Management
Course Code
AFM131
Professor
Robert Sproule
Study Guide
Final

Page:
of 4
Mike's Bikes Module
Basics of the Game
Start the game selling one line and model of bike and by the end of the game selling three lines
(mountain, youth and road) and three models (style, design or a combination of both)
Your company sells bikes to three types of distributors
Your company will be competing against up to 4 other teams in your section of the course in a
World
Total demand for bikes in a World can change (hopefully increase) as the game progresses
Elements of strategy (strategic planning) - from overall to specific: mission, objectives or goals,
strategy, and tactics
Should be an objective or goal for each of the functional areas: marketing, operations and
finance
Market Analysis
Trade-off in terms quality, advertising, extra support and deliver time, increasing cost versus
increasing sales
Three different mediums for each of advertising and public relations
o TV, internet, and magazines
Distributor sales revenue impacted by the number of bikes sold and the margin on each bike
sold
Market Research Report provided to every firm in each World at the beginning of each year and
should inform decisions for a given year
Each type of distributor sells a different percentage of each line of bike
There are a differing number of distributors by type with different logistics costs
Mike's Bikes Players Manual
Introduction and Overview
Shareholder value is determined by: current share price, plus the value of all past dividends paid
(including interest earned on these dividends)
o Share price is based on the earnings (profit) per share and the debt to equity ratio
o The higher the debt to equity ratio, the higher the risk, the lower the share price
Decisions to be made at the start of the game include: retail price, advertising by medium,
public relations by medium, sales unit forecast and production level (for one model of mountain
bike).
Additional decisions as the game progresses include: branding, extra support by retailer type,
margins by retailer, capacity, efficiency, quality, repayment of debt or additional borrowing,
repurchase of shares or issuance of more shares, payment of dividends, abandon existing model
of a bike line, and adding new model and or line of bike (mountain, youth or road)
The elements of strategic planning are:
o Mission - fundamental purpose of a business
o Situation analysis - how has your company performed and what does a SWOT analysis
tell you
o Objectives/goals - a desired outcome that should be: clear, specific, stated, ambitious
but realistic, consistent with other objectives/goals, measureable, tied to a time period
o Strategy - a broad plan of action for a given objective/goal
o Tactic - specific decision for each strategy
For each year of the game you should: do a situation analysis through reviewing prior period
results and market research reports, re-visit goals, strategies and tactics, enter your preliminary
decisions, review expected results in the Forecast results reports, enter your final decisions
Market Analysis
The Industry
Western capitalist economy, population 12 million people
Consumers have high income and buy any bike that suits their needs
3 segments within market: low cost youth bike, mid-range mountain bike and high cost road
bike
Government regulated market and restricted importing bikes
Local manufacturers produce mountain bike segment
Your Firm
Hired as marketing manager to oversee single product
o Will be promoted as VP and have control of production, finance and product
development
o Will later be promoted to CEO and be responsible for overseeing the planning,
implementation and evaluation of firm’s strategic company plans
Company is leading firms in mountain bike industry
o Operated by management team
o Shareholders invested into your firm, providing it capital (cash)
Market research shows that consumers do not like mountain bike segment
Firm’s design team is developing new bike designs
Our job is to determine possible modifications to existing product or investment in new
products
Segment Overview
Three segment: road, mountain, and youth
In beginning, firm and competitors start with single mountain product, other two are empty
Mountain bike segment
Consumer is typically young person, focused on fitness and outdoors
Wants a bike that goes anywhere and everything
Forego luxury features in a favour of a sturdy, high performance bike
Consumers would pay more for the right bike
Road bike segment
Those who view cycling as a competitive activity
Typical racer owning at least two bikes
Products should be light, fast and leading edge
Consumers not as sensitive to price and will pay up to 2500 retail for right bike
Consumers rarely take advice of sales assistant and not influenced by advertising
Youth bike segment
Market is very large potentially
Average youth will go through 2.1 bikes between ages 4-15
Primary requirements of consumer is through parents eyes
Bike has to be durable and inexpensive while having best image on the block
Consumer Preferences
Meet consumers’ needs will maximize sales and growing potential market size and taking sales
from competitors
Product attributes differentiate products
o Style, design and technical specifications
Consumers require different attributes depending on how they use the bike
When product development decisions are available, you have option to select a new product
from 3 product segments
Each segment has pre-set product attributes
If want to increase product specifications to match preferences, modify existing products
Original mountain bike has not be modified and does not meet consumer preferences
Modify existing product you retain historic knowledge of product (effect of advertising, public
relations and branding)
Increase demand through increasing product attributes
Combine with modification in production costs to increase gross margins (pre-advertising profit)
Market Research Information
Demand is determined by pricing, quality, advertising and distribution
Distribution Overview
Consumers can purchase bikes from bike shops, sports stores and discount stores
Bike shop
Dedicated to bikes and bike related products
Store assistants are trained bike specialists
Stock bikes in mid to high price range (Road and mountain bikes)
Priced slightly higher than discount stores
Less likely to discount stock, rely on higher margin to gain profit
Sports Stores
Stock wide range of sporting equipment
Staff does not know much about individual bikes’ technical aspects, knowledgeable about
purpose of bikes
Sell bikes at higher price than discount stores because they have lower turnover and able to
offer extra advice
Discount Stores
Stocks a wide range of goods
Offer little support to bike manufacturers
Do not have sales people who are bike experts to give customers information
Have largest customer base and focus on quantity
Stock low to mid-price bikes