StrategicManagement
Followingthe recent replacement of the VP at Clipboard Tablet Company, Mr. JoeThomas, I was asked by the company CEO, Sally Smothers, to review thebusiness’s performance. The review was to concentrate on the lastsix years and specifically look into the sales of the product, theproduct development, and research, the pricing of the products andthe general performance of the company. As a result of the fixedstrategies by the company VP, the company made insignificant profitmargins that warranted new policies in the coming years. It isrequired that new techniques and plans be implemented on the companyto bring it up to standards and the profit margins be increased tosubstantial levels. This report is going to cover an in-depthanalysis of the products, their financial reviews including sales,costs, profitability and prices. It is also going to include themarket reports while looking at new sales, repeat sales as well asmarket saturation stages. Eventually, it is going to propose new oralternative strategies that if applied will lift the company to itsformer glory.
ProductReview
Thecompany is renowned for its top-notch tablets with three entry levelmodels X5, X6, and the X7. The X5 model has been on the market thelongest of the three models and has stayed in the market for over sixyears. The product has reached the market maturity and saturationlevels where all sales are repeat sales. The customers are notworried about its performance so far as it is giving them value fortheir money. The model has been retailing for a fixed price of $285over the years and was considered a little bit expensive compared tothe other competitor product in its category. In the year 2011, itregistered a performance index of 1.02 similar to the X6 model. TheX6 has been on the market for at least six years and has beenretailing for a fixed price of $430 over this period. Because of itsexcellent performance for its market segment, the customers are notmuch affected by its relatively higher price. The X6 is the mostexpensive among the three models and has been doing relatively wellcompared to the other two patterns in the same market. It recorded aperformance index of 1.02 like the X5 in the year 2011.The X6 modelis in the shakeout stage where repeat sales are growing while newsales are continuously declining. Lastly is the X7 model, the newestand youngest model in the market. By 2011, it was only a year old inthe market and has been retailing for $190 over the years in themarket. Because of its features, specification and costs, thecustomers are very specific and concerned about the price and itsperformance. Even though it is more affordable in the market, itrecorded a performance index of 0.97. Because it is still relativelynew in them market, it is still experiencing growth stage where salesare growing rapidly because most sales are to first time or newcustomers.
FinancialReview of the Products
By2011, the X5 model had an installed customer base of 1,035,000 with amarket saturation of 15%. It still had a deficit of 6,000,000customers pending to install of the targeted value. It had an initialuptake of 882,729 of the first time customers and repeated customerssumming to 86,250. In total, it registered 968,979 sales in the sameyear. Of all the sales, it generated a gross revenue of $ 276,159,075and the total costs involved summed to $232,167,777 and be brokendown into variable costs summing to $ 145,346,882, fixed costsadding up to $ 75,000,000 and R&D of $ 11,820,896. The totalprofits generated during the year amounted to $ 43,991,298 howeverthis was only 16% of the gross revenues. It is observed that thisvalue was relatively compared to the expected values.
TheX6 model registered fewer sales compared to the X5 model in 2011.ByDecember 2011, it had an installed customer base of 550,000 and theremaining number of clients was recorded at 6,000,000. This was only8% of the target number of the market segmentation. It had afirst-time customer subscription of 516,018 with 46,943 repeat salesover the year. In total, it had registered 562,961 sales by the endof 2011. Of these sales, it generated gross revenue of $ 242,073,200with all the expenses amounting to $ 204,493,360. The variable costsamounted to $ 154,814,256 the fixed costs summed up to $ 37,500,000while the R&D cost the company $ 12,179,104. In total, the modelgenerated a net profit of $ 37,579,840 and recorded as only 16% ofthe gross revenues.
Sincethe X7 model was still in the growth phase, it had only registered aninstalled customer base of 340,000 out of the targeted 17,840,000.The remaining customer base was still quite a gigantic figurerecorded at 17,500,000. This recorded a mere 2% market saturation ofthe model by the end of 2011. There were no recorded revenues of theX7 model for the 2011 period. At this level, it was observed that thetargeted sales of the X7 model would rise exponentially coupled withthe fact that it was both new in the market and the most affordableof the three models.
Intotal, the three models recorded an installed customer base of1,925,000 with a deficit customer base of 29,500,000. During theyear, the models had a market saturation of only 25% of the requiredmarket segment. In total, the company registered over 1,531,940 salesand generated gross revenue of $ 518,232,275. Of this amount, thevariable cost took a share of $ 300,161,138 the fixed cost $112,500,000 while the R&D cost the company $ 24,000,000. Thetotal profit for the year 2011 was amounting to $ 81,571, 138,meaning that in that year, the company was only 16% profitable.
