curled-metal-case study01

case study on price determination

1. Curled Metal Inc. Case Study

2. 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? Question 1

3. Factors to be considered

4. What price should CMI set for one of its new cushion pads? Why ? Question 2

5. 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 Cost of Single conventional pad= $ 6 - $ 9 Pad type Total Feet / Feet driven per hour Tota l time Conventional 15000 /150 100 hours CMI 15000/200 75 hours Manufacture costs vary from $444 to $1920 for the larger sizes, thus price needs to be balanced accordingly

6. Total value of savings = $5400 Value based Price = $5400 Market Based Price = $10 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. 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 products where production costs are higher

7. How big is the potential market for this product, and what should be CMI’s strategic and marketing objectives in introducing this product? Question 3

8. 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)

9. Strategic and Marketing objectives

10. 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 integrated strategic option specifies the basic type of advantage a company will pursue (e.g., 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 marketing, sales, distribution, production, finance, and other functions). Question 4.

11. Launch of CMI Pads

12. 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 Pricing Pricing Strategy

13. Demand Estimation Annual demand estimated = 290 to 390 m feet Average no. of conventional pads required = 300m/ 28= 10.7m Average no. of CMI pads required= 290m/ 1666 = 174000 ( lower limit) Average no. of CMI pads required= 390m/ 1666 = 234000 ( upper limit) Annual capacity at 250/ month = 250 * 12 = 3000

14. Positioning Points of Difference Cost –overall cost is low. Efficient – more piles driven per set, energy used efficiently Ease – easy to handle as temperature within 250 F Safe – no hazardous material Savings Point of Parity Time Saving – Reduces time for changeover

15. Early Stage Take advantage of the existing distribution networks: Equipment Supply Houses Hammer Distribution Rental Companies Distribution After the market develops Create our own distribution network.  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

16. Marketing Strategy Promotion to educate customers and awareness about the benefits Seminar: “ Piletalks ” to make people aware Potential buyers: Independent Pile driving contractors 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

17. 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

18. Thank you