NEXTEL
MGT 3103 – Assessment: Strategic Business Plan
Raisa Almansoori H00366655
Nouf Alhashmi H00349680
Sara Alrumaithi H00359896
Shahad Alseiari H00360657
Table of Contents
BACKGROUND INFORMATION 3
Products 3
Mission 3
Vision 3
Core values 4
key management staff 4
SITUATION ANALYSIS 5
Market 5
Competition 5
Round one 5
Round two 6
Round three 7
SWOT ANALYSIS 8
OBJECTIVES 9
Action Plans 10
long-term plan and strategy 12
overall strategy 12
KEY PERFORMANCE INDICATOR 13
Operating profit before depreciation 13
Operating profit 13
Return on sales 13
Return on equity 14
Earnings per share 14
REFERENCES 15
BACKGROUND INFORMATION:
Name of company: NEXTEL Logo:
To begin, our product is mobile phone which will include numerous models and features. Our main features include long lasting battery which lasts about 12 to 15 hours and this will help prevent consumers charge their phones less, speed process this will help consumers enter different apps with full speed, crystal clear screens this will help customers have a better watch of movies, apps, photos and play games as well as a great camera for consumers to create surprising photos, access different languages, create notes and reminders to help consumers not forget about what they want to do for the day, add an app which can help find phone when lost, able to purchase different apps, able to have privacy settings, various colors.
Products:
| Tech 1 | Tech 2 | Tech 3 |
| has 3 features: – long battery life – water resistance – Fingerprint | has 3 features: – Face ID – two cameras on the rear – No Home buttons | has 2 features: – Triple-lens cameras – Foldable |
Mission:
Our mission is giving and bringing the best experience to our customers through innovating greatest hardware, software and service, providing top-quality products, improve lives of people by making easy for them to access technology as well as being different from our competitors and this will happen by implementing actions.
Vision:
Our vision is believing that we can make a change to technology and ease peoples experiences through creating various special products and to create this we have to be innovative and make our products worthy as well as create a difference.
Core values:
we strive to hire the best and we value integrity, creativity, Loyalty, excellence, respect, inclusion, and collaboration.
key management staff:
Nouf Al Hashmi is the marketing manager – she is responsible for managing all marketing of the company and activities within the marketing department, creating a wide range of different marketing materials, responsible for brand management, planning, and implementing promotional campaigns.
Raisa Almansoori is the production manager – she is responsible for working closely with sales and marketing department to develop sales and marketing strategy, understanding customer needs in order to develop and create a product, managing new projects from beginning to end, developing product launch programs, analyzing the marketplace and designing product strategy based on the product range.
Sara AlRumaithi is the sales manager – she is responsible for achieving growth and hitting sales targets, designing and implementing a strategic sales plan that covers sales, revenue and expense control, meeting planes sales goals, promoting organization and product, ongoing training of salespeople, tracking sales goals and reporting results.
Shahad Alseiari is the operation manager – she is responsible for managing stock control and inventory checks, creating and monitoring projects and teams, ensuring staff working are happy and operating efficiently, and keeping an eye on budgets.
SITUATION ANALYSIS:
Market:
A market is a very important tool that is used to examine and evaluate the competition constraints as well as the opportunities in the market that a company faces and the impact of its behavior on the over-all market. The mobile phone industry is constantly growing and is very innovative since smartphones are becoming the standard configuration among all types of used mobile phones.
NEXTEL company has directed all of its focus on three major markets including one in Europe, Asia, and the United states. It sells mobile phones containing different standards and features that focuses on satisfying all segments in the target market.
Competition:
NEXTEL faces four major competitors in the same market and same target, they are ARS Tech, ALOHA, smart tech and Techno. These four competitors have shown great competitive strength over the rounds.
In order to be differentiated and gain competitive advantage NEXTEL has made great technical changes and constant product improvement over the rounds, this has made the industry extremely dynamic and although market shares are quite high its highly concentrated on very few companies. Furthermore, As mentioned previously mobile phones have emerged in the market and has grown drastically over the years, constant changes and improvements are made to have your company become the leading firm in the mobile phone industry.
