Wednesday, July 06, 2016

How to prepare your business strategy

Here is the answer to the business strategy of the chocolate manufacture, shown in this problem.

If you are Player 1, you made a profit of $77,800 during the past year. The highest profit $11,500 is made by Player 8. Both players produced and sold 357 cartons, but Player 8 made a bigger profit by charging a higher price $968 (compared to $888 charged by Player 1.

As there is good demand for the chocolate, the higher price charged by Player 8 did not affect the sales.

Lesson 1: Do not underprice your product when there is a good demand!

The price of $1,000 charged by Player 2 is too high. The sales went to Player 8,leaving an unsold stock with Player 2.

The market demand for next year is expected to be the same as this year. The cost is also expected to be the same.

A good strategy is for the players to follow the price, capacity and advertising of Player 8 because it produced the highest profit.

As the profit margin is 33%, some player may decide to reduce the price and increase the capacity. This may upset your strategy and may reduce your sale, if you price the chocolate at $968.

Lesson 2: Do not take things for granted. Be ready for a competitive and dynamic market.

Will this happen?

You will know the result, when you play the business simulation game.  The game will be ready by next week.

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