The Decision Making Process in Pricing & R&D Allocations - Essay Example

TIME WARP 3 According to (Shapira, 1997), the decision making process in any company is the most critical aspect since it defines the strategy and the profit maximization approach. In reference to the previous strategy which were presented, the following essay provides a detailed analysis which gives a comprehensive justification on the chosen tactics. (Primeaux & Stieber, 1995) states that for profit maximization, it is important that the policy makers reduce the total expenses incurred to counteract the anticipated decrease in the revenue generated. Notably, (Forsyth, 2002) reckons that the implementation of certain strategies do not always give the required result. In a pursuit to control the expected returns, the following analysis covered will dissect the specific changes that were implemented hence giving an indication of the crucial profit generating strategies which have been put in place instead of the already existing ones. In reference to the objective of the following essay, it is important to note that the various strategies which were implemented were meant to increase the total units sold, increase the market share and the total amount of profits generated. The following strategies were meant to ensure that the production of tablets; X5, X6 and X7 continued. To increase the total returns in sales (Huse, 1975) acknowledges that an effective planning strategy which includes proper allocation of funds and resource is always paramount towards eradicating the expenses and increasing the total returns. One of the implemented strategy included investing more on research and development. According to (Lury, 2011), customer preferences and interests vary with time, age and fashion. Therefore, in order to keep up with the changes, it was important that some resources were allocated to coming up with new products that would compete with the competitors. Some of the hindrances of sales result from poorly executed strategies which result to companies lagging behind the market leaders. As a result, as illustrated by (Williams, N & Williams, S, 2007), technological advancements and economic factors can lead to losses in event that a company does not plan amicably. The research and development department is delegated with the responsibility of innovating new products. According to (Jansson-Boyd, 2010), consumers always look for new products and also tend to prefer developed products over the already existing ones. Therefore, in reference to the new product, it was essential that the company invested more in research and development so as to acquire new customers in the highly volatile market and maintain the already existing ones. As a result, the new strategy should incorporate all the existing strategies which involve emphasis on new products, development of the new products and the pricing of each unit. The new strategy will mainly focus on the reduction of expenses through an alternative means which will focus solely on the factors of production. According to (Asplund, 2007), systematic cost control is a viable option towards increasing the overall profits generated by a single unit. In this approach, one has to systematically analyze each product in terms of the individual resources used in the manufacture of the tablet. Together with consultation with the research and development department one has to reduce the products which are less essential to the final product. As a result, systematic cost control enables the company to manipulate the price of the product which might fight off any competition from the other tablet producers. (Fandel & Portatius, 2005) notes that in the event that the revenue generated by a product and the expenses incurred when the product is manufactured are equal, discontinuation of the product’s manufacture would be a valid alternative. The essence of creating a business is to generate profits and when the expenses and the revenue are equal, profit generation is definitely not a possible option(Perman & Scouller, 1999) In order to ascertain the essence of implementing the said strategy, a few theories will be focused on to illustrate the importance of the approach towards profit maximization. According to (Blocher, 2005), the cost shifting theory is highly applicable in any scenario involving profit maximization. As illustrated above, for a company to increase its returns, one of the most used approaches involves the reduction in the costs incurred. Using the above theory, the company will ensure that the costs incurred are transfer to other parties who cater for the costs on the company’s behalf. It is important to note that due to market liberalization, some of the marketing regulatory strategies cannot be implemented. The cartel theory illustrates the possibility of increasing sales through the regulation of a certain aspect of the economy which surpasses the expectation of the market (Schumpeter & Opie, 1934). This approach ensures that the company increase its profit by taking control of the costs incurred and regulating the other expenses thus increasing the overall profit. Year by Year Decisions: Pricing & R&D Allocations   2012 2013 2014 2015 X5 285 285 285 0 34% 34% 0 0 No No No Yes X6 430 430 430 430 33% 33% No No No No X7 190 190 170 170 33% 33% No No No No The above table as illustrated in time warp 1 illustrate the trend in sales of the three tablet products. It is notable thatthe sales of the X5 tablet which according to the illustrations above is the most profitable product per unit decreased with time due to the discontinuation of the product. It is important to note that the increase in the total units sold is only applicable when the total production of the marginal product is relatively low. Therefore, for profit maximization to be possible, the revenue generated should be more than the expenses incurred. The failure of the X5 model indicates the inability to maintain the production of the product which may have been as a result of the increased production cost. The CVP analysis is used to determine the effect of changing the sale volume and the cost incurred on the company’s profit (Bernard, 2012). There are various assumptions made using the analysis stating the costs incurred are constant and the sales per unit remains the same (Shim & Siegel, 2000). The costs used in Time Warp 1 indicate the following: A CVP analysis of the Pricing & R&D Allocations tableindicates that the product X5 contribution margin was substantial. With the above factor in existence, the management stopped the production of the product in 2015. In the event that 25 samples were considered to illustrate the sales and revenue trend of the X5 tablets, it is trivial that the revenue generated decreased over time and stagnated and reduced slowly which jeopardized the initial intentions surrounding the existence of the product. Therefore it was important to stop the production of the X5 products for the above purpose. According to the first table illustration given above, it is important to note that the overall cost per product was high in the X5 product. Therefore, in relation to the strategy used above, the main aim of the company was to reduce the total costs incurred per product so as to increase the overall profit per unit. In conclusion, the suitability of the used approach is illustrated by the constant profit pattern. In X6, the profit generated and the revenue did not reduce at a higher percentage than the X5 model and therefore, continued production of the product and increased allocation into the pricing and research and development of the product were essential. As illustrated above, considerable change in the number of units produced may prove to cut the costs due to the overall advantage linked with marginal costs. An increase in the total number of units sold as indicated by the X7 model illustrates the excessive returns obtained from a fractional increase in the units produces. In general, in relation to the CPV analysis, it is crucial that the management should reevaluate the total number of costs produced and also ensure that the cost per unit reduces (Tse, 1960). With the above approach put into consideration, it is likely that the profits will increase over the given four years. 2014 Breakeven 2015 Breakeven   Volume Revenue   Volume Revenue 285 616,000 175,560,000 0 - - 34%     0     No     Yes     430 534,968 230,036,129 430 553,548 238,025,806 33%     45%     No     No     170 721,043 122,577,391 170 766,957 130,382,609 33%     55%     No     No     References Asplund, M. (2007). A test of profit maximization. London: Centre for Economic Policy Research. Bernard, V. L. (2012). Business analysis and valuation. Mason: South-Westerm College Publ. Blocher, E. (2005). Cost management: A strategic emphasis. Boston: McGraw-Hill/Irwin Fandel, G., & Portatius, H. B. (2005). Revenue Management. Wiesbaden: Gabler. Forsyth, P. (2002). Business Planning. Oxford: Capstone Pub. Huse, E. F. (1975). Organization development and change. St. Paul: West Pub Co. Jansson-Boyd, C. V. (2010). Consumer psychology. Maidenhead: Open University Press. Lury, C. 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