Round one:
The demand for mobile handset is expected to grow massively as customers believe that an increase in competition will lead to lower selling prices. Strong growth is expected in all markets for the first round. In Asia a growth forecast within a range of 25-30% is expected, Europe within 6-10%, and in the United States within 15-20%. It is also stated that customers are highly anticipating the introduction of the mobile handsets in both markets of Europe and Asia.
The costs between the United States and the government of China has increased tariffs and doubled the price from 7$ per handset to 12$. The Euro is expected to fall as mention in the market outlook due to further increase in the tax rate up to 31%.
Tech 1 was introduced to the market with 2 features, and in the US it was sold for 270$ with a market share of 23%, it was considered a high price for a newly introduced product and for the promotion a total of 6000$, while In Asia it was sold for 1700 RMD and a market share of 23% and promoted for 17,000 RMD, in Europe it was sold for 140 EUR with a market share of 20% and promoted for 8000 EUR. The predicted growth for the US market was 17%, Asia 27.5%, and Europe 8%.
In the US market NEXTEL made no profit as it was -259 429 of total profit for that round, in Asia a total profit of 194 536 was made, and in Europe a total of 90 213 was made, globally calculated NEXTEL made 25 319 in profit for the first round. And the leading competitor was ARS Tech followed by Techno, and then NEXTEL.
Round two:
In the second round, it was forecasted that the R&D expenses for developing a new technology are believed to be enormous. The growth the industry witnessed the year before has been slowing down a bit in the present but will still remain strong for a couple more years ahead as the demand for smart phones keeps increasing. In this round the demand estimated for the United States was between 7-10%, in Asia between 17-20%, and in Europe roughly a 5%. However, for the costs the United states has matched tariffs for Asian goods to remove the trade imbalance, also the production costs increased by 2% and the outsourcing increased by 9%. In regards to the increases being made, the United States and Asia has increased their tax rates to 38% and 18%, respectively. And in Europe tax rates went up to 31%. The predicted growth for the US market was 17%, Asia 27.5%, and Europe 8%.
1 product was introduced into the market for the second round, with is tech 2 while still selling tech 1 from the first round but with lower prices.
The selling price in the US was 260$ with a market share of 11% and for the promotion it was 5000$ this includes 2 features for tech 1. While for tech 2 it was sold at 290$ with a market share of 8% and a promotional activity of 8000$ including 2 features. Asia also sold tech 1 at 1500 RMB with a market share of 15%, and promoted it for 15,000 RMD, while for tech 2 it was sold for 1900 RMD with a market share of 10% , and promoted for it for 18,000 RMD, both tech 1 and tech 2 included 2 features. Moreover, in Europe tech 1 was sold for 135 EUR with a market share of 15% and was promoted for 7000 EUR, while for tech 2 it was sold for 165 EUR with a market share of 9% and promoted it for 9000 EUR.
NEXTEL managed to lead the market by increasing global profit up to 237 672 , it managed to be the only firm out of the 5 to make profit in the US market of 4,191 and in Asia a profit of 159 636 and in Europe a profit of 73 846. Techno has managed to be the second leading firm in the market.
Round three:
In the first sales round the market witnessed sales growth between 8% and 15% in all three markets. However, the economic state of the United states and China has been on edge and is called “Trade War” by the media. The flow of oil has been cut off to foreign countries.
Growth in the United States Is estimated to be slightly positive, in Asia between 5-8%, and negative in Europe which was affected most heavily by the disruption in the flow of oil.
This kind of situation affects the sales dynamic and is considered a macro-environment factor that the company has to adapt to in order to maintain their sales. The war caused a surge in oil prices which in turn has stepped up transportation costs by almost 15%. Due to the increase in oil prices, both outsourcing and production prices costs will increase as well, the capacity has risen by 13% in the United States and 10% in China. was sold in The US for 250$ due to adding one more feature to the products and tech 2 was sold for 275$ with only 2 features. In Asia tech one contained 3 features and was sold for 1250 RMD, while tech 2 with only 2 features was sold for 1750 RMD. In Europe tech 1 including 3 features was sold for 120 EUR and tech 2 with only 2 features was sold for 155 EUR. The predicted growth for the US market was 4%, Asia 7%, and Europe 2%.
