Dominion Motors & Controls, Ltd. Case
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Dominion Motors & Controls, Ltd.
1) The problem:
DMC’s potential loss of significant market share in the near and long term, of oil well pumping motors if DMC doesn’t respond quickly and effectively to the expected change in motor specs for the industry.
2) Causes of the problem:
Hearsay concerning a study by the trend setting buyer in the market, which, if true, will promote the motors of DMC competitors and relegate DMC to third choice in the oil pumping market.
Also DMC’s perceived late discovery of the study. (Other manufacturers don’t seem to know so DMC may still be ahead of the others in information, but their machine is 3rd choice so timely information is more critical to DMC)
3) Is this a brush fire or an important problem?
1000 wells per year over the next 5 years (possibly more) DMC has ~51%=510. per year=2550 over 5yrs ( plus whatever replacements)
510/yr @$1200=$612000.yr
(1200.= price of 7 Đ… hp which is 3rd in torque but above 70pf or the price of the 10hp reduces to the 71/2hp price)
(Potential $loss if reduce price = 94962.yr but losing market would be a bigger problem.)
If DMC loses Hamilton, other than lost dollars, which doesn’t seem to be significant, DMC could lose brand image and reputation as a result of being downgraded in the industry. This could be worse than lost dollars. In addition it could lose the industry by losing the leader of the industry. Although this market is a small slice of DMC’s revenues, one cannot afford to easily lose market share. In addition, this could have spill over affects in it’s other markets when it circulates that DMC was a “failure” in one market.
In the end I would say it’s an important problem not for the immediate dollars, but for the future dollars that could be lost with a “tarnished” image as well as losing market share.
4) The profit impact of each of the four alternatives:
(i) Lower price:
$384 per unit or “mark up” of 47% vs $764. per unit or “mark up” of 94% (not really a mark up, fixed costs not included).
a) Re-engineer 71/2hp for higher torque mfg cost of $790. would be $410. per unit or a “mark up” of 52%.
b) Use a larger motor frame mfg cost $867. would be $333. per unit or 38% “mark up”
(iii) Design a definite purpose motor mfg cost $665. SP $1045. (or more): $380 per unit or 57% “mark up” (how does the $75000. investment factor in?) 4 or 5 month to market mean they will miss most (if not all) of this years sales and it could have residual impact in loss of repeat business.
(iv) The impact of attempting to persuade Bridges and Hamilton Oil that another set of conclusions could be drawn from the test results is unpredictable.
Hamilton could be alienated by feeling challenged or suspected of weak analysis and it could negatively impact DMC’s market share.
Hamilton could be persuaded and it could be a neutral affect (although in his scenario, Bridges could be offended and that could have some negative impact).
5) Key advantages and disadvantages of each alternative:
Reduce price can give a competitive edge; maintain or increase market share.
It could diminish revenue; it is overmotoring which is against