Curled Metal - Case Study Essay
Case Study: Curled Metal Inc.
Situation analysis: CMI is looking to diversify its portfolio. It wants to introduce a new high performing cushion pad into the pile-driving market. CMI will initially target small engineering/construction and independent pile-driving contractors. CMI will have the first-to-market advantage, as there are currently no direct competitors for metal pads. In terms of channels, CMI would distribute its pads through manufacturing representative.
Main problem: CMI’s primary issue is figuring how price of their new product.
Alternative solutions: We studied four different alternatives: cost +, EVC, price differentiation and contingency pricing.
Chosen solution: Following a …show more content…
III. Alternative Pricing Methods
In our calculations we focused only on 11½" pad since this size was most popular and cheapest to produce.
Alternative 1: Cost+ method. We first calculated CMI’s costs to produce one pad with and without investing in new equipment and then added 40% to 50% for CMI’s margin and 30% to 40% for distributor margin. This analysis resulted in 8 price options (4 with and 4 without investing in new equipment, see Appendix 1). If CMI remains with the existing equipment, the price per pad ranges between $808.74 and $933.16. If CMI invests in new equipment, however, prices fall down and range between $377.72 and $435.83. One problem with this method is that the more CMI invested in new equipment, the more they would have to lower their price, when in effect they could charge more. In addition, this method doesn’t take in consideration the values of the new pads compared to conventional ones.
Alternative 2: EVC. The second alternative is to measure the real value to the customer by using the EVC method. We first determined the added values of CMI’s pad compared to a conventional one, then we monetized it, and finally decided the amount we were willing to leave on the table in order to make our product more attractive to the customer. We measured the EVC based on both Kendrick and Corey