SWOT ANALYSIS:
| Strength | Weaknesses |
| highest market share in Europe (and later on all markets) good pricing strategies have an idea about competitor’s strategies | high company liabilities low market shares started with zero or negative profit |
| Opportunities | Threats |
| high investment in R&D dominate the US market unmet demand for new technologies | competitors dominating the US market completely engaging in aggressive price wars |
At the beginning of the first year (round 1), NEXTEL faced some introductory issues regarding all the costs for entering the market, but we managed to dominate the European market and maintain that throughout the years. After the first year and after viewing what the competitors have done, we had an idea on how their strategies are working and we could easily guess what their next move will be. On the other hand, by the end of the year we had negative profit and very high company liabilities and debts including fixed costs, variable costs and the administration costs. To recover our loss, investing in R&D and introducing a new phone was the solution. We slowly managed to cover all our liabilities and costs and reach a breakeven point. Moving on, competitors engaged in aggressive price wars which was a huge threat because they can easily take more market shares which will result in a decrease in our profit and as a result, we were forced to reduce our prices. We successfully dominated all three markets and had the highest market shares.
Based on the SWOT analysis for NEXTEL, we are planning to build on our strengths by maintaining our position in the markets and putting all our effort to increase return on assets to achieve higher profit throughout the years. To turn our weaknesses into strengths and improve them, all our profits should cover all liabilities and avoid having a negative profit (loss) or at least maintain breakeven point if any further problems occurred. Also, to have even higher market shares that competitors won’t be able to take any percentage of them. When it comes to opportunities, the market outlook gives us a hint of what is demanded so based on that we can create and tailor our products to solve the unmet demand issue in each market. Research and development is also a powerful method to gain high profit and an opportunity for business growth putting money in research and development isn’t an expense but and investment indeed. Nextel’s main threats are the possibility for competitors to dominate the US market since our lowest market share is in the US, so strengthening our pricing strategies and knowing when and how much to produce yearly is crucial.
OBJECTIVES:
To know where we want our company to be in the coming years, we need to set objectives as a guide to build our company’s growth. Setting long-term goals will help us grow and develop faster than other companies in the field. Based on Nextel’s overall performance in the market we want to set objectives for the next 6 years to become more effective and efficient when dealing with obstacles and milestones. The objectives are as followed:
- We want NEXTEL to become the first and leading innovated tech company in the field by producing high quality phones that satisfies consumer demand with suitable prices and creating successful marketing and financial strategies.
- To gain higher market shares in both Asia and US market and become the market leader.
- Increase company’s efficiency by focusing on increasing return on assets, increasing sales and reducing cost as much as possible.
- Strive to be ahead of all competitors through huge investments in research and development which will eventually lead to future increase in sales, profit and growth.
Action Plans:
To meet our objectives, we made sure to take the right and best decisions and they’re as following:
For each year, we made sure to research and develop new things whether by adding new features or introducing a new model to be different and unique. But unfortunately, we couldn’t develop something new for the 6th year since our phones had high demand and we wanted to focus on producing more and satisfying our customers rather than developing.
For pricing strategies, we used value-based pricing which means how much the customer believes what we’re selling is worth and how much they ready to pay. Also, we used competitive pricing after the 1st year and tried to set the prices around what the competitors are offering.
1st year, we introduced tech 1 with 2 features in the USA, Asia, and Europe. We set the price that we believed will be satisfying to our customers and will also cover our cost so we can make some profit and invest it back to develop new models and add new features that will satisfy our customers and attract more customers. Tech 1 started with a selling price of 270 USD in the USA, 1 700 RMB in Asia, and 140 EUR in Europe. Since it’s the first model we introduce, we spent a good amount on promotion to make sure people know about our phone. We were also developing Tech 2 with 2 features at that time.
The estimated demand was 1620 k units in the USA, 2942 k units in Asia, and 1878 k units in Europe and we sold 1088 k units in the USA, 2714 k units in Asia, and 1601 k units in Europe. We gained the highest European market shares of 23.83%.
2nd year, after seeing the year 1 results we started to think and plan of ways to increase the market shares in both Asia and the US market as well as increasing sales revenue and we started working on it.
