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1000x Product Case Study

Essay by   •  August 10, 2019  •  Case Study  •  1,756 Words (8 Pages)  •  63 Views

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Group Assignment #2

  1. A brief analysis

Table 1: Key Players

Key Players

Computron (“C.”below)

König (Target) (“K.”below)

Competito-rs

Characteri-stics

  • Main product: 1000X (Medium-sized);
  • Secondary product: accessory process control computer equipment;
  • Advantages: precision, dependability, flexibility, ease of operation;
  • Important markets in Europe: Germany (24%), England (22%), Sweden (18%);
  • SOM: account for 30% of sales in 2005-2006 in Germany (largest);
  • Good relationships with K.
  • C.'s largest German customer; Three digital computer processes all from C.
  • Constituted over 80% of C.'s 2005-2006 sales to Germany; Estimated new business: $4m during the next year or two;
  • The largest market share of new business: $2.8m;
  • Requirements for new product: dependability + a reasonable price (machine flexibility and pinpoint accuracy are of very minor importance)

(See Table 2)

Motivations

Zimmermann

Management

Find a dependable product with a fair price

Submit a reasonable price to win the bid

Maintain the 33.3% markup on cost and raise it

Comments

-

Powerful

Final decision maker

Table 2: Competition

Competition

Computron

RMAG

EDAG

Digitex, GmbH

Import duty

×

×

×

Characteristics

(see Table 1)

German

Aggressive;

Special computer for the bid.

German

New; blue chip; comparable quality;

Sales strategy: first computer almost at cost.

U.S. (complete manufacturing facilities in Germany);Fair quality;

Wide line product.

C. has technology superiority.

Motivations

Win the bid

Expand SOM

Win the bid

Win the bid

Win the bid

Price

Normal:

$1,244,800

$872,000

Undersold C. only by the import duty (about $1,091,200)

Sometimes 50% lower than that of C.

SOM*

30%

20%

12.5%

17.5%

Powerful?

Yes

Yes

Yes

long-range threat

Not so powerful

*Market share for companies selling medium-priced digital computers to the German market, 2005-2006

SWOT Analysis

S

  1. A new plant to reduce import duty.
  2. Good performance and reputation in terms of precision, dependability, flexibility, and ease of operation.
  3. Blue chip Company with reputed brand image and biggest market share.

W

  1. Higher price than the competitors because of import duty and high markup which top management was against to cut.
  2. The new plant might have to sit idle without the contract.
  3. Different prices for the same product because different import duty in European countries, which brought higher administration cost.

O

  1. Rapidly growing market for its segment. More potential business of König.
  2. Good relationship with König.
  3. A future fabricating plant Europe.
  4. Leverage the production of accessory equipment to increase sales.
  5. Expand sales in other process industries (oil refining…)

T

  1. Rely on a single product.
  2. Limited market for accessories.
  3. Customers became more price sensitive and wanted more specialized product instead of general ones.
  4. Competitors had much lower prices.
  1. Porter’s five forces analysis of computer industry

In order to determine a more suitable competitive strategy, we use Porter's Five Forces Model to analyze C.’s competitive environment.

 [pic 1]

Limited by known information, we cannot analyze substitutes, suppliers’ bargaining power and threat of new entrants.

  1. Bargaining power of buyers

Factors that enhancing bargaining power of K. are as follows.

  1. The amount or value of products K. purchases is great. K. is C.'s largest German customer. It constituted over 80% of C.'s 2005-2006 sales to Germany and its estimated new business during the next year or two is $4 million.
  2. C. is desperate for this order. If it fails to win this contract, the new plant might have to sit idle after first two or three months’ training and assembly.

However, there exist some factors lowering bargaining power of K. Since K. has bought three digital computer processes from C, if it chooses another brand of computer, the switching cost will be high, which includes necessary learning and training to operate the new ones.

  1. Intensity of competitive rivalry
  1. There are nine companies competing with C. selling medium-priced digital computers to the German market, three of which are C.’s main competitors. In terms of SOM and capacity, C., RMAG, EDAG and GmbH are comparable. C. accounts for the largest market share but there is not much difference in SOM with other three companies. What’s more, Ruhr is trying hard to expand its SOM, making the competition fiercer. As for capacity, RMAG and EDAG both will have products that can match with 1000X computer.

(b) Price cuts are widespread. Both EDAG and GmbH often engaged in pricing-cutting tactics, which will put downward price pressure to C. in the bidding process.

  1. High fixed cost and exit barriers in computer industry also contribute to fierce competition.

In conclusion, although C. faces strong competition in this industry, it is still very likely to win the bid by virtue of its unique advantages.

  1. Q4:        What should Zimmerman bid? Why?

Assumptions and Preconditions:

  • In the absence of information, it is assumed that C. can only use the plant to assemble in the short term. Since Zimmermann set the normal price with 15% tariff, it is assumed that the plant will not be accessible in time to fabricate in German.
  • It is necessary for C. to win the bid, as K. makes up 80% of German sales and represents huge potential business. ($4 million for the next 1-2 years)
  • C. would have opportunity to win the contract only if its bid was no more than 20% higher of the lowest bid.
  • Since C. had technology superiority over Digitex, GmbH, we will not consider it, although it had 50% lower price than C. sometimes.

Next, we analyze the two main competitors, RMAG and EDAG, to find out the possible lowest bid. The price of RMAG was $872,000, while the price of EDAG was by the amount of the import tax to C.’s bid, which was $1,244,800-$153,600=$1,091,200. In conclusion, the possible lowest price in the market should be $872,000. Thus, to win the contract, the highest bid that C. can make is. This bid can cover the factory cost, import duty (15%) and transportation and installation cost while bring a 10.9% markup on cost.[pic 2]

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