CALGOLIA INC.

Towards a strategic approach to international marketing

Instructors Notes
OVERVIEW TEACHING WITH THE CALGOLIA CASE TEACHING THE INTRODUCTORY SESSION THE CALGOLIA ASSIGNMENT TEACHING THE CONCLUDING SESSION EXHIBITS A: B: C: D: E: The GAMAR3 simulation CALGOLIA in undergraduate or graduate courses CALGOLIA in executive seminars Example of an Excellent GAMAR3 plan Transparency masters for the introductory session

Copyright 1997 Jean-Claude Larrch, Alfred H. Heineken Professor of Marketing, INSEAD. To be published as part of the Instructors Manual for Boyd, Walker, and Larrch, Marketing Management, 4th edition, McGraw-Hill/Irwin.

CALGOLIA INC.
Towards a strategic approach to international marketing

Instructors Notes
OVERVIEW The CALGOLIA package deals with selected marketing issues at three levels: international marketing, strategic marketing, and the marketing mix. Thus, the instructor can use it as an integrative teaching tool, or concentrate on those aspects which are most appropriate for a part of his or her course. The package is composed of the CALGOLIA case and the GAMAR3 simulation. The case can be used without the simulation, which allows students to manage an international firm on the computer and to test many of the concepts learned during a marketing course. The whole simulation can be run effectively in less than a few hours. Instructors who have previously been discouraged from using other simulations because of the time involved, the high set-up costs, or the computer sophistication will find the CALGOLIA package very easy to use. This learning tool is a major revision of the GAMAR case and has benefited from the comments of many past users. Some of its main features are:

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A clear separation of the case and the simulation. Part I of the case can be used independently before or without the use of the simulation. The separation is reinforced by the use of different names for the company described in the case and for the simulation. The consideration of five real countries United Kingdom, Germany, France, Italy, and Polandas the relevant international market. These countries offer different marketing situations while still representing potential opportunities. Four levels of difficulties in the simulation Basic, Intermediate, Advanced, and Expert allow the instructor to adapt the tool to the level and the objectives of the class. The Basic level with only one product category in two countries provides a good challenge for students in an undergraduate marketing management class! An Analysis module in the simulation which integrates selected information and helps students to concentrate on Key Performance Indicators. A graphical representation of the GrowthShare matrix shows the relative position of each product category in each country. In testing the simulation, it proved to be helpful to students in addressing the issue of allocating scarce marketing resources. A Resources Allocation Strategy module helps students set strategic guidelines for allocating resources as opposed to having to make each individual decision. This has been found to improve the motivation of students, their concentration on strategic issues, and the quality of their results. A Global Price Change module helps students set guidelines for pricing decisions as opposed to making individual decisions. This should improve the students' decisionmaking process.

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TEACHING WITH THE CALGOLIA PACKAGE

The CALGOLIA package includes both the case and the GAMAR3 simulation. The case describes the situation faced by the European Marketing Manager of a North American multinational firm. It offers students a unique opportunity to debate a number of general marketing concepts in a global context. More specifically, three main issues are raised in the case:

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The Marketing Mix. CALGOLIA includes several marketing mix elements: product, price, consumer marketing, and trade marketing. It helps students to improve their understanding of the different role of various marketing tools, of how the effectiveness of each tool varies over the product life cycle, and of the interaction between these tools. Strategic Marketing. Beyond the specification of the mix for a given product, and the allocation of funds between alternate instruments such as consumer and trade marketing, the existence of a product portfolio offers a higher level of strategic consideration. In CALGOLIA, students must determine guidelines for the short and long term allocation of marketing resources between three product categories, Trigols, Ovadols, and Squazols, which are in different markets and competitive situations. International Marketing. The two issues described above concern any marketing situation, and especially domestic marketing, traditionally the implicit reference. The CALGOLIA package broadens students perspective beyond this traditional monoterritory approach which is even less representative of modern management challenges. CALGOLIA concentrates on the two main strategic issues of international marketing: the allocation of resources among countries, and the extent to which marketing elements should be standardized globally, or on the contrary adapted to local conditions. More specialized and tactical issues such as exchange rates, exports, regulations, or local partnering are not addressed in order to concentrate on strategic issues.

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These issues are difficult to teach effectively in the static environment of a traditional case. A computerized simulation is the most appropriate way to illustrate both the effects of the marketing mix and the dynamics of marketing resource allocation. In a simulation, students manage a firm over a period of time and, in an iterative process, they analyze, make decisions, receive rapid feedback, and adjust their strategies over time. The teaching effectiveness of strategic marketing simulations such as MARKSTRAT 1 is now widely documented. They have become an important component of Marketing Management and Marketing Strategy courses. The CALGOLIA package combines the limited time demands of a case study with the learning dynamics of a simulation. It gives the instructor the opportunity to expose students to an integrative simulation without allocating a significant portion of the course to the exercise since it can be used outside the class as a team project or as part of the course over one to three sessions.

See Jean-Claude Larrch and Hubert Gatignon, MARKSTRAT3: The Strategic Marketing Simulation, Cincinnati, Ohio, South-Western College Publishing, 1997. The CALGOLIA case has also been used as a complement to MARKSTRAT3 to emphasize the issues related to international marketing.

