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									      Appendix A

The First Trial Decision
             The First Trial Decision
For the First Trial Decision, each firm must make
  decisions for the following…
  –   Marketing Decisions
  –   Quality Control Decisions
  –   Finance Decisions
  –   Purchase Product From Peacock Industries
          You can buy from Peacock Industries, (Introfirm18) at the
           starting prices listed in Appendix A of your text
                   P1 = $80
                   P2 = $115
           Marketing Decisions
 Prices
 Advertising
 Sales Reps
 Trainees
 Sales Rep Salaries
 Commissions
 Credit Policy
   Set Prices for each product type/area your firm is
    – At this point your firm does not have any information to
      base price on except COST. Once the non-trial decisions
      have begun your firm can experiment with prices based on
      demand and/or competition. (Methods of pricing are
      discussed in Chapter 4 of your text.)
          Typical price ranges for product are as follows…
                    P1 ranges between $90- $250
                    P2 ranges between $125-$350
    – Price decisions for area 2 must be entered in EUROs. You
      can find the exchange rate in “The Boss”.
 Advertisingbudgets must be entered for each
 product in each area where you are going to sell
      All advertising budgets are entered in dollars (even ad
       budgets for the EU)
      If you are selling both Product 1 and Product 2 in the

       NAFTA and EU regions (area 1 and area 2), you will
       need a total of 4 advertising entries
      Advertising budgets typically range between

        $5000- $75,000 per product/area.
                              Sales Reps
   Enter the total number of sales reps you want in each
    – The total number of sales reps you need will depend on your
      firm’s strategy
           Typical ranges of sales reps are between 2 – 20 in each area
           A firm does not need sales reps in an area they are not selling in
   Sales reps have a one-time hiring fee of $12,000 each
    (miscellaneous expense – shown on the income
    statement). This is in addition to any salary you pay
    – It may be a cost effective decision to hire only a portion of the
      total reps you want in each area as experienced sales reps, and
      hire the rest as trainees
 Trainees  can be hired and trained in one quarter,
  and would be ready to be placed as sales reps in
  the following quarter
 Trainees cost $3,000 to hire and train, and
  $3,000 to place as sales reps, for a total cost of
  $6,000 (miscellaneous expense – shown on the
  income statement)
 You must make a decision to place trainees as
  sales reps the quarter after you hire them, or they
  will go through the training again at the cost of
  $3,000 each.
                    Sales Rep Salaries
   The amount of salary your firm will pay each sales rep
    per quarter
          Typical starting salaries range between $1000-$4,000
          All salary decisions are in dollars
 Your firm must enter a salary decision for each area
  where your firm has hired sales reps
 Sales reps can quit if they are not getting paid, or if
  they feel they are not being paid enough. (Comparisons
  are made between firms in a market group.)
 Enter the amount your firm will pay each sales
  rep for EACH UNIT of product they sell
        Entries are in dollars and or cents for both areas
 Enter a commission for each product in each
  area where your firm is selling product
 If you have a high salary and/or high advertising
  and QC budgets, your firm may be able to pay a
  lower commission rate.
  – Typical starting commission rates range between .50
    cents - $3
  – It is possible to start out lower and increase as
    necessary to claim more market share
                          Credit Policy
   This entry will define which retail stores your firm will
    accept as customers and is determined by entering one
    of the following numbers
           0 = no policy; the firm will accept any buyers regardless of credit
           1 = take almost all orders unless the retailer is near bankruptcy
           2 = exclude those with poor credit history
           3 = same as 2 but requires a positive credit reference
           4 = same as 3 but new buyers must be with firm for two quarters
            until large orders are accepted
           5 = retail buyer must have a bank reference and be in business two
    *A strict credit policy may reduce sales volume. Your
      policy should be measured against bad debts expense
      (shown on the income statement)
               Budget Decision
 Quality Control

