comtec corporation

Case Study AnalysisComtec

Corporation

Mengdie GULouis LE PICARD

306

Overview of the situation

• Comtec Corporation : small manufacturer of industrial microcomputers and specific software

• January 1984

• Head office : Massachusetts, USA

• European office : Amsterdam

Overview of the situation

• Strategy : Industry-specific hardware and software production

• Sales difficulties in domestic and international markets

• No profits : serious financial crisis

Hired a consultant in high-tech marketing in order to advise on new marketing and strategic directions

Participants :•Dr. Daniel Needham, President, Comtec Corporation

•Mr. Harry Otto, Vice-President, Comtec Corporation

•Ms. Roberta Malcom, Computer Consultant

Mentionned (exhibit 5) :• Mr. Max Mendel, Manager of Comtec in Amsterdam

Names and positions

Documents• Dialogue between Dr. Needham, President, Mr. Otto, Vice-

President, and Ms. Malcom, Consultant

• Exhibit 1: Ad for the Comtec 100 Microcomputers

• Exhibit 2 : Sales of the Comtec 100, 3rd and 4th Quarter, 1983

• Exhibit 3 : Comtec’s balance sheet of December 1983

• Exhibit 4 : Memo from H. Otto to D. Needham

• Exhibit 5 : Letter from Manchester Metals, Ltd., to Comtec’s Amsterdam Office

Analysis• Dialogue

Malcolm: Let me just say at the beginning that I realize my recommendations may seem very bold,

but given the present financial situation at Comtec I think bold measures are needed.

Otto: Right on both counts. The question is, are these the right measures? My feeling is

simply that we haven't been aggressive enough in our marketing. Also, the new

targeted fields—materials-testing automation and chromatography automation—are

not quick sells; it takes some time to build up orders. We launched our new

campaign in the early fall; it's just January now. I think you're premature in your

assessment that this is not the right market.

Needham: Harry's right to some extent. But the truth is the orders just aren't coming in fast

enough. We can't play a long-term waiting game. We don't have the capital to last.

Otto: All right. Orders aren't coming in the necessary quantity, but we're getting more and

more inquiries, and with proper action we should be able to turn them into orders.

Malcolm: Mr. Otto, I understand your position, but I don't feel that you've received enough

inquiries to warrant optimism.

• Dialogue

Analysis

Otto: I'm not that optimistic at all about it, but I feel we have to give this market, this

product, some chance.

Needham: Harry, what are you basing your sales projections on?

Otto: First, our sales manager in Amsterdam, Max Mendel, is right now working on an

order for ten Comtecs, plus software. That amounts to $200,000. Malcolm: But an order isn't an order until you get a P.O.* number. (*purchase order)

Otto: Right. But Max feels confident he'll get it.

Needham: That brings up the whole matter of the European sales office.

Malcolm: Yes, it does. And I can't see that it's worth keeping. It doesn't even pay for itself.

Needham: Well, I don't think that's true. But it barely pays for itself.

Otto: Ms. Malcolm's correct, Dan. It hasn't paid for itself in four months. I still don't feel

that means we should shut it down. The potential is there. Max is a good sales rep,

and things are beginning to turn.

• Dialogue

AnalysisMalcolm: Gentlemen, let me make a couple of things clear. I was hired by you to do a study

and make some recommendations. I did that. It's your choice whether to accept the

recommendations or not. I happen to think my recommendations are sound, but it's

up to you to decide. The reasons I think they are sound are detailed in the report, but

let me just reiterate a few facts here. First, in three months of active effort you have

only six orders. Second, the competition, particularly in chromatography, is keen.

Third, the European sales office is costing more than it's producing. Fourth, your

microcomputer is too expensive, given the fact that an IBM PC costs one-fourth as

much as the Comtec and is an industry standard. Granted, it may not do as much, but

it is basically all most researchers need, given the right software. If you convert your

software so that it will run on the IBM PC, you'll be in a position to do just that. And

if you are more horizontal than vertical in your approach to the market, you'll have a

larger target. Fifth, your advertising and sales promotion measures are not getting to

the right people. Buy some lists and then do a direct-mail shot. Go to every trade

show you can and demonstrate your product. The audience you're trying to reach

doesn't take journal advertising seriously. They want more information than they can

get in an ad. Direct mail can give that to them; a demo can do even more.

Analysis• Exhibit 1: Ad for the Comtec 100

Microcomputers

Automate Your Lab NOW When is laboratory automation more than just laboratory automation? When you

automate with a Comtec 100, you have the most powerful R & D micro on the market.

The Comtec 100 features multitasking, multiprocessing, ultra-high-speed analog

input, and a real-time operating system. These features make the Comtec 100

capable of being a central computer for all your automation needs. Special

application-specific programs for Materials Testing and Chromatography, as well as

general-purpose R & D software, make Comtec a leader in laboratory automation.

