Sunday, April 5, 2015

Learning Curves and Failed Designs

The learning curve in business can certainly play into how smoothly a product launch goes.  As a company becomes more comfortable with the life cycle of its products, costs and economies of scale will benefit.  While Cessna was quite experienced in aircraft manufacturing from both a business jet and small piston aircraft standpoint, the company had some challenges expanding its product line into the newer Light Sport Aircraft (LSA) category.

The LSA category of aircraft was developed in response to the sport pilot certificate developed in 2004.  This new pilots license allowed aspiring individuals to get in the air with fewer hours of training and less scrutiny of their medical history.  Training was overall less expensive; however, pilots with this new type of license were limited in the type of aircraft they could fly and how they could fly them.  The new weight (<1320 lbs) and speed (<138mph/120 knots) restrictions meant that Cessna would have to develop a new product if it wanted to capture this market.  While the company used to manufacture a smaller and slower training aircraft (the 150/152), even these models were too heavy for the LSA category.

The solution to this was the 162 Skycatcher.  First delivered in 2009, the newest model Cessna was approximately half the cost of a new 172.  It was a completely new design, which required significantly more time and resources than redesigning an existing aircraft.  While the company missed its target price of less than $100,000, initially there were several orders for the new smaller trainer.  This price target was not achievable and rose significantly through the product's life cycle, up to a staggering $149,000 in 2011.  This caused many who initially placed order to cancel them, as the price point was significantly higher than the competition.  In a market of mostly cost-conscious buyers, a major price change pushed many away.  Cessna stopped production in 2013, and of the 262 aircraft registered, 92 of them are to Cessna itself, meaning only 170 had been sold.

Other companies that were more experienced with lighter aircraft excelled in this market, and some new models can be obtained for less than $100,000 to this day.  Cessna ventured into a market it didn't have much experience in, and it didn't fare well against those with more experience.

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