Tablet Development Strategy - Term Paper Example

? Phase 5: Comparison of Time Warp 2 and 3 using CVP Calculator for Tablet Development Corporation Product X5, X6 and X7 during period Student Name Table of Contents 1 Introduction 2 Analysis of Pricing and R&D Allocation Strategy Used in Phase 3 3 Outcome of New Strategy for Core Products of Tablet Development Corporation Using CVP Calculator in Phase 4 4 Conclusion Annexes 1 Introduction Tablet Development is focused on providing high quality and custom designed applications for tablets manufacturers and operating system providers. Its core products are X5, X6 and X7 that have been in the market for the last 2 years. However, there are major drawbacks in the existing price and R&D budget allocation strategies that have undermined the new product development cycle in the organization. In order to bring a revolution in the existing business practices of the company, it is important that a new pricing strategy is devised that is based on the strategic objectives of each product individually. Furthermore, the decisions for the allocation of funds for the Research & Development (R&D) of each product should be taken individually and on annual basis to achieve the desired objectives of the product and the company. 1.1 Aim The aim of this report is to compare the previous two new pricing and R&D allocation strategies for the core products X5, X6 and X7 using CVP analysis and calculator and analyse their results. 1.2 Objectives To analyse the subsequent performance and life cycles of each product due to the difference in the decisions. To compare the new pricing decisions and R&D budget allocation strategy for each core product, namely: X5, X6 and X7 taken in 4 years (i.e. from 2012-2015). To provide rationale of the results proposed strategy with theoretical support. 2 Analysis of Pricing and R&D Allocation Strategy Used in Phase 3 Due to the use of CVP calculator, in the year 2012, the price of the product X5 was $263 and experienced a growth of 74% in its overall sales and revenue (See Annex 1). The customer base also experienced 60% new customers, 84% repeat sales and 113% profitability. The R&D budget was 15% from the estimated costs of $22,000,000. However, with the changed pricing strategy and R&D allocations, the product X5 experienced a growth of 65% in sales, 20% in new customers, 25% in repeat customers and 35% profitability in the year 2013. Likewise, in the year 2014, the product X5 experienced a growth of 85% in sales, 43% in new customers, 48% in repeat customers and 76% profitability. In 2015, the product X5 experienced a growth of 90% in sales, 32% in new customers, 55% in repeat customers and 81% profitability. Likewise, the product X6 the price was $300 and experienced a growth of 40% in its overall sales and revenue in 2012. The customer base also experienced 24% new customers and 41% profitability. However, only 40% of the R&D budget of $22,000,000 was allocated for it (See Annex 1). With the changed pricing strategy and R&D allocations that is the price was decreased to $290 but the R&D budget is kept at same level., the product X6 experienced a growth of 55% in sales, 26% in new customers, 25% in repeat customers and 30% profitability in the year 2013 (See Annex 1). In the year 2014, the price is further decreased to $240 and it experienced a growth of 60% in sales, 26% in new customers, 30% in repeat customers and 40% profitability. Likewise, in the year 2015, the product X6 experienced a growth of 65% in sales, 42% in new customers, 35% in repeat customers and 49% profitability due to the price is decreased to $200. The price for product X7 in the year 2012 was kept at $210 but only 45% of R&D budget of $22,000,000 was allocated for it (See Annex 1). As a result, and experienced a growth of 26% in its overall sales and revenue. The customer base also experienced 121% new customers and 84% profitability. In the year 2013, the price is increased to $215 but the R&D budget is kept at same level. Thus, it experienced a growth of 30% in its overall sales and revenue. The customer base also experienced 122% new customers and 85% profitability. In the year 2015, the price is increased to $225 along with a decrease in R&D allocation to 40% thus, the and experienced a growth of 50% in its overall sales and revenue. The customer base also experienced 125% new customers and 87% profitability. 