The CALGOLIA package is designed to offer a great deal of flexibility to the instructor. By changing the emphasis on its three main learning dimensions (marketing mix, product portfolio strategies, international issues), it can be included in courses on Marketing Principles, Marketing Management, Marketing Strategy, or International Marketing. Similarly, it is attractive to a broad audience, whether inexperienced undergraduates, MBA students, managers from local to medium-sized firms, or executives from large multinational corporations. Extensive use of the learning package in executive seminars shows that it generates as much enthusiasm from young product managers as from experienced vice presidents and CEOs. Teaching CALGOLIA usually involves three basic steps:

Step 1.

Step 2.

Introductory session. This is a class session in which the case is discussed before the simulation is used. The sessions main purpose is to make sure that all students are aware of the various issues involved and of related marketing concepts. This session also gives the instructor the opportunity to be in full control of the exercise. Depending on the teaching environment, he or she may decide to present the role of the exercise in the overall course, to set up teams, to offer hints about learning processes or effective strategies, to review schedules and logistics, or to give a demo of the software . Student Assignment. Individually, or in teams, students develop a marketing plan for CALGOLIA. This involves formulating strategies which are then tested, modified, and refined with the help of the GAMAR3 simulation. The assignment can be carried out in a minimum of two hours in a time-constrained executive seminar. As a home assignment, an average student can formulate and finalize an excellent marketing plan in less than five hours. Concluding Session. Depending on time constraints, this can involve a whole session or only part of one. It typically includes a comparison of the results achieved by different members of the class, student presentations and discussions, as well as guidelines for good strategies.

Step 3.

These three steps constitute an adequate teaching plan for most courses. Many other approaches are possible, however, to fit a variety of teaching situations. At one extreme, an instructor may decide not to allocate CALGOLIA any class time and to give it strictly as a home assignment. At the other extreme, another may give CALGOLIA much more importance and reiterate the above steps several times during a course. The following pages describe the three components of the CALGOLIA learning process: the introductory session, the assignment, and the concluding session. The exhibits include additional hints on the GAMAR3 simulation software; suggestions for organizing the learning experience in three situationsusing CALGOLIA strictly as a project or home assignment, as an integral part of a regular course, or in an executive seminar; an example of a good strategy; and teaching aids with transparency masters for classroom use.

TEACHING THE INTRODUCTORY SESSION

While brief, the CALGOLIA case contains a wealth of information and data concentrated in just four exhibits. One purpose of the case is to illustrate the importance of a systematic process in extracting important information from a mass of available data, in organizing it, and in identifying clear strategic options. Discussion of the CALGOLIA case will usually involve several steps:

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Sylvia Retchi's Challenge Market Analysis Company Analysis Summary of Analysis Conclusions

Transparencies can be used in this session either to drive the discussion or simply to sum it up. Masters for the transparencies used by the author in this session are referred to in the discussion below. This level, named "Expert, includes all three product categories and all five countries. It will be the level considered throughout these notes. All observations are equally valid for lower levels of difficulty which, while less complex, have access to smaller resources and face similar issues of allocation standardization and adaptation.

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What is the challenge for Sylvia Retchi?

The first three transparencies address three different ways of approaching this question: The situation As European Marketing Manager, Sylvia has to develop a 10-year projection for CALGOLIAs three top product categories in five major countries. The objective is clearly to maximize shareholder value by the end of the year 2017, as measured by the Share Price Index estimated by the simulation. International marketing issues Key international issues facing Sylvia are the global allocation of marketing resources, global standardization versus local adaptation of the marketing mix, and organization of people (this refers to possible conflicts between headquarters and subsidiaries as well as to competition between subsidiaries for resources, influence, and power). Students may wonder whether these issues are relevant since the case gives no information on these aspects. They are first implicit in Period 0 decisions and the instructor may want to generate a discussion on how organizational or people issues can lead to suboptimal marketing strategies. The other way in which this dimension dramatically comes to life is within the teams involved in the simulation themselves. It is amazing how problems experienced by large multinationals are already apparent in groups of a half-dozen students! This discussion can take place either in the introductory session or in the concluding one, after better decisions have been formulated.

Levels of marketing strategy This transparency positions Sylvia's highest strategic concern in terms of maximizing shareholder value and strategy for a portfolio of products and countries. It also makes the point that the level of marketing strategy concerned with market segmentation and product positioning is not explicitly addressed in the CALGOLIA case. At this point, two approaches can be used to open the discussion further: A result-oriented approach: In which order of priority would you rank the three product categories for CALGOLIA? In which order of priority would you order the five countries? Or, more provocatively, If you had to get out of a product category, which one would you choose? If you had to get out of two countries, which ones would they be? A process-oriented approach: What process would you follow to decide how to allocate marketing resources between the three key product categories and the five major countries?

The results of these two approaches will be fairly similar and both will lead to a discussion of the issues presented below. The first approach tends to create a more lively discussion but makes it more difficult to keep an orderly board plan. In any case, at some point in the discussion, a process should emerge. The next transparency, on Marketing Analysis and Strategy, emphasizes the three pillars of marketing analysis (market, competition, and the firm) which need to be reviewed before formulating a strategy. The point can be made at this time that, in the CALGOLIA exercise, competition is treated at the aggregate level for the sake of simplicity, and its impact is implicit in the market's response to the firm's actions. This sets the stage for the next phase of the discussion.

