Decisions to be Made Market Information Introducing the new, smaller eTablet to market Price Supplier Contract Advertising Budget $350 Competitor Pricing $75,000,000 $35,000,000 Base Demand Market Size $200 1,000,000 5,000,000 Variable Cost Calculations Profitability Variable Production Costs Prepaid Discount Amount Adjusted Variable Costs $199 Total Revenue $26 $173 (-) Total Variable Costs (-) Total Fixed Costs $551,250,000 $272,078,355 $110,000,000 Demand Calculations Total Profit Price Demand Factor Total Demand -75% 1575000 Inputs Price (C3) Supplier Contract (C4) Advertising (C5) Decision Set 1 Decision Set 2 Decision Set 3 Decision Set 4 $200 $50,000,000 $25,000,000 Which Scenario is most profitable? $250 $250 $75,000,000 $100,000,000 $20,000,000 $25,000,000 $50,000,000 $50,000,000 $329 $169,171,645 You work on the new product development team for your company's new tablet computer offering, a smaller version of your wildly popular eTablet line. You have been given the task of determining three important decisions for this new product. First, you have been asked to determine the price for this product. Pricing is a tricky decision. You don't want to price the new tablet too high because few customers will choose the new product over your full-sized tablet offerings and you risk losing sales to your aggressively priced competitors' products. You don't want to price the product too low, because you want to earn as much revenue as possible from the product. Second, you must determine where to set the marketing budget for the new product. You know that there will be a base demand for your product that comes from your loyal customers who will buy just about anything you produce. Beyond that you also know that every dollar you spend on advertising will increase the demand for your product. Of course, there is a limit to how much money you will want to spend on advertising because eventually more money spent on advertising will have little effect on demand and will reduce the profitability of the new product. Finally, you have been asked to help decide how much money to prepay to the suppliers of the raw materials of the new product to reduce the overall costs of these materials. Every dollar you spend on prepaying your suppliers will reduce the costs of these materials and will ensure that your competitors don't have access to these materials. You have completed a spreadsheet model to aid in your analysis. Use the 'What If Analysis' options in Excel to help you determine the right price, advertising spending, and prepaid supplier contract for your new product. Goal Seek Parameters and Results Set Cell To Value By Changing Cell 1.2 Resulting Price? 1 Supplier Contract and Profitability Supplier Contract 0.8 $0 0.6 $10,000,000 $20,000,000 0.4 $30,000,000 $40,000,000 0.2 $50,000,000 $60,000,000 0 $70,000,000 $80,000,000 $90,000,000 $100,000,000 Optimal Supplier Contract? 50 $10,000,000 $20,000,000 Supplier Contract and Profitability $30,000,000 $40,000,000 $50,000,000 $60,000,000 Supplier Contract Level $70,000,000 $80,000,000 $90,000,000 $100,000,000