A shift in the R&D investments levels, therefore, is critical to maximizing profit over the four years. This requires a greater understanding of how R&D affects demand for the two products. The X6 clearly benefits from a high level of R&D, but this impact may wane as it reaches total saturation. The X7 sales still have potential as well, and they benefit from R&D investment. Consumers love getting a great product for cheap. There will not be a next step, but if there was, a shift in the R&D strategy would need to be conducted in order to deliver even greater success. However, the current strategy was a strong one. The use of the contribution margin analysis provided the basis for this assessment because it allowed for more intelligent pricing of the products. Once the demand curves for the X6 and X7 were understood, the contribution margin was used to set the optimal sales level to maximize contribution. The initial use of this tactic, just for the X7, delivered results that were vastly superior to those of the original time warp, and the results were substantially better than those delivered under the Joe Schmoe regime.

The effectiveness of the CVP/demand curve strategy for maximizing contribution was highlighted in this time warp, because the strategy was also applied to the X6. The strategy maximized the economic impact of the X6 product as it followed through saturation. The results are strong, showing not only a good, consistently improving economic value, but a maximization of market share without selling at too low a price, which is something that...

The 14.2% improvement over an already-strong score in the time warp indicates that the latest strategy was superior, and delivered superior results.
The company's initial performance was terrible. At first, simply cleaning up the glaring mistakes of the Joe Schmoe regime was enough to succeed. The company stabilized, and made money in 2009. The price points set for the X6 and X7 were a better match for the positioning in the market that the company was trying to achieve. Leaving so many millions of potential X7 sales on the table because of the $200 price point was a key issue that needed to be addressed right away.

But from there the real work of maximizing contribution began. Cost-volume-profit analysis helps the CEO to understand how much money is made per unit of sale. Profit derives from both this figure and the number of sales. The optimal profit point is not the same as the point at which sales are highest -- a selling price of $1 would have sold all 15 million X7s right away, but the company would have been bankrupt. Thus, the CVP analysis strikes the balance between price and sales. In finding this balance for the two key products that drive profit, the company's performance improved with each time warp.

Given a different starting point of R&D allocations, the results could have been better, but the strategy developed was strong and can be applied in the future as well to continue to deliver strong results to the company even as it moved into the X8 and X9 products in the next couple of years.