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The Orthopedic Motor Market: Minnesota Micromotors and Motor Technology
Minnesota Micromotors, Inc. (MM), based in Minneapolis, was a manufacturer of brushless, direct current (BLDC) 1 motors used in
orthopedic medical devices. Devices utilizing MMs motors were typically used by orthopedic surgeons in large bone surgery,
reconstructive surgery, trauma surgery. MM sold approximately 97,000 motors a year and had a 9% share of the $137 million U.S.
medical motor market for orthopedic and neurosurgery devices. (See Exhibit 1A.)
MMs revenues had been growing in line with the industry average rate of 5.5% over the prior three-year period; however, the most
recent quarterly financial data showed a decline in revenue. Although senior management was pleased that MM had just turned a
modest profit after several years of losses, there was concern about recent potential market share loss.
The BLDC motors in which MM specialized offered several advantages over brushed DC motors, including greater efficiency and
reliability, less noise, longer lifetime (no brush erosion). Given that a BLDC motor required no airflow for cooling, its internal
components could be entirely enclosed and protected from dirt. BLDC motors were better suited to applications needing a wide
speed range for example drill systems, used in orthopedic bone surgery that must perform at 10,000 to 95,000 revolutions per
minute. The segment of the motor industry in which MM operated was highly competitive, with over 100 participants. Smaller
motor manufacturers like MM sought to distinguish themselves from their competitors by offering original equipment manufacturer
(OEM) customers domain knowledge, customer service, product functionality, and compatibility with other automation products.
The industry average net price of the competitors motors was $118.
were roughly divided into four subsegments (AD), distinguishable by their purchasing behavior and the relative importance they
assigned to specific product features.
Segment A placed a premium on the motors power-to-size ratio and generally required a high level of sales support due to the
requirement for customization. MM generated approximately 33% of its dollar revenue from this segment (see Exhibits 1A and 1B)
and held a 19% share of the market in this segment.
Segment B placed a premium on the motors thermal resistance performance and also highly valued the market and technical
knowledge of a manufacturers sales representatives. This segment represented just under 8% of the companys revenue and MMs
market share in this segment was 4%. A high thermal resistance was the leading feature touted by device manufacturers in this
segment.
Segment C, the least price-sensitive of large-volume customers, required superior motor performance on both thermal resistance
and power-to-size ratio. This segment represented just over 7% of MMs dollar revenue and the companys market share of this
segment was 4%. These OEMs manufactured sophisticated, high-end neurosurgery tools used at leading research hospitals, and
therefore their technical standards were very stringent.
Segment D, was very price-sensitive. These OEMs sold orthopedic tools in bulk to group purchasing organizations, which sought to
get the most economical rates for their individual members. A relatively high share (22.8%) of MMs dollar volume came from this
segment, but the companys market share in the segment was 7%.
Finally, customers who purchased through distributors were also quite price-sensitive. Since small-volume purchasers generally had
to buy off-the-shelf motors from a distributors catalog, they were concerned that the motors would be easy to integrate into their
surgical tools and that the vendors product literature would be comprehensive. This segment represented nearly 29% of MMs
revenue and the organizations market share in that segment was 11%. In terms of total dollar volume, all of the customer segments
were growing at rates from 5% to 6%.