GENERAL SLP SCENARIO:
The 4-module SLP sequence for BUS599 requires that you run a simulation over an 18-year period, and that you analyze the outcome of the decisions you make at each decision point.
In this course, we will be using the MIT Solar Power Pricing Simulation.
The Industry Evolution Management Flight Simulator portrays the growth and competition of firms as an industry evolves. Playing the role of chief executive for one of the firms in the industry, you make key decisions involving pricing, investment and marketing in order to succeed in the marketplace.
This version of the simulator has been customized to portray the solar power industry, specifically SunPower and other manufacturers of photovoltaic panels (PVs). While historically the cost of electricity from PV panels has limited them to niche applications, there is massive potential for growth in the market if solar power could become a viable alternative to traditional sources of electricity.
In the simulator, your job is to maximize SunPower's cumulative profit over a period of eighteen years. To do this, you make pricing and investment decisions each simulated time period.
As a young company with a new innovation, you will start the game with a technology that you hope stays proprietary. In theory you can reap the benefits of technological advancements from the rest of the industry while spreading your advancements to them.
In addition, you (or your administrator) have the option of setting several other competitive and market scenarios, including the sources and rates of learning, the strength of knowledge spillovers, entry of new competitors, and external incentives that help to drive consumers towards using solar power.
You will receive periodic reports including your income statement and industry data.
You need to select your strategies based on those reports, your understanding of the underlying industry structure, and your best judgment about how your competitor and customers may respond.
Though the model has been carefully calibrated and tested, it is not designed to predict the future or exactly match the history and special circumstances of SunPower. Rather, it is used to illustrate competitive dynamics important not only in the photovoltaic panel industry but in other contexts you may face. Instead of merely "beating the game," focus on understanding the underlying industry structure so you can develop robust, successful strategies.
Overview
In the Module 4 SLP, you will develop your own pricing strategy, running the simulation at least twice. Your objective is to earn the highest cumulative profit, and to expand market share to the greatest extent possible. In this final SLP, you will continue to compete with new entrants; in SLP4, however, the pricing policy of competitors will be more aggressive (i.e., competitors will be increasingly inclined to undercut your pricing).
Assignment
For this final SLP, go to "Settings" page, and change the following:
1) Competitor Price Policy - Low
2) Entry for New Competitors - On
3) Be sure to SAVE your changes.
For the Module 4 SLP, you are asked to complete the simulation, making pricing decisions at 2-year intervals. Leave the process improvement percentage at 5%. Note that you will again need to monitor the market share and financial performance of new entrants into the Solar Power industry. Also, you will now find competitors' pricing to be more highly aggressive.
Run the complete 18-year simulation two times. For each simulation run, keep track of the pricing decisions you make at each of the four decision intervals. Also, keep your results (note key metrics like market share of new entrants vs. your company's market share, revenue, margins, profitability, etc). Give justification for your pricing decisions, and using key data, compare your results between Simulation Run #1 and Simulation Run #2.
Keys to the Assignment
The key aspects of this assignment that should be covered and taken into account in preparing your 5-6 page paper include:
1. Include discussion and analysis of key metrics at the end of each decision point (e.g., among other data, be sure to include total market share, revenue, cumulative profit, consumer net price, modular price, unit cost, etc.). As an MBA, it is your job to identify cause and effect!
2. Using Excel, provide a comparative analysis of key data to demonstrate the differences between the results of Simulation Run #1 vs. Simulation Run #2 at key decision points. It is your job to determine which data (and which comparisons) are most significant. Don't merely recite the data you've collected, however - instead, analyze the data! As an MBA, what does it tell you?
3. Comment on the impact of the more highly aggressive pricing strategies used by competitors. What has been the effect of aggressive competitor pricing on your results (profitability, market share, cost to consumer, etc.)?
4. What recommendations would you give to a newly-hired CFO who will be responsible for setting pricing for the company going forward? If you were responsible for orientation of the new CFO, what lessons learned, pricing/ marketing strategies, and other recommendations might you have? Be specific.
Attachment:- SLP Overview.rar