Business Strategy

Business strategy

Introduction:

This report focuses on a simulation which involves making business strategies regarding the price and resource allocation on case products, the first is a plastic case product, a flat metal case product and a colored case. The plastic case costs $250 and consumers of these product aren’t worried about the performance of the product, the flat metal case costs $400 and consumers are more concerned with the performance and not the price of the product, the last product is the colored case which cost $200 and consumers of this product are concerned with the product price and the performance of the product.

Part one:

According to the market information the sales level of product X5 is highest, followed by X6 then the lowest sales level is X7, in order to record high profits through high sales levels we will allocate more resources to X5 then less to X6 and lesser to X7, we increase the price of X5 and reduce the price of X7.

Due to the market saturation and prices we will make the decision as follows:

Business Strategy

PRICE

R$D

X5

250

20%

X6

400

50%

X7

200

30%

Business Strategy

The profits 295,185,249

X5 Profits 120,283,763

X6 Profits 167,982,260

X7 Profits 6,919,226

we make this decision of not increasing or decreasing the price and only change the percentage share of research and development financing, this is because product x5 has been in the market for 3 years, product x6 has been in the market for 2 years and product x7 has been inn the market for 1 year, therefore we allocate more funds for research and development for product x6 in order to accelerate its market saturation to maximum.

Business Strategy

We also increase the research and development share for X7 in order to observe its market performance in the next year.

As a result of this changes the profit for all products increased as well as the revenues for all the three products, however product X7 has a high customer potential and there is need to strategize on how to increase sales levels for this product.

Part two:

For this strategy we make the following changes

PRICE

R$D

X5

230

Business Strategy

20%

X6

370

30%

X7

200

50%

The profits 381,533,788

X5 Profits 81,605,361

X6 Profits 276,489,466

X7 Profits 23,438,961

Business Strategy

We have increased research and development percentage for the X7 product in order to increase the sales levels.

The results for this strategy is that the revenue and sales for both X6 and X7 have increased, sales level and revenue for product X5 has reduced, the other observable result is that the market saturation for X5 has been exhausted and in the same case for the product X6 is nearing full market exhaustion.

Part 3:

For this part we will discontinue the production of product X5 because it is nearing exhaustion and the continued production may result to negative profits, the changes are as follows:

PRICE

R$D

X5

discontinued

Business Strategy

discontinued

X6

380

10%

X7

200

90%

The profit is 97,169,518

Business Strategy

X5 Profits 0

X6 Profits 48,454,980

X7 Profits 48,714,538

As a result of these changes the sales level of both product X6 and X7 have increased, the profit levels of both products is still positive but the market saturation for product X6 is near exhaustion, therefore it would be advisable to discontinue the production of this product in the next year.

References:

PDA simulation (2007) product simulation, retrieved on 31st August, available at www.forio.com /resources/pda-sim