Keegan Sikazwe_ Tata Simulation Paper

Tata Simulation Paper

Keegan Sikazwe

DMBA 630, Marketing and Strategy Management in the Global Marketplace

The Tata simulation took advantage of the presence of experts in the areas of marketing,
technology, and finance to make operational decisions that would enable Quasar Computers
improve the market share of its optical notebook computer.

Because the development of the worlds first all-optical notebook (Neutron) computer by
Quasar enabled the company to enjoy a monopoly, most strategic and operation decisions related
to this product had to make use of this enabling monopolistic environment. Some of the key
factors considered in our decision making processes during the monopoly stage (three years) of
the Neutron were:

Lack of competition due the existence of entry barriers

Lack of close product substitutes
The potential for economic profits
Lower cost i.e. no need for advertising

Most of the consumers of our product during the first three years were corporate clients and this
situation enabled Quasar Computers to have an advantage when it came to pricing the Neutron.
This is because most corporations loved the product but they had no alternatives to compare to.
As a result, Quasar Computers realized very good economic profits from its sales because prices
were set high enough to cover all costs.

Beginning in 2003, prices were set at $2,550 per unit, resulting in the low total costs of
$12.18B, total revenues of $13.5 Billion, and total profits of $1.29 Billion. Prices could have
been set lower to achieve higher revenues. However, these low prices could have resulted in
higher operating costs which would have lowered our total profits. For instance, with unit prices
of $2,450, total costs would have been $12.36B, with revenues at $13.7B while profits would
have gone down to $1.28B.

In 2004, management found it necessary to launch an advertising campaign to improve

product awareness in readiness for the changes in market structure two years later after the patent
expires. Therefore, management took the advice of Robert, the Vice President of marketing, and
spent $600M on advertising and reduced unit prices to $2,450. Even though this strategy led to
an increase in operating expenses by $3.88B, total revenues increased by $5.30B, and profits
rose by $1.45B.

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Keegan Sikazwe_ Tata Simulation Paper

Although revenues and profits showed a remarkable improvement during 2004, the rising
costs were a source of concern. Therefore, management felt the need to reduce costs, and the best
alternative for achieving this objective was through optimization of product processes. Product
process optimization would help the company with minimization of overhead costs to eliminate
unnecessary production steps and reduction of transaction costs. Consequently, management
decided to improve the entire production process in order to reduce per unit production costs and
pass on some of the savings to our customers in the long run. Even though unit costs and
overhead costs slightly went up after process improvements and profits reduced from $2.74B to
$2.21B; it was justified due to the negatively sloping demand curve in the monopoly market
structure. Management was simply preparing the firm for the future when the market would
change from a monopoly to an oligopoly and eventually a monopolistic competition when rivalry
would become a reality.

The expiration of the patent in 2006 exposed the firm and the all-optical notebook to new
challenges as new identical products were introduced by new entrants to market, which resulted
in low revenue and reduced profits. Management tried to counter these challenges by matching
the prices of competitors in order to maintain at least a 50 percent market share. With prices
matched at $1,900 per unit, Quasar Computers profits were $270M whereas those of the
competition were at $36M. The losses by the competition were attributed to high costs and
production processes that the competition were just trying to master while Quasar Computers
had re-engineered its processes and the Neutron was a known product compared to the
competitor products.

By the year 2010, competition had increased and Quasar Computers market share was
beginning to shrink, an event that prompted management to embark on differentiation strategies
for its products. As a result, a new product was developed to offset the loss in market share
suffered by the Neutron. In addition, $200M was allocated to Ceres, the companys new product
for brand development and advertisement. This decision resulted in combined profits of
$1,304M. Additionally, $40M was spent to improve the production processes in the newly
acquired division and these improved led to reductions in the per unit rejection rates of $0.25 and
increases in material usage efficiency savings of $0.05 per unit. In addition, there was reduced
downtime leading to savings of $0.15 per unit. Overall, the total savings accrued during the six
month period were $108 per unit and profits increased by $0.2 per unit. With these cost
improvements, management believed that the company will be able to make supernormal profits
in the long run despite a slight fall in prices.

The simulation was very helpful in enhancing my understanding of the different stages
that a product goes through and how a company can cope with the changing four market
structures as they changed from a monopoly to perfect completion. Quasar Computers was able
to control the product pricing and profitability by understanding the economic and competitive
environment and by predicting how the competition was likely respond.