Prasoon Kumar |PGP27236

Black Bay Batteries Simulation

Broad Strategy
Based on previous class exercise the focus is on improving profit margin by reducing
the variable cost
Investments has to be done only if it affects the profit margin favourably
Follow market expectations (News trends and customers expectations)
Pricing Strategy








In the first year, news suggested that Power tools market had grown by 37%, hence to skim
the market and generate revenues for future research price of only NiMH batteries was
increased as it contributed to 80% of total revenues. Price of UC batteries was kept
unchanged as it was already overpriced as per customers expectation.
Price was changed according to market news keeping in mind the customers expectation
about price. In later years as price war started happening focus shifted to improve the
operational efficiency for reducing variable cost.
Not much change in the price of UC has been made as its contribution was already in
pressure. It has been only changed in later years when improvement in operational efficiency
reduced its variable cost.




Year NiMH Ultracapacitor
Price Variable
Cost
Price Variable
Cost
2013 $12.00 $6.28 $20.00 $24.02
2014 $9.00 $6.10 $20.00 $23.70
2015 $8.00 $5.59 $20.00 $23.35
2016 $9.00 $4.38 $20.00 $22.58
2017 $10.00 $4.28 $20.00 $21.42
2018 $8.50 $4.27 $20.00 $20.81
2019 $8.50 $4.25 $19.00 $14.81
2020 $7.50 $4.23 $18.00 $11.36

R&D Expenditure Strategy
2013 NiMH $9.0M
UC $2.0M
2014 NiMH $6.0M
UC $0.0M
2015 NiMH $9.0M
UC $0.0M
2016 NiMH $4.0M
UC $5.0M
2017 NiMH $4.0M
UC $4.0M
2018 NiMH $3.0M
UC $0.0M
2019 NiMH $0.0M
UC $5.0M
2020 NiMH $0.0M
UC $5.0M

In initial years the R&D expenditure was focused on Poccess improvement of NiMH only, as
its contribution to total revenues was around 80% of total revenue. The investment in Process
improvement was done to bring down the variable cost and improve the profit margin. In
later years as the market of NiMH started getting saturated, R&D investment was infused in
UC.
Investment in other R&D options was not considered as the breakthrough improvements
expected in the given short time frame were not justified.
Income
Statement

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Revenue from
NiMH
$134
.06M
$183
.16M
$241
.11M
$156
.82M
$274
.56M
$216
.53M
$152
.75M
$70.
39M
$109
.85M
$106
.91M
$137
.50M
Revenue from
Ultracapacitor
$50.
62M
$56.
89M
$61.
56M
$66.
67M
$68.
98M
$65.
61M
$87.
53M
$56.
84M
$55.
50M
$61.
08M
$67.
03M
Total Revenue $184
.68M
$240
.05M
$302
.67M
$223
.49M
$343
.54M
$282
.15M
$240
.28M
$127
.22M
$165
.35M
$168
.00M
$204
.53M
NiMH Variable
Costs
$87.
14M
$118
.15M
$154
.04M
$82.
08M
$186
.12M
$151
.30M
$74.
33M
$30.
10M
$55.
13M
$53.
42M
$77.
53M
Ultracapacitor
Variable Costs
$63.
28M
$70.
20M
$74.
97M
$80.
06M
$81.
74M
$76.
61M
$98.
84M
$60.
87M
$57.
75M
$47.
61M
$42.
31M
Gross Profit $34.
26M
$51.
69M
$73.
66M
$61.
36M
$75.
68M
$54.
24M
$67.
10M
$36.
25M
$52.
46M
$66.
97M
$84.
68M
NiMH R&D
Expense
$6.0
0M
$6.0
0M
$9.0
0M
$6.0
0M
$9.0
0M
$4.0
0M
$4.0
0M
$3.0
0M
$0.0
0M
$0.0
0M
$0.0
0M
Ultracapacitor
R&D Expense
$0.0
0M
$0.0
0M
$2.0
0M
$0.0
0M
$0.0
0M
$5.0
0M
$4.0
0M
$0.0
0M
$5.0
0M
$5.0
0M
$5.0
0M
Contribution
Margin
$28.
26M
$45.
69M
$67.
66M
$50.
36M
$69.
68M
$45.
24M
$58.
10M
$28.
25M
$49.
46M
$61.
97M
$79.
68M
From NiMH $40.
92M
$59.
01M
$81.
08M
$65.
75M
$82.
44M
$56.
23M
$74.
42M
$36.
29M
$51.
72M
$53.
49M
$59.
96M
From
Ultracapacitor
-
$12.
66M
-
$13.
32M
-
$13.
41M
-
$15.
39M
-
$12.
76M
-
$11.
00M
-
$16.
31M
-
$8.0
4M
-
$2.2
6M
$8.4
7M
$19.
72M
Other Fixed
Expenses
$36.
94M
$36.
94M
$36.
94M
$36.
94M
$36.
94M
$36.
94M
$36.
94M
$36.
94M
$36.
94M
$36.
94M
$36.
94M
Operating
Profit
-
$8.6
7M
$8.7
6M
$30.
73M
$13.
42M
$32.
75M
$8.3
0M
$21.
17M
-
$8.6
9M
$12.
53M
$25.
03M
$42.
74M
Cumulative
Profit
$0.0
0M
$0.0
0M
$0.0
0M
$13.
42M
$46.
17M
$54.
47M
$75.
64M
$66.
95M
$79.
48M
$104
.51M
$147
.25M

Individual Learning
Based on previous exercise in classroom it was found that investments in various
features were not giving much return in terms of profit improvement except
investment in process improvement so much of the focus in this round has been on
investment in process improvement
As contribution of NiMH in overall profitability was greater and market scope was
greater for it, initial investment was done in the process improvement of NiMH
While investing in R&D, when the improvement becomes flatter ,the investments
should have withdrawn as the investment affects the profit margin