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Comparing the three products, X5, X6, and X7, it has been noted X5 has been in the markets for three years and the importance given to the performance of the product is of relatively low significance. Considering the level of importance of this product, the research and development expenses can be reduced to 15 %. X6 on the other hand has much higher importance and hence the company can increase the research and development budget to 50 %. X7 is currently in the development stage and hence the research and development can be increased to 35 %.
It is imperative to note that a product has good profitability and increased sales volumes during the growth phase and hence in the case of X5, whose market saturation is 31 %, the price of the product can remain at $ 250. In the case of X6, the product has not yet been bought by the potential customers. Hence, the price can be increased to $ 410, as the price is inelastic. However for X7, there is equal care about the performance as well as price and hence the price needs to be reduced to $ 175. The results for the year 2006 are presented based on the above decisions.
The price for the product X5 can be reduced to $ 240 and the research and development expenses can be reduced to 5 %, since the product is in a growth phase. However in the case of X6, the price can further be increased to $ 420 considering the price inelasticity. In terms of the research and development, the expenses for X6 can remain the same however the expenses for X7 need to be increased to 45 %. The price of X7 is maintained at $ 175 as both price and performance play an important role in the consumer purchase decision. The results based on these decisions are presented below:
Considering the percent of markets that have been served for X5 – 78 %, the possibility of generating similar sales for the current year will be difficult. Moreover, the costs involved in the production of X5 are also higher
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So I went on with my journey. I was hired at Handheld Corp. and was given a rather comprehensive task. I was asked to review Joe Schmoe’s financial report on handheld products sales from 2006-2009. Running the PDA simulation for handheld products, one can accurately calculate estimated profits by gauging the price and R & D allocation.
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