As an ideal performance-oriented business, the Wonder company focuses on maximizing the market share by popularizing its brand, garnering a large customer base, and increasing profits. An increase in profits is a reward for well-informed strategic decisions, which underly in increased revenues for a given fiscal period. Besides, the company must ensure proper research and development based on the research data to ensure the relevance of every strategic decision. In the current exponentially changing market climate, companies must make constant strategic inventions and combine strategies that suit consumer needs. After the strategic management described in SLP 1, there is room for improvement based on the January 1st, 2017 news report. As of now, the strategic operation recommendations will underly the CVP calculation analysis of the Wonder company from 2013 through 2017. The analysis will seek to maximize profits, sales volume, and suggest the ideal prices for higher profit values.
The Pricing Strategy
January 2nd, 2013
According to SLP One, the pricing graph indicated that the prices for W1, W2, and W3 were $285, $430, and $ 190, respectively. Besides, 33%, 34%, and 33% value for research and development factored in for W1, W2, and W3, respectively. The price variation refers to Joe’s pricing strategy, which kept all prices constant.
Figure 1:Joe’s Prices for W1, W2, and W3
From the CVP analysis, the Wonder company should accumulate sales amounting to 537, 379, given that the price of W1 is maintained. Besides, the company should record $153,153,103.45 worth of sales revenue by the end of the fiscal year 2013. However, the company may experience a projected increase in sales and revenue after a slight reduction in the price of W1. From the CVP, given that the price if W1 dropped by $33.69, sales volume would increase by 162 621, which accumulates to a $22,766,896.55 worth of sales revenue.
Similarly, given that the price of W2 is maintained, the company will make sales volume amounting to 268,690, which may rise to 400, 000 after dropping the price of the product. W3 would make sales volume of 1,563,200, which may increase to 1,600,000 after the breakeven. The table below contains the CVP calculator price and sales volume data from the analysis for the year 2013.
|Research and Development percentage||33%||33%||34%||34%||33%||33%|
|Change in Sales Volume||0||+162,621||0||+131,310||0||+36,800|
|Change in Sales Revenue||0||+$22,766,896.55||0||+$18,383,448.28||0||+$5,152,000|
Figure 2Summary of the CVP analysis year 2013
January 2nd, 2014
From the SLP One, under Joe’s management, the Wonder company would maintain the prices for W1, W2, and W3 in 2013. That is $285, $430, and $190 for W1, W2, and W3, respectively. Important to note, the company changes the efforts on research and development amounting to 30%, 34%, and 36% for W1, W2, and W3, respectively. Unlike the results projected in the CVP analysis results of the year 2013, the 2014 fiscal year features unique data concerning the influence of the research and development on the gross revenues collected. For instance, W3 is priced higher than its competitor products in the market; yet, an increase in the research and development value results in the growth of the products market value. While W2 experiences the same trends in growth and market performance, an increase in research and development value for W2 is considerably smaller than W3. According to the CVP calculator results, at the current market value, the cost of W1 is inversely proportional to its revenue allocation, given that its price is kept constant. Projected sales volume may amount to 532,414 in such a case.
On another strategic course, given that the price is reduced by $34.71, the company would make 167,586 more sales. The increase in sales of the product at the given 30% research and development percentage would result in an increase in profits for the product. Likewise, the company will accumulate increased profits for the W2, and W3 gives that the revenue allocation and research and development values tweaked to suit customer needs, despite the price kept constant. According to the laws of demand and supply, a negative alteration of prices increases demand for a product (Hill and Jones, 2010). Additionally, an increase in the research and development resource allocation catalyzes the demand, further leading to a significant increase in sales, revenue, and, consequently, profits. The table below presents a summary of the CVP calculator analysis for the year 2014.
