Solar Power’s increasing popularity, driven by its ability to offer energy independence in combination with significant environmental benefits (Henderson, Conkling and Roberts, July 2007), has birthed a growth industry that has significant profit potential. The below pages analyze the impact of a simulated 18 year product pricing strategy, in combination with new market entrants, on Sun Power Company’s performance. Sun’s product price is lowered from $0.13/ kWh down to $0.08/ kWh over the simulated period and key performance metrics are analyzed and compared to those from SLP 2, which assumed the same pricing strategy but no new competitor entrants.
Decision 1 – 2008-2012
Throughout the simulation period the objective of Sun Power is to expand its market share as well as maximize cumulative profit. Profit maximization is aided through cost reduction, thus the company seeks to lower its product unit cost. Figure 1 below, a horizontal analysis of pertinent income statement items, helps to analyze the results of the 5 year period ended in 2012. Sun Power attained improved profitability and cost positioning, although its cost position continues to lag against the cumulative performance of all other industry players over the same period. In addition, no new competitors have entered the market at this point in the simulation, thus the results are identical to the same simulated period for SP Module 2.
