DETERMINATION OF FLOOR PRICE IN EXPANDING SERVICE MARKET FOR ROTATING EQUIPMENT INDUSTRY

• Main Author: Sulaiha, Siti
• Format: Theses
• Language: Indonesia
• Online Access: https://digilib.itb.ac.id/gdl/view/49368
• Institution: Institut Teknologi Bandung

Global demand for rotating equipment services likely to remain steady over the next few years because strongly supported by the growth of oil & gas and power generation industries. PT. SI as part of the Multinational Group in Switzerland that was a public listing company has demanded to increase shareholder value by growing up the business and then increase sales and profit from the business. One of the opportunities that the company capture to grow the business is market for large rotating equipment. Workshop expansion as an additional business with additional capital investment is one of the ways to grab the opportunity and absorb the demand for large rotating equipment services in the local market. The market for large rotating equipment already given by new power plants installed to achieve government programs with 35.000 MW with large capacity of the power plant. PT. SI could enlarge the capabilities and strengthen core competencies within that’s workshop expansion. Expansion facility to enlarge capabilities for market expansion creates another challenge, that is the uncertainty of expected economic return and how to set a minimum price (floor price) as reference price that will be used as a marketing guideline for pricing strategy within an additional capital investment. The business issues are analyzed by using Porter’s Fives-Forces Model for external factors and Resources, Capabilities, and Core competencies analysis for internal. SWOT analysis and Diamond strategy use on business issue exploration to compile and conclude data or information get from the external and internal analysis. High threat from the analysis related to the pricing. There is no direct competitor for time being for large rotating equipment services, but the bargaining power of the buyer is high. Customers or buyers have their own estimate price by adjusting budgetary price from service provider with the customer’s budget to go through bid or tender. Selling price is the most important factor for marketing or sales in the service industry especially for rotating equipment because it is a weapon to negotiate with the customer in the bid or tender from the last stage of dealing with the service. Determination of the selling price needs reference price, in this case, means minimum price or lowest price (floor price) of the service can be sold for. The importance of the selling price in this service industry is a reason why this research or final project only focuses on the floor price as a reference price to set that selling price. The determination of the floor price using NPV calculation with the terminal value in the end year of the projection when the NPV value equal to zero or breakeven position. This method is differed from the existing method that only used historical data and not include target volume sales as an important factor to set the floor price and by determining a budget plan for other factors, the company can encounter the possibility of the costs swells and do cost efficiency. This method can keep the company grow the business with additional capital investment without losing money but can match the market at a competitive quote. The company needs corporate restructure if the floor price is higher than the market price.