PDA SIM I The First Capstone Project

Open, View, and/or
Download this Document

Total Length: 1216 words ( 4 double-spaced pages)

Total Sources: 4

Page 1 of 4

To maximize profit, the growth phase for the X7 should last through 2007-2009 in this simulation. The one-year R&D time lag effect means that to deliver a strong value proposition in 2007, R&D investment will need to begin immediately. Thus, some R&D monies will need to be diverted from the other products. Money spent on R&D in 2006 for the X5 will not have an impact of product quality until 2007, when the market saturation has hit 78% and the product has entered the maturity and decline phase. At that point, the R&D expenditure is unlikely to spur future growth. Therefore, the decision will be made to divert R&D spending from the X5 to the X7 beginning immediately.

What has not been considered thus far is the X6 product. This handheld spends virtually the entire simulation (2006-2008) in the growth phase. Profitability remains high and stable until the final year when the product enters the maturity phase. Profitability for this product exceeds that of the X5 at comparable stages of the product life cycle, but it lags that of the X7. The latter, of course, is priced too high and does not sell enough volume, so it is worth considering that at higher volumes the contribution margin is likely to be closer to the range where the X6 currently lies. Ultimately, the X6 is the cash cow for those three years. It still makes money in the final year and would even with a higher R&D expense. There is little reason to change the figures for the X6. One possibility for that product, however, is to test the upper bound on the price. The X6 is a premium product. Therefore, as long as it delivers a premium experience it can be expected to have a lower price elasticity of demand than the other two products.

Stuck Writing Your "PDA SIM I The First" Capstone Project?

View All Our Example PDA SIM I The First Capstone Project

Have A Custom Example Essay Written



Pricing for the X7 should also consider elasticity of demand. Lowering the price can be expected to increase demand, but it will also decrease the margin. There is plenty of margin to give. However, the objective of saturating sales should not come at the expense of total profit. Therefore, it is worth testing the elasticity function in order to determine the ideal equilibrium point that maximizes profit. Incremental sales should increase the incremental product. It is predicted that if the price is cut too much, the product will saturate; the equilibrium point, however, will be somewhere in between the current price and the deep discount price.

The strategy for the SLP2 simulation, therefore, will include the following tactics. For the X5, a cut in R&D expense. The product doesn't need it. The price will be held steady. The X5 will be cut from the lineup after 2008. The X6 will not see any changes. This product performs very well, with stable profitability and final year saturation. The X7 will see a price reduction to spur the product into the growth phase from 2007-2009. The R&D money from X5 will be repositioned to the X7 to increase the value proposition of this product. These changes have been compiled in the following chart:

Year by Year Decisions: Pricing & R&D Allocations

2006

2007

2008

2009

X5

Price $250

Price $250

Price $250

Price n/a

R&D % 0

R&D % 0

R&D % 0

R&D % 0

Discontinue? N

Discontinue? N

Discontinue? N

Discontinue? Y

X6

Price $450

Price $450

Price $450

Price $450

R&D % 33

R&D % 33

R&D % 33

R&D % 0

Discontinue? N

Discontinue? N

Discontinue? N

Discontinue? N

X7

Price $150

Price $150

Price $150

Price….....

Show More ⇣

     Open the full completed essay and source list


OR

     Order a one-of-a-kind custom essay on this topic


sample essay writing service

Cite This Resource:

Latest APA Format (6th edition)

Copy Reference
"PDA SIM I The First" (2010, April 26) Retrieved May 16, 2025, from
https://www.aceyourpaper.com/essays/pda-sim-first-2278

Latest MLA Format (8th edition)

Copy Reference
"PDA SIM I The First" 26 April 2010. Web.16 May. 2025. <
https://www.aceyourpaper.com/essays/pda-sim-first-2278>

Latest Chicago Format (16th edition)

Copy Reference
"PDA SIM I The First", 26 April 2010, Accessed.16 May. 2025,
https://www.aceyourpaper.com/essays/pda-sim-first-2278
   

Open, View, and/or
Download this Document
order custom essay example