Situation:

Dominion motors and control limited has more than 50% market share
for oil well pumping motors in northern Canadian oils fields.
Canadian oil drilling industry is growing at the rate of 1000 new wells per
year.
Largest Canadian oil company (Hamilton) having 30% total oil wells has
conducted test where DMCs products ranked 3
rd
amongst competitors
Objective:
Assess the pros and cons of taking each of the alternatives
Short term and long term decision to be taken with regards to oil
pumping motor market



Reduce Price of 10 HP motor to that of 7 HP
motor
Pros Cons
Quick way to meet the
problem
Only a short term
mission
Competitive
advantage at the
beginning of sales
season
Reduction of margin
by 66%, may lead to
reduce profits from
sales to other
industries
Lower electricity
charges owing to
recent change in price
index
Will lead to general
reduction of prices
and margins of other
models or
cannibalization

Scheme
Price to
large
users
Transportati
on & sales
Cost (10%)
Manufacturi
ng cost
Total
cost
excludin
g
transpor
tation
and
sales
commiss
ions*
Total Cost Profit Margin
Current Scheme
1580 158 816 907.8 1065.8 514.2
Alternative 1
1200 120 816 907.8 1027.8 172.2

Convince Mr. Bridges & Hamilton to
reconsider their conclusions
Pros Cons
Can potentially lead
to Hamilton changing
their conclusion
Unprofessional
behavior on part of
DMC to approach
Hamilton regarding
their internal report
Internal DMC test can
validate their
executive deals to
that excessive torque
capabilities are not
useful
It spoil relationship
with Hamilton
executive and Bridges
It would require
additional hiring of
engineers


Recommendation:
Short term:
Make no change to product or price till the Hamilton report is out.
Give additional seasonal discount to large oil producers on 10 hp motor to bring
its net sale price down to 7.5hp motor level.
Long term:
Go for alternative 3 and develop definite purpose motor with 5hp and higher
torque that can be marketed to oil producers. (has low break even point of 197
motors)
- Since oil rig market is going to double in 5years, competitively superior product
would elicit enough sales to justify its production economy of scale