Federated industries

1165 WordsNov 11, 20145 Pages
Federated Industries (1984) Thomas Connors will bid for Southern Valley Authority to sell capacitor. The market of it is already matured and price has been eroded (Margin of the price that won the last bid is only $0.02). 85% of customer in the market is price oriented, SVA as well. The product is hard to differentiate. The goals Connors was given from the manager are... 1. higher margin 2. recover share from 36% -> 50% 3. price stability How much should he bid? (It's an option as well to withdrow from the market) (July 1984) Industry capacity utilization is 40%, price is new low Federated Industries group 3 divisions (Sales) Transformer (75.7M), Capacitar(8.4M), Switchgear(31.2M) 50 sales force, 10 geographic districts, Customer…show more content…
(In 1983, sales was 8400, VC was 5600 and contribution margin was 2800) If withdrawing the market, group's overhead reduces by 2000. So, as long as contribution margin is above 2000, it can be continued. For getting back profitability, there is no innovation and recover of profitability. The market has been fully matured; price continues decreasing and, as a result, industry revenues also continues decreasing even though volume of shipments increases. It is very difficult, generally, to increase price once it decreased. If there were innovation and Federated could appeal other additional value to customer, it could win both share and profitability again. However it cannot be expected. firstly because this product is too simple to innovate, and secondly the company doesn't have competency in R&D. 6 If Federated stays, what action should it take on the SVA bid due August 6? If it stayed and wanted to win the bid, put 2.50 because Federated need to push price down if going low bid price. (1.98 is also reasonable select. Since there is no brand image or loyal customer, it's not big problem to price very low as long as defend VC. Profit is only $4000, but as long as the business continues it's better than nothing.) Nos KVAR Total KVAR Total KVAR/stage Federated bid Winnig bid stage1 2 12000 24000 10 100 1000 25000 stage2 24 12000 288000 100

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