Markets and Competition

Marketplace TelecomEvery company is interested in increasing sales and widening its customer base. However, the ways to achieve these goals are not always evident. For example, in order to choose the most efficient marketing and sales strategy, company specialists have to analyze a great amount of factors in order to be successful. For example, demographics, income and unemployment levels, distinctive product features, actions of competitors, modern technologies development trends, market and customer demands, production capacities, market segmentation, and national characters of potential customers. Furthermore, most of these factors have to be considered dynamically because they change in time.

Consequently, the task becomes virtually unsolvable using standard analytical methods.  Simulation modeling comes to the rescue because it is able to describe processes “as they are”, and follow situation evolution depending on the various system parameters. With simulation modeling, it is possible to predict market changes for a necessary period of time.

Let’s take the cellular communications market as an example. Telecommunication companies have a lot of information available about subscriber preferences depending on age, education, income, and cost of other operators’ services, but this is not enough to make a forecast. They also need to consider: customer group interaction, whether members of his/her family, friends or colleagues are subscribed to competitor telecom operators, which tariff plan is used, market changes, new disruptive technologies, and competitor actions. With simulation modeling, it is possible to take all of these factors into account and make a high quality forecast. The model can also be used in proactive management mode. For example, analyzing competitors’ innovation responses in order to increase competitiveness of the company, as well as its’ products and services.

Market modeling aids in solving the following tasks:

  • Develop long term marketing strategy: The company strategy that determines which products to launch into the market in N years, which market niche these products should be focused on, and which price category they should belong to, etc.
  • Develop medium term marketing strategy: Determining market placement and pricing strategies for the next release of products in the product portfolio.
  • Perform sales and demand forecasting: Precise forecasting techniques, not guesses or extrapolations from last years’ numbers, are needed to support accurate demand and sales forecasting. These in turn will determine the best use of operational budgets, advertising, promotions, discounts, etc.
  • Establish proactive management: Reality and plans always diverge, and in order to minimize this trend, it is necessary to anticipate changing market conditions and either preempt them or be poised to be the first mover.
For different market models please refer to the models gallery.

Case Studies

  • Simulation of Telecom Market in Argentina
    In 2008 there were three huge companies in the telecommunications market in Argentina. Each company wanted to enter the markets that they hadn’t covered yet, but the consequences of such actions had to be estimated. That’s why Telefónica decided to employ Continente Siete, a consulting company, to build a model of the market using AnyLogic multimethod simulation software.
  • Major US Airline Decides NOT to Charge Additional Fees
    A major US airline wanted to explore several options to generate new profits through ancillary products or changes to existing policies. Although the revenue generation through charging additional fees was apparent in the short term, prior to implementing a policy change, the airline opted to evaluate the long term perceived impact on brand equity, market share and customer loyalty.
  • American Motor Vehicle Market Simulation
    One of the world’s leading motor vehicle producers needed a strategic forecast of their performance in the US market for the next five years. The company wanted to estimate the dynamics of demand on their product and the expected revenue, taking into account current clients, dealers, competitors, and the used vehicle market. Their main objective was to determine how much product the company would need to produce in the following years.
  • Modeling of a Pharmaceutical Product Launch
    One of the huge pharmaceutical companies employed Bayser Consulting for development of product launch strategy. Simulation modeling was applied for reconstruction of interactions between the company, doctors and patients.
  • AnyLogic Simulates Consumer Choice in Telecommunication Market
    Evans & Peck and Alcatel Australia jointly developed an agent based model of consumer choice of Internet services which allowed market scenario analysis for the following 10 years.
  • A Pharmaceutical Company Decides on a Marketing Strategy Using Agent-Based Modeling
    Sterling Simulation consulting company was chosen to provide an agent-based marketing model for a pharmaceutical firm. The company owned two competing non-generic drugs on the same market. One drug was well established and tended to be the industry leader, and the other one was recently introduced. There were several concerns about how to obtain a useful market share for the newer drug, while maintaining or increasing the market share for the company’s drugs as a whole.