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Lab · M02 The 4Ps Marketing Mix

Marketing Mix Simulator

Choose a product, price, channels and promotion for a fictional cold brew launch and see simulated demand, margin, share and satisfaction.

Choose a product, price, channels and promotion for a fictional cold brew launch and see simulated demand, margin, share and satisfaction.

The launch

A fictional brief. Every business, brand, place and number on this page is invented for teaching.

Lantern Coffee Co. (fictional), the catering and café business from course F01, is launching Lantern Cold Brew: a ready-to-drink cold brew in 250 ml cans, sold in Harbour City, a fictional metropolitan area. About 4.8 million cans of ready-to-drink coffee are sold there each year, a quarter more than average in summer (Q3) and fewer in winter.

Three established brands already share the shelves. Lantern starts with 12% awareness: the people who know the name from its catering and cafés. You have one year to show the launch can work, and a launch overhead of $60,000 a year (the team and brand work) to cover.

What a plan contains

  • Product. The liquid (classic blend, single-origin or organic single-origin: better taste costs more per can) and the range (one flavour, or three, which means three sets of listing fees and extra production runs).
  • Price. One shelf price per can, from $1.99 to $4.99. Retailers and distributors keep their trade margin; Lantern’s own cafés and online shop keep the whole price but pay to pack and deliver.
  • Place. Any mix of supermarkets, convenience stores, natural and specialty grocers, and Lantern’s cafés and online shop. Each retail channel charges a listing fee per flavour, and each has different rivals and shoppers.
  • Promotion. Yearly budgets for social and search ads, in-store sampling and displays, trade promotions (temporary price cuts that Lantern pays for) and PR and events.

The simulator turns a plan into a simulated first year: cans by quarter and channel, share, awareness, the money from shelf price to profit, and a satisfaction index. Change one decision at a time and watch what moves, save the plans you want to keep, and compare them before you recommend one.

Your plan

The simulator opens on the default plan, a sensible first attempt. Every change recalculates the year at once; the figures marked “vs the default plan” show what your change did.

Show the summary text

Compare plans

Save up to three plans in “Your plan” and they appear here side by side. The first saved plan is the reference: decisions that differ from it are marked ◆, results show the change from it, and ★ marks the best result where more (or, for break-even, fewer) is better. Plans are kept in this browser only.

What the model assumes

Everything the simulator does, in the order it does it. Simulated predictions, not verified outcomes: use them to reason about trade-offs, not as forecasts.

The equations

Subscripts: j is a brand, c a channel, q a quarter (1 to 4); P is Lantern’s shelf price. Budgets are split evenly across the four quarters.

  1. Category cans in each channel

    Nc,q = 4,800,000 ÷ 4 × seasonalityq × volumec

    The category doesn’t grow or shrink with Lantern’s plan: Lantern’s cans come from rivals (or, in the direct channel, from people who would not have bought a can there).

  2. How appealing each brand is

    Uj,c = βq,c × qualityj − βp,c × pricej + βv × ln(SKUsj) + γorganic + hc

    γorganic applies only to the organic tier in natural grocers; hc (habit) applies only to the three established competitors, whose ranges count as one SKU. Each channel has its own price and quality weights.

  3. Attraction

    Aj,c,q = availabilityj,c × awarenessj,q × liftq × eUj,c

    Availability is 1 if the brand is stocked in the channel and 0 if not. Lift is the sampling multiplier: Lantern’s, in retail channels only. Competitors’ awareness stays fixed.

  4. Share of each channel

    sj,c,q = Aj,c,q ÷ Σk Ak,c,q  (every brand stocked in c)

    sdirect,q = ALantern,q ÷ (ALantern,q + eU0)

    This is an attraction model with a multinomial logit form. Lantern’s cafés and online shop have no rival brands; the alternative is not buying there, with appeal U0.

  5. Awareness, with carryover

    Gd,q = λd × Gd,q−1 + digitalq    Gr,q = λr × Gr,q−1 + w × PRq

    awarenessq = 12% + (amax − 12%) × (1 − e−(Gd,q + Gr,q) ÷ K)

    Ads and PR build stocks that fade each quarter (adstock). The more awareness there is, the less each extra dollar adds. With no ads and no PR, awareness stays at 12%.

  6. Sampling and displays

    Sq = λs × Sq−1 + samplingq ÷ coverage    liftq = 1 + M × (1 − e−Sq ÷ Ks)

    Coverage is the share of category cans in the retail channels chosen, so the same budget spread over more stores does less in each.

  7. Trade promotions

    promoted price paid = P × (1 − d)    price shoppers react to = P × (1 − d × (1 − ρ × φq))

    Σc φq × Nc,q × sc,qpromoted × P × d = trade budgetq,  φq ≤ φmax

    φq is the share of weeks on promotion. Lantern pays the discount on every promoted can; the more often deals run, the less special each looks (ρ).

  8. Cans

    retail: Nc,q × [(1 − φq) × sc,qregular + φq × sc,qpromoted]    direct: Ndirect,q × sdirect,q

  9. Money

    net price = P × (1 − trade marginc) in retail; P − fulfilment in the direct channel

    gross profit = Σ cans × (net price − cost of goods)

    contribution = gross profit − trade discounts − marketing (ads + sampling + PR) − fixed costs (listing fees × SKUs + range cost + direct-channel cost)

    profit after overhead = contribution − $60,000

    contribution per can = (gross profit − trade discounts) ÷ cans    break-even cans = (fixed costs + marketing + overhead) ÷ contribution per can

  10. Satisfaction index (simulated)

    r = (quality ÷ average price paid) ÷ (Σk awarenessk × qualityk ÷ pricek ÷ Σk awarenessk)    index = 100 × rk ÷ (1 + rk)

    Value for money only: Lantern’s quality per dollar against the competitors a shopper could buy in that channel (all three for the direct channel), weighted by how well known they are. 50 means the same value as the alternatives. The index doesn’t feed back into sales.

  11. Price elasticity

    εc = −βp,c × price × (1 − sc)

    The percentage change in Lantern’s cans for a 1% higher shelf price, averaged over regular and promoted weeks (weighted by cans) with promotion activity held fixed. The tests check it against a numerical estimate.

Coefficients

Market figures

What the model leaves out

    Sources

    1. The market, Lantern Coffee Co., Harbour City and every competitor are fictional; the coefficients are invented for teaching.
    2. McFadden, D. (1974). Conditional logit analysis of qualitative choice behavior. In P. Zarembka (Ed.), Frontiers in Econometrics (pp. 105–142). Academic Press. The multinomial logit form of the choice model. Listed in McFadden’s CV.
    3. Cooper, L. G., & Nakanishi, M. (1988). Market-Share Analysis: Evaluating Competitive Marketing Effectiveness. Kluwer Academic Publishers. Attraction models: a brand’s share is its attraction divided by all brands’ attraction. Web edition.
    4. Broadbent, S. (1979). One way TV advertisements work. Journal of the Market Research Society. The adstock idea: advertising effects that carry over and decay. See also Advertising adstock.