Table Of ContentGrowth Dynamics in New Markets
GROWTH DYNAMICS IN NEW MARKETS
Improving Decision Making through Simulation
Model‐based Management
M A R T I N F. G . S C H A F F E R N I C H T & S T E F A N N . G R O E S S E R
Facultad de Economía y Negocios, Universidad de Talca, Chile
School of Engineering, Bern University of Applied Sciences and Institute of Management,
University of St Gallen, Switzerland
This edition first published 2018
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Library of Congress Cataloging‐in‐Publication Data
Names: Schaffernicht, Martin F. G., 1961– author. | Groesser, Stefan N., 1978– author.
Title: Growth dynamics in new markets : improving decision making through simulation model-based management / by Martin F.G. Schaffernicht, Facultad de
Economia y Negocios, Universidad de Talca, Chile, Stefan N. Groesser, School of Engineering, Bern University of Applied Sciences and Institute of Management,
University of St. Gallen, Switzerland.
Description: Hoboken, NJ : Wiley, [2018] | Includes index. | Identifiers: LCCN 2017052554 (print) | LCCN 2017054563 (ebook) | ISBN 9781119118220 (pdf) |
ISBN 9781119127413 (epub) | ISBN 9781119118237 (cloth)
Subjects: LCSH: Decision making. | Management. | Marketing. | Strategic planning.
Classification: LCC HD30.23 (ebook) | LCC HD30.23 .S294 2018 (print) | DDC 658.8/02–dc23
LC record available at https://lccn.loc.gov/2017052554
Cover design: Wiley
Cover image: © Leontura/Gettyimages
Set in 12/15pt Times New Roman by SPi Global, Pondicherry, India
Printed and bound by CPI Group (UK) Ltd, Croydon, CR0 4YY
10 9 8 7 6 5 4 3 2 1
CONTENTS
Preface xii
Invitation to explore xii
What will you learn? xvi
What are the components of the book? xvii
What is the structure of the book? xviii
Who is the book for and how to use it? xx
Before you start xxii
References xxii
Acknowledgments xxiii
About the companion website xxiv
INTRODUCING A DURABLE PRODUCT IN A NEW MARKET 1
1.1 Introduction 1
1.2 Your briefing for the business challenge in Plutonia 2
1.3 Managing NewTel’s new business in the simplest scenario: business as usual 15
1.4 A competitive scenario: compete for customers 18
1.5 Outcomes of both scenarios in terms of key performance indicators 27
1.6 Chapter summary 30
v
1.7 Questions and challenges 30
References 31
CAPTURING CUSTOMER DYNAMICS DRIVEN BY DIFFUSION 37
2.1 Introduction 37
2.2 Diffusion: a regular dynamic in social systems 38
2.2.1 ‘Going viral’ 38
2.2.2 A Story about selling mobile phones 39
2.2.3 Diffusion is based on a network of variables and causal relationships 48
2.2.4 Causal diagrams reveal the causal structure 57
2.3 Structure and dynamics of new product diffusion 72
2.3.1 Your first simulation model 72
2.3.2 Feedback loops 79
2.3.3 Reinforcing feedback and exponential growth 82
2.3.4 Balancing feedback and goal‐seeking behaviour 91
2.3.5 When the two feedback loops are interconnected 104
2.4 Chapter summary 112
2.5 Questions and challenges 113
References 115
EFFECTS OF A LIMITED PRODUCT LIFE CYCLE DURATION 121
3.1 Introduction 121
3.2 The concept of life cycle duration and its effects on customer dynamics 122
3.3 Tracking Accumulated purchases and Accumulated customer‐months 148
3.3.1 Structure 148
3.3.2 Behaviour 152
vi CONTENTS
3.4 Chapter summary 154
3.5 Questions and challenges 155
THE EFFECT OF ADVERTISING SPENDING 164
4.1 Introduction 164
4.2 Turning the attention of Potential customers to a product 164
4.3 The effect of fixed advertising spending 165
4.3.1 Structure 165
4.3.2 Behaviour 169
4.4 The effect of constant advertising spending with a limited life cycle duration 179
4.4.1 Structure 179
4.4.2 Behaviour 179
4.5 The effect of advertising for one month 186
4.5.1 Structure 186
4.5.2 Behaviour 190
4.6 How many Current customers are won by winning one new customer? 195
4.6.1 Structure 195
4.6.2 Behaviour 196
4.7 Chapter summary 200
4.8 Questions and challenges 201
References 202
FINANCIAL RESOURCES 208
5.1 Introduction 208
5.2 The structure of revenues 209
5.2.1 The direct influence of prices on revenues 209
CONTENTS vii
5.2.2 T he indirect influence of price and life cycle duration on Potential
customers’ purchasing decisions 212
5.2.3 How the effective monthly price affects new customers and total revenues 221
5.3 The structure of costs 226
5.3.1 The components of total costs 226
5.3.2 Reducing Service costs by improving processes 228
5.4 Behaviour: customer dynamics and the accumulation of profits 232
5.5 Chapter summary 240
5.6 Questions and challenges 241
References 242
ANALYSING THE MARKET SITUATION WITH THE SIMULATION 244
6.1 Introduction 244
6.2 Planning the search for the highest possible Accumulated profits 245
6.3 Searching for optimal values for the decision variables 255
6.3.1 Searching for the best subscription rate given a constant sales price and life cycle duration 255
6.3.2 Searching the optimal sales price given a constant subscription rate and life cycle duration 259
6.3.3 Searching the optimal life cycle duration given a constant sales price and subscription rate 263
6.3.4 Searching for the optimal combination of sales price, subscription rate, and life cycle duration 266
6.3.5 Searching for the optimal pattern of monthly advertising spending 271
6.3.6 Searching for the optimal pattern of monthly process improvement spending 276
6.3.7 Combining advertising spending and process improvement spending 280
6.4 Decisions, behaviours, and outcomes in the best case monopoly 283
6.5 Setting your objectives 289
6.6 Chapter summary 291
6.7 Questions and challenges 292
References 292
viii CONTENTS
