Wind Technology Case Study
Situation: Company 1. New company (10 years), small compared to competitors 2. Cash flow problems 3. Produces wind-profiling radar systems for weather forecasting and wind detection 4.
9-12 months to improve cash flow Strengths 1. Adherence to specifications and quality production 2. Technical expertise provides full system integration—customers can order either basic components or a full system 3. Meteorologists and atmospheric scientists provide the customer with sophisticated support 4. All resources had been devoted to wind-profiling 5.
Government contracts—account for 90 percent of sales Weaknesses . Poor cash flow 2. Lack of a well-developed marketing department 3. No salespersons—management and engineers call customers 4. No production capabilities to compete in high-volume, low-voltage segment 5.
No resources and technical expertise to compete in high-output segment Opportunities 1. Wind Technology develops almost all of its major component parts and software, versus competitors who depends on a variety of manufacturers. 2. HOWEVER, the development of the power supply has been problematic, SO Wind Technology needs to develop power supply instead of purchasing an HVPS from outside supplier 3.
HVPS has greatest potential for commercial success Threats 1.
Vaitra is unwilling to place additional money into Wind Technology 2. 9-12 months to implement new strategy and improve cash flow Product Sell component parts, specifically the high-voltage power supply (HVPS) 1. Small, with low level of output (less than 3kV) a. Communications 2. Medium (between 3 and 10 kV) b. Radars and lasers 3.
Large (greater than 10 kV) c. High-powered X rays and plasma-etching systems Market Total market potential is estimated at $237 million
Wind Technology’s estimated market share is 0. 5 percent, or $1. 185 million Finances Margin: 30 percent (production=70 percent of selling price) or $355,500 Variable/Fixed Costs: Unknown Promotion Budget: 10 percent or $118,500 Contribution Margin: $237,000 Competition Unysis—the only key player in the wind profiling market Customers Research labs, large end-users, OEMs, and distributers Government: Research, NASA, state colleges, Department of Defense Problem: The market for wind profiling radar systems has been developing at a much lower rate than anticipated. Options: 1.
Enter HVPS market, or ride out the two years (cutting costs) that the company had estimated it would take until the wind-profiling market achieved high growth levels? 2.
If entering HVPS market, establish target segment 3. If entering HVPS market, develop a marketing and promotion plan Scenario 1: Enter HVPS market 1. The product provides a differential advantage, superior quality, is innovative, reliable, customizable, and technologically advanced 2. Provides an additional +/- $237,000 in contribution margin per every 0. 5 percent of market share is achieved.
HVPS could be produced with very little added fixed costs ; production would cost 70 percent of selling price. Scenario 2: Do not enter HVPS market 1. Young company in a mature industry 2. Severe cash flow problems make it difficult to produce, market, and hold inventory 3.
Development of power supply will remain a problem 4. Difficult to cut costs when Wind Technologies already does not have a sales force or marketing department 5. Realistically only have 9-12 months before the company goes under Establishing target segment—Recommendations: 1. Microwave—highest market growth and strength 2.
Radar—2nd highest growth and attractiveness, 3rd highest market share and strength 3.
Semiconductors—highest attractiveness, 2nd highest market share Promotion Plan: 1. Collateral Material a. 5,000 pieces * $5. 50 each = $27,500 2. Public Relations b.
Cost to write and mail to editors = $500 c. Are there hidden costs, such as publishing? d. How many people actually subscribe to wind technology trade magazines (Exhibit 3 = 350,538 in circulation) e. Of the 350,000 in circulation, if 1% of subscribers actually read the PR= 3,500 reached 3. Direct Mail f. More effective than PR, because recipients have the material in heir hands versus skipping over the page in a magazine.
g. Buying list of prospects = $5,000 h. Are there lists available online? (Perhaps today, but not in 1991 at the time of the case) i. $7,500 per 1,500 mailed j. @ 3,000 mailed (universities, government) = $20,000 cost 4. Trade Shows k.
$50,000 in costs + $50,000 for 5 staff members to attend l. Reach has to be significantly less than PR and direct mail because of geographical constraints—limited to the number of interested people near trade show—maybe 1,000-2,000 people attend trade show, and only 25% stop and look at your product m.
Benefit—Get to see physical product and talk to experts n. Benefit—People who attend the trade show are probably looking to purchase (50% are hobbyists, 25% looking to buy, 25% not interested at all—tag alongs) i. 250 people see your product, +/- 50 are interested o. Potential to cut costs—why does it cost $10,000 per person to attend? Send current employees for +/- $3,500 per person (airfare, hotel, food).
5. Trade Journals p. Design News presents the best value, at just $0. 05 per page in circulation, it has a reach of 170,033 readers at a cost of $8,120 6. Personal Selling q.
Telemarketing ii. Salary for employee would be $50,000 iii. 90 calls per day * 250 days = 22,500 per year, assume 75% are hang-ups = 5,625 actually talk on the phone, 5% are interested = approximately 250 r. Field Sales iv. Would provide most incremental revenue v. Most costly vi.
$80,000 vii. However, this person can serve dual roles, also attending trade shows, responding to customer service issues, etc. Final Recommendation: Kevin, from Wind Technology, acknowledges that it would be risky to proceed with the HVPS spin-off, but not doing something to improve the firm’s cash flow was equally risky.
Therefore, I would support neither decision, but instead go to the root of the problem which is Vaitra’s decision to cut funding for Wind Technology. Kevin needs to go to the management at Vaitra and ask for money to continue sustaining the business for another two years. At that point, the industry is expected to mature and the high growth levels that they anticipate may be achieved.
In the meantime, it is not worth it to restructure the business, and implement costly promotion strategies that may not even be effective during the two years which they are most needed.
However, in two years, when Wind Technologies anticipates a more secure cash position, they can begin specializing in the HPVS, hiring personal sellers, and attending trade shows. Then, perhaps they can also pursue more than just 0. 5 percent of the market. That is, however, if they even need to do so; it is possible that they will succeed with their current products. It would be best to have ample resources and do everything to the best of their abilities when the time is right, versus emptying their pockets just to get by in the industry, and abandoning their current strategy which could be successful in the very near future.