  IMPOROVEMENT. These budgets are only
  necessary for manufacturing firms. Your firm will
  not benefit from such expenditures and would
  only be wasting money.
               Quality Control
 Your  firm must enter a Quality Control Budget,
  regardless of the fact that you are not
  manufacturing your own product
 A QC budget will ensure that your firm accepts
  only the best quality product from your
  suppliers, that your product is well-kept while in
  your control, and that product is shipped to your
  clients in good condition
          QC Decision Entry
 QC decisions are entered as a TOTAL dollar
  budget for all products/areas.
 You must also enter a percentage of that total
  budget, which will be spent on Product 2
  – Do not add any percentage signs or commas
       Determining the QC Budget
 Remember that the Scent Industry is extremely quality
  sensitive. If you have priced your product among the
  most elite of brands, you had better have the QC to
  back it up.
 Although the QC budget is entered as a total budget, it
  should be based on a per unit amount to ensure a
  consistent quality level from quarter to quarter.
 This means that your QC budget will be different each
  quarter, depending on the number of units your firm is
  buying, plus any in inventory
         Typical QC budgets range between .75 cents - $6 per unit
    Example of Setting a QC Budget
  Firm A, has a very low price and intends to be a
   designer imposter brand. They are selling both
   products in both areas and have decided on the
--10,000 units of each type of product in each area
-- .40 cents for each unit of product
  10,000 x 4 (p1 and p2 in area 1 and area 2) = 40,000
                  40,000 x .40 = 16,000
So, this firm’s entry would be as follows:
Total QC budget 16000
Percentage of budget to be spent on P2 50
                               Finance Decisions
       Choose a set of Finance decisions based on your
        firm’s vision for market share and risk tolerance
                   Market Share Ambitions Matched With Stock Only Financing
   Desired               10%          20%           30%          40%             50%
 Market Share

 Risk Tolerance            !!           !             !!           !!!!          !!!!!!
Return Potential          $$$           $            $$$          $$$$          $$$$$$
Number of Shares        400,000      600,000      1,000,000    1,400,000       2,000,000
   to Issue

                  Market Share Ambitions Matched with Stock & Debt Financing
     Desired                10%          20%           30%          40%          50%
   Market Share
        Risk                !!!!           !!!         !!!!        !!!!!!        !!!!!!!!
  Return Potential         $$$$$          $$$         $$$$$      $$$$$$$$      $$$$$$$$$
Number of Shares to        300,000      400,000      500,000      700,000      1,000,000
Dollar value of Bonds    $1,000,000 $1,200,000 $1,500,000 $2,000,000 $2,500,000
      Example of Finance Decision
If your firm were willing to take on significant risk in
   order to pursue huge returns by dominating and
   controlling 50% of your markets, your firm might
   make the following financial decisions:
 Issue 1,000,000 shares of stock (raising about
 Issue $2,500,000 in Bonds (In $ not the number of
   bonds sold)
               Don’t Panic!
 This is only a trial decision. Trial decisions
  are for practice and for gathering
  information. You will start from scratch
  again in your next trial decision.
 If your financial decision package does not
  match well with your marketing plan your
  firm will have that much more incentive to
  read and understand the finance chapter.
             To Enter Decisions
 Go to the AGV website:
 Click on the “Simulation” tab at the top of the page:

 Enter your login and password using all lower case
  letters, then hit submit:
                    Login: introfirmXX
                     Password: XXXX
 Click on the name of the decision
     form you want to fill out
+ Firm Profile
- Intro Game
    - Decision Menu

    + Contract Menus
    + Firm Reports
    + Industry Reports
 To Get To The Contracts Menu
+ Firm Profile
- Intro Game
    +Decision Menu
    - Contract Menu
         Buy/Sell Contract
         Provide/Procure Consulting Services
   +Firm Reports
   + Market Group Reports
               Buy Contract
              O Sell Contract

____ Enter the firm number of the ADVANCED team
  you have a contract with
 18 Enter the firm number of the INTRO team you
  have a contract with.
             Product 1           Product 2
Enter the Total Number of units 7000
Enter the Total Cost per unit 115
Enter the Area you want the Product shipped FROM 1
Enter the Area you want the product shipped TO 1
           Contract Confirmation
Read over the details of the contract you entered. If the
contract details look correct, you will have several
 Execute – select this option if you want the contract to
  go through as confirmed above
 Wait for approval – select this option if you want the
  other firm involved in the contract to look the contract
  over and execute it. Do not use this option when your
  contract is with Peacock.
 Defer Decision – Select this option if you want to
  think the contract over before executing.
 Cancel – Select this option if you want to cancel the

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