Team Erie 09 Capstone Earnings Memo

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University of Washington, Bothell *

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310

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Marketing

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Jul 1, 2024

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Team Erie 09: Jet Wonglakorn, Nik Gorbs, Evan Hansen, Dominic Bui, Sam Burns Capstone Earnings Memo Our Strategy: For this simulation, we implemented the broad differentiator and niche cost leader strategy in an attempt to distinguish our products with high awareness, attractive designs, and accessibility while also focusing on securing the low-end segment. In the first half of the simulation, we struggled to obtain sales in all segments of the market due to the extreme competitiveness. Following a few underperforming rounds, we decided to invest heavily in our research and development and marketing in hopes of gaining greater market share in the industry. We redesigned our products to offer better performance and increased reliability. For our marketing department, we focused on increasing promotions and more competitive pricing to attract more sales. We made a significant profit coming into the fifth round which only grew towards the end of the simulation. We regained a significant market share in the traditional, low-end, and high- end segment resulting in Erie generating the most profit in the last round. Initially, we struggled in the industry with our strategy but towards the end, we were the most dominant player in the industry. Performance met expectations: Our strategy led to the performance we expected because our main goals were to turn a profit, increase market share in all segments, and stay competitive. Initially, our strategy caused the company to underperform in the first few rounds due to several factors. Some of the factors were briefly mentioned in the section above, such as the lack of investment in R&D, which caused our product’s quality to fall behind our competitors in all segments. We tried to save the R&D costs but realized that our products’ ideal positions were not close enough to capture the most demand from

consumers. For instance, we kept updating our low segment product which lowered our age revision, then we invested more to increase age revision which took at least a year and made the product almost fell out of the demand circle. Marketing budgets were low compared to the competitors which caused the awareness and accessibility of our products to decline. The profits by team chart demonstrated that we underperformed by the first four rounds, which is when we realized that our strategy was not implemented properly. We ramped up our R&D, marketing budgets, and automation in all segments to significantly lower our production costs and increased higher contribution margins. This allowed us to price our products even more competitively and after round four we began to climb to the top. This reinforced that our strategy worked as expected and led our performance to a much more positive outcome. Crucial Decisions: For the majority of the project, we all decided that each member would be left in charge of their own sections. When our respective sections were done, we would alert each other. Throughout the project, we made crucial decisions that would lead to both bad and beneficial results. Our decisions in Round 1 to over-produce and rely on overtime to save costs on hiring new employees resulted in 4 th place with a cumulative profit of -0.8 million while 1 st and 2 nd place had 4 and 2.3 million respectively. Another crucial decision was to invest heavily in automation early on. While doing so initially contributed to big losses, it helped near the end of the simulation. Production in later rounds became significantly cheaper regardless of workforce complements because of early investments. We also decided on boosting our stock prices by handing out dividends and retiring debt early which helped lower interest costs and compensate for losses related to leftover inventory. Leftover inventory played a significant role in lowering profits during Round 4, which in turn resulted in major losses for the remainder of the project. A glitch occurred where data would revert to older numbers when a section was updated. The results showed that, despite making more sales than estimations and production stated, we ended up with a large excess of inventory.

Major Takeaways About Strategy: The Capstone simulation provided us with an amazing opportunity to run a multi- million-dollar company and learn from our decisions and improve strategy. For a strategy to be effective all department heads needed to be working towards the same goal. Communication is an important part of executing a strategy. If department heads did not communicate with the others, our strategy would have flaws and gaps in execution. We learned that competition plays an important role in strategy. Strategic investments into automation, R&D, and marketing can improve the product to outperform the competition. Lastly, we learned strategy comes down to observations, adjustments, and calculated risks to achieve the best net profit possible. Effect of Communication on Profits: To make our decisions, our team met every Monday to review the Capstone Courier and strategize for the upcoming round. We used WhatsApp to communicate questions and concerns about the round. The graph below compares the number of texts we sent in the week prior (whole units) compared to the profits we made that round (millions). In our first round, we did not communicate frequently because we were overconfident from our practice rounds. After this round, we increasingly communicated each subsequent round, peaking in round 5. Besides round 4, when an error in the simulation negatively impacted profits, increased communication led to greater profits. In rounds 6 and 7, we reaped the benefits of that communication with larger profits. Because our strategy was cemented, we did not communicate relatively as much in those rounds.

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Overall, our process worked well other than in round 4. After the error in round 4, we started sending pictures of our final amounts for each section for improved visibility to avoid another potential error. In hindsight, we should have done this every round to ensure minimal errors.

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