Case Study #2

TEAM ONE MARKETING SOLUTIONS

Canty International Case Study #2

Katie Ruddell, Chris Brown, Hayley Saulnier, Emily Lazatin, Jag Deol, Filipe Batista

2/11/2009

MKTG 1102 Set 1J, Anne Marie Webb Hughes

Team One Marketing Solutions Canty International

2

Contents Problem Identification...............................................................................................................................................3

Key Findings...............................................................................................................................................................3

Research and Case Study:......................................................................................................................................3

Assumptions ..........................................................................................................................................................3

Target Market............................................................................................................................................................4

SWOT Analysis ...........................................................................................................................................................4

Alternatives ...............................................................................................................................................................5

Solution .....................................................................................................................................................................6

Product ..................................................................................................................................................................6

Price.......................................................................................................................................................................7

Place ......................................................................................................................................................................7

Promotion..............................................................................................................................................................8

Contingency Plan ...................................................................................................................................................8

Course Concepts........................................................................................................................................................8

Apendix 1.................................................................................................................................................................10

Appendix 1A ............................................................................................................................................................12


3

Problem Identification

What pricing strategy will Canty International use to offer its customers a price that focuses on the

overall value of the Decoline product?

Key Findings

Canty International is a manufacturer of wall systems and coverings for industrial and commercial uses.

Based on external research and information from the case study, we have concluded that:

Research and Case Study:

• Canty has developed a new innovative product called Decoline based on demand from industry.

• Canty is unsure what price strategy, price tactics, and selling price they should use to market Decoline.

• The wall covering market is competative. A large number of companys offer many options in design,

color and texture, but not many offer custom designed products.1

Assumptions

• Due to Canty International’s established customer base, a conservative sales forecast calls for an initial

demand of 500 M Sq / month.

• Canty International customers will pay a higher price for a product that is customizable, has a long

shelf life and meets industry safety standards.

• Canty International ability to obtain raw materials from other divisions of its firm at minimal cost and

no transport‐in cost, combined with its ability to manufacture and design in‐house, give Canty the

ability to keep costs down.

1 Marla Neufeld ‐ Interior Designer/consultant Benjamin Moore Painting and Decorating ‐ North Burnaby 604 320 2565


4

• The value or cost of any project is determined by a wide variety of factors, and is difficult to present

until a project's scope and individual customer needs have been reviewed.

Target Market

We have used the case study as a reference to determine that the requirements of the market will not

allow the Decoline panels to be an “off‐the‐shelf” product. Therefore, the company should focus on Business‐

to‐Business markets such as:

• The hotel industry ‐ It is important that Canty International maintains a good rapport with their current

client in the industry to develop more potential prospects.

• Institutes ‐ They would need specialized coverings to remain sound proof and fire‐resistant.

• Churches ‐ Use wall coverings to decorate their grand halls with artistic decor

SWOT Analysis

POSITIVE ABOUT THE COMANY

NEGATIVE ABOUT THE COMPANY

INTERNAL

STRENGTHS:

• Decoline offers a costumed service

• Innovative design • Ability to provide unique

products • Already have customer base

WEAKNESSES:

• Assumptions on product life • Limited production capacity • Cost production is high compared

to previous product • Production capacity is at 77%

EXTERNAL

OPPORTUNITIES:

• Expand into US market • Expand to consumer markets

THREATS:

• Competition can release a me2 product

• Price War

Alternatives

Ur first alternatives is market penetration pricing, a pricing strategy which sets the initial price

low during the introduction of the new product or service, with the objective of building sales, market share

and profits quickly. The first advantage is quick consumer purchasing; consumers will be more willing to

purchase the product at a low price, rather than if the price was high, and waiting for it to drop. Another

advantage is that it builds profit quickly. Because the initial price is low, consumers buy more product, in

return more profits are earned. The third advantage is low costs per unit. Since the product is selling more due

to its low price, cost of the product will drop as well as making it less expensive to produce. One disadvantage

of market penetration pricing would be a rise in demand. Because the product price is set low, demand for the

product will rise ‐ the firm must be able to supply the product to the increasing demand. Another

disadvantage would be the consumer perceived product quality. Setting a product’s price low often results in

consumers believing the product to be of poor quality. The third disadvantage would be that as competitors

use their competitive intelligence and notice Decoline’s price reduction, they will lower their prices in that

market as well.

he second alternative is price skimming, which lists a new product or service at a high price. An

advantage of this price strategy is that the higher price will create a high quality image for

Decoline. It also allows the Canty International to lower their pricing when the threat of competition arrives.

