Tablet Simulation Case Study

Length: 4 pages Subject: Economics Type: Case Study Paper: #24306574 Related Topics: The Time Machine, Life Cycle, Systems Development Life Cycle, Fixed Costs
Excerpt from Case Study :

Strategic Review

Mr. Schmoe's performance over the past four years has been quite poor. Essentially, Mr. Schmoe made no changes to the strategy, and while that worked initially, the company's performance has deteriorated, and is at present in a bad state, where our best products are entering decline and we have no new products in the pipeline, as we still have older models on the market that are making no money. This report will go over each year to investigate the company's performance under the Schmoe regime.

Overview of Key Concepts

The first key concept that should drive decision-making is cost-volume-profit analysis. Each product we make has a fixed cost, and therefore it needs to sell a certain volume in order to be profitable. This will help us to make decisions with respect to what products to keep in the lineup, and when to drop them. Another key concept is the product life cycle. All products begin with an introductory period, before moving through growth, maturity and decline. Growth and maturity are the most profitable. When the product matures, sales volumes decrease as the newer technologies are winning most of the sales, and because the older products have a large installed base already -- there are fewer opportunities for new customers.


In 2011, the company had two products, the X5 and the X6. At 15% saturation, the X5 was entering the growth stage, while the X6 was in the introductory stage. Both products were already profitable, and the company had two emerging hits on its hands. The clear strategy here was to continue pumping money into both marketing and R&D, because there was high potential sales for both of these products. Schmoe's strategy was to do just this.


In this year, we introduced the X7. This product was in the introductory stage and lost money. With the two other products in the growth stage, however, the company performance well overall, with a significant increase in


Both the X5 and X6 were highly profitable. The X5 reached 27% saturation and the X6 reached 16%, indicating that both were now in the growth stage of the product life cycle. It was at this point that Schmoe made his first real error. He minimized the role of the X7, on the basis of it losing money, but the reality is that losing money was expected. The X7 was our product with the greatest potential. While each of the X5 and X6 had a total expected market of 6 million units, the X7 has a total expected market of 17.5 million units, which means that it had the greatest profit potential overall, and therefore should have been where more resources were deployed, yet it only received an even third of the R&D allocation.


In this year, the company nearly doubled its profits. The X5 and X6 both increased their sales and dramatically increased their profits. As a result, the company enjoyed tremendous success. The problem in strategy at this point was the lack of attention paid to the X7. By this point, the X5 had achieved 48% saturation, meaning it was in the maturity phase. The X6, at 34% saturation, still had some growth. But combined, they accounted for around 8 million remaining customers. The X7 lost money in the year and struggled to get out of the introductory phase, achieving only 3% market saturation. The fact that this product, which still had 17.3 million potential remaining customers, was stalled at 3% saturation and still losing money, should have been Schmoe's primary concern, but his strategy does not reflect that. He was living for the moment with the two growth products, and not thinking enough about the future, which the numbers indicate was with the X7.


The company's performance flatlined in this year. While the X7 was marginally profitable, the X5 was clearly in the maturity stage, with diminishing sales and profits. The X6 was finishing its growth phase, barely increasing profits from the year before. The net result was that the total profit barely increased for the company, and most of that increase as on the basis of the x7 not losing money anymore, rather than any growing strength in the X5 and X6. By this point the X5 was at 75% saturation and headed for decline, and the same can be said for the X6 (63%). The X7 was at 4% saturation, and was clearly going to be the engine of growth for the company going forward. However, this was its third year on the market, and it was still in the introductory phase of the product life cycle and for a profit driver, had no momentum.


This year saw the inevitable declines in the X5 and X6. The X7 still only reached 5% saturation, but now has four years on the market. The company's profit declined significantly as a result. Schmoe had ridden two hot products to profits and growth, but by the end of 2015 the X5 is going to have to be discontinued, the X6…

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