MARKETING NEW PRODUCT Assignment

QUESTION

MARKETING
NEW PRODUCT

Assignment

·
Due date on Friday, 1.30 pm., 4th December
2015

·
This assignmentcontributes 20% the total course grade with 15% for the report and 5% for the
presentation based on the report prepared.

·
It is to be completed in groups of four students who
will work as a team to produce the final document.

·
Answers ALL of the
followingquestions in the given case.

Assessment Description

Assignment
involves writing an essay based upon a case study. Assignment is designed to assess whether you
have achieved the following learning objectives:

·
Able to write a report

·
Able to make a
clear and presentable presenation

·
Able to use the strategies and tactics in each
phrase of new product development process.

·
Able to apply principles and concepts models
of new product development process

Assessment
Guidelines and instruction

1.
Your report should be typedand handed into
Dr Walmisley on due date.

2.
A cover
pageshould be provided for this report. Ensure that your name, course name
and the submission date on it.

3.
Your report should be approximately 2000 wordsnot including the cover page
and references.

4.
The report should contain the following
sections: cover page, overview of the case study, findings
of the questions, recommendation of each questions, conclusion and reference
list. Headings are sometimes used in this
report, you are required to put heading for these sections or questions.

5.
Use 1½
spacingwith left hand 4 cm margins
(all others 2.5 cm)on A4 sized paper with 12 point Time New Roman font size.

6.
Marks are allocated for correct use of English(grammar, punctuation, spelling, non-sexist
language etc).

7.
Marks are allocated for a minimum of 5 correct reference list(these do not count in word count).

CASE STUDY – Dell
Computers.doc#_ftn1″ title=””>[1]

Introduction

Dell
Computers was founded by Michael Dell in 1984 and has its corporate
headquarters in Round Rock, Texas.
Michael Dell’s winning idea was to sell computer systems directly to
customers, allowing him and his company to understand customer needs well and
therefore to provide the customer with the most appropriate computing
solutions. Dell still practices the
direct business model, saving time and cost by bypassing retailers and passing
on the cost savings to the customer.
Dell takes pride in its ability to provide customers with the most
up-to-date technology more quickly than its competitors that still rely on
slower indirect distribution channels.

Dell has
a major presence on the internet, having launched dell.com in 1994. By 1997, Dell was generating $1 million daily
in online sales – the first company to achieve this mark. At dell.com, customers can put together their
own computer system, order it online, and track its flow from manufacturing to shipping. Dell also offers its premier.dell.com Web
pages, allowing business and institutional customers to conduct online
business. Currently, Dell receives about
two billion page requests per quarter, covering 81 country sites, 28 languages
and dialects, and in 26 different currencies.

The Computer
Industry

The
market for personal computers has been growing rapidly for several years with
little end in sight. As of the end of
the year 2000, approximately 120 million PCs were sold worldwide. Projections
for the next five years of industry sales are as shown below:

Year

2001

2002

2003

2004

2005

Market
Size (in millions)

136

152

168

184

200

Competition

The PC
industry has four major competitors: IBM, Dell, Compaq, and Hewlett-Packard
(HP). All four make and sell competitive
mid-range performance PCs, with the typical configuration for home or small
business use costing approximately $1000.
Dell’s variable costs per unit total about $800, and it is believed that
competitors face a similar variable cost structure. The Executive would be priced competitively,
at about the same price level of $1000.

A recent
study of the home/small-business PC market found that most customers considered
two important non-price attributes when selecting a PC, flexibility and
performance. Flexibility refers in this
situation to a PC’s ability to run several different kinds of software, to be
easily connected to printers and other peripherals, suitability for business as
well as educational or game use, and so forth.
Performance, by contrast, referred to speed of internet connection and
internal calculations, support of the highest-end software programs, and
reliability and accuracy of calculations (the study was done soon after the
infamous Pentium “bug” was found, which caused a very small percentage of numerical
calculations to be slightly wrong).
Using familiar customer survey methods, the consultants conducting the
study found the perceived positions of each of the four major brands on the two
key non-price attributes. In the same
survey, customer preferences were also gathered, and these were used to
identify “ideal brands” and assess the number and size of customer benefit
segments in the marketplace. Three
segments were identified. Segment 1 (about 20% of the market) prefers highly
flexible PCs, Segment 2 (about 50% of the market) likes high-performance
machines, and Segment 3 (about 30% of the market) values a combination of the
two attributes. The results of the study are summarized below.

