BUS599 Module 3 SLP SunPower Background

In this particular discussion, a similar pricing model as that adopted in SLP2 will be used. However, unlike was the case in SLP2, SunPower will have to come to terms with the reality of new players joining the industry. The new entrants present new competition. It would be interesting to see the impact new competitors entering the Solar Power industry will have on SunPower’s market share, cost to the consumer, as well as cumulative profitability.

Discussion

Decision 1: Beginning of Year 1: 2007 (See Appendix 3)

SLP3 Module Price: $0.13

SLP2 Module Price: $0.13

SunPower’s market share is typical of a firm at its stage. To enhance its market share, the firm ought to make sound strategic decisions in the light of the prevailing market conditions. The firm could in this case adopt an innovative approach whereby it out-competes rivals in the industry by offering products the competition cannot match in terms of quality and ability to satisfy consumer needs. It is also important to note that the company ought to make well-informed pricing decisions to be able to effectively compete in this space. At this point in time, the company’s end consumer net price for a PV system (installed) is lower than the industry average. However, its unit direct cost is higher than that of other firms in the industry. This is something that the company ought to address from the onset. To be effective as a cost leader, which appears to be SunPower’s preferred strategy, there is need to rein in costs so as to make reasonable profits for each unit of PV system installed. Conclusions made in SLP2 regarding the other variables (i.e. gross margin and return on sales) remain valid at the current price level. However, going forward, even with the price levels remaining identical as those of SLP2 at every decision stage, the said variables are likely to change with the introduction of new competitors.

Decision 2: For Years 2013 – 2017 (See Appendix 4)

SLP3 Module Price - $0.11

SLP2 Module Price – 0.11

At the current price level, the company’s market share increases by 2.4 percentage points. The growth in market share is in this case slower than that of SLP2 whereby the increase in market share was by 3.61 percentage points. The said slow growth on this front could be a consequence of the entry of new competitors whose share of the market is captured as 12.76%. SunPower’s revenue growth is largely impressive in this...

This represents a 172.8% revenue growth. The said growth is similar to that experienced in SLP2. The entry of new competitors did not, therefore, affect SunPower’s revenue growth. Given that the modular price as well as the consumer net price of the new entrants matches that of SunPower, consumers are not likely to switch from SunPower’s products to those offered by the new rivals. For this reason, the entry of new rivals ‘ate’ into the annual revenues of other solar firms in the market whose modular price as well as consumer net price is higher. It should, however, be noted that at $0.08, the unit direct cost of SunPower is still a concern. This is more so the case given that it is higher than that of not only its existing competitors ($0.07), but also than that of new entrants ($0.06). This problem is revealed by the company’s return on sales ratio. In essence, the return on sales ratio expresses “the profit residual slice from a company’s total sales revenue pie” (Tracy and Tracy, 2014, p. 238). In this case, the company has the lowest return on sales in comparison to that of existing firms in the industry, and that of new competitors. This effectively means that the firm is deriving very little profits (in comparison to other firms) from the current level of sales it makes.
Decision 3: For Years 2018 – 2022 (See Appendix 5)

SLP3 Module Price - $0.09

SLP2 Module Price: 0.09

The market share of SunPower grew significantly while that of new entrants shrunk by 4.8 percentage points. At this point in time, the company controls a larger chunk of the market than it even did at the same decision point in SLP2. This could be attributed to many factors – key among them being the fact that SunPower has the lowest consumer net price ($0.11) as well as modular price ($0.09) across the board. It is also impressive that the company has been able to rein in its costs with its unit direct cost being lower than was the case during the last decision point. The said unit cost is also lower than was the case for SLP2 during the same period of time. It is important to note that the said reduction in unit costs have been reflected in the return on sales ratio. Unlike was the case during the recent decision point where the company had a return on sales ratio of 0.08, the company during the current period has a return on sales ratio of 0.27 – which is even higher than that of the new entrants which…