NEW PRODUCT: APPLE I WATCH Purpose of Product Development Process: “to improve the effectiveness of people engaged in developing and managing new products -This mission includes facilitating the generation of new information, helping convert this information into knowledge which is in a usable format, and making this new knowledge broadly available to those who might benefit from it” (1). The i-Watch:  Is only compatible with Apple.  Recalls all passwords, eliminating the need to enter the passwords on various devices.  Can act as a TV Remote  Identify/find mobile devices.  Can give direction while travelling.  Includes health monitors and fitness tracking sensors.  Can display who is calling, without the need to grab the phone  Display a preview of i-Phone camera on Watch display – which can be used to capture images.       Parametric Cost Estimates: Use of cost estimating relationships and relevant mathematical algorithms. Neural Networks: Cost analysis of historical data. Function Costing: Product cost from specification of its performance. Activity-Based Costing: Using experts reasoning to estimate costs. Generative Costing: Cost is estimated by adding the processes involved in product development. Target Costing: This requires setting a target cost by subtracting a desired profit margin from market price.  Three primary impacts on pricing decisions are: 1. 2. 3. ▪ Customers Competitors Costs long-run pricing decision are based on: 1. 2. Market-based pricing: what customer want? Reaction of competitors? What price to charge? Cost-based pricing : What is cost of producing? Therefore what price to charge to cover cost and achieve targeted return.     Based on market based pricing Apple inc can base it I watch pricing on: Target Costing: It will allow Apple inc to attain the targeted operating income per unit. Activity-based costing: It will help managers to determine accurate costs of product in order to set prices. It will also aid managers in cost management manage by reducing or changing various activities and assess their impact on costs. The growth of Phones and tablets have dropped significantly, since: • Smartphone sales are expected to grow by around 19%, as compared to 39% growth in 2014. • Tablet growth is expected to be 19.4% this year, as compared to growth of 51% in 2014. • Majority portion this growth arrives through emerging markets, while the selling prices and margins are decreasing. Since Apple Inc. creates more than 50% of its revenue from the I Phone sales the development and execution of smart watch can mitigate the threat it is facing in the tablet and PC. The I Watch is therefore a product which has the potential to adopt the iPhone effect.    Special pricing is a method employed to determine the minimum price of a product at which a special order can be accepted or rejected if below minimum price. Usually a organizations get special orders from customers or large retailers at a price below than normal. In these situations, the Apple Inc, should not agree to a special order, if the expected unit of production of I watch could be sold at set price.    Assumptions: Apple is producing 10,000 units of i watch with an additional 30% capacity to produce. Direct material: $8, Direct Labor: $5, Variable Factory Overhead: $2, Variable Selling Expense: $0.50, Fixed Factory Overhead: $ 3 and Fixed Expense: $2. If Apple receives order for 2000 units of i watch @ $17 each, its incremental cost per unit would be : $8+$5+$2=$15 Now since the additional cost per unit is lesser than the price offered Apple can accept the special order as it will add contribution of $2 per unit with a revenue of $4000.    When sales are slow or there is an additional capacity of production, special orders should be accepted if the additional revenue from special order is more than additional costs. This gives something above variable cost rather than nothing. Special pricing helps organization to build up a product repute and long-term relationship with clients. Special pricing is not beneficial in which order is more that the production capacity. 1. Direct Material 2. Direct Labor 3. Variable Factory Overhead 4. Variable Selling Expense 5. Fixed Factory Overhead 6. Fixed Office Expense   1. 2. 3. 4. Definition: “a set of elements dependent on each other, which form an organized whole, having a degree of autonomy in the use and optimization of the resources they possess” (2). Following are some of the types of Responsibility Centers: Revenue Centres: organizational connection where a task is admired as value to the revenue acquired, e.g. sales department. Cost Centers: Where costs are measured and assessed in order to evaluate effectiveness of a product. Profit Centre: Responsible for attracting resources which generate revenue and profit. Investment Centre: Assesses the relationship and difference between the acquired revenue and the investment made in production of that product.   Renegotiate all contracts annually. Conduct Annual planning sessions with customers  Matching payment terms  Managing Inventory    Focusing on key business driver and then setting key performance indicators. Using Industry Standards to evaluate performance. Measuring the financial performance e.g. liquidity and profitability ratios.    Meetings and Appraisals Quantitative measure of performance: employee performance from a financial perspective can be a very useful management tool. Level of motivation can be measured through job placement or job rotation.  These measures help organizations to access their weaknesses and strengths, which can help them to reduce costs, by having talented and motivated staff, by producing efficiently leading to a competitive edge in the Industry, hence leading to profit and shareholder’s wealth maximization. 1. 2. 3. 