While the contribution margins of the X6 and X7 appear to be maximized, that only holds for the levels of R&D investment. A shift in the R&D investments levels, therefore, is critical to maximizing profit over the four years. This requires a greater understanding of how R&D affects demand for the two products. The X6 clearly benefits from a high level of R&D, but this impact may wane as it reaches total saturation. The X7 sales still have potential as well, and they benefit from R&D investment. Consumers love getting a great product for cheap.

There will not be a next step, but if there was, a shift in the R&D strategy would need to be conducted in order to deliver even greater success. However, the current strategy was a strong one. The use of the contribution margin analysis provided the basis for this assessment because it allowed for more...
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