Generate Demand FAQs

Click on a link below to access that FAQ (frequently-asked question) topic.


Controlling Sales Through Channels
Credit Financing Strategy
Cross-Channel Effects of Marketing Spending
Customer Buying Behavior
Customer Perception Drivers and Timing
Demand Drivers
Dropping a Product With Unfilled Orders
First-Mover Advantages
Marketing Spending for an Inactive Product
Marketing Spending of Zero
Pre-Launch Marketing Spending
Price of an Inactive Product
Prices Reported in Research Study Results
Product Quality Perception Variations Across Regions
Products in All Channels/Regions
Profitability of Demand Drivers
Promotions and Prices
Retail Prices in Channel 1
Retail- and Direct-Channel Prices [LINKS products simulations with multiple channels]
Unfilled Orders Exceed Regional Demand
Zero/Near-Zero Sales Volume in Channel 1




Controlling Sales Through Channels

“How can we control sales of products through various channels? We'd prefer to have greater sales through the more profitable channels.”

To control selling through channels, use your generate demand variables (price and marketing spending). If you want to sell less through a channel, raise price and/or reduce marketing spending. Of course, in the extreme, you could drop a product from a channel if you found that it wasn't profitable to sell there.

revised 10/23/2000
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Credit Financing Strategy

“How should we think about credit financing decisions? I guess that credit financing is meant to generate demand, but it also increases our costs.”

You'll need to weigh customer-oriented (generate-demand) considerations and cost consequences in deciding whether or not to use credit financing and, if so, to what degree for which products, channels, and regions. Since credit financing is an implicit discount, price reductions are an alternative to credit financing.

revised 02/05/2007
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Cross-Channel Effects of Marketing Spending

“Does marketing spending in one channel influence sales in another channel?”

Probably.

revised 09/12/2000
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Customer Buying Behavior

“Do some customers purchase both Hyperware and Metaware set-top box products?”

Yes.

revised 05/31/2006
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Customer Perception Drivers and Timing

“Are product quality, service quality, and availability perceptions a function of current-quarter conditions or previous-quarter conditions?”

Product quality, service quality, and availability perceptions presumably are mostly based on current-quarter conditions, with previous-quarter conditions having some possible residual impact on current-quarter customer perceptions. While this is a reasonable generality, service quality perceptions are more complicated. Since service quality perceptions are based on customer surveys, customers are surveyed this quarter about their service experiences, most of which probably occurred in the previous quarter. Thus, last quarter's conditions (e.g., call center service levels and performance) influence this quarter's service quality perceptions.

revised 09/12/2013
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listed under "Generate Demand"
listed under "Research Studies"
listed under "Service"





Demand Drivers

“We're interested in understanding the key drivers of our business based on price, quality, service, and availability for our set-top box products. Do you have any suggestions on how we might approach this issue?”
Understanding how your "controllables" (price, product quality, service quality, and availability) influence your results (market share, volume) is central to sales forecasting and running your business. Please view this video for more details.

revised 05/04/2018
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listed under "Advice"
listed under "Forecasting"
listed under "Generate Demand"





Dropping a Product With Unfilled Orders

“If we drop a product from active distribution, what happens to its outstanding unfilled orders?”

Outstanding unfilled orders for a product that is dropped from active distribution in a channel and region will be completely lost. They will not shift to another product, even your own just-dropped product still actively distributed in another channel in that region.

revised 11/21/2004
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First-Mover Advantages

“Are there first-mover advantages in LINKS?”

Many people talk about first-mover advantages as if they are the answer to everything in life. Being first certainly has some advantages if you're better than what's out there already (i.e., if your have differential advantage over existing offerings on the market) and if you continue to innovate. If there's any customer loyalty in LINKS, then early entrants continue to benefit from their earlier customer acceptance. Followers must "buy their way" into markets, to overcome the market presence and the customer acceptance of early entrants. But, first-mover advantages can be overcome with meaningful innovation that's valued by customers. Being first is good, but being better is best.

revised 01/05/2007
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listed under "Generate Demand"
listed under "Marketing"
listed under "Reconfigurations"
listed under "Strategy"





Marketing Spending for an Inactive Product

“When we drop a product (i.e., deactivate a product in a particular channel/region), do we have to change it's marketing spending to 0?”

To drop a product (i.e., to deactivate a product in a particular channel/region), change its active status to "No" and change its marketing spending to 0. If you don't change marketing spending to 0, marketing spending will continue at the current level in anticipation of a re-launch of the product.

All LINKS decisions are independent of each other, so deactivating a product doesn't change anything else automatically (like marketing spending or forecasts).

revised 08/09/2015
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listed under "Generate Demand"





Marketing Spending of Zero

“If marketing spending for a product in a particular channel and region is changed to $0, do sales in that market for that product go to zero?”

