Capsim-my goodness

ImageI’ve noticed blogs and youtube videos describing strategies on how to win this simulation, but the results usually aren’t that high; just high enough to beat their class. Our team ended up with 34.04 percent market share, $229 million in cumulative profit, $87 million in round eight profit, and $503 million in sales, which are the best results I could find just googling around.

General strategy: Be aggressive as it’s a zero-sum game. I think the first pitfall comes from teams who listen to the professor and treat it as a friendly competition, or take the advice to be a quality niche player. It’s possible to take over the market and grab every segment, which has the benefit of choking revenue from other companies while making yours look better. Since you’re trying to be first, your scorecard will establish the class curve and automatically give your team an A. Yes, for probably the only opportunity you will have in college, you receive an A by lowering the grades of your fellow classmates. Enjoy the ride.

Round 1: Borrow long term debt to the hilt, and issue max stock and you should have around $56 million to play with. You’ll zoom ahead of your classmates as they’re too timid to fully commit and go all-in. College students in their early twenties have this misconception that low debt is a good thing, probably because they’ve been traumatized by student loans. Companies use debt for positive things such as growth and plant investment, similar to homeowners who take on a mortgage or take out equity on their home; it shouldn’t be seen as a bad thing.

Before starting your practice rounds, read your capstone student guide a couple times to familiarize yourself with the game. It’s a desperate situation when you try to intuit or “feel” your way through the game. We had a few teams who didn’t do the research and lost their shirts. Remember what it felt like to lose in Monopoly or Risk? Yeah, like that.

You will be at a crossroads when choosing how to invest. Either go heavy on automation, or introduce products in high end, performance, and size. It’s possible to balance things out and do both, but decide now which option you like more. Automation increases the contribution margin and thus profitability, while new products rob your opponents of market share. Don’t bother with introducing new traditional and low end due to automation and capacity requirements. Traditional should be near the 8-8.5 automation range, low end 10 towards the end of the game, and the high end offerings can be anywhere from 6-8, depending on how you R&D. Remember to ramp up automation slowly as you need TQM to kick in over three rounds: 1500, 1500, and 1000. Employees need to be hired with $5000 and 80 hours. These are weaknesses you can exploit in your enemies, since they’ll be too timid to go all-in. When you see their thatched-roof cottages burn and hear the lamentations of their women, you’ll know you’re on the path of capitalist enlightenment. =)

Marketing and promotion have sweet spots. If you couldn’t afford it in previous rounds, try and catch up with $3000 spending, although there are diminishing returns. For other rounds, $2500 is the best compromise. When you hit 100% awareness, $1400 is the maintenance amount for promotion, $2500 for accessibility, and $3500 accessibility if you have two products in the same category. When you’re bringing up two products, it’s $4500 per segment instead of $3000 for one product. Split the spending to $2500 for the new product, $2000 for the old. Note the marketing department will emphasize one product over the other depending on your spending.

Automation is an interesting one. I recommend 8.5 for traditional, 10 for low end, and 6.5 for the rest. It’s possible to push traditional to 10, but time it so you’re no longer R&Ding at the end; this applies to low end too. Figure out the product drift and complete R&D for the ideal spot by round 7. For low end, R&D doesn’t matter so long as you’re within the circle of product desirability. For high, performance, and size, you can push to about 7.5 automation. I’d be careful about high automation. The key is to ramp up your TQM to have 47 percent R&D reduction.

For projections, 1.2 is your baseline. You calculate this by going to your potential market share page in the Capstone Courier, and multiplying current market size from the segment analysis page, by the growth rate, by your potential market share percentage found on the right side. That’s your worst-case scenario projection. Then multiple by 1.2 in the production section for what you’ll actually make. In round 4, you’ll experience a recession, so pull projections back to 1.15 or 1.10. In situations where your three new products are coming on-line, push projections way beyond potential market share, such as 1.3 or 1.4. You’ll probably stock out and deal with capacity issues as that’s expensive when expanding your product portfolio. When the market settles down and you stop taking market share, give yourself a 1.15 to 1.20 production schedule to avoid stock outs, while staying away from high inventory carrying costs. Note that your new products will cannibalize your old products by about 2 percent, but it’s not a big deal considering what you gain. You can scale back old production by 2 percent to compensate.

