Final-Term Exam Summer – 2021

Department of Business Administration

Subject: New Product Development Submission Duration: 3 Hours

Instructor: Tanzeel A. Rauf Patker Submission Date: 07th September 21
Program: MBA Max. Marks: 40

Please follow the instructions carefully:

1. Write your answers directly on BlackBoard or upload the answer file with in the
submission Time on Blackboard.
2. Write your name and registration ID on the first page of your Word file.
3. Answer scripts can only be uploaded on Blackboard any time before its deadline.
4. To avoid any unforeseen problems, you are advised NOT to wait for the last hour
to upload your answer script.
5. Submission of answer copy(ies) will be considered acceptable through Blackboard
only. Therefore, do not submit your document through email or any other medium.
6. Use 12 pt. font size and Times New Roman font style along with 1-inch page
margins.
7. Follow the requirements of the word limit and the marking criteria while writing
your answers.
8. Provide relevant, original and conceptual answers, as this exam aims to test your
ability to examine, explain, modify or develop concepts discussed in class.
9. Do not copy answers from the internet or other sources. The plagiarism of your
answers may be checked through Turnitin.
10. Recheck your answers before the submission on BlackBoard to correct any content
or language related errors.
11. Double check your word file before uploading it on BlackBoard to ensure that you
have uploaded the correct file with your answers.

Case Study – DELL Computer

Dell Computers was founded by Michael Dell in 1984 and has its head offices in Round Rock,
Texas. Recent annual sales revenues have been well over $40 billion, and Dell employs almost
48,000 people worldwide. Michael Dell’s original vision was to sell computer systems directly
to customers. By eliminating the retailer, Dell was able to better understand emerging wants
and needs and to provide the best computing solutions to satisfy those needs, while at the
same time reducing time and costs. Effectively, every system is built to order in response to a
customer need. Dell is also able to roll out advanced technology more rapidly than
competitors that rely on traditional, indirect distribution channels. In fact, Dell claims that it
turns its inventory over once every three days!

Dell was one of the pioneers in selling computers over the Internet. Its Web site,
www.dell.com, was launched as early as 1994, with e-commerce capability added in 1996. By
1997, Dell reached sales of $1 million in daily online sales, being the first firm to do so.
Currently, Dell’s Web site receives over a billion-page requests per quarter across 84 country
sites. It also allows business and institutional customers to use its Premier Dell.com Web pages
to conduct online transactions.

The market for personal computers has been growing rapidly for several years with little end
in sight. As of the end of the year 2000, approximately 120 million PCs were sold worldwide.
Projections for the next five years of industry sales are as shown below:

Year 2001 2002 2003 2004 2005

Market size (in 136 152 168 184 200

millions)
The PC industry has four major competitors: Lenovo (the former producer for IBM), Dell,
Compaq, and Hewlett-Packard (HP). All four make and sell competitive midrange
performance PCs, with the typical configuration for home or small business use costing
approximately $1,000. Dell’s variable costs per unit total about $800, and it is believed that
competitors face a similar variable cost structure. Dell’s Executive would be priced
competitively, at about the same price level of $1,000.

A recent study of the home/small-business PC market found that most customers

considered two important nonprice attributes when selecting a PC: flexibility and
performance. Flexibility refers in this situation to a PC’s ability to run several different kinds of
software, to be easily connected to printers and other peripherals, suit- ability for business as
well as educational or game use, and so forth. Performance, by contrast, referred to speed of
Internet connection and internal calculations, support of the highest-end software programs, and
reliability and accuracy of calculations (the study was done soon after the infamous Pentium
“bug” was found, which caused a very small percentage of numerical calculations to be slightly
wrong). Using familiar customer survey methods, the consultants conducting the study found
the perceived positions of each of the four major brands on the two key nonprice attributes. The
results of the study are summarized below. (The positions are on scales of −2 to +2.)

Brand Positions Attribute 01 Attribute 02 (Flexibility)

(Performance)
Dell 1 -1
Lenovo (IBM) 2 -1.5
HP 1 3
Compaq 0.5 0.5

Construct the positioning map for this industry using the information presented in the
case. Discuss the relative positions of the Executive and its major competitors on the
two key attributes.

Requirements: (05 Marks @ Each Part)

1. Do you think Dell is well positioned with respect to its competitors?

2. Which competitor(s) should Dell be the most concerned about? Why?

3. What additional information might you want to have about the competitors and / or
about the marketplace at this point?

