Tablet Simulation Case Study

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Having examined the performance of Joe Schmoe, it is believed that some attention to the fundamental principles of cost-volume profit analysis and to the product life cycle will immediately allow Clipboard Tablet Co. To perform better, since it is getting the chance to re-do history. This paper will outline the basic strategies, along with their outcomes, and an analysis of why these strategies delivered better (or worse, as the case may be) performance vs. that of Joe Schmoe.

Theory

There are six decisions to be made each year. These are the percentages allocated to R&D and the price for each product. First, the price. For any given price, there will be a pricing curve that determines how much of a product will be sold, given a certain price. In general, the higher the price, the lower the volume of sales, and vice versa. The key concept here is price elasticity of demand, which is the rate of change in demand given a certain change in price. We do not know this elasticity at present, because Joe Schmoe never changed the prices. But we can assume from the three products that they will have different price elasticities. The X7 has a starting price of $190 and the X6 has a starting price of $430. This means that the X7 is likely to be a more basic product, attracting a more price conscious audience. The X6, on the other hand, it probably a more feature-packed product, and those features are probably what is attractive about the product.

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Thus, as a basic, logical starting point, the X7 probably needs to have its price reduced. This is basic pricing theory. As a new product on the market, the X7 has a very low installed base. But the senior marketing team has estimated that it has a very large potential market of 17,500,000 customers. It is worth noting that the X5 and X6 have only a potential market of 6,000,000 customers each, and they have already sold to some of them. Logically, the X7 needs to have a policy of low price-high volume in order to generate the highest level of profitability. The fixed costs are going to exist for each year, if we assume that the X7 will not be cut. Thus, the strategy that optimizes the contribution to fixed costs is the one that will deliver the best results. The closer we can get the sales volume to that 17,500,000 figure, the better the overall bottom line is going to be. Thus, a lower price is needed. But we also need to calculate the elasticity on the X7, because once we have that, we can estimate the slope of the demand line, which is an essential part of the cost-volume-profit analysis. A wild card is how much R&D matters to this product. It needs to be competitive in R&D, and will be….....

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