Strategy Implementation and Monitoring
Paper details You are a senior manager of a video game hardware platform producer. Each year, you have three decisions to make: 1. Determine the price of the video game console; 2. Determine the number of video games that your company will subsidize to enhance the development of new video games (and that can be played on your company’s video game console); be sure to note that the subsidy of each new game costs you $16.2M each year; and 3. Determine the royalty percentage you will require game makers to pay you (the higher the royalties, the more revenue you earn on new games, but the less inclined game makers are to develop new games). At the start of the simulation, your market share is 50%. The price of your video game console is $250.00 (note that your competitor’s market share is 50%, but your competitor’s console price is $370.00 (hint: you are vastly underpriced to begin the simulation). As the CEO, it is your task to make decisions one year at a time. As you do so, note how key data are changing, and take note of how your pricing, changes made to royalties, and new game subsidies change your profits and your market share. You may need to go through at least one practice run of the simulation in order to become familiar with it. One way of becoming familiar with the simulation is to change only value, leaving the others constant. This will isolate the impact of one variable, and will give you a sense of how the change in a single variable impacts revenue, market share, etc. (use the Dashboard and the financial statements to determine this). For example, if I leave all variables unchanged in Year 1 (price = $240; Game titles to subsidize = 3, and Royalties = 15%), my market share becomes 69% at the end of Year 1 (and my net profit is $48.0M). In contrast, if I reduce the console price to $230, my market share becomes 71% at the end of Year 1 (and my net profit is $33.6M). Importantly, if I increase my console price to $330, my market share at the end of Year 1 is 58%; however, my net profit is $140.8M! As the CEO, your task is to find the best combination of changes in the three variables that both increases your market share and earns a maximum net profit. Remember that the changes are relative; there are no right or wrong answers. Your goal is to use the knowledge you have acquired from previous courses (Accounting, Marketing, Finance, etc.), and allow the various statements and the Dashboard to guide you in your analysis, accumulating high market share and revenue. Be sure to take note of how the statements may be used to “control” your strategy! Remember that you need to cover your costs, while simultaneously turning a profit and increasing your market share. As the CEO, you are asked to run the simulation a minimum of three (3) times, noting the changes made each year, as well as your final results. Then, write a memorandum to your Board of Directors, informing them of how changes in the variable (e.g., the price of the console; royalties paid by the game maker; and changes in the number of game titles subsidized) affect total market share, revenue per year, and net profit per year. Be creative, and include some tables and graphs in your written analysis to show your changes and/or results.