For such high-risk projections, take out additional long-term loans to cover your cash position. Near the beginning, I used my intuition by suggesting we give ourselves a $5 million cash buffer just in case. Sure enough, we were left with $4 million when the round processed, meaning we would have taken an emergency loan and sunk our growth model. Over time, increase your buffer as your projection risk goes up: $10 million, $15, $20, and about $30 by round 8. That gives you about 10 percent protection assuming a $300 million sales year, and if you make $503 million, emergency loans won’t be an issue.

Stay away from current debt as commercial paper become due the next year. It’s better to pay 1 percent more in interest to have essentially free money since it has a ten-year maturity. Note some long-term debt becomes due because of previous debt incurred before the game started.

Remember this is a zero-sum game. I’ve read and heard from previous teams that it’s impossible to take all segments so you have to concede some of your products. I offer a different look, where it’s possible to have a stranglehold over the sensor industry. In our game, two player industries were essentially bankrupt with negative earnings, while the other was a small fraction of our size by market cap. The two computer teams were under maximum-security prison lockdown as our products choked theirs from making money. Yeah, we had fun dominating. =)

CompXM: I had similar results in the class final. With knowledge gained from capsim, I immediately R&D’ed for three products in the core, nano, and elite categories. It’s helpful to just name them Axe2, Art2, and Ant2 after your regular products to avoid confusion. Don’t bother with a thrift product as it’s an analog to traditional and low end. The automation and capacity requirements are too extreme, so focus on high-end offerings that can hit the ground running. I ended the game with 46.46 percent market share, two companies in default, and another in second place. The game is similar to capsim, but on an accelerated four round simulation. Get TQM, workers, automation, and capacity up, and you’ll perform fine.

My one complaint about the game is the lack of merger and acquisition activity. If it were possible to light their defeated corporate buildings on fire with gasoline and matches, we would have. In our minds, we bought out the troubled companies we crushed in order to gain a monopoly. For obvious reasons, this is too cruel in the Care Bear Share world of college. It’s supposed to be a learning environment; although I argue they would learn plenty when they experience a hostile takeover. We could open up the simulation to set up golden parachutes and poison pills to balance out M&A.




76 thoughts on “Capsim-my goodness

  1. I had a question about your projected automation for each sensor segment. The values you listed is what you are shooting for by the last round, correct? Additionally, how are you not incurring massive costs by automating that much due to new products. Or are you just R&Ding your various products 1 time at round 1 and then fully automating from their out? It was my understanding that you should R&D each product line you are focusing on, each round, to keep the leg up on your competition and force them to R&D and be behind schedule.

  2. Thanks for the interest, Henry! Yes, projected automation for the last round. Note Trad and Low will have such high automation that you won’t be able to R&D much, so time it for rounds 7 and 8. You can afford this because you will spend all your cash, and take stock/bonds to cover additional expenses. Your sales will be high enough to cover all this action, but remember to leave yourself a cash buffer so you never have emergency loans.

    We R&D all the products all the time. Trad we R&D with a target date of 6/1-6/15 for the same year. Low end, R&D doesn’t matter so long as you’re inside the desirability circle. At high automation, it can take 1.5 years to R&D low end, but don’t worry so long as you don’t fall behind the drift rate. For the three higher end products, we R&D same year, at ideal position, targeting December of the same year or earlier. When you have TQM in effect, all these R&D issues fall away, so don’t be shy with the automation.

    Don’t focus; attempt to take the entire market. The key is to outspend your competition. In our experience, college students are weak and aren’t willing to take risks. Go all the way and you’ll win.

  3. It is impressive, but I have a question related to projections. I spend $2,500 for promotion and $3,000 for accessibility in my first round, and get a benchmark prediction on traditional and low-end that is about 400 units higher and 300 units less respectively than the one resulted from my potential market share multiplying the two current market size, by the growth rate and by 1.2. Is the prediction figure reliable? And, should I risk producing that much amount of products and the result can be over-producing and keeps a lot of inventories and get a net loss?

