DOMINION MOTORS &

CONTROLS LTD.

OCTOBER 7, 2014

Problem Statement
Dominion Motors has to decide on what action the company should take to maintain its share of the
oil well pumping market.
Factors
The various factors that affect the decision of the company are:

Penalty for over motoring: Many power companies started demanding that the oil
companies stop over motoring and improve the power factors of their installations. This
would mean that they use motors that have similar power rating as what is required, rather
than using higher power motors.

Low winter temperature: The low temperature in winter would mean that the motors
would require higher starting torque to run. Thus, this is an essential factor that is
considered by oil companies while installing the motor. Over motoring started as a result of
higher torque requirement during cold winters.

Change in the electricity charge schedule: Earlier, the rate for all motors, regardless of the
horsepower was the same. This facilitated the oil companies to use higher power motors
without any change in electricity charges. After the introduction of the graduated rates,
companies are starting to determine the most efficient motor for the job, in terms of least
electricity consumption and minimal over motoring.

Analysis of Alternatives
The various alternatives for the company are:
1. Reduce the price of 10-hp motor to that of 7 -hp motor.
2. Re-engineer the present 7 -hp motor to make its starting torque at least equal to that
of Spartan 7 -hp motor.
3. Undertake design of a definite-purpose motor for the oil well pumping market, i.e.
design a 5-hp motor with the starting torque of a 10-hp motor.
Attempt to convince and persuade Bridges and Hamilton executives that parameters used to get the
conclusions of their test results are wrong.

Alternative 1: Reducing the price of 10 hp motor equivalent to 7.5 hp motor

Pros

Short term sales targets are achieved which leads to increase in volumes

10 hp motor segment is a high volume (80% of the market is occupied by the 10 hp motor)

It gives the co. enough time to devise a plan for the long term

The companies get better torque against a 7.5 hp motor at the same price.

Cons

Penalty on the companies for over-motoring i.e. usage of oil motors above the specified
power motor.

The savings on energy from usage of 7.5 hp motor is no more available as the power factor
cost for a 10 hp motor is more

For DMC, this is only a short term strategy. In the meanwhile, they need to come up with a better
competitive strategy to tackle the problem in order to retain the market share.

Alternative 2: Re-engineer the 7.5 motor to meet the completion (Spartan 7.5) level of
starting torque
Pros

No Capital expenditure involved. There wouldnt be any additional investment in developing

a new motor.

The changes would be in accord with the NEMA standards. Hence, it would be acceptable to
the large users

Cons

The time taken to re-engineer the motor would make DMC lose out on the peak sales period

The motor market is driven by torque. So Re-engineering the motor to meet the torque
requirements wouldnt be a good solution in the intermediate time as well. The competition
might further scale it up

There is also a risk of not meeting NEMA standards although the team at DMC would ensure
corrections. This might concern the customers and hamper the image of DMC
Alternative 3: Undertake design of a definite-purpose motor for the oil well pumping market, i.e.
design a 5-hp motor with the starting torque of a 10-hp motor.
Pros

Cost effective while also meeting customer requirements

Provides a first mover advantage to the company
Gives a price advantage over the competition
This would help reduce over motoring and would be appreciated by the industrial bodies

There is a potential to increase market share to 60% due to the growing market and specialized
product
Cons

Time required is around 5 months to start production

An initial capital investment of about $75000 is required
The effort involved in creating the specific product is high

Alternative 4: Attempt to convince and persuade Bridges and Hamilton executives that
parameters used to get the conclusions of their test results are wrong.
Pros

Cons

No change required in the current production and product range

There wont be any impact on the overall buying behavior in the industry

Would lead to additional hiring for testing the results

Might lead to a loss of market share for DMC, if their claims are somehow proved to be
wrong
Claiming that Bridges is wrong does not address the current issue that has been raised by
the customers

Recommendation
We would recommend Dominion Motors to go ahead with Alternative 3, while also including the
pricing strategy as per Alternative 1.
Thus, it would be designing and providing a 5-hp motor with the starting torque of a 10-hp motor
which is priced reasonably well, preferably in between that of a normal 5-hp motor and 7 -hp
motor.
We suggest this alternative due to the below reasons:
DMC has the expertise to design and invest in R&D to produce a motor as per the above standards.
They also have the technological competency to compete with and win against other competitors
whose main forte is their pricing strategy. Furthermore, DMC already has a pretty good market share
which would help them to introduce a new product in the market. This is because, due to their
customer reach and penetration, they can easily push their new product, which is of superior quality
and competitive price.