1. 1. Curled Metal Inc. Case Study
2. 2. WHAT SHOULD A CUSTOMER BE WILLING TO PAY FOR ONE OF CURLED METAL INCORPORATEDS (CMI) NEW CUSHION PADS? WHAT FACTORS ARE RELEVANT IN CALCULATING WILLINGNESS TO PAY IN THIS SITUATION? Question 1
3. 3. Factors to be considered
4. 4. WHAT PRICE SHOULD CMI SET FOR ONE OF ITS NEW CUSHION PADS? WHY? Question 2
5. 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 Total 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. 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. 7. HOW BIG IS THE POTENTIAL MARKET FOR THIS PRODUCT, AND WHAT SHOULD BE CMIS STRATEGIC AND MARKETING OBJECTIVES IN INTRODUCING THIS PRODUCT? Question 3
8. 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. 9. 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 (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
10. 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 COMPANYS 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. 11. Launch of CMI Pads Selecting a pricing strategy Setting Prices for CMI Pads Positioning the Product Promotional Strategy
12. 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. 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. 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. 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. 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. 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. 18. THANK YOU