Submitted by: Submitted by grkmr
Views: 227
Words: 583
Pages: 3
Category: Business and Industry
Date Submitted: 12/09/2013 08:25 PM
3M Telecom Systems Division
Major Issue: What strategy should 3M Telecom Systems Division follow in order to stimulate their sales?
Alternative 1: Trying to drive the market by achieving major cost reduction
Advantages:
* Greater contribution margin due to reduced variable cost.
* Possible increase in demand due to availability of price reduction.
* Greater chance to be an industry standard, therefore dominate the market.
* Past experience on cable splicers, considerable history of the company will ease cost reduction.
* Fiber optic’s tendancy to dominate the market since it’s much faster than current copper wires.
Disadvantages:
* Extra research and development cost needed for cost reduction.
* Uncertainty of market, electronical enhancements for copper wires would still beat fiber market.
Alternative 2: Partner with a major end user such as NTT
Advantages:
* Partnering would reduce the risk of failing in an new emerging market.
* Easier access to different markets internationally.
Disadvantages:
* It will keep 3M telecom division dependent on another firm, decision mechanism will be weakened.
* Since this end user of fiber will probably be outside of US, international partnership will significantly increase costs due to taxes and freight costs.
Alternative 3: Being satisfied with current small but profitable market (do nothing)
Advantages:
* Easy to implement.
* No extra cost.
Disadvantage:
* Does not provide desired growth. Therefore contradicts with the major issue.
Recommendation
I think the research and development cost to reduce variable cost of Fibrlok Splice will definitely pay off if implemented successfully. Since 3M already has 30% of the market, they can easily take advantage of their competitive power. For a rough estimation, 3M sold
* 5 million*30%=1.5 million units.
* 50 units sell for $16.
* $16/50=$0.32 per splice.
* 1.5 million*0.32 = $480.000 sales...