2. Market Analysis
The next two transparencies show selected aspects of the evolution of the three product categories and the five countries. They are based on Exhibits 1 to 4 of the case. Several key points emerge from this marketing analysis: Ovadols have the largest market, followed by Trigols and Squazols. The ranking in terms of growth opportunities is exactly the reverse, with the projected growth for Squazols double that for Ovadols; The United Kingdom and Germany are the largest countries followed by Italy, France, and Poland. Poland has the highest projected growth rate followed by Germany, Italy, and France. The United Kingdom has by far the lowest growth prospects; Downward pressures on price are anticipated in most countries, but especially in the United Kingdom and France.

The discussion may cover many other aspects and students will have a better feel for market dynamics when they use the simulation to test alternate decisions. It is, however, important that they have this broad market perspective clearly in mind before using the simulation. Finally, it should be emphasized that the projections should be used only for what they are. While these projections are the best current estimates, students should realize that their decisions will have an impact on the behavior of both the market and competitors. As a result, future market growth rates and prices will be influenced by the firm's decisions and the projections may not always materialize.

3. Company Analysis
The next four transparencies deal with an analysis of CALGOLIA's marketing position and profit structure. Nearly half its revenues and CAM (Contribution After Marketing) are generated by Ovadols, with Squazols also a strong contributor. Trigols' CAM is less than a third of Ovadols', but Trigols nonetheless play a significant role in CALGOLIA's portfolio. CALGOLIA's market share varies widely across the three product categories. Its strongest position, with 18.9%, is for Squazols which also enjoy the highest growth rate. The weakest position is in Trigols with 7.5%. Trigols receive a higher proportion of marketing resources than its current revenues or CAM would justify. This would indicate that CALGOLIA is trying to catch up in this category by investing heavily. Ovadols on the contrary command a proportionally lower level of the amount spent on marketing. The split of marketing expenditures between Consumer Marketing (CM) and Trade Marketing (TM) appears to be approximately the same in all categories. Management Time is equally allocated between the three products. Ovadols enjoy the highest level of local adaptation, probably reflecting the fact that they were developed in an era of international decentralization, but have the lowest level of price variation between countries. Squazols, the most recent category, has the highest level of global product standardization. Trigols overall are in an intermediate situation of local adaptation, except for consumer marketing where they present the highest degree of standardization. CALGOLIA's total market share across the five countries varies from 10.4% to 15.6%. One has to be careful in this type of aggregation, but these numbers reflect the power of CALGOLIA in each country relative to its competitors and to the trade. CALGOLIA's position is strongest in Poland and France, the countries with the highest growth projections, reflecting wise choices made by the firm in the past. There is definitely a hierarchy in the countries' relative importance to CALGOLIA. This hierarchy is not exactly the same in terms of revenues or CAM, but the United Kingdom, Germany, and Italy have much more weight than the other two countries. However, even the smallest country requires some serious consideration as it represents a non-negligible proportion of CALGOLIA's revenues or CAM. The global profit structure for each product category is quite different. Contribution Before Marketing (CBM) ranges from 60.4% of revenues for Ovadols to 68.0% for Squazols. This difference, stemming directly from the price level relative to unit variable costs, means that an extra 7.6% of revenues could be spent on marketing Squazols compared to Ovadols, for the same CAM objective. The actual amount spent on marketing Squazols is indeed higher than for Ovadols, but only by 2.7%, resulting in a higher CAM level. Marketing expenditures as a percentage of sales is much higher for Trigols than for the other two products, reflecting an important effort made by CALGOLIA in this category. As a result, Trigols' CAM is substantially lower than that for Squazols or Ovadols.

Significant differences in profit structure also exist among countries. Italy has the highest CAM, mainly driven by a high CBM. France has the lowest CAM due to very high proportional investments in both Consumer and Trade Marketing. Two countries (Germany and Italy) have much higher CAM than the others. It appears that the countries with the highest revenues also have the highest CAM, with the exception of the United Kingdom which has both a low CBM and high amounts spent on marketing. Does it make sense? This question can be answered by testing alternate approaches with the simulation.

4. Summary of Analysis
The next transparency summarizes the key points from the previous discussion. The objective is to present the main Opportunities, Threats, Strengths, and Weaknesses in order to facilitate the formulation of strategies by the students. Alternatively, this summary can be written on the board on the basis of students' comments. One will generally develop a feeling that: Trigols are the most difficult product category and probably require a "double or quit" approach; Ovadols should be made much more efficient and turned into a cash cow if their position is not too sensitive to a cut in the amount spent on marketing; Price pressures will require more efficient operations overall. The large level of local adaptation on the more mature categories may present some opportunities for rationalization through standardization, provided it does not prompt market reactions that are too negative; France appears the least attractive country when the dimensions of size, growth, market share and profitability are combined. It would be the prime candidate for "milking" or "divestment" should the need arise.

Many issues are still unresolved at this point, especially market sensitivity to various marketing instruments. This can only be hinted at based on initial market growth rates, market shares, and marketing investment levels. These issues can, however, be better understood by testing directly alternate approaches in the simulation. These broad observations should help students develop resource allocation strategies which can then be tested.

