TerraCog, which has been facing a drop in sales of its GPS products, had decided to meet consumer demands of a product with satellite imagery display by launching Aerial. However, the decision to launch Aerial has met with a roadblock on price. On one hand, the Production and Design & Development departments have expressed their inability to cut down price below $475. On the other hand, Sales department has shown a resistance for a price over $425.
Evaluating the impact of decision on our business, on our ability to meet customer needs and on our customer relations, it is recommended that TerraCog launches Aerial at a price of $475
Table of Contents
Criteria for Evaluation4
Evaluation of options5
TerraCog is a relative successful company specializing in GPS and fishing sonar equipments. TerraCog is known for its ability to convert user feedback into products which outmatch its competitors in addressing customer needs. GPS products offered by TerraCog are lauded for their durability and value-added features.
In 2006, Posthaste, a competitor, launched a GPS product called BirdsI which used satellite imagery as display. BirdsI has a visual appeal to the customers and has shown impressive sell-through rates last year. Consequently, customers have been demanding a product having satellite imagery display from TerraCog. In response to this, TerraCog decided to launch a product called Aerial. Both, the President and the Board of directors of TerraCog have shown a keen interest in ensuring a successful launch of Aerial.
In order to keep costs lower and speed up the launch of Aerial, TerraCog team decided to redesign the product within the existing GPS framework. Given that Aerial was expected to be priced at a premium to its competitors, it was decided to retain the same high end-functionality and value-added features, as offered by previous products, in Aerial and trade-off a bit on speed to lower costs.
Design and Development team designed Aerial as per specifications and subsequently the Production team came out with cost estimates of $550. Production team highlighted the fact that costs are high because of higher-end components and complexity involved in manufacturing. Concerns were raised by the Sales team about the price.
Subsequently, the Production team and the Design & Development team coordinated efforts to cut down on costs and ultimately came out with a price of 475$ for Aerial. In response, it was highlighted by the Sales team that Aerial would face competition from two of its competing products priced at $400 and $395. Hence, it would be difficult to sell Aerial beyond a price of $425. Sales team reasoned that in order to capture the lost market share, Aerial should be priced even lower.
Besides the price issue, customer experience was another key issue. Because of positive experience of customers in the past, TerraCog has had an advantage of word-of-mouth recommendations. Hence, it is imperative for Aerial to satisfy customer expectations to maintain its advantage. This makes the decision on Aerial even more critical to the company, both in short and long term.
Should TerraCog launch Aerial? If yes, then at what price?
There are three options available to the team:-
1.Launch Aerial at a price of $475
2.Launch Aerial at a price of $425
3.Not to launch Aerial
Criteria for Evaluation
Criteria for evaluation in decreasing order of priority are as follows:- a)Addressing customer needs – TerraCog has a business strategy of understanding and addressing customer needs in order to succeed in its business. It needs to be assessed whether options at hand are in-line with the business strategy b)Impact on customer relations – Positive customer experience with its products is critical to the...