Attribute
1
(Performance)

Attribute
2
(Flexibility)

Size of
Segment Relative to Market

Ideal Brands by
Segment

Segment 1

-0.5

3

0.2

Segment 2

2

-1

0.5

Segment 3

1.5

1.5

0.3

Brand Positions

Dell

1

-1

IBM

2

-1.5

HP

1

3

Compaq

0.5

0.5

Dell’s Marketing
Budget

As its
product line has expanded and competition has continued to be fierce, Dell has
allocated significant budgets to both advertising and distribution. Considering first its distribution policies,
Dell uses two principal channels. First
is the lower-end channel, used to target PC users who need simple, stand-alone
solutions to their PC needs. These users
include a large number of both home users and small businesses, and are
primarily targeted through superstores and discount clubs as well as through
on-line shopping. Users with more
complex needs are targeted via specialty computer stores that can provide more
high-touch customer solutions. This
target group also comprises both home and business customers.

If Dell
is to launch its new Executive PC, the extensive, multiple distribution channel
arrangement is expected to cost in the order of $500 million yearly. The advertising budget is similarly in the
range of about $500 million as extensive consumer advertising across multiple media
and vehicles is complemented with substantial trade advertising to all dealer
sizes and types.

In
preparation for a financial analysis, Dell’s consultants developed the
following set of estimates regarding the impacts of the advertising and
distributional expenditures on Executive PC sales. Note: in this durable-goods context, certain
terms need to be redefined carefully. “Switching” refers to a current non-Dell user switching to a
Dell Executive PC the next time he or she purchases a PC, and “repurchasing”
refers to a current Dell user purchasing
a Dell Executive. Note also that sales
promotions such as coupons are irrelevant for this particular firm, so sales
promotion budget should be left at zero and the “probability of trying a
received sample” line should be ignored, as it has no effect on the
calculations.

Long-Run Trial Probability (F)

0.7

Prob. of Trying a Received Sample (U)

0

Prob. of Switching to New Brand (Qkz)

0.8

Prob. of Repurchasing New Brand (Qzz)

0.8

Financial Evaluation
of the Executive PC

Dell
wants to do a financial analysis of the Executive PC to assess the proposed new
product’s value. Much of the information
presented or calculated above can be used in making this assessment, though the
consultant team had to estimate some additional figures with the help of top
management. Estimates and managerial
input useful for the financial analysis include the following:

Fixed
(indirect) production costs = $100,000,000 yearly.
Corporate
overheads (exclusive of R&D) charged to the new product = $100,000,000
yearly.
R&D
to be charged to the new product: 2% of dollar sales, beginning in Year 1.
Cannibalization:
negligible.
Project
abandonment: negligible.
Tax rate:
34%, with no applicable tax credits.
Cost of
capital: 15%.
Working
capital:
Cash as percent of sales: 10%.
Inventory as percent of sales: 10%.
Accounts Receivable as percent of
sales: 15%.
Working
capital recovery in Year 5:
Percent of cash: 100%.
Percent of inventory: 80%.
Percent of accounts receivable: 100%.
Investment
in production facilities: one-time-only $100,000,000 charge in Year 0 (now),
depreciated over five years using the straight line method.

Dell Computer
Discussion Questions

According to the PERCEPTOR model, what
are the positions of Dell and its competitors in the product space defined
by the two most important attributes?
How do your positions, and competitive positions, relate to the
ideal brand positions of the segments? Which of the brands are well
positioned in this market, in your opinion? What are the projected market shares for
Dell and its competitors based on this model?
What marketing mix (advertising and
distribution) will you recommend?
Use ASSESSOR to allocate the marketing budget and develop a market
share estimate. Use the initial
proposed budgets for yearly advertising and distribution, and assess how
much market share is affected if these budgets are changed (keeping the
total amount expended the same as Dell considers this to be an absolute
ceiling on marketing expense). How
do the market share estimates obtained by PERCEPTOR and ASSESSOR
compare? To answer this question,
use the information provided in the case, together with the following
additional information obtained from the consultants:

FOR THE ADVERTISING RESPONSE FUNCTION

Reference Budget:

