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Haas School of Business BA 160 Marketing Prof. A. Bauer
Haas School of Business BA 160 Marketing Prof. A. Bauer
BA 160 Marketing
Prof. A. Bauer
Giulio Bergamaschi
Pili Cora
Nicola Corti
Pablo Echeverria
Valery Ingalls
The Company
Who is?
A large supplier of motors and control equipment in
Canadian Market
Strength
Weakness
Environment Analysis
Competitors
(Spartan,
Universal,
foreign
companies)
NEMA
DOMINION
Electric Companies
Purchasers
(Oem, Reseller, Large User, Small User)
Problem definition
What has led to this situation?
Hamilton test:
!!!
Our Recommendations:
Short Term
Long term
Analysis: Alternative 1
Alternative 1 (Short term)
Horsepower
7.5
10
Reduce the price of DMC's 10-hp motor to that of the 7.5-hp motor
Manufacturing Cost
$
663.51
$
816.00
Horsepower of Installation
5
7.5
$
$
Total Cost
714.00 $
907.80 $
List Price
Price to Large Users Sales & transp. costs
1,940.00 $
1,203
120.28 $
2,550.00 $
1,581
158.10 $
Profit Margin
419.01
606.90
Profit Margin*
$
228.70
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 dont care about little savings on energy in the
short period, and because the torque of the 10-hp is higher than the 7.5-hps. 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) .
Analysis: Alternative 2
Alternative 2 (Mid term)
A
Horsepower
7.5
7.5
Reengineer DMC's present 7.5-hp motor to mak e its starting torque at least to that of the Spartan 7.5-hp unit
Manufacturing Cost Sales & transp. costs Price to Large Users
$
790 $
120 $
1,203 $
$
867 $
120 $
1,203 $
Profit Margin
293
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
NEMAs standard performance specifications, but not NEMA mounting dimension
for its rating.
3 months to reengineer the existing 7.5-hp motor
Problems
(missing the best period for sales)
Risk of a torque war which could lead to
embalanced motor design
Analysis: Alternative 3
Alternative 3 (Long Term)
Horsepower
5
Start producing a 5-hp motor with the starting torque of a 10-hp unit
Manufacturing Cost Sales & transp. costs Price to Large Users
$
665 $
125 $
1,250 $
Break Even Point
Break Even Point**
Profit Margin
163.04 units
239.13 units
Investment
75,000
Advertisement**
$
35,000
460 $
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 10hp, 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 Bridges conclusions arent completely
accurate : as a consequence its better to wait before considering changes in
product and market strategy.
DMC executives think also that high starting torque its 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 its true , Spartan
motor wont be anymore the first Hamiltons choice because of its highest
starting torque .
Problems
Analysis: Summary
Alternative 1 (Short term)
Horsepower
7.5
10
Manufacturing Cost
$
663.51
$
816.00
Reduce the price of DMC's 10-hp motor to that of the 7.5-hp motor
$
$
Horsepower of Installation
5
7.5
10
Horsepower
7.5
7.5
Total Cost
714.00 $
907.80 $
List Price
Price to Large Users Sales & transp. costs
1,940.00 $
1,203
120.28 $
2,550.00 $
1,581
158.10 $
Profit Margin
Profit Margin*
419.01
606.90 $
228.70
Reengineer DMC's present 7.5-hp motor to mak e its starting torque at least to that of the Spartan 7.5-hp unit
Manufacturing Cost Sales & transp. costs Price to Large Users
$
790 $
120 $
1,203
$
867 $
120 $
Profit Margin
292.52
1,203
215.52
Start producing a 5-hp motor with the starting torque of a 10-hp unit
Manufacturing Cost Sales & transp. costs Price to Large Users
$
665 $
125 $
1,250 $
Break Even Point
Break Even Point**
Profit Margin
163.04 units
239.13 units
Investment
75,000
Advertisement**
$
35,000
460 $