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Case No.

14
Wind Technology
Ken Manning
University of South Carolina
Jakki J. Mohr
University of Montana

Kevin Cage, general manager of Wind Technology, sat in his office on a Friday afternoon
watching the snow fall outside his window. It was January 1991 and he knew that during the
month ahead he would have to make some difficult decisions regarding the future of his firm,
Wind Technology. The market for the wind profiling radar systems that his company designed
had been developing at a much slower rate than he had anticipated.

The Situation
During Wind Technologys 10-year history, the company has produced a variety of
weather-related radar and instrumentation. In 1986, the company condensed its product mix to
include only wind-profiling radar systems. Commonly referred to as wind profilers, these
products measure wind and atmospheric turbulence for weather forecasting detection of wind
direction at NASA launch sites, and other meteorological applications (i.e., at universities and
other scientific monitoring stations). Kevin had felt that this consolidation would position the
company as a leader in what he anticipated to be a high-growth market with little competition.
Wind Technologys advantage over Unisys, the only other key player in the wind
profiling market, included the following:
(1) The company adhered stringently to specifications and quality production
(2) Wind Technology had the technical expertise to provide full system integration. This
allowed customers to order either basic components or a full system including software
support
(3) Wind Technologys staff of meteorologists and atmospheric scientists provided the
customer with sophisticated support, including operation and maintenance training and
field assistance.
(4) Wind Technology had devoted all of its resources to its wind-profiling business.
Kevin believed that the market would perceive this as an advantage over a large
conglomerate like Unisys.
Wind Technology customized each product for individual customers as the need arose;
the total system could cost a customer from $400,000.00 to $5 million. Various governmental
entities, such as the Department of Defense, NASA, and state universities had consistently
accounted for about 90 percent of Wind Technologys sales. In lieu of a field sales force, Wind
Technology relied on top management and a team of engineers to all on prospective and current

customers. Approximately $105,000.00 of their annual salaries was charged to a direct selling
expense.

The Problem
The consolidation strategy that the company had undertaken in 1986 was partly due to
the company being purchased by Vaitra, a high-technology European firm. Wind Technologys
ability to focus on the wind-profiling business had been made possible by Vaitras financial
support. However, since 1986 Wind Technology had shown little commercial success, and due to
low sales levels, the company was experiencing severe cash-flow problems. Kevin knew that
Wind Technology could not continue to meet payroll much longer. Also, he had been informed
that Vaitra was not willing to pour more money into Wind Technology. Kevin estimated that he
had from 9 to 12 months (until the end of 1991) in which to implement a new strategy with the
potential to improve the companys cash flow. The new strategy was necessary to enable Wind
Technology to survive until the wind-profiler market matured. Kevin and other industry experts
anticipated that it would be two years until the wind-profiling market achieved the high growth
levels that the company had initially anticipated.
One survival strategy that Kevin had in mind was to spin off and market component parts
used in making wind profilers. Initial research indicated that, of all the wind profiling systems
component parts, the high-voltage power supply (HVPS) had the greatest potential for
commercial success. Furthermore, Kevins staff on the HVPS product had demonstrated
knowledge of the market. Kevin felt that by marketing the HVPS, Wind Technology could reap
incremental revenues, with very little addition to fixed costs. (Variable costs would include the
costs of making and marketing the HVPS. The accounting department had estimated that
production costs would run approximately 70 percent of the selling price, and that 10 percent of
other expenses such as top management direct-selling expenses should be charged to the
HVPS.

High-Voltage Power Supplies


For a vast number of consumer and industrial products that require electricity, the
available voltage level must be transformed to different levels and types of output. The three
primary types of power supplies include linears, switches, and converters. Each type manipulates
electrical current in terms of the type of current (AC or DC) and/or the level of output (voltage).
Some HVPS manufacturers focus on producing a standardized line of power supplies, while
others specialize in customizing power supplies to the users specifications.
High voltage power supplies vary significantly in size and level of output
.
a. Small power supplies with relatively low levels of output (under 3 kV) are used in
communications equipment.
b. Medium sized power supplies that produce an output between 3 and 10 kV are used in a
wide range of products including radars and lasers.
c. Power supplies that produce output greater than 10kV are used in a variety of
applications such as high powered X-rays and plasma-etching systems.

