THE SOUND’S ALIVE COMPANY Harvard Case Solution & Analysis


Problem Diagnosis

            The CEO and president of the Sound’s Alive Company, Marissa Jones, is considering entering into the speaker market of the home entertainment market. This was the market where Sound’s Alive Company specialized and it manufactured and sold a line of many entertainment items such as HD TVs, receivers, TV players etc. Marissa was now considering manufacturing and selling the home theatre system which would consist of seven speakers. The reviews from the early prototype systems were positive and Marissa has become highly encouraged from the early positive reviews about this home theatre system. Therefore, she is now considering entering the home theatre market with the introduction of the home theatre system.

A detailed analysis will have to be performed through spreadsheet modeling, simulation and decision analysis for making the final recommendation to Marissa. After consultation with the market analysts, economists and the employees in her own company she has projected the gross revenues, return allowances, cost of goods sold, SG&A expenses, taxes and the growth rates for several future years. These assumptions would be used to formulate a base model for valuing this lucrative market opportunity. However, simulation analysis will also have to be performed in order to determine the riskiness of this investment and evaluate its true potential.

Case Analysis

            A range of different models have been created as shown in the excel spreadsheet for evaluating the proposed market opportunity for launching the home theatre system. Different scenarios have also been considered along with the competition prevailing in the market. First of all, we begin with Phase 1, which is the development of the base case model for this project.

Model Development – Phase 1 & Phase 2

            First of all, the base case model has been developed from 2015 through 2018 based on the growth rate assumptions which have been made by Marissa. These growth assumptions are:

The figures of year 1 (2015) have also been estimated by Marissa which have been used for 2015 and then estimated for future years based upon the above growth rate assumptions. The net present value has been calculated by using the given discount rate of 5%. The total NPV for the home theatre system has been calculated to be $61.71 million.

            After the development of the model under phase 1, the second factor came across Marissa which was also important to be built into the above model. Bose Corporation is the current market leader and there are strong chances that Bose might also enter into the home entertainment market. If Bose will enter the market, then not only the gross revenues of Sound’s Alive Company’s home theatre system would be lower but the labor, materials and the overhead costs would also be lower.

This is because if Bose enters the home entertainment market, then the company would be selling fewer speakers. All the growth rate assumptions would remain same whether Bose Corporation enters the market or not. However, the competition factor has been incorporated into the model for phase 2. For example, if Bose enters the market, then it would be represented by 1 and the gross revenues at this level would be $ 4 million. The competitive assumptions are as follows if Bose enters the market:...............................

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