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 3rd
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

Total
cost
exclud
ing
Transpor
Price
transp
tation & Manufact
to
ortati
sales
uring
Total Cost
large
on
Cost
cost
users
and
(10%)
sales
commi
ssions
*

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