Wonder Company Simulation

Background Review

As the new marketing VP for the company, the central role is to assess the decisions made by Thomas Joe between 2013 and 2016 and present new strategies that would improve the performance of W1, W2, and W3 products. The report mainly explores on the products life cycle while exploring pricing strategy as well as research and development budgeting approach to enhance revenue performance of the products. In this context description of products phases will be included to create and justify the rationale approaches for 2013 to 2016. W1 being in the maturity cycle has demonstrated desirable performance since the consumers are satisfied with its performance since the introduction. Focusing on pricing and R&D budgeting is vital to allow features development and innovation about the real intense competition (Wheeler, 2017).

On the other hand, W2 falls within the growth cycle since it is noted during its first simulation that the consumers are more focused on its performance rather than price for the past two years. For W3 the situation is different since the consumers are concerned about both the cost and performance. In this context, it becomes apparent that Joe made the wrong choices and thus R&D budgeting for both W1 and W2 will be increased to support features development and satisfy the performance need in the market. W1 price will be lowered to increase sales since the product is in the maturity phase. However, that of W2 will increase given that the customers are worried about the performance while that of W3 is also reduced to allow easy market penetration through cost leadership. There is a necessity to increase the budget for R&D of w3 to enhance its competitive positioning in the market.

The Year 2013

10 dollars will reduce the pricing of W1 from the current price of 285$ per unit to 275$. Since the product features are less innovative an aspect that might be affecting its performance, then the R&D budget will be increased by 7 percent which means that the expense will increase up to 40 percent. Secondly, the strategy for W2 to increase its pricing to 440 dollars per unit to compensate the development cost since the consumers care about the performance. With an R&D expense increase of 6 percent, the spending will be 40 percent. Since W3 is getting into the market where the customers are particularly sensitive concerning pricing and performance its price for each unit will be decreased by 15 dollars to fit within the cost leadership approach and achieve competitiveness in the market. The price will decrease from the initial $185 to $150 thus making the product favorable with R&D budget of 37 percent for the market establishment.

Input Variables	Price	R&D Cost	Simulation Results
W1	275	40%	-
W2	440	40%	-
W3	170	37%	-
Total Simulation Score			$352, 243,200

 

Simulation Results for 2013

The simulation score for 2013 accounts to 352, 243,200 dollars. The findings therefore illustrates that there is a profit increase from the initial sixteen up to twenty six percent with a respective sales volume rise and profitability. Based on the results of the form Marketing PV it is evident that the profit margin has improved. Since not all the products have reached the saturation level they will still have the ability to generate fresh sales. It is however unfortunate that W1 in the next few years will lose its ability to attract fresh sales as it has reached the maturity cycle in the market.

Year 2014

For this year the decision has been made with regard to the existing strategy which means that no changes will be made for W1. For this year the price of W1 which was originally reduced to 270 dollars remained the same given that it had been developed further to accommodate more innovative features that suits the needs of the customers. The decision was made on the ground that the R&D budget is to be increased to 42 percent and further pricing reduction would result in losses since the company had not recovered its investment. In addition, with enhanced performance price sensitivity had reduced significantly. For W2 the pricing will also remain the same to accommodate the growing need for the product in the market with an R&D increase to 44 percent. In that even though the consumers are more focused on its performance the product demonstrated higher potential with a lower potential that fits that of similar products in the market. There is no change for the product even with its high pricing since performance is the main focus for the consumers. For W3 the price remained the same since it is well developed in terms of quality features. With the cost leadership approach this aspect of pricing was essential. Thus, the R&D budget for W3 will be increased to 40 percent to accommodate features development and attract new buyers based on excellent performance and affordability.

Input Variables	Price	R&D Cost	Simulation Results
W1	270	42%	-
W2	440	44%	-
W3	160	40%	-
Total Simulation Score			$860,241, 149

 

Saturation Results for Year 2014

The general rating for 2014 accounts to 860,241, 149. Based on the results it is evident that there is an additional improvement with regard to revenue gain from 26 percent for the past year up to 30 percent. For this year all the three items had not reached saturation due to the rising sales rate and adequate opportunities for higher sales still remain with regard to all the existing goods. Even though W3 is improving its positioning, it is evident that it is still generating losses as the R&D cost is higher than the sales price.

