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¶ … warp!
Having examined the performance of Joe Schmoe, it is believed that some attention to the fundamental principles of cost-volume profit analysis and to the product life cycle will immediately allow Clipboard Tablet Co. To perform better, since it is getting the chance to re-do history. This paper will outline the basic strategies, along with their outcomes, and an analysis of why these strategies delivered better (or worse, as the case may be) performance vs. that of Joe Schmoe.
Theory
There are six decisions to be made each year. These are the percentages allocated to R&D and the price for each product. First, the price. For any given price, there will be a pricing curve that determines how much of a product will be sold, given a certain price. In general, the higher the price, the lower the volume of sales, and vice versa. The key concept here is price elasticity of demand, which is the rate of change in demand given a certain change in price. We do not know this elasticity at present, because Joe Schmoe never changed the prices. But we can assume from the three products that they will have different price elasticities. The X7 has a starting price of $190 and the X6 has a starting price of $430. This means that the X7 is likely to be a more basic product, attracting a more price conscious audience. The X6, on...
This is basic pricing theory. As a new product on the market, the X7 has a very low installed base. But the senior marketing team has estimated that it has a very large potential market of 17,500,000 customers. It is worth noting that the X5 and X6 have only a potential market of 6,000,000 customers each, and they have already sold to some of them. Logically, the X7 needs to have a policy of low price-high volume in order to generate the highest level of profitability. The fixed costs are going to exist for each year, if we assume that the X7 will not be cut. Thus, the strategy that optimizes the contribution to fixed costs is the one that will deliver the best results. The closer we can get the sales volume to that 17,500,000 figure, the better the overall bottom line is going to be. Thus, a lower price is needed. But we also need to calculate the elasticity on the X7, because once we have that, we can estimate the slope of the demand line, which is an essential part of the cost-volume-profit analysis. A wild card is how much R&D matters to this product. It needs to be competitive in R&D, and will be peaking in the product…
This shows us two things. The first is that the math on the X5 was wrong. It should have been cut. The second is that the X9 never got off the ground. Cutting the price in 2014 was simply too little, too late. The product was not sufficiently compelling for consumers. The CVP analysis will give us a chance in the future, now that we have a sense of what the elasticities of demand are for these products, to determine the optimal price point for each. While $145 seems low, we do know that the X7 can be priced lower, because the variable costs are $55 per unit. Basic economic theory holds that any price above the variable cost will generate a contribution to fixed costs. We now that we are going to incur those fixed costs, so finding the right point at which optimal total contribution will be generated is essential. We now have the data to run a proper CVP analysis and find that point.
The R&D remains a wild card. It did not seem to help the X7 much, but maybe the X7 just needs more. The R&D did help the X6, but that product finished with 88% saturation, when perhaps it might have been better to have 100% saturation. It is worth considering that price is more important to the X5 than R&D is, and some reallocation would be beneficial.
All told, the company earned poorly, and the net profit declined in both 2014 and 2015. I should probably be fired, but I am certain that I was on the right track. If the numbers are refined, now that we have better data, there seems little doubt that we can improve on our profit totals.
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.
SLP IntroductionThe SLP 3 scenario saw relatively poor performance, using a strategy that did not waver much from the original scenario. There were a few interesting findings from the cost volume profit analysis that can be applied to the strategy utilized in SLP 4. Each product will be covered in detail.X5The X5 in 2012 has already been on the market and is probably at the top of the product life
Tablet SIM There are a number of different things that need to be taken into consideration when formulating a strategy for the next four years. The first thing is the product life cycle. Based on how long each of these products has been on the market, and the sales trajectory for the products, each is in a different stage of the product life cycle. Arguably, the X5 is headed towards the
Tablet SIM Joe Schmoe's performance was not optimal, and there are a few different changes that can be made. In order to understand the flaws in Joe's performance, it is necessary to understand some key business concepts. The first of these is profitability, in particular the concept of contribution. This is important to the analysis for a couple of reasons. The first is that the X5 product lost money in its final
Tablet SIM II The analysis that was conducted revealed a few recommendations for Clipboard Tablet Company that were different from the company's choices under the Joe Schmoe regime. With the opportunity having presented itself to take the company in a different path, the following strategy was enacted: Discontinued The results of this strategy were as follows. For the X5: X5 Profit 151,182,710 83,101,400 X5 Saturation X6 Profit 240,511,901 307,464,930 137,132,198 103,417,497 X6 Saturation X7 Profit -10,298,475 24,820,249 93,863,284 X7 Saturation Cumulative Profit 672,971,018 1,088,357,597 1,325,384,992 1,641,496,441 These figures indicate that the performance was better
Tablets The Market Lifecycle The best way to see into the future is precisely the one that we have been allowed to experiment with for this exercise: A time machine that takes us to an assigned point, lets us look around at the things that are the most relevant to us, and then returns us safely to our chronological point of departure without having undermined the entire space-time continuum. The analysis that