In this assignment we will be revising the strategies that we adopted in SLP2 after reviewing and analyzing the results that we got in SLP2 (Time Warp 1 decisions). In the revised strategy the focus is more on a simulation that makes business strategies with respect to the price and resource allocation for PDAs. ‘A sound business strategy provides the impetus for great success, while a poor or misunderstood strategy can be equally significant – and drive a company out of business’. The PDAs in question here are the X5, X6 and X7 PDA models. Let us assume that the PDA X5 model costs $250, PDA X6 costs $400 and the PDA X7 costs around $200. A CVP analysis is carried out to provide a justification to the strategy adopted, as “CVP analysis is useful for numerous short-term decisions related to pricing, advertising, cost structure and more”.
The PDA X5 does not raise any customer concerns but the PDA X6, which costs around $400 worries customers with respect to its performance and in the case of the last product PDA X7, the consumers are more concerned with the price of the product rather than its performance. In this context we analyze three strategies before arriving at the best strategy to be adopted for increased sales and profitability in selling the PDAs. Three strategies are discussed in order to arrive at the best strategy and to provide strong reasons as to why the strategy that is adopted is the best strategy for increasing the sales of the PDAs.
The current market information suggests that the demand for the X5 PDA is very high, followed by X6 and then by the X7 PDA. As such since the demand for the X5 PDA is very high we allocate more resources to X5, because more resource allocation to the production and sale of X5 PDA would enhance sales turnover for X5 and increase profits for Tablet Development Inc. There is less allocation of resources for the X6 PDA when compared to X5 and the allocation of resources for X7 PDA is lesser than that of X6 PDA or X5 PDA.
The total profit as per the simulation is 295,185,249. The profits at the current sales price is the highest possible for all the three products keeping in mind the quality, age and type of technology used for the three products. As such we will keep the prices of the three products the same, that is, no increase in the price of the products. The reason is the X5 PDA has been in the market for a long time, that is, for three years, X6 for 2 years and X7 has been there for 1 year. Three years is a reasonable amount of time for a technology to become outdated and as such the X5 PDA is increasingly becoming an outdated product. Therefore, we need to upgrade or incorporate more features in the X6 and X7 PDAs so as to make them more attractive and competitive for customers to purchase. Only if the products are attractive, user-friendly and competitive will they catch the attention of the customers and become more in demand. Therefore, we will spend more on the research and development of the X6 PDA, so as to accelerate its growth in the market and to increase its market share to the highest possible. Also, the allocation for the research and development of the X7 PDA is increased so as to test its performance in the market for the coming year.
Due to changes made, the profits for the three products increased resulting in increase in revenues generated for all the three products. Also, we observed that PDA X7 has very high sales potential and there is need for further strategies with respect to increasing the sales level for the PDA X7 product.
In Strategy One that we discussed above, we noticed that PDA X7 has high sales potential. Therefore, in Strategy Two, we increase the R&D fund allocation for PDA X7, since it has very high sales potential.
The profits for PDA X6 and PDA X7 show that the sales and revenue have increased for the X6 and X7, whereas on the contrary the sales and revenue from PDA X5 has decreased substantially. Another point to note are the market shares of PDA X5 and PDA X6, while the market share of PDA X5 has exhausted, the market share for PDA X6 is nearing exhaustion. Therefore, in the next strategy we will discontinue the production of PDA X5 because of the exhaustion of its market share and continue with the production of PDAs X6 and X7. Any attempts to continue producing PDA X5 may result in profits going on the negative curve.
In Strategy Two we noticed that market for product PDA X5 has exhausted. Therefore, in Strategy Three we stop producing the PDA X5 in the coming year 2013, and continue producing PDAs X6 and X7.
The above changes resulted in an increase in sales for PDAs X6 and X7 but the profits for PDA X6 have declined. This means that the PDA X6 product's life cycle is nearing exhaustion in the market and as such in the coming year it is better to stop the production of this product.
The best strategy to be adopted as the revised strategy is Strategy Two, because this strategy is what yields the highest profits among all the three strategies. After all, the goal of every organization is make high profits and only if there are high profits would there be sufficient revenue for a company to fund all its future R&D activities and to survive and stay in business.