A drop to $150 would have been a good starting point in 2006, as it would have given us a better idea of the price elasticity of demand for this product. With this knowledge, a trend line could have been extrapolated that would allow us to determine the optimal price point, resulting in another price change for the subsequent years. R&D expenditures are not viewed as essential to this product, though maintaining the 33% level would have allowed the product to see some feature improvement over the years, given it a competitive advantage over other low-end handheld devices.
The proposed four-year strategy therefore can be summarized as follows:
Year by Year Decisions: Pricing & R&D Allocations
PRODUCT
DECISION
2006
2007
2008
2009
X5
Price
$250
$250
$250
$250
R&D %
0%
0%
0%
0%
Discontinue?
NO
NO
NO
YES
X6
Price
$450
$450
$450
$450
R&D %
67%
AccountingCoach.com. Retrieved July 20, 2010 from http://www.accountingcoach.com/online-accounting-course/01Xpg01.html
Investopedia.com. (2010). Contribution margin. Investopedia. Retrieved July 20, 2010 from http://www.investopedia.com/terms/c/contributionmargin.asp
Kotelnikov, V. (no date). Customer value proposition. 1000 Ventures.com. Retrieved July 20, 2010 from http://www.1000ventures.com/business_guide/crosscuttings/customer_vp.html
Porter/QuickMBA.com (2007). Porter's generic strategies. QuickMBA.com. Retrieved July 20, 2010 from http://www.quickmba.com/strategy/generic.shtml
Quick MBA.com. (2007). The product life cycle. QuickMBA.com. Retrieved July 20, 2010 from http://www.quickmba.com/marketing/product/lifecycle/