Comparing Tech 1 selling price to our competitors, Techno was offering a better and lower selling price in the USA as well as in Asia along with ARS Tech who was offering the same selling price and although Techno was offering a lower selling price in Europe, they had an unsatisfied demand since they didn’t produce enough which made their customers and more come to us because we were offering the 2nd lowest selling price and that made us think this is the reason why we had the highest Europe market shares.
Although we thought about dropping the prices to gain competitive advantage we decided not to do so because our customers won’t be happy and they’ll think we dropped the prices because there’s something wrong with our phones but since we planned to introduce Tech 2 we dropped the prices a little bit to 260 USD, 1500 RMB, and 135 EUR.
Tech 2 with 2 features was ready and we introduced it with a selling price of 290 USD in the US, 1900 RMB in Asia, and 165 EUR in Europe. We spent more on promotion for Tech 2 comparing to Tech 1.
The estimated demand for Tech 1 was 762 k units in the USA, 2403 k units in Asia, and 1342 k units in Europe and we sold 1178 k units in the USA, 2895 k units in Asia and 882 k units in Europe as smart tech dropped their price a lot there.
The estimated demand for Tech 2 was 554 k units in the USA, 1602 k units in Asia, and 805 k units in Europe and we sold 417 k units in the USA, 712 k units in Asia, and 1579 k units in Europe.
We were researching and developing Tech 1 by adding a new feature to improve quality.
3rd year, although there was a noticeable improvement in the 2nd year comparing to the 1st year, our sales revenue increased from 1,176,322 to 1,676,985 k USD, yet we wanted to improve more. We mainly took two important actions, first, we produced more by contract manufacturing and second, we added a new feature to Tech 1 and start researching to introduce a new phone (Tech 3).
Tech 1 new prices are 250 USD, 1 250 RMB, and 120 EUR. For Tech 2, the prices are 275 USD, 1750 RMB, and 155 EUR. Also, we spent less on promotion as we believe that NEXTEL became well known and as we wanted to spend less on costs and expenses.
4th year, it was the beginning of our success. We had the highest sales revenue among our competitors, made the highest profit, and gained the highest global market shares.
We believe those are the results of the smart actions we took during this year as we looked at the demand, what our customers want and need, and then planned based on it wisely. We increased the production as the demand was high by in-house manufacturing and contract manufacturing in both USA and Asia, we decided to have Tech 2 manufactured by a supplier in USA and Tech 1 manufactured by a supplier in Asia whoever is offering the less production cost.
we were doing our own research & development since it is cheaper, we couldn’t introduce Tech 3 as we wanted to add more features and making the best phone for our customers’ satisfaction.
Tech 1 new prices are 235 USD, 1150 RMB, and 110 EUR. For Tech 2, the prices are 265 USD, 1650 RMB, and 145 EUR.
5th year, we introduced Tech 3 with 2 features in Asia only because the demand was high there. Based on our future growth expectations and to keep producing enough phones with 3 different models, we decided to invest in a new production facility in Asia and we started producing Tech 3 in the Asia plant. We also developing Tech 2 by adding a new feature.
Tech 1 prices are 215 USD, 1130 RMB, and 100 EUR. For Tech 2, the prices are 245 USD and 140 EUR. Tech 3 price is 2600 RMB and spent a lot on promoting to let people know that we released a new phone model.
6th year, we decided not to invest in research and development and focus on production due to the increase in growth and high demand. The estimated demand (k units) was 6887 units for Tech 1, 3968 units for Tech 2, and 2158 units for Tech 3.
We became the market leader as we gained higher market shares globally of 29.45%, 29.56% USA market shares, 27.46% Asia market shares, and 35.05% European market shares that are the highest among our competitors. Our sales revenue is 2,419,476 k USD which is the highest ever during the past year and between our competitors. We made a profit of 486 357 k USD which is also the highest.
long-term plan and strategy:
for the coming years, NEXTEL wants to stay in touch with what the users want and also stay number one in the market and improve way more by introducing different products that go along with our phones only like a smartwatch and smart headphones.
overall strategy:
Nextel’s overall strategy is broad differentiation, seeking to differentiate products and key features from competitors in ways that will appeal to a broad spectrum of buyers.