Background on Wind Technologys HVPS


One of the Wind Technologys corporate strategies was to control the critical technology
(major component parts) of its wind profiling products. Management felt that this control was
important since the company was part of a high-technology industry in which confidentiality and
innovation were critical to each competitors success. This strategy also gave Wind Technology a
differential advantage over its major competitors, all of whom depended on a variety of
manufacturers for component parts. Wind Technology had successfully developed almost all of
the major component parts and the software for the wind profiler, yet the development of the
power supply had been problematic.
To adhere to the policy of controlling critical technology in product design (rather than
purchasing an HVPS from an outside supplier) Wind Technology management had hired Anne
Ladwig and her staff of HVPS technicians to develop a power supply for the companys windprofiling systems. Within six months of joining Wind Technology, Anne and her staff had
completed development of a versatile power supply which could be adapted for use with a wide
variety of equipment. Some of the companys wind-profiling systems required up to ten power
suppliers, each modified slightly to carry out its role in the system.
Kevin Cage had delegated the responsibility on investigating the sales potential of the
companys HVPS to Anne Ladwig since she was very familiar with the technical aspects of the
product and had received formal business training while pursuing an MBA. Anne had determined
that Wind Technologys HVPS could be modified to produce levels of output between 3 and 10
kV. Thus, it seemed natural that if the product was brought to market, Wind Technology should
focus on applications in this range of output. Wind Technology also did not have the production
capabilities to compete in the high-volume, low-voltage segment of the market, nor did the
company have the resources and technical expertise to compete in the high-output (10 kV+)
segment.

The Potential Customer


Power supplies in the 3-10 kV range could be used to conduct research, to produce other
products, or to place as a component into other products such as lasers. Thus, potential
customers could include research labs, large end-users, OEMs, or distributors. Research labs
each used an average of three power supplies; other types of customers ordered a widely varying
quantity.
HVPS users were demanding increasing levels of reliability, quality, customization, and
system integration. System integration refers to the degree to which other parts of a system are
dependent upon the HVPS for proper functioning, and the extent to which these parts are
combined into a single unit or piece of machinery.
Anne had considered entering several HVPS market segments in which Wind Technology
could reasonably compete. She had estimated the domestic market potential to these segments at
$237 million. To evaluate these segments, Anne had compiled growth forecasts for the year
ahead and had evaluated each segment in terms of the anticipated level of customization and
system integration demanded by the market. Anne felt that the level of synergy between Wind
Technology and the various segments was also an important consideration in selecting target
market. Exhibit 1 summarizes this information. Anne believed that if the product was produced,
Wind Technologys interests would be best served by selecting only one target market on which
to concentrate initially.
3

Competition
To gather competitive information, Anne contacted five HVPS manufacturers. She found
that the manufacturers varied significantly in terms of size and marketing strategy (see exhibit 2).
Each listed a price in the $5,500-$6,500 range on power supplies with the same features and
output levels as the HVPS that had been developed for Wind Technology. After she spoke with
these firms, Anne had the feeling that Wind Technology could offer the HVPS market superior
levels of quality, reliability, technical expertise, and customer support. She optimistically
believed that a one-half percent market share objective could be achieved the first year.
EXHIBIT 1 HVPS Market Segments in the 3-10 kV range
Forecasted
Annual Growth
(%)

Application
General/univ. Labs
Lasers
Medical equipments
Microwave
Power modulators
Radar systems
Semiconductors
X-ray systems

5.40
11.00
10.00
12.00
3.00
11.70
10.10
8.60

Level of
Customization/Leve
l of System
Integration*

Synergy
Rating**

Medium/medium
Low/medium
Medium/medium
Medium/high
Low/low
Low/medium
Low/low
Medium/high

Percent of $237
million Power
Supply
Market***

3
4
3
4
4
5
3
3

8
10
5
7
25
12
23
10

*-the level of customization and system integration generally in demand within each of the application is defined as low, medium, or high.
**-synergy ratings are based on a scale of 1 to 5; 1 is equivalent to a very low level of synergy and 5 is equivalent to a very high level of synergy.
These subjective ratings are based on the amount of similarities between the wind-profiling industry and each application.
***-percentages total 100percent of the $237 million market in which Wind Technology anticipated it could compete.
Note: this list of application is not all-inclusive.

EXHIBIT 2 Competitor Profile (3-10kV range)


Company
Approximate
annual sales
Market share
Price**
Delivery
Product
customization
System
integration
experience
Customer
targets

Gamma

Glassman

Kaiser

Maxwell*

Spellman

$2 million
1.00%
$5,830
12 weeks

$7.5 million
3.00%
$5,590
10 weeks

$3 million
1.50%
$6,210
10 weeks

$5,000-$6,000
8 weeks

$7 million
2.90%
$6,360
12 weeks

No

Medium

Low

Medium

Low

Low

Low

Low

Medium

Low

Gen. Lab.
Space
Univ. Lab.

Laser
Medical
X-ray

Laser
Medical
Microwave
Semiconductor

Radar
Power mod.
X-ray
Medical equip.

Capacitors
Gen. Lab.
Microwave
X-ray

*- Maxwell was in the final stages of product development and stated that the product would be available in the spring. Maxwell anticipated that
the product would sell in the $5,000 to $6,000 range.
**- Price quoted for an HVPS with the same specification as the standard model developed by Wind Technology.