Probably not and certainly not immediately. Other drivers of sales exist beyond just marketing spending. Price, product quality perceptions, and service quality perceptions matter, in addition to availability (which is driven principally by marketing spending). Marketing spending presumably has some carryover effect, with previous marketing spending still having some impact today even in the absence of current marketing spending. In addition, cross-channel effects may exist. If you are still allocating some marketing spending to that product in another channel in that region, then there may be some cross-channel impact of the marketing spending in that "other" channel.

revised 05/25/2010
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Price of an Inactive Product

“When we drop a product (i.e., deactivate a product in a particular channel/region), do we have to change it's price to 0?”

To drop a product (i.e., to deactivate a product in a particular channel/region), change its active status to "No" and change its marketing spending to 0. You can't change price to 0, but price is irrelevant if a product isn't active.

revised 11/21/2004
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listed under "Generate Demand"
listed under "Marketing"





Prices Reported in Research Study Results

“Prices are reported in various research study results. Which "price" is being reported, the manufacturer price or the retail price?”

"Price" in research study results is the relevant price in the particular research study in question. Most research studies refer to prices paid by end-users (final customers). If the research study is derived from customer or market surveys, then "price" is the price that is relevant to end-users (final customers). For an indirect channel (like channel #1), retail prices are reported; for a direct channel (like channel #2), the manufacturer sets final prices so manufacturer prices are reported.

The key issue for "prices" is the channel. Throughout LINKS, it's necessary to keep in mind the channel when interpreting "price." In all LINKS documentation, "manufacturer price" is used to describe prices set by manufacturers. In a direct channel (like channel #2), "manufacturer price" is also the final price seen by end-users (final customers). In an indirect channel (like channel #1), "manufacturer price" is the price charged to retailers who then markup "manufacturer prices" to arrive at final retail prices.

revised 10/20/2004
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Pre-Launch Marketing Spending

“Does it ever make sense to have marketing spending before launching? We still have to do a reconfiguration before launching in a particular region and we could have some marketing spending now ahead of the launch, if it makes good business sense.”

Pre-launch marketing support spending (e.g., advertising, promotion, and sales force) is possible and presumably does have some residual value beyond the time period of the marketing spending. Of course, just because there is long-term value in marketing support spending doesn't imply that pre-launch spending is the most profitable thing to do. This is one of the great questions in marketing, what's the long-term impact of marketing spending?

revised 04/15/2000
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Product Quality Perception Variations Across Regions

“Why do product quality perceptions vary across regions? After all, it's the same product everywhere (i.e., same configuration and same sub-assembly component failure rates).”

You are correct that a single set-top box product only has one configuration anywhere it is sold. Failure rates for a single product should be similar across regions, subject to typical random variations. However, customer preferences may vary across regions (and, potentially, across channels too). Thus, preference for particular configurations don't have to be identical from region to region. And, customers' dispreference for failure can also vary across regions, with some regions being characterized by customers who are more or less concerned with product failures.

revised 09/12/2013
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listed under "Configuration"
listed under "Generate Demand"
listed under "Product Development"
listed under "Research Studies"





Products in All Channels/Regions

“Is it required to have all products actively distributed in all channels and regions?”

No, your products don't have to be actively distributed in all channels and regions. It's your decision completely on how your products are deployed in the available channels and regions. You wouldn't normally distribute a product in a channel/region that didn't provide positive profits, unless there were other compelling side benefits from doing so.

Note that the standard financial statements do not provide channel-specific profitability breakdowns. You'd have to create such channel-specific breakdowns, if you think that's a useful thing to do. The bottom line is clear: manage your business to maximize your long-run profitability.

revised 09/12/2013
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listed under "Generate Demand"
listed under "Performance Evaluation"
listed under "Strategy"





Profitability of Demand Drivers

“What can we do to assess the relative importance and potential profitability of all of the elements that drive our firm's demand?”
Please view the following video which provides advice for your LINKS team about assessing the profitability of the wide range of potential demand drivers that might affect your LINKS business.

revised 05/04/2018
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listed under “Advice”
listed under “Financial and Operating Reports”
listed under “Generate Demand”
listed under “Information Technology”
listed under ”Marketing”
listed under "Service"





Promotions and Prices

“Does promotion spending affect a manufacturer’s price to dealers or to direct-channel customers? If so, how?”

Promotions to the retail channel don't affect final selling prices of retailers. But, promotions to the retail channel can affect dealers' margins (depending of the promotional type) and, therefore, dealers' interest levels in supporting and promoting such set-top box products.

Promotions to direct-channel, final end-user customers can influence their net price (depending on the promotional type) after accounting for promotional discounts, but the "list price" (as established by the set-top box manufacturer) is unaffected by promotional discounts to direct-channel, final end-user customers.

revised 02/21/2008
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listed under "Generate Demand"





Retail Prices in Channel 1

“Why do retail prices in channel 1 change from round to round even though our manufacturer price stays constant?”

Retailers in channel 1 markup manufacturers' prices in arriving at final end-user prices (i.e., retailers' prices). These markup rates vary by region. Retailer markups should be regarded as averages across all retailers. Thus, there will inevitably be some variation through time in reported retailers' prices even if the underlying manufacturers' prices remain constant through time. In addition, retailers' prices are based on surveys of end-user customer prices in channel 1, adding another source of statistical variability to reported retailers' prices.

revised 08/18/2004
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listed under "Definitions"
listed under "Generate Demand"
listed under "Research Studies"





Retail- and Direct-Channel Prices [LINKS products simulations with multiple channels]

“What relationships should exist between retail-channel prices and direct-channel prices? For example, should direct-channel prices always be less than retail-channel prices?”

