Dayna Moore, CEO of Layton Transmissions, sat dejected in her chair after reviewing the 2011 first-quarter financial reports on one of the company’s core products: a standard, five-speed transmission (product #2122) used in the heavy equipment industry in the manufacture of earth-moving equipment.
Some of the information in the report follows.
MARKET REPORT, PRODUCT #2122, QUARTER 1, 2011
Sales Data
Total sales (dollars), Quarter 1, 2011 ....... $4,657,500
Total sales (dollars), Quarter 1, 2010 ....... $6,405,000
Total sales (units), Quarter 1, 2011 ........ 3,450
Total sales (units), Quarter 1, 2010 ........ 4,200
Market Data
Industry unit sales, Quarter 1, 2011 ........ 40,000
Industry unit sales, Quarter 1, 2010 ........ 32,000
Industry average sales price, Quarter 1, 2011 ..... $1,310
Industry average sales price, Quarter 1, 2010 ..... $1,640
Profit Data
Layton Transmissions average gross profit per unit, Quarter 1, 2011 ...$ 45
Layton Transmissions average gross profit per unit, Quarter 1, 2010 ... 160
Industry average gross profit per unit, Quarter 1, 2011 ......... 75
Industry average gross profit per unit, Quarter 1, 2010 ......... 140
Layton Transmissions' strategy for this transmission is to compete on the basis of price. The transmission offers no features that allow it to be differentiated from those of major competitors.
Layton Transmissions' level of quality is similar to the average of the industry.
Also on Moore's desk was a report from her business intelligence unit, on which she underlined the following key pieces of information:
• Commodity transmission components (nuts, bolts, etc.), which all major transmission producers acquire from specialty vendors, decreased in price by approximately 5 percent from January 2010 to January 2011.
• Two major competitors moved their main assembly operations from the United States to China in early 2010. These competitors are believed to have the lowest unit production cost in the industry.
• A third major competitor ceased manufacturing major gear components and began outsourcing these parts from a Mexican firm in mid-2010. This firm increased its market share in 2010 from 10 to 14 percent following a major decrease in sales price.
• Layton Transmissions' production operations did not change in any material respect from 2010 to 2011.
• Layton Transmissions manufactures approximately 83 percent of the components used in the heavy industrial transmission. The industry norm is to make 57 percent of the components.
• For the balance of 2011, industry experts agree that quarterly demand for the heavy industrial transmission will be even higher than the levels posted for the first quarter of 2011.
a. Examine the information Moore has gathered. Analyze the data to identify as specifically as possible the problems that have led to Layton Transmissions' loss of profit and market share in the heavy industrial transmission market.
b. Based on your analysis in (a) and the information given to Moore, suggest specific alternatives that she should consider in making her firm more competitive in its market.
Use concepts presented in the chapter as the basis of your recommendations.