The PDA Simulation Strategy - Essay Example

The strategy chosen implied decreasing the price of the X5, raising the X6 price, and raising the X7 product price. The X5 product is entering the latter part of its growth phase thus a 10% price decrease was used, the X6 was increased by 10%, while the X7 price was increased by 20%. The reason for the greater increase in the X7 product was that the product showed negative profitability thus the price had to be increased enough to turn the product line into a profitable one. Based on the original information no product would be discontinued. The allocation of the R&D budget strategy is based on giving more money to products with the greatest potential and under-saturated markets. Allocation of the R&D budget for each of the products was: X5 =15%, X6=50%, X7=35%.

The result for the first round was a total profit of 328.2 million. Both the X5 and X5 profits did very well with over 150 million of income each. The X7 profits were -$3.3 million. The X5 product more than doubled in total revenues, with profitability going up The market saturation of this product went up to 53%. The strategy seemed to work wonders as far as drastically increasing the revenue stream from this product. The X6 product market saturation went up to 33%, while its revenue growth went down 18%. The profitability of the product improved by 7%. The performance of the X7 product was lackluster. Its overall revenues went up a moderate 8%, while its profitability improved by remaining at a -6% level implying an unprofitable operation.  

The second round followed the same strategy with the same weighted distribution. The results from the first round seem very good, thus I continue with the formula. The results were not what I expected. The major problem was that the 10% decrease in the X5 handheld caused an accelerated movement in the product life cycle. The price movement caused the market saturation to reach 98%. The profitability of the product went down the sink going from 27% to -28%. There was a sales decrease of 80%. Based on the result the only thing to do with the product in the upcoming round is to eliminate this product from the marketplace. The X6 model was its market saturation level increased to 49%. The profitability of the product increased by 6%, while the overall sales for the product increased by 76%. The X7 product did not show much improvement this round. Profitability stayed at the unacceptable level of -6%, while the overall sales went down 5. The price change was not able to penetrate this product into the marketplace since its market saturation level is now only 5%.

Round 3 started with the elimination of the X5 product from the marketplace due to the product's total saturation status. The decision of raising the prices of X5 and X6 products stayed the same, but adjustments were made to the X5 price markup to lower it from 10% to a 5% markup. Since the X7 is still unprofitable the 20% markup in price stayed the same. The budget allocation for R&D was slit 50% / 50% between the two remaining products. The result of the moves was a 2008 company profit of 164 million dollars. The X6 product carried the company with overall profits of %174 million. The market saturation level increased to 65%, which is s 14% increase. Lowering the price markup percentage helped ensure the product line did not fully saturate. The profitability of the product stayed at a healthy 40% while the revenue decreased by 10%. The X7 results were not getting any better. The X7 revenues went down 14% while its profitability plummeted by -23%.

For the final round, the price strategy will stay the same with a 5% markup for X6 and a 20% markup for X7. The X6 product continued a good profitability level of 42%, overall sales decreased by 28%. The product saturation level reached 77%. The total profits for the X7 model were $135 million. The X7 was the worst yet. The total losses this final year amounted to $22 million. Profitability plummeted to a disastrous -62% and the product was never able to penetrate the marketplace

To improve the results of the simulation changes need to be made to the overall strategy. The X5 products must be handled with greater care to increase the life of the product. To do less money will go into R&D and price decreases will be more moderate. The X6 products results were good, but less R&D money will go into the product since the results show the price variable was the key to its success. The X7 strategy has to be completely changed. From the start, more R&D needs to go into the product, and a higher price increase must be used in the first round to study the behavior of the product. The overall results of the simulation amounted to a total score of $965,642,214. This number increased the cumulative profits of the company, but if we compare this score with the rest of the competitors in the simulation the global score was not too good. The top 100 players obtained a score of 1.8 billion or higher, which is half of the total score I achieved for this simulation.