    1. Don’t worry about 1.2, that’s a conservative baseline. Depending on your classmates, that won’t be enough and you’ll stock out. It’s worse on your score to stock out than it is to hold a little inventory. The professor didn’t really emphasize this, but look at how you’re scored.

  4. I’n our practice rounds, we’ve had a single low end offering and high end offering. Reading your advice, am I interpreting correctly that you are recommending introducing more than one product line into the same markets, low end or high end, essentially competing with yourself in the same market in an effort to gain more market share?

    1. Yes, introduce products in all three higher end categories, while leaving Trad and Low alone. This takes 2-3 rounds for the new products to really take root, but it’s worth it. You’ll easily take over one-third to half of the market in each segment. New products primarily rob marketshare from your competitors, while cannibalizing two percent of your own. It’s the best way to grow your sales.

      Only thing is, understand what the sensor market wants and have the best products. Your guide will tell you what the customer wants. Be careful of emergency loans and spending too much at once. Leave yourself a small buffer like in says in my guide. But don’t just sit on cash; reinvest most of it.

  5. For round 1 we took out the largest long term loan as well as issued max stocks. We then focused on creating two new high tech, to take that market when it develops, as well as increased some automation for increased margins. Our round 1 reports were showing negative returns on Equity, assets, and profit. As well as the lowest cumulative profit. Is this normal as we are spending more time on R&D and should see a boost once our products come out? Should we not have done that? 

    1. You will concede the first round. If you focused on profitability right away, you lose in the long run. You’ll turn things around in rounds 2-8.

      You weren’t supposed to have negative returns or take any losses, or take any emergency loans. Instead, focus on break even with a little bit of buffer, so it’s a tiny profit. You’ll gauge it better in the future. You should see big returns in round 3 once the other products come on-line. Note you’ll probably experience a recession in round 4, so be careful about over-projecting.

      Let me know how you do, and I can give more advice.

      1. That makes sense. Im a little confused on the negative returns as well. Maybe it is because we put in an order for two new products in R&D. One for 2016 that is more advanced than current tech, and then one for 2017 that is way beyond current tech, however with age at revision at 0. We also didnt forecast any sales and let the computer do it. Thanks for your original reply our teacher hasn’t explained the program that well (or at all for that matter). Maybe there is a better way we can communicate? I would really love to learn how to properly use this program.

      2. The computer projections are garbage, that’s what went wrong. In fact the software and guide book warns you against using the computer’s number. Read the guide a few times to familiarize yourself.

      3. oh yes I do remember reading that. So that could cause all those negative returns? interesting. My problem was I didnt know what to project. I guess I should have looked at the courier and used the equation given?

      4. I read the manual last night (pacific time). Our practice round 2 is due in two days. From my understand now, It is best to forecast our sales with the worst case scenario. So we would only be losing potential money if we sell out, rather than overstocking and losing money on storage and no sales.

        Are we not supposed to update our products we started with? I see that our products are staring to move upwards and to the left of the demand circles. However, with the release of our new products, we would be recapturing that market. Should we the sell off our older products and stop production of them? Or just maintain them?

        I think this round we should focus on creating automation of lower tech products, regaining top advertisement and accessibility, and proper forecasting of sales. does that sound like a strong strategy?

      5. Look at the scoring section of the software. It’s better to have a little inventory costs than stocking out. You lose more points by not satisfying demand.

        For projections, use worst case scenario calculations, and multiply by 1.2. That’s your baseline projection. If your competition is stocking out and mis-projecting, or their products are terrible, push harder with 1.35. If they are more aggressive, stay in the 1.25-1.3 range. At 1.2 you’ll probably stock out. Watch out for the recession mid-game.

  6. We are $21,000 in debt after taking out a long term long term loan the first round, as well researching two new high end products (that come out a year apart from one another) Any tips on the best way to get back into the black, without taking out another loan?

