Per request, the required 5-year simulation provided the following findings based on thorough review and data analysis. The narrative details necessary changes in products W1, W2, and W3 in terms of lifecycles as well as price and performance to be considered that will enhance the company’s future profit margin as requested. This report also addresses concerns related to sales, costs, unit margins, profitability, market saturation, and implementing a different marketing strategy towards R&D and pricing from 2013-3016.
Initial Observation
Cost volume profit analysis (CVP), is a method that is used to achieve profit by estimating the changes associated within an organization’s cost. These costs are defined as fixed costs and variable costs which controls 3 parameters (1) sales volume, (2) price, and most importantly (3) company’s profit (Peavler, 2017). As the responsible person for strategic management and pricing in research and development (R&D) and to expound on funding allocations. After running the simulation Joe’s failure to adjust the existing numbers in pricing and R&D based on findings from fiscal year 2012 to fiscal year ending 2016 jeopardized earning potential within a 5- year period. Without compromising and discrediting facts, Joe’s failure to adjust figures in W1, W2, and W3 products lifecycle compromised the ability for the Wonder Company to maximize profitable growth and earning potential. Manager’s pay particular attention to detail and product performance due to market fluctuation which is crucial to operational growth. Marketing and advertising are key indispensable functions to enhance merchandise sales, maintain existing customers, and draw attention to new potential consumers. The previous manager’s choice of decision making affected organizational subtleties from leading, planning, controlling, and directing the functionality of operations to enhance or improve product procurement. Even though the Wonder Company was able to obtain significant profit throughout the 5- year period, continuous change and adaptability is inevitable for elasticity of an organization to remain relevant. Yearly, Wonder’s profit margin decreased substantially due to the marketing manager’s failure of proper fund allocation. When the Wonder Company’s products were no longer in high demand, minimal strategic efforts led to the company being consumed by market saturation. According to (Hargrove, 2019) market saturation occurs when the quantity of a product or service peeks in a particular sector. Implementing a yearly pricing strategy allows a company the ability to adapt to a saturated market if necessary, by utilizing R&D with creativity and an effective marketing strategy for pricing.
Product Performance Analysis
Upon completion of the simulation, the initial performance within the company aligned with the competitive market in 2012 for W1. Wonder Company’s customer base was 1,035,00 with 882,729 being first time customers and 86, 230 being repeat sales accumulating a total of 15% market saturation. The same year, W2 sales decreased to 550,000, with 46,945 repeat customers and 8% market saturation. W3 sales attracted no repeat customers with 2% market saturation during 2012. That year alone was a red flag for the previous marketing executive to conduct thorough review of product analysis instead of running repeat numbers. The previous decision was derived on the inclination of sustainability and attributed to W1’s performance in 2012-2013 with increasing customers from 1,035,000 to 1,917,729 however, market saturation increased 12% that year from 15% to 27%, W2 doubled from 8% to 16%, but outperformed competitors in the same market, and W3 remained consistent due to pricing which contributed to allocation concerns for demand. The simulation provided the following results for market saturation for 2013-2016:
2013-2014- W1 market saturation increased from 27% to 48%, W2 increased from 16% to 36%, and W3 increased minimally from 2% to 3%. The W1 sales fared the same as market competition, and W2 was still in the growth phase where consumers had yet purchased. Failure to adjust the necessary funding for pricing allocation allowed continuous market saturation of W1 and W2. As the years progressed the percentages steadily increased for those two products and are detrimental to potential profit margin.
2014-2015- W1 increased from 48% to 73%, W2 from 36% to 73 %, and W3 from 3% to 4%. From 2014-2015, the products of W1 and W2 began experiencing saturation as Volume sales almost doubled and its repeat customers declined. During this phase W3 price point cost more than the product market and performed lower than the competitors.
2015-2016- W1 INCREASED FROM 73% to 93%, W2 FROM 72% to 100%, and W3 4% to 5%. The yearly growth percentages of W1 and W2 contributed to market saturation contributing less need of the product due to market and consumer demand.
