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CURLED METAL INC –

ENGINEERING PRODUCTS DIVISION


Q1 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? Please come to class with a
specific monetary estimate of customer value in this
situation.

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Relevant Factors for Pricing
• Reduces the downtime required for the changeover

• Heats up lesser, makes operation safer

• Faster pile driving time (25% – 33%)

• No hazardous materials used

• Much Longer life per set of pads

• Cost of producing the product

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Saving Minutes Required Per hour Percentage
Conventional CMI Savings 1 Micarta CMI s2
Adjusting 30 50.0%
Feet driven while at work (ft/hr) 150.0 200.0 33% 160.0 200.0 25%
Delays/ Mistakes 7 11.7%
Feet Driven per minute (ft/min) 2.5 3.3 2.7 3.3
Actual work 23 38.3%
Piles Driven per set of pads 15.0 300.0 6.0 300.0
Cost Calculation Actual Work Delays/Mistake
Number of pads per set 24.0 6.0 12.0 5.0
Number of sets required for the $ $
job 20.0 1.0 50.0 1.0 Given Cost per hour 714.00 1,148.61
Number of sets changed 20.0 1.0 50.0 1.0 Actual Total Cost per Hour $ 1,862.61
Calculations

Time required for a set change


(minutes) 20.0 4.0 20.0 4.0 Cost Savings for a 15000 ft pile driving (Reduced Changing Time)
Extra pile driving potential (ft) 53.3 53.3 $
Cost/ Set 150.0 120.0 Cost (For 100 hours) 1,86,260.87
Number of piles to be driven 300.0 300.0 300.0 300.0 $
Ft/ Pile 50.0 50.0 40.0 40.0 Time saving from pad change (hours) 6.60
Total Feet to be driven 15000.0 15000.0 12000.0 12000.0 $
Ft/ Pad 31.3 2500.0 20.0 2400.0 Cost savings in a 15000 ft pile driving 12,293.22
Cost per Set 3000.0 4000.0 6000.0 7500.0 $
Cost per Pad 6.3 666.7 10.0 1500.0 Cost Savings per ft pile driven 0.82
Revenue $15/ft $27/ft Average life per pad (ft) 2454.545455
Cost savings per pad (reduced changing $
Lower Limit Upper Limit time) 2,011.62
(Kendrick) (Corey)
Customer Willingness to pay
$ $
(adjusted for increased driving
666.67 1,500.00
potential per pad)
Customer Willingness to pay
(adjusted for increased driving $ $
potential per pad & Reduced 2,678.28 3,511.62
changing time)

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Q2

What price should CMI set for one of its new cushion
pads? Why? For questions 1 and 2, it is helpful to
focus on an 11.5-inch cushion pad.

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• Each pad will be priced at $1,600
Price of one CMI Pad

• Price has been determined on the basis of willingness to pay and the

total cost of ownership

• We have averaged the lower and upper limits rounded off to the

lowest hundred to maintain a consumer surplus

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Saving Minutes Required Per hour Percentage
Conventional CMI Savings 1 Micarta CMI s2
Adjusting 30 50.0%
Feet driven while at work (ft/hr) 150.0 200.0 33% 160.0 200.0 25%
Delays/ Mistakes 7 11.7%
Feet Driven per minute (ft/min) 2.5 3.3 2.7 3.3
Actual work 23 38.3%
Piles Driven per set of pads 15.0 300.0 6.0 300.0
Cost Calculation Actual Work Delays/Mistake
Number of pads per set 24.0 6.0 12.0 5.0
Number of sets required for the $ $
job 20.0 1.0 50.0 1.0 Given Cost per hour 714.00 1,148.61
Number of sets changed 20.0 1.0 50.0 1.0 Actual Total Cost per Hour $ 1,862.61
Calculations

Time required for a set change


(minutes) 20.0 4.0 20.0 4.0 Cost Savings for a 15000 ft pile driving (Reduced Changing Time)
Extra pile driving potential (ft) 53.3 53.3 $
Cost/ Set 150.0 120.0 Cost (For 100 hours) 1,86,260.87
Number of piles to be driven 300.0 300.0 300.0 300.0 $
Ft/ Pile 50.0 50.0 40.0 40.0 Time saving from pad change (hours) 6.60
Total Feet to be driven 15000.0 15000.0 12000.0 12000.0 $
Ft/ Pad 31.3 2500.0 20.0 2400.0 Cost savings in a 15000 ft pile driving 12,293.22
Cost per Set 3000.0 4000.0 6000.0 7500.0 $
Cost per Pad 6.3 666.7 10.0 1500.0 Cost Savings per ft pile driven 0.82
Revenue $15/ft $27/ft Average life per pad (ft) 2454.545455
Cost savings per pad (reduced changing $
Lower Limit Upper Limit time) 2,011.62
(Kendrick) (Corey)
Customer Willingness to pay
$ $
(adjusted for increased driving
666.67 1,500.00
potential per pad)
Customer Willingness to pay
(adjusted for increased driving $ $
potential per pad & Reduced 2,678.28 3,511.62
changing time)

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Q3

How big is the potential market for this product, and


what should be CMI’s strategic and marketing
objectives in introducing this product?

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Total Requirements
290 - 390 million feets of piles
MARKET POTENTIAL

One set of curled metal pads


10,000 feet

4 initially installed + 2 added = 6 total

Market Requirement
29,000 - 39,000 sets of curled metal pads

174,000 - 234,000 curled metal pads

Market Value
$ 278,400,000 – $ 374,400,000

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Q4 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).

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Pricing Strategy
The pricing objective is to maximize quantity and profit margins. using the cost-plus
and value based pricing methods.

Demand Estimation
In order to estimate and decide the price, the demand needs to be forecasted. Thus,
PRICING STRATEGY

- Annual estimated demand = 290 to 390 million feet


- Average number of conventional pads required = 300 million / 28 = 10.7
million (lower limit - 174000; upper limit - 234000
- Annual capacity = 250*12 = 3000

Distribution

Early Stage Post Market Development

Leverage existing distribution networks Create own distribution network


(equipment supply houses, hammer
distribution rental companies)

Prefer direct channels as they contribute Use architects and consulting engineers as
towards 50% of the market demand and an indirect channel
CMI has more control over the monitoring
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Marketing Strategy

- Educating customers and raising awareness about the benefits of CMI pads
- Leveraging the reach and personal relationships of sales representatives to
communicate the cost cutting benefits of CMI to the customers
- Propagating word of mouth marketing using influencers like pile hammer
manufacturers, or a reputed authority such as Professor Stephen McCormack
- Advertising using channels which have deep market penetration such as
magazines, newspapers and television ads

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THANK YOU!
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