5. Final Recommendations
The last three transparencies of the introductory session include some final recommendations to students before they start the assignment. One concerns operational data scattered through the case which students risk overlooking. The second one recapitulates and refines the set objective of maximizing shareholder value. The example given is for a 4000 share price objective in 2007 which, as shown later in these notes, corresponds to the bottom of the "very good results" category. This corresponds to a compounded growth rate in value of 15% and, given a projected market growth rate of 11%, shows an annual growth gap of 4% which has to be bridged by improvements in marketing! The final slide warns students against playing with the computer and trying to outsmart the model. There are 69 decisions per period, hence 690 decisions for the 10 periods, and the possible combinations go into trillions. This is a well-known situation to chess players and management scientists, but often overlooked by students and executives alike! Formulating guidelines and strategies dramatically reduces the number of actual decisions. The simplest strategy in this regard could be as follows:

Standard cost-plus pricing for all products and markets: one decision; Constant rule for the allocation of management time and marketing budget between the 15 OMUs (Operating Market Units), proportional to market size: one decision; Constant and identical allocation between consumer and trade marketing for all OMUs: one decision; Constant and identical local adaptation for product, consumer marketing and trade marketing, for all OMUs: one decision.

In this case, 690 potential decisions have been reduced to 4! While this results in tremendous simplification, one should notice that the four remaining decisions are still quite difficult to make. In addition, the constraints set by these guidelines are probably too rigid to allow for an effective strategy. The point is, however, that students should not try to develop decisions randomly. The problem is too complex for them not to use their brains and knowledge. The 10 test runs allowed for each period, while taking up a considerable amount of time if they are all used, are only an infinitesimal fraction of all possible combinations. The challenge therefore is to formulate alternate strategies and to experiment in order to learn how successful they are and how they can be improved.

INSTRUCTIONS FOR THE CALGOLIA ASSIGNMENT

Students should put themselves in Sylvia Retchi's position. Their overall assignment, as stated in the case, is to formulate a long term international marketing strategy for CALGOLIA. The objective is clearly to maximize shareholder value as measured by the Share Price Index at the end of Period 10. Running "status quo projections" by replicating the same decisions for 10 periods would demonstrate a serious concern: while the share price index remains practically stable over the next 10 years, market share declines by about half. This is compensated for by a doubling of market size, resulting in flat total revenues. While these observations are based on an aggregation of all product categories and countries, and hence simplified, they put Sylvia's challenge into perspective. One can estimate that just holding global market share would double the share price index over the next 10 years.

Additional Directions
While the problem faced by Sylvia Retchi is well described in the case, the following additional directions and information should be given to students:

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Which difficulty level has been selected for the assignment, between Basic, Intermediate, Advanced, and "Expert. The choice should depend on the level of the class, the place in the course, and the time available. When a level has been selected, students may find it still useful to first try simpler levels first. A total of two to five hours is adequate to complete the assignment (i.e., to formulate a complete international marketing plan, test it, and improve it with the GAMAR3 simulation). Two hours is tight and requires perfect logistics as well as available assistance, a situation often found in executive programs. In five hours, any student or group of students can, on average, develop a very good plan. This does not include any written report which the instructor may request. At the end of this time, students should have in hand a printout showing their results after Period 10.

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Each student or group can make as many as 10 test runs of the simulation per period. After seeing the results for a given period, they can change the decisions and rerun it before moving forward to the next one. In addition, they may create a new firm and restart the simulation, a process which takes more time as decisions have to be reentered for every period since Period 0. Given the combinatorial complexity of the simulation, one can always improve upon a given plan. Some students may be tempted to optimize the early periods and find themselves short of time to develop a proper plan for later periods. If given unlimited time, some students may put much more effort than they should into this assignment. A satisfactory guideline is that five test runs per period are sufficient to gain a good understanding of market behavior and to develop a good plan over the 10 periods. This obviously requires having first developed a basic plan and having a systematic approach to investigate specific issues. The upper limit of 10 test runs per period only provides more freedom. Before starting working on the simulation, students should have developed clear guidelines for allocating resources among products and countries. A simple rank ordering of the relative importance of products and countries would be sufficient. Alternatively, students can be encouraged to classify products and countries into different strategic modes such as those found in the various portfolio tools (such as invest, double or quit, sustain, milk, or divest). The sharegrowth matrix in the Analysis module can be used for this purpose. Students can also be advised to think not only in terms of individual decisions but also in terms of guidelines (such as x% of marketing on trade, higher marketing investment in high growth situations, or we will go for complete product standardization throughout and give consumers a lower price) in order to cope with the complexity of the decision set. Students should not waste time printing out the results of each test run, as this could be a lengthy process. They are better off making a note of key figures and they always can display on the screen the detailed results of previous periods. They should, however, print their final report at the end of Period 10 and bring it to class for presentation and discussion. While instructions to operate the GAMAR3 simulation are summarized in Appendix A of the case, it may be desirable for the instructor to demonstrate use of the software in class.

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TEACHING THE CONCLUDING SESSION

This class discussion can take between half an hour (in which case it will be a simple debriefing of the simulation and conclusions with key messages) and one and a half hours (which allows for students' presentations and a full-fledged discussion). The following are guidelines for a full session. Each instructor can choose selected items for shorter sessions.

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How well have you done?