4. Ottoson S. Handbook in innovation management - Dynamic Business and Product Development. Tervix AB, 2006, pp 126. Anthony, R.. The Management Control Function, Boston, HBS, 1988, p.64. Kent B. Monroe, The Pricing Strategy Audit, 2004, Cambridge Strategy Publications, p. 40 Nagle, Thomas and Holden, Reed. The Strategy and Tactics of Pricing. Prentice Hall, 2002. Pages 84-104 NEW PRODUCT: APPLE I WATCH Purpose of Product Development Process: “to improve the effectiveness of people engaged in developing and managing new products -This mission includes facilitating the generation of new information, helping convert this information into knowledge which is in a usable format, and making this new knowledge broadly available to those who might benefit from it” (1). The i-Watch:  Is only compatible with Apple.  Recalls all passwords, eliminating the need to enter the passwords on various devices.  Can act as a TV Remote  Identify/find mobile devices.  Can give direction while travelling.  Includes health monitors and fitness tracking sensors.  Can display who is calling, without the need to grab the phone  Display a preview of i-Phone camera on Watch display – which can be used to capture images.       Parametric Cost Estimates: Use of cost estimating relationships and relevant mathematical algorithms. Neural Networks: Cost analysis of historical data. Function Costing: Product cost from specification of its performance. Activity-Based Costing: Using experts reasoning to estimate costs. Generative Costing: Cost is estimated by adding the processes involved in product development. Target Costing: This requires setting a target cost by subtracting a desired profit margin from market price.  Three primary impacts on pricing decisions are: 1. 2. 3. ▪ Customers Competitors Costs long-run pricing decision are based on: 1. 2. Market-based pricing: what customer want? Reaction of competitors? What price to charge? Cost-based pricing : What is cost of producing? Therefore what price to charge to cover cost and achieve targeted return.     Based on market based pricing Apple inc can base it I watch pricing on: Target Costing: It will allow Apple inc to attain the targeted operating income per unit. Activity-based costing: It will help managers to determine accurate costs of product in order to set prices. It will also aid managers in cost management manage by reducing or changing various activities and assess their impact on costs. The growth of Phones and tablets have dropped significantly, since: • Smartphone sales are expected to grow by around 19%, as compared to 39% growth in 2014. • Tablet growth is expected to be 19.4% this year, as compared to growth of 51% in 2014. • Majority portion this growth arrives through emerging markets, while the selling prices and margins are decreasing. Since Apple Inc. creates more than 50% of its revenue from the I Phone sales the development and execution of smart watch can mitigate the threat it is facing in the tablet and PC. The I Watch is therefore a product which has the potential to adopt the iPhone effect.    Special pricing is a method employed to determine the minimum price of a product at which a special order can be accepted or rejected if below minimum price. Usually a organizations get special orders from customers or large retailers at a price below than normal. In these situations, the Apple Inc, should not agree to a special order, if the expected unit of production of I watch could be sold at set price.    Assumptions: Apple is producing 10,000 units of i watch with an additional 30% capacity to produce. Direct material: $8, Direct Labor: $5, Variable Factory Overhead: $2, Variable Selling Expense: $0.50, Fixed Factory Overhead: $ 3 and Fixed Expense: $2. If Apple receives order for 2000 units of i watch @ $17 each, its incremental cost per unit would be : $8+$5+$2=$15 Now since the additional cost per unit is lesser than the price offered Apple can accept the special order as it will add contribution of $2 per unit with a revenue of $4000.    When sales are slow or there is an additional capacity of production, special orders should be accepted if the additional revenue from special order is more than additional costs. This gives something above variable cost rather than nothing. Special pricing helps organization to build up a product repute and long-term relationship with clients. Special pricing is not beneficial in which order is more that the production capacity. 1. Direct Material 2. Direct Labor 3. Variable Factory Overhead 4. Variable Selling Expense 5. Fixed Factory Overhead 6. Fixed Office Expense   1. 2. 3. 4. Definition: “a set of elements dependent on each other, which form an organized whole, having a degree of autonomy in the use and optimization of the resources they possess” (2). Following are some of the types of Responsibility Centers: Revenue Centres: organizational connection where a task is admired as value to the revenue acquired, e.g. sales department. Cost Centers: Where costs are measured and assessed in order to evaluate effectiveness of a product. Profit Centre: Responsible for attracting resources which generate revenue and profit. Investment Centre: Assesses the relationship and difference between the acquired revenue and the investment made in production of that product.   Renegotiate all contracts annually. Conduct Annual planning sessions with customers  Matching payment terms  Managing Inventory    Focusing on key business driver and then setting key performance indicators. Using Industry Standards to evaluate performance. Measuring the financial performance e.g. liquidity and profitability ratios.    Meetings and Appraisals Quantitative measure of performance: employee performance from a financial perspective can be a very useful management tool. Level of motivation can be measured through job placement or job rotation.  These measures help organizations to access their weaknesses and strengths, which can help them to reduce costs, by having talented and motivated staff, by producing efficiently leading to a competitive edge in the Industry, hence leading to profit and shareholder’s wealth maximization. 1. 2. 3. 4. Ottoson S. Handbook in innovation management - Dynamic Business and Product Development. Tervix AB, 2006, pp 126. Anthony, R.. The Management Control Function, Boston, HBS, 1988, p.64. Kent B. Monroe, The Pricing Strategy Audit, 2004, Cambridge Strategy Publications, p. 40 Nagle, Thomas and Holden, Reed. The Strategy and Tactics of Pricing. Prentice Hall, 2002. Pages 84-104
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