SLP

Introduction

In the first SLP, there was no default information provided, so in order to evaluate the performance of the company, the defaults were entered in the "Make Decisions" tab for the four years. What follows is a discussion of those results.

Defaults

The default positions are an even split with respect to the R&D budget, and default prices as follows:

Model

Price

R&D

X5

$285

33%

X6

$430

34%

X7

$190

33%

These default positions over the course of four years yield a final profit of $1,513,237,527.

X5

The X5 in 2011 had the highest revenue of any product. However, it has a relatively flat slope, so the X6 eclipses the profit of the X5 by 2012. The peak revenue for the X5 is in 2013, and the revenue declines after that point.

The X5 is profitable for the four years, but the profits peak in 2013 and decline thereafter. This trajectory has implications as well. The company as a whole performs in line with the X5 and the X6, and sees its profit decline after 2013. By 2015, the company is still profitable, but the trajectory does not look good, and this is probably the reason that the old CEO was let go. The issue with the X5 is that it is fairly far along in the product life cycle. This has implications for things like R&D and pricing, which are the two major variables.

X6

The X6 is just a little bit further behind in the product life cycle than the X5, and ends up following roughly the same trajectory using the default settings. This product remains profitable throughout the four years, but peaks in 2013, and its decline brings the company down with it. The X6 appears to decline before its time, leaving market share on the table. This is an interesting factor that could relate to either of the key variables.

X7

The X7 is an interesting case, because for the first three years of the simulation, this product performs terribly. It starts to improve its performance by 2015, but at this point it is too little too late. The reality is that the failure of this product to launch properly is the biggest reason that the outgoing CEO is outgoing. At the end of the day, there was a lot of share left on the table with this product, and that clearly is a pricing issue more than anything.

Product Mix Factors

The product mix is the combination of products that a company brings to the marketplace (Suttle, 2018). How those products interact with each other in the market often matters. In this case,...

The X7 is the low end, the X5 is the mid-range and the X6 is the high end. This follows naturally the path of the tablet market itself. The first tablet, X5, is a good quality tablet. Consumers want more and better, so new features are added and the result is the X6. But then the tablet business starts to become commoditized and lower-end models emerge, such as the X7. So there is a natural logic to this.

There are some implications of the product mix in this simulation, however. The low end product does not need many new features or enhancements, and pricing is the key aspect of that product. As such, pricing should in theory be the key driver of sales. R&D should be relatively low, but so should the price.

The X6, as the high end model, should receive a fair bit of R&D in order to make sure that it has the most features possible. An abundance of features will help this product support its high price point. In fact,...

…years, this product underperformed miserably and cost the former CEO his job. Lowering the price and investing in R&D could create a positive scenario where this product becomes incredibly attractive in the market, and sells close to its potential. It is worth, if nothing else, analyzing whether investing in the X6 or the X7 is the best bet for maximizing profit.

Conclusions

There were clearly mistakes made by the previous CEO. To revisit those years gives the new leader the opportunity to avoid those mistakes. By applying sound business principles such as cost-volume-profit analysis, the product life cycle, and elasticity of demand, it is possible to perform much better. Doing better is expected the prior boss failed miserably on the X7 but doing much better is still going to take some work. The future SLP iterations will apply careful analysis to the exercise, to determine what the best changes are. If possible, the optimal conditions will be met and the maximum profits will be achieved. But if not, there is at least the opportunity for more revenue that can be gained through application of these fundamental business management concepts.

The first step will be to determine what pricing the X7 needs to spur growth earlier in the product life cycle. The second step will be to try to optimize the pricing of the X6. Then, the final decision will really need to be how to allocate R&D expenditure between the X6 and the X7. There does not appear to be a whole lot that needs to be done with the X5. That is a product where gains can still be made, but these gains will be incremental a few more sales and a few more dollars per sale. The analysis of the default scenario indicates that there are much bigger gains to be made…