PV Technologies: Case Study Analysis
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Q1: What could be the reasons for the unfavorable evaluation of PV technologies by Greg Morgan? a) The bid prices of the competitor’s products especially BJ Solar’s were significantly lower than PVT’s. b) Solenergy was committed to a renewed focus on expense control and the upfront cost differential was significant c) An enhanced maintenance schedule, coupled with a proactive quality control program designed to identify potential performances issues before they occurred, should compensate for the inferior performance characteristics of the less costly inverters. d) The enhanced oversight and expanded maintenance schedule would raise operating cost, the lower net ownership costs argued in favor of selecting the lowest cost product.
Q2: Evaluate alternative course of action available to PVT to gain favorable evaluation by Solenergy for the Barstow Project:
The four alternative course of action available to PVT
a)Offer to extend the original warranty at internal cost from 10 to 20 years
In the first scenario PVT would extend the product warranty to 20 years, Solenergy would contractually prepay the warranty premium annually at the rate of 18% of the purchase price of each inverter. PVT would perform warranty services as necessary throughout the year and submit an invoice monthly of actual internal costs for parts, labor and service calls to Solenergy for its recordkeeping purposes. At the end, PVT would true up the prepayment and issue either a refund in the event of an overpayment or an invoice in the event of an underpayment. PVT offered a standard 10 year unlimited hour usage warranty. PVT also offered an extended warranty. Written in 5 year increments at an additional cost, a condition of this extension option was that it must be exercised prior to the expiration of the standard warranty.
Those marketing and sales executives who were inclined to accept Solenergy’s high acquisition cost evaluation favored this alternative because they believed the economic value of its alternative would clearly offset any product cost related shortcoming Morgan may have identified. These executives believed that performance couldn’t be a credible issue given the long performance history of PVT central inverters and excellent reputation for the consistently successful leading edge technology. Finance, production and engineering executives, on the other, argued that PVT already had a significant competitive advantage with its 10 year warranty. b)Offer a 99% uptime guarantee at no cost.
In this scenario, PVT would offer its 99% uptime guarantee for each inverter’s in service life at no cost, believing it was unlikely that the competition would match the offer. In an uptime guarantee program, if the inverter is not fully functional due to a mechanical failure for any portion of productive daylight hours , the system owner would be compensated for the value of the energy that would have been delivered to customers during the period the inverter was offline. The program incorporated a “deductible”, whereby the first 44 hours of downtime were treated as a negative adjustment in the reimbursement calculation. Since PVT intended to offer this coverage at no cost to Solenergy , PVT would also attach a maintenance contract to the offer to ensure the inverters were maintained as necessary and to provide the opportunity for the regular onsite visual observations. Sales and marketing executives , moreover , believed the guarantee reinforced the quality , durability , and reliability of PVT’s products and would reinforce its leadership status.
c)Accelerate the introduction of a new product , scheduled to release shortly , with higher capacity at 1.25MW and 98.5% efficiency
In the third scenario, PVT would accelerate the introduction of the 1.25MW model that was in the final stages of testing. This new product utilized the next generation of power management and PVT engineers believed that, with its 98.5% efficiency rate and a service life that marched that of the 1.0MW product, it would be the most efficient and reliable inverter on the market. Strategic planning felt that this was the preferable way to gain the top spot in the competition. It would avoid compromising the current strategy and pricing approach. And the timing was fortunate; they believed that the introduction of the new inverter, scheduled for April 2012, could be moved up to mid-January 2012, by simply re-arranging the reliability/efficiency testing queue and modifying the testing routine, which would then meet Solenergy’s product availability requirements for the Barstow project.
The sales force believed the next generation inverter, while potentially inviting a new set of objectives, could be successfully sold to large users at the suggested net price of $187500 because utility projects were becoming larger. Marketing and Public Relations also supported this approach. The new technology was what the market wanted for large scale projects and would reinforce PVT’s leadership position by being first to market. R&D believed that, given the new inverter’s superiority, Morgan would value Solenergy’s having the opportunity to the first to employ the latest technology and the most robust management system
d)Tactfully initiate a dialogue with Morgan to confirm the reported findings of the evaluation.
Rubenstein and Salvatori suggested that before any changes were made to product and market strategies, PVT should approach Morgan directly, sharing the information PVT had obtained about the reported evaluation. If Morgan confirmed what they’d heard, they could attempt to persuade him and Solenergy executives to share or even re-evaluate the criteria from which they drew their conclusions. Some PVT executives thought Morgan might be receptive to a conversation, particularly given his employer’s relationship with PVT and his relationship with Salvatori
Q3: What short term and long term policies and processes should PVT develop and implement to effectively improve its marketing programs?
Most PVT executives suggested that a press release need to be published but they were uncertain about the effect on the central inverter sales or the reputation of PVT at least in the short term. On the other hand, some were convinced that if PVT executives did not question and overcome the findings in the Morgan’s evaluation before the vendor selection process was concluded, PVT’s response to the RFP would likely be rejected. Some executives believed that PVT should review the current policy of testing equipment performance and specifications against competitor’s offerings. They also urged that PVT revaluate the needs of its business segments and key customers on a more frequent and regularly scheduled basis to mitigate the risk that a similar situation would occur in the future. Those who supported this policy believed that this work should be viewed as a long term investment in PVT’s future market position. Company engineers, however, were already overcommitted, so a program like this would require additional hiring or outsourcing. Without an increase in service staff, PVT would run the risk of deterioration in service quality for current clients if resources were diverted to support the new product.