KEY PERFORMANCE INDICATOR:
The following table shows the ratios that we will be discussing for 6 years:
| Ratios (%) | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | Year 6 |
| EBITDA | 20.73 | 24.95 | 13.05 | 18.63 | 18.23 | 28.81 |
| EBIT | 10.00 | 18.55 | 7.36 | 13.47 | 13.19 | 24.78 |
| ROS | 2.15 | 14.17 | 4.47 | 10.81 | 11.32 | 20.10 |
| ROE | 3.66 | 28.85 | 7.32 | 14.82 | 15.80 | 29.99 |
| EPS | 0.84 | 7.92 | 2.39 | 5.41 | 6.73 | 16.21 |
Operating profit before depreciation (EBITDA): EBITDA is a measure of profitability; it shows the company’s overall financial performance. EBITDA can be calculated by adding Net Income, Interest, Taxes, Depreciation, and amortization or by adding Operating Profit, depreciation expense, and amortization expense (Hayes, 2020). In year 1, EBITDA was 20.73% and increased to 24.95% in year 2. However, EBITDA decreased to 13.05% which can be due to the high costs and expenses especially on in-house research and development since we started to research a new technology (Tech 3) or can be due to demand growth which has slowed down. After year 3, EBITDA started to increase and then jumped to 28.81% in year 6.
Operating profit (EBIT): EBIT is used to measure the profits a company generates from its core operations without including interest and taxes. Operating profit can be calculated by subtracting the cost of goods sold, operating expenses, and depreciation & amortization from a company’s revenues (Chen, 2020). In year 1, EBIT was 10% then increased in year 2 to 18.55% and decreased to 7.36% in year 3 then it kept on rising and reached 24.78% in year 6.
Return on sales (ROS): ROS is used to evaluate a company’s operational efficiency. It measures how efficiently a company turns sales into profits. ROS is calculated by dividing operating profit over net sales (hayes, 2020). In year 1, ROS was 2.15% and increased to 14.17% in year 2 then decreased to 4.47% in year 3 and in year 6, ROS the highest of 20.10% which mean NEXTEL ability of earning profit out of its sales is high.
Return on equity (ROE): ROE is a measure of management effectiveness; used to evaluate how the company’s management team is effectively managing the capital entrusted to it and making a profit. Also, ROE helps investors to measure or know how their investments are generating income and how much return they are going to earn. ROE can be calculated by dividing Net Income over Shareholder Equity (Fuhrmann, 2020). In year 1, ROE was 3.66% and then went to 28.85% but unfortunately, it dropped to 7.32% after that it kept on increasing and reached 29.99% in year 6 which means NEXTEL is increasing its ability to generate profit without needing as much capital and it also means shareholders are gaining.
Earnings per share (EPS): EPS shows how much money a company makes for each share of its stock. EPS can be calculated by dividing the company’s net profit by the number of common shares it has outstanding (Chen, 2020). In year 1, EPS was 0.84% it was so low compared to our competitors and although it increased to 7.92% in year 2, it decreased to 2.39% in a year but still better than year 1. After year 3, EPS kept increasing and was 16.21% in year 6, the highest among our competitors which shows that NEXTEL has more value, and investors will pay more.
REFERENCES:
Chen, J. (2020, January 29). Operating Profit. Retrieved from https://www.investopedia.com/terms/o/operating_profit.asp
Chen, J. (2020, April 5). Understanding Earnings Per Share – EPS. Retrieved from https://www.investopedia.com/terms/e/eps.asp
Fuhrmann, R. (2020, January 29). Return on Equity (ROE) vs. Return on Assets (ROA). Retrieved from https://www.investopedia.com/ask/answers/070914/what-are-main-differences-between-return-equity-roe-and-return-assets-roa.asp
Hayes, A. (2020, February 6). Earnings Before Interest, Taxes, Depreciation and Amortization – EBITDA Definition. Retrieved from https://www.investopedia.com/terms/e/ebitda.asp
hayes, A. (2020, March 8). Understanding Return on Sales (ROS). Retrieved from https://www.investopedia.com/terms/r/ros.asp
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