    1. You’re supposed to be in debt, it’s okay. In fact max out your debt every round and max issue stock. Just stay away from emergency loans or posting a loss. Always have a small profit, even if it requires a cash buffer from debt to stay away from a loss.

      Are you winning each product segment with the most sales and marketshare? That’s important. R&D is key.

    2. You need to max out long term debt and max debt stock issue to make this work. And you’re not supposed to spend so much that you’re in the red. Risking everything is the only way this strategy works.

      1. We concentrated on creating NEW products in R&D that havent come out yet. So we didn’t update any current product. so we are only ahead in like the mid range product.

        So were we supposed to update our products more so than everyone else, instead of creating a whole new high tech product?

      2. You have to do both. Balance R&D, with proper forecasting, with researching new products. You can back off automation a bit if you run out of money.

      3. Okay I get it now. Do we discontinue our old high end products when they come out? Or keep them to have more items to sell in that market?

  7. when you say 1.2 for sales forcasting do you mean multiply 1.2 from the percent of my products potential growth.
    ex: Able is a traditional product and has a potential growth rate of 7.8%
    The next year demand for traditional is 782.499

    So I do 782.499 (7.8%) = 61 then I multiply that by 1.2? = 73

    1. My guide lists the method. From memory, you look at what the market actually sold the previous round, multiply it by 1.078, divide by number of players in the market, and multiply that by 1.2. Depending on how much better your R&D, marketing, sales budget, you can easily push it to 1.3 or 1.35. 1.4 or 1.5 is possible but then you really risk taking on inventory carry costs.

      1. By the way, note the 1-800 number on your guide. Call them on a daily basis if you have questions. They won’t give away secrets on how to play, but they’ll answer your questions when you get confused.

      2. Also note the projections need to account for marketshare in future rounds. For instance, if you end up with 35 percent marketshare, then assume 35 percent of the market belongs to you, times 1.2. Always make sure your R&D, sales, marketing, TQM, etc are on-point. That plus introducing new products will win you each segment.

  8. It all worked out, except I projected 700 sales for my new product… but because I didnt make new capacity for it the round before, none of it sold. Completely my fault I guess. Therefore, Im pretty far in debt now because I used the potential profit to base all my other spendings. Profit I never actually got…

  9. I was able to find this blog through some Google searching. I’m pretty sold on the concept, but my teammates are wary. Our first competition round is this Saturday coming up. I think I have most of the basics down, but I would love to chat with you about what a complete 1st round decision would look like. I don’t think our class is doing TQM, just the HR Module, so that might change things a bit. Anyways, I would love a reply! Thanks so much, and know that your writing style is both hilarious and effective. Solid combo.

    1. Wariness is for the weak!!!

      Seriously, though, not sure how to do this without TQM. Makes things less efficient and more expensive. I still think introducing products is a good idea, but you’ll need to back off some of the automation and the like.

  10. I like your strategy and guidelines, just one question:
    If you re-position your product regularly and maintain the age requirement, is there need for new products ? what benefit would additional product give me, when i can make a ‘close to ideal’ product and spend well on awareness and access?
    please guide. thanks !

  11. This is a great blog, has really helped us a lot!

    One question I have is why target new products in high end, pfmn, and size if they are the smallest market share by %. It doesn’t seem like their industry growth rates will be enough to have them catch low end and trad’s market share %. Doesn’t it make more sense to make new products in low end and trad, since they collectively represent a larger piece of the sales pool?

    Thanks in advance for your help!

    1. Low end has higher volume but low margins. The higher end offerings have higher margins, so you make more money. It’s worth going after those markets with new products.

    2. Also you can make money in low end with just one product. Two is impractical because of extreme costs associated with warehouse capacity and automation. Go after the higher margin stuff.

  12. Just post here. Sorry but I can offer no specifics, since I’ve graduated from the program. I do remember the guide has a drift chart telling you where you need to be by the end of each year, listing consumer demand. Just align your R&D to that; but backing off a bit if you run out of money.

    Keep all your products. The portfolio will have one low end, one trad, and two of each of the higher end models.

