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Nissan Sentra AutoSim Simulation Market Segmentation, Business Cycles and Simulation BADM 423 Spring 2001 Gerald Blakely, PhD., Instructor By Matt Behar, Roger Harrison, Mike Henderson, Thomas Ryan and Francisco Tovar
Purpose of the Simulation By using the simulation software AutoSim, one can dynamically study and analyze the marketing and financial activities involved in the very competitive automobile market. AutoSim is a marketing case based on real data collected from the small car sector of the industry. Our group was assigned the task of working with the Nissan Sentra, a Japanese compact built in the US as well as in other countries.
The Nissan Sentra • Manufactured in Smyrna, Tennessee • 1.6 liter, 115 horsepower, 34 mpg, gasoline engine • Offered in Base, XE and GLE models with average price of $13,959 • Smallest of the Nissan family of cars sold in the U.S.
The goodness of the Sentra • Style • Price • Quality • Economy
And the ugliness of it • Perceived lack of quality when compared to Honda or Toyota • Attractive to a relatively narrow demographic group • Lacks outstanding or remarkable features
But it isn’t a motherless child!These people like it: • Commuters and followers • People in the 25-34, 35-44 age ranges
Our Competition The Honda Civic and the Toyota Corolla are our most direct competitors in terms of features offered and appeal Other competitors in terms of price and features include the Ford Escort and the Chevrolet Cavalier
Initial Market Conditions • Quarterly production in the small car segment is 600,000 units • Production is projected to grow a healthy 11% • GDP is projected to increase by 2.2% • Inflation has remained unchanged during the last quarter
Initial Conditions for the Sentra • Market share for the Sentra is 7%, Honda’s -the leader- 14% • Inventory is high for all of our models • Contribution is lower than most of our competitors • Advertising and promotions are not well targeted • Household income for the Sentra buyer, typically a Mid-Atlantic resident, is over $60,000
Then, our objectives are… • To become the market leader in terms of contribution • To increase market share by targeting other demographic groups
Strategy • Advertising will focus on customers desires • Most advertising expenditures will be on network and spot TV • Promotions will also keep customers in mind • Maintaining strong profit margin • Keeping labor and overtime costs low. • Keep plant utilization at about 75% • Maintain inventory level at 40 days for each model
Let’s fight!! Decision One • We changed advertising to focus on the 25-44 year old range • We offered 8% financing, and $250 rebates on the XE and GLE; $100 on the Base model • Forecasted an increase in market share as result of increased advertisement • Want to keep inventory at around 40 days • Plant utilization kept at 75% capacity. No overtime cost or lay-offs
Decision One Results • Our market share increased by 0.5% to 7.5%. Honda lost 1%, Corolla lost 0.8% • Net contribution increased from 109.9 to 132.9 • The 25-34 year old segment makes now the most Sentras purchases • Low inventory in the Base model • GNP grew at seasonally adjusted rate of 2.5% • Prime rate is expected to rise to 8% • Small car production increased by 6%
Offered higher rebate on GLE model Lowered financing to 4.9% Increased production of Base model Focused advertising and vehicle upgrade on price and comfort Decision 2
Our market share grew by 0.3% to 7.8%. Honda lost 1.9%, while Corolla gained 2% Our net contribution fell to 127.5 even though sales were up, due to the lower rates and incentives. Overall car sales fell 1% while production went up 9% GNP grew 3.5% and prime rate is unchanged at 8% Everybody is throwing their companies out the window with very low rates and promotions Decision 2 Results
Need to decrease production of Base model to cut inventory backlog Increased contribution allows us to reduce MSRP Keep same rate-promotion mix Decision 3
Sentra lost 0.2% market share. Honda remained unchanged while Corolla lost 2.8% Inventory backlog for the base model is now 70 days, and 54 days for the XE Our net contribution fell to 115.0 GNP grew to a seasonally adjusted rate of 4.2%, inflation increased 0.5%, and prime rate is expected to fall to 7.5% Car sales fell 2% Decision 3 Results
Advertising expenditure remains unchanged from previous periods We lowered financing rate to 1.9% and the promotion mix remained unchanged from the previous period. Lowered production to help reduce inventory Expecting decrease in sales Decision 4
We gained 0.7% in market share. Honda lost 1.2% while Corolla gained 1.0% Our net contribution increased to 149.5 Our Base model inventory is lower than planned Car sales increased 6%; more than expected Consumer confidence increased, GNP grew 4.3% Decision 4 Results
We introduced a new Luxury model Kept promotions and financing unchanged Increased production on Base and XE models. Decreased production of GLE Decision 5
We lost 0.4% in market share. Civic remained unchanged and Corolla lost 0.3% Our net contribution took a bit hit, losing 47.8 to fall to 101.7 The introduction of the new luxury car ate up sales of the GLE model, pushing inventory of the GLE to 105 days Decision 5 Results: We ran out of gas
Time to pack up We, the Sentra Team, lost ground in contributions due to the introduction of a new model in the last period, and to the cut-throat competition Ending Contribution = 101.7 Beginning Contribution = 124.8 Highest Contribution (Y3Q1) = 149.5 We gained market share, one of our objectives Beginning Market Share = 7.0% Ending = Highest Market Share = 7.9% Our main competitor, the Civic, lost 3.1% to end at 10.9% market share.
Generally Speaking Our approach was conservative, trying to maintain a constant level of inventory, advertising expense and plant capacity utilization. This approach allowed us to gain market share while raising contribution Our contributions made steady gains that were only upset in the final period by the introduction of a luxury model that competed directly with our own GLE model Then, we can safely say…