Answer all questions.

State 393 255 190 183 130 EXTENDED ANALYSIS AND INTERPRETATION PROBLEM AIP 4.15 Heavy Equipment Strategic Planning Johnson Industries is a US manufacturer of heavy equipment used in road building, forestry, and construction. Although the firm has been successful in these areas, it is looking to expand into other businesses. Farm equipment is considered a possibility, in particular, the company has designed a combine for harvesting wheat. The combine uses a rubber track rather than wheels as a means of locomotion. The rubber track has the advantage of less pressure on the soil and, therefore, less soil compaction. The track also has better traction on hilly fields. The track-driven combines, however, are more difficult to transport on major roadways. Six varieties of wheat are grown in the United States but they can be categorized generally as either winter or spring wheat. Winter wheat is planted in the late fall and is harvested in the spring. Spring wheat is planted in the spring and harvested in summer. The following table indicates the number of bushels of wheat grown in the top 10 wheat-growing states in 2012. Number of Bushels (millions) North Dakota Kansas Montana Washington South Dakota Idaho Minnesota Oklahoma Colorado Nebraska The management of Johnson Industries estimates 5,000 new combines are sold each year in the United States for the harvesting of wheat. Management has developed the following analyses of the competition and potential customers. Analysis of Competition Two other major competitors currently offer product lines of combines. Jones Farm Equipment works through agriculture co-operatives and provides a low-cost line of combines with prices ranging from $150,000 to $250,000 each. Its combines have less capacity, power, and longevity than does the product designed by Johnson Industries. The combines normally are serviced through the co-operatives. Jordan Manufacturing produces a line of combines comparable to the machine designed by Johnson Industries in terms of capacity, power, and longevity. Its combines currently do not have tracks, although rumors exist that the firm is thinking of such a product. Jordan Manufacturing has an extensive network of dealership and service units throughout the wheat-growing areas. Its combines sell for prices between $200,000 and $300,000 each. Customer Analysis Customers for wheat combines fall into three major groups: (1) travelling crews who 117 104 93 76 73 move from farm to farm to harvest wheat, (2) large agri-business farms, and (3) smaller privately owned farms. The travelling crews need combines that are easy to transport. The agri-business farms and privately owned farms purchase combines for use on their own farms. The agri-business farms tend to buy a combine almost every year and self- service their fleet of combines. The travelling crews must replace their combines every three to four years and depend on local dealerships to service their equipment. Smaller farms might buy a new combine every 10 years and also require local dealerships for service. Each group of customers purchases about the same number of combines each year. The purchase of a combine is a major investment for all customers. Customers are very knowledgeable about the different functions and capabilities of the combine. They value capacity, power, and longevity; however, they also are concerned about the comfort of the cab as combine operators work long hours during harvesting season. Customers have heard about Johnson Industries' track-driven combine and are curious about how well it will function. In addition to the combine's functionality, the travelling crews and smaller farmers value service. If a combine breaks down during harvest, it is critical that it be fixed immediately. A very short window exists during which the harvest can take place. A combine that is out of service for a week might mean the loss of the entire crop. Additionally, Johnson Industries has undertaken an analysis of its strengths and weaknesses. Its major strength is its reputation for high-quality products in other heavy industries. It has an extensive set of dealerships located in US states with large construction projects and with population growth that stimulates the housing industry. Its major weakness is a lack of knowledge of the agricultural business. Although farmers recognize the Johnson brand name, they are uncertain about the firm's ability to offer farm equipment with the appropriate functions, capabilities, and service. Johnson Industries does not have any international experience. Neighboring Canada is one of the world's largest wheat producers and a potential market for combines produced in the US. Johnson Industries estimates that the variable cost of making its combine will be about $150,000 per machine. Marketing and fixed construction costs are estimated to be $20 million annually. Service units will be self-sufficient if they are located in close proximity to a minimum of 40 Johnson combines. a Describe a plausible strategy for Johnson Industries for the production and sales of its proposed combine b. Outline a pricing strategy for the combine. c. Given the pricing strategy recommended in part (b), what percentage of the market must Johnson Industries capture to