Haas School of Business

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
Excellent reputation for product
quality
Excellent salesperson
Wide range of products (motor
control and panel board units)
50% of Market share in 1973
Capability of producing closer
to the NEMA standard than the
competitors




Weakness
The motors produced have low
torque compared to the
competitors
Weak advertisement campaign



Environment Analysis
DOMINION
Purchasers
(Oem, Reseller, Large User, Small User)
NEMA
Electric Companies
Competitors
(Spartan,
Universal,
foreign
companies)
Problem definition
What has led to this situation?
New customers needs:
New schedule based on connected horsepower of an installation
Stop overmotoring
Hamilton test:
The ideal motor has low horsepower and high torque
Dominion is recognized as the third company in the market

!!!
Test results will be reported in May

Our Recommendations:
Short Term

To make the 10-hp motor still
competitive we recommend to
cut its price (according to
alternative 1) to get a
competitive positioning
New price: the same of the7.5-
hp price, to make it competitive
despite of the new energy
schedule

Long term

Give the market exactly what it
needs: 5-hp motor with the
starting torque of a 10hp unit
(alternative 3)

Analysis: Alternative 1
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) .
Alternative 1 (Short term) Reduce the price of DMC's 10-hp motor to that of the 7.5-hp motor
Horsepower Manufacturing Cost Total Cost List Price Price to Large Users Sales & transp. costs Profit Margin
7.5 663.51 $ 714.00 $ 1,940.00 $ 1,203 $ 120.28 419.01 $
10 816.00 $ 907.80 $ 2,550.00 $ 1,581 $ 158.10 606.90 $
Horsepower of Installation Monthly Base Charge per Horsepower Monthly total charge cost Profit Margin*
5 25.00 $ 125.00 $
7.5 21.50 $ 161.25 $ 228.70 $
Analysis: Alternative 2
Alternative 2 (Mid term) Reengineer DMC's present 7.5-hp motor to make its starting torque at least to that of the Spartan 7.5-hp unit
A Horsepower Manufacturing Cost Sales & transp. costs Price to Large Users Profit Margin
7.5 790 $ 120 $ 1,203 $ 293 $
B 7.5 867 $ 120 $ 1,203 $ 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
(missing the best period for sales)
Risk of a torque war which could lead to
embalanced motor design

Problems
Analysis: Alternative 3
Alternative 3 (Long Term) Start producing a 5-hp motor with the starting torque of a 10-hp unit
Horsepower Manufacturing Cost Sales & transp. costs Price to Large Users Profit Margin Investment
5 665 $ 125 $ 1,250 $ 460 $ 75,000 $
Advertisement**
Break Even Point 163.04 units 35,000 $
Break Even Point** 239.13 units
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 10-
hp, 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 its very difficult to approach Bridge directly
nothing but ill will could be generated by any attempt to
alter Bridges recommendations
Analysis: Summary
Alternative 1 (Short term) Reduce the price of DMC's 10-hp motor to that of the 7.5-hp motor
Horsepower Manufacturing Cost Total Cost List Price Price to Large Users Sales & transp. costs Profit Margin Profit Margin*
7.5 663.51 $ 714.00 $ 1,940.00 $ 1,203 $ 120.28 419.01 $
10 816.00 $ 907.80 $ 2,550.00 $ 1,581 $ 158.10 606.90 $ 228.70 $
Horsepower of Installation Monthly Base Charge per Horsepower Monthly total charge cost
5 25.00 $ 125.00 $
7.5 21.50 $ 161.25 $
10 20.00 $ 200.00 $
Alternative 2 (Mid term) Reengineer DMC's present 7.5-hp motor to make its starting torque at least to that of the Spartan 7.5-hp unit
A Horsepower Manufacturing Cost Sales & transp. costs Price to Large Users Profit Margin
7.5 790 $ 120 $ 1,203 $ 292.52
B 7.5 867 $ 120 $ 1,203 $ 215.52
Alternative 3 (Long Term) Start producing a 5-hp motor with the starting torque of a 10-hp unit
Horsepower Manufacturing Cost Sales & transp. costs Price to Large Users Profit Margin Investment
5 665 $ 125 $ 1,250 $ 460 $ 75,000 $
Advertisement**
Break Even Point 163.04 units 35,000 $
Break Even Point** 239.13 units
Final recommendation enforced
The previous analysis shows that the best profit margins can be achieved thanks
to alternative 3. By choosing this alternative, the companys market share should
increase to 60%: according to the optimistic forecasting in the next five years
5,000 new wells will enter production. If the new well pumping motor
requirements will be the same as for existing fields, the company could sell up to
3,000 motors thanks to the new wells.
According to our financial analysis, the BEP is achieved selling 163 units, and
can be also achieved selling 239 units in case of a new investment in advertising.
A stronger advertising campaign will be surely useful to promote the new motor.
Considering that the third alternative can be realized in 4 or 5 months, and that
the next months are the most profitable, the only way not to lose business in the
short term is choosing alternative 1. In fact it produces lower profit margins, but
it finally makes our motor convenient for the purchasers: the company is selling
more.