4. How might a seemingly “weaker” later competitor (i.e., out positioned by Dell on both
key attributes) make a dent in Dell’s market share, given that by the time they enter, the
Executive will have been on the market for at least several months?
Case: Chipotle Mexican Gril 8
In 1993, Steve Ells opened a burrito-and-taco restaurant in a Denver storefront, not far
from the University of Denver campus and popular with students. He named it Chipotle
Mexican Grill, after the dried pepper common in Mexican cooking. A trained chef and
graduate of the Culinary Institute of America, Steve’s idea was for Chipotle to be a cash
cow to help him finance a “real,” upscale restaurant. Chipotle, however, began branching
out: first to several locations in and around Denver, then eventually nationwide. In 1998,
McDonald’s bought a 91 percent stake in Chipotle; this was followed by a 2006 initial
public offering in which McDonald’s retained 69 percent of the stock and 88 percent of
voting rights. By the end of 2005, there were about 500 Chipotle outlets generating
approximately $600 million in sales annually. Currently, about 15,000 people are
employed by Chipotle. Steve Ells still serves as the chairman and CEO.

What accounts for the success? For starters: a simple menu, skilled cooking techniques,
fresh preparation, served quickly, and a “cool” setting. The menu is described as “fast
casual” and is at first glance rather limited: only tacos and burritos. (As the only real
change in over a decade, salads were very recently added.) Steve notes, however, that
there is a wide variety of flavors to choose from, and by focusing on a couple of things,
Chipotle has been able to ensure that they do them very well. He argues that too big a
variety leads to too much pre-preparation or processed ingredients, and notes that since
its earliest days, Chipotle items are always made-to-order. He admires and tries to
emulate In-N-Out Burger, a fifty- year-old chain that sells only fries, hamburgers, and
milkshakes, but offers high quality for which people are willing to pay a premium. He
also admires Steve Jobs of Apple, and feels that one can learn a lot from Jobs “passion
for not accepting mediocre stuff.”

There are some other factors at work here as well. The pork used by Chipotle comes from
pigs raised naturally, without hormones, on family farms. In 2005, Chipotle switched its
dairy purchasing policy: Since then, all sour cream comes from cows that are not given
the hormone rBGH. The restaurants use fresh avocados, tomatoes, and peppers,
prepared from scratch. And Chipotle believes in the “open kitchen” format: People can
see for themselves that the food is fresh.

Steve’s term for Chipotle’s vision is “food with integrity.” He notes that he loves seeing
high school students going into a Chipotle, spending a couple of dollars more for a meal
than they might elsewhere, and maybe getting a bottle of water instead of a soda.
Chipotle’s has never advertised as a place for kids or teenagers to eat. In fact, it does very
little advertising. Steve feels that advertising the “food with integrity” vision won’t
work; to use his term, it would “be too preachy.” Rather, he lets the food quality, value,
and convenience do the talking. The open kitchen also helps promote Chipotle’s
freshness and quality. He estimates that no more than 5 percent of his customers know
about “food with integrity.” The rest come in because they like the taste or the value, or
just because “the place looks cool.”

But Steve believes that “food with integrity” can mean much more. He points to the
popularity of organic food stores such as Whole Foods. People respond positively to
organic, sustainably grown vegetables, humanely raised meats, and fewer preservatives.
At Chipotle, he has considered switching over to all-organic produce, but does not want
to price a dining experience at Chipotle out of the average fast-food customer ’s range.
According to one estimate, going organic over- night would make the retail price of a
 burrito jump to $15. Nevertheless, switching to natural pork increased the price of
carnitas from $4.50 to $5.50, but sales also went up.

Totally organic is perhaps a long-term goal, and there are certainly interim steps. About
30 percent of its beans are organic, though other vegetables are generally not. About 60
to 70 percent of the chicken and about 40 percent of the beef is sourced naturally, as well
as all of the pork. The sour cream is still not organic, though it is hormone-free. The other
thing to keep in mind is that as Chipotle grows, it gets more power in the supply
channel. As a tiny chain, it was unable to get natural chicken thighs from high-end
supplier Bell and Evans, but at its current size, it can do so today.

Though today’s Chipotle would seem to be among the leaders in providing healthy fast
food to the public, Steve feels that he is still lagging behind. His goal is for all Chipotle
restaurants to offer only organic, pesticide-free ingredients, lacking preservatives and
artificial flavors and colors, and all natural, humanely raised meat. He would be even
more delighted if every restaurant were to follow the same vision. Let’s call this the “all-
organic concept” for short, recognizing that organic is only a part of the whole vision
here.

Requirement (05 Marks @ Each Part)

1. If you were advising Steve Ells, what could he have done to evaluate the all- organic concept?

2. Is the concept viable at all? How would he be able to estimate the price elasticity (that is, how
high does price have to get before he begins losing significant numbers of customers)?

3. Given the fierce competition in this industry, is his concept pleasant but unrealistic?

4. Or does the organic position provide Chipotle with sustainable competitive advantage?