Case Summary
Emma Robertson, the Executive VIP in TerraCog, faced a critical challenge in the process of the product launch. Hence, her company is losing a market competition as it has refused to update its product for a couple of years even though the competitors introduced their redesigns long ago. Now that TerraCog’s sales keep falling, the company has finally decided to renovate the product.
In the meantime, the team members cannot come to a consensus regarding the product’s design. Hence, the sales manager insists on reducing the cost of the new product so that it is competitive with that of the rivals, while the product development team assures that the cost reduction is impossible, and the new product will cost 75$ more than the rivals’ offer in any case. Emma Robertson needs to find an alternative solution to ensure a successful product launch.
Underpinning Factors
On the face of it, the root of the disagreements within the team is evident. Hence, the sales VP bears his own interests – he realizes that the simplest way to sell a product is to offer an attractive price and does not want to consider any alternative options. The product design and Development VP wants to avoid the mistake of poor cost estimation, which his team has already made before, and insists on the “safe” cost.
In the framework of the situation analysis, it is likewise essential to note that the company already faced a similar precedent when the TerraCog team failed to make the necessary effort to hold its competitive advantage. Hence, according to the case study, when the Posthaste introduce its innovative GPS concept, the team decided not to update the company’s product of a similar type, even though it was evident that it was apt to lose in the market competition.
Moreover, it should be pointed out that according to the case study, the TerraCog team performs poor outcome evaluation on a regular basis. Thus, when the company’s sales fell because of its failure to compete with the rival’s new product, the team wrongfully attributed the success of the competitor to the high shopping season.
Another critical flaw of the company’s management that should be pointed out is the lack of the corporate mission and vision. Hence, it appears that TerraCog team substitutes these crucial concepts by the objective to push up the sales. Thence, their decision to update the product was initially determined by the sales’ decrease. Meanwhile, it should have been determined by the intention to meet the customers’ needs, to pursue a consistent and innovative policy, and to maintain the leader’s status in the market (Martins & Terblanche, 2003). In this case, the product would have been timely updated, and the sales would not have fallen at all.
In addition, the decision making process seems to be poorly managed in TerraCog. Hence, the record of the first meeting that targeted to discuss the implementation of the new product shows that little attention was paid to the product design and potential placement. Instead, the only emphasis was put on the problem of the low-cost production.
One of the critical mistakes that the management made was its failure to involve the product development team that could have shared valuable recommendations regarding the change. Meanwhile, the team was not involved in the common discussion; as a result, it was initially unmotivated. This example illustrates that Emma Richardson fails to ensure effective decision making in her team. As it is reported in the case study, the woman avoids involving different specialists as she is afraid that the numerous members of the discussion will complicate the process of decision making.
The report of the intermediate meeting represented in the case study shows that the teamwork is almost unmanaged. Hence, the member of the product development team has no idea of what he is requested to do; in addition, he is already occupied with other projects. The meeting objective is not indicated; as a result, the members shift from pricing to product positioning and fail to come to any consensus.
The Problem
The urgent problem that needs to be addressed is the product pricing. Thus, Emma Richardson has to decide whether the company should set a competitive price or assign the cost assessed by the product development team.
The Options
Emma Richardson can consider several options to address the problem. First and foremost, she can agree with the sales VP and set a competitive price for the new product hoping that the project development team will gradually find a solution how to reduce the production cost. In this case, Richardson can ask the product development team to revise the project’s design and work out a new low-cost concept.
Another option that might be considered resides in setting the price suggested by the product development team that is rational from the design expenses perspective but is significantly higher than the rivals’ offers.
Finally, Emma Richardson can likewise consider redesigning the product concept, so that it acquires some new characteristics that ensure its innovative character and compensate the high cost.
The Evaluation of the Options
Before making the decision, it is essential to evaluate each option and its outcomes.
Option 1: Set the Price Proposed By Sales VP
The Sales Department suggests setting a competitive price that will not exceed the cost of the rivals’ offers. Choosing this option ensures two positive outcomes. First and foremost, the company receives a chance to make an agreement with the retailers. Secondly, the competitive price will ensure high sales.
