Period 5 Decision and Results

Rationale:

Things are about to get really painful for the other teams. Not a single one of them spent a dime in R&D last period, so we are guaranteed at least one more period of a monopoly in Nutrites. We are going ahead with a launch of a new Nutrites product to begin building awareness for the HC brand, TUNA. Granted, we do not have any competition for the time being, but I feel like this will be a worthwhile hedge, just in case one of the other teams gets wise and is able to launch a Nutrites product at the higher-end. We also began an R&D project to create an HC-tailored product that will only cost us $3 million. Much cheaper than the previous Nutrites project. At the same time, we are going to research a modification for our Clinites flagship, TINY. Right now there are several metrics that make it a less-than-ideal product for the SI market, so our plan is go make it absolutely ideal. If we were to research the exact same specs that it currently has, we could reduce the base cost by a dollar, but we believe that the gain in market share from having a specifically tailored product will outweigh the $1/unit gain that we could get from a base reduction.

Our TINK and TILT R&D projects completed, so now we will have tailored products for ME and AF, respectively. Both have ad budgets of $2m and production runs of 2 million. These production figures may be a little low, but considering how minuscule the brand awareness is for each, we do not think that we will have stock outs. If we do, it will be a good (though painful) lesson for future launches when our product matches a segment's ideal values exactly. We are also hoping that the mismatch in brand awareness for each product will yield valuable data in order to better understand how the launch and product property relationships work.

We are considering launching a fifth Clinites brand to begin disrupting the moves that teams Mimosa and Riesling made for the LI segment. Currently, our transfer cost for TINY is a paltry $2.68, and will only go lower. The only worrisome aspect there is the idea that we could end up somewhat shooting ourselves in the foot. Since our first batch of the modified TINY is going to come in at $5/unit for the first 2.5 million units, we could end up losing an incredibly large amount of margin. At the same time, there is no one who will be able to even touch us in that segment any longer. Running an R&D for a LI project would run approximately $1.1 million, and would come in with a base cost of approximately $3.00 for the first 2.5 million. This is not only more than what TINY currently is, but TINY has been getting ~$.30 cheaper per unit every period. Perhaps the move here is to wait off on the LI introduction, relaunch TINY with the modified base, then create an LI brand with TINY as the underlying and hope that the customers in the SI segment don't notice that their previous favorite brand is now being offered for half of the price. During that introduction, we could R&D an LI product as a hedge in case the LI brand cannibalizes the SI brand too much. No matter how you cut this one, it is extremely risky. We want to beat our competition on every front, but not at the expense of a Pyrrhic victory in LI at the expense of our dominant position in SI. Such a move could also hasten the impending price war. Decisions, decisions....

Results:

Completely botched the production figures for TUGR. Over 4.2 million units in inventory resulting in $2 million in holding costs for TUGR alone. TIME was also over-produced again, but this is likely due to the modification of TILT into a product that the AF segment desires. With 467k units of over production, we had holding costs of $205k. Though the $2 million from TUGR was a lot, it only cost us 0.43% of our revenue and a mere 0.63% of our EBT. Growth was not nearly as large as expected in the Nutrites market. This may be due to our extremely high price points. We may very well be preventing people from trying our products and thus constraining the growth of the Nutrites market. The conjoint analysis for the EL and HC segments are $41 and $52, respectively, a far cry from our current asking of $60 and $120. A price drop will hopefully expand these markets to create higher volumes, which we need to capture as much as possible now, so that when another team finally enters the market, we will be in an even more dominant position.

Despite the negatives, we still performed extremely well. Our SPI is at 9137, which means that our SPI is increasing at an increasing rate. This trend will not continue ad infinitum, but we should be able to see this increasing increasing rate for at least one or two more periods. If not for the momentum lost in period 3 to research TUGR, that would have been the trend for the entire game thus far. We saw an 8.32% increase in overall market share. Most of that gain coming from TINK and TILT being modified for the ME and AF segments. Those modifications saw massive increases in market share for each of their segments, catapulting TILT from a 4% to 24% share, TINK from a 5% to a 27% (and unfortunately stocking out), and put both in first place for their respective segments. TIME saw a decrease in unit sales from the previous period, the first such decrease for us through this whole game. As said before, this is likely due to TILT grabbing so much market share. We now have the #1 brand in every segment except for LI, but the R&D project for LI finished this period, so we will hopefully be #1 in that segment after we launch next round.

Our total revenue for the period was $468 million, just shy of the $500 million barrier we were hoping to break through in this period. Our EBT was $317 million, quite a bit higher than the $190 million last period. In fact, our revenue grew at a rate of 57.4% while EBT increased 67.1%. One of the drivers for this increase was likely the $25.6 million in additional EBT from selling 449k units of TUNA at $120 a piece.

Overall sales in the Nutrites market only went up by 2128k units, which was definitely not what was expected. This came out to a (relatively) anemic growth of 60.6%. The expected growth for this period was 77.4%, which gives further evidence that we may be constraining the market with our pricing.