CHANDANA L. GARIMA TAMUDIA KRITI SINGHAL POOJA BERIA S. MADHULA RAJASURYA

The leading manufacturer Dominion motors in Canada having aquired 50% of the available market for oil pumping motors is threatened by a loss of market share in oilfield pumping motors because the Hamilton Oil Company, having tested several competing motor brands, finds the competitor Spartan Motor’s motor to be superior.

1Reduce the price of DMC’s 10hp motor to that of the 7 ½ -hp motor,

2 Reengineer DMC’s present 71/2 hp motor to make its starting torque atleast equal to that of spartan’s 7 ½ hp unit,

3 Undertake design offer definite purpose motor for the oil well pumping market.

4Attempt to persuade Bridges and Hamilton executives that another set of conclusions could be drawn from the test results.

Hamilton is the largest producer with 30% share on oil producing wells.

80% of the Dominion market is large business users.

Estimation that 1000 new wells per year would come up in the next 5 years.

The season of highest sales is between April and September.

Many small oil operators follow large companies for purchasing policy and equipment choice.

Reduce the price of DMC’s 10 hp motor to that of 71/2 motor. Actual Price of 10-hp motor= $1580 New Reduced price = $ 1200 Suppose considering per unit sales:

Profits get reduced by $342 / unit. PROS: This is a quick initial way to meet the problem requirements. The company sales would not be affected for the current season. They get more time to analyze Bridge’s test and derive their own

conclusions

Scenario Cost incurred

Sales + Transport Cost

Total Cost

Selling Price

Profit

current 907.80 158 1065.8 1580 514.20

Future 907.80 120 1027.80 1200 172.20

Cons: Reduced profits. Extra expense for user.

For 71/2 hp motor, the electrical consumption = $21.5 *7½ =$161.5

For 10 hp motor, the electrical consumption = $20 * 10=$200 Therefore extra expense of $38.5 for the user. This is not a long run solution. If the power companies start penalizing for overmotoring, the

customers would be at risk.

Two ways of Reengineering 71/2 hp motor. 1. Increasing torque with increase in temperature. 2. Increasing torque with increase in frame size.

Going by this alternative would violate NEMA standards and would lead to unbalanced motor design.

Even the cost analysis shows a reduced profit, hence this alternative is not feasible.

options Manufacturing cost

Fixed cost

Sales commission(8%) + transport cost(2%)

Total cost Selling Price

Profit

1. 790 50.49 120 960.49 1200 239.51

2. 867 50.40 120 1037.49 1200 162.51

current 663.51 50.49 120 834 1200 366

PROS: No additional investment in plant and equipment is required. Required Torque capacity is achieved.

CONS: Reduced profits. Equipment set up time is 3 months. Will start torque war which would be detrimental to the motor

industry. Customer reaction to the new product is uncertain. The company’s policy of maintaining NEMA standards is being

violated.

Considering the definite purpose motor specification 5 hp unit having torque of a 10 hp motor.

Monthly power charge paid acc. To horse power.

Horse power(hp)

Base rate/horse power($)

Monthly power base rate($)

5 25 125

7 1/2 21.50 161.25

10 20.00 200

By using 5 hp motor instead of 10 hp motor the user can save 75$ /month and 75*12=900$ / year.

This 5 hp can be sold for a minimum price of $1045 and maximum price of $1200.

Referring to exhibit 2:

Fixed cost here is 571.20 – 511.53=$59.67 But the manufacturing cost of Definite purpose motor

comes around $665. Including the sales commission and transportation

cost(10%) . i.e $104.5 for ($1045 S.P ) and $120 for (S.P $1200)

* Total Cost includes manufacturing cost, fixed cost and sales commission and transportation cost.

hp Manufacturing cost

Total cost

5 $511.53 571.20

Selling Price($)

*Total cost ($) Profit($)

1045 829.17 215.83

1200 844.67 355.33

Therefore, % hp motor can be sold for $1200 with a profit of $355.33 According to industry estimates, an average of 1000 new wells would

be added every year. But this alternative requires an investment of $75000 for the required

engineering and testing. Therefore, Total sales from profit would be 1000 * 355.33= $355,330 Hence, the pay back time for the initial setup cost would be

75000/355330=0.21 years Hence , this alternative can be adopted as the profit is considerable

with less pay back time and DMC Ltd. Can catch up with it’s competitors.

CONS: The new wells coming up may require different motors. Small companies may not want the same motor that Hamilton wants. Also it would take 4 or 5 months for the production to begin.

Pros: Not necessary to change the product and market strategy

Cons: Bridges is more convinced of his interpretations and its difficult to

meet him directly Presentation of different arguments is not known Even if we try to alternate Bridge’s recommendations it would

only generate ill will.

Additional alternative: Some executives believed that DMC should begin testing and

defining the motor needs of the companies’ various market segments as it would be a long term investment in maintaining DMC’s future market position.

But it requires additional hiring.

As soon as the Bridges results gets published DMC can take up Alternative 1 to retain the market share in the current selling season. To make this alternative more attractive the minimum marginal profit can be retained and additional discount can be provided over and above 45%.

And parallely DMC must work on Alternative 3 and launch a customized product for the Canadian market (which is strongly influenced by BRIDGES’ result)