Case Analysis Cumberland

About
Cumberland Metal Industries (CMI) is one of the largest manufacturers of curled metal
products in the country. CMI typically sells products which are used as raw materials in
other products. The company has also been recognized in developing and
manufacturing sophisticated products in highly technical applications, traditionally in the
automotive sector. One of CMIs products known as Slip Seal, has been carrying the
company for many years as the market leader. CMI, however, decided to diversify their
product line. In 1980, Robert Minicucci, Vice President of the Engineered Products
Division of CMI and Thomas Simpson, Group Manager of the Mechanical Products
Group were reviewing a new product, CMI cushion pad, the company was planning to
introduce.
Problem Definition
Cumberland is faced with a few issues which they need to make a decision about. The
company needs to consider several marketing decisions starting with price. They must
determine a method for pricing and ultimately a price for the new metal pads. Secondly,
Cumberland must decide which market they should target based on the pricing strategy
they will follow and how will they reach the various purchase influences.
Situation Analysis
SWOT
Cumberland has many strengths, one being that is a very successful and well known
manufacturer. The reason why the company has a competitive advantage over its
competitors is because the product is exceptionally better than the conventional cushion
pads. The product is more efficient than its competitor Asbestos. CMIs cushion pads
lasted the entire job which eliminated the downtime required for changeover. In addition,
with Asbestos pads, workers often had to handle superheated pads; the average
temperature for the pads was between 600-700 degrees Fahrenheit. This was a safety
hazard for the workers. CMIs pads, on the other hand, never exceeded 250 degrees
Fahrenheit and could be handled almost immediately with protective gloves.
Furthermore, CMI pads accounted for a 33% faster driving time, which translated into
significant cost savings.
Following the strengths are the weaknesses of CMI. Cumberland was uncertain about
the consistency in the performances of its curled metal pads in different sizes other than
that of 11 inches. Also, CMI lacked sufficient information and knowledge of the size of
the potential market for curled metal pads in different sizes. As a result, CMI had issues
in developing effective pricing and marketing/promotional strategies for its new
products. By not having a strong pricing and marketing strategy, CMI was unable to
effectively design the sales mix for various sizes of its curled metal pads for maximizing
future profits and market share.
One of the opportunities associated with CMI introducing a new product is the health
scares. There are health dangers with the asbestos cushion pads which influenced
people to find pads that dont contain asbestos in it. Thats where CMI has developed a
competitive advantage.
One of the threats for CMI was that the barriers to entry into the pile cushion market
were high. The primary barrier was that were consumers viewed the cushion pads as a
necessary accessory or a tangent item rather than a potentially value added or cost
reducing part of pile driving. In order to penetrate the market, CMI must change the
perception of opinion leaders, contractors, and engineering firms who are involved in
the decision making process. Another threat is that although there are no competitors
right now, new entrants can easily replicate CMIs products with a better value
proposition therefore, CMI must be careful of future competitors.
Alternatives
There are several pricing options which CMI can follow.
1) Cost Oriented Price: General Markup
The first alternative involves selecting a general markup price where a specific
margin is reached. Since the corporation required a margin of 45% and the
breakeven production over one year is $565.08 an appropriate selling price
would be 1.45*$565.08= $819.366. Assuming that the retailers and distributers
want a 30% margin, the retail price would be 1,065.18 or 6.46 cents per pile foot
driven. This is an expensive alternative; however, the advantage is that it fulfills
the companys requirement of a 45% margin, easy to calculate and it still
competes well with asbestos pads. This pricing method also does not consider
the value added benefits or efficient cost savings therefore, the company cant
charge a premium price.

2) Compete with Asbestos
CMI has the option to compete directly with Asbestos on a price per foot basis. In
this case, a single set of CMI pads is the equivalent to the retail price-per-foot as
Asbestos pads. Thus, assuming a 30% markup, the pads will wholesale for
$769.23. Even though is this alternative is $50 less than the 45% markup for
Cumberland, the company can compete on price-per-foot basis. This approach
would be best suited if the company wants to follow an extensive market
penetration strategy. Since the price of the pads are the same as Asbestos,
Cumberland just needs to convince consumers of the value added benefits of
their product such as cost effectiveness and safety advantages.
3) Value Oriented Pricing
The third alternative is to use Value Oriented Pricing. Its important to look at the
Colerick and Fazio tests.


Its important to find the time efficiency and the total time saved. The value added
price would be $1270.
Recommendation
The value-based pricing is best alternative because it looks at the demand.
Channel/Distribution
Cumberland should market the CMI pads through a push strategy. Also they should
focus on the educating their consumers about their product benefits. Therefore, they
should market directly to contractors and engineering firms by educating them on the
safety and efficiency benefits. CMI should use price penetration to build their market
share.