operational variables
This chapter discusses the operational variables production, demand and sales. A separate analysis is made for each of the three periods. This analysis also includes comparisons with competitors in each case.
Period 1
production, demand, sales
In period 1, 1 production unit was bought that could produce 26,000 smartphones. It was decided to adjust production capacity for all 4 possible smartphones. However, the focus was placed on the Adv and Summit. The detailed breakdown of production per smartphone is as follows:
- Bass 15 %
- Goo 20%
- Adv 35 %
- Top 30 %
It can be seen that too little Bas was produced to meet demand. Only 3,900 Bas smartphones were produced while there was a demand of almost 6,000. On the other hand, for the Goo, Adv and Top models, too much was produced leaving a large stock for each. The more expensive the model, the more stock was left.
competition
Chart 6.2 shows sales by smartphone by group for the first period. A1 scores best in smartphone Adv sales but is clearly at the bottom for the other models. Consequently, A1’s total sales are the lowest in period 1. This is due to:
- Selling prices too high
- Too little produced in Bas
- Too little use of advertising
Conclusion
The first period was not a good one for A1 and they are bottom of the league. The approach for the next period will have to change. First, a price change is going to have to happen in smartphones because the competitor had a lower price and therefore a competitive advantage. Production capacity will have to be more adjusted to demand with even more focus on the more expensive models. One advantage for A1 in the coming period is that there is a large stock remaining of Goo, Adv and Top. This will allow more money to go into advertising and less into production in the next period.
Period 2
For period 2, investments were made in a second production unit and multiple shops. Smartphone prices were lowered but the production allocation remained the same:
- Bas 15%
- Goo 20%
- Adv 35%
- Top 30%
New 32,000 smartphones were produced and stock from the previous period was carried over. At Goo and Top, production was less than demand -as you can see in Figure 6.3- but the transferred stock still allowed full demand to be met. There is even a relatively small stock left for both models. There was also less production than demand for Adv, and even with the transferred stock, there were not enough Adv smartphones to meet the full demand. So here, in hindsight, better production allocation was still possible. For Bas too, production was less than demand but since this is the cheapest smartphone, it is less of a problem that demand could not be met here.
Competition
Chart 6.4 shows the sales per smartphone of each group in period 2. A1 has clearly caught up and has provided the most sales in the two more expensive models Adv and Top. For the less expensive models Bas and Goo, there are competitors with more sales but as the total sales in this segment are smaller, A1 still has the largest total sales of period 2. A1 is now from the top of the market and this is due to better set selling prices and the right investments.
conclusion
Turnover in period 2 was highest at A1 which is now also from the top of the league. Thanks to more knowledge about the market, the right investments were made and better pricing was achieved. The entire produced stock could be sold and on top of that a large part of the transferred stock. The remaining stock has shrunk considerably compared to previous period. Good brand recognition was also achieved and this is an additional important asset for the next period.
period 3
45,000 smartphones were produced in period 3 due to the purchase of a final production unit. The strategy at this period also changed again. First, much more investment was made in distribution points and shops. Secondly, prices were lowered even more to now undercut competitor prices. Finally, the production distribution changed heavily and almost all capacity was put on the production of the more expensive Adv and Top models.
| A1 | Production | Demand | Sales | Stock |
| Bas | 9.000 | 10.612 | 9.000 | 0 |
| Goo | 6.750 | 7.250 | 7.250 | 701 |
| Adv | 15.750 | 17.733 | 15.750 | 0 |
| Top | 13.500 | 15.524 | 14.069 | 0 |
Production did not meet demand due to unexpectedly high demand. Fortunately, there was still some extra stock which allowed more to be sold. Only for the Goo type smartphone was there enough stock and production to meet demand. So the choice to bet in full on the more expensive models turned out to be the right one because they were all sold. Even more could have been produced.
Competition
In the latest period, A1 achieves the highest turnover and cash flow with almost every mobile phone as you can see in chart 6.6. This is due to the extra investment in production and further lowering the selling price. Especially in the more expensive Adv and Top models, A1 stands out far above the competition, making A1’s total turnover in period 3 by far the highest.
Conclusion
In the last period, the lead has not only been maintained but expanded even more. This is due to the low selling price that had been put on each smartphone but it is also due to the large investments in shops and distribution points. Finally, choosing to focus on the more expensive smartphones was also a very good strategy.