Call, Write, or Circle Inquiry No. for Action

Comtec Corporation 333 Roadway Cambridge, MA 1-800-262-8400

Circle Reader Service Card No. 363

Analysis• Exhibit 2 :Sales of the Comtec 100, Third and

Fourth Quarter, 1983 (US$)

July August September October November December Total

Domestic 38 900 38 600 60 642 41 282 42 623 43 624 265 671

International 21 090 21 438 37 583 21 438 21 438 -------- 122 987

388 658

Analysis• Exhibit 3 Comtec's Balance Sheet of

December 1983 (Actual US$)Assets

Cash 44 190

Accounts Receivable Trade 209 540

Other 41 800

Inventories Raw Materials 98 070

Packaging 24 504

Work in Progress 3 230

Finished Goods 107 440

Prepaid Expenses 10 756

Total Current Assets 539 530

Fixed Assets 12 462

(less depreciation) (4 790)

Net Fixed Assets 7 672

Other Noncurrent 190

Total Assets 547 392

Liabilities

Notes Payable 54 182

Accounts Payable Trade 269 904

Current Intercompany 82 591

Accrued Expenses 23 693

Accrued Taxes 97 330

Total Current Liabilities 527 700

Reserves 1 561

Share Capital (private) 18 131

Total Liabilities 547 392

Analysis• Exhibit 4 :Memo from H. Otto to D. Needham

Interoffice Memorandum

To: D. Needham

Fr: H.A.0.

Re: Direct Mail

Date: Jan. 23, 1984

I contacted the people at Industrial Collaborative today in an effort to purchase

direct mail lists. They claim to have very vertical lists of primary purchasers

both in the U.S. and abroad for materials-testing automation and

chromatography automation. They will sell one list for $1,200 or two for $2,100

(over 1,000 names in each). The lists include names and titles. I strongly

suggest we purchase the lists, as recommended by Ms. Malcolm, and create a

direct mail piece to accompany existing product literature. David, at

International Communications, says he can have design and copy in a matter of

days for a four-page brochure describing our automation packages. He will

check back later today to confirm. Let's talk this afternoon.

Analysis• Exhibit 5 :Letter from Manchester Metals,

Ltd., to Comtec's Amsterdam Office

Dear Mr. Mendel:

I enjoyed talking with you last week when you were in Manchester and am pleased to

report that I was quite impressed with the Comtec 100 Microcomputer. I have

recommended to the purchasing section that one Comtec 100 be purchased as soon as

possible. The order should be sent to you within ten days. As I informed you last week,

our long-term needs could conceivably call for additional purchases of eight to twelve

Comtecs. This initial purchase, therefore, should be viewed as a trial. I have few doubts,

however, that the Comtec 100 will perform to our complete satisfaction.

Existing SituationMARKETING

ECONOMIC

Strenghts Weaknesses

Focus on the qualities of products

Have wrong target (specific products)Not enough ads


Succeed in domestic market Have no good results in international market

Existing SituationPRODUCTS

STRATEGY


Powerful microcomputersNew software

High prices and high costs


Specific hardware productionSpecific software production diversification

Competitors (IBM…)Financial crisis Too much diversification : lack of competitiveness

Statement of problemComtec Corporation is facing a serious financial

crisis : lack of competitiveness and no profits.

The choice for the company, is to take a new direction or stay with the present strategy (specific hardware and software products on two markets)

Option 1 :Status quo : Keep Comtec’s initial strategy


- No extra cost - Give enough chance to

products’ potential- Keep the brand image

- not efficient and no profit- Difficult to find funds- In case of no funds founded,

the company goes bankrupt

- Still produce hardware and software- Waiting for orders from 2 markets- Try to find some funds

Option 2 :Marketing change : Shift from journal

advertising to direct mail and trade show

exhibits


- Attract clients very quickly and save the company from financial problems-Give more chances to products’ potential-No R&D cost and risk-Keep the brand image

-High cost (name list, stand in trade show exhibits…), lead company to a more critical situation-Take time-Not enough to solve the financial crisis

-Still on 2 markets-Still produce hardware and software

Option 3 :Close down the European office in

Amsterdam and concentrate on the U.S.

market

Strenghts Weaknesses- Help relieve financial

problems- Abandon sunk cost- Offer more ressources for U.S.

market

- Ignore the potential of European market

- Lose all European customers

-Still produce hardware and software-Still make journal advertising

Option 4 :New direction : Option 2 + Shift from

hardware to a software emphasis


- Relieve financial problems- Work with IBM is a good

opportunity and strategy- Have quick result and save

money

- Have high R&D cost and risk- Change the main activity in a

difficult situation may lead company to more critical situation(management…)

-Stop all hardware production-2 markets: domestic and international-Make software running on IBM computers

Option 5 :Radical change :

Focus on Software and US market and Marketing

change


- Relieve financial problems- Work with IBM may be a good

opportunity : powerful- Offer more ressources for U.S.

market

- Ignore the potential of European market

- Lose all European customers - Have high R&D cost and risk- Change the main activities in a

critical situation may lead company to more difficult situation(management…)

- Close down the sales office in Amsterdam- Stop all hardware production- -Make software running on IBM computers- Shift from journal advertising to direct mail and trade show exhibits

Questions• In this case, Comtec has a new strategy but the

result is not good after 4 months. So do they have to change direction or invest more time and money to succeed ?

• In 2004, IBM sold their PC business to Lenovo and it was a success , do you think Comtec Corperation should do the same as IBM?

• Is there a good idea for Cometec to rely on IBM?

Recommendation• Option 4 Shift from hardware to a software

emphasis+

Shift from journal advertising to direct mail and trade show exhibits

comtec corporation

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