Review of Performance: Year 2 By the end of year two Pangea Technologies had achieved great success. Not only did it rank number one in game 5 but it also ranked number one overall. Our management team worked well together and made well informed decisions. We achieved our goal to have at least 40% market share in at least two market segments. In fact, we had 52% market share overall and over 45% market share in every segment. Decision Aggressiveness If there was one thing that set us apart from the rest, it would be the aggressiveness of our decisions.
By the end of the second quarter of the second year we had opened offices in every available city selling at least one product to every single market segment. We used our resources generously yet wisely in opening offices, and hiring and motivating salespeople, and it paid off. Financial Performance In year two Pangea has had an excellent financial performance, net operating profit has grown from $1. 4 million in quarter 5 to $45. 6 million at the end of the year.
Our executive team was also willing to invest a lot in order to gain market share as well as profits. Our aggressive investments are demonstrated by the large sums of our operating expenses, which were as follows: $4. 9 million when gross margin was $15. 3 million in quarter 5; $6.
9 million when gross margin was $20. 7 million in quarter 6; $9. 9 million when gross margin was $36 million; $11. 9 million when gross margin was $59 million.
In addition to these second year expenses, we invested around $9 million dollars in the first two quarters each on research and development. Our executive team believed that these cost were necessary for the growth of our company and it proved to be a good strategy. Our investments were in such things as product improvements, opening sales offices, hiring salespeople, and rewarding and motivating sales people. Another important investment went to creating and revising our ads, and as a result our ad ratings have improved dramatically. We also increased our ad expenses from $700, 000 early in the second year to $4.
3 million at the end of the year, which increased our ad reach. Pangea! |s investments this year were instrumental in the great financial success of the company. This was demonstrated by the company! |s financial performance score of 26. 95, which is well above that of the average and it is the highest score compared to our competitors. Market Performance Pangea! |s executive team was well able to create demand in the primary and secondary market.
By the end of year two the company had the largest market share in every one of the five market segments and it also had over 45% in every one of the five market segments. In the Mercedes market, which is on of the two primary markets, the company! |s market share was 59% at the end of the year. Not only has Pangea reached its goals, but it has gone far beyond it. The reasons for this outcome are many, but the main reason is that Pangea aggressive management was not only good at managing the firm's profitability and marketing activities but also investments in the future. The company has done well in creating brands that satisfied their corresponding market segment, which made it easy to sell to target market. The company used its aggressive approach to open sales offices in all possible areas.
Many salespeople were hired to sell Pangea! |s products and the salespeople were well motivated well. Ads helped the potential customers recognize the different brands. Ads also brought in customers to the different sales offices. All of these decisions were important in gaining market share in every market segment. Pangea! |s market performance score of 0. 52 also demonstrates its success.
This score is an excellent score considering the number of competitors. Pangea received the highest score compare to its competitors. The management team has done well in creating demand in the primary and secondary segments. Marketing Effectiveness In year two, Pangea! |s marketing strategy has been very effective in satisfying the needs of the customers as measured by the quality of their brands, and ads. The marketing effectiveness score of 0. 87 attests to the success of management! |s marketing strategy.
A good score is one above 0. 8. Again Pangea! |s score was the highest compared to its competitors. Brand Design "^2 Margins Fixed Our brand designs were good earlier in the year, but by the end of the year we had the best brand designs in each segment. We focused on designing our brands to the liking of each market segment.
We also reviewed our performance as well as our competitors! | performance thoroughly, and in the areas where our performance was not the best, we used benchmarking. We were not shy about copying the ideas of the best. For example, our Cost Cutter brand, Centra 260, was not the best nor did it capture the largest market share so we looked at the best Cost Cutter brand, which was bravissimo 1 of our competitor, Elegant. This brand was not the highest rated yet it outperformed the highest rated brand in that it had the largest market share in the Cost Cutter segment.
