MITSolar Power Pricing Simulation-SunPower
MITSolar Power Pricing Simulation-SunPower
Inprinciple, manufacturers of solar panels have to make decisions thatare based on the objectives, as they strive to ensure that they gaina significant share of the revenues (Gilbert, 2014). In this case,organizations allocate a significant share of the percentage of therevenue to improve the market position and improve on the level ofdominance (Nadler &Tushman, 1980). On this note, solar dealersare concerned with their competitiveness regarding total marketshare, revenue that are accrued, ability to accumulate profits fortheir operations, consumer prices, and unit cost prices whichcollectively define the position in the industry (Healy &Palepu,2012). It is the intention of every manufacturer and seller of solarproducts to become the dominant firm and have the greatest marketsshare, and benefit from the positive attributes of a market leader.However, the variations in the solar industry are exhibited dependingon the prevailing pricing levels that presented by other players thatdefine the market share. As such, increasing the market share of thecompany is essential as it demonstrates the competitiveness of thefirm. On this note, a relatively smaller market share for a solarcompany would mean that the firm is incurring high operational costswhile receiving low incomes from the operations. In addition, firmshaving a higher market share gains from the significant share of theaccumulated profits and net incomes.
Thesimulations conditions that are held marking the first decision thatwould run for duration of five years would start from 2008 until2012. The simulation will encompass manual pricing within the moduleprice of $0.13, revenues for meeting out the enhancements at the rateof 5% and duration of five years. The firms are attentive atattaining the development obligations and maximize the markets sharewhile positioning themselves appropriately in the market (Vogel,2014). In this case, the organization is establishing the optimal wayof increasing the cumulative profits while also lowering the cost perunit. The income statement of the corporation will contain thefollowing details annual revenue of $ $220,900,000 since the solarindustry has an annual revenue amounting to $8, 900, 000, 000. Theproposed net income for the company is $4.98 million against that ofthe whole solar industry amounting to $1,200 million. It is importantto note that the simulation takes the consumer net price at $0.17 in($/kWh) for the period between 2008 and 2012. On the other hand, theunit direct cost in ($/kWh) varies between $0.11 with some companiesexhibiting a direct cost unit at $0.09 while the proposed cumulativeprofits still stands at $5.68 million. As at the 2012 financial year,the firm is set to attain an increase in the market share that willconsequently raise the revenue, the accumulated profits, and the netincomes.
Thesimulation presents that if the corporation considers the firstdecision, the market share is set to rise by 4.85% for the year 2012,which would be supplemented with the proportional transformation forthe yearly proceeds, the net earnings, and cumulative turnovers.However, the company may hold a lower market share in comparison withthe whole industry that was thought to stands at 90.15%.
Decision2: Year [2013-2017]
Thesimulation that the corporation holds forms the ground for the seconddecision that runs for duration of five years that starts from 2013to 2017, which is characterized by a manual pricing at a module rateof $0.11, while the rate of revenue against the process enhances at arate of 5% for a period of five years. The firm is also focused onattaining its expansion agenda while marketing share will facilitateproper positioning in the market, increasing the cumulative profits,and reducing the rate of cost per units (Vogel, 2014). On this note,the module price was reduced with the deliberations thatit is likelyto raise the market share based on the forces of demand and supply.Regarding this, the simulation assumes that lowering the module ratefrom $0.13 to $0.11, would increase the demand for the solarproducts, hence benefit from the economies of scale. Therefore, aminor change in the prices of the different products of the solarfirm would consequently lead to a proportionate adjustment in thequantity demanded for such goods.
Moreover,if the firm reduces the module price from a prevailing rate of $0.11to $0.089, the direct cost per unit will reduce. Besides, the marketshare will also reduce at a rate by 8.45% as the other players in thesolar company will experience a decreased market share from the rateof 95.15% to 86.7%. If such pricing strategy is applied, it ispresumed that the company will attract the consumers to purchase theproducts hence, increasing the profits from the $51.81 million to ahigh value of $134.36 million. Nonetheless, the corporation’smarket share is still considered low as compared to other players inthe solar industry, thus implying that the decision is notappropriate.