Also, with R&D costs expected to be high, this will allow some return on the set up costs. The higher price will

also limit demand, giving the company time to build production. However, a disadvantage to price skimming is

that it may cause customers to look at the competing products, as the price is quite high. Also, if Decoline

lowers its prices too fast without significant product changes, the company could receive negative feedback.

Another negative aspect is that the customers who purchased Decoline at the raised price may feel ‘cheated’

when the price drops.

O

T


6

he third alternative is a combination of price lining and non‐cumulative discounts. Depending on

size and features, price lining allows Canty International the luxury of offering Decoline at various

price points which makes them affordable to a wide range of customers. Offering non‐cumulative discounts

encourages larger orders, which reduces billing, order filling, shipping, and sales expenses. As quality in this

product is hard to differentiate visually, the various prices in the price lining strategy will help customers

recognize the levels of quality. However, an issue that may arise with the non‐cumulative discounts is that

loyal customers may begin believe the discounts are ‘owed’ to them after a period of time. A disadvantage of

the price lining strategy is that customers may opt for the base price product if the quality of the premium

product is not advertised properly. Canty International also faces the risk of having their competitor enter the

market with market penetration pricing, and stealing the market share for this product.

Solution

We recommend that Canty International offer a combination of price lining with non‐cumulative

quantity discount strategy in order to focus on the overall value of the Decoline.

Product

Decoline is a semi‐rigid decorative fabric panel product. The surface layer of this new product consists

of a techno‐fabric covering coupled with a lightweight but sturdy bamboo fibre core. The benefits of this

techno‐fabric is that it is abrasion resistant, soil proof, and for safety reasons it is specially treated for fire

resistance. It also has a cushioning effect that allows it to filter sound. We are offering two different levels of

the Decoline product, Basic and Premium. The differences will be in texture and design, not in structural

quality.

T


7

At the basic level, decoline customers have the option between standard colours, and textures for their

wall coverings. They will have a standard pallet of 15 colour and texture themes to decipher from.

At the premium level, customers are more involved with the design of their decoline wall covering.

They will be able to have a wider variety of selection of styles, and will not be limited to the standard theme

pallet. a A higher detail of custom prints and design will be included in this process.

Price

Decoline is a made‐to‐order product. The value and cost of a project is determined by a variety of

factors. Canty International customers have the opportunity to purchase Decoline wall coverings based on two

pricing strategies: Price Lining and Non‐Cumulative Quantity Discounts. Canty will offer Decoline in two

distinct design categories, basic and premium. These two categories have a fixed price per meter squared

based on volume. Once the customer has chosen a level of customization, they will have the ability to obtain

cash discounts based on accumulated dollar amounts2.

Place

Internally, we suggest that Canty International uses a showroom as their ‘base camp’, a point where

their new and ongoing customer can always reach them. Externally, we recommend that Canty International

invest in an up to date website, which will act at their external showroom. We also suggest the use of an

outbound sales representative, who will visit potential customers. Attending tradeshows is also a great way to

showcase their product.

2 See Apendix 1 for detailed explanation of selling price


8

Promotion

For Canty International to successfully penetrate their target market they need to have a sturdy

promotional plan. We have decided that an in‐store show room would be perfect for Canty International to

show case Decoline in a face‐to‐face environment. The showroom would consist of various styles of Decoline

product that consumers can touch and feel to compare with other products. Another decision is an online 3D

showroom for consumers who wish to purchase Decoline via the convenient ways of the internet. Prior to

purchasing, to get a general idea of what the outcome of their product will look like, the 3D web showroom

will allow customers to choose a certain room and create their own customized Decoline product through the

available shapes, sizes, colours, textures, etc.