After having compared our brand to the bravissimo 1, we copied most of the design ideas in designing our new brand Centra 270 and we also found ways to make our design better than the bravissimo 1. This strategy worked well because we were able to capture the largest market share of the Cost Cutter segment. In the areas where our performance was the best, we looked for ways to improve and took action to do so. For example, compared to our competitors we consistently captured the largest market share in the Mercedes segment but we looked for ways to improve our product to gain market share.
In trying to do this we evaluated ours brand design and ad design as well as those of our competitors. We also looked at the number of salespeople we hired, the number of sales offices we opened, and how best to motivate our salespeople. By the end of year two we had improved our brand design to where our Mercedes brand, XL 5600+, had received highest rating as well as capture 59% market share in the Mercedes market segment. At the end of year two, all of our primary products targeting corresponding market segments, received highest ratings. The following results are Pangea Technology! |s brand ratings at the end of the year: No Of Brands Market Segment Brand Name Brand Evaluation 1 Traveler Trek 4600 100 Highest rating 2 Mercedes XL 5600+ 98 Highest rating 3 Innovator XL 5100+ 98 Highest rating 4 Cost Cutter Centra 270 95 Highest rating 5 Workhorse Vicar 4100 94 Highest rating 6 Traveler Trek 3600 71 -7 Cost Cutter Centra 260 53 -Ad Design One of our weaknesses was our ad designs. Our ad design ratings were low and we did not understand why.
It was the hardest thing to improve. Every quarter we evaluated our own ads and compared them to those of our competitors. We copied many features of the highest rated ads in each segment and our ads rating seemed to improve. Every quarter we redesigned our ads until their ratings were in the seventies and in the nineties.
We figured out one of the reasons for the low rating earlier in the year was due to cluttering of information on our ads. At year end, our ad ratings had improved dramatically. Three of our ads received highest ratings. The following table shows the evaluations of Pangea! |s ads: AD No Market Segment Ad Name Ad Evaluation 1 Traveler Trav 02 97 Highest rating 2 Mercedes Merc 03 93 Highest rating 3 Innovator Gen Inv 1 77 Highest rating 4 Cost Cutter CC 01 71 2 nd Highest rating 5 Workhorse Work 03 71 7 th Highest rating Investment in the firm! |s Future In year two Pangea! |s executive team made aggressive decision to invest in the firm! |s future. Early in the year the firm invested heavily (around $18 million dollars) in research and development this eventually went towards improving or creating the firm! |s different brands. In the short-term, these expenditures caused net operating profit to be $1.
4 million compared to $10. 4 million in operating profit in quarter 5, and $4. 7 million in net operating profit compared to $13. 7 million operating profit in quarter 6. This decision was essential in designing brands that would satisfy the target markets as well as brand that would outperform competitor! |s brands. This strategy proved to be good because not only were Pangea! |s brand ratings high, but it gained the largest market share in every market segment.
At the end of the year Pangea invested $1. 5 million in research and development. Although our score for investment in the firm! |s future was only 2. 12, Pangea has demonstrated well that it is willing and able to invest of the firm! |s future. The score 2. 12 is only based on quarter 8 decision but looking at the whole year! |s research and development investment decisions it is evident that Pangea has been investing heavily in its future.
Creation of Wealth To compute the creation of wealth measure Pangea! |s net investment is divided by the cumulative investment from corporate headquarters to obtain a measure of return on investment. By the end of year two Pangea! |s creation of wealth score was 13. 27, which is well above the average score of 3. 40. This indicates that the marketing division has earned more profit than corporate headquarters has invested in it. The Division has contributed greatly to the overhead and profits of the entire company and its stockholders.
The 13. 27 score in creation of wealth is a very high score and it demonstrates the kind of success Pangea Technologies has achieved. All in all, our executive team has done a great job of improving in the areas where our performance needed improvements and in maintaining our position in the areas where our performance was the best. Pangea had enjoyed great success from the inception of the company but in year two its level of success has greatly surpassed its earlier success. Our executive team has succeeded in achieving the goals of the company..