ROUND 1 NOTES

Product Research and Development Strategies

• Able (Traditional Segment)

  • Performance Adjustments: Updated by one level to $5.7$ to manage the revision date and age.

  • Size Adjustments: Remained unchanged as it was already within acceptable parameters.

  • Mean Time Before Failure (MTBF): Remained unchanged because its importance to consumers in this segment is only $9\%$.

  • Age Targets: Revision age was approximately $1.6\,years$. Minor tweaks were applied to size to aim for the ideal age of $2.0\,years$, which carries a $47\%$ importance rating for consumers. The revision cost was approximately $\$188.00$.

  • General Strategy: An MTBF increase of $500$ units was applied across various products during practice, but specifically for Able, the focus was keeping tweaks minimal to avoid excessive spending while nearing the two-year ideal age.

• Acre (Low End Segment)

  • Performance Adjustments: It initially started at $3.0$. A suggestion was made to move it to $2.7$, but the team decided to leave it at $3.0$. The ideal performance for this segment is $1.7$, so the product is already significantly ahead of customer requirements.

  • Age and Revision: The goal is to let the age rise toward the ideal of $7.0\,years$. By not changing performance or size, the team prevents the age from being cut in half unnecessarily.

  • MTBF: Increased by $500$ to extend the failure threshold, aiming for a lifespan of approximately $4.5\,years$.

• Adam (High End Segment)

  • Product Position: Updated performance to $8.3$ (from $8.0$). While the ideal age is $0\,years$, the team achieved an age of $1.0\,year$.

  • Revision Timing: Moving straight to the ideal targets of $8.9$ performance and $11.1$ size would push the revision date to September. The team decided against this because it would leave only three or four months of sales for the revised product. Instead, they opted for an incremental "happy medium" to avoid high R&D costs (approximately $\$7.02$ million) and late-year releases.

  • Decision Rule: The team established that any R&D revision should ideally be completed between January and March, with April being the absolute latest acceptable month for a product revision to launch.

• Aft (Performance Segment)

  • Adjustment Logic: Performance was targetted at $27.0$ (which is the high end of the $22,000$ to $27,000$ range) because performance is $43\%$ important to this segment.

  • Size and Age: Small tweaks of $0.1$ were made to size to keep the age down. The starting values were $9.4$ performance and $15.5$ size. The team adjusted it to reach an age of approximately $2.5$ to $2.6\,years$.

  • MTBF: Increased by $500$ to hit the $27,000$ mark exactly.

• Agape (Size Segment)

  • Positioning: Performance was kept at $4.0$. The size was reduced to $10.6$, which is the exact ideal position for the segment.

  • MTBF: Increased by $500$.

  • Age: The ideal age is $1.5\,years$ (the second most important factor in this segment). The adjustment resulted in a projected age of $1.4\,years$, which the team deemed acceptable.

Marketing and Pricing Decisions

• Psychological Pricing Strategy

  • The team utilized "psychological pricing" (setting prices at $\$XX.99$) to gain a competitive advantage in consumer perception. This strategy was validated by team research indicating it can result in higher scores compared to even-dollar pricing.

• Specific Product Pricing

  • Able: Set at $\$27.99$. The maximum price consumers will pay is $\$30.00$, with price having a $23\%$ importance.

  • Acre: Price was adjusted to $\$20.50$. Although the max price is $\$25.00$, price is $53\%$ of the importance for this segment, necessitating a lower, more competitive price to maximize volume.

  • Adam: Set at $\$38.99$. Price has low importance ($9\%$) in the High End segment, so the team prioritized product quality over a low price.

  • Aft and Agape: Both raised to $\$34.00$. The maximum price for these segments is $\$35.00$. Because these products are near-perfect in terms of age and MTBF, the team believes customers will pay a premium.

• Promotion and Sales Budgets

  • Low-Cost Products: The budget was set at $25$ (representing $\$2,500,000$) for the less expensive lines to maximize awareness and accessibility.

  • High-End Products (Adam, Aft, Agape): The budget was set at $20$ (representing $\$2,000,000$).

  • Rationale: The team determined that excessive promotion for expensive products is less effective if consumers cannot afford them, but they still want to "ball out" to gain points on the scorecard.

Sales Forecasting Methodology

• Forecasting Formula

  • The team uses the following calculation to determine the forecast units:

  • $\text{Units} = \text{Total Industry Unit Demand} \times (1 + \text{Next Year's Segment Growth}) \times \text{Potential Market Share}$

• Case Study: Acre (Low End)

  • Total Industry Demand: $8,960$

  • Segment Growth: $11.7\%$ ($1.117$)

  • Market Share: $16.7\%$ ($0.167$)

  • Calculated Forecast: $8,960 \times 1.117 \times 0.167 = 1,671\,units$

• Specific Product Forecasts

  • Able: $1,345\,units$

  • Adam: $495\,units$

  • Aft: $382\,units$

  • Agape: $391\,units$

Production and Capacity Planning

• Production Buffers

  • The team uses a $15\%$ buffer (multiplying the forecast by $1.15$) to set production schedules and avoid "stock outs" (running out of inventory).

  • Able Production: Set at $1,400\,units$ (incorporating the remaining $189\,units$ in stock).

  • Acre Production: Set at $2,000\,units$.

  • Adam Production: Set at $560\,units$.

  • Aft/Agape Production: Set at $440\,units$ each.

• Capacity and Automation

  • Acre: The team increased automation to $5.5$ and purchased more capacity. The current utilization involves $42.9\%$ second-shift usage. The team decided to buy capacity now ($300$ to $500\,units$) because it takes one full round before the new capacity is available for use.

  • Investment Strategy: The team is prioritizing automation in high-volume segments like Acre to lower labor costs over time.

Financial Management

• Funding and Debt

  • Long-term Debt: The team decided to issue $\$18,994,000$ in long-term debt.

  • Stock Issuance: The team issued $\$3,000,000$ in stock.

  • Cash Positioning: The goal is to maintain a cash buffer of $\$5,000$ to $\$10,000$ (in simulation units) to avoid an emergency loan (e.g., a "Big Al" loan). The final projected cash position was $\$7,600$.

• Balanced Scorecard Metrics

  • The team expects a low profitability score in the early rounds (initially $0$ out of $8$) due to massive upfront investments in R&D, capacity, and marketing.

  • Projected Scorecard Total: Approximately $50.2$ to $57$

  • Key growth areas for future rounds: Profits, Plant Utilization, and Product Count.