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Tablet Development Simulation- Final Lessons Learned

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SCENARIO

It is December 15, 2015. Joe Schmoe, the VP of Marketing at Tablet Development, Corp., is smugly patting himself on the back for how well he has done with pricing and product development on the three products, X5, X6, and X7. He knows his strategy was not very creative, since he did not change any prices or R&D allocations over the four year period (actually six years, counting 2010 and 2011.) But he is certain that he did not need to change anything. And he's sure his overall performance is proof.

But, Sally Smothers, CEO of Tablet Development, has a different opinion. And she does what she has to, Joe is called in and let go. Dang, Joe thinks, fired again.

You are hired. You applied for the position a few weeks ago and interviewed, not sure of the fate of Joe Schmoe at the time. But you were the one that Sally wants. So here you are, Dec. 15, 2015, VP of Marketing at Tablet Development, and ready to move the company ahead into 2016. Your boss, Sally Smothers, is expecting you to take over and move the company forward in terms of product development, and smart pricing.

Sally wants to make sure that you are ready to move ahead. So she asks you to review the past four to six years to see what was going on in terms of product development, sales, pricing, and performance against the competition. So you collect all of the data and write a report which is due on Sally's desk 1/2/2016.

Question: Analyze the results of Joe Schmoe's decisions and then write the report that Sally is requesting. Run the simulation of the Tablet Development Corporation using the default decisions. Access the simulation site (Click here). Collect the data for each year (or you can download a copy of it - see below.) Make a Case for your proposed strategy using financial analysis and relevant theories.

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Solution Preview

Please see attachment for format of tables.

I applied several general concepts: market segmentation, and cost volume profit. The prices and R&D decisions in each table are merely general examples to illustrate price elasticity.

Introduction & Corporate Strategy

Tablet Development Corporation (TDC) offers three different products-the budget
conscious X5, the performance focused X6, and the balanced X7. Beginning FY 2012, TDC
invests equally in the research and development of each tablet. This illustrates a belief that each
tablet will continue to provide equal profitability over the mid-term. Additionally-and most
importantly-it pursues a strategy of targeting the broad market with very little segmentation
outside the overall tablet consumer. This is the core of Mr. Schmoe's short-comings, and the
focus of the proposed corrections. TDC must more aggressively segment the target market, based
on the realities of such an emerging product and then focus its efforts on the most profitable
segment identified in the context of the development of said market.

X5-Baseline Performance for Budget Conscious Consumers

Marketed as the tablet for budget conscious consumers more concerned with price than
performance, the X5-in fact-is the median of TDC's product line in terms of price and
performance. Opening in 2012, the X5 is priced at $265 with a relative performance rating of
1.05. This is largely constant except for a slip in relative performance in 2014 to 1.04.

2012 2013 2014 2015
Price $265 $265 $265 $265
Performance 1.05 1.05 1.04 1.04
Table 1: Baseline X5 Product Performance

During 2011-2012, the X5 initially performs very well against competition. This is
reflected in healthy sales growth through 2012. This growth, however, tapers off sharply during
2013-as the X5 enters the maturity phase of its product life cycle, (Marketing Teacher, 2000).
The X5 experiences continued declines in the sales as it rapidly transitions into the later stages of
its product life cycle.

SLP: THE LOST YEARS: 2012-2015 2
2012 2013 2014 2015
Sales 1,859,856 1,427,666 701,981 520,480
Revenue $492.86 M $378.33 M $186.03 M $137.93 M
Variable Cost $269.68 M $207.01 M $101.79 M $75.47 M
Total Cost $348.94 M $286.27 M $181.05 M $154.73 M
Profit (%) $143.92 M (29%) $92.06 M (24%) $4.98 M (3$) -$16.80 M (-12%)
Table 2: Baseline X5 Financial Performance
X6-High Performance for Power-User Consumers

The X6 constitutes TDC's top of the line technology focused on consumers that seek a
high performance tablet and that are willing to pay a premium for it. Opening in 2012, the X6 is
priced at $420 with a relative performance rating of 1.29. Without adequate R&D to retain its
competitive technological edge, this performance rating slips each subsequent year.

2012 2013 2014 2015
Price $420 $420 $420 $420
Performance 1.29 1.26 1.25 1.23
Table 3: Baseline X6 Product Performance

The X6 enjoys strong sales entering 2012-the core of its introduction phase. This
growth, however, plateaus into 2013, and then falls off sharply ...

Solution Summary

Illustrates Cost, Volume, Profit analysis, price elasticity, and market saturation concepts using an online simulation of a Tablet Computer development company. 6 pages, APA format, with references.

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