Introduction
The present paper is aimed at finding a solution to the case “TerraCog Global Positioning Systems: Conflict and Communication on Project Aerial.” The case will be summarized and analyzed, relevant theories will be put forward, the problem will be stated and the solutions will be evaluated through several criteria. The recommendations will be allocated and an action plan will be developed.
Case Summary
TerraCog Global Positioning Systems (GPS) is a company specializing in GPS, with an outdoorsperson being its target consumer. In the late 1990s, TerraCog started to sell GPS products, which were marked by high quality and, consequently, valued by customers. The company did not invest in innovation as actively as its competitors did. Still, TerraCog showed that it cared about its consumers’ needs: the products were longer-lasting that the competitors’ ones and went on working when other systems became unserviceable.
The situation changed for the worse in the summer of 2006. Posthaste, a competitor company, introduced BirdsI. The new GP system received much attention because it was positioned as the first hand-held system to use satellite images. It was particularly impressive considering that the others relied solely on vector graphics. TerraCog management thought the product would not create the demand – and was mistaken. Within two months after its release, the sales were reported to increase.
The new technology caused a revolution, which unambiguously hinted that TerraCog probably should also update their produce. The management made another mistake by assuming the product would not last as long as TerraCog’s; the customers and the management wanted the systems to be durable and reliable. Finally, the steep climb in sales rates that BirdsI achieved was attributed by the management to seasonal shopping growth rates (Beer & Young, 2008).
By 2007, the demand for BirdsI and similar GP systems utilizing satellites was still on the rise. Ed Pryor, sales vice-president, demanded that TerraCog reconsidered updating the product line. He stated that by persevering on the vector graphics the company failed to meet the retailers’ expectations. Project Aerial was produced by TerraCog to compete with Posthaste’s BirdsI. In order to save time, the development team made a decision to redesign the products based on the existing GP system platform.
Emma Richardson, EVP, was appointed to manage the manufacture and introduce Aerial into the market. Months of planning involved several teams, but afterwards, the management could not reach a consensus on how the new product would be priced to meet the sales team’s plans and adhere to what the CFO expected. Richardson had to assist the group in deciding if Aerial should have been introduced by 2008 holiday shopping and figure out the optimal price (Beer & Young, 2008).
Situation Analysis
TerraCog has managed to gain the consumers’ trust over the years, especially sports professionals. However, as a result of the strong competition on the part of BirdsI, TerraCog is being pushed out of the market. The management has made some critical mistakes, namely: it underestimated the popularity of BirdsI with the customers, its durability, and its competitive position.
The new design of Aerial uses satellites to meet the demand but the problem is that the new feature adds up to the cost of production. All factors considered, Aerial cannot have a price lower than $475, otherwise the effect on the margins will be adverse (Browne, n.d.). However, upon entering the market, some issues can be faced by a product with such a price.
The introduction of the renewed Aerial occurred two years later than rival product of BirdsI, which is why it cannot be considered a new technology by any measure. Furthermore, it is $100 more expensive than that of BirdsI, which is unreasonable, considering that the satellite technique slowed Aerial down. With these concerns in mind, the company has to decide clearly whether the product should be launched by 2008 at all. If yes, the pricing has to be determined as soon as possible. Otherwise, an improvement plan should be developed so that the renewed product can be launched within half a year.
Relevant theories
Lack of collaboration between the teams was a stumbling block to the Project Aerial’s success ever since its inception. A clearer understanding of the issue is achieved when one considers the siloed environment within the company, where the goals of different departments are not mutually consistent (Hiriyappa, 2013; Cunningham & Harney, 2012).
For instance, the decision to introduce the new Aerial (which would shorten the time lag between BirdsI and TerraCog’s system) was not favored by the development team because they felt more time was needed to warrant the product’s success. This, and the lack of group performance appraisal, have created an environment where the departments are concerned with their own success rather than meeting the company’s goals.
The latter presents another point of concern as it is clear that the leadership does not have a clear-cut goal to communicate to the teams. Rather, the president made a decision to introduce the satellite-powered Aerial without a firm belief in the new product. Such attitude was reflected in the pre-launch meeting which did not manifest any explicit goals either.
