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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 Motors motor to be superior.

1Reduce the price of DMCs 10hp motor to that of the 7 -hp motor, 2 Reengineer DMCs present 71/2 hp motor to make its starting torque atleast equal to that of spartans 7 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 DMCs 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:
Scenario Cost incurred
Sales + Transport Cost

Total Cost

Selling Price

Profit

current Future

907.80 907.80

158 120

1065.8 1027.80

1580 1200

514.20 172.20

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 Bridges test and derive their own conclusions

Cons: Reduced profits. Extra expense for user. For 71/2 hp motor, the electrical consumption = $21.5 *7 =$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.
Manufactur ing cost Fixed cost Sales commissio n(8%) + transport cost(2%) Total cost

options

Selling Price

Profit

1.
2.
current

790
867 663.51

50.49
50.40 50.49

120
120 120

960.49
1037.49 834

1200
1200 1200

239.51
162.51 366

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.

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 companys 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($) 5 7 1/2 10 25 21.50 20.00 Monthly power base rate($) 125 161.25 200

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:
hp
5

Manufacturing cost
$511.53

Total cost
571.20

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 $1200)
Selling Price($)
1045 1200

*Total cost ($)


829.17 844.67

Profit($)
215.83 355.33

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

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 its 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 Bridges 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 DMCs 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)