make a profit? State 393 255 190 183 130 EXTENDED ANALYSIS AND INTERPRETATION PROBLEM AIP 4.15 Heavy Equipment Strategic Planning Johnson Industries is a US manufacturer of heavy equipment used in road building, forestry, and construction. Although the firm has been successful in these areas, it is looking to expand into other businesses. Farm equipment is considered a possibility, in particular, the company has designed a combine for harvesting wheat. The combine uses a rubber track rather than wheels as a means of locomotion. The rubber track has the advantage of less pressure on the soil and, therefore, less soil compaction. The track also has better traction on hilly fields. The track-driven combines, however, are more difficult to transport on major roadways. Six varieties of wheat are grown in the United States but they can be categorized generally as either winter or spring wheat. Winter wheat is planted in the late fall and is harvested in the spring. Spring wheat is planted in the spring and harvested in summer. The following table indicates the number of bushels of wheat grown in the top 10 wheat-growing states in 2012. Number of Bushels (millions) North Dakota Kansas Montana Washington South Dakota Idaho Minnesota Oklahoma Colorado Nebraska The management of Johnson Industries estimates 5,000 new combines are sold each year in the United States for the harvesting of wheat. Management has developed the following analyses of the competition and potential customers. Analysis of Competition Two other major competitors currently offer product lines of combines. Jones Farm Equipment works through agriculture co-operatives and provides a low-cost line of combines with prices ranging from $150,000 to $250,000 each. Its combines have less capacity, power, and longevity than does the product designed by Johnson Industries. The combines normally are serviced through the co-operatives. Jordan Manufacturing produces a line of combines comparable to the machine designed by Johnson Industries in terms of capacity, power, and longevity. Its combines currently do not have tracks, although rumors exist that the firm is thinking of such a product. Jordan Manufacturing has an extensive network of dealership and service units throughout the wheat-growing areas. Its combines sell for prices between $200,000 and $300,000 each. Customer Analysis Customers for wheat combines fall into three major groups: (1) travelling crews who 117 104 93 76 73 move from farm to farm to harvest wheat, (2) large agri-business farms, and (3) smaller privately owned farms. The travelling crews need combines that are easy to transport. The agri-business farms and privately owned farms purchase combines for use on their own farms. The agri-business farms tend to buy a combine almost every year and self- service their fleet of combines. The travelling crews must replace their combines every three to four years and depend on local dealerships to service their equipment. Smaller farms might buy a new combine every 10 years and also require local dealerships for service. Each group of customers purchases about the same number of combines each year. The purchase of a combine is a major investment for all customers. Customers are very knowledgeable about the different functions and capabilities of the combine. They value capacity, power, and longevity; however, they also are concerned about the comfort of the cab as combine operators work long hours during harvesting season. Customers have heard about Johnson Industries' track-driven combine and are curious about how well it will function. In addition to the combine's functionality, the travelling crews and smaller farmers value service. If a combine breaks down during harvest, it is critical that it be fixed immediately. A very short window exists during which the harvest can take place. A combine that is out of service for a week might mean the loss of the entire crop. Additionally, Johnson Industries has undertaken an analysis of its strengths and weaknesses. Its major strength is its reputation for high-quality products in other heavy industries. It has an extensive set of dealerships located in US states with large construction projects and with population growth that stimulates the housing industry. Its major weakness is a lack of knowledge of the agricultural business. Although farmers recognize the Johnson brand name, they are uncertain about the firm's ability to offer farm equipment with the appropriate functions, capabilities, and service. Johnson Industries does not have any international experience. Neighboring Canada is one of the world's largest wheat producers and a potential market for combines produced in the US. Johnson Industries estimates that the variable cost of making its combine will be about $150,000 per machine. Marketing and fixed construction costs are estimated to be $20 million annually. Service units will be self-sufficient if they are located in close proximity to a minimum of 40 Johnson combines. a Describe a plausible strategy for Johnson Industries for the production and sales of its proposed combine b. Outline a pricing strategy for the combine. c. Given the pricing strategy recommended in part (b), what percentage of the market must Johnson Industries capture to make a profit