CAPSTONE© SIMULATION STRATEGY - ANDREWS

The purpose of this report is to:

1. Briefly describe market trends and segmentation in Capstone© simulation.
2. Illustrate the basic strategy adopted for the simulation.
3. Provide general guidelines to apply the adopted strategy along the competition.

1. Market and Segments.

Table1 provides an overview for each market segment at the beginning of round 1:

a) Traditional, Low End and High End segments make together about 80% of total initial
market, both in units demand and potential sales.
b) On the other hand Performance and Size segments have the higher growth rate (19.8%
and 18.3% respectively). However:
- Higher growth rates do not necessarily result in higher growth quantities (e.g.
19.8% of Performance represents as much as half the quantity of 9.2% of
Traditional)
- It is not certain whether this trend will continue in the future rounds.
c) In general High End, Performance and Size segments are expected to be related to
higher R&D and production costs due to the following variables:
- Lower ideal age (frequent engineering and re-engineering required)
- Higher required performance, MTBF and higher position drift rates
- Smaller required size
Although they can also be priced at an higher level, point a) already takes into account
prices when calculating segment’s potential sales.

2. Basic Strategy Adopted

On account on the previous considerations we will pursue a “Differentiation With Product
Lifecycles Focus” strategy, focusing on the High End, Traditional and Low End segments, with
special emphasis on:
d) keeping pace with the market evolution, by frequently improving existing products and
launching new ones
e) building high awareness and easy accessibility to our products
f) pricing above average

Through this approach we will be able to target the larger portion of the market, as mentioned in
previous points a) and b), and to partially limit higher R&D costs mentioned in point c) to the only
High End products. On the other hand Low End and Traditional segments will ensure a solid
and more stable base to our business.

3. Putting The Strategy in Action.

- R&D: in order to keep up with the market we will have to plan ahead frequent launches of
new products and manage continuous and gradual updates to existing ones, especially in the
High End and Traditional segments.

- Sales and Marketing: in order to build high awareness and accessibility, we will leverage on
Promotion and Sales budget, with special focus on new launched products.

- Production: as a general rule we won’t considerably increase automation, as it increases

required time and investments to deliver R&D projects, which we plan to do frequently. Higher
variable costs will be compensated by high prices, while a slightly different approach to
automation will apply for Low End products, whose lifecycle is longer.

- Performance and Size segments: sensors in this segments will not be immediately
discontinued, in order to keep the benefits from current revenues. However we will not make
new investments and we will adopt a gradual exit strategy, progressively selling capacity as the
demand diminishes.
Table 1: Segments overview

BEGINNING OF ROUND 1
Max
Segment
Industry Growth Ideal Price Pfmn Size
Unit % Industry % Industry MTBF
Segment Size Rate Age Range Pfmn Drift Size Drift
Demand (Units) ($) Range
[$000] Next Year [Years] [$] Per Year Per Year
[.000]
(Note 1)
Traditional 7,387 32% 221,610 32% 9.2% 2 20 30 5.0 0.7 15.0 -0.7 14000 19000
Low-End 8,960 39% 224,000 33% 11.7% 7 15 25 1.7 0.5 18.3 -0.5 12000 17000
High-End 2,554 11% 102,160 15% 16.2% 0 30 40 8.9 0.9 11.1 -0.9 20000 25000
Performance 1,915 8% 67,025 10% 19.8% 1 25 35 9.4 1.0 16.0 -0.7 22000 27000
Size 1,984 9% 69,440 10% 18.3% 1.5 25 35 4.0 0.7 10.6 -1.0 16000 21000

TOTAL 22,800 100% 684,235 100%

Note1. Max industry size calculated considering maximum chargeable price per segment.