TEAM5 Performance Analysis and Simulation PDF

Preview

Summary

Performance Analysis and SimulationACCTStrategy Selection and PlanningGroup 5Le Thi Hong Thu - s Tran Hai Ngan Ha - s Mai Gia Huy - s Nguyen Phan Bao Linh - sContentsDifferentiator with Product lifecycle focus .................................................... Evaluate and explain the generic bus...

Description

Performance Analysis and Simulation ACCT2197 Strategy Selection and Planning

Group 5 Le Thi Hong Thu

-

s3741119

Tran Hai Ngan Ha

-

s3634973

Mai Gia Huy

-

s3740802

Nguyen Phan Bao Linh

-

s3700020

Contents Differentiator with Product lifecycle focus....................................................3  Evaluate and explain the generic business strategies.....................3  A real-world example..................................................................................3  Differentiation strategy with PLC focus in the market conditions of Capsim............................................................................................................4  Review implementation.............................................................................5  Strengths and weaknesses......................................................................6 Forward Planning and Evaluation First 2 round strategy:........................7 Round 1 decision making:.............................................................................7  Identify 4 performance measures.........................................................11 Reference list.......................................................................................................13

Differentiator with Product lifecycle focus 

Evaluate and explain the generic business strategies.

The initial strategy - cost leadership, or low cost strategy, focuses on the production cost rather than product’s quality. The firm provides medium quality products at a very low per-unit cost to adapt high sensitivity with product price. Adopting the strategy supports the firms to gain competitive advantage, long-term sustained profitability and high market share since many customers will accept lower quality for a substantially lower price (Reitsperger 1993). Differentiation strategy (Porter 1998, p.37), is the method of differentiating the product or service offering of the firm which provides competitive advantage because of brand loyalty and resulting lower sensitivity to price. high quality of product provides a defensible market position with loyal customers who are willing to pay more and less sensitive to price (Reitsperger 1993). Focus business strategy is determined as the emphasis on a particular buyer group, segment of the product line, or geographic market. The firm is thus serve its narrow strategic target more effectively or efficiently than competitors who are competing more broadly (Porter 1998, p.38). In fact, following cost leadership strategy, businesses might face the risk of imitation by late entrants who have advantage of low cost. Similarly, differentiation strategy is vulnerable as imitation might narrow down the perceived difference. The drawbacks of the focus strategy might disappear when other firms find new markets within the target market of the focus firm and out focus the focuser (Tanwar 2013). After reviewing the generic business strategies, the chosen business strategy for our company, the Andrews, is differentiated with product life cycle (PLC) focus - that focuses on a product’s life cycle and put an effort to highlight and sell the quality and durability of the product as a way of separating it from the competition (Bass, 2017). 

A real-world example

An example of a differentiator with a PLC focus strategy can be examined as Land Rover - a famous car brand of the United Kingdom. Through the established

years, Land Rover released mostly 40 car models with the clear uniqueness of each model and the price range from £80,000 to almost £150,000. As a new model, the previous one move slowly to the lower product segment and charge lower compared to the new ones. For instance, compare to the modest model Land Rover Range Rover Estate 4.4 SDV8 SVAutobiography LWB 4dr Auto with the price of £177,485, the former model, 2.0 P400e SVAutobiography LWB 4dr Auto, has the lower price of £170,455. Land Rover has gained a competitive advantage with a wide range of car models with differentiated prices and segments which meet variable customer’s demand (autoexpress, 2021). 

Differentiation strategy with PLC focus in the market conditions of Capsim.

As a sensor manufacturer in the Capsim, we see a lot of opportunity in adopting this strategy that has three segments: high-end, traditional and low-end. This gives the company the opportunity to hold around 81.2% of segments of the total industry (Table 1). Thanks to this, we can reach a diverse range of customers from high to low income.

