Capstone 1-2: SITUATION ANALYSIS

1. On the Perceptual Map, all segments drift to the lower right. Which segment drifts at the fastest
rate? Which drifts at the slowest?
As the drift table indicates, the High End segment drifts at the fastest rate of .9 per round in both
Performance & Size with a combined rate of change of 1.8. However, the Performance segment and Size
segment drifts slightly faster with Performance at 1 Size at .7 and Performance at .7 and Size 1 respectively
with a combined rate of change of 1.7.

The slowest segment drift is the Low End segment with changes of .5 in both Performance & Size
with a combined rate of change of 1.
2. Each Segment’s Ideal Spot shows the buyer’s preferred coordinates within the circle. Why is the
High End Ideal Spot to the lower right of the segment center? Why is the Low End Ideal Spot to the
upper left of the Low End segment center?
The High End Ideal Spot is to the lower right of the segment center because this segment favors
new technology which places a premium on better performance and smaller size. As such, the ideal spot
indicates the most cutting edge technology. The Low End Ideal Spot favors technology that has been on the
market for several years to work out the bugs often associated with new products and prefers low price.
3. On a unit demand basis, the Performance Segment is growing at the fastest rate, 19.8% each year.
In which round will demand for Performance products exceed the demand for Size products?
As the growth demand table below illustrates, demand for Performance will exceed Size in Round 3.

Round 0 Round 1 Round 2 Round 3 Round 4 Round 5

Performance 1,915 2,294.17 2,748.42 3,292.6 3,944.53 4,725.55
Size 1,984 2,347 2,776.59 3,284.7 3,885.8 4,596.9
4. Explain how increasing First Shift Capacity can reduce per unit labor costs.
Increasing First Shift Capacity will reduce the need for overtime to meet the growing demand.
Overtime is paid at 150% of First Shift pay and thereby increases the per unit labor costs. Eliminating the
need for overtime by increasing First Shift Capacity will therefore reduce the per unit labor costs.
5. Automation reduces per unit labor costs but it has two disadvantages. What are these?
A. Longer R&D times for short distance repositions. Longer moves on the perceptual map are
less affected.
B. It is expensive – $4 per point; to increase 9 points (from 1 to 10) costs 9 x $4 = $36 per
unit of capacity.
6. A product’s margin is determined by subtracting its manufacturing costs (labor and material)
from its price. Logically, higher prices and lower labor and material costs result in higher margins.
Keeping in mind the Customer Buying Criteria, how would you increase margins for a Low End
product? How would you increase margins for a High End product? Hint: The criteria can be found
in the Capstone Courier Market Segment Analyses.
To increase margins for a Low End product, you would reduce labor costs by having a highly
automated manufacturing process since changes in the manufacturing process are very, very rare. To
increase margins for a High End product, you would increase the acceptable price level to the consumer
since they are less price sensitive than the Low End segment and also reduce labor costs by limiting the use
of Overtime & 2nd Shifts and reduce material costs by using lower cost materials that are at the low end of
the MTBF range.
7. The Consumer Report indicates how customers perceive your product offerings. For example,
Reliability (MTBF) is very important to Performance customers. What is the current MTBF for your
Performance product? Given the desired range for Performance customers (found in the Buying
Criteria) how many hours would it need to be raised to receive an "A" on the Consumer Report?
The current MTBF for the Performance product is 25000, which is within the ideal range of 22000-
27000. To receive an “A” in the Consumer Report it would need to be within the top 1/3 which is 25334+.
To receive a “B”, it would need to be in the range of 23667-25334. To receive a “C”, it would need to be
less than 23667.