Year 2015

On the ground of 2014 score, it is settled that there is a necessity for more reduction for W1 while increasing the R&D expense. While W1 R&D rises up to 45 percent that of W1 is increased to 47percent while it’s pricing increases with ten dollars to 450. It is worth noting that the lower the expenses their higher the revenue. However, the reduction is only suitable where the products have fulfilled the needs of the customers (Lamb, Hair & McDaniel, 2012). The customers in this regard range from price to performance sensitive segments. Thus W1 pricing strategy will be reduced to 265 dollars to allow the product to attract more customers In that as the features continues to grow then the willingness and readiness of the consumers to make respective purchases will also be increasing. With affordable pricing the sales will increase as well. On the other hand the price of W2 will remain the same given that the features are well enhanced due to the increased R&D budgeting and with quality performance then the pricing is not an issue based on the existing needs in the market. For W3 the pricing will be retained given that the customers are very sensitive and thus affordability is critical with regard to competitiveness. The R&D will rise to 45 percent.

Input Variables	Price	R&D Cost	Simulation Results
W1	275	45%	-
W2	440	47%	-
W3	150	45%	-
Total Simulation Score			1,281,927,788

Saturation Results For 2015

The general rating of 2015 accounts to 1, 281,927,788. Thus, it is evident that the improvement is minimal with a margin rise of less than five percent. In addition, there is a decrease of sales which also lowers the revenue for all the three commodities. The decrees is accounted to the sales reduction of W1 since it is already in the saturation point. There lacks any fresh sales for W1 and this implies that the sale will decrease further with time. For this year it is only W1 that is in its saturation phase and thus no increase for the sales is anticipated for the item. While both of the other products will continuously rise with regard to sales X7 remains profitable as it is still rowing in the market.

Year 2016

Based on the results above W1 pricing is to be reduced further to 260 dollars. Following the pricing approach and R&D budgeting changes above, for the fourth operational year, the most feasible decision is to reduce the R&D expenses while ensuring that the prices remain the same. In that, in order for the company to gain heavily from its investment there is a necessity to allow the product to create maximum gains while decreasing the general expenses. In that with lower expenses and products affordability the sales for all the prices will be higher which leads to more revenue gain (Abbing, 2010). The approach here is to ensure that the pricing is constant for the products while increasing the R&D investment to attract buyers. W1 development expense will increase up to 50 percent to allow its maturity in the market while enhancing its performance as whole while the other two remains the same.

Input Variables	Price	R&D Cost	Simulation Results
W1	260	45%	-
W2	450	47%	-
W3	150	50%	-
Total Simulation Score			291,574,881

Simulation Results

The rating is at 1, 490,715,195. The general results shows that the products have begun to lower their profitability gradually. In that while W3 is becoming more profitable the other two which have achieved maturity have shown notable reductions.

Conclusion and Recommendations

Evidently, from the analysis above carrying out carrying out an analysis of cost, sales volume and profitability is essential as it helps an organization in determining the most suitable pricing decisions. Besides, this is essential since an organization will avoid losses. The assessment is important for advanced planning with reference to revenue adhering to the knowledge of cost and pricing approaches. R&D is very essential for the production of innovative products that meets the needed quality with all the needed and performing features. Based on Joe’s approach, the company’s profitability for 2013 to 2016 is desirable. Unfortunately, the revenue continues to decrease even if the rating has been improved generally. The strategy change is therefore important for the company given that it leads to higher profitability. Thus, for the products to get stable establishment in the market there is a necessity to increase the development expenses while simultaneously decreasing the pricing as the product approaches maturity. W3 is bound to increase its revenue in the near future while the others might not be able to attract fresh sales in the market as a whole even with features development once maturity is achieved. Thus, this will create opportunities for the growth of the product and revenue in the market. 

 

 

 

 

 

 

References

Abbing, E. R. (2010). Brand-driven Innovation: Strategies for development and design.    Lausanne, Switzerland: AVA Academia.

Lamb, C. W., Hair, J. F., & McDaniel, C. D. (2012). Essentials of marketing. Mason, Ohio: South-Western Cengage Learning.

Wheeler, A. (2017). Designing brand identity: An essential guide for the entirebranding team. Hoboken, New Jersey: John Wiley & Sons, Inc.