  13. Following your strategy in round one, we already gained over 20% of the market share in all of the segments. Based on that, how would you suggest estimating projected sales for the next round if our old high end product currently has 20% market share and we are introducing a second high end product? Thanks.

    1. You can be more aggressive in the 1.3 to 1.4 range. At this early stage in the game you won’t have enough capacity and will stock out. Try to make what you can but expect stock outs. Later in the game you can play more conservative projections as the market settles, with you on top.

  14. How did you distribute your TQM across allof the options for TQM? How much did you invest total for TQM per round?

    1. We maxed it out. It’s the most important thing; it should take three rounds to fully max, and we spread it out evenly. This is off the top of my head.

  15. They added ethics scenarios to some of the rounds that affect multiple aspects. Did the recession surprise you or did the capstone currier show a negative growth rate that you could plan against?

    1. The recession was a surprise and everyone was left with excess inventory. You can attempt to anticipate it, but I don’t know if every version of Capstone triggers the recession in round 4 or not.

  16. Hi,
    Your strategy is interesting, but I wish I could find it earlier. I’m done with round 1 now and preparing for round 2. On round 1, we thought that we should focus on low end and traditional segment, so we bought capacity and raise the automation. we did not buy any capacity for performance, size, and high -end segment. we also borrow the max long term debt but not issue the max stock (which we did not know). the result came out negative and we have a loss and have emergency loan. So, Can you give us some advise on how to get rid of the emergency loan as well as increase the profit for the next round? should we introduce the new products on traditional and low end segment since we bought the capacity in the previous round and buy capacity for the high end in able to produce new product for the 3rd round?

    1. It’s still possible. We didn’t introduce products until rounds 3 and on. So feel free to keep following the guide. Never go into emergency loans, since they cost so much. You misprojected, so correct it for future rounds.

  17. I read this blog after having already completed capsim. I was in a very successful team and took a similar approach going for max bonds each round and investing heavy in automation. However as we chose stock price to be one of our success measures we did not issue stock with the exception of the first round, this was to keep the stock price high. If I was to do it again I would not choose stock price as a success measure and issue stock as a way to raise funds.

    As has been said earlier wariness is for the weak, don’t be afraid of debt, debt is your friend if you use it right. Debt for investment that is going to make more than the cost of that debt is good.

    If I was going to do this again I would focus more on one product line at a time starting with max automation in Low as my first priority. Then focus on one area at a time (other than High) to auto lvl 8. This will help improve margins and allow the ability to move prices where needed to lead the competition. It is important to maintain good margins and profits ahead of trying to take market share from your competitors. In saying this it is important to important to keep your prices at a level where you are making good profits with good margins, don’t lower your price until you have lowered your cost of goods.

    Another good way to increase margins in Low and Traditional is by reducing the MTBF to the lowest acceptable limit as this is not important to these segments. I found that most teams were to eager to make great products without considering the cost of goods and this hurt them in loss of income which meant they could not make as many investments.

    Another important thing is to understand the difference between the middle of the circle and where the ideal spot is. Read and reread the team member guide and the industry conditions report all the information is in there.

    Good luck if you are about to begin and if you are looking for ways to improve now that you are started.

    1. Good work! What did you end up in terms of marketshare, annual sales, and total sales?

      For your stock price comment, we did push hard on dividend and share buyback to finish the game with a really high price. That’s because it is a grading criteria that you should have high share value.

      1. Ending market share was 30%, annual sales of 450 Million, cumulative profits of 200 Million and ending stock price of $215.

        On stock price you only have to have the highest stock price of your competitors to get full marks and thinking back from round 6 my team should have raised a lot with stock after we gained no.1 stock price.

  18. I am taking a strategic management in a month long summer course and we are doing this game. We are finishing up the practice round tomorrow, then beginning the full round. I am going to borrow to the hilt and try to get things moving quickly. In the practice round we had better prices than everybody, but ended up stocking out entirely. Our market share blew everybody else away because they came in high on prices. Hopefully the other groups don’t pay too much attention to our successful plays!

    Thanks for the good write up!

