Tom Cross took over as Managing Director at Powerdrive Motors in South Africa three years ago. At the time, the company was an established manufacturer of small electric motors with a strong reputation for product reliability and technical leadership. On the downside, it was also regarded in the trade as having high prices and variable delivery. Toms first task was to tackle the huge product variety on offer. He saw this as the major problem in addressing the negative views in the marketplace, and also saw opportunities in streamlining design and production. The product range was replaced with a new generation of designs based on a few hundred modules, which could be assembled in many different combinations to give variety at low cost. This meant the loss of some customers who had gone to Powerdrive because they could rely on the companys technical leadership to produce designs that suited their particular needs. This was not considered important because the combined sales volume of such customers was under 5 per cent. Using the new designs, Tom was now able to reorganise the factory into cells that produced major subassemblies such as rotors and stators. The work flow was transformed, and manufacturing throughput time was reduced from six weeks to just four days. Cost improvements meant that average price reductions of between 10 and 15 per cent could be offered. Powerdrives customer service policy was redrafted to offer quotations within a maximum of one hour of any enquiry, and for deliveries of finished product to be made within one week anywhere in northern Europe. This new policy was explained to internal sales staff, and to sales representatives and agents employed by the organisation. If old customers wanted special designs that were no longer in the range, the sales staff were instructed to explain Powerdrives new policy and to politely decline the order.

At first, business soared. Impressed by the lower prices and short delivery times, customers flocked to Powerdrive and sales jumped by 50 per cent. But then things began to go sour. First, the factory could no longer cope with the demands being placed on it. The addition of a large order for lawnmower motors blocked out a lot of production capacity from January to June. Order lead times during this period in particular slid back to former levels. Second, a Brazilian supplier spotted the opportunity to enter the market with prices that undercut Powerdrive by 20 per cent. While only half of the product range was covered by this new entrant, it was the high volume products that were especially threatened. Further, the new competitor offered three-day lead times from stock that had been established in Europe. Third, some of the former customers who could no longer obtain their bespoke designs from Powerdrive were complaining within the industry that Powerdrives technical leadership had been sacrificed. Although small in number, such customers were influential at trade fairs and conferences.

Questions

Evaluate the changes that took place in the segmentation of Powerdrives market.

[50 Marks]

Characterise the changes using the concept of order winners and qualifiers. [50 Marks]