First ask students for the Share Price Index they have achieved at the end of Period 10 and write it down on the board. If the assignment was given to teams, a typical class will include 5 to 12 teams, and full information can be gathered and displayed. If the number of teams is large, or if the exercise was assigned on an individual basis, it is preferable to obtain and display the lowest, highest, and median results. Obviously, if the assignment has been returned ahead of the class, a more complete analysis can be presented to the students. The distribution obtained for the class can be supplemented by the following historical information based on past classroom experience when students' access to the simulation has been limited to three hours:

more than 5000: excellent 4000 to 5000: very good 3000 to 4000: good 2000 to 3000: satisfactory under 2000: unsatisfactory

With unlimited time, all students should be expected to reach a Share Price Index in excess of 5000. In that case, the discriminating factor is the quality of their report and their understanding of the strategic issues. The decisions and key results of an "Excellent Result" are included as Exhibit D for reference. The Share Price Index attained by this group is 6909 at the end of Period 10. The strategy of this group can be summarized as follows: Cut all investments on Trigols and allocate marketing resources 5050 between Ovadols and Squazols; For a given product category in a given period, allocate marketing resources between countries proportionate to market size; For Ovadols, spend 40% of the marketing expenditures on Consumer Marketing, the rest on Trade Marketing. For Squazols, this percentage is 70%; Identify for each product category and each country the price level which approximately optimizes contribution. This leads to global average prices of 274 for Ovadols (from 320 in Period 0, minus 22%), of 118 for Squazols (from 131, minus 11%), and of 167 for Trigols (from 202, a 24% reduction). The international variation between the lowest and the highest prices was about 30% for all three products; Identify the level of local adaptation required to approximately optimize contribution, given the other decisions. This leads to a product adaptation of 40 for Ovadols (down from 90, hence a greater standardization) and zero for Squazols and Trigols (hence total standardization). For all three product categories, adaptation was set at 100 for Consumer Marketing (total local adaptation) and at 50 for Trade Marketing.

This strategy can be improved upon. It has, however, the advantage of being clear and consistent, of exploiting the analysis of the case, and of providing satisfactory results! This is in many ways more rewarding than good results achieved in part through nondocumented, random decisions. The instructor can use it as a reference to develop his or her own plan, test it with the simulation, generate results, and present selected graphs for discussion in class. The registered record at the time of publication of these notes is a share price index of 7520, an improvement of 611 on the above, but with a more complex set of decisions.

Have your students win a new marketing software tool! If a student in your class has obtained a result which you believe may be a record (for any of the four difficulty levels), please encourage him or her to send a short statement of his/her strategy, as well as a diskette containing the corresponding .dat and .hdr files to:

Mr. Re'mi Triolet Strat*X 10 Passage de l'Arche, Cedex 62 92056 Paris - La Defense FRANCE The five students obtaining the best results (i.e., highest share price index in Period 10) over the past year will receive a marketing software tool from Strat*X. In case of identical results, the five winners will be selected by the authors on the basis of the quality of the strategic statement. 2. How did you do it?
The best approach is first to ask the students with the "best" achievement (highest share price index) to present their strategy. This can then be contrasted with the strategies of students with weaker results. Key discussion points are: The allocation of resources between product categories. Has anybody withdrawn from at least one category? Did anybody calculate the amount spent on marketing relative to market size or product sales? Contrast the product priority ordering selected for different strategies; The allocation of resources between countries. Has anybody decided to withdraw from a given country? Did anybody calculate the amount spent on marketing relative to country market size or country sales? Contrast the country priority ordering selected for different strategies; The allocation of resources between consumer and trade marketing. Was this an explicit decision or were independent decisions made for each of the two marketing instruments? Did this ratio vary by product category or by country? What was the rationale for these differences? The pricing strategy. How did you determine prices? Did you try to optimize short term CBM in setting price or did you have other objectives? Did you notice changes in the price elasticity of a given product when consumer marketing expenditures varied? Global standardization versus local adaptation. Did you have a different approach on this issue for different product categories? Did you make different choices for product specifications, consumer marketing, and trade marketing?

One likely question (or one which should be asked by the instructor) is: Can the high levels of share price achieved by the best groups be the result of a short term milking strategy which could be detrimental to the long term position of the firm? This is likely to prompt an interesting debate in which market share will

come up as an alternative measure of long term position. At this point, it is valuable to ask each group to state their global market shares per product category in Period 10 and to write them on the board next to their share price index. One can then compare the results of these alternative criteria and raise the broader question: If you could buy one of these firms, which one would you prefer to buy? or Which firm is better positioned for the future? It is not possible for a CALGOLIA firm to obtain a dramatic increase in its share price through short term milking mechanisms. The computation of the share price corresponds to a projection of future profits based on the CAM of the last three periods. In this sense, the stock market evaluation not only considers current profiles, but includes an anticipation for future profits in line with the position of the firm in the last three years. This does not guarantee, however, that the stock market correctly anticipates either the future evolution of market and competitive conditions or the ability of management to tackle future challenges!

