Haas School of BusinessHaas School of BusinessBA 160 MarketingBA 160 Marketing

Prof. A. BauerProf. A. Bauer

• Giulio Bergamaschi• Pili Cora• Nicola Corti• Pablo Echeverria• Valery Ingalls

The CompanyWho is?Who is?

A large supplier of motors and control equipment in Canadian Market

Strength• Excellent reputation for product

quality

• Excellent salesperson

• Wide range of products (motor control and panel board units)

• 50% of Market share in 1973

• Capability of producing closer to the NEMA standard than the competitors

Weakness• The motors produced have low

torque compared to the competitors

• Weak advertisement campaign

Environment Analysis

DOMINION

PurchasersPurchasers(Oem, Reseller, Large User, Small User)

NEMA

Electric Companies

CompetitorsCompetitors(Spartan,Universal, foreign companies)

Problem definitionWhat has led to this situation?

New customers needs:• New schedule based on connected horsepower of an installation

• Stop overmotoring

Hamilton test:• The ideal motor has low horsepower and high torque

• Dominion is recognized as the third company in the market

!!!!!! Test results will be reported in May

Our Recommendations:

Short Term

• To make the 10-hp motor still competitive we recommend to cut its price (according to alternative 1) to get a competitive positioning

• New price: the same of the7.5-hp price, to make it competitive despite of the new energy schedule

Long term

• Give the market exactly what it needs: 5-hp motor with the starting torque of a 10hp unit (alternative 3)

Analysis: Alternative 1

Dominion produces a motor which is very expensive, it costs more than the others in terms of energy and it is reconductable to a overmotoring practice; this means that the product is not convenient for the purchasers.

The only way to sell these motors again is to cut their prices at the same level of the 7.5-hp; because companies don’t care about little savings on energy in the short period, and because the torque of the 10-hp is higher than the 7.5-hp’s. That makes these motors still convenient in the short term.

Although the margin will be reduced the sales volume would grow, also considering that this period is the most prosperous ( 80% of sales) .

Alternative 1 (Short term) Reduce the price of DMC's 10-hp motor to that of the 7.5-hp motor

Horsepower Manufacturing Cost Total Cost List Price Price to Large Users Sales & transp. costs Profit Margin7.5 663.51$ 714.00$ 1,940.00$ 1,203$ 120.28 419.01$ 10 816.00$ 907.80$ 2,550.00$ 1,581$ 158.10 606.90$

Horsepower of Installation Monthly Base Charge per Horsepower Monthly total charge cost Profit Margin*5 25.00$ 125.00$

7.5 21.50$ 161.25$ 228.70$

Analysis: Alternative 2Alternative 2 (Mid term) Reengineer DMC's present 7.5-hp motor to make its starting torque at least to that of the Spartan 7.5-hp unit

A Horsepower Manufacturing Cost Sales & transp. costs Price to Large Users Profit Margin7.5 790$ 120$ 1,203$ 293$

B 7.5 867$ 120$ 1,203$ 216$

•Just modify the existing 7.5 hp motor to obtain at least a 105 pounds-feet torque. This motor would have the same size as the existing 7.5-hp motor , but its temperature rise would be greater than NEMA standards. According to DMC personnel, safety standards will be respected by using special high temperature insulation.

•This alternative suggests to use a larger motor frame , again meeting or exceeding NEMA’s standard performance specifications, but not NEMA mounting dimension for its rating.

3 months to reengineer the existing 7.5-hp motor (missing the best period for sales)

Risk of a torque “war” which could lead to embalanced motor design

Problems

Analysis: Alternative 3Alternative 3 (Long Term) Start producing a 5-hp motor with the starting torque of a 10-hp unit

Horsepower Manufacturing Cost Sales & transp. costs Price to Large Users Profit Margin Investment5 665$ 125$ 1,250$ 460$ 75,000$

Advertisement**Break Even Point 163.04 units 35,000$

Break Even Point** 239.13 units

This alternative represents the only way to produce exactly what market needs. This solution has the energy costs of a 5-hp motor with the performances of a 10-hp, and could be priced below the 7.5-hp motor. But thanks to its attractiveness could be priced just a little bit more expensive than the 7.5-hp. This motor would still exceed NEMA specifications. DMC engineers believe this solution will give the company an important advantage over competitors , which is expected to last for a long time. The high profit margin can allow the company to improve the advertisement investments.

The basic problem of this alternative is that it is not realizable before 4 or 5 months.

Analysis: Alternative 4

Many DMC managers believe that Bridge’s conclusions aren’t completely accurate : as a consequence it’s better to wait before considering changes in product and market strategy. DMC executives think also that high starting torque it’s not the most important feature : in fact an 80 pounds-feet motor is deemed capable of “ breaking “ a pump in the most extremely cold weather. If this statement it’s true , Spartan motor won’t be anymore the first Hamilton’s choice because of its highest starting torque .

Problems it’s very difficult to approach Bridge directly

“ nothing but ill will could be generated by any attempt to alter Bridge’s recommendations”

Analysis: SummaryAlternative 1 (Short term) Reduce the price of DMC's 10-hp motor to that of the 7.5-hp motor

Horsepower Manufacturing Cost Total Cost List Price Price to Large Users Sales & transp. costs Profit Margin Profit Margin*7.5 663.51$ 714.00$ 1,940.00$ 1,203$ 120.28 419.01$ 10 816.00$ 907.80$ 2,550.00$ 1,581$ 158.10 606.90$ 228.70$

Horsepower of Installation Monthly Base Charge per Horsepower Monthly total charge cost5 25.00$ 125.00$

7.5 21.50$ 161.25$ 10 20.00$ 200.00$

Alternative 2 (Mid term) Reengineer DMC's present 7.5-hp motor to make its starting torque at least to that of the Spartan 7.5-hp unit

A Horsepower Manufacturing Cost Sales & transp. costs Price to Large Users Profit Margin7.5 790$ 120$ 1,203$ 292.52

B 7.5 867$ 120$ 1,203$ 215.52

Alternative 3 (Long Term) Start producing a 5-hp motor with the starting torque of a 10-hp unit

Horsepower Manufacturing Cost Sales & transp. costs Price to Large Users Profit Margin Investment5 665$ 125$ 1,250$ 460$ 75,000$

Advertisement**Break Even Point 163.04 units 35,000$

Break Even Point** 239.13 units

Final recommendation enforcedThe previous analysis shows that the best profit margins can be achieved thanks to alternative 3. By choosing this alternative, the company’s market share should increase to 60%: according to the optimistic forecasting in the next five years 5,000 new wells will enter production. If the new well pumping motor requirements will be the same as for existing fields, the company could sell up to 3,000 motors thanks to the new wells.

According to our financial analysis, the BEP is achieved selling 163 units, and can be also achieved selling 239 units in case of a new investment in advertising. A stronger advertising campaign will be surely useful to promote the new motor.

Considering that the third alternative can be realized in 4 or 5 months, and that the next months are the most profitable, the only way not to lose business in the short term is choosing alternative 1. In fact it produces lower profit margins, but it finally makes our motor convenient for the purchasers: the company is selling more.