  19. Hey, I’m about one week away from starting capism, and I’ve read up on your blog. Are you still replying to comments?

  20. So how close together on the Perceptual Map did you attempt to R&D the two products in each of the High, Perf., and Size Segments? Also, what capacity goals were you shooting for by round for these multi-product segments? BTW thanks a megaton this a fantastic strategy.

    1. The high performance segments we nailed perfectly. The cheaper volume segments we didn’t care about ideal settings so long as it was still in the circle.

  21. Hi, is there anyway to be more accurate in forecasting? The problem that i encounter is that we were told to input the worst case scenario for the forecast in marketing. This resulted in the proforma recording a loss. However, when i proceed to the next round, the market share increase by more than 8% for some product, which resulted in stock out, even though I had added the best case scenario (plus 2-3% of current market share) in the number of production units. Is there any formula to predict future demand? Thanks.

  22. Hello. Thank you so much..this helps a lot. can you tell me more about the cash buffer please ? Where should I look for the cash buffer?
    Also, I would like to know why should we introduce our products in december for the 3 other segments as they will satisfy our customer for only 1 month. Our teacher advised us to always introduce new products in january-june so that we can have higher demand for several months instead of only 1 month. Can you please explain me ? My teacher did not really explain these things and I am the only one willing to work in my group. So i am kind of figuring out everything by myself.

  23. Hi! I’m doing capsim for the first time this semester. I have a quick question…I’ve read through most of these comments and it seems that there are multiple categories for high end and low end and something called traditional. When going through the tutorial, I got the impression that products are either just high end or low end. Am I missing something? Thanks in advance.

  24. Hey I followed the plan for round 1 but didn’t realize our team should continue to borrow long-term debt as well as issue stock to pay for the R&D. This turned into a $13,000,000 emergency loan that I wasn’t expecting to see in our round 2 report. Is there anyway to turn this around? The reason the loan occurred is because of how high our R&D was compared to the other company. If I had read the comments more thoroughly I would have realized how big of a mistake I was making by not continuing to borrow. Thanks!

  25. What my group and I did is:
    1) produce the cheapest product in the low market that will come out next year.
    2) market the original (first) product as much as we can until the new product comes out.
    3) place the two products at the same market creating cannibalism but high market share.
    4) Low MTBF
    5) High loan and stok

    Let me know what you guys thinks…

  26. Hello, im having my competition round 5 tomorrow. Since tqm is activated, it is okay for us to like reduce marketing until only $5 each segment to at least make our profit break even? i just do not know any other way to solve this.

    1. There’s a market minimum to maintain 100% efficiency, so I would keep spending for that. I don’t why you’re not profitable by round 5, however. It’s okay to reinvest all profits into the company, but not okay if you’re still dealing with break-even issues.

  27. Hey, here’s a question for you. I calculated the capacity next round figures for the low end segment among all my competitors and myself, and there is no way to meet market demand. I decided to set my low end price to the top of the suggested range because, even if your product has a low score, customers will still buy it after exhausting their other options. So, my question is, what would happen if I set my price $4.99 above the suggested range? According to the info bar, they won’t buy anything $5.00 above the suggested range.

    1. No idea. We always kept the price range within what the customer would accept. I’m assuming they will ignore your product and stock out the competition before turning to you. I don’t know, I don’t recommend that strategy.

      1. Thanks! Also,I know we shouldn’t be pushing automation too hard before TQM kicks in, but how hard should we kick it? Is 0.5 for each product before TQM kicks in sound reasonable?And, is selling some excess capacity in round 1 a good strategy? (to the point where it can still cover round 2 production forecast)

      2. And, do you suggest changing A/P, A/R terms? (longer A/P term gives more cash to work with in exchange for some material withhold from supplier, longer A/R term increase customer survey score but current asset will be tied to A/R more)

  28. That’s really low automation. The guide will tell you specifics, but in general you 8+ automation for low end, and lower amounts for the high end stuff.

    A/R A/P is mainly to improve your score for the last few rounds, I don’t know if it gives you a competitive advantage. Call the hotline to make sure, as they can help.

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