INTRODUCTION
Clipboard Tablets Company manufacturers three products which are the X5, the first, X6 the second and the X7 that is not to market as yet. As we have previously discussed the prior management made some compromising decisions that the Company is left to deal with and sort out so the financial security of the company going forward is guaranteed. It is with that in mind that this paper will explore the current prices strategies and eventually offer some alternatives to increase the market share and the profits in the company. In order to understand the new suggestions, a review of 2012 and 2013 will be offered as a comparison.
Profits for the year of 2011 were $81,571,138 and looking to improve this profit in 2015 a new strategy will be offered. The new rational strategy for pricing includes a change in the Research and Development area's expenses. This year caused many of the current difficulties with the equal distribution of R&D expenses across all Clipboard products. Using the cost Volume Analysis, added to the simulation of the prior expenses and sales a picture of the profit road can be established and understood better.
The X5 is in the maturity phase. That means that the R&D expenses are not relevant and that the newer product X6 will be looked at in terms of R&D along with the X7. Since the X5 has been the mainstay product, currently it is price sensitive in regards to the pricing strategy and the allocation of the R&D expenses. The X6 is in its growth phase and has no price sensitivity, which means that the Clipboard Company needs to focus on performance without the sales and price. The X7 has not yet been introduced to the market and therefore is a loss and a drain to the Clipboard Company at this time. There is an anticipated loss for the next few years in order to reach its market share.
Simulation Results (Forio)
The simulation in 2012 has reached profit of $352, 243,200. The overall results of 2012 mark it known that the profitability increased 10% points from 16% to 26%. There is a requisite increase in sales volume and sales. The margin per unit improved in 2012 to $89 from 2011 where it was $53.
In Year 2013, based on 2012 the change in strategy occurs with regards to the X5 product. No increase was allocated in the R&D expense to 42% in order to improve the desirability of the product to the customers. The impact of the increase in the price of X6 is not seen as customers have focused on the performances of the product. The product X7 will also need to increase its R&D expense to 41% with no change in price of $180.
INPUT VALUES
Simulation Results: (Forio)
The overall score in 2013 is $860,241,149. The overall results of 2013 show that there is a further improvement in the profitability from 26% to 31% with the increase in the sales volume and sales revenue in the above table. The margin per unit in 2013 was $102.50 whereas in 2012 was $89. There is no improvement in the fixed costs in 2013 compared to 2012. The variable cost per unit changes are in the table above . In 2013 the X5, X6, and X7 were not at the saturation point because of the increased volume of sales. X7 still produces a loss as it is still in the baby stages of the market. .
INPUT VALUES
Simulation Results: (Forio)
The overall score in 2014 is $1,281,927,788 indicating no improvement in hit profitability rate of 30% from 31% in 2013. There is a reduction in the volume of sales in the total revenue from all the three products. The reduction is due to the decrease in the sales volume of X5 that means this product is at saturation point. There are no new sales of this product in the market and the product sale will decrease over the period. Per unit margin has increased from 2014 to $102.81, whereas 2013 it was $102.50. There is no change in the fixed costs in 2013 and 2014. X5 is at its saturation point as no new sales are expected. The X6 and X7 are not at the saturation point, and will improve their performance in the market. X7 at this point is profitable and in its growth phase and there is not expected to be any further improvement in the sales of the products.
Looking at the data from 2014, the year 2015 is a pivotal year as X5 price is reduced by $3 to $260 and an increase of R&D expense to 48%. The R&D expense has been increased to 32% with no change in the price of the product at $450. X7 is decreased price wise to $170 and an increased R&D expenses to 53%.
Inputs;
Simulation Results (Forio)
The overall score for the simulation in 2015 is $1,490,715,195 showing a decrease in profitability rate to 24% from 30% in 2013. X5 and X6 are also reduced as X5 is in the decline and X6 is at the saturation point. X7 shows growth as it has just been introduced into the market and all the sales are new. X5 and X6 have no significant growth in the market as they are in sales decline. There is no scope of increasing sales with these products. X7 is growing and will produce sales with profitability for the next few years.
STRATEGIES
Along with the CVP analysis and the use of the simulation, the price elasticity is important. Increasing short term profits and then to gradually move into the X7 appears to be the best possible procedure for advancing X7, retiring X5 and gaining market share with X6. Using the CVP is a better tool to evaluate the pricing and other costs of profitability by considering the minimum level of sales to avoid loss (Barnat, 2014). The products of X5 and X6 are in the growth phase that means that there is a requisite to increase the R&D expenses in order to increase the additional features for the demand for the product to increase.
The market for the X7 is now the focus of the sales as it is new in the market. X6 sales are doing well an profitability is growing. X6 sales have not been fully exposed so continued R&D in this product is going to return higher yields according to CVP analysis. The former manager Joe Schmoe should have diverted the R&D expenses of the X5 to X6 long ago, but instead he kept everything the same year after year. This resulted in the current strategy that is to exploit the X7. The X7 market is not at saturation point as yet it is just at about 5%. Now the Clipboard Tablet Company needs to focus on improving the performance of the product in order to capture higher market share.
CVP ANALYSIS
The Cost Volume Profit method is used to measure the contribution impact over the marketing decision because of the consideration the price level. The price level has to be acceptable to the customer or they will not purchase the product. Going forward for the next year, the Clipboard Tablet Company needs to implement the development of a revised strategy using the CVP. The analysis that this produces an (Kelly, 2013) analysis the current prices are so close to the best price point and the best strategy will be to increase R&D investments. The decision to discontinue the X7 is not a long term strategy so the result is a two year loss. This change causes a small investment into X7 while it is in the beginning stages.
CONCLUSION
The strategy for the New Year is to invest a sizable but a cautious amount into X7 and its development based on a very short span while the X7 is only in the introductory stage. The new strategy will be developed on the assumptions of the linear relationships between price, performance, and demand. Changes in the improvement of the strategy of a nonlinear analysis of these relationships will be a part of the new plan. Additionally, the production of the X5, X6 and X7 operational decisions are improved by the NPV or Net Present Value and the Internal Rate of Return (IRR).
References
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Kelly, R. (2013). Cost Volume Profit (CVP) Analysis. Management Accounting. New York: Harper Row. 56-90.
Tan, M. (2014). Marketing Solution Review. Academia. Retrieved March 2016 from: https://www.academia.edu/9300161/THE_REVIEW_OF_ALIBABAS_ONLINE_BUSINESS_MARKETING_STRATEGIES_WHICH_NAVIGATE_THEM_TO_PRESENT_SUCCESS.
