Strategic Marketing Report

Introduction

As pointed out before, Joe Schmoe was content with his initial evaluation of the three products and as such, he did not make any effort to monitor the external environment in order to adjust the company’s marketing strategy accordingly. Instead of maintaining the project in an “autopilot” mode, I monitored the environment very closely and used the information gathered from both the internal and external environments to support my marketing strategies. I also liaised with other employees within the organization to ensure that they were cognizant of the strategic vision of the production and marketing departments. This not only facilitated efficiency and effectiveness within these two departments but also other parts of the organization.

Marketing and Production Strategies

X5 tablet is designed for consumers who are significantly price conscious as opposed to seeking functionality. In the last half a decade or so, this product has performed well particularly in the face of competing products by rival firms. In light of this, I reduced the research and development budget for this product to 10% and lowered the price slightly to $280 to cement the brands position in the market while at the same time maximizing the overall profitability of the company. On the other end of the spectrum, X6 tablet targets consumers who are have an inclination towards functionality and performance as opposed to price. As such, I increased the research and development budget for this tablet to 60% and increased its price to $525. Finally, despite the fact that X7 tablet is a relatively novel product to be introduced in the markets it is yet to perform well. The company can however not afford to discontinue the line because it is the most affordable brand for the company to produce. I set the research and development budget for X7 at an estimated US$ 7,200,000 (30%) and ensured that the product was sold to consumers at $80. Because consumers were sensitive to both price and performance, I decided to set the price for X7 lower than X5 to create the illusion that it was more economical despite the fact that it was cheaper to produce. This would however also create an impression that it was of less superior quality. Other than that the market saturation for X7 was only 2% which means that the company almost enjoyed monopoly power. Charging a low price would ensure that the company gained significant brand loyalty in the short run, which would prove to be invaluable in the long run.

In 2012, Revenue for the three brands increased significantly but the profitability of X7 declined slightly. Nevertheless, the overall profitability of the firm increased by 11% from US$ 81,571,138 (16%) to $325,720,907 (27%). The total profitability of X5 and X6 increased by 13% and 18% respectively while that of X7 declined slightly by 12%. On the other hand, despite its good performance, X6 still cost less than most other products in its category. Moreover, the fact that the tablet was still in the growth phase of its product lifecycle had a significant influence on its general performance. The performance of X5 also compared favorably with other tablets in its category. The slight decline in the profitability of X7 can be attributed to the fact that it was still new in the market. From the foregoing, I decided to raise the price for X6 from $525 to $550. Because X5 was performing very well in the market, I decided to increase the research and development budget to 20% and reduce the price slightly to $275 in an attempt boost sales and enhance brand loyalty. I also reduced the research and development budget for X7 to 20% and increased the price to $100. Having successfully introduced the brand to the market. This would enable the company to enhance its overall profitability.

Table 1: Pricing Strategy

Prices	2011	2012	2013	2014	2015
X5	$ 285.00	$ 250.00	$ 275.00	$ 250.00	$ 250.00
X6	$ 430.00	$ 525.00	$ 550.00	$ 525.00	$ 525.00
X7	–	$   80.00	$ 100.00	$ 100.00	$ 100.00

Table 2: Research and Development Activities

R&D	2011	2012	2013	2014	2015
X5	49%	10%	20%	30%	50%
X6	51%	60%	60%	40%	20%
X7	0%	30%	20%	30%	30%
Total	100%	100%	100%	100%	100%

2013 was characterized by a 9% growth in the overall profitability form 3$25,720,907 (27%) to $596,324,580 (36%). This was due to an increase in the total profitability for the three tablets, from 29% to 33% for X5, from 34% to 42% for X6 and from -12% to 34% for X7. Nevertheless, due to an increase in market concentration in the market for X6, other competitors were offering lower prices for similar tablets. This prompted the company to reduce the price back to $525. X5 had reached a stakeout phase in its product lifecycle, which had resulted in a sales decline for the product. As such, I reduced the price for the tablet and despite the fact that customers were only sensitive to prices as opposed to functionality. I increased the research and development budget for the tablet not only to enhance its functionality but also to explore cheaper production techniques. Finally, because the performance of the X7 tablet was below that of other competitors in the market, I increased its research and development budget to 30% primarily to enhance its quality but maintained the price at $100.

