Decision Sheet – Dominion Motorls & Controls

Decision Sheet – Dominion Motorls & Controls

Situation Analysis: DMC has a nearly 50% market share in oil well pumping motors in north Canadian oil fields. Nearly 80% of the sales happen through OEMs (At a discount of 45%) and large users (at a discount of 38%). Since 1973, 80% of motors sold for oil well pumping applications happen through 10-HP NEMA design C motors. The company also sells control units for the motors, when majority of its competitors don’t follow suit. In a field test carried out by Hamilton (The largest oil company active in Canada with 30% well share), DMC’s motors were found to be at the third preference based on two factors – i) Maximum starting torque required to start the pumping unit in winters ii) HP required to lift the fluid. There was also a pressure from power companies to stop overmotoring. Hamilton’s endorsement of competitor products can be devastating to market share of DMC.

Problem Statement: DMC has four alternatives as described below. It needs to decide the profitability and impact on market share for each of the options, both in short and long run.

Options:

1. Reduce price of DMC’s 10 HP motor to that of 7 ½ HP motor
2. Reengineer the present 7 ½ HP motor to make its starting torque equal to that of Spartan’s motor
3. Design a definite purpose motor (Basic 5 HP motor with starting torque of a 10 HP unit)
4. Attempt to persuade Hamilton executives about the fallacies in their test results

Recommendation: Design a definite-purpose motor for the oil well pumping market

Rationale:

• Option 1 represents second biggest fall in profits (Exhibit 1). Moreover, this is not a long term solution as Spartan and Universal could also reduce prices, thus negating the effect of this option. Also, this solution does not tackle the issue of overmotoring which can be a problem if the power companies start imposing penalties.
• Though option 2 is more profitable than option 1, it causes compliance issues (due to high temperatures or large dimensions) which can lead to customer resistance.
• Option 4 may be difficult to execute as Mr. Bridges has an intense pride of authorship of his report and it would be very difficult to approach him. By adversely affecting the relationship with Bridges, this option can lead to loss of business from Hamilton which can trigger a domino effect.

• By selling the definite purpose motor at the price of a 7 ½ HP motor, the company manages to get away with only a 30% decline in profit per unit. This solution also represents a long term solution:

• All other options like price reduction, reengineering and persuasion are stop gap solutions
• The Canadian oil market will add 1000 new wells every year for next 5 year. By defining an industry standard motor, the investment of $ 75,000 can be recovered quickly as the breakeven quantity is a meagre 211 units (Exhibit 2)
• The new motor will be more power efficient and adhere to all NEMA and power company norms
• There is still 2 months till test results by Hamilton will be made public and by initiating development for the definite purpose motor immediately will give a big headway to DMC
• The introduction of new motor will increase DMC’s share of oil well pumping market to 60%

PLEASE TURN OVER THE PAGE

EXHIBIT 1 (ANALYSIS OF VARIOUS OPTIONS)

...