Strategic options for Handheld Corporation's PDA product lines

Open Systems Theory

Handheld Corporation is challenged by the costs of maintaining its three product lines, with difficult decisions specifically in the areas of defining product pricing strategies, allocation of R&D budgets, and the decision of whether to discontinue a product line or not. From an analysis of the financial performance and marketing data for each of the three PDA models that Handheld Corporation manufacturers, recommendations are presented within this paper as potential strategic options the company can take given the challenges they are facing today. This is an analysis that will not center on a given aspect of strategy yet will seek to find an integrative strategy based on the concepts of open systems theory (Negandhi, 1973) for Handheld to pursue that will seek to optimize their investment in new products and continually grow existing products performing well both from a financial and marketing standpoint.

Concerns over the X7 New Product Strategy

After analyzing the financial, market and product data from the Models X5, X6 and X7, the role of the latest product to be introduced, the X7 has been launched as a low-end product entry for the company. From an analysis of the financial and marketing data on the Model X7, it is clear that Handheld believed they could gain disproportionately higher sales with a low-end version of their PDAs. In effect, Handheld was attempting to capitalize on the elasticity curve of the market (Haley, Goldberg, 2008) and price a product on or below that curve, to achieve disproportionately higher sales. As is evidenced by an analysis of their financial and marketing data, the elasticity curve for PDAs in the price class of the X7 is flat and doesn't seem to show any signs of elasticity within the $200 range.

The X7 product launch highlights a far more serious flaw in the approach to decision making within Handheld however. Leadership on price is a costly strategy and cannot scale, and to have invested so heavily in this new product shows that there is a lack of appreciation for how to compete on differentiated features, and unique value propositions (Markey, Ott, Toit, 2007).

As bad of a decision it was to launch a low-end product designed to compete primarily on price, Handheld had little choice. Saturation rates are increasing on the X5 at 31% and the X6 at 18%. While not explicitly mentioned in the case, from financial analysis it can be seen that both the X5 and X6 are facing continual pricing pressure in the stages of their lifecycles each is in.

Summary

Cancelling the X7 is not an option given the high R&D costs sunk into the product already. Handheld must increase the functionality of the X7 through electronics upgrades that allow for related content services to be sold. By adding in these services and increasing functionality, Handheld can substantiate their price point of $200, yet without significant differentiation at the product and service level, the X7 will languish and fail over time. Handheld needs to find new strategies for injecting greater value into the X7 and stabilize pricing. Future product strategies should be focused on their higher-end segments of the market as their most profitable product lines are getting quickly saturated and their loyal customers need a trade-up strategy in order to stay with Handheld.