Case study DMA, Inc

By :

Souad Lamya Zakaria Yassine Aissam Mehdi

KABBAJ SAIDI BENZEMOURI CHAHRAOUI OUAZA RATIM

- July 2012 -

ECOLE HASSANIA DES TRAVAUX PUBLICS & ENPC SCHOOL OF INTERNATIONAL MANAGEMENT

Executive summary
DMA should make a decision on either going for marketing PC MacTerm at its end (Case n1) or outsourcing the whole process to Catalina (case n2).
Given the following: 1) NPV (case n1) is positive at 93%. 2) Product lifecycle best estimation is 2 years. 3) DMA remains confident thanks to encouraging feedback. 4) DMA motivation to broaden their narrow technical focus. We recommend that DMA market the software by itself.

Simulation model
Custom distribution for years to obsolescence which are considered the same for both cases, with the following probabilities.
Years to obsolescence 0 1 2 3 4 Probability 0,05 0,2 0,5 0,2 0,05

Triangular distribution for initial market size, initial market share, market growth rate, variable costs (only in the case n1), annual market share multiplier. Initial market size is considered the same for both cases. The simulation target is maximizing the NPV.

Simulation analysis
For case n2 no funding is needed from DMA to launch the product which involves a positive NPV at 100%.
In the case n1 we notice that uncertainty level for positive NPV is 7% which remains favorable to give the go for decision.

Sensitivity analysis
Through the sensitivity analysis it seems obvious that years to obsolescence is the most significant parameter followed by initial market size.

Sensitivity analysis
By considering the table below, we may conclude that DMA should market the product at its end if the number of years to obsolescence exceeds 1 year.
Years to obsolescence 0 1 2 3 4 NPV (Case n1) NPV (Case n2) Negative Inferior Superior Superior Superior Positive Superior Inferior Inferior Inferior

Exhibit (Case n1)

DMA Direct Promotion budget Price to wholsalers Fixed costs Variable costs Initial market size (per units) Market growth rate Initial market share Annual market share multiplier Years to obsolescence Years Market size Market share Units sold Price Sales Promotion budget Fixed costs Variable costs Result -200 000 1 - 200 000 200 000 147 571 237 341 844 847 1 844 847 271 081 435 984 1 551 942 1 1 551 942 484 887 779 852 2 775 984 1 2 775 984 821 570 1 321 346 4 703 499 0 3 578 434 200 000 10% 50 6 16 804 290 13,0% 3,1% 1,6 3 1 804 290 3,1% 24 595 50 1 229 759 2 908 502 5,0% 45 180 50 2 259 008 3 1 026 216 7,9% 80 814 50 4 040 724 4 1 159 181 11,8% 136 928 50 6 846 415

Years to obsolescence 0 1 2 3 4

Probability 0,05 0,2 0,5 0,2 0,05 1

Exhibit (Case n2)

Catalina Deal Signing bonus Price to wholsalers Fixed costs Variable costs Royalties/gross sales Minimum royaltie payment year 1 Minimum royaltie payment year 2 Initial market size (per units) Market growth rate Initial market share Annual market share multiplier Years to obsolescence Years Market size Market share Units sold Price Catalina Sales Signing bonus Royalties/gross sales Fixed costs Result 50 000 1 50 000 50 000 564 328 0 564 328 1 564 328 998 463 0 998 463 1 998 463 1 766 576 0 1 766 576 1 1 766 576 3 125 597 0 3 125 597 0 2 468 596 50 000 50 0 0 15% 150 000 120 000 804 290 11,5% 9,4% 1,6 3 1 804 290 9,4% 75 244 50 3 762 184 2 896 569 14,8% 133 128 50 6 656 418 3 999 434 23,6% 235 544 50 11 777 175 4 1 114 102 37,4% 416 746 50 20 837 312