Capsim Situational Analysis Report
Perceptual Map Analysis:
The analysis is based on Andrews Company in round 4. The company has 5 products Able, Acre, Adam, Aft and Agape.
The products fall under various segments as listed below, according to production statistics across the segments.
- Able – Traditional
- Acre – Low
- Adam – High
- Aft – Performance
- Agape – Size
According to the statistics, the company is using broad differentiator strategy across all the segments. This is because the company has products in all the segments and offers the same products at a relatively higher price, compared to some of the companies. It is not the only company using this strategy and it’s not the only company that is offering products at higher price. The competitors are also selling products at some segments at higher prices than the prices of Andrews under same category. For instance, Erie is offering its high tech segment product Emo at $37.99, while Andrews offers its high tech segment product Agape at $33.50.
The Analysis will be based on the analysis of two products Able and Agape. In round 4, the performance for Able is 6.8 and size is 12.9. The performance and size for Agape product is 5.2 and 8.8 respectively.
The courier report, production analysis report segment provides a great analysis on how the products’ inventory is as at round 4. The traditional segment product Able, has an inventory of 56, 000 units while the size segment product Agape has zero inventory. The Able product has maintained an ideal inventory to be carried forward to the next round, while its counterpart Agape has zero inventory for the next production round.
This indicates that the both the products have high market demand and that the customers have accepted the products offered by the company in both categories. Able is the third product preferred in the traditional segment as it enjoys 13% of the products in this segment. It is surpassed by Daze in Digby and Fast in Ferris.
The Agape product under the size segment enjoys only17%, of the market share. This product has however zero inventory as at round 4 and probably has a higher demand if only the company would produce more units for the market.
The overall capacity for the Andrews Company was lower than the production. This means that the company is producing less than it’s supposed to, and this could be attributed to market demand or flawed production schedule in the production department. Given the low inventory of the two products, Able and Agape, the company could be under producing the products and therefore not fully utilizing its plant and equipment. In the traditional segment, where Able falls, the company only reported 77% plant utilization. High capacity could also be caused by the fact that the market demand of the products is less in the market compared to the amount of potential that the company could offer in the market.
Contribution margin: The contribution margin for Able is 42% while the contribution margin for Agape is 38%. In general the company had higher market share than the potential market share as per the reports in round 4. This was also portrayed in the contribution market as the units sold were above the potential units sold.
Able Contribution Margin (Actual) – 42%
Units sold =1332000
Unit price= $28.30
Material cost = $9.78
Labor cost = $6.61
CM= (((1332000*28.30)-((9.78+6.61)1332000)) / (1332000*28.30)))*100 = 42.08%
Agape Contribution Margin (Actual) – 38%
Units sold = 638000
Unit price = $33
Material cost + $11.90
Labor cost = $8.49
CM= (638000*33.00) – ((11.90+8.49)63800)) / (638000*33.00)))*100 = 38%
Calculating potential contribution margin
Potential of Able is 11.5% of 1504000 units = 1208000 units
Potential of Agape is 14.7% of 371100 units = 546000 units
Potential CM Able as shown below
pCM = (1208000*28.30) – ((9.78+6.61)1208000)) / (120800*28.30)))*100
= ((34,186,400-19,799,120) / (34,186,400))*100
Contribution Margin Ratio = (Sales Revenue − Variable Costs)/ Sales Revenue
Potential sales revenue would be 11.5% of total segment units of 10504(‘000) = 1,208,000 units
After calculating actual and potential CM, I noted there is little or insignificant variation and therefore the contribution margins would be same at this point.
The company was able to satisfy customers in some segments and failed to satisfy customers in some segments. For the two products chosen Able and Agape, the company was able to satisfy its customers in the traditional segment as there was some inventory left, while the company was not able to satisfy its customers in the size segment with its product Agape. The company did not satisfy the consumers for the Agape product, and at the end of round 4, the product had zero inventory meaning the consumers had bought all the available Agape products. The company was able to surpass its potential market share and produced more capacity than what was rated potential. This can be attributed to products accessibility in the market which was about 80%.
According to the whole analysis and report portrayed, the company should adjust its production schedule. Notably, the company must buy extra capacity, or units for the Agape whose inventory is zero. Alternatively, the company can utilize its second shift production capacity so as to produce more units to offer in both categories.
Secondly, even though is making decent profit and remaining with ideal inventory at hand in round 4, the company should adjust its price for the tradition segment product Able. This is because price plays a very critical role in influencing the buying criteria for the products in this segment.