Capstone Project on "Warp the Four-Year Strategy Set Out"

Capstone Project 4 pages (1095 words) Sources: 5

[EXCERPT] . . . .

Warp

The four-year strategy set out in SLP 1 as follows:

Year by Year Decisions: Pricing & R&D Allocations

PRODUCT

DECISION

Price

R&D %

Discontinue?

Price

R&D %

Discontinue?

Price

R&D %

Discontinue?

A number of underlying theories contributed to this strategy. The first was an identification of product life cycle. The X5 was at the peak of the growth phase for 2006, the X6 was beginning the growth phase and the X7 was still in the introductory phase. The different demand drivers for the products were considered -- where the products were positioned in the marketplace. It was determined that at its phase of the product life cycle, there was little that could be changed about the trajectory of the X5. The X6 was driven by features, so the R&D was increased for that product in response to that need. The price was increased as well to reflect the increase in features. The X7 was set for a cost leadership strategy. Pricing of the X7 was deemed to be penetration pricing, at the $200 tag was too high to grow the market quickly. Thus, the price was reduced.

A contribution margin analysis determined that the X5 had a high level of fixed costs. Therefore, it would need to be discontinued earlier in the product life cycle than either of the either two products. This point was following 2008. The X7 had by far the highest contribution margin, meaning that there is signif

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icant room for price cuts, so 25% was taken off in an attempt to spur sales.

The SLP2 simulation run tests these different strategies to find out their effectiveness. The result was that the final score was 1,849,569,369. This is significantly higher than Joe Schmoe's cumulative four-year score. An evaluation of the changes will illustrate why the performance was better.

With the X5, few changes were made. The price was not changed. The R&D investment was removed, which would be expected to have two impacts. The first impact is that the product would be immediately more profitable as its costs would be reduced. By 2007 and 2008, however, the lack of new features would hurt new sales. The concept of opportunity cost, however, was applied so this slight decline in profits is only relevant in relation to the results of the X6, which received those R&D monies. The major issue with the X5 product under Joe Schmoe's tenure was the loss in 2009, which reduced total firm revenues for that year. By discontinuing the product for that year, I immediately improved company-wide revenues for 2009.

Overall, my strategy was better for the X5. For the years that were run, my total profits came to $197 million, which was over $18 million more than what Joe had achieved. The minor impact of the lost sales due to the decrease in R&D was easily overcome by the profits that the X6 saw as the result of that R&D investment. The X6 increased in profit by $201 million. The X7 saw the biggest success, a direct result of building a much higher market share. With this product I outperformed Joe by $697 million over the four years.

The expected response to the increase in price on the X6 was a decrease in sales but an increase… READ MORE

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Quoted Instructions for "Warp the Four-Year Strategy Set Out" Assignment:

“

Scenario

It*****'s New Year*****'s day, 2010. You just had a great New Year*****'s Eve celebration. You have finished analyzing the performance of Handheld in a great report that you turned in a few days early to Sally Smothers. Now you are ready to charge ahead into the future.

As you turn on the TV and try to open your eyes, you notice something strange. The TV commentator is saying something about New Year*****'s Day, 2006. You are now wide awake and listen more carefully. Yes, she said 2006. But that can*****'t be. You look around and everything looks different. Yes, it*****'s true, it*****'s New Year*****'s day, 2006. Time has rewound ***** a Time Warp, like the guy in the movie *****It*****'s Groundhog Day.*****

You realize that you get to make the decisions for Handheld starting with 2006. Perhaps you can do better than Joe Schmoe.

You decide to determine the prices and R&D allocations and whether to discontinue any products over the next four years: 2006 ***** 2009. At the beginning of each year, you will determine your pricing, your R&D allocations, and if you want to discontinue any products. You make your decisions and time advances to the end of that year. You look at the results and see what happened. You keep track of your decisions and make notes about your reasoning and analysis of the data. You collect and keep the data for later analysis.

You run the Marketing of Handheld through the end of 2009. It is now 12/31/2009, New Year*****'s Eve. What is your total Score? Did you do better than Joe Schmoe?

You decide to organize your notes about your decisions, your analysis, and your reasoning into a report, which you think will help you move ahead into 2010 (finally!!, you get to move ahead into 2010 ***** weren*****'t you at this point in time once before??)

SLP2 ASSIGNMENT: Run the PDA simulation with your strategy, making decisions year by year for prices and R&D allocations. Write a report that shows your decisions and the results. Discuss why you did better or worse than Joe Schmoe.

SLP 2 Expectations: As you run the simulation keep track of your decisions and keep track of the results - both financial and marketing. You can copy and paste the results into Excel or into a Word document. You can also record the information that you get from the Advisor who discusses the market and compares Handheld products to the competition. Make note of the Final Total Score. The report should be thorough and complete. You should include your Final Total Score, some tables and/or graphs showing some of the results. Be sure to explain the differences clearly and using good logic. Remember that the key here is ANALYSIS. Include a page of references if you use any.

Time Line Summary:

SLP1

2009: 12/15 hired. 12/30 turned in first report to Sally a few days early. 12/31 ***** celebrated

SLP2

Time Warp begins: 1/1/2010 WARPS INTO 1/1/2006

You freak out, then realize you have to make decisions for 2006 ***** 2009.

1/2/2006 input decisions for 2006

1/2/2007 input decisions for 2007

1/2/2008 input decisions for 2008

1/2/2009 input decisions for 2009

12/31/2009 ***** you have gone through all four years, and you write your report to summarize how you did. You are hoping that you will wake up tomorrow and it will be 2010.

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