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It is not expected, however, that elasticity is perfectly linear. It is worth testing the upper bound here, to see how high a price can be supported by the market.
With the X7, the most important number is the final market saturation figure of 37%. There is room for growth here. The cost of goods sold is $65. Thus, $65 is the lower bound on pricing for the X7. We just need to find the point that maximizes profit -- this may not be saturation. We knocked $50 off the price and grew the sales by 5.388 million, so roughly 107,760 new customers for every dollar off. This can be used to find what should be the optimal price (if elasticity is linear, which it probably is not). Peak revenue is at around $105-106; peak contribution at $138-137 (see Appendix a), which gives us another million or so units. So the price will be set there for the X7. The X5 lost a lot of money in the final year and the X7 had very little market saturation. It is believed that the optimal price point for the X7 is actually lower than where I set it, so that will be pursued. Any lower than $137 is believed to reduce total profit for the product. The X5 is a stable product and any gains there will be in the single millions. There is room for improvement in the performance of the X6, however. Raising the price in the latter years is believed to be the best course of action. However, if elasticity proves to not be linear, then an estimate of elasticity will be taken from the two runs and used in the subsequent run in order to find the optimal price point.
The strategy for the SLP 3, therefore, will be as follows:
Year by Year Decisions: Pricing & R&D Allocations
2006
2007
2008
2009
X5
Price $250
Price $250
Price $250
Price n/a
R&D % 1
R&D % 1
R&D % 0
R&D % 0
Discontinue-N
Discontinue? N
Discontinue? N
Discontinue? Y
X6
Price $450
Price $450
Price $460
Appendix a: Contribution for X7 estimates
Price
Decrease
Estimated Sales
Revenue
VC
Total Contribution
To run this simulation again, it is clear that the R&D for the X6 must be maintained. In terms of fundamental business theory, this makes sense. The X6 is a premium product, and the demand for this product is more likely to be derived from features than from price. This was learned early when it was determined that price elasticity of demand was low. Elasticity of demand from features was
At a lower price point, this may not have happened. However, R&D seems to be a significant driver for the X6 model, since it has a premium position in the market. If it is to command premium prices -- which will be the case no matter if the price is $400 or $450 -- it needs to have premium features. Thus, it should retain its R&D through 2008, since
What assumptions did you make when you planed your strategy? Did these assumptions prove to be right, or was there something else you didn't think about that influenced your results? How will taking those factors into account affect your strategy in this upcoming run? Again, you need to crunch some numbers to determine how successful you were, where the greatest sources of profit are, and what changes make sense. Make
Pervasive Video Games as Art The form and function of art has evolved and changed quite a bit over the years, decades and millennia. Paintings and sculpture have been artistic mainstays for much to most of the world of the civilized human race. However, with the technological revolution that has roared up over the last fifty years or so, new forms of art have bubbled to the proverbial surface. Digital technology