Promotion
If Wind Technology entered the HVPS market, they would require a hard-hitting,
thorough promotional campaign to reach the selected target market. Three factors made the
selection of elements in the promotion mix especially important to Wind Technology:
(1) Wind technologys poor cash flow.
(2) The lack of well-developed marketing department
(3) The need to generate incremental revenue from sales of the HVPS at a minimum cost.
In fact, a rule of thumb used by Wind Technology was that all marketing expenditures should
be about 9 to 10 percent of sales. Kevin and Anne were contemplating the use of the following
elements:
1. Collateral Material Sales literature, brochures, and data sheets are necessary to
communicate the product benefits and features to potential customers. These materials
are designed to be (1) mailed to customers as part of direct-mail campaigns or in response
to customer requests, (2) given away at trade shows, and (3) left behind after sales
presentations.
Because no one in the Wind Technology was an experienced copywriter, Anne
and Kevin considered hiring a marketing communications agency to write the copy and
to design the layout of the brochures. This agency would also complete the graphics
(photographs and artwork) for the collateral material. The cost for 5,000 pieces (including
the 10 percent mark-up for the agency) was estimated to be $5.50 each.
2. Public Relations Kevin and Anne realized that one very cost-efficient tool of promotion
is publicity. They contemplated sending out new product announcements to a variety of
trade journals whose readers were part of Wind Technologys new target market. By
using this tool, interested readers could call or write to Wind Technology and the
company could then send the prospective customers collateral material. The drawback of
relying too heavily on this element was very obvious to Kevin and Anne the editors of
the trade journals could choose not to print Wind Technologys product announcements if
their new product was not deemed newsworthy.
The cost of using this tool would include the time necessary to write the press release
and the expense of mailing the release to the editors. Direct costs were estimated by Wind
Technology to be $500.
3. Direct Mail Kevin and Anne were also contemplating a direct-mail campaign. The
major expenditure for this option would be buying a list of prospects to whom the
collateral material would be mailed. Such lists usually cost around $5,000, depending
upon the number of names and the list quality. Other costs would include postage and the
materials mailed. These costs were estimated to be $7,500 for a mailing of 1,500.
4. Trade Shows The electronics industry had several annual trade shows. If they chose to
exhibit at one of these trade shows, Wind Technology would incur the cost of a booth the
space at the shows, and the travel and incidental costs of the people attending the show to
staff the booth. Kevin and Anne estimated these costs at approximately $50,000 for the
exhibit, space, and materials, and $50,000 for a staff of five people to attend.
5

5. Trade Journal Advertising Kevin and Anno also contemplated running a series of ads
in trade journals. Several journals they considered are listed in Exhibit 3, along with
circulation, readership and costs information.
6. Personal Selling
(a) Telemarketing (Inbound/Inside Sales). Kevin and Anne also considered hiring a
technical salesperson to respond to HVPS product inquiries generated by product
announcements, direct mail, and advertising. This persons responsibilities would include
answering phone calls, prospecting, sending out collateral material, and following up
with potential customers. The salary and benefits for one individual would be about
$50,000.
(b) Field Sales The closing of sale for the HVPS might require some personal selling at the
customers location, especially if Wind Technology pursued the customized option. Kevin
and Anne realized that potentially this would provide them with the most incremental
revenue, but it also had the potential to be the most costly tool. Issues such as how many
salespeople to hire, where to position them in the field (geographically), and so on, were
major concerns. Salary plus expenses and benefits for an outside salesperson were
estimated to about $80,000.
Inbound refers to calls that potential customers make to Wind Technology, rather than outbound, in
which Wind Technology calls potential customers (i.e., solicit sales).

EXHIBIT 3 Trade Publications


Trade Publications

Editorial

Electrical Manufacturing

For purchasers and


users of power supplies,
transformers, and other
electrical products.
For electronics OEMs.
Products addressed
include work stations,
power sources, chips,
etc.
For OEMs in the
industry of providing
manufacturing and
contracting of
components, circuits,
and systems.
For design OEMs
covering components,
systems, and materials
For meteorologists
covering imaging, radar,
etc.

Electronic Component
News

Electronic
Manufacturing News

Design News
Weatherwise

Cost per Color


Insertion (1 page)

Circulation

$4,077

35,168 nonpaid

$6,395

110,151 nonpaid

$5,075

25,000 nonpaid

$8,120

170,033 nonpaid

$1,040

10,186 paid

Decisions
As Kevin sat his office and perused the various facts and figures, he knew that he would
have to make some quick decisions.
(a) He sensed that the decision about whether or not to proceed with HVPS spin-off was
risky, but he felt that to not do something to improve the firms cash flow was equally
risky.
(b) Kevin also knew that if he decided to proceed with the HVPS, there were a number of
segments in that market in which Wind Technology could position its HVPS. He mulled
over which segment appeared to be good fit for Wind Technologys abilities (given
Annes recommendation that a choice of one segment would be best.)
(c) Finally, Kevin was concerned that if they entered the HVPS market, promotion for their
product would be costly, further exacerbating the cash flow situation. He knew that
promotion would be necessary, but the exact mix of elements would have to be designed
with financial constraints in mind.