In 2014 the company’s overall profitability only increased slightly from 36% to 39%. This was occasioned by the sharp decline in the total profitability of the X5 tablet. Nevertheless, the profitability of the X6 and X7 tablet increased to 43% and 41% respectively. I increased he research and development budget for X5 to 50% at the expense of the X6 tablet and maintained its price at 250 in a bid to boost its sales but apparently this was the wrong approach because the sales only worsened in 2015 resulting in a loss of -24%. I should have concentrated on lowering the price instead of trying to enhance it functionality. Additionally, efforts to minimize production cost through innovation, which would have been achieved through research and development were also futile. Despite reducing its research and development expenditure in 2015, the profitability of the X6 tablet remained at 43%. Unfortunately, the profitability of the X7 tablet also declined to 16% in 2015 but this was because I practically did nothing to promote its sales volume. I retained both the price and research and development expenditure for 2015.

Conclusion

Perhaps the worst mistake I made was to increase the research and development expenditure for the X5 tablet instead of focusing on reducing the price because the target market was more sensitive to prices compared to functionality. Notwithstanding, the company outperformed the best competitor in the market. While the company generated profits amounting to $2,361,970,075 over the five year period, the competitor only generated $2,100,000,000. The income statements for the company are illustrated below.

Table 3: Comprehensive Income Statement

	2011	2012	2013	2014	2015
Revenue
Total Sales	1,531,940	4,894,546	7,187,120	15,586,384	3,791,023
Revenue	518,232,275	1,200,007,506	1,635,624,813	2,545,181,081	1,178,184,203
Cost
Variable Costs	300,161,138	700,286,599	865,300,233	1,385,358,098	631,653,736
Fixed Costs	112,500,000	150,000,000	150,000,000	150,000,000	150,000,000
R&D Costs	24,000,000	24,000,000	24,000,000	24,000,000	24,000,000
Total Costs	436,661,138	874,286,599	1,039,300,233	1,559,358,098	805,653,736
Profit
Total Profit	81,571,137	325,720,907	596,324,580	985,822,962	372,530,468
Total Profitability	16%	27%	36%	39%	32%

 

 

Table 4: X5 Income Statement

	2011	2012	2013	2014	2015
Revenue
Total Sales	968,979	2,866,847	2,301,898	1,004,214	547,750
Revenue	276,159,075	716,711,874	633,021,927	251,053,444	136,937,500
Cost
Variable Costs	145,346,882	430,027,124	345,284,687	150,632,066	82,162,500
Fixed Costs	75,000,000	75,000,000	75,000,000	75,000,000	75,000,000
R&D Costs	11,820,896	2,400,000	4,800,000	7,200,000	12,000,000
Total Costs	232,167,778	507,427,124	425,084,687	232,832,066	169,162,500
Profit
Total Profit	43,991,297	209,284,947	207,937,240	18,211,378	–       32,225,000
Total Profitability	16%	29%	33%	7%	-24%

Table 5: X6 Income Statement

	2011	2012	2013	2014	2015
Revenue
Total Sales	562,961	721,528	1,142,402	1,966,849	1,686,869
Revenue	242,073,200	378,801,954	628,320,838	1,032,595,514	885,606,323
Cost
Variable Costs	154,814,256	198,420,071	314,160,149	540,883,364	463,889,026
Fixed Costs	37,500,000	37,500,000	37,500,000	37,500,000	37,500,000
R&D Costs	12,179,104	14,400,000	14,400,000	9,600,000	4,800,000
Total Costs	204,493,360	250,320,071	366,060,149	587,983,364	506,189,026
Profit
Total Profit	37,579,840	128,481,883	262,260,419	444,612,149	379,417,297
Total Profitability	16%	34%	42%	43%	43%

Table 6: X7 Income Statement

	2011	2012	2013	2014	2015
Revenue
Total Sales	–	1,306,171	3,742,820	126,615,321	1,556,404
Revenue	–	104,493,697	374,282,048	1,261,532,123	155,640,380
Cost
Variable Costs	–	71,839,404	205,855,126	693,842,668	85,602,209
Fixed Costs	–	37,500,000	37,500,000	37,500,000	37,500,000
R&D Costs	–	7,200,000	4,800,000	7,200,000	7,200,000
Total Costs	–	116,539,404	248,155,126	738,542,668	130,302,209
Profit
Total Profit	–	–       12,045,725	126,126,922	522,989,455	25,338,171
Total Profitability	0%	-12%	34%	41%	16%

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