Growth Dynamics in New Markets

Martin FG. Schaffernicht, Facultad de Economía 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.

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• Preface IXInvitation to Explore IXWhat Will You Learn? XIIIWhat Are the Components of the Book? XIVWhat Is the Structure of the Book? XVWho Is the Book for and How to Use It? XVIIBefore You Start XIXAcknowledgments XIXReferences XIX1. Introducing a Durable Product in a New Market 11.1 Introduction 11.2 Your Briefing for the Business Challenge in Plutonia 21.3 Managing NewTel’s New Business in the Simplest Scenario: Business as Usual 141.4 A Competitive Scenario: Compete for Customers 191.5 Outcomes of Both Scenarios in Terms of Key Performance Indicators 271.6 Chapter Summary 301.7 Questions and Challenges 301.8 References 312. Capturing Customer Dynamics Driven by Diffusion 332.1 Introduction 332.2 Diffusion: A Regular Dynamic in Social Systems 342.2.1 “Going viral” 342.2.2 A Story about Selling Mobile Phones 362.1.3 Diffusion Is Based on a Network of Variables and Causal Relationships 442.1.4. Causal Diagrams Reveal the Causal Structure 522.2 Structure and Dynamics of New Product Diffusion 682.2.1 Your First Simulation Model 682.2.2 Feedback Loops 752.2.3 Reinforcing Feedback and Exponential Growth 772.2.4 Balancing Feedback and Goal-seeking Behaviour 882.2.5 When the Two Feedback Loops Are Interconnected 1012.8 Chapter Summary 1122.9 Questions and Challenges 1122.10 References 1143. Effects of a Limited Product Life Cycle Duration 1183.1 Introduction 1183.2 The Concept of Life Cycle Duration and Its Effects on Customer Dynamics 1193.3 Tracking Accumulated Purchases and Accumulated Customer-months 1463.3.1 Structure 1463.2.2 Behaviour 1503.4 Chapter Summary 1523.5 Questions und Challenges 1534. The Effect of advertising spending 1564.1 Introduction 1564.2 Turning the Attention of Potential Customers to a Product 1574.3 The Effect of Fixed advertising spending 1584.3.1 Structure 1584.3.2 Behaviour 1624.4 The Effect of Constant advertising spending with a Limited life cycle duration 1734.4.1 Structure 1734.4.2 Behaviour 1754.5 The Effect of Advertising for One Month 1814.5.1 Structure 1814.5.2 Behaviour 1864.6 How Many Current Customers are Won by Winning One new customer? 1924.6.1 Structure 1924.6.2 Behaviour 1934.7 Chapter Summary 1974.8 Questions and challenges 1974.9 References 1995. Financial Resources 2005.1. Introduction 2005.2. The Structure of Revenues 2015.2.1 The Direct Influence of prices on revenues 2015.2.2 The Indirect Influence of price and life cycle duration on Potential customers’ Purchasing Decisions 2045.2.3 How the effective monthly price Affects new customers and total revenues 2155.3. The Structure of Costs 2205.3.1 The Components of total costs 2205.3.2 Reducing Service costs by Improving Processes 2225.4. Behaviour: Customer Dynamics and the Accumulation of Profits 2295.5. Chapter Summary 2365.6. Questions and Challenges 2375.7 References 2406. Analysing the Market Situation with the Simulation 2416.1 Introduction 2416.2 Planning the Search for the Highest Possible Accumulated profits 2426.3 Searching for Optimal Values for the Decision Variables 2536.3.1 Searching for the Best subscription rate given a Constant sales price and life cycle duration 2536.3.2 Searching the Optimal sales price given a Constant subscription rate and life cycle duration 2576.3.3 Searching the Optimal life cycle duration given a Constant sales price and subscription rate 2606.3.4 Searching for the Optimal combination of sales price, subscription rate, and life cycle duration 2646.3.5 Searching for the Optimal Pattern of Monthly advertising spending 2686.3.6 Searching for the Optimal Pattern of Monthly process improvement spending 2736.3.7 Combining advertising spending and process improvement spending 2786.4 Decisions, Behaviours, and Outcomes in the Best Case Monopoly 2816.5 Setting your Objectives 2876.6 Chapter Summary 2896.7 Questions and Challenges 2906.8 References 290List of figure captions 2927. Market Dynamics with a Competitor 2937.1 Introduction 2937.2 Competing for Potential Customers: Rivalry Type I 2947.2.1 Structure 2947.2.2 Behaviour 3017.2 Competing for Current Customers: Rivalry Type II 3177.2.1 Structure 3177.2.2 Behaviour 3227.3 Competing for Potential and Current Customers 3287.3.1 The Causal Structure of Diffusion with a Competitor 3287.3.2 Evaluating Four Exemplary Policies 3467.4 Reflecting on Rivalry 3637.5 Chapter Summary 3667.6 Epilogue: Your Debriefing 3687.7 Questions and Challenges 3697.8 References 3718. Relaxing Assumptions and Adding Relevant Aspects of Reality 3738.1 Introduction 3738.2 The Population is Not Constant 3768.3 There Are Not only Potential Customers and Current customers 3778.4 Current Customers Care about Quality 3798.5 Advertising Influences Word-of-Mouth and Customers Switching 3818.6 Mobile Phones Are Not Contracts Are Not Customers 3848.7 More Frequent Decisions and a Longer Time Horizon 3868.8 Contracts Do Not Change Retrospectively 3878.9 The Number of Competitors Is Higher and Varies 3968.10 Nonlinear Relationships Replace Causal Structure 3978.11 The Harmonic Development of Demand and Supply Capacity: A New Book 4008.12 Chapter Summary 4039. System Dynamics: A Methodology for Model-based Management 4069.1 Introduction 4069.2 Your Mental Model of Growth from Diffusion 4079.3 System Dynamics Modelling 4119.3.1 The Manager as Modeler 4129.3.2 Basic Assumptions of System Dynamics 4159.3.3 The System Dynamics Modelling Process 4189.4 System Dynamics Competence 4219.4.1 Skill #1: System Dynamics Language 4239.4.2 Skill #2: Dynamic Reasoning 4249.4.3 Skill #3: Model Analysis 4259.4.4 Skill #4: Project Initialization 4269.4.5 Skill #5: Model Creation 4269.4.6 Skill #6: Model Validation 4289.4.7 Skill #7: Policy Evaluation and Design 4299.4.8 Your Stage of Competence Development 4309.5 Learning and Applying System Dynamics 4319.6 References 433Index 435Figures 438Tables 443Index of Principles 445Index of Guidelines 446Index of Management Insights 448Index of Systems Insights 450Index of Toolboxes 452Index of DIYs 453Abbreviations 456