DOMINION MOTORS & CONTROLS,

LTD.
Submitted to
Introduction
Dominion Motors and Control Ltd has acquired over 50% of the total available market for oil well pumping motors in the
Northern Canada oil fields. It was a largest supplier of control equipment and motors in the Canadian Market. In 1985,
DMC position was under threat because of the test performed by Hamilton Oil Company. John Bridges, head of Hamilton’s
electrical engineering department conducted motor testing program. As per his study, he gave third preference to DMC
motors. His first preference was Spartan Motors, second was Universal Motors Company. To increase the market share and
to sustain its position in the market, Dominion Motors came up with four alternatives.
Possible Solution to Dominion Problem
Alternative 1: Reduce the price of DMC’s 10 hp-motor to that of 7.5 hp-motor.
Alternative 2: Reengineer the present DMC 7.5 hp-motor and make the starting torque of this motor equivalent to that of
Spartan 7.5 hp-unit. This will facilitate them in changing into the best beginning torque motor manufacturing company
within the market that is that the most vital aspect within the eyes of the oil firms.
Alternative 3: Design a definite purpose motor for the oil well pumping market. This newer design will have a basic 5 hp-
motor with a starting torque of a 10 hp-unit. With the assistance of such a motor, the company is going to be able to cater
the wants of the oil firms by providing them such a high beginning torque while not overmotoring.
Alternative 4: Attempt to persuade Bridges and Hamilton executives that the conclusions reached from their results unduly
emphasized obtaining the maximum starting torque available. Few individuals were close to Vice-President of Hamilton.
Hence it was possible to persuade and convince them to re-evaluate the test for any inaccuracy and over-estimation on the
starting torque.
Analysis of the Alternatives
Alternative 1
Time: It has to be executed once the report is out.
Investment: There will be a decrease in the profit margin.
Efforts required: Marketing has to be done regarding the changes in the price.
Pros: It was able to gain a competitive position immediately.
Cons: There may be late effects of the report as it might take one year for the engineers to make comparative tests.
Alternative 2
Time: It would take 3 months to begin the shipment of the modified motor.
Investment: Both of the methods applicable to increase the torque of the motor involves negligible investment in plant or
equipment.
Efforts required: Few changes in the engineering design. Also, they need to market their product which has torque
equivalent to spartan 7.5 hp-motor.
Pros: The starting torque will be highest or equivalent to its competitor.
Cons: This could lead to torque war. Violation of standards set by NEMA. There was an increase in the manufacturing cost.
Alternative 3
Time: Engineers estimated that it can take four to five months for production to start
Investment: $75,000 would be required to provide required engineering and testing and minor expenditure for plant and
equipment to produce new motor.
Efforts required: Few changes in the engineering techniques. They need to market their product by positioning them
exclusively for oil well pumping market.
Pros: Will be first company in the market to design a definite purpose motor for oil well pumping market. Have rating and
running characteristics of a 5 hp motor but the starting torque is of a 10 hp-motor. Can increase their market share to 60%
Cons: They were deviating from the standards set by NEMA.
Alternative 4
Time: Bridges has scheduled to present his conclusion in May to the top management. After may they may start to persuade.
Investment: No extra investment required
Effort required: Good negotiation skills
Pros: DMC executives had a good relationship with the purchasing Vice-President of Hamilton.
Cons: Some felt that ill will would be generated by any attempt to alter Bridge recommendation. Difficult to approach
Bridge directly.
Unit Contribution as per Alternatives
Alternative 1
Price of 7.5 hp motor= $1,200
Manufacturing cost 10-hp motor=$816
Unit contribution= $1,200 - $816 = $384
Alternative 2
Price of 7.5 hp motor= $1,200
Manufacturing cost of reengineered motor= $790 in case 1 and $867 in case 2
Unit contribution=$1,200 - $ 790 = $410 in case 1 AND $1,200 - $867 = $333 in case 2
Alternative 3
Price of definite purpose motor= $1045
Manufacturing cost= $665
Fixed cost= $75,000
Unit contribution= $1045 - $665 = $380
Break-Even Volume= (Fixed cost)/(Unit Contribution) = $75,000/380 = 198 Units
Alternative 4
Price of 7.5 hp-motor= $1,200 (assumed that cost remains the same after persuasion)
Manufacturing cost= $663.51 (assumed that cost remains the same after persuasion)
Unit contribution= $1,200 - $663.51 = $536.49
Evaluating Best Alternative Possible
Alternative 1 (Feasible in short run)
For the short-term period reducing the price of the motor is a feasible option to gain temporary competitive advantage. They
must not reduce the price till the report is released. Also, savings from using 7.5 hp instead of 10 hp motor were not large
as they were not penalized for maintaining low power factor. Hence not feasible in long run. If the report is released, then
the demand for 10 hp-motor will certainly decrease.
Alternative 2 (Not Feasible)
This idea is not at all profitable for the company.
Case 1: The cost of production is $790. The company has to reduce its profit margins. It also violates NEMA. There are
also chances of torque wars as competitors will also start increasing the torque.
Case 2: The cost of production is $867. The profit margins are less. It also violates the NEMA.
Alternative 3 (Feasible in the Long Run)
The company has to wait till the formal report is released. Till then there not much benefit for such a new product as the
size of Canadian motor market was small and it was economically difficult to justify such small production runs of special
purpose motors. If the market grows by 1000 new wells for next few years. Then we can calculate the potential market size
as the new market share is expected to be 60%
Potential Market size= 1000*0.6*0.8 = 480 Units (OEM= 80%) (New Market share= 60%)
Break-even we got is 198 units which is less than potential market size and hence feasible option.
Alternative 4 (Not Feasible)
We are not having any statistics or any evidence to challenge the report which will be submitted by Bridge. This can result
in an ill will in the market as well as in front of Hamilton. It’s also difficult to convince Bridge as he is convinced of the
validity of his interpretations and has an intense pride. Hence, we feel it’s not a good idea.