Decision3: Year [2018-2022]
Thesimulation conditions that are demonstrated in the third decision areexpected to run for duration of five years that starts from 2018 to2022, which entails the pricing module at the rate of$0.09, revenueagainst the processes set to improve at 5% for five years inadvancements. When the firm lowers the module rate to $0.09, it isset to experience significant adjustments in the market. This meansthat the rate would increase the revenue from a value of $17.0 B to$21.52 B, through the increased demand. Nonetheless, the annualreturns will be lower in comparison with that of the entire solarindustry, which stands at $65.48 B however, the change in the pricesis set to lead to a rise in the cumulative profits and income. IfSunPower chooses the third decision, there would be an increase inthe market share from the proposed value by 8.40% , meaning that thecompany will record a rise in sales while the income will rise from$132.35 M to $143.46 M. However, while comparing other solar firms inthe industry, the corporation may not realize its expected high scalein operation because it has not attained half of the market share,while the accumulated quantity of profit is also low. Indeed, thecumulative profits for the whole industry are considered to be at$111.77B, which is accrued by other firms (He et al., 2014).Therefore, the organization needs to reduce the prices to ensure thatthe flow of the customers is high for the firm, which would finallytranslate to increased high market share and high traffic rate.
Decision4: Year [2023-2025]
Inevaluating the fourth decision, the simulation runs for the periodbetween 2023 and 2025, and will encompass manual pricing at themodule rate of $0.08. The firm is set to improve the rate of revenueto processes at the rate of 5% until the duration ends, while thereduced rate from $0.9 to $0.08, would occasion equivalentadjustments in the demand while leading to a general change in itsposition in the market. It is proposed that the position in themarket will increase the sales and lower the cost of the customerswhile increasing the goods cost (He et al., 2014). Nonetheless, thesituation herewith is set to increase the revenue and the cumulativeprofit for the firm to a current figure of $127.48 B, which iscomparable with the annual revenue for the other solar dealers thatstand at $148.76 B.
Onthe same note, the annual income will be noted at 448.96B, which hashigh correlation to that of the whole industry that stands at$45.24B. If the firm chooses the fourth decision in an extensivemanner, it will attain a market share of 54.45%, meaning that theother firms in the solar industry are having a total share of 45.55%.Moreover, if the corporation marks the largest number of customers,the market share for its products will increase, thus making itpossible to produce the market share at a relatively lower cost. Thecost of goods recorded for the year is set to be $63.01B, whereas theother players in the solar companies will obtain a cost of goodsequivalent to $72.33B. Consequently, the firm will get a high marketshare while attaining the goods relatively lower cost than itsconsumer competitors obtain the proportional cost in a year whileincreasing a substantial profits and revenues.
Tomake decision for a company, it is important to consider theprevailing market share and make remedial action to remaincompetitive in the industry. On this note, the module price for theproducts should be strategic in a manner that would increase themarket share while also improving the profitability and the netincome. From the analysis, the simulation demonstrated in the fourthdecision is the most appropriate as it would not only maximize therate of return but also enhance the market share relatively higherthan other players. On a different note, it is important to considerthe performance of the whole industry in the market and actappropriately to prevent gradual loss of market share, when measuringthe organization’s position. Therefore, as demonstrated in thesimulation cases above, in all four considerations the net income andcumulative profits are compared against the performance of the entiresolar industry. As the organization gains a higher share of thecumulative profits and net income, it translates to a greater marketshare and firm’s dominance.
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He,H., Chen, S., Yao, S. &Ou, J., (2014). Financial liberalizationand international market interdependence: Evidence from China’sstock market in the post-WTO accession period. Journal ofInternational Financial Markets, Institutions and Money, 33,pp.434-444
Healy,P.M &Palepu, K.G., (2012). Business Analysis Valuation: UsingFinancial Statements. New Delhi. Cengage Learning.
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Vogel,H.L., (2014). Entertainment industry economics: A guide for financialanalysis. Cambridge University Press