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How to play the Game:
Firms (maximum of 4 students) compete within an industry (several teams from within a class in the same school) whose sole product is Smartphones.
At the outset of the competition, each participating group of students has an equal share in the current market, $70,000 in Plant & Equipment (which determines production capacity), and $30,000 in cash. To play the game, managers of each firm make several key business decisions each quarter. In CA - SBC Classic, managers make decisions in the following areas:
1. Selling Price (SP)
2. Investment in Plant and Equipment (P&E)
3. Advertising (AD)
4. Research and Development (R&D)
5. Units Produced (UP)
6. Purchase of Market Research Information (MR)
In CA - SBC Xtreme, managers make decisions for the same areas as CA - SBC Classic, but must also make decisions regarding these areas:
7. Sales Support (SS)
8. Human Resources (HR)
Please Note:
The total capital spent in any quarter for all areas cannot exceed the firm’s cash on hand unless the firm wishes to take out a loan. In order to provide firms with the best chance of success, the first loan a firm incurs is interest free! However, as soon as a firm takes out a second loan, interest will be placed on both the second AND the first loan amount. The more loans a firm incurs, the higher the interest rate rises and the more expensive it becomes. Heavy spending will not necessarily yield linear improvements in market parameters. As in the real world, while some may be good, more isn't necessarily better. On the other hand, neither is less, necessarily more. Teams must complete these input decisions twice per week. Inputs are due at 4pm ET every Tuesday and Friday. Inputs will be processed between 4pm and 6pm on these days. Please be patient if your results take longer than expected to be released. Sometimes it takes the system a few minutes to process the large amount of data generated by the numerous teams taking part.
Quarterly Decisions Explained:
Selling Price (SP):
Firms must specify a selling price no lower than $125.00 and no higher than $300.00 for their product. The higher the price (relative to that of the competitors in the industry), the lower the demand and the fewer sales for the product. A low selling price, on the other hand, will make it difficult to cover the cost of production. The default input for PRICE is $149.99. Market forces will conspire to penalise firms who price either too high or too low. Your retail channel partners have decided that you should hit a particular price point, and that point is in the $149.99 area. Average prices can fluctuate a little, but there will be a strong pull exerted by the market back to the $149.99 area. A competitive price helps make for a competitive firm!
Investment in Plant & Equipment (P&E):
Firms cannot specify a P&E expenditure below $1,000. Spending money on P&E ensures that the manufacturing infrastructure is capable of meeting market demand. The effects of this investment are long-term and can take time to show results. Investments in P&E go into plant expansion and new equipment to make more goods. This expansion can take up to a year, as it requires new hiring, training, building, and contracting. As such, firms should note that the end result, which is the production of more goods, will take time to manifest itself. Patience is important with this investment. While too little P&E will lead to insufficient production to meet demand, it is often the case that a firm will produce too much, thereby creating an inventory surplus that will affect the bottom line; unsold inventory must be held in a warehouse, which costs money. In the worst-case scenario, inventory may have to be 'dumped' at prices below production cost. Such 'dumping' may lead to consumer scepticism about the quality of a product. All things considered, it is best to experiment slowly with this investment. All firms start with a $70,000 investment in P&E, thus granting some production momentum (product in the pipeline). In addition, investment in P&E (along with R&D) will lead to lower overall production cost per unit. The default input for PE is $1,000.
Advertising (AD):
Firms cannot specify an advertising expenditure below $1,000. Advertising expenditures attract consumers to your product, thus increasing both demand and sales. Neglect of this area leads to a decay in a firm's market share over time. The amount invested in advertising will affect the 'goodwill' and 'visibility' of a firm's product, and thus how attractive it is to consumers. However, just because consumers WANT your product, it doesn't mean they will buy it. Other factors such as price, availability and quality also affect consumers' willingness and ability to buy. The default input for ADVERTISING is $1,000. Research and Development (R&D):
Firms cannot specify R&D expenditure below $1,000. Investing in R&D increases the quality of a firm's product, thus making it more attractive to consumers. As with advertising, neglect of this area will lead to a decay in market share as consumers switch to more feature-rich and durable alternatives. In addition, expenditure in R&D will have a small affect on production cost, as it is assumed that some R&D efforts will lead to production efficiencies. The default input for R&D is $1,000.
Units Produced (UP):
Firms must specify the number of units they wish to produce. This number should be based on the firm’s estimated production capacity (see P&E above). Firms must also consider labour availability. Firms can choose to operate above or below their optimal production level. However, should they choose to do so, their efficiency, and therefore profitability, will be reduced. Firms must also consider high employee overtime costs should they choose to overproduce. The default input for UP is 2,500 units. Purchase of Market Research Information (MR):
Firms must specify whether or not they choose to purchase extended market research information. For a starting cost of about $2,000, firms can buy a market research report, which includes information regarding the state of the market, such as industry averages. An example is the average price within the market. This is a yes/no decision that could greatly influence a firm's input decisions. The default input for MR is No.
Sales Support (SS) (Xtreme Only):
Firms cannot specify SS expenditure below $1,000. Firms would be wise to invest a good amount in this area. Activities in this area include such things as salesperson commissions, promotional activities, merchandising efforts by retailers, strengthening ties with suppliers, global branding initiatives and the development of new distribution channels. Neglect of this area will lead to an erosion of a firm's market position. The default input for SS is $1,000.
Human Resources (HR) (Xtreme Only):
Firms must specify the number of FTE* employees they wish to hire or layoff in a given quarter. It is best to experiment slowly with this input, hiring or laying off only a few people at a time. The smallest mistake in Human Resources can be very costly to a firm. Firms can choose not to hire or layoff anyone in a given quarter. Keep in mind that hiring results in training costs and new employees are not fully efficient right away. Also, remember that there are severance costs associated with laying off employees. Firms start with 15 employees and the default input for HR is hiring 1 employee.
* FTE: Full Time Equivalent - see the Terminology.
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