Table 1: The Segment % of Total Industry in Capstone Courier. The customer will expect products that are smaller and faster over time. This causes the circles of each segment to move or drift significantly (Figure 1). Thus, our strategy is to invest more in R&D to keep the design fresh and exciting for our products in these segments. Furthermore, we can achieve a competitive advantage by producing outstanding goods with high awareness for new products.

Figure 1: Perceptual map in Round 0.  

Review implementation

Research and Development:

We classify products in Size and Performance segment into Traditional segment. Then, we allow our existing Traditional product to be a Low-end segment when a new highend product is produced in Round 2 and available in the market in round 3. It means there are 6 products divided equally for the High-end, Traditional and Low-end segments. 

Marketing:

We can charge price products at a premium due to excellent design and high tech. We will invest aggressively in product promotion and sales budget for the Low-end, Traditional, and High-End segment to increase consumer’s awareness and accessibility. 

Production:

Depending on the forecasting section, we aim to increase capacity to meet the demand that we generate. Thanks to this, we can avoid stock-out and loss sales to competitors.

We need to prevent a second shift as possible and increase automation when all products are well positioned as budget permits. 

Finance:

We will mainly fund investments with early stock issuance and long term debt. Once we have built healthy cash flow, we can buy back shares, reduce borrowing, and pay dividends. We aim to avoid emergency loans and current debt on financial sheets. 



Strengths and weaknesses

Strengths:

The main strength is capturing and maintaining market share in the high-end segment. We have ability to pricing control over consumers because we charge at a premium price for high-end products when it is first introduced to the market. The threat of alternative products is reduced when our products are differentiated. Moreover, as our products age, it cost us less to maintain brand awareness and accessibility when compared to other competitors. 

Weaknesses:

The strategy has impact on our financial situation because we invest heavily in R&D and marketing in the high-end segment to keep designs exciting to customers. Introducing new products to the market requires a large amount of costs for setting up, placing additional burden on the financial situation. When we launch new products, old products are still available in the same segment. Then, older products may compete with new products, reducing sales of both products.. It would be too expensive for low-end segments or incompetent to compared with the high-end segment, it affects our sales.

Forward Planning and Evaluation First 2 round strategy: Round 1 decision making: R&D: Our temporary goal is to migrate performance and size product line to the traditional segment, which is related to our Differentiator PLC strategy as it focuses solely on the low-end, traditional and high-end segment. Specifically, we want to have 2 products for each listed segment.

In detail: Able: increase 0,1 size to adjust product age close to the ideal age to capture as much as possible sales. Eventually, Able will integrate into low end products after 2 years in accordance with our strategy. Acre: stay unchanged – because customers want older products.

Adam: increase performance to 10.3 and reduce size to 9.9 to meet the demand for leading edge products.

Aft: decrease performance to 8 and increase size to 14.2. Agape: increase performance to 5.3 and decrease size to 11.8.

Figure 2: Perceptual Map in Round 1

Marketing: Our goal is to increase market share and brand awareness. Thus, we will not only increase promo and sale budgets, but also increase A/R to 35 days because it would attract more demand as we allow them more days to pay the full product price. In detail: Forecast: Past year sales*(1 + growth rate) plus 5% more due to our pessimistic forecast empirical unique marketing strategy. Besides, competitors will not introduce new products within this year and the following year thus we increase our price.

Able: Increase the price slightly to 28.50; increase promo and sales budges to 1800; Besides, Able is located at the ideal spot. Thus, sale forecast: 1109. Acre: Increase the price to 22; promo and sales budgets to 1800, sales forecasts: 1681. Adam: increase price to 38$; promo and sales budges to 1800$, sales forecasts: 449.

Aft: increase to 34$; promo increase to 1500 but cut the sale budgets to 400 because sale budget affects accessibility in its segment but we are planning to leave it; Sales forecast: 402. Agape: increase to 34$; promo increase to 1500 but cut the sale budgets to 400; sales forecast: 383.

Production: We will plan to have 12 weeks inventory in case of stock out. This requires 23% inventory more. (12/52 = 0.23).

