Business Scenario Report
Introduction and Background to the Report
A market research for Clipboard Tablet Corporation’s three tablets, the X5, X6, and X7 is done. The analysis reveals that there is a need for an increase in the allocation of financial resources to the research and development and an intensive marketing strategy for the products in 2012. This is because as at 1st January 2012, the products did not have a large market share, and financial performance was weak. Tablet X5 had a market share of 15% of the expected 7 million consumers, with mere 882, 729 first time consumers. Tablet X6 had market share of 6% of the 6.5 million-consumer base and 516,018 first time consumers. Tablet X7 had the lowest performance with a market share of 2%, zero sales and profits.
Strategy 2012 and Results
The strategy makes use of several marketing management decisions to improve the performance of the products and the company. First, I decided that though product X7 had zero sales, profits, first time, and repeat consumers, I would not pull it out of the market. I decided to place the three products in the Boston Consulting Group (BCG) matrix to identify the market growth rate and market share for the products appropriate for the marketing strategy (William, Hughes & Kapoor, 2011). The strategy reveals that product X7 was a “Problem child” or “question mark” since it has a small market share, hence will require a large amount of finance to build its market share (Ferrell and William, 2012). Product X6 is a “Dog” since it has a subordinate market share and has lower prospects for growth, since it has an established market as compared to X7. Since it has potential for large cash appetite while losing its market share, integrated marketing strategy is used to make it into a star like X5. Therefore, the financial and marketing decisions made entailed pricing strategies and research and development strategies (Mourdoukoutas, 2006).
The strategy makes use of the customer-based pricing, in which determination of the prices is by what I believed the consumers were willing to pay for the products. Therefore, I reduced the prices for X6 and X7 slightly, while increasing those for X5. I reduced the research and development finances for X5 and X6 to 25%, and increased those of X7 to 35%. The results of this move is that by the end of 2012 the cumulative profit for the company was 321,582,769$ an increase of 29% from 2011. The sales for product X6 grew in their product lifecycle, with many of the consumers of the consumers for this product having not bought. Moreover, consumers pay almost the same price for the products as those of competitors. The profits for X6 increased to 25% in 2012 from 16% in 2011. However, product X7 indicated a serious loss of 72% as compared to 2011. The market share changed because of this strategy as that for X5 increased to 27% from 15%, with 1,168,121 first time and 133,823 repeat sales. The market share for X6 doubled from 8% in 2011 to 16% in 2012 with 1,346,394 first time and 116,683 repeat sales. Product X7 had 162,440 first time and 24,048 repeat sales.
Strategy 2013
Based on the results of 2012, several key decisions had to be made considering the poor performance of product X7 and its subsequent high losses. The strategy increased the prices for product X5 to $310 and X6 to $410, with resources to research and development increased for X6 and X5 to 35%, while those of X7 constant at 30%. The prices for X7 were at $180 since, as the product was still at in the growth and development phase. The strategy makes use of the cost based pricing strategy since the company needs to determine the prices by adding a profit element to the total cost of the product (Ferrell and William, 2012). The strategy added the profit margin while keeping the value of the products relatively high as compared to competitors.
The results of this strategy were that the total income increased to 1,509,264,218 from 1,024,012,720 in 2012, increasing the profit from 242,118,043 to 401,371,841 in 2013. Therefore, profitability margin increased from 24% in 2012 to 27% in 2013. This is associated to an increased in sales of products X5 from 1,301,944 to 1,330,080, creating a profit of 131,812,795 representing a 31% as compared to 29% in 2012. Product X6 created a 277,665,831 profit creating a 27% profit margin increase from 25% in 2012, while product X7 had a -17% profit, which was a decline from -72% in 2012. However, the market share did improve as product X5 had a 44% market share compared to 27% in 2012. Product X6 had a 37% market share as compared to 16% in 2012, with product X7 improving to 3% from 2% with an increase of sales from 186,488 to 287,498 in 2013.
The decisions made to increase the resources to research and development is mainly as a means to increase finances to development of marketing strategy (Ferrell and William, 2012). The prices were increased to cover the variable and fixed costs of the products while maintaining market prices (Gitman & McDaniel, 2009). The strategy led to product X5 with still a less expensive as compared to similar products in the market, indicating potential price increase in the next year. The X7 is still in its growth phase in the product lifecycle, therefore requiring increased resources to develop and market the product. This is because there are many X7’s potential consumers in the market, and are new consumers.