Contingency Plan

Canty international understands that not all plans work the way they expected. In the case that their

strategy of price lining combined with non‐cumulative quantity discounts does not generate sufficient

revenue, Canty International will revise its pricing strategy to a market penetration strategy. Canty will set its

pricing based on a single product with three distinct price lines based on volume3. Canty International will

drop te non‐cumulative discount tactic because of the decreased profit margins when usuing a market

penetration startegy.

Course Concepts Can be found in SWOT Analysis:

Operational efficiency (operational excellence) ‐ Involves a firm’s focus on efficient operations and excellent supply chain management.

3 See Apendix 1A for contingency pricing.


9

Innovative ‐ The process by which ideas are transformed into new products and services that will help firms grow.

Price war ‐ Two or more firms compete by lowering their prices that satisfy the consumer.

Can be found in Alternatives:

Competitive intelligence (CI) – CI is used by firms to collect and synthesize information about their position with respect to their rivals. CI enables companies to anticipate market developments rather than only react to them.

Market penetration pricing ‐ Setting the initial price low for the introduction of a new product or service to gain market share and build sales.

Price skimming – A strategy of selling a new product at a high price that ‘innovators’ and ‘early‐adapters’ are willing to pay. After the high price market becomes saturated, the firm generally lowers the price to capture the next most price sensitive segment.

Noncumulative quantity discounts – A price tactic that offers a discount based on only the amount purchased in a single order.

Price lining – A pricing strategy that sets a price ceiling and floor for an entire line, and then setting a few other price points in between to represent distinct differences in quality.


10

Apendix 1

Fixed Costs:

Supervision Expense $1080

Miscellaneous Indirect Labour $84

Inspection $165

Facility Space Expense $327

Small Tools Expense $327

Amortization Expense, Tools $42.75

Sales and Admin including Marketing Communications Budget

$4300

Total Fixed Costs Per Month: $6028.75

Variable Costs – Basic Product:

Techno Fibre $6.55/.90 = $7.28 / M Sq

Bamboo Backing $2.97/.90 = $3.3 / M Sq

Cement Product 8.3 Litres x $.96 = $7.97/10 M

$.80 /Litre

$11.38 x 10% (fluctuation in cost of production materials)

$12.52

Labour 1.84 hrs x $7.10/hr = $13/.77 (fluctuation in labour output) =

$16.96/10 M

$1.70 / M Sq

Variable Costs – Basic Product $14.22 / M Sq

Variable Cost – Premium Product:

Techno Fibre $6.55/.90 = $7.28 / M Sq Bamboo Backing $2.97/.90 = $3.3 / M Sq Cement Product 8.3 Litres x $.96 =

$7.97/10 $.80 / Litre

$11.38 x 10% (fluctuation in cost of production variables)

$12.52

Labour 4 hrs x $7.10/hr = 28.4/.77 (fluctuation in labour output) =

$36.88/10

$3.69 / M Sq

Variable Costs – Premium Product $16.20 / M Sq


11


12

Basic Product:

Minimum Order Base Line Selling Price Non Cumulative Quantity Discount

500 M Sq $26.31 / M Sq $49.99 / M Sq

1000 M Sq $20.28 / M Sq $39.99 / M Sq $24,995 – $39,989 = 2%

2000 M Sq $17.26 / M Sq $34.99 / M Sq 39,990 + = 4%

Premium Product:

Minimum Order Base Line Selling Price Non Cumulative Quantity Discount

500 M Sq $28.25 / M Sq $59.99 / M Sq

1000 M Sq $22.23 / M Sq $44.99 / M Sq $29,995 ‐ $44,990 =2.5%

2000 M Sq $19.21 / M Sq $39.99 / M Sq $44, 989 + = 4.5%

Appendix 1A Contingeny Pricing – Basic Product

Minimum Order Base Line Selling Price

500 M Sq $26.31 / M Sq $34.99 / M Sq

1000 M Sq $20.28 / M Sq $29.99 / M Sq

2000 M Sq $17.26 / M Sq $24.99 / M Sq

Case Study #2

Business

Transcript of Case Study #2