(Unit Sales Forecast X 1.23) - Inventory on Hand. Lower 5 accounts payable would help us letter on having product material on time.

Finance: we will not issue stock because It will low the stock value, affect stock demand, instead, we would issue bonds as much as possible in order to finance our marketing strategy and massive R&D. Besides that, we would avoid issuing current debt.

Round 2: R&D: Our goal is to continue repositioning products to match our strategy. Able: increase the size by 0.1 and it will shift into the low-end segment. However, Able will stay in the traditional segment for this round. Acre: Idleness – Customers want older products and Acre is shifting to the low-end idea spot.

Adam: idleness until September, thus there is no change until next round.

Aft: idleness until September, thus there is no change until next round. Agape: increase the performance to 6.3 in order to keep pace with the shifting trend of the traditional segment. Ace: new high-end product line that we will introduce in the middle of the next year, which has a performance of 11, Size at 7 and MTBF at 23000. Thus, Ace will position at leading edge.

Figure 3: Perceptual Map in Round 2

Marketing: Our goal is keep increasing market share and brand awareness through increase promo and sales budge. However, we would keep the same price to attract more revenue from high volume of sales to cover the expense for introducing new product in next year. Forecast: Past year sales*(1 + growth rate) Promo and Sales budgets for Adam, Able and Acre will increase to 2000.

The Promo budget for Agape and Aft increased to 1800 but we would hold the Sales Budgets at the same rate because the two-product line has not yet reached our forecasted ideal spot.

Production: We will use the same method to calculate the production schedule: (Unit Sales Forecast X 1.23) - Inventory on Hand. Besides that, for the new sensor, we would buy 500 capacity and upgrade the automation at 4.0 because we strongly believe that the demand for our new product would be huge because It will meet the ideal spot criteria. Finance: we would match the finance to the new production plant. If our cash position does not meet the investment expense, we would consider to issue stock.





Identify 4 performance measures.

Market share:

Market share represents the percentage of an industry or total market revenue, measured by a particular company over a specific time period (Reidenbach 2009). Market share shows competition between companies in the same industry. Competition also makes the market increasingly expanded. The company that occupies a large market share will have the advantage of dominating the market. Because of the strategy of taking market share, many companies are willing to pay big costs and sacrifice other benefits. Besides that, companies try to expand their market share by introducing new or different products. In addition, they can also increase their market sizes by attracting new customers. In cyclical industries, the competition for market share is fierce. Therefore, in Capsim, if our company holds a large market share, it will have the right to increase the price of the product. 

ROA:

According to Gallo (2016), ROA is one of the indicators to evaluate the performance of a business. With $ 1 in initial investment assets, managers can know how much profit after tax the company can make. Hence, in Capsim, if we get it in negative numbers, this will result from negative profit after tax. That is to say our strategy is not suitable and leads to the company not using the capital effectively. 

ROE:

The ROE index shows the efficiency level when using the capital of the business, or in other words, how much profit is $ 1 spent on capital (Gallo 2016). Theoretically, the higher the ROE, the more efficient it is to use capital. Stocks with a high ROE will usually attract more investors. If the ROE is negative, a common problem would be extremely large special debt or inconsistent returns. However, if an enterprise can maintain ROE> 20% for a period of 3 years, it is completely able to compete in the market. Enterprises with high ROE and are always maintained at a stable level, we can know that their capital usage is very effective. 

Cumulative profit

Cumulative profits are the net profit of the company after subtracting payments to shareholders from Round 0 (Capsim 2021). This measure demonstrates the ability and efficiency of the company to generate profits. When it is positive, this means that our strategy that applies to the company is effective.

Reference list Reidenbach, R. Eric. Listening to the Voice of the Market : How to Increase Market Share and Satisfy Current Customers, Productivity Press, 2009. ProQuest Ebook Central, page 4, viewed 2 April 2021

Capsim 2021, ‘Cumulative profit’, viewed 2 April 2021,

Gallo, A 2016,...