Capstone Project on "System Feedback Loop"

Capstone Project 4 pages (1394 words) Sources: 3

[EXCERPT] . . . .

System Feedback Loop

From this exercise I learned a number of things. The first step was to recognize the major areas where performance could be maximized. A number of techniques were utilized to make this happen. The first of such techniques was to conduct a contribution margin analysis. It was determined through the course of this analysis, for example, that the X7 had a very high contribution margin. This realization drove the notion that the price could be lowered. The contribution margin was part of a greater financial analysis that revealed other truths about the products. The X5 had fixed costs of $70 million, double the fixed costs of the other two products. This was understood to impact on the profitability of that product and indeed the base case run saw X5 profitability turn negative in 2009.

Cost-volume-profit analysis, when combined with the total potential market size and an analysis of fixed costs, lead to the basic decisions for the first round of the simulation (Richards, 2010). For example, it was determined that the X5 had high fixed costs that compromised its profitability beyond 2008. It was noted then, that the number of unit sales required at the $250 price point for the X5 to turn a profit was in the range of 700,000, a figure that could not be achieved with the remaining market share on the table in 2009. Thus, the product had to be discontinued before 2009 since profitability in that year was going to be impossible given the high fixed costs and low level of remaining potential sales. Thus, a strategy was developed that would maximize market penetration of this product in the first three years on the understanding that it would be discontinued in the fourth year.

It was also noted that the X7 product not only had a high contribution margin but also had the most potential sales at 15,000,000 units. As a result, it was determined that a balance needed to be struck between sales and profits with this product. The analysis, which was conducted using price elasticity data from the first run of the simulation, gave us the $137 selling price as striking the optimal point between market saturation and contribution margin. This tactic was not used with the X5 because that product was believed to be largely maximized. This tactic was not used for the X6 because that product was deemed to be largely price inelastic. This tactic was faulty because it failed to recognize that there was still price elasticity in the X6, such that when the price was increased to $460 in later years demand fell considerably. However, the tactic that was used for the X7 with respect to elasticity should have been used with the X6, but with its major elasticity variable of R&D expense. It is believed that had the tactic been adopted for the X6 and R&D expense, the total profit would have been higher.

The concept of elasticity was also important. Elasticity refers to the degree to which a change in an independent variable - in this case either price or R&D - impacts the dependent variable, in this case sales (QuickMBA.com, 2007). It was understood that these products will have different degrees of elasticity with respect to different variables. That elasticity can be estimated, and used to set the point where profit is optimized. The profit is determined by the number of sales and the contribution margin at a given price point. There are two elasticity dimensions that needed to be considered. The first was with respect to price. It was stated from the outset that the X6 consumers were not price sensitive, but that the X7 consumers were price sensitive. Both consumers were sensitive to changes in features, which derived from the R&D expense. I created a strategy based on the idea that the first simulation would provide me with data that I could use to estimate price sensitivity of demand, especially for these two products.

Over the course of the three simulation runs, the strategy did not change significantly. The strategy from the first run was based on what is believed to be correct identification of the major strategies… READ MORE

How to Reference "System Feedback Loop" Capstone Project in a Bibliography

Related Projects:

System Feedback Loops Essay

System Feedback Loops

Over the last several years, Whole Foods has built its reputation based upon quality and the overall products they are offering to consumers. This has helped the… read more

Essay 3 pages (932 words) Sources: 1+ Topic: Agriculture / Food / Culinary

---

System Feedback Loops Capstone Project

System Feedback Loops

According to G. Bellinger (2004), a reinforcing feedback loop refers to actions that reinforce each other. In other words, actions that had a certain impact in the… read more

Capstone Project 5 pages (1559 words) Sources: 3 Topic: Education / Teaching / Learning

---

System Feedback Loops for Palm Capstone Project

Palm Feedback Loops

Feedback loops help firms to understand the implications of actions on their performance, in particular where these interactions have a high degree of co-dependency. Palm has found… read more

Capstone Project 6 pages (1782 words) Sources: 2 Topic: Advertising / Marketing / Sales

---

Negative Feedback Loop Term Paper

Negative Feedback Loops

The human body constantly attempts to maintain homeostasis, a term which means "same state." Homeostasis maintains a constant state of balance in the body even when there… read more

Term Paper 1 pages (375 words) Sources: 0 Style: APA Topic: Nutrition / Diet / Eating

---

Feedback Loops Capstone Project

Loop below is in regards to technology and updated within the Palm Corporation. This particular loop is a reinforcing loop. New Technology is the constant and therefore does not carry… read more

Capstone Project 5 pages (1504 words) Sources: 5 Topic: Engineering / Mechanics

---

View 100+ more related papers  >>