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COMPANY Dominion Motors & Controls, LTD.
PRODUCT Oil Well Pumping Motors
REGION Northern Canada
SITUATION ANALYSIS
DMC was established in 17 and the company had already acquired more than 50% of the oil well motors and equipments in the Canadian market. The company had exchange reputation for product quality. DMC offered wide range of motors for oil well pumping industry. The company reached nearly $ million sales in 184. About 80% of the sales were directly sold to OEMs and large industrial users, and 0% were sold to reseller, small users and etc.
PROBLEM ANALYSIS
Hamilton Oil Company, one of the biggest oil companies in the region performed a test on oil well motors (John Bridge who was head of Hamilton's electrical engineering department was in charge of this program) in 185, the result concluded that the performance of DMC's motor was behind other two oil well pumping companies (Spartan Motors, Ltd, and the Universal Motor Company of Canada). And DMC was the third choice that Bridge would recommend to Hamilton's executives. If Hamilton decides to choose another company other than DMC, DMC would loss a huge market share in the region because Hamilton owned and operated more than 0% of the total production wells in the area. Therefore, DMC's executives needed to respond to the result of the test and come up with a solution in order for the company to stay in the oil well pumping market.
FACTORS ANALYSIS
1. DMC offered wide range of motors for oil well pumping industry for different needed. The company produced motors from small fractional horsepower units to large ,000-hp motors. The company also produced motor control and automatic panel-board units. Therefore, DMC was developed its products in response to the oil well pumping industry Canadian market.
. Many of the oil companies custom to use 10-hp motors even they did need to because 10-hp motor assured to be more sufficient starting torque, and the 10-hp become the best seller in the industry.
ALTERNATIVE ACTIONS
1. Reduce the price on 10-hp motors
DMC would reduce the price of 10-hp motor to that of the 71/-hp motor. The executives believed it would increase the product competitive with other two companies.
PROS Lower price for 10-hp motors could attracted Hamilton to switch to DMC since most of the oil companies were using the 10-hp motors to lift the oil to the surface. Competitive price definitely is an advantage over other two companies.
CONS "Overmotoring" become an issue to Hamilton to re-concern if they should continue using the 10-hp motors. If the Hamilton is subject to penalty by using the large capacity motors that they are not required, Hamilton would go for the smaller motor no matter much the 10-hp go to be.
. Redesign existing 71/hp-motors
DMC would reengineer the present 71/-hp motor that would make the motor least equal to the motor that Spartan had.
PROS Reengineer the present 71/-hp motor allows DMC to compete with Spartan. Since DMC had a well reputation on its product quality, the quality of the new motor would give more confidence to Hamilton.
CONS Redesigning present 71/-hp motor could not be cost effective. The cost on reengineering could be a lot expensive than keeping the existing model. It might also take certain length of time that Hamilton would switch to other company before the new model comes out. The new model may also affect the sales of the existing 71/-hp motor, and DMC may need to spend extra money to modify the existing inventory in order to sell them.
. Generate a definite-purpose motor
Generate a definite-purpose motor for oil well pumping market. The new design would give the basic 5-hp motor had 10-hp unit torque.
PROS Specialize on the definite-purpose motor to meet Hamilton requires can increase the chance for DMC to earn the contact. Definite-purpose motor also helps DMC to develop brand new market segmentation on oil well pumping industry.
CONS The market size in Canadian motor industry is a lot smaller than in the U.S. that makes special-purpose motor economically inefficient, and more expensive than the imported motors.
4. Persuade Hamilton executives
Attempt to convince Hamilton executives to believe the conclusion of the test result unduly emphasized obtaining the maximum starting torque motor available.
PROS The executives on Hamilton would reconsider the test result and possible to perform another test on the maximum starting torque motor.
CONS The action will give Hamilton's executives a wrong impaction that DMC is questioning their professional on the program. The act might angry Hamilton not to do business with DMC at all.
RECOMMENDATION
DMC should concentrate on existing motors and increase sale by modify the 71/-hp motor. Although the 71/-hp motor is not as profitable as 10-hp motor, oil company tends to be purchased the smaller motor because of the regulation on "overmotoring". Therefore, DMC should concentrate on the 71/-hp motor which is more suitable for the industry standard. Alternative a. and b. (see appendix 1.) are the most profitable model amount of all other alternatives in this case (Alternative 4. which is the 10-hp motor will be omitted in this case due to the "overmotoring" issue). However, DMC should also consider reducing the price on 71/-hp motor to increase competitive advantage over other two companies. Although Alternative . is about 17% more profitable than a. and b., to develop a definite-purpose motor will be costly on the development cost (see case). In addition, the market on definite-purpose motor is very small in the region that will be difficult to determent if the future return on the initial investment will pay back.
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