Sample Paper on SLP 2: Time Warp 1

Introduction

At the end of 2011, Clipboard Tablet Company had three products in the market: X5, X6, and X7. X7 has enjoyed a market presence for less than one year while X5 and X6 were launched three years and two years ago respectively. X7 was designed for the high-end market while X5 and X6 were designed for the low-end and the middle markets respectively. Currently, X5 costs more than other products within the same product category, while X6 performed better than other products in the same category in the market. In the year 2011, the cumulative total profits associated with the products came from selling X5 and X6 tablets. The cumulative profits were $ 81,571,138. 54 percent of the profits came from X5 while the rest from X6. The decisions made from this foundation will be able to improve performance and enhance profitability (Barton, 2012).

Decision 2012

In 2012, prices for X5 and X6 were maintained at $ 280 and $ 430 respectively, while X7 was adjusted to $200. The allocations for research and development were 36%, 34%, and 30%. The overall cumulative profits were $ 358,887,031. The outcomes for the decision are as shown below.

Variable Name X5 X6 X7 Total
Revenue
Total Sales 1,772,710 1,288,999 145,301 3,207,011
Revenue 496,358,915 554,269,513 29,060,297 1,079,688,726
Cost
Variable Costs 265,906,562 354,474,689 7,991,582 628,372,832
Fixed Costs 75,000,000 37,500,000 37,500,000 150,000,000
R&D Costs 8,640,000 8,160,000 7,200,000 24,000,000
Total Costs 349,546,562 400,134,689 52,691,582 802,372,832
Profit
Total Profit 146,812,354 154,134,825 (23,631,285) 277,315,894
Total Profitability 30% 28% -81% 26%

 

From the results, X6 entered the product growth although most of the potential customers were yet to purchase the product. It is therefore evident that there is still potential for the expansion of product sales. X5 performed favorably in comparison to the competition products while X7 pricing was lower than products in the same category. X5 and X6 improved in terms of market saturation to 27 percent and 16 percent respectively. X7 however maintained a market saturation level of 2 percent.

Decision 2013

The prices for the three products were maintained at $ 280, $ 430, and $ 200, for X5, X6, and X7. On the contrary, the R & D allocations were changed to the previous values that is, 36%, 34%, and 30 percent respectively. The overall cumulative profit was $ 855,271,826.

Variable Name X5 X6 X7 Total
Revenue
Total Sales 2,355,627 2,163,178 199,031 4,717,844
Revenue 659,575,677 930,166,425 39,807,837 1,629,549,939
Cost
Variable Costs 353,344,113 594,873,876 10,947,155 959,165,144
Fixed Costs 75,000,000 37,500,000 37,500,000 150,000,000
R&D Costs 8,640,000 8,160,000 7,200,000 24,000,000
Total Costs 436,984,113 640,533,876 55,647,155 1,133,165,144
Profit
Total Profit 222,591,564 289,632,749 (15,839,318) 496,384,795
Total Profitability 34% 31% -40% 30%

The sales for X5 are in the shakeout period and new sales are declining relative to the competitors’ products. On the contrary, X7 is priced higher than the competition products hence the low sales experienced. The total market saturation for X5 was 50 percent while that for X6 and X7 were 34% and 3% respectively. X7 has not yet achieved break even.

Decision 2014

In 2014, it was decided that the three products’ prices were to be maintained at their current positions; $ 285, $ 430 and $ 200 for X5, X6 and X7 respectively. The allocations for R&D were to be 34%, 34%, and 32 percent. The resultant cumulative profits for the period were $ 1,322,557,175. The results were as shown below.

Variable Name X5 X6 X7 Total
Revenue
Total Sales 1,719,559 2,386,459 270,646 4,376,644
Revenue 490,074,311 1,026,177,438 54,129,265 1,570,381,013
Cost
Variable Costs 257,933,848 656,276,268 14,885,548 929,095,664
Fixed Costs 75,000,000 37,500,000 37,500,000 150,000,000
R&D Costs 8,640,000 8,160,000 7,200,000 24,000,000
Total Costs 341,573,848 701,936,268 59,585,548 1,103,095,664
Profit
Total Profit 148,500,463 324,241,169 (5,456,283) 467,285,349
Total Profitability 30% 32% -10% 30%

The products attained market saturations of 79%, 63%, and 4% for X5, X6, and X7 respectively. In terms of performance, the products performed comparably with the competition products. The sales for X5 however declined. The product pricing was also comparable to that of other products in similar categories in the market. X6 reached the shakeout period while X7 is yet to attain break even. Since the product prices are comparable to other products in the market, a change is necessary in the R& D allocation to achieve higher sales.

Decision 2015

The prices of the products were left constant at $285, $430, and $200 for X5, X6, and X7 respectively while the R&D allocations were changed to 30%, 33%, and 36% respectively. The resultant cumulative profits for the period were $ 1,483,529, 631. The profitability results are as follows.

Variable Name X5 X6 X7 Total
Revenue
Total Sales 839,349 1,003,707 365,776 2,208,832
Revenue 239,214,520 444,642,151 73,155,252 757,011,932
Cost
Variable Costs 125,902,379 276,019,394 20,117,694 422,039,467
Fixed Costs 75,000,000 37,500,000 37,500,000 150,000,000
R&D Costs 7,200,000 8,160,000 8,640,000 24,000,000
Total Costs 208,102,379 320,679,394 66,257,694 596,039,467
Profit
Total Profit 31,112,141 122,962,757 6,897,558 160,972,456
Total Profitability 13% 28% 9% 21%

 

X5 attained a market saturation of 97%, X6 attained 93 percent while X7 is in the growth phase with only 5% market saturation. The profitability of X5 and X6 dropped as a result of market saturation, which saw a decline of new sales. Consequently, most of the sales associated with X5 and X6 were replacement sales while the market potential for X7 is yet to be fully exploited.

Conclusion

Although the company realized a modest cumulative profit of $1,483,529,631 in the five years from 2011, its profitability in the fifth year could have been hindered due to a limitation of sales. This implies that the decisions made could not maintain a sustainable growth for all the products (Kim, 2011). The result was that while X5 and X6 reached maturity significantly early, X7 was yet to penetrate the market effectively in growth. It was therefore impossible for X7 sales to replace the declining sales from X5 and X6. The decisions made should have resulted in faster penetration of X7 so that by the time X5 and X6 reach maturity, the sales from X7 would replace the declines. Since the product pricing for all the products were found to be in the same range with other competitors’ products, it is necessary that the allocations for R& D to made in consideration of market saturation levels of each product. The costs incurred in R&D should be commensurate to the level of marketing desired and the market dynamics (Gupta & Steenburgh, 2008). In case of another opportunity to improve, it may be necessary to control the costs and the R&D allocations so that X7 can attain faster growth.                                                                      

References

Barton, A. (2012). Clipboard Tablet Company Simulation. Accessed 9th April 2014 from the link

Gupta, S. & Steenburgh, T. (2008). Allocating marketing resources. Working Paper 08-069. 

Kim, C. (2011). An exploratory analysis of marketing budget allocation: Advertising versus sales promotion. The Ritsumeikan Business Review, 2(3), 91-113.