3 Outcome of New Strategy for Core Products of Tablet Development Corporation Using CVP Calculator in Phase 4 3.1 X5 Keeping in perspective the above market analysis for tablet computers, it is found that less price per unit will increase the volume of tablet computers sold each year. Likewise, the price for product X5 in the year 2012 will be kept at $449 (See Annex 2). The customer base experienced 40% new customers, 54% repeat sales and 53% profitability. The R&D budget was 45% from the estimated costs of $22,000,000. However, with the changed pricing strategy and R&D allocations, R&D budget is also reduced to 40% and the product X5 experienced a growth of 61% in sales, 40% in new customers, 35% in repeat customers and 55% profitability in the year 2013. In the year 2014, the price is further decreased to $350 and as a result the product X5 experienced a growth of 60% in sales, 34% in new customers, 35% in repeat customers and 61% profitability. Likewise, in the year 2015, the price is reduced to $333 and the product X5 experienced a growth of 65% in sales, 53% in new customers, 58% in repeat customers and 76% profitability. 3.2 X6 The price for product X6 in the year 2012 will be kept at $300 but only 25% of R&D budget of $22,000,000 will be allocated for it (See Annex 2). Likewise, the product X6 the price was $300 and experienced a growth of 50% in its overall sales and revenue in 2012. The customer base also experienced 44% new customers and 45% profitability. With the changed pricing strategy and R&D allocations that is the price was decreased to $290 and the R&D budget is decreased to 20%, the product X6 experienced a growth of 65% in sales, 36% in new customers, 45% in repeat customers and 50% profitability in the year 2013 (See Annex 2). In the year 2014, the price is further decreased to $280 and it experienced a growth of 66% in sales, 46% in new customers, 50% in repeat customers and 60% profitability. Likewise, in the year 2015, the price is further decreased to $270 and as a result the product X6 experienced a growth of 68% in sales, 47% in new customers, 55% in repeat customers and 69% profitability. 3.3 X7 The price for product X7 in the year 2012 will be kept at $100 but only 35% of R&D budget of $22,000,000 will be allocated for it (See Annex 2). The product experienced a growth of 26% in its overall sales and revenue. The customer base also experienced 11% new customers and 24% profitability. In the year 2013, the price is decreased to $95 and the R&D budget is decreased to 30%. Thus, it experienced a growth of 40% in its overall sales and revenue. The customer base also experienced 12% new customers and 35% profitability. In the year 2014, the price is further decreased to $90. Thus, it experienced a growth of 50% in its overall sales and revenue. The customer base also experienced 20% new customers and 36% profitability. In the year 2015, the price is decreased to $85 thus, the and experienced a growth of 51% in its overall sales and revenue. The customer base also experienced 25% new customers and 45% profitability. 4 Conclusion The strategic decision making for each year has resulted into 60% profitability in case of product X5 and 50% profitability in case of product X6. Furthermore, the increased spending on maintenance, support, enhancement and discovery for product X5 and X6 showed improved product which resulted in higher customer satisfaction. The discontinuation of product X7 through the four years helped in the success of the first two products. On the other hand, the snowball effect in pricing in the Phase 4 has resulted in increased profitability due to higher volume per unit for all three products of Tablet Development Corporation. This strategy has focused on high to low price technique with stable R&D costs and lower fixed costs per year. In the latter strategy, the CPV calculator was strategically used in order to gain constantly high profit with systematic decline in the price of each product. There was more focus on the relationship between price and the variable cost of each product. Thus, attaining a break even point where the volume matched the target profit. Annexes Annex 1 Strategy Decision Matrix using CVP Analysis Product Decision 2012 2013 2014 2015 Price $263 $250 $250 $255 R&D% 15% 15% 15% 20% X5 Discontinue? No No No No Price $300 $290 $240 $200 R&D% 40% 40% 40% 40% X6 Discontinue? No No No No Price $210 $215 $220 $225 R&D% 45% 45% 45% 40% X7 Discontinue? No No No No Annex 2 Strategy Decision Matrix using CVP Calculator and Snowball Pricing Effect Product Decision 2012 2013 2014 2015 Price $449 $300 $350 $333 R&D% 45% 40% 40% 40% X5 Discontinue? No No No No Price $300 $290 $280 $270 R&D% 25% 25% 25% 25% X6 Discontinue? No No No No Price $100 $95 $90 $85 R&D% 30% 35% 35% 35% X7 Discontinue? No No No No Read More