Curled Metal Inc. Case Study
Question 1 WHAT SHOULD A CUSTOMER BE WILLING TO PAY FOR ONE OF CURLED METAL INCORPORATED’S (CMI) NEW
CUSHION PADS? WHAT FACTORS ARE RELEVANT IN CALCULATING WILLINGNESS TO PAY IN THIS SITUATION?
Factors to be considered 1
• Average Cost per hour Saving for for Equipment , labor and overhead • Downtime : If we also factor in the amount of time it takes to change asbestos sets, it
2 3
contributes significantly to overall cost ( can be considered) • Higher Efficiency of CMI product • Longer lifetime of CMI over conventional • How will it help CMI gain a dominant footing in the market by adding value to its product
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portfolio • Is the model sustainable?
Question 2 WHAT PRICE SHOULD CMI SET FOR ONE OF ITS NEW CUSHION PADS? WHY?
Manufacture costs vary from $444 to $1920 for the larger sizes, thus price needs to be balanced accordingly
Pad type
No. of Changes X time per changes
Time reqd
Conventional
20 X 20 mins
400 mins
CMI
1 X 4 mins
4 mins
Pad type
Total Feet / Feet driven per hour
Total time
Conventional
15000 /150
100 hours
CMI
15000/200
75 hours
Cost of Single conventional pad= $6 - $9
Total value of savings = $5400
Value based Price = $5400 If the reports from Professor McCormack proved the same assumptions in savings of time, then it would be easy for the company to prove “value” to the customer. customer.
CMI can charge ~$3000-$4000 per pad if it wants to start skimming the market and reduce price later on CMI can charge ~$1000 if it wishes to achieve a high market share overnight Company could price the 11.5 inch pad at a higher price and gain profits which could be compensated for the larger Market Based Price = products where production costs $10
Question 3
HOW BIG IS THE POTENTIAL MARKET FOR THIS PRODUCT P RODUCT,, AND WHAT SHOULD BE CMI’S STRATEGIC STRA TEGIC AND MARKETING OBJECTIVES IN INTRODUCING THIS PRODUCT?
Market Potential
Total requirement = 290 – 390 million feet of piles to be driven One set of curled metal pads – 10,000 feet (One set of curled metal pads = 4 initially installed, plus two added) Market requirement = 29,000 – 39,000 sets of curled metal pads i.e. 174,000 – 234,000 curled metal pads Market value = $121.8m – $163.8m (@$700 per pad) ◦
Strategic and Marketing objectives Strategic Objectives • Price the product right to achieve high profit margins while establishing a
dominant market share in the market • Distribution, production and capital investment strategy • Advertising, promotion and positioning of the product with respect to the existing cushion pads available in the market • Protect IPR for this pad by filing patents if possible
Marketing Objectives • To convince the important influencers to endorse CMI cushion pads • Architectural/ consulting engineers and soil consultants have a key
influence in the buying decision decisi on (expert power) • Engineering/ construction contractors (large value contracts) • Independent pile-driving contractors (large volumes) • Promote in industry magazines like Oklahoma Contractor and try and get a feature in the same • Get Professor Stephen McCormack of Pennsylvania A&M University to officially endorse the product
Question 4.
4. ON PAGE 1 OF THE CASE, CMI VICE PRESIDENT JOSEPH FERNANDEZ SAYS, “THE WAY WE PRICE THIS
COULD HAVE A SIGNIFICANT IMPACT ON EVERYTHING ELSE WE DO.” AN IN TEGRATED STRATEGIC OPTION
SPECIFIES THE BASIC TYPE OF ADVANTAGE A COMPANY WILL PURSUE (E.G., DIFFERENTIATION? DIFFERENTIATION? LOW
COST? OTHER?), RELEVANT DECISIONS ABOUT CUSTOMER AND PRODUCT SCOPE, AND KEY CHOICES
THROUGHOUT THE COMPANY’S VALUE CHAIN. DEVELOP AN INTEGRATED STRATEGIC OPTION FOR CMI —
AN OPTION THAT SPECIFIES YOUR PRICE BUT ALSO SPECIFIES THE MANY OTHER CHOICES FACING CMI IN
FORMULATING A STRATEGY FOR ITS NEW CUSHION PADS (E.G., IN MARKET ING, SALES, DISTRIBUTION,
PRODUCTION, FINANCE, AND OTHER FUNCTIONS).
Launch of CMI Pads
Positioning the Product
Setting Prices for CMI Pads Selecting a pricing strategy
Promotional Strategy
Pricing Str Strategy ategy
Price objectives: maximize quantity
and profit margin.
Price methods:
Cost-plus pricing – set the price at the production cost plus a certain profit margin. Value Based Based Pricing Pricing
Demand Estimation
Annual demand demand estimated = 290 to 390 m feet Average no. of conventional pads pads required = 300m/ 28= 10.7m Average no. of CMI pads required= required= 290m/ 1666 = 174000 ( lower limit) Average no. of CMI pads required= required= 390m/ 1666 = 234000 ( upper limit) Annual capacity at 250/ month = 250 * 12 = 3000
Positioning
Points of Difference
Cost –overall cost is low.
Efficient – more piles driven per set, energy used efficiently
Ease – easy to handle as temperature temperature within 250 F
Safe – no hazardous material
Savings
Point of Parity Time Saving –
Reduces time for changeover
Distribution Early Stage
After the market develops
Take advantage of the existing distribution networks:
•Create our own distribution network.
Equipment Supply Houses Hammer Distribution Rental Companies
•Reach architectural and consulting engineers.
•Direct channels as: •Contribute high quantity and demand (50% of estimated market share) •CMI has more control on education and monitoring •Sell to hardware stores and wholesalers to cover small contractors
Marketing Strategy ◦
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Promotion to educate customers and awareness about the benefits Seminar: “Piletalks” to make people aware Potential buyers: contractorss • Independent Pile driving contractor • Pile hammer distributing/renting companies Give free first set of pads
Sales Representative: To educate customers about cost saving of CMI pads and potential dangers of asbestos Creating brand name • Important in promoting the diffusion of the product in marketplace
Marketing Strategy
Word of mouth: Key influencers to endorse the product
Pile hammer manufacturers • To influence recommendations Professor Stephen McCormack would have a significant impact • Department to study pile driving and was a respected authority
Advertisement [Magazine/Newspaper/TV ads]
Effective advertisement in business magazines to target undecided market Publish test results in magazine & Newspaper
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