Business Studies Clipboard Tablet Company - Comparing the Time Warps

Finally 2016 has arrived and after moving through the period 2012-2015 twice due to Groundhog Day, the results of the different strategies can be compared.

Time warp

In time warp 1, the first consideration was the X5. As the price was noted as being higher than competing products the price was lowered to $220. As the product was already established in the first time warp it was decided that the research and development (R&D) budget should be reduced to 10%, as a higher level of investment may not gain sufficient returns in a maturing product. The X6 was different; this was a product that was being sold to a market which was not price sensitive. The initial strategy was to increase the price to take advantage of this lack of prose sensitivity and increase the revenue per unit, with the price increased to $450. As the market was one where performance was important, and the product was early in its lifecycle it was also decided to increase the R&D to 50% of the budget. For the x7 there was a decision to reduce the price slightly, as the market was price sensitive, the price reduction was minimal, to stimulate sales whole still seeking to decrease the losses more quickly with higher revenue per unit. The sales at the end of the year totalled $478,938,000.

Time warp 2

In the second time warp some changes were made. Looking at the cost volume profit analysis as well as the situation of the X5 sold above competing prices in a price sensitive market it was decided that the price decision for the X5 was right, so the same strategy was repeated. However, in this round, to increase the overall contribution it was decided that the R&D budget should be cut completely.

A different strategy was adopted for the X6. In the first time warp there was a decision to take advantage of the price elasticity, increasing overall revenue (Gillespie, 2013). In the second time warp, the price was not increased; a decision which was aimed at getting more market share by leaving the price at $430. As the product was already on the market, on the second time warp there was a reconsideration of increasing the R&D funds. Instead of increasing them they are left the same, so R&D still takes place to keep the product up-to-date, but there is no increase in expenditure.

The X7 is a product in the early development stages. In the first time warp there was a decision made to decrease the price to increase market share, this time the higher price is retained ($190), with the hope of speeding up the break even period with the higher contribution with a price skimming strategy (Hooley et al., 2007). The product is ready for market, so with the same idea as the X6, the decision was to leave the R&D budget the same. This gives a result of $481,125,764.

Comparison

Time warp 1 resulted in $478,938,000 and time warp 2 it was $481,125,764. This was ore than the net savings made in the reduction of the research and development budget. The market may not have been price sensitive, but the lower price for the X6 appears to have supported more sales. The higher price for the X7 also appears to have been sustainable, with the firm benefiting from the increased contribution margin.

Table 1; Comparison of time warp 1 and time warp 2 strategies

Time warp 1

Time warp 2

Selling Price

R&D Budget

Selling Price

R&D Budget

X5

$220

10%

$220

0%

X6

$450

50%

$430

34%

X7

$180

40%

$190

33%

2013

Time warp 1

In tine warp 1 there was a decision to stop selling the X5, with the hope that purchasers would move to a different product. The X6 was moving on in its lifecycle so the price was reduced back to $430, and as the market was sensitive to performance the there was a slight sift in the budget, reducing it from 50% to 40%, the main reason being to increased the R&D budget for the X7. It is apparent that the X7 is the product for the future, and the market is price sensitive. The price was reduced to $90 and the product had 60% of the R&D budget. The decisions give accumulative revenue for the firm of $821,524,706 by the end of the year.

Time warp 2

On the second time warp there was a similar approach, but some slightly different strategies. The X5 was still discontinued, this was a product with a high overhead, and as it was reaching the end of the lifecycle, price reduction would have decreased the contribution and increased the number of units that needed to be sold (Gillespie, 2013).

The strategies for the X6 saw the price remain the same as 2012; unlike tine warp one where the price increase was once again reduced. In this time warp the R&D budget also remains the same. The decision for the X7 was similar, it was decided there was sill a need to reduce the price, but the price was not lowered by the same level, it was reduced to...

