BUS599 SLP 2 Pricing Strategy Essay

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Background



This discussion continues with the analysis of how Module Price adjustments impact the total profits and market share of SunPower vis-à-vis industry-wide performance. Further, the discussion highlights how improvements in processes yield unit costs reduction. Like was the case with the previous exercise (SLP1), four major decision points will be taken into consideration in the current exercise, i.e. SLP2. A more conservative pricing approach will, however, be adopted in SLP2.

Discussion



Decision 1: Beginning of Year 1: 2007 (See Appendix 1)

SLP1 Module Price: $0.15

SLP2 Module Price: $0.13



It is important to note, from the onset, that in SLP2, SunPower starts off with a more significant share of the market at a lower price level than that adopted in SLP1. In SLP2, the market share is 4.85%, which is essentially 2.45 percentage points better than the market share in SLP1. The annual revenue is also markedly high at the current price level than the annual revenue registered in SLP1. Currently, the company has annual revenues of $626.82m – which is more than double the revenue registered in SLP1. The process development expenditure is also higher in SLP2 than was the case in SLP1. It is clear at this point that price related decisions have had an impact on the performance of SunPower. This assertion is in line with Stiving’s (2011) viewpoint to the effect that when implemented well and with the long-term view in mind, lower prices could augur well for the company in terms of market share.



It should, however, be noted that the return on sales ratio of SunPower is still not impressive in relation to that of other entities in the same industry. Albrecht, Stice, Stice, and Swain (2007) deem this ratio as a key gauge in the measurement of “the amount of profit earned per dollar of sales…” (p. 672). The company’s operational efficiency, just as was the case in SLP1, is not at par with the operational efficiency of firms in the same industry. This effectively means that the company is operating at a suboptimal level. To remedy the situation, the management of SunPower would be required to boost the operational efficiency of the company via the adoption of various strategies in both the short and medium term. Suggestions include, but they are not limited to, the enhancement of business processes, outsourcing of noncore activities, etc.



Decision 2: For Years 2013 – 2017 (See Appendix 2)

SLP1 Module Price - $0.

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13

SLP2 Modular Price – 0.11



It is important to note that the percentage of price decrease is in this case similar to that in SLP1. However, the price level is lower. The market share in this case jumps from 4.85% to 8.46% with the lower pricing adopted. The percentage increase is in this case more significant than was the case in SLP1. Thanks to the increase in market share, the annual revenue also increased from $626.82 million to $1.71 billion. This represents a 63.34% increase which is nonetheless lower than that registered in SLP1 (183%). The process development expenditure in this case registers an increase of 168%. SLP1’s process development expenditure increased by a similar proportion. The cost of goods sold is manifestly high and the return on sales ratio of SunPower is still not impressive in relation to that of other entities in the same industry. In essence, this further highlights the need for SunPower to take deliberate measures to enhance its operational efficiency.



The company’s consumer net price in relation to that of competitors is largely impressive. The $0.02 reduction in the same is a good move as it means that the end consumers’ net price for each installed solar cell has gone down. It would be interesting to see how this translates in terms of market share in the coming period. The company’s gross margin remains the same at a time when the same ratio (industry-wide) increases from 46% to 51%. This is one ratio to keep an eye on in the next period in an attempt to gauge how competitive the products offered for sale by SunPower are in the market vis-à-vis those offered for sale by other companies operating in the same space.



Decision 3: For Years 2018 – 2022 (See Appendix 3)

SLP1 Module….....

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References

Albrecht, W., Stice, J., Stice, E. & Swain, M. (2007). Accounting: Concepts and Applications (10th ed.). Belmont, CA: Cengage Learning.

Holt, R.P. & Pressman, S. (Eds.). (2007). Empirical Post Keynesian Economics: Looking at the Real World. New York: M.E. Sharpe.

Godfrey, R. (2015). Strategic Management: A Critical Introduction. New York, NY: Routledge

Stiving, M. (2011). Impact Pricing: Your Blueprint for Driving Profits. Wisconsin: CWL Publishing Enterprises.

White, C. (2004). Strategic Management. New York, NY: Palgrave Macmillan.

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