Manufacturers' prices to channel #1 are the retailers’ costs. Retailers markup manufacturer prices (i.e., the retailers’ cost) to their customers, the final end-user set-top box customers. Manufacturers' prices to direct channels (channels other than channel #1) are to final end-user set-top box customers. So, manufacturers' prices will generally be higher in direct channels than in channel #1 to allow for the retailers' markups in channel #1, assuming that a manufacturer’s target final end-user prices are meant to be similar in all channels.

It's difficult know whether the comparable final end-user prices for set-top box products in channel #1 and in direct channels are predictable as to which would be relatively higher or lower. It seems reasonable to expect that retailers would observe brand-comparable prices in competitive direct channels in their region and would not feel positively inclined toward manufacturers who undercut retailers’ prices in a direct channel.

But, the larger issue may be channel-set segments. Some customers only purchase set-top boxes through a specific channel. Other customers consider all brand options in all channel options when making purchases. So, if the channel-specific segments are large compared to the joint-channel segment, then there wouldn't be much cross-channel competition.

revised 12/13/2008
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listed under "Definitions"
listed under "Financial and Operating Reports"
listed under "Generate Demand"
listed under "Research Studies"





Unfilled Orders Exceed Regional Demand

“Unfilled orders for one of our products exceed industry demand in that region. Is that really possible?”

Sure, why not. Unfilled orders have nothing to do with actual "filled orders" (i.e., sales). Unfilled orders represent additional potential demand that might have been realized beyond "filled orders" (i.e., sales) if sufficient product supply had been available to meet all customer purchase requests.

A high level of unfilled orders could also reflect industry-wide double-counting if multiple firms' products in a region simultaneously have unfilled orders. If two products simultaneously have unfilled orders in a region, then some customers undoubtedly would have wished to purchase first one of the products and then the other product when the stockout situation for the first product was encountered. In such a situation, this single customer would have been counted as an unfilled order by both stocked-out products.

Such a high level of unfilled orders is certainly suggestive of lots of accessible market potential in that region with the current marketing programs (including the current configurations and prices) of all of the actively-distributed products in that region. Presumably, there needs to be some increases in supply (i.e., increased production levels) for those products with unfilled orders, perhaps combined with appropriate price increases to maximize those firms' overall margins in that region.

revised 11/21/2004
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listed under "Generate Demand"
listed under "Research Studies"





Zero/Near-Zero Sales Volume In Channel 1

"Why is our sales volume equal to zero units in region 3, channel 1? The last simulation round's sales volume for this product in this channel and region was 8,646 units."

Retailers in channel 1 are intermediaries in the inventory pipeline from manufacturers to final end-user customers. Retailers routinely carry finished goods inventory, to have adequate on-hand supplies to meet final end-user customer demand which varies through time.
If retailers' sales volume is relatively consistent/constant over time, then retailers will be re-ordering relatively predictable volumes from manufacturers. If retailers' inventory is sufficient to meet customer orders (and retailers' on-going target inventory levels) without replenishment from manufacturers, then retailers will not need to make any new purchases from manufacturers in the current simulation round.

There are, of course, noteworthy differences between retail and direct channels ... for example, there's no inventory buffer stock in a direct sales channel (direct from manufacturer to final end-user customer).

Details of the sales and inventory transactions for your product in region 3, channel 1 are reported in the following table (data sources include Research Study #12 and Research Study #14):
Region 3, Channel 1
Round #7 Ending-Quarter Channel 1 (Retail Channel) Inventory [Source: RS #12] 5,982
 - Round #8 Channel 1 Sales Volume (To Final End-User Customers From Retailers) [Source: RS #14] - 2,083
+ Round #8 Orders From Manufacturer [Source: Sales Volume on the Manufacturer's P&L Statement] + 0
= Round #8 Ending-Quarter Channel 1 (Retail Channel) Inventory [Source: RS #12] = 3,899
Retailers had sufficient on-hand inventory to meet all current final end-user customer sales requirements and retailers' on-going target inventory levels without re-ordering any more units from the manufacturer (your firm). It follows that your sales volume in region 3, channel 1 was zero units in this simulation round.

Why the large drop in sales volume? From your own research studies, your competitive product positioning in this channel and region has become very weak (above-average price, low product quality, low service quality, and average availability), thus explaining declining market share for your product. Perhaps your firm really doesn't have the product that meets customers' needs in this region and channel, given your competitors' current products and positionings in region 3, channel 1.

For further reading on this bullwhip effect in supply chains, the following two web-based articles may be referenced:

  • Bullwhip Effect (Wikipedia.org)
  • The Bullwhip Effect (QuickMBA.com)
  • revised 11/26/2012
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    listed under "Distribution"
    listed under "Financial and Operating Reports"
    listed under "Forecasting"
    listed under "Generate Demand"




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