Tablet Case Study

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TABLET DEVLOPMENT- DEFAULT DECISIONS

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Introduction & Corporate Strategy The stable of products at Tablet Development Corporation (TDC) consists of three different offerings. The X5 serves the entry-level, budget conscious consumer. The X6 caters to the technology savvy, performance conscious consumer. And the X7 balances the strengths of each. When Mr. Schmoe took over in 2012, TDC balances research and development equally among all three products. No product is focused on, assumedly due to Mr. Schmoe’s confidence in TDC products dominating the aggregate tablet computer market. What is missing from TDC’s business strategy is a focus on market segmentation, with a eye on product life cycle and profitability.

X5—Segmentation for Budget Focused Consumers

Marketed as the tablet for budget conscious consumers more concerned with price than performance, the X5 represents the median of TDC’s product line in terms of price and performance. X5 tablets are priced at $265 with a performance rating of 1.05 beginning in 2012. With the default research and development investment, these values remain steady.

X5 Price Performance

2012 2013 2014 $265 $265 $265 1.05 1.05 1.04 Table 1: X5 Product Performance Under Joe Schmoe

2015 $265 1.04

Early in its product life-cycle, the X5 performs favorably against competition. Sales grow steadily through 2012, but as the maturity phase develops during 2013, sales drop off sharply, (Marketing Teacher, 2000). Without the benefit of price cuts to stimulate further demand, the X5 rapidly transitions into the later stages of its product life cycle.

TABLET DEVLOPMENT- DEFAULT DECISIONS

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X5
Sales Revenue Variable Cost Total Cost Profit (%)

2012 2013 2014 1,859,856 1,427,666 701,981 $492.86 M $378.33 M $186.03 M $269.68 M $207.01 M $101.79 M $348.94 M $286.27 M $181.05 M $143.92 M (29%) $92.06 M (24%) $4.98 M (3$) Table 2: X5 Financial Performance Under Joe Schmoe

2015 520,480 $137.93 M $75.47 M $154.73 M -$16.80 M (-12%)

X6—Segmentation for Performance Focused Consumers The X6 constitutes TDC’s top of the line technology focused on consumers that seek a high performance tablet and that are willing to pay a premium for it. Opening in 2012, the X6 is priced at $420 with a relative performance rating of 1.29. Without adequate R&D to retain its competitive technological edge, this performance rating slips each subsequent year.

X6 Price Performance

2012 2013 2014 $420 $420 $420 1.29 1.26 1.25 Table 3: X6 Product Performance Under Joe Schmoe

2015 $420 1.23

The X6 enjoys strong sales entering 2012—the core of its introduction phase. This growth, however, plateaus into 2013, and then falls off sharply through 2014. As the X6’s performance falls off closer to 1.0, its competitive advantage rapidly degrades—it clearly is not receiving the R&D investment required in order to serve its target market segment. As Table 4 shows—the initial promise of the X6’s introduction phase never survives its shakeout against competition. X6 Sales Revenue Variable Cost Total Cost Profit (%) 2012 2013 2014 1,873,457 1,926,943 817,324 $786.85 M $809.32 M $343.28 M $487.01 M $501.01 M $212.51 M $530.58 M $544.49 M $255.99 M $259.27 M (33%) $264.83 (33%) $87.29 M (25%) Table 4: X6 Financial Performance Under Joe Schmoe 2015 566,026 $237.73 M $147.17 M $190.65 $47.08 (20%)

TABLET DEVLOPMENT- DEFAULT DECISIONS

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X7—Segmentation for a Balanced Customer The X7 represents TDC’s product offering for the aggregate market. It neither focuses on price-point, nor performance advantage. The X7 is a product for a mature tablet market—with consumers looking for a value based on a balance between required performance and price. As an emerging product category, the X7 opens 2012 at $195 with a relative performance index of 0.86— this combination illustrates the immaturity of the product in relation to the corporate strategy in which it fits. R&D invested in the X7 improves its...
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