Capstone Report

STRATEGY OVERVIEW

The initial plan we created was a two part business strategy for our market segments. The traditional and low-end segments were treated equally with an emphasis on a broad cost leader strategy. Pricing was on the low end and investing in automation and TQM initially would help us control our contribution and profit margins. We would spend less on promotion and sales and instead we would focus on market share and profits. The latter three segments, (high-end, performance, and size) would be treated equally as well and would employ a broad differentiation strategy. Initially we would invest a lot of our resources in R&D to keep our products fresh. Advertising and sales would be spent on heavily in order to maximize awareness and accessibility and we would buy capacity on an as needed basis. Our prices in these segments would be higher but that would be due to the lower margins these segments tend to have.

All of our plant investments would be financed with the issuance of bonds not stocks. Our thinking here was that our EPS ratio would decrease due to its denominator increasing with the issuance of outstanding stocks so we would avoid employing that. Each market segment would have a strong representation from us but we decided as a team to only develop one product per segment and focus all of our resources on strengthening each particular product. The factors with the highest level of importance in the Customer Buying Criteria table would be our main focus. Each segment has the four factors ranked differently and the top two in each individual segment will have our highest priority.

In the first three rounds our low-end and traditional segments were suffering due to us focusing only on profit and lack of spending in sales and promotion. In year four we as a company committed to only using one strategy for all of our segments which was the broad differentiation strategy due to its success not only in our other segments but by our competitors in our low performing segments as well. In those two under performing segments it seemed that sales were driven more by accessibility than anything else. By adopting this strategy we had positive results within one year and by the end of year 4 we were ranked either #1 or #2 in market share in all of the segments.

YEAR 1

We viewed this year as a success due to us being one of only two teams to show a profit and being #1 in stock price. We took out a $10M bond to pay for plant investments in automation and in capacity for the traditional and low-end segments. Our finance department also issued a dividend of $0.25 which was to be our strategy throughout the simulation. We figured that if dividends paid was a ј of the factors that decided stock price we would at least make sure we have some sort of representation there. Initially in TQM we invested $2.5M mainly in areas that reduced materials and labor cost due to our conservative investment in automation and capacity because of their high costs.

Positioning was our biggest problem this year. In the traditional segment we over projected positioning by 1 year and in turn it hurt sales due to the ideal spot not being achieved. This resulted in a low December customer survey which also effected sales and left us with 480 units in excess inventory which hurt our profit margins. In the other segments, (high-end, performance, and size) we were under positioned but did not suffer many losses due to our competitors making the same mistakes in their projections as well.

In the low-end segment we stocked out but we achieved a 17% market share which we viewed as successful. Anything over 16.6% in market share is above average and to us is seen as a success. This was also the case in high-end, performance, and size. Our forecasts our two-fold. The marketing forecasts are based on worst case scenarios and the production forecasts, amount of units to be produced, are based on a cushion that out team decides on in order to have enough inventory to capitalize on our competitor's mistakes. Except for the traditional segment we forecasted well.

YEAR 2

We had four times the profit of our next closest competitor plus we still had the #1 stock price in our industry. We decided to not make any investments in our plant but instead focus on improving our positioning and investing heavily in TQM that way each of our segments benefited from the cost reductions. We invested $8M in TQM and saw results not only in cost reductions but also in R&D cycle time which helped us improve our positioning. The dividend we issued this year helped our stock price due to it having a positive effect by being under EPS. This was not the case last year.

In marketing we tried to achieve results by raising the promo budget to keep up with our competitors. On average we were about at 80% customer awareness up from 60%. This resulted in an increase in our traditional segment plus continued increases in the high-end, performance, and size segments. Our pricing strategy hurt us in the low-end where we were the highest but it was on point in all the other segments. The strategy was to be in the middle of the range in the broad cost leader segments but to be at the highest part of the range in the broad differentiation segments that way we could maximize profits in these low margin segments.

YEAR 3

This was a bad year but it turned out to be a blessing in disguise. Not only did we continue to make mistakes in forecasting and marketing in the low-end and traditional segments, we now also made a big financial mistake as well. During the year we decided to make an investment in automation in the traditional segment of .5, but we also paid a dividend of $0.30 per share, and we decided to pay off a $6.97M bond all with our profits from our operating activities. This resulted in us having our first emergency loan of $7.5M dollars. Our loss was only for $150,259 but major changes are needed to not let this happen again. One risk we took unnecessarily is leaving our ending cash position in our projections at $126,000 which isn't enough to cover any of our mistakes.

The forecasting was also a major problem especially in the traditional and low-end segments with a combined 1400 units in excess inventory. This excess inventory swallows up your cash at year end if it is not sold because it has to be paid for. The excess inventory was mainly a result of the inventory cushion we set in the production projections. That and our competitors killing our products in accessibility were the main reasons for the cash shortage.

Although we had our first loss, our products were improving not only in positioning but also in the eyes of our consumers. An adjustment in MTBF