Review of Joe Schomes Strategies - Coursework Example

Task: SLP2 599 Introduction Joe Schome, the Vice President of Marketing at Clipboard Tablet Company, was fired after he failed to direct the company to the level expected by Sally Smothers, the Chief Executive Officer. He did not determine the right pricing and product development strategies for the three goods manufactured by the company. The products are X5, X6 and X7. As the new Vice President of Marketing at the company, it is essential to determine the right pricing and product development strategies to be implemented over the next four years. This paper reviews strategies used by Joe Schome and those adopted to move the company to a better position by 2016. Review of Joe Schome’s Strategies Joe did not change prices and research and development allocations for the products for a period of over six years. The strategy adopted was effective in that the company did not make losses. Products X5 and X6 registered profits for all the years. Product X7 made losses for the first three years. However, it improved in performance as the years progressed. Nonetheless, the strategy could not move the company to the next level as expected by Sally Smothers. Moreover, the sales, revenues earned and profits made by the products declined after two years. On the other hand, prices and total costs were maintained for all the years. This means that from the beginning, the profits and sales increased at declining rates. The price for X5 was maintained at $285 and there existed approximately six million customers. Additionally, market saturation was only 15%. However, performance declined and as competition increased, the profitability of X5 declined. By 2015, competition was stiff and market saturation was 94% (Mahajan, Yoram and Eitan 99). The profitability of X5 was only 17%. The price of X6 was also maintained at $430 for all the years. However, X6 also faced stiff competition and by 2015, market saturation was 93%. The number of customers had also declined to 488,152 and the profitability of X6 was 27%. It is clear that Joe should have determined a strategy through which customers could be retained. This would have been through manipulation of prices or vigorous product development. The price of X7 was maintained at $190. X7 did not face stiff competition and it had a large customer base of approximately 17 million people. Moreover, it has a lower production cost when compared to the X5 and X6. It also improved in profitability. However, its improvement in performance was at a slow rate. Joe should have encouraged vigorous product development so that the company specializes in production of X7. Generally, Joe’s strategy did not consider the value of customer retention. Hence, first time customers for all the products are high yet repeat sales are low. This also shows that the research and development strategy was not very effective. Proposed Strategies For the first year, the price for X5 should be maintained at $ 285. The research and development allocation should also be maintained at 33%. This would enable the company to make a profit of 16%. In the second year, the company can maintain the price and X5 can be 30% profitable. In 2013, the company can reduce the price as competitors enter the market. This would assist the company to increase sales. The assumption is that the competitors also charge $285 for X5. The company can charge $280 with the hope of increasing sales from 2,145,622 to 2,500,000. In 2014 and 2015, the company can reduce the price of X5 with the hope of increasing sales. It can also reduce the research and development allocation as it seems to be ineffective. The production of X5 should be discontinued in case customers do not respond positively to the reduction in prices by the end of 2015. This is because there would be stiff competition in 2016 and the number of customers would not be adequate to ensure recovery of production costs. Furthermore, X5 has a very short life cycle. The price of X6 should also be maintained at $430 in 2011and 2012. This would ensure the profitability of X6 is 16% and 28% respectively. However, the saturation of the market would be 34% by 2013. The number of customers would also reduce by 2013. Hence, in 2013 and 2014, new prices for X6 must be determined to ensure customer retention and continued profitability of the X6. The price can be reduced to $400 to increase sales. Additionally, the variable costs should not be increased in 2014. In 2015, the market saturation would be 93% and the number of remaining customers would be only 488,152. From the strategy used by Joe, it is clear that the amount invested in research and development did not result in improvement in the performance of the X6. Hence, in 2015, the total costs should be reduced by elimination of research and development allocation. The prices should then be maintained at $400 to capture more customers from competitors. The company began the production of X7 in 2012 and the product does not face much competition. Additionally, there exist over 17 million customers willing to buy X7. However, the performance of X7 improves at a very slow rate. Joe maintained the price at $190 and the performance improved. This may indicate that the price is not the issue that affects the performance of X7. Hence, in 2012, the introductory price should be higher than $190. The price of X7 in 2012 should be $ 275. On the other hand, more amount should be invested in the improvement of X7. The assumption is that customers are not concerned about the price of X7. Conversely, the assumption is that they are concerned with the quality or performance of X7. In all the other years that follow, the price of X7 should be maintained at $275 while the product is improved through more research and development. The company should also determine ways through which it can create barriers to market entry to reduce competition for X7 (Shim and Siegel 50). This can be through differentiation of X7. The production of X7 should continue in 2016 and the company should specialize in its production. Moreover, the company should ensure that customers who buy X7 are retained as it could be the main business area of the company. The product, X7, has a long life cycle and is likely to be profitable in the long term (Grieves 50). The recommendations are based on cost volume profit analysis of the three products (Hansen, Maryanne and Liming 590). Strategies Joe Should have Used At the beginning of 2012, the price of X5 should be maintained at $285 and be reduced to $280 in 2014. Its production should be discontinued in at the end of 2015. The price of X6 should also be maintained at $430 for the first two years of production. Afterwards, the price should be reduced to $400. Finally, the introductory price of X7 in 2012 should be $275. The price should be maintained for the rest of the years. Additionally, more amount should be allocated to the improvement of X7. Approximately 39% should be spent on research and development of X7. The final cumulative profit based on these changes is $ 727,396,674. This is higher than the performance of Joe, which was $ 270,573,835. Works Cited Grieves, Michael. Product Lifecycle Management: Driving the Next Generation of Lean Thinking. New York: McGraw-Hill, 2006. Print. pp39 Hansen, Don, Maryanne Mowen, and Liming Guan. Cost Management: Accounting and Control. Mason, Ohio: South-Western, 2009. Print. Mahajan, Vijay, Yoram Wind, and Eitan Muller. New-product Diffusion Models. Boston: Kluwer Academic, 2000. Print. Shim, Jae, and Siegel Joel. Modern Cost Management & Analysis. Hauppauge, NY: Barron's Educational Series, 2009. Print. Read More