If it is to command premium prices -- which will be the case no matter if the price is $400 or $450 -- it needs to have premium features. Thus, it should retain its R&D through 2008, since that move did not have a substantial impact on the X7's profitability. This brings us to the price of the X6. Clearly, raising the price higher during 2008 and 2009 was a poor strategy. The loss of sales, especially in 2009, was significant and even in 2008 profits decreased. Thus, a lower price point is expected to generate higher sales for this product, particularly in the later years (2008 and 2009). Thus the strategy for the next simulation will remain largely the same but with a lower final price for the X6 product in order to spur sales as the product moves into maturity.
Year by Year Decisions: Pricing & R&D Allocations
2006
2007
2008
2009
X5
Price $250
Price $250
Price $250
Price n/a
R&D % 1
R&D % 1
R&D % 1
R&D % 0
Discontinue-N
Discontinue? N
Discontinue? N
Discontinue? Y
X6
Price $450
Price $450
Price $440
Price $430
R&D % 32
R&D % 32
R&D % 1
R&D % 1
Discontinue? N
Discontinue? N
Discontinue? N
Discontinue?...
To run this simulation again, it is clear that the R&D for the X6 must be maintained. In terms of fundamental business theory, this makes sense. The X6 is a premium product, and the demand for this product is more likely to be derived from features than from price. This was learned early when it was determined that price elasticity of demand was low. Elasticity of demand from features was
What assumptions did you make when you planed your strategy? Did these assumptions prove to be right, or was there something else you didn't think about that influenced your results? How will taking those factors into account affect your strategy in this upcoming run? Again, you need to crunch some numbers to determine how successful you were, where the greatest sources of profit are, and what changes make sense. Make
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