Dominion Motors & Controls, Ltd.

Case Analysis
Problem faced by Dominion Motors & Controls (DMC):
 DMC threatened with loss of oil well pumping motor markets because of tests
performed by the Hamilton oil company, which owned and operated 30% of total oil
producing wells (1650 oil wells out of 5500)
 Test results showed DMC’s motor was third choice behind those offered by Spartan
Motors Ltd. and Universal Motor Company of Canada.
 Bridges report not yet out, but once out can significantly change the market dynamics
Market Analysis
Sales from fractional horsepower motors for DMC = $126/$323 millions = 39 % of total sales
Assumption: ~80% sales from 10-hp is $100 million (80% of $126 million). Rest 20% sale
coming from 5 hp and 7.5 hp, 15hp motor in fractional horsepower motors (It is given in the
case that 80% of motors for oil well pumping applications since 1973 had been 10-hp)
Oil Well Pumping Motor Market –
 In 1984 there were 5500 wells (850 in operation) and 1000 new wells would enter
production each year for next 5 years
 In next 5 years – 10,500 wells (minimum as per forecast)
 80% sales of oil pump motor happen between April to September – Seasonal Sales
Calculation of Profit for different motors:
Horsepowe Manufacturin Total Sales Transportation
r g Cost Cost Price to users commission cost Profit
5 511.53 571.2 1045 83.6 20.9 369.3
7.5 663.51 714 1200 96 24 366
10 816 907 1580 126.4 31.6 515
15 1229.1 1371.9 2310 184.8 46.2 707.1
 Sales commission taken to be 8 % of Price to users (net sales billed)
 Transportation cost 2% of price to users (net sales billed)
 List price multiplier = 0.62
 Unit Profit calculated = Price to users – Total cost – sales commission -
Transportation cost
Number of unit of 10 hp sold by DMC = $100 million/ $1580 = 63291
Total Market size of 10 hp motor = 2*63291 = 126582 (since DMC has 50% Market Share)
Profit = $515*63291 = $32 million

Alternative 1:
Reducing the price of 10 hp motor to that of 7.5 hp.
Revenue in first year = $1200*63921 = $ 75 million