Black Bay Battery Simulation strategy and learning...
Prasoon Kumar |PGP27236
Black Bay Batteries Simulation Broad Strategy
Based on previous class exercise the focus is on improving profit margin by reducing the variable cost Investments has to be done only if it affects the profit margin favourably Follow market expectations (News trends and customer’s expectations)
In the first year, news suggested that Power tools market had grown by 37%, hence to skim the market and generate revenues for future research price of only NiMH batteries was increased as it contributed to 80% of total revenues. Price of UC batteries was kept unchanged as it was already overpriced as per customer’s expectation. Price was changed according to market news keeping in mind the customer’s expectation about price. In later years as price war started happening focus shifted to improve the operational efficiency for reducing variable cost. Not much change in the price of UC has been made as its contribution was already in pressure. It has been only changed in later years when improvement in operational efficiency reduced its variable cost.
In initial years the R&D expenditure was focused on Poccess improvement of NiMH only, as its contribution to total revenues was around 80% of total revenue. The investment in Process improvement was done to bring down the variable cost and improve the profit margin. In later years as the market of NiMH started getting saturated, R&D investment was infused in UC. Investment in other R&D options was not considered as the breakthrough improvements expected in the given short time frame were not justified. Income Statement Revenue from NiMH Revenue from Ultracapacitor Total Revenue NiMH Variable Costs Ultracapacitor Variable Costs Gross Profit NiMH R&D Expense Ultracapacitor R&D Expense
Based on previous exercise in classroom it was found that investments in various features were not giving much return in terms of profit improvement except investment in process improvement so much of the focus in this round has been on investment in process improvement As contribution of NiMH in overall profitability was greater and market scope was greater for it, initial investment was done in the process improvement of NiMH While investing in R&D, when the improvement becomes flatter ,the investments should have withdrawn as the investment affects the profit margin