Strategic Review the Performance of

However, it is worth considering that the previous managements performance with this product was so poor that virtually any price point in our range would have dramatically outperformed the previous managements performance. A drop to $150 would have been a good starting point in 2006, as it would have given us a better idea of the price elasticity of demand for this product. With this knowledge, a trend line could have been extrapolated that would allow us to determine the optimal price point, resulting in another price change for the subsequent years. R&D expenditures are not viewed as essential to this product, though maintaining the 33% level would have allowed the product to see some feature improvement over the years, given it a competitive advantage over other low-end handheld devices.

The proposed four-year strategy therefore can be summarized as follows:

Year by Year Decisions: Pricing & R&D Allocations

PRODUCT

DECISION

2006

2007

2008

2009

X5

Price

$250

$250

$250

$250

R&D %

0%

0%

0%

0%

Discontinue?

NO

NO

NO

YES

X6

Price

$450

$450

$450

$450

R&D %

67%

67%

67%

67%

Discontinue?

NO

NO

NO

NO

X7

Price

$150

$150

$150

$150

R&D %

33%

33%

33%

33%

Discontinue?

NO

NO

NO

NO

Works cited:

AccountingCoach.com (2010) Break-even point. AccountingCoach.com. Retrieved July 20, 2010 from http://www.accountingcoach.com/online-accounting-course/01Xpg01.html

Investopedia.com. (2010). Contribution margin. Investopedia. Retrieved July 20, 2010 from http://www.investopedia.com/terms/c/contributionmargin.asp

Kotelnikov, V. (no date). Customer value.

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