Financial/Market Review
The attached appendix depicts product analysis for W1, W2, and W3 from fiscal years 2012 to 2016. The breakdown is a comparative comparison based on the given numbers provided within the simulation. During the lifecycle, the simulation provided the following results. In 2012 total profit was $86,637,786 with 17% profit, in 2013 total profit was $289,759,640 with 27% profit margin, 2014 total profit was $567,621,741 at 22% profit margin, 2015 total profit was $18,964,877 at 3% profit margin, and 2016 total profit was $19,876,715 at 4% profit margin totaling $1,650,231,103. The numbers represent significant profit but did not maximize on outcome potential. The profit margins continued to decrease as a result of failure to implement cost volume profit analysis, market saturation, and consideration for market demand. In 2012 costs associated to product market price was more than the competitive market. In 2013 the company saw its most significant profit in sales growth, but most consumers had not yet committed to purchasing the merchandise. In 2014, based on previous sales, the price of W3 products cost more than competitors, however, majority of W3 consumers were new and led to W3 pricing of $185 falling below the competitive pricing market. Analyzing the process and using the given numbers provided, in 2015 W1 achieved profit but sales declined and executed the same as market competition. During the span of 5 years none of the prices were adjusted, nor products discontinued, product cost and market demand were irrelevant since breakeven point was not taken into consideration for either product. Wonder Company’s previous marketing VP should have paid particular attention to breakeven analysis in 2014 as W3 sales declined but product cost was more than the competitive market. At that time, inconsistencies within current pricing strategies should have been a marketing concern. W3 pricing and R&D allocation should have been monitored more closely since there was no significant growth utilizing the numbers for this product. In retrospect, Joe saw no need to adjust the current pricing strategy due to the company accumulating profit with the figures that were previously used. Consideration of market volatility is important in adjusting operations. Amadeo (2019), referenced market volatility as the velocity of price with the changing market with a market cap and bottom. Managers should pay close attention to pricing and adjustments associated with because of market uncertainties and global growth. The failure to adapt a competitive pricing strategy for W3 or try to improve performance on W1 and W2 implied concerns of future options and company advancement.
Alternate Strategy
As VP of marketing, it is vital to conduct necessary research to enhance organizational growth and future potential. Quantitative data provides reports and statistical data for the output of each product within a company’s footprint. Management control is a way to direct staff with task and purpose to promote future potential. According to Erik-Sveiby (2001), management control is the most common approach to measure and report to improve an organization’s internal performance. Therefore hands on involvement is one of the most essential elements for visibility within company operations. As an enabler, visibility is a key performance indicator (KPI) which directs the needed attention to performance and the required adjustments to be made i.e. in performance, pricing, R&D, and how each function should be addressed to maximize profitability at the lowest operating cost. Of the four intangible measuring approaches by (Luthy) 1998 and Williams (2000), 2 of those stands out to improve performance and they are return on assets (ROA) and market capitalization (MCM).
(ROA)- a time-based analysis of actual performance of a company’s product compared to the industry average.
(MCM)- analyzes the difference between organizational capital and stockholder’s equity as assets of little to no importance.
However, stockholders’ point of view should be considered in the decision- making process of product procurement. Stockholders’ are not only investors, but also include customers and when sales decline the impact affects all involved and the entirety of the process. Managers should be more engaged and proactive in their approach to market fluctuation as a concern for future potential.
References
Amadeo, K., 2019. Volatility and its Five Types. Retrieved from https://www.thebalance.com
Erik-Sveiby, K., 2001. Methods for Measuring Intangible Assets. Retrieved from https://www.sveiby.com/files/pdf/intangiblemethods.pdf
Hargrave, M., 2019. Market Saturation. Retrieved from https://www.investopedia.com/terms/m/marketsaturation.asp
Peavler, R. (2017, February 02). How to do Cost-Volume-Profit analysis: An introduction. The Balance. Retrieved from https://www.thebalance.com/how-to-do-cost-volume-profit-analysis-an-introduction-393475