Case Analysis Overview
Cumberland Metal Industries (CMI) is one of the largest metal manufacturers in the world. Thecompany evolved from selling metal as a finished product to one that used it as a raw material,increasing sales from $250,000 in 1963 to over $18,500,000 in 1979. Currently, CMI relies heavilyon SlipSeal, which is used as a high-temperature sealant in automobiles. Although CMI dominatesthe market for this product, corporate sales figures decreased over the last year. As a result, the management at CMI realized the importance of diversifying its product-line so that the company does not rely as heavily on Slip Seal or the automobile industry. With this in mind, CMI management ...view middle of the document...
Despite the sales potential of the new product, Simpson is uncertain how he should market the padsin order to reach potential influencers and customers. Furthermore, there are no precedents for advertising or promoting this product line. More importantly, Simpson must determine a price for the product, as he has promised to call Colerick Foundation Company by the end of the week.Effectively pricing these pads and following a well defined market strategy could place CMI as a perennial market leader. The successful development of the new product is especially important toCMI because the firm is facing possible financial difficulties Annual Demand and Expected sales
According to Tim Thompson’s projection and assumption, Total feet of piles of the industry will be between 29,000,000 and 39,000,000 annually. Because each unit (or set of pads) that CMI produces can last for about 10,000 driven feet, annual demand potential could span from minimum of 29,000 sets to a maximum of 39,000 sets. With the assumption that a set of curled metal pads consist of 6 pads, annual demand ranges from 174,000 pads to $234,000 pads. Breaking down monthly, monthly demand for the pad will be 14,500 to 19,500 pads. To be prudent, sales is expected to be 14500 pads.
A. Price ceiling
Economic value to the customer (EVC) is the maximum amount a customer should be willing to pay, assuming that s/he is fully informed about the benefits of the product and the offerings of competitors. To determine the price for CMI Products, EVC will be used to as a reference point to set the upper price range.
Two experiments are conducted to predict EVC of customers of curled metal pads of CMI, which is constituted by differentiation value and reference value.
i. Differentiation value
Differentiation value is determined by the value of the attribute difference between your offering and the closest substitute. In this case, we assume that the closest substitutes of curled metal pads of CMI are asbestos pads. Two experiments are conducted to derive the differentiation value.
Originally as illustrated by colerick’s experimental data, driving rate is 33% using curled metal pads comparing to using asbestos pads, which it is 25% faster for Fazio’s data. Product Manager, Tom Simpson, however feels safer pegging performance advantage at only 20%. Thus driving rate will be assumed to 20% faster than that of using asbestos pads. Such assumption will be adjusted after Curled Metal Pads are launched in the market and be derived from data of users. Based on the two assumptions, experimental results are shown below:
| Asbestos Pads | Curled Metal Pads |
Total feet driven | 300x50 = 15000 | 15000 |
Feet driven per hour | 150 | 180 |
Total driving time | 15000/150=100 hours | 83.3 hours |
| | |
Changing Time: | | |
Number of sets of pad needed | 20 | 1 |
Time required for change per set | 20 minutes | 4 |
Changing time | 20 x 20 = 400...