In terms of the pricing, the $100 premium has to be justifiable by increased value of the product. The new Aerial, however, lacks this value because the processing speed of the GPS is reduced by the satellite imagery. The demand for a slow GPS is unlikely to hit the top line, and the fast development of the competitors’ GP systems will possible wipe Aerial off the market.
Problem statement
The market share gained by TerraCog is being lost; the company’s new product is lagging behind in time, and the price of $475 is non-competitive. Additionally, the group environment at TerraCog GPS is inefficient, as demonstrated by the management’s inability to agree upon the pricing and other metrics.
Objectives
The objectives that need to be met are enhancing the group performance, deciding on the optimal strategy of countering the competitor (Posthaste with its BirdsI) and regaining the forfeited market share.
Alternatives
- Introduce Aerial at $475;
- Reduce the price by the premium $100;
- Postpone the launch and develop an improved product.
Evaluation Criteria
- Meeting the consumer’s needs;
- Gaining back the market share;
- Sustainability;
- Improving the group environment.
Options Evaluation
1. Introduce Aerial at $475
As stated earlier, a product at such price has to possess some features that the competitors lack. The pricing is critical because the consumers’ involvement at this stage of purchase is almost at its highest (Artco Continuity, 2012). In reality, the new Aerial has inferior processing speed due to the added feature, which the consumers are not going to favor. Thus, a $475 price will not help regain the market share and present difficulties for sales team.
2. Launch Aerial at $375
Such price is likely to meet the consumer’s expectations and will be sufficient in gaining the market share back. However, to price Aerial at $375, the company will need to compromise the margin, which entails the accumulation of losses. Such strategy, therefore, is unsustainable in the long run.
3. Delay the release and improve the product
The development team has pointed out it was capable of creating a new product at a lower cost. Such an improved product will considerably decrease the price upon release. Additionally, the team will design a product that has both the satisfactory price and high processing speed. Both the price and speed (as well as any other improvements made by the team) are likely to be better perceived by the customers, will revive TerraCog market strength and prevent losses by increasing the demand. Additionally, it will improve the group environment in several respects, primarily by giving voice to the development team and ensuring all groups collaborate to achieve a common goal.
The introduction of Aerial at $475 will ensure the product is available on the market as soon as possible. Such decision, however, is ineffective because it will not cater for the needs of consumers, and the underdeveloped product is at high risk of being pushed out of the market. Reducing the price will increase the demand but the product will still lack processing speed the customers need. In addition, no profits will be achieved with this price. In both instances, the company remains siloed and disintegrated, with each team pursuing their own ambition.
Hence, the most optimal solution is to delay the release and introduce a new product after six months’ of development. This product will have the attractive price and features to satisfy the customers. With the competitive price, an increase in demand will restore TerraCog’s position in the market. Moreover, the creation of the new Aerial will demonstrate the different department that they are valued and unite the fractured company with a common purpose.
Recommendation
All things considered, it is highly recommended that the company postpones the launch of the product for half a year, give the development team enough time and the resources they need to come up with a product that will regain the customer loyalty, strengthen the company’s positions, and acquire benefit.
Action Plan
- Conduct a market survey to estimate what the customers expect from the improved product. Analyze and use the results as ideas for developing the renovated Aerial.
- Give the development team the time they need to renovate.
- Invest in research and development to come up with new design for the product at a lower expense. Focus on the new materials and shapes to redesign the product and the ways to reduce the costs of manufacture.
- Develop and implement an advertising and promotion scheme to cover up for the forfeited market shares and boost the sales of the products TerraCog already offers.
- Give the sales team time to devise and use the strategy to promote the existing products on the market. At the same time, maintain and improve the contacts with existing (and possible new) retailers for the renewed Aerial. This can be achieved by networking on the part of BOD and the CEO.
References
Artco Continuity. (2012). Richards Rumelt: The evaluation of Business Strategy.
Beer, M., & Young, S. (2008). TerraCog Global Positioning Systems: Conflict and Communication on Project Aerial. Harvard Business Review, 86(4), 1-10.
Browne, C. (n.d.). Reasons for a Negative Profit Margin.
Cunningham, J., & Harney, B. (2012). Strategy and Strategists. Oxford, UK: Oxford University Press.
Hiriyappa, B. (2013). Strategic Management and Business Policy. Bloomington, IN: Booktango.