Submitted to: Prof. Danesh Gojar
By: Vinod Dubey (FSB I - 60682)
Date of Submission: 11th March, 2012
TerraCog Global Positioning Systems
February, 2008
To,
Mr. Richard Fiero,
The President,
TerraCog.
Subject: Launch of ‘Aerial’
Dear Sir,
This report is an analysis of options available regarding project Aerial and strategy regarding dealing with the emerging competition in the market.
Executive Summary
The redesigned version of Aerial which includes features like satellite imagery is planned to be launched in the coming holiday season. TerraCog is losing its market share to Posthaste’s BirdsI, a similar product already present in the market and is eager to hit the market with Aerial. But the cost of redesigned Aerial is high ($475) and it is not profitable to price Aerial below $475, which is $75 higher than BirdsI.
Also at current set price of $475, company cannot expect sufficient sales due to price sensitive nature of the product. Thus company should delay the launch by six months and should come up with better technology at a lesser price.
Contents
Sr No | Topic | Page No | 1 | Executive Summary | 03 | 2 | Situational Analysis | 05 | 3 | Problem Statement | 06 | 4 | Options Available | 06 | 5 | Criteria for Evaluation | 06 | 6 | Evaluation of Options | 07 | 7 | Recommendation | 09 | 8 | Action Plan | 09 |
Situation Analysis
TerraCog specializes in high quality Global positioning system (GPS) and similar products. The firm has built its GPS line for the serious outdoor enthusiasts’ market, and the products are known for their durability and value added features. Even though TerraCog is always not the first one to market new products, the company does not have any problem in capturing the market as the products are of high quality and effectively addressed customer needs.
A competitor Posthaste has introduced a GPS prototype called ‘BirdsI’ that displays satellite imagery. TerraCog did not see any threat in the launch of ‘BirdsI’ as TerraCog’s GPS system is superior in both technology and performance, furthermore ‘BirdsI’ lags both accuracy and reception quality. But the product has become a huge success and numbers of key buyers and product reviewers have found it an exciting innovation. In order not to lose the market, Terracog also plans to launch a GPS with satellite imagery dubbed project Aerial. As the project is to be launched without any delay, a redesign within the existing GPS platform was proposed. However, the projected cost for the production threatens to destroy the project. The production team first projected the cost to be $500, but later made minor changes and could reduce the cost to $475. They don’t want to compromise on the quality in any way and hence any further reduction in cost is not possible for them. Sales team feels that Aerial should be priced below $425 to capture the lost market share to competitors.
Under these circumstances company primarily needs a “go-no go” decision. If company decides to go ahead with the launch, it must decide clearly the pricing and positioning strategy. If it decides otherwise, it must have a plan to regarding further improvement in Aerial so as to launch it after six months.
Problem statement
Whether to launch Aerial or not? If yes, then at what price?
Options Available
1) Launch Aerial at a price of $475 2) Launch Aerial at a price of $425 and compromise on margins 3) Delay the launch by six months and completely redesign the product
Evaluation of options 1) Launch Aerial at a price of $475
i) Responding to customer needs:
This price is $75 higher than that of BirdsI. The premium thus charged has to be justified by the value proposition of the product. Customers’ involvement in the purchase decision process is high in this category.
ii) Regaining market share:
Since the new feature of satellite imagery has significantly reduced the speed, this may not go well with the customers. Assuming that customer may trade off speed for this feature, it will be just a matter of time that a new technology with improved speed hits the market and the very selling proposition of Aerial is wiped off. Thus the current design is not a proper response to customer needs. Currently the company is prepared to entre new, underserved GPS market. High price will not help in gaining the market share due to the very price sensitivity of the product.
iii) Sustainability:
Sales department of the company will also face difficulty to pull it through. Thus this option does not give a scope for sustainability as it will not be able to generate sufficient revenue.
2) Launch Aerial at a price of $425
i) Responding to customer needs:
This price is $25 higher than that of BirdsI and $30 higher than that of Garmin’s satellite image version. The premium thus charged has to be justified by the value proposition of the product. Customers’ involvement in the purchase decision process is high in this category.
ii) Regaining market share:
If it is priced competitively at $425, it will help in gaining the market share. But it will be feasible only when the company puts in resources for development of high quality product to be launched in six months and is able to charge a premium on it. This will make up for the losses due to current product. Also transition in the product development cycle will be smooth and thereby augmenting the brand equity. However, unpredictability of the market makes it risky. iii) Sustainability:
Due to zero margins, this option will lead to accumulation of losses and it will be difficult to sustain them for a longer period of time.
3) Delay the launch by six months and completely redesign the product
i) Responding to customer needs:
The kind of market the product caters to, calls for quality product. And the product development team has assured that it can come up with such a product at a lesser cost in six months. Thus the customer requirement is addressed to a large extent in this case.
ii) Regaining market share:
Brand loyalty for this category of products solely depends on features and quality offered. If the customer perceives new Aerial to be better than BirdsI, it can easily switch over, thereby enabling the company to regain its market share. Thus it compensates for opportunity lost in six months and also regaining the brand value.
iii) Sustainability:
This strategy will also put the company in the driver’s seat rather than being a mere follower in the market. There is no compromise on margins and thus this option has positive impact. Overall this strategy is sustainable in the market where technology is changing rapidly.
Recommendation
Company should cancel the launch of current version of Aerial and should focus on improvement to the product design so that it can launch it in six months at a competitive price and at a better quality.
Action Plan
Carry out a market survey to measure customers’ expectation, which will give ideas for the development of the new product.
Put in extra resource in Research & Development to ensure the high quality of the new design at a cheaper cost.
Launch promotional schemes to increase sales of TerraCog’s existing products so as to make up for the loss of market share.
Make the sales team a part of this strategy where they may continue with efforts of pushing the current product and also creating the right environment for the launch of new Aerial by maintaining relations with the retailers.
