Terra Cog Case

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Executive summary:

An impasse has occurred in the pricing decision of Aerial, TerraCog’s satellite imagery enabled GPS, due to a distinct mismatch in the price estimated by the production department and the desired price, set by the sales department. TerraCog, being already behind its competitor “BirdsI” by about two years, needs competitive pricing and superior quality to regain its market share. Exploration of different available options by cooperation of the concerned departments can result in recapturing of the lost market share, profitability and realization of long-term benefits. A multipronged approach of aggressive marketing and efficient distribution can equip the higher priced Aerial to compete with “BirdsI”.

Word count - 104

Table of contents

1)Situation Analysis…………………………………………………………………5 2)Problem Statement ………………………………………………………………..6 3)Options…………………………………………………………………………….6 4)Criteria for evaluation……………………………………………………………..7 5)Evaluation of options………………………………………………………………7 6)Recommendation …………………………………………………………………..11 7)Action Plan…………………………………………………………………………11 8)Exhibit……………………………………………………………………………...12

Situation Analysis:

TerraCog Global Positioning System (GPS), since its inception in the late 1990’s, has steadily built up a strong relationship with key accounts and customers. It has been catering to a serious outdoor enthusiast’s market with its existing vector based graphics GPS having high durability, precision and some value added features. Our competitor- Posthaste’s GPS prototype called “BirdsI” having static satellite imagery (different from the usual simple vector graphics GPS existing in the market) has been a success since its introduction in October 2006. Despite positive reviews and keen consumer interest during the unveiling of “BirdsI”, the TerraCog management decided not to go ahead with satellite imagery in its GPS, showing probable signs of complacency and inability to understand consumer psyche. In mid 2007, eventual success of “BirdsI” and repeated customer requests prompted TerraCog to review its decision and finally come up with “Project Aerial” – its own GPS with satellite imagery, to be built on its existing GPS. Mr. Tony Barren’s initial price estimation of $550 and the latter revised price of $475 (obtained by 8% cost-cutting on minor technical changes by the design and production team), were perceived to be too high for competitive positioning of Aerial (considering BirdsI’s market price of $400 and Garmin’s expected price of $395) by the Sales team.. BirdsI’s two-year market advantage and Aerial’s high pricing of about $475 can threaten Aerial’s sales prospects. On the other hand, cutting down on cost can imply a compromise in quality and jeopardize our goodwill and loyal customer base. Although Mr. Cory Wu’s repeated questioning of the high product price can be suggestive of a further scope of cost cutting in the hardware design and production or else a total lack of departmental coordination. Further, Mr. Becky Timmons, Chief Financial Officer, has strongly advised against any relaxation in margin, considering fuel price rises, our declining sales figures and market share, despite overall GPS market growth. The departments are in a deadlock over their individual objectives, viewpoints and intended product prices. [Exhibit-1] Without any clear consensus on the course of action, we are in a stalemate situation in this crucial Project Aerial, a project of utmost importance to TerraCog GPS.

Problem Statement:
Should TerraCog GPS abandon project Aerial? If not what should be the pricing and promotional strategies to compete with the existing satellite imagery GPS’?

Options:
Launch Aerial at $475 with aggressive marketing and effective distribution. Give 6 months time to the product development team for design improvements and cost reduction. Shelve Aerial, and venture into new underserved...
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