|Research and Development percentage||30%||30%||34%||34%||36%||36%|
|Change in Sales Volume||0||+167,586||0||+180,483||0||+227,200|
|Change in Sales Revenue||0||+$23,462,068.97||0||+$25,267,586.2||0||+$31,808,000|
Figure 3 CVP Analysis for the year 2014
January 2nd, 2015
For the years 2015, the CVP analysis majors on evaluating the changes stimulated on the demand index of the products after a $5 decrease in the prices of the products. Theoretically, a new product in the market, having a lower price than the previous one, is more likely to record higher sales (Deshpande, 2018). Therefore, decreasing the price for W1 would increase the quantity demand for the product, an increase in sales volume, revenues, and, consequently, an increase in profits. Notably, in 2015, the product has reached its shakeout phase of a product life cycle, and reduction in prices is the immediate means of stimulating its demand. The price of W1 will remain constant for the fiscal year 2015, but like W1, the price of W3 will decrease by $5. However, the pricing strategy is dependent on the research and development allocations, which for the fiscal year 2015 are 28%, 32%, and 40% for W1, W2, and W3, respectively. As indicated in the table below, the pricing for each product requires a reduction to $242.29, $295.36, and $179.80 to maintain significant sales regardless of the shakeout phase that either product may experience.
|Research and Development percentage||28%||28%||32%||32%||40%||40%|
|Change in Sales Volume||0||+202,000||0||+222,571||0||+231,111|
|Change in Sales Revenue||0||+$28,280,000||0||+$31,160,000||0||+$32,355,556|
Figure 4 CVP analysis for the year 2015
January 2nd, 2016
The year 2016 is the recent most fiscal year before hearing the news report. Therefore, the SLP One data is most effective when analyzed over the CVP calculator, concerning the current market developments. For this year, the price of W1 will not change from the year 2015, but the research and development value increases to 33%. The price of W2 increases to $430 at a research and development value of 345, while the price of W3 maintains from the fiscal year 2015 at its growth stage. From the analysis calculator, at the set market situation, sales volume is bound to decrease and, consequently, a 0.25 reduction in the ratio on the profits. Therefore, at this point, the company struggles in maintaining sales volume as well as relevance in the market. Therefore, two possible outcomes are possible; panic and crush financially, or strategically navigate through the economic crisis by regaining higher sales volume. Since no company would succumb to the first option, the latter option is the foci for all Wonder company departments.
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At first, the company may decide to integrate novel features of the products into the main features to attract customers. The strategy requires an allocation of resources through the research and development phase. The CVP calculator identifies that increasing the resources and development allocation to 33%, reducing the process to $259.88, will garner the company sales volume of 650,000 products. The sales volume is slightly less compared to the year 2015, but significant for the company to thrive in its competitors. In the same way, the prices of W2 and W3 change against resource and development allocations to accumulate sales volumes and revenues amounting to $168,920,000, $320,337,777.78, and $385,920,000 for W1, W2, and W3 in that order. The table below illustrates the calculation analysis.
|Research and Development percentage||33%||33%||34%||34%||33%||33%|
|Change in Sales Volume||0||+112,621||0||+224,286||0||+468,444|
|Change in Sales Revenue||0||+$15,766,896.55||0||+$31,400,000||0||+$65,582,222.22|
To sum up, the CVP calculator analysis helps identify how to tailor product prices and resource allocation for each product and maximize sales and profits. Notably, each year has different market conditions, and products evolve through their life cycle, stimulating changes in their demand. Therefore, the Wonder company must adopt a continuous evaluation in the means of achieving the sales target, through alteration of research and development allocation and change in prices of the products. Research and development are critical throughout the process since it is the gateway to identifying the needs, tastes, and preferences of customers. Besides, the Wonder company realizes how much resource and development resources to allocate to each area. From marketing studies, both research and development and alteration of prices are not enough to compel a company to survive the ever-changing competition. Rather, incorporation of new features into the pricing strategy attracts customers and compels then to enjoy new prices, while the company accumulates higher sales volume. This essay identifies that while traditional strategic process management helps companies mitigate failures underlying their marketing strategies, a CVP calculator is more efficient.
Hill, C. W. L., & Jones, G. R. (2010). Strategic management theory: An integrated approach. Boston, MA: Houghton Mifflin.
Deshpande, S. (2018). Various Pricing Strategies: A Review. IOSR Journal Of Business And Management (IOSR-JBM), 20(2), 75-79. DOI: 10.9790/487x