Fromthese figures, it was deduced that the company was not able to hitits revenue targets despite registering relatively good profitmargins. It was therefore observed that there need for new strategiesto pump life into the company to increase sales, boost research anddevelopment of the product and as a result multiply the profitmargins to a higher figure (Singh, 1993).
AlternativeApproach
Accordingto Jakab (2013), there is no one formula for getting it right inbusiness there are risks involved as a result of inadequateinformation, changing market trends, competitor products andunpredictable forces in nature. Jakab observes, for instance, naturecan cut off the company’s supply in a whim and throw it intofinancial turmoil. He also advises that since there are no fixedstrategies that will work for any business, it is important to beready to pivot in case of any changes in the market trends. Theadaptability of business to changes in its environment will ensureits sustainability and survival against its competitors. Anotherimportant aspect of business to remain atop the competition is tostay ahead of the curve. This means that it should be alert for thedeveloping trends in the market. Consumers are very volatile and willalways go for products that satisfy their needs despite the costs oravailability. It is only a small percentage that will be deterred bythe price of the commodity.
Aboutthe prices of the tablet models, it was important to shift the pricesdepending on the market levels and penetration of the product.Targeting the X5 model, lowering its prices would attract morecustomers because the customers are not worried about itsperformance. In fact, it was observed that the product was relativelymore expensive than the other products in its category. Thereforelowering the price of the X5 model from $ 285 to $ 230 would createmarket hype for the product. It would create an impression of adiscount for the customers such that the sales are increased. Also,reducing the R&D amount allocated for the X5 and leveraging it onthe R&D for the X6 and X7 models would make more improvements andcreate a competitive environment for the company against itscompetitors. For instance reducing the R&D allocation of X5 from33% to 20% and distributing the allocations to R&D of the X6 at45% and X7 at 35%. The resulting effect is that the X5 will performfavorably with other tablets in its category. There will also be asignificant increase in the profit margin in the year 2012 from$436,661,138 in 2011 to $ 784,720,740. There will be an increase ofup to 10% in the profit margin. As a result, the X7 model wouldsuffer adversely. Because of the tight market penetration andoverhead costs, it will make a 75% loss in the first year. However,there will be a 14% boost in the X5 model profits.
Inthe following year,2013, the great focus would be put on the R&Dof the X6 and X7 models and do away with the X5 models from themarket. The amount allocated for the R&D of the X5 would beequally redistributed to X6 and X7 models. At this point, the X6 isin the growth phase while the X7 is in the R&D phase to out-phasethe X5 model. To discontinue the X5 model, it is plausible to reducethe price further by giving a discount to $230 and slightly lessenthe cost of the X6 model to $400. This will ensure the X5 runs out ofthe shelf in preparation for a newer model in the market (Wherry &Buehlmann, 2014). Also, those who want an upgrade of the productwould be able to afford the X6 series now. The resulting effect isthat the price ranges for the products will be similar to those inthe market thus, the production performance and quality will have tobe the defining factor. The X5 has now reached the shakeout phase andneeds to be done away with. The company will now be competitivelyplaced in the market compared with other bigger companies with thesame products.
Atthe beginning of 2014, the X5 model is phased out to allow the X7 topenetrate the market. The price of the X6 model is maintained at $400while the price of X7 is increased to $200 to cater for growingexpenses. For the year 2015, the X5 model has been faced out, and theonly existing products in the market are the X6 and the X7. Toincrease the uptake of the two products, it is important toconcentrate on their R&D to create more value for similar prices.Reducing prices haphazardly will alert the consumers for poorquality, and they may shun from buying very low-cost products.
Summary
Inconclusion, if these effects are put in place and perfect timing, thecompany is bound to increase its profit margins while registeringhigher sales volumes of the tablet models. However, there are nogiven guarantees for such positive results because the technologymarket is very volatile and highly competitive. New companies arealways coming up with cheaper and better products than the ones inthe market. It is, therefore, advisable to stay ahead of suchcompetitive measures at all times.
Reference
Casson,M., & Singh, S. (1993). Corporate research and developmentstrategies: the influence of firm, industry and country factors onthe decentralization of R&D. r&dmanagement, 23(2),91-108.
Jakab,Z. (2013). HowTo Win A Business Simulation Game?.Cesim.com.Retrieved 4 May 2016, fromhttps://www.cesim.com/blog/bid/147566/How-To-Win-A-Business-Simulation-Game
Wherry,G. & Buehlmann, U. (2014). Product Life Cycle of the ManufacturedHome Industry. Bioresources,9(4).http://dx.doi.org/10.15376/biores.9.4.6652-6668