In the meantime, Product Development Department states that such price does not cover the expenses cost. Therefore, it can be assigned only on condition that the company is sure it will find alternative solutions to cut the production costs in future. If Emma Richardson chooses this option, she will need to motivate the product development team to redesign the product’s concept so that its production cost allows assigning a competitive market price.
In order to use this option, Emma Richardson needs to have a long-term plan that explains how the cost of production can be reduced and guarantees that the launch of the new product offered at a competitive price will not be loss-making. It should be realized that once the prices are set at a low level, it is highly problematic to raise them preserving the sales (Hinterhuber, 2004).
Option 2: Set the Price Proposed by Production Development VP
The Production Development Department suggests setting a price that is non-competitive in the market but covers all the production expenses. This option can be considered in case Emma Richardson can rely on the professionalism of the sales VP. The latter will have to reconsider the product launch strategy and define the beneficial features of the new product that will compensate the high price and ensure sufficient sales (Sherman, Berkowitz, & Souder, 2005). However, it should be noted that it will be problematic to find such features as the product copies the concept of those offered by the competitors; therefore, it cannot be represented as an innovation.
Option 3: Redesign the Product’s Concept
The last option implies reviewing the current product’s design so that it acquires some innovative features. As long as the Product Development Department insists that the price of the new product cannot be reduced, Emma Richardson can consider upgrading its design so that it acquires some new features that will distinguish the product from the rivals’ offers and ensure its competitive advantage in the market. The product redesign might require additional expenses. Moreover, the deadlines for the product’s launch might need to be reviewed and extended.
The Recommendation
It is recommended that Emma Richardson chooses the third option. The first option cannot be chosen as it is irrational to rely on the expectations that the Product Development Department will find an alternative solution to cut the production cost. Even the so-called “intuitive” decision-making requires evaluating the risks and analyzing the previous experience (Dane & Pratt, 2007).
As long as the product development team did not demonstrate its aspiration to overcome challenges in the past, it is impractical to expect it to demonstrate it in the future. Meanwhile, the product does not possess any features that could ensure its market advantage at present, so it is likewise irrational to choose the second option.
Moreover, if the product design is upgraded and the product becomes an innovation, it will still be associated with the products introduced by the rivals a few years ago. In other words, it will be an incrementally new product rather than a radically new product. According to the recent studies, the former are more likely to be in demand, as customers tend to search for a novelty without taking additional risks (Debryune et al., 2002).
In addition, whatever option Emma Richardson chooses, it is recommended that she organizes an efficient communication between the team members. It is crucial that all the employees share the vision of the project’s aim and the desired outcomes (Snowden & Boone, 2007). It seems that every member pursues personal aims that reside in minimizing the difficulties for their departments at present. Therefore, it is recommended that Richardson explains the purpose of designing the new product and, most importantly, outlines the benefits that the team will receive from a successful project realization.
Action Plan
Hence, it is proposed that Emma Richardson organizes another meeting. This common discussion should, first and foremost, explain the need for redesigning the product’s concept. Hence, the product development team should understand that their task is to design an innovative product with some peculiar characteristics that will ensure its competitive advantage in the market.
The sales VP, in his turn, should start preparing a selling and promotion strategy that will be based on the unique quality of the new product. It is critical that Emma Richardson communicates the project’s purpose and the desired outcomes to both departments and ensures their effective collaboration.
Reference List
Debruyne, M., Moenaertb, R., Griffinc, A., Hartd, S., Hultinke, E.J., & Robben, H. (2002). The impact of new product launch strategies on competitive reaction in industrial markets. Journal of Product Innovation Management, 19(2), 159-170.
Hinterhuber, A. (2004). Towards value-based pricing—an integrative framework for decision making. Industrial Marketing Management, 33(8), 765-778.
Martins, E. C., & Terblanche, F. (2003). Building organisational culture that stimulates creativity and innovation. European Journal of Innovation Management, 6(1), 64-74.
Sherman, J. D., Berkowitz, D., & Souder, W.E. (2005). New product development performance and the interaction of cross-functional integration and knowledge management. Journal of Product Innovation Management, 22(5), 399-411.
Snowden, D. J., & Boone, M. E. (2007, November). A leader’s framework for decision making. Harvard Business Review.