Strategy 2014
Several key decisions were made in the New Year given that X5 was still less expensive to similar products in the market and that it still had a large market share remaining. The strategy decided to maintain the cost and increase the prices for product X5 at the shakeout stage. This was also entailed the maintenance of the prices of product X6 since it was slightly expensive to products similar to competitors implying that it was a high value product. Therefore, focuses on aggressive marketing strategies for the two products by focusing on the target markets to have increased repeat consumers. Since product X7 is at the development stage of the product lifecycle, the strategy increases resources to research and development, maintains price, while aggressively marketing.
Therefore, I decided to increase the price of X5 to $315, while that of X6 reduced to $400, with that of X7 increased to $190. The resources to research and development for X7 were increased to 40% since it was at the growth and development stage, and requires plenty of resources. The resources to X5 and X6 were maintained at 30% each since they are in their growth stage.
The result of this strategy is that X5 reached its shakeout phase in the product lifecycle, leaving room for repeat consumers. The prices for the products are now similar to those of similar products in the market. The result is that the profits reduced from 28% in 2013 to 26% in 2014. The profits for product X5 declined from 32% to 31%, X6 from 29% to 26%, while those of X7 increased from -21% to 2%. The market share for X7 increased from 3% to 4%, while that of X6 increased from 37% to 72%. The market share for X5 increased from 42% to 58% in 2014.
Strategy 2015
At the beginning of 2015, the strategy went ahead to sell the three brands as separate products. The pricing strategy was competitor and consumer-based strategy since the prices were set according to the prices of competing products while considering what the consumer would pay. Given that product X5 had reached the shakeout stage and X6 was at growth stage, their research and development resources were reduced, while those for X7 was being increased to focus on the potential of X7 as a new product.
The cumulative profit score in 2015 was $1,277,944,586, with consumers paying the same price for products as they were paying for similar products in the market. The sales for product X6 also reached maturity like those of product 5 as there were fewer new consumers left to buy the product. The total profits dipped from 26% to 23% due to a decline in the sales of X5. X5 had a profit of 30% lower than 31% in 2014, with X6 having a profit of 13% as compared to 26% in 2014. Product X7 was the most improved with a profit of 23% as compared to 2% in 2014. The strategy led to an increase in the number of consumers for product X5 from 58% to 73%, while those for X6 reached 100% with majority repeat consumers and zero first time consumers indicating maturity. Product X7 is still in its growth and development stage with a market share of 6% from 4% in 2014.
Analysis and decisions for 2016
The report recognizes the importance of the mixed marketing strategy, which tries to vary approaches to product with those to pricing. Since products, X6 has reached maturity, the strategy should focus on pricing strategies while allocating fewer research and development resources to reduce costs. Costs for X6 should be directed to marketing strategies, this should be the case for X5 since there are very few first time consumers. Pricing strategies must focus on competitor basis and consumer basis, for products X5 and X6 since at this point competitors and consumers determine the sales of the product. Competitor based pricing for these products are necessary for it leads the company to consider the revenue and cost of the product in relation to that of competitors (William, Hughes & Kapoor, 2011). Therefore, for product X5 and 6 the pricing strategies will make use of promotional pricing like comparison discounting, and psychological pricing like multiple-unit prices (William, Hughes & Kapoor, 2011). Other pricing strategies for products 5 and X6 in 2016 will entail differential pricing where the company will offer negotiated prices, periodic discounts, and random discounts to maintain consumers and increase the number of repeat consumers (Daft, 2008). The strategy should have realized that product X7 is a new product in the market requiring pricing strategies for new-product. Therefore, in 2016 X7 is a product with potential for the company, and its pricing strategy will entail price skimming and penetration prices (William, Hughes & Kapoor, 2011). The goal is to have product X7 penetrate the market in 2016 ad increase the profit for the company.
Overall Performance of the Product
Chart 1: Simulation Sales Performance
Chart 3: price
Chart 4: Profit
Chart 5: Revenues
References
Daft, R.L. (2008). New Era of Management. 2nd ed., Thomson South-Western.
Ferrell, O.C., & William, P.M. (2012). Marketing. 16th ed., South-Western Cengage Learning.
Gitman, L.J. & McDaniel, C. (2009). The Future of Business: The Essentials. 4th ed., South-Western Cengage Learning.
Mourdoukoutas, P. (2006). Business Strategy in a Semiglobal Economy. M.E. Sharpe, Inc.
William, P.M., Hughes, R.J., & Kapoor, J.R. (2011). Business. 11th ed., South-Western Cengage Learning.