The result was $840,183,234.
Comparison

The result for time warp 1 was $821,524,706, so the time warp 2 result at $840,183,234 was better. The main different is that the firm may be benefiting from more sales of the X6 in the previous year supporting more market share this year. However, the $99 price increased the contribution margin by $9 a unit compared to time warp 1.

Table 2; Comparison of time warp 1 and time warp 2 strategies

Time warp 1

Time warp 2

Selling Price

R&D Budget

Selling Price

R&D Budget

X5

Discontinued

Discontinued

X6

$430

40%

$430

34%

X7

$90

60%

$99

33%

2014

Time warp 1

In time warp 1 the strategy adopted was to leave the pricing and the R&D funding for the X6 the same as the previous year. The X7 was cause for concern as the profit margin in the last year had only been 1%. To increase sales further a small price decrease was instigated, dropping the contribution by $5 per unit. The accumulative result for revenue at the end of 2014 is $1,404,429,284.

Time warp 2

A similar approach was adapted to the first time warp, leaving the price of the X6 the same as well as the R&D budget. In the last round, the price for the X7 was decreased slightly, as decreasing the price increased demand with the aim of increasing sales (Baye, 2007). This time there was a decision to leave the price the same level, to maximise the potential returns by holding up the contribution margin. It was hoped that the sales would be increasing anyway due to the product being in a growth stage of its lifecycle. This leads to a total of $1,349,965,299

Comparison

The accumulative sales in time warp 2 were disappointing when compared to time warp 1, but it is notable they were better than Joe Schmoe had achieved. Sales were 1,349,965,299 compared to $1,404,429,284 on the previous round of sales. The main difference was seen wit the level of the X7 sales.

Table 3; Comparison of time warp 1 and time warp 2 strategies

Time warp 1

Time warp 2

Selling Price

R&D Budget

Selling Price

R&D Budget

X5

Discontinued

Discontinued

X6

$430

40%

$430

34%

X7

$85

60%

$99

33%

2015

Time warp 1

In time warp 1 there was consideration of discontinuing the X6, but the decision was made to retain it. The product price remained the same, but there appeared to be little benefit to a y ongoing investment in R&D so this was terminated. The X7 was established, so the price was increased to $95, and as this was to be the main product for the future the R&D budget was increased to 100%. The accumulative revenue was $1,792,310,044 by the end of 2015.

Time warp 2

In the second time warp there was a similar decision to sop the R&D funding for the X6. However, this did not result in an increase to the X7, where the product is now established. The price also remained the same for the X7. The result for the year was $1,970,217,066.

Comparison

The firm appears to have benefited from an increase in the X7 sales in the second time warp. In the first time warp there may have been some problems caused as a result of lowering and then raising the price; if consumers got used to the lower price they may have been reluctant to pay more, it may also have create a 'cheap' image so perception regarding the value were under mined (Kotler & Armstrong, 2014; Mintzberg et al., 2011). This may have helped the overall result, where the firm ended on sales of $1,970,217,066 compared to $1,792,310,044, a total of $177,907,022, which equates to a 9.9% increase on the last time warp

Table 5; Comparison of time warp 1 and time warp 2 strategies

Time warp 1

Time warp 2

Selling Price

R&D Budget

Selling Price

R&D Budget

X5

Discontinued

Discontinued

X6

$430

0%

$430

0%

X7

$95

$99

33%

The second strategy was the most successful, however 2013 appeared to be a weak year, and as such this is the area where future attention should be directed.

References

Baye, M, (2007), Managerial Economics and Business Strategy, McGraw-Hill/Irwin

Hooley GJ; Saunders JA; Piercy, (2007), Marketing Strategy and Competition Positioning, London, Prentice Hall

Gillespie, Andrew, (2013), Business Economics, Oxford University Press

Kotler, P; Armstrong, G, (2014), Principles of Marketing, Pearson-Prentice Hall Publishing

Mintzberg Henry, Ahlstrand Bruce, Lampel…