$200,000,000

Minimum Share:

5.0%

Maximum Share:

90.0%

Exponent:

1.3

FOR THE DISTRIBUTION RESPONSE FUNCTION

Reference Budget:

$200,000,000

Minimum Share:

0.0%

Maximum Share:

90.0%

Exponent:

0.8

Using the FINANCIAL worksheet, do a
five-year projection for Dell’s Executive PC using market shares obtained
from PERCEPTOR or ASSESSOR. Assume
the market share projected for Year 1 by PERCEPTOR or ASSESSOR is
maintained through Year 5. Hint:
When using the FINANCIAL worksheet, make your entries of unit sales in
thousands of units, and dollar figures in thousands of dollars. That is, to enter 30 million units, type
“30000,” or to enter indirect costs of $100,000,000, enter “100000.” This minimizes the number of zeroes in
the spreadsheet and facilitates interpretation. Caution: Add back the zeroes when
obtaining results. So if your NPV
shows “$2,000,000,” it really means $2 billion!

Suppose
Compaq repositions positively on the performance attribute at the end of
year 2. Go back and recalculate
market shares for the four brands, and use this market share estimate for
years 2 through 5 to recalculate your five-year projection using the
FINANCIAL worksheet. How much is
Dell affected by this repositioning by Compaq? What steps could Dell take now to protect
its position? Explain.
Considering
all of the above information, should Dell launch the new Executive
PC? Explain why or why not.

MARKING CRITERIA
SHEET FOR CASE STUDY

CRITERIA

MARK

Overview
of the case(10%)
·
Coverage
of background of case(5 marks)
·
Brief
summary of the case problems(5 marks)

Question
1
·
According to the PERCEPTOR model, Students
are required to describe what are the positions of Dell and its competitors
in the product space defined by the two most important attributes. (5
marks)
·
Students are required to analyse on how
Dell positions and competitive positions, relate to the ideal brand positions
of the segments. (5 marks)
·
Students are required to identify which of
the brands are well positioned in this market with reasons. (5 marks)
·
Students are required to explain on the
projected market shares for Dell and its competitors based on this model. (5
marks)

Question
2
·
Students
are requried to recommend onthe marketing mix (advertising and
distribution). (10 marks)
·
Students
are requried touse ASSESSOR to allocate the marketing budget and
develop a market share estimate. Use
the initial proposed budgets for yearly advertising and distribution, and
assess how much market share is affected if these budgets are changed
(keeping the total amount expended the same as Dell considers this to be an
absolute ceiling on marketing expense). (10 marks)
·
Students
are requried todiscuss on how do the market share estimates obtained
by PERCEPTOR and ASSESSOR compare? To
answer this question, use the information provided in the case, together with
the following additional information obtained.

Question
3

·
Suppose Compaq repositions positively on
the performance attribute at the end of year 2. Studnets are requried to go back and
recalculate market shares for the four brands, and use this market share
estimate for years 2 through 5 to recalculate your five-year projection using
the FINANCIAL worksheet. How much is
Dell affected by this repositioning by Compaq. (5 marks)
·
Students are required to recommend steps
Dell could take now to protect its position. (15 marks)

Question
5
·
Students are requried to recommend on
whether Dell should launch the new Executive PC and explain why or why not.
(10 marks)

Conclusion
·
Summarizes
solutions(10
marks)

References
(10%)
·
Adequate
& appropriate in-text referencing
·
Consistent
referencing style used (i.e. consistent style used throughout text and in the
reference list)
·
In-text
references match reference in the reference list

Formatting
of proposal (10%)
·
Includes
cover page
·
Proper
headings, fonts & spacing
·
Includes
page number on the report
·
Includes
an appropriate title of the project
·
Appropriate
use of appendix

TOTAL:

.doc#_ftnref1″ title=””>[1] This case was written by Prof. C. Anthony Di Benedetto and is based
on public information, including information at www.dell.com. The
“Executive” is a disguised product name.
Market size and market share information is realistic for the leading
competitors. Note that there are more than four key players in the computer
industry but that some simplifying assumptions were made for the sake of
presentation. Positioning information
and company/industry financial information is not based on fact but is meant to
illustrate concepts of product positioning, advertising decision-making, and
financial analysis.

 

ANSWER:

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