POSSIBLE ALTERNATIVES Alternative 1: Reduce the price of DMC’s 10-hp motor to that of the 7½ -hp motor. This will give us an opportunity to combat the immediate competition which will pop-up due to the formalisation of Bridges’ report. Alternative 2: Reengineer DMC’s present 7½ -hp motor to make its starting torque at least equal to that of the Spartan 7½ -hp unit. This will help us in becoming the highest starting torque motor producing company in the market which is the most important aspect in the eyes e yes of the oil companies. Alternative 3: Undertake design of a definite-purpose motor for the oil well pumping market. This ideally would be a basic 5-hp motor with the starting torque of a 10-hp unit. With the help of such a motor, we will be able to cater the needs of the oil companies by providing them such a high starting torque without overmotoring. Alternative 4: Attempt to persuade Bridges and Hamilton executives that the conclusions reached from their test results unduly emphasized obtaining the maximum starting torque available. As some of the DMC’s executives have social relationship with the Vice-President of Hamilton, it is quite possible to persuade and convince them to re-evaluate the test on the grounds of inaccuracy and over-emphasis on the starting torque aspect. Alternative 5: Begin testing and defining the motor needs of the company’s various market segments in preparation for when a customer (such as Hamilton) might conduct an investigation inv estigation itself. As DMC has always been known for its perfect standards and expertise in the field of testing, so it is a very feasible and pragmatic approach to study the market and define the market needs in a systematic manner. This will give us a market reputation also.
ANALYSIS OF ALTERNATIVES
DES DESCRIP RIPTI TIO ON
TIME REQUIRED
Alternative Alternative 1
Reduce price of 10-hp motor to that of 7½ -hp motor
Alternative Alternative 2
Alternative Alternative 3
COST INVOLVED
EFFORTS NEEDED
STRE STRENG NGTH THS S
1 week (to be Decrease in executed as Profit margin soon as the report is out)
Slight Marketing Efforts
Reengineer 7½ -hp motor to increase starting torque
3 months (to Negligible be done right additional now so as to Investment be prepared) on Plant & Machinery
Slight Engineering efforts, Advertising efforts
-Combat -There may be immediate no or delayed competition effects of -Provide time Bridges’ report for analysis -Highest -Violation of starting torque NEMA as compared to standards its competitors -Increased mfg. cost -Technical inflation
Produce definite purpose motor (5-hp motor with starting torque of 10-hp motor)
4-5 months (to be done as soon as possible)
Engineering efforts, Advertising efforts
-First one to meet the market needs specifically -Starting torque of a 10hp motor in a 5-hp one
-Slight deviation from NEMA standards -Deviation from general-purpose trend
Alternative Alternative 4
Persuade Bridges & Hamilton executives to reconsider the test
After May No costs (once involved Bridges formalise his report, this step can be executed)
Social skills and efforts
-Existing social relations of executives with VP of Hamilton -Inaccuracy -Inaccuracy of Bridges’ report
-Risk of Bridges’ stiff and proud behaviour -Threat of developing an ill-will in market
Alternative Alternative 5
Testing and defining the motor needs of different market segments
8 months (to May be a bit be finished high (approx. before next $2,50,000) selling season starts)
High & specialised engineering efforts, organisational efforts
-Great scope of capturing market -Good will and control over oil companies
-Time, cost & effort required are high -Risk of failure of the entire study and test
$75,000 on Engineering & Testing, minor expenditure on Plant & Machinery
WEAK WE AKNE NESS SSES ES
Unit Contribution per Alternative
Alternative 1: Price of 7 ½-hp motor (P): $1,200 Manufacturing cost of 10-hp motor (k): $816 Unit contribution = P – k = $1,200 - $816 = $384
Alternative 2: Price of 7 ½-hp motor (P): $1,200 Manufacturing cost of reengineered motor (k): $790 ($867) Unit contribution = P – k = $1,200 - $790 ($867) = $410 ($333)
Alternative 3: Price of definite-purpose motor (P): $1,045 Manufacturing cost (k): $665 Investment (Fixed Cost): $75,000 Unit contribution = P – k = $1,045 - $665 = $380 Break-Even Volume = "Fixed Cost" /"Unit Contribution" = "$75,000" /"$380" = 198 units
Alternative 4: Price of 7 ½-hp motor (P): $1,200 Manufacturing cost (k): $663.51 Unit contribution = P – k = $1,200 - $663.51 = $536.49
Alternative 5: Cost of the study & testing (estimated) = $2,00,000 Cost of marketing & promotion (estimated) = $50,000 Break-Even Volume = "Fixed Cost" /"Unit Contribution" = "$2,50,000" /"$380 ($536.49)" = 658 (466) units
Alternative 1: Reducing the price of the motor will be a feasible option only for a short period. As in the industry the companies want more of starting torque. So, it will work once the report is out. People who wanted 10-hp will also get advantage as all those wanted 10-hp will get it at a lesser price. We should also reduce price because if the report is out at the right time then the 10-hp stock will not sell. So we need to reduce the price and sell it in the market. Alternative 2: This is not at all a profitable idea. 1st way- $790 (cost) - The Company has to lower down its margins. It violates NEMA. Competitors can also start increasing the starting torque. Torque wars will start. 2nd way- $867 (cost) - High cost and so we sell it in lower quantities and margins. It also violates NEMA. Alternative 3: Until the formal report comes out in the public domain, till then there is no large benefit as such for a new product. So wait till then. Manufacturing cost + Investment will have to be made. The economies of large scale production will not be there. 22,000 in 1-200 hp at 50% market. If it goes up to 60% to 26,400, then 4,400 * $1,045= $45,98,000. Even without including that oil wells grow by the anticipated figure of 1000 then even the company can earn profit. Alternative 4: This is not a good idea because we don’t have any ground and statistics on which we can challenge Bridges’ report. This may result in creating an ill-will in the eyes of Hamilton and of the entire market as a whole. Even if we disregard the above fact, there are very few chances of convincing Bridges as he is very confident and proud of his research. Alternative 5: The 3rd alternative will encourage the trend of definite-purpose motors. So there is a need to conduct proper study of the market and test it again as tests had not produced data sufficient to define oil pumping requirements. After the completion of this, we’ll be able to define the market needs specifically, which will boost our goodwill in the market.