3. What have we learned?

This question should be asked on the basis of the students' personal experience during the assignment and the class discussion. There are two sets of key lessons. Some are more directly linked to basic issues of Marketing Management. They are related to the textbook and particularly relevant for university students: Marketing mix elasticities. In a given situation, changes in the various elements of the marketing mix will have a different impact on sales and profits. Marketing research and experimentation help in identifying the levels which maximize long term profits; Marketing mix interactions. The market reaction to one element of the marketing mix is not independent of other marketing tools. In the GAMAR3 situation, higher levels of consumer marketing reduce the sensitivity of demand to price (and therefore increase the optimum price), within limits; Marketing mix and product life cycle. The sensitivity of sales and profits to elements of the marketing mix is expected to vary along the product life cycle. In GAMAR3 the elasticity of trade marketing tends to be higher, and the elasticity of consumer marketing lower, for more mature product categories; Marketing analysis. Systematic analysis is essential for effective decision making in marketing, and it should include both external and internal considerations. In GAMAR3, market information is contained in the Survey and Product sections of the Company Report. The measures of Consumer Satisfaction and Marketing Effectiveness are essential to understand the impact of the marketing program and to improve it. The Product section provides information on market size, market shares, market prices, and growth projections. The Finance section includes data on product costs and on the profitability structure of the firm; Marketing strategy. Ultimately, marketing strategy is concerned with allocating resources. In GAMAR3, they must be allocated at three levelsamong elements of the marketing mix (consumer and trade marketing), among product categories, and among countries. Clear guidelines must be formulated based on analysis. In the absence of such guidelines, decisions become complex, inconsistent, and ineffective; Marketing monitoring and control. The nature of marketing is dynamic. Marketing is about change in the market place, coping with it and creating it. It is difficult to bring to life this dynamic perspective in a case discussion. In a simulation like GAMAR3, the succession of decisions and feedback over 10 periods provides the opportunity to observe the dynamics of marketing, and requires continuous monitoring and control.

Other lessons include more general points of marketing strategy and leadership better appreciated by executives, such as: Marketing strategy and learning processes. Marketing strategy formulation should be based on sound analysis. On the other hand, very seldom will analysis alone provide the definitive marketing strategy which will drive the business for years to come. The process by which marketing strategy is formulated is based on a combination of analysis, discussion, confrontation, experimentation, and feedback. Continuous learning processes are therefore essential for developing and nurturing robust marketing strategies over the long term; Actual strategy formulation is painful. It is easy to talk about strategy, it is more difficult to reach a consensus on a course of action. This requires making hard choices and ruling out some alternatives. It is already difficult to accept making such choices at the individual level, but if the assignment is given to groups, strategy formulation will usually generate even greater difficulties which have to be resolved through some form of leadership. The group setting provides a context in which constructive conflicts can help the strategy formulation process but the selection of a strategy requires a resolution of these conflicts; Strategy is ultimately concerned with the allocation of resources. Strategy is only an intellectual statement until it is translated into actual resource allocation decisions. Some assignments will probably illustrate resource allocation decisions that are not consistent with a neatly packaged strategy statement. In this case, the real strategy is not the statement, it is the set of principles underlying the actual decisions, even if this set of principles has not been made explicit. Management time is a key resource. Managers usually concentrate on the allocation of financial or other tangible resources. GAMAR3 demonstrates to participants that their own time is a crucial resource. Poor products, too many products, lack of strategy, or lack of defined processes result in a dispersion of this crucial resource. Strategy and flexibility. Strategy provides a general direction for the evolution of the firm. It involves choices, and results in a certain rigidity in the options available for the future. One has to make sure that a certain level of flexibility is left within the general direction set by a given strategy (for instance pricing and marketing investments adjusted in the short term according to specific budgetary constraints). Global standardization versus local adaptation. The debate between these two extreme approaches to international marketing can sometimes be likened to a religious war. There is in fact no perfect solution combining the positive aspects of both. However, the worst alternative is skirting the issuethe absence of a clear international strategy will lead to widespread inefficiencies. In the end, the degree of local adaptation will have to take into account consumer needs, cost efficiencies, and the value of organizational simplicity. An optimum long term strategy is not a succession of optimum short term decisions. It is likely that at least some participants will try to optimize their decisions for each period by rerunning the simulation up to 10 times per period. It is easy to demonstrate in the GAMAR3 context that a successful long term strategy may require accepting less than optimum short term decisions. One may have to accept lower short term profits to build a stronger market share positionexperimentation and learning are essential for good long term results, even if they require making investments and taking risks in the short run.

The instructor may want to emphasize different learning points from the above two sets, depending on the audience and the objective of the CALGOLIA exercise in the context of a given course. Generally, however, the strength of the exercise is that it illustrates concepts related to the dynamics of marketing management and marketing strategy. It is an effective learning tool which is complementary to traditional lectures and cases.

