1000x Product Case Study
Essay by Haoyue Li • August 10, 2019 • Case Study • 1,756 Words (8 Pages) • 1,141 Views
Group Assignment #2
- A brief analysis
Table 1: Key Players
Key Players | Computron (“C.”below) | König (Target) (“K.”below) | Competito-rs |
Characteri-stics |
|
| (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
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- 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.
- Bargaining power of buyers
Factors that enhancing bargaining power of K. are as follows.
- 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.
- 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.
- Intensity of competitive rivalry
- 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.
- 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.
- 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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