Wilkerson Company

Wilkerson Company

"Wilkerson" company faces a major decrease in its operating margin. For many years it enjoyed a margin of 10% and now faces only 3%. The company operates in three markets for each of its three products, facing different competition and demand. To better understand the competitive situation of the company, we shall observe the competitive situation for each of the products markets, and from there we shall conclude on the complete situation.

● Valves – Valves are a profitable good for the company. It enjoys a substantial market share and profitable prices. It does not face fierce competition, for none of the competitors attempted to cut prices in order to gain market share. Also, Wilkerson succeeded in establishing a very loyal customer base in the valve sector due to their high quality.

● Flow controllers – the flow controllers market, with a diverse variety of customized options to offer was conceived to be the most profitable market of all three. This market is not very competitive, and it seems that competitors have overlooked its profitability. Recently the company raised the price for this product by 10%, and found that demand had not been impacted, meaning they face an in inelastic demand function.

● Pumps – the pumps market was the biggest concern for Wilkerson's management, for they faced fierce competition, and price cuts from the competitors. Since this product is a commodity good (non segments), it faces the toughest competition of all the product lines, and the price cuts that were forced on Wilkerson were conceived to be those that caused the decrease in operating margins.

In general, the competitive situation in two of three operating fields of the company was less fierce, while in the third the company faces tough competition and price cuts that caused revenue reduction for the company. Indeed, they became very concerned that overhead costs were increasing at an alarming rate and exceeded the direct labor costs.