Exhibit A THE GAMAR3 SIMULATION

The GAMAR3 simulation runs on standard 486/Pentium compatible personal computers operating under the Microsoft Windows 3.1 or Windows 95, 98, or 2000 environments. It requires no special equipment other than a color monitor and a printer. One megabyte of hard disk space is necessary to install the software and to save decisions and results for a full 10-period run of the simulation. Each additional run for a different simulated firm uses 130K bytes of hard disk space. No computer expertise is needed to operate the simulation. Appendix A of the case gives basic instructions. The Help facility, which provides more detailed operating guidelines, is accessible either directly for the current screen or through the usual Contents and Search options available under Windows. Students can create firms which they will manage for 10 periods. When they create a firm, they are asked to give it a name of no more than eight characters, including only letters and numbers. If the students have to submit a printed report of the results, it is advisable to assign a different firm name to each participant (or group) in order to avoid confusion. This may simply be the students own name (e.g., MSMITH) or a group number (e.g., TEAM12). When creating a simulated firm, they also are asked to select a difficulty level. While they can use lower levels of difficulty for practice purposes, the instructor should tell them the level selected for the assignment. If students use publicly available microcomputers, others can access their GAMAR3 decisions and results. To prevent this from happening, students should save their data files on a floppy disk and erase them from the hard disk. In that case they need extra information on the structure of data files. Every time a firm is created, two data files are opened on the hard disk; their name is composed of the name of the corresponding firm followed by the suffix .dat for one and .hdr for the other. For instance, when the firm MSMITH is created, two data files named MSMITH.DAT and MSMITH.HDR are opened on the hard disk. One should not rename GAMAR3 data files, since different names for a simulated firm and the corresponding data files are likely to result in confusion and errors. The GAMAR3 software allows students to run the simulation for a given period, analyze the results, and rerun the simulation for the same period. In this way they can test different courses of action for a given period, up to 10 test runs per period. But they cannot rerun previous periods. For instance, in Period 6, GROUPl2" can make decisions for the next period, and then either run the simulation for Period 7, or change the decisions for Period 6 and rerun it. But they cannot change the decisions for Periods 1 to 5. If the students think they have made a serious mistake in an earlier period which they want to correct, their only option is to create a new simulated firm, to reenter decisions, and then to rerun the simulation from Period 1. In the above example, if the members of GROUP12" want to make a correction in Period 4, they would have to create a new firm, GROUP12A. They would then run the simulation for GROUPl2A with the same decisions for Periods 13, make the corrections for Period 4, and proceed with the following periods. This approach, which allows students to rerun the current period easily while making corrections of earlier periods possible but more difficult, provides the possibility of testing while preventing what would be purely a fishing expedition approach to strategy formulation. Finally, a microcomputer with projection facilities in the classroom would enable the instructor to demonstrate use of the software in the introductory session and to present results in the concluding session.

Exhibit B CALGOLIA IN UNDERGRADUATE OR GRADUATE COURSES

CALGOLIA's flexible design makes it possible to use it in many different ways as part of a course on Marketing Principles, Marketing Management, Marketing Strategy, or International Marketing. We will discuss here some key issues concerning the course design, present some typical alternatives, and discuss the possibility of using CALGOLIA as a team project.

1.

KEY ISSUES IN USING THE CALGOLIA PACKAGE IN A COURSE

There are four main questions in deciding on how to incorporate it into a course:

A. How many sessions should be devoted to CALGOLIA?

The number can vary from one to three. Various alternatives according to the number of sessions available are presented below. The three-session alternative makes the best use of the case and simulation and gives students the full benefits of the exercise. The final choice will, however, depend on time constraints, the availability of microcomputers and the instructors attitude towards computer simulations.

B. Where in the course should CALGOLIA be used?

The best use of CALGOLIA is as an integrative tool towards the end of the course. Before the exercise, students should have a broad perspective on the role of marketing, market behavior, industry dynamics, marketing strategy, and the marketing mix as covered in the Boyd/Walker/ Larrch textbook. The international dimension is present in every chapter of the book and students will have acquired a more global perspective that will also help them to deal better with the CALGOLIA simulation. If students raise issues not directly addressed by the simulation, such as consumer behavior, segmentation, or positioning, the instructor can use this as an opportunity to illustrate the market's sensitivity to alternate elements of the marketing mix. The concluding session on CALGOLIA can either be the final session of the course or it can take place before addressing the broader issues of Implementation and Control. Finally, it is best not to spread the CALGOLIA assignment over more than two or three weeks in order not to lose the momentum of such an exercise.

C. Individual assignments or team work?

The CALGOLIA case can be assigned individually or to teams of three to six students. This must be decided by the instructor, taking into account the availability of microcomputers, the requirements of individual grading, and the attitude of the school toward group work. From a strictly pedagogical point of view, team assignments on strategic issues such as those addressed in CALGOLIA force confrontation and debates which enrich the learning process. The team approach should consequently be favored whenever possible.

D. Should there be a time limit?

The GAMAR3 simulation requires two to five hours of work for discussion and to run the simulation on a microcomputer, not including the writing of a report. If a time limit is set (two to five hours), for instance in the context of a supervised session in a computer laboratory, results will vary widely according to teams' ability to analyze data, formulate strategies, and test them under time pressure. The class discussion that follows can use these as a starting point. Grading should also be based on the results. Without a time limit, there will be much less difference between the results of different teams as they will usually persevere until they reach satisfactory results. The class discussion should then focus on the process of strategy formulation. In this context, it is desirable to ask students to submit a report describing their analysis, their strategy, their experience in implementing it, and the main lessons they have learned. The report can be limitedfrom three to ten pages (plus exhibits)according to the importance which the instructor wants to give the exercise. Grading should reflect more the quality of the report than the results obtained.

2. TYPICAL CLASS SCHEDULING ALTERNATIVES A. Three sessions:

One session on discussion of the CALGOLIA case (see "Teaching the Introductory Session"). Student assignment on the simulation for Periods 1 to 5 only. One session on student presentations and discussion of the assignment for Periods 1 to 5. Student assignment on the simulation for Periods 1 to 10. One session on student presentations of their assignment, discussion, and conclusion "Teaching the Concluding Session"). (see

B. Two sessions:
One session on discussion of the CALGOLIA case (see "Teaching the Introductory Session"). Student assignment on the simulation for Periods 1 to 10. One session on student presentations of their assignment, discussion, and conclusions (see Teaching the Concluding Session).

