(Case Study) Johnson Industry is a manufacturer of heavy equipment used in road building, forestry, and construction. Although the companyhas been successful in these areas, the company is looking to expand intoother businesses. Farm equipment is considered a possibility. In particular, the company hasdesigned a tarctor for harvesting wheat. the tractor uses rubber track rather than wheels as means of locomotion. The rubber track has the advantage of less pressure on the soil. The track driven tractors, however, are more difficult to transport over long distances on highways. the management of Johnson Industry hopes to sell 800 new tractors each year in the United States for the harvesting of wheat.( its estimated that, in total,5000 tractors are sold in the United States per year. Hence, Johnsonindustry hopes initally to capture 16% of the market). The management has developed the following analyses of the competition and potential customers. Analysis of Competiton there are currently two other major competitors that have similar tractors. Jones Farm Equipment Company works through agriculture cooperatives and provides a low-cost line of tractors with prices ranging $150000-250000. Their tractors have less capacity, power, longevity than the product designed by Johnson Industry. The tractors are serviced by agriculture cooperatives(state owned dealers) with whom they have contracts. jordan Manufacturing Comapny produces a line of tractors comparable to the tractors developed by johnson industry in terms of capacity, power and longevity. Their tractors, however, do not currently have tracks although there are rumors that they are thinking of such a product. Jordan manufacturing has na extensive network of dealrship and service units throughout the wheat growing areas. their tractors are priced between $200,000 and $300,000. Customer Analysis There are three major Groups of Customers for wheat tractors. They are: 1.Travelling crewsthat move from farm to farm to harvest wheat;(30% 0of the market) 2.Large agribusiness farms;(33% of the market) 3. Smaller privatley owned farms (37% of the market) The travelling crews need tractors that are easily transportable. The agribusiness farms tend to buy a tractor almost every year and self-service their fleets of tractors. The travelling crews must replace their tractors every three to four years and depend on local dealershipd to service their tractors. Smallerfarmers may buy a new tractor every ten years and also require a local dealership for service. Each group of customers purchases and the same number of tractors per year. The purchase of a tractor is a big investment for all of the customers. they are all very knowledgeable about the different functions of the tractor. They value capacity,power and longevity and are also concerned about the comfort of the cab in which they sit while driving. they have heard about Johnson industry's track driven machine and are curious about how it will function. in addition to the functiobality of the tractor, the traveling crews and smaller farmers value services. If a tractor breaks down during the harvest, it is critical that it be fixed quick. there is a very short window when the harvest can occue. A tractor is out of service for a week can mean loss to the whole crop. Johnson Industry has a reputation for good quality products in other heavy industries.It also an extensive set of dealerships located in states with large construction projects and growth in the housing industry. johnson Industry major weakness is lack of knowledge of the agriculture business. Although farmers recognize the Johnson name, they are uncertain about the ability of the company to offer farm equipment with the apporopriate functions and service. johnson Industry does not have any overseas experience. Johnson Industry estimates that the variable cost of making its tractors will be about $150,000 per tractor. they estimate their fixed cost to be $20million annually. Questions 1.Describve a plausible strategy for Johnson Industry both for production and sales and marketing of its tractors.What factors should Johnson industry consider when formulating a strategy? 2.Describe the pricing Strategy for the tractor. 3.Assuming that johnson Industry can sell their forcasted 800 tractors annually, what price shopuld Johnson Industry charge to breakeven?What price should johnson Industry charge if they target a conservative profit of$50 million before tax? 4. Assuming Johnson Industry decides to set the selling price at $225,000 per tractor. a.How many tractors must be sold to breakeven? b.How many tractors must be sold if they want to make a profit after tax of $30M?(assume corporate tax rate is 25%) 5. Assuming that johnson Industry set the selling price at $225,000 and actually sell 800 tractors:(a) whatis the margin of safety ratio?(b) what is the operating leverage? Whatis your general conclusion about the risk of the company? 6.Assume that johnson Industry finds that the only market they canreally enter and compete is the large agribusiness farms. If they stilltarget to sell 800 tractors, what percentage of the large agribusiness farm customer must they capture? 7.The CEO of Johnson Industry is concerned about cutting costs and improving cash flow. Do a value chain analysis for johnson industry, break down the activities into value and non-value added and advice on areas where they can cut costs for the non value added activites and improve quality of service for the value added activities.