This is the final round of the simulation process involving four runs. This time, in the first round of the simulation, the prices and the R&D allocations for the three handhelds is left constant. In the second round, handheld X5 is discontinued. Meanwhile the price of X6 is increased to $500 with an R&D allocation of 45%. X7 is sold at $300 having been allocated 55% for R&D. In the third round, X6 is sold at $300 at 30% R&D allocation while X7 is sold at $100 and is allocated 70% for R&D. In the final simulation, X6 is discontinued while X7 is sold at $100 R&D allocation.
This is the third and final round of the simulation involving three handheld products X5, X6 and X7. In this case, the first round of the simulation is carried out with the prices of the products constant. This is done in order to find a bearing upon which future decisions can be based. This gives the same results as the first round the second simulation. In this case, the 2006 profits are 295, 185, 249. What comes out is that X5 was a product in its growth stage of the PLC. The price of the product was relatively the same as the price of similar products (He & Sethi, 2008).
In the second round of the simulation, X5 is discontinued. The price of X6 is then increased to $500 and allocated 45% for research and development. At the same time, X7 is sold at $300 and allocated 55%. This gives a total score of 618,119,615 with the total profits for 2007 of 112, 654, 250. This is a poor performance compared to the last run in which case the total profits for 2007 was 226, 157, 275. This slight poor performance can be attributed to the value of the market changes which could have taken place. This implies that the product mix of X6 and X7 was not the optimal product mix which could have guarded against the market place changes (On the Mark, 2005).
Maintaining X6 and X7 but Varying the Variables
In the third round of the simulation, the price of X6 is lowered to $300 while X7 is sold for $100. X6 is equally allocated 30% for R&D while X7 is allocated 70%. This simulation gives a score of 767, 828, 570. This represents a total profit for 2008 of 149, 708, 955. Compared to the last run, this is far below the total 2008 profit of 1, 152, 230, 831.
This brings to focus the issue of resource allocation in managing a portfolio of products. This alludes to the fact that product portfolio management enables an organization to allocate the resources in a strategic way alongside making other decisions like product strategy and marketing activities. Product portfolio management provides an organization with the general picture of the market position of each of the products of the organization (On the Mark, 2005).
What can be said in this case was that X6 had reached its declining phase of the it’s life cycle implying that sales to new customers were reducing. At the same time, X7 outperformed many of its competitors having been priced lower than its competitors (Allen, 2008). This reveals the significance of strategy before allocation.
For instance, X6 is allocated 70% for research and development and sold at a lower price of $ 100 resulting to its better performance than the competing products. It is therefore important that the moment the combination of product strategies which are likely to maximize the value of an organization’s portfolio is identified; resources can then be clearly allocate to each of the products (On the Mark, 2005).
In the final round of the simulation, X6 is discontinued having reached its shakeout phase (Traynor, 2007). Thus, the price of X7 maintained at $ 100 and with 100% R&D allocation. This gives a final score of 1, 100, 669, 917 a figure slightly lower than the 1, 253, 949, 139 of the last run. This product strategy of discontinuing X6 reveals new product goals as well as the areas which require focus.
It also reveals the relative product priorities such as research and development (Crow, 2004). In this regard, X7 maintained the growth stage of the PLC throughout the simulation implying that quite a number of customers who could have adopted the product but did not. Still, the X7 began as unprofitable but eventually finished the simulation a profitable product.
In conclusion, many business customers who had the potential of adopting X6 were not in apposition of doing so by the time the simulation was ending. X6 was unprofitable but was the most profitable of the three handhelds but was unprofitable by the time the simulation ended. What can be learned from this simulation is that product portfolio management is very important because it is the process of managing new product ideas, proposed projects and as well as current projects in the process of development (Crow, 2004). X5 for instance, was initially the highest selling product before attaining its declining phase of the PLC eventually being dropped form the product lines (Traynor, 2007).
Allen, S. (2008). Pricing Strategy: How Much should You Charge for Your
Product. Retrieved January 4, 2009 from http://www.markitek.com/articles/pricing.htm
Crow, K. (2004). Product Portfolio Management. DRM Associates. Retrieved
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He, H and Sethi, S. (2008). Dynamic Slotting and Pricing in a Durable Product
Supply Chain. Journal of Optimization Theory and Applications, Vol.136 (3). Retrieved January 4, 2009 from SSRN http://ssrn.com/abstract=1087804
On the Mark. (2005). Managing a Portfolio of Products. Retrieved January 4, 2009
Traynor, I. (2007). Product Life Cycles- Developing Your Product Strategy.
Retrieved January 4, 2009 from http://www.jobbankusa.com/CareerArticles/Marketing/ca102907a.html