Mike Bikes Simulation

The strategy that I used during the Mike’s Bikes simulation consisted of having medium-priced products with medium quantities. I believed this was the best strategy because it would keep the bikes reasonably priced and allow for a higher amount of demand while also having enough bikes available to make a decent profit. I was able to sell nearly 20,000 bikes per year for prices over $700, which provided a steady flow of profit.

During the first year, I produced 22,000 RC_RockHoppers. Each bike was priced at $700. I increased my advertising expenditures to $1,350,000; $450k was allocated towards television advertisements, $337.5k was allocated towards internet advertisements, and $562.5k was allocated towards magazine advertisements.

The second

year, I decided to maintain a medium brand awareness by allocating $550,000 towards branding expenditures. During this year I also increased the price of the RC_RockHopper to $720. I also changed around my expenditures towards advertisement; television advertisement expenditures were changed to $337.5k, internet advertisement expenditures were changed to $562.5k, and magazine advertisement expenditures were changed to $550k.
During the third year, I expected the demand for the RC_RockHopper to rise. As a result, I increased the production from 22,000 to 25,000 and changed the price to $800. I also reduced the SCU from 20,000 to 12,550 to reduce idle time for my factory. I also increased efficiency expenditures from $125k to $600k and quality expenditures from $150k to $600k. I also paid off an outstanding $1million in debt because my company was doing well and I did not want to be liable for any interest on top of the debt. This decreased my book equity from 0.16 to 0.00.
For the fourth year, I made the decision to upgrade the RC_RockHopper.

I invested $2million towards decreasing the production costs of the RC_RockHopper and improving its specifications. In addition, I decreased the production of the RC_RockHopper from 22,000 to 20,000 to avoid an unnecessary surplus of the bike and extra production costs. This was also the year that I started manufacturing the Vroom youth bike. The intent of including the Vroom in my company’s production was to expand the target audience towards children in addition to adults. I predicted that the Vroom would sell around 20,000 units. Because of this, I needed to increase my SCU from 11,806 to 16,871. I also bought back 94,777 of my company’s shares, which increased the shareholder value of my company. In addition, I increased the dividend to $2.50.

In the fifth year, I introduced the Gorgon road bike to the market. I produced 5,000 of these bikes and priced them at $2,000 each. As a result of introducing a new product to my company, I had to increase my SCU from 16,871 to 22,721 in order to have enough resources to produce the 5,000 extra bikes. In this year, I also bought back another 86,155 of my

shares.
After reviewing my 2021 Industry Benchmark Report and comparing it to my competition’s, I strongly believe that my company was very successful.

Compared to my competition, my company had undergone far more exponential growth in the five years that it operated. By the final year, my SHV had cumulatively increased 353% compared to my competition’s 182%. My company also relied on no debt; instead, it solely relied on the profits that it was taking in. I believe that it was sapient to eliminate the $1million debt immediately because my company was in a good situation to pay off the debt and I knew that it would save my company money in the long run. The interest rate for $1million is 8%. This means that my company, if that debt had not been immediately paid off, would have been liable for an extra $80k a year. This would have costed my company nearly quarter a million dollars extra over just three years. Therefore, it made more sense to pay it off as soon as possible than allow it to accumulate an extra million dollars in interest. In addition, my retail sales, revenue, and income were increasing exponentially. My efficiency was increasing before finally stabilizing towards the end. These are all indicators that my company was faring well.

The most important thing that I learned from the Mike’s Bikes simulation is not to produce more of a product than the amount that will be demanded. Not only is it a waste of resources and production costs, but it creates a surplus. This is especially

important if you are planning on upgrading the product, whether it be the product’s costs or specifications. If there is a surplus when the product is upgraded, that surplus will be dumped. This results in a loss of potential profits and the amount of money that was put towards the costs of production for the surplus.
Having completed the Mike’s Bikes simulation, I wish I had known more about marketing and distribution. The more I put into advertising my products, the less money I made. Although I was dedicating a considerable amount of money towards advertising, I was not noticing an increase in demand that compensated for extra money allocated towards marketing my products. If I had known more about marketing before beginning the simulation, I believe I would have been able to more effectively utilize it in order to increase my profits rather than damage them. I also did not understand how the distribution portion of the simulation functioned. As a result, I did not take as big of an advantage of distribution as I may have been able to.