CANTY INTERNATIONALCASE STUDY FOR

Problem

Problem

What is the optimal base selling price for Canty International’s New Product, Decoline?

Key Findings

Key Findings

• Canty International receives RFP from Bryant Inns

• Canty International Design lab develops Decoline

• Low Cost to produce Decoline

STRENGTHS

Strengths

• Has specific development department – Design Lab. • New product custom-made for Bryant Inns

• Currently no competition. • Requires very little effort to clean and maintain.

• New panels fit with current track systems

• Estimated service life is ten years. • Internal supplies cut down costs of

production. • Incoming transportation costs are non-

existent

• High quality materials at minimum cost

WEAKNESSES

Weaknesses

• Internal transfer - quality control is essential • New equipments expenses • Selling and administration expense • Customization prevent advance preparation

• Decoline’s price > Current price

OPPORTUNITIES

Opportunities

• Expansion of new product to new customers. • Low costs of materials allow market flooding

• Opportunity to build image and brand loyalty.

THREATS

Threats

• Increasing competitive pressures. •Current capacity restrictions limit expansion. • Tailored customizations are costly.

• Economic recession limits potential consumers

Competitive Analysis

Competitive Analysis

• Level of competition determined by the market structure of the industry.• Monopolistic competition• Better Product than the current wallpapers• Products customization by each customer• Elastic demand due to close substitutes

Target Market

Target Market

Bryant Inns’ Business of 150 inns and hotels across Canada

Current customers of Canty International

Hotels, Hospitals, Restaurants DayCares, Schools, Karaoke Bars,

Any Commercial Building that requireSoundproof, Fireproof, and Decorative walls

COST CALCULATIONS

Costs TotalFixed Costs/month

Supervision 1,080.00

Inspection 165.00

Miscellaneous indirect labour 84.00

Floor-space expense 327.00

Small tools and materials 30.00

3 building tables 10 years service life

($3450 / 10 years / 12 months = $28.75/month) 28.75

Cutting machine 10 years service life

($480 / 10 years / 12 months = $4/month) 4.00

Selling and Admin expense 4,300.00

Total Fixed Costs 6,018.75

Variable Costs/monthEnvironmentally cement: 500 m2 / 10 m2 = 50 50 * 8.3 litre = 415 litre 415 litre * $0.96 = $398.40 398.40 Direct labour: 500 m2 / 10 m2 = 50 50 * 1.84 hours = 92 hours 92 hours * $7.10 = $653.20 653.20 Techno-fibre: 90 cm * (1/100) = 0.9 metres 500 m2 / 0.9 metres = 555.56 metres 555.56 metres * $6.55 = $3638.92 3,638.92 Bamboo backing: 90 cm * (1/100) = 0.9 metres 500 m2 / 0.9 metres = 555.56 metres 1,650.01 555.56 metres * $2.97 = $1650.01Total Variable Costs 6,340.53

Total Costs 12,359.28

Breakeven:

$12359.28 / 500 m2 = $24.72/m2

ALTERNATIVE 1

PRICE SKIMMING STRATEGY

• Set an initial high price for product  

First Alternative

• Lower price after sale saturation

Start off with a 35% mark up (innovators and early adopters)

$24.72 (per m2) x 1.35 = $33.37 = markup price

$24.72 (per m2) x 1.20 = $29.66 = second markup price

Followed by 20% mark up (early majority and late majority)

Advantages:

• high prices result in high-quality image

• Value seems greater than other products

• Allows the company to reduce price

Disadvantages:

• Slow rate of adoption  • Discontent when price drops • Lead to Shortage in Supply • Competitors may undercut the high price

 

ALTERNATIVE 2

PRICE PENETRATION

Second Alternative

Set low initial price at the break-even price (zero profit)

High volume of sales decrease the cost for Canty International

Advantages: • Due to economies of scale: Average Cost will diminish as production increases

New competitors will incur a higher cost than Canty International

• Discourages competitors• Experience Curve Effect

Disadvantages:

• Setting the price low could give a negative perception of the quality of the product.

• Short-term losses due to the low price

• Could potentially lose out on producer's surplus.

ALTERNATIVE 3VALUE BASED

PRICING

Third Alternative

Set the price for Decoline using the Value based pricing strategy

Determines the price by the cost of owning the product over its useful life.

No discount given to innovators and early adopters

The calculations for the Decoline are as follows:$ 24.72 per meters squared+ 5.40 installation fee$ 30.12 every ten years*

The calculations for the current product are as follows:

$ 11.50 per meters squared+ 4.80 installation fee$ 16.30 every two years$16.30 x 5 times = $ 81.50 every ten years*

*mark-up not included

Advantages:

• Innovators and early adopters will purchase Decoline

• Decoline can be sold at a higher price

• High price adds value to Decoline

• Environmentally friendly cement used 

Disadvantages:

• Difficult to implement • No reference prices for consumers

• Negative word of mouth

SOLUTION

1

•Early adopters and Innovators buy products at high price

2

•During product lifetime, sales (revenue) decrease

3

•Lower the Price to improve sales

Price Skimming

IMPLEMENTATIONPLAN

PLACE PRICE

PRODUCT PROMOTION

DIRECT DISTRIBUTION

Freight On Board, Factory

Starting Price for Innovators/Early Adopters will be 35% above breakeven price.

Price for Early/Late majority will be 20% above Breakeven price.

Contact Customers using Current Product

Sales Incentives

Niche Marketing

Decoline

Customized Product

10 year Service Life

Meets Standard Safety Requirements

Company Growth

Use a Market Growth Strategy• Expand into US hotel Industry• Expand to restaurants, malls, warehouses

PLAN B

PLAN B

Value Based PricingAdd Markup to Break even price of 45%

$24.72 x 1.45 = $35.84 per meter squared

Course Concepts

Marketing Mix

Pricing Strategies: Value BasedPrice SkimmingPrice PenetrationCost of Ownership

Diffusion of Innovation

SWOT (Strength, Weakness, Opportunity, Threat)

OPMT 1110. (Break Even)

Sources

Grewal, D., Levy, M., Persaud, A., & Lichti, S. (2009). Marketing (Canadian Edition). McGraw-Hill Ryerson Limited. Chapter 12. (All)

Ragan, C. & Lipsey, R. (2008). Microeconomics (Twelfth Canadian Edition). Pearson Addison Wesley. Chapter 7, 9. (All)