C. One session only: Debriefing after the CALGOLIA assignment.

The case and simulation are given as a single assignment and the session is devoted to analyzing and discussing the results in the same way as when CALGOLIA is used as a team project (see appropriate section of this Instructor's Manual).

D. One session only: CALGOLIA case as an introduction to the simulation.

Discussion of the case in one session followed by an assignment on the simulation submitted to the instructor one week later without a debriefing session (see Teaching the Introductory Session in this Instructors Manual).

E. One session: CALGOLIA case only.

Discussion of the case without the use of the simulation. This is appropriate only when it is not feasible for all students in the class to have access to microcomputers or when the instructor does not see fit to use computer exercises in the course (see Teaching the Introductory Session).

3. CALGOLIA AS A TEAM PROJECT

The most unobtrusive way to use the CALGOLIA exercise is as a team project in the second half of a course. Before students embark on this exercise, they should have acquired at least a broad perspective on the role of marketing, market behavior, and industry dynamics. Students should be given one to two weeks to complete the assignment, possibly in groups of three to six. They should be asked to turn in a report presenting their analysis, their strategy, their results, and what they learned from the exercise. It is advisable to limit the size of the report to 10 pages plus exhibits. The CALGOLIA exercise used as an integrated team project towards the end of a course gives students an opportunity to review and experiment with many concepts such as marketing mix; market evaluation; industry dynamics; portfolio strategy; strategy in growing, mature, and declining markets; decision support systems; international marketing; marketing implementation; and control. In this context, there is no limit on the time students should spend using the simulation and improving their results. All teams are expected to learn in the process and to achieve reasonable results. There will consequently be less differentiation between the performance of the various teams in terms of the Share Price Index than in a situation where time is limited. In this case, the instructor should clearly state at the beginning of the assignment that the emphasis will be on the quality of the report. This should be reflected in grading (80% on the report quality and 20% on the results is a good balance). Although this is not compulsory, it is a good idea to allocate a class session to the CALGOLIA exercise soon after the date at which the reports are due. This session can be organized as follows:

1.

Team presentations: Fifteen minutes each. Select the number of teams making a presentation according to the time available. Choose the teams for the quality of their reports and for purposes of illustrating different approaches. Class discussion: Prompt a discussion on the contrast between the strategies of the different groups; give those who did not make a presentation an opportunity to share their experience. Conclusion: Summarize the key learning points from the exercise.

2.

3.

The sections in this teaching note dealing with Teaching the Introductory Session and Teaching the Concluding Session give more details on the content of class discussion and on concluding learning points.

Exhibit C CALGOLIA IN EXECUTIVE SEMINARS

Many of the considerations on using CALGOLIA in undergraduate and graduate courses are also relevant for executive seminars. In such a situation, however, there is usually not enough time available to ask executives to write reports, nor is grading a relevant issue. On the other hand, one may have more scheduling flexibility in the case of a residential program. Two schedules are given at the end of this section for executive programs where a half-day or a full day are devoted to CALGOLIA. Allocating two hours to group work is a bare minimum and puts the executives under severe pressure. CALGOLIA has been used many times in this fashion with great success, but it requires very good handling. The instructor should first make sure that by the end of the introductory session, the executives have a good understanding of the issues in CALGOLIA. He or she should also check that at least one person in each group is familiar with the basic operation of a PC under MS Windows or Windows 95. Computer assistance should be provided, with an assistant ready to intervene in case the printer jams, for example. The instructor must also make sure that the executives do not get stuck in the group discussion. He or she should point out that, if there is a deep disagreement on the best course of action, it is easier to simulate several test runs for a given period than to try to argue it out. If the schedule allows more than a half-day for the CALGOLIA exercise, it will prove both more valuable to the executives and easier to run. Depending on the time available, priority improvements on the suggested schedule would be: (1) more time for group work; (2) a longer final session; (3) a longer introductory session; and/or (4) adding an intermediate review session. The full-day schedule below implements several of these options.

1. Half-day version of executive CALGOLIA schedule

Previous evening: participants should familiarize themselves with the CALGOLIA case.

08:30 - 9:45: Session 1: Introduction Case Discussion Demonstration of the GAMAR3 software 10:00 - 12:00: Group Work Preparation of strategic plan Testing and finalizing; using the simulation 12:00 - 12:30: Session 2: Conclusions Group presentation of results Discussion Conclusion: learning points

2. Full-day version of executive CALGOLIA schedule

Previous evening: participants should familiarize themselves with the CALGOLIA case.

08:30 - 10:00: Session 1: Introduction Case Discussion Demonstration of GAMAR3 software 10:15 - 12:30: Group Work Preparation of strategic plan for Periods 1 to 10 Testing and update of plan for Periods 1 to 5, using the simulation 12:30 - 13:30: Lunch 13:30 - 14:00: Session 2: Intermediate review session Debriefing of intermediate results Conclusions on key selected learning points 14:00 - 16:00 Group Work Revision of strategic plan for Periods 1 to 10 Testing and finalizing of plan for Periods 1 to 10, using the simulation 16:15 - 17:15 Session 3: Conclusions Group presentation of results Discussion Conclusion: learning points