# Case 2: Cumberland Metal Industries

Topics: Costs, Price, Mathematics Pages: 5 (1064 words) Published: October 18, 2011
Industriële Marketing

Prof. dr. Muylle Steve

Case 2: Cumberland Metal Industries: Engineered Product Division, 1980

Group1: Team 07:
Michiels Verona
Moortgat Jonas
Moravcovà Alexandra
Mortier Nick
Seffers Raphaël

1. What is the worth of the CMI cushion pad relative to the incumbent asbestos cushion pad? Build a customer value model including value elements, word equations, assumptions, and calculations based on the test results of both Colerick and Fazio.

1. Key quantifiable value and Price elements

PRICE:
* Price of the pads ( = \$0 for both tests)
* other resources needed for the job
VALUE:
* less pads needed per set
* less time required for changing sets
* 33% faster driving time

2. Incumbent or next best alternative

Next best alternative are asbestos pads. There are also other possibilities like stacks of alternative layers of aluminum and micarta slabs.

3. Points of parity, contention and difference
4. Assess relevant points of difference

PARITY:
* same basis functionality (preventing the shock of the hammer from damaging hammer or pile + conducting the energy) CONTENTION:
* performance increase

DIFFERENCE:
* more temperature and chemical resistant
* less pads needed per set
* less sets needed per jobs
* less time required for changing sets
* performance increase with 20 %
* various metals can be used
* less weight
* lower price (for 111/2 standard pads)
* any diameter can be produced from the same band of metal * less heat production (= less energy lost and no time wasted by cooling the pads) * metal curled pads are less dangerous for health than asbestos pads

5. Word Equations

EXTRA REVENUE PER JOB (*1.20 because of 20% more performance) (revenue per foot * #ft * #piles)*increase in productivity performance Colerick: (\$5/foot*50ft*300piles)*1.20 = \$ 90 000
Fazio: (\$9/foot*40ft*300piles)*1.20 = \$ 129 600
SAVINGS OF LESS PADS PER SET => PER JOB: *10 because of 10 times longer lifetime (#less pads per set * cost of 1 pad)*#less sets needed per job Colerick: (18 pads/set*\$3/pad)*10 = \$ 540
SAVINGS TIME FOR DRIVING PILES => PER JOB
(((cost of labor of driving piles per hour) * # ft * #piles) / # more ft per hour)* increase in productivity performance Colerick: (((\$21/h+\$10/h+\$13/h)*50*300)/50)*1.20 = \$ 15 840
Fazio: (((\$21+\$10+\$13)*40*300)/40)*1.20 = \$ 15 840
DIFFERENTIAL PRICE PER SET => PER JOB: *10 because of 10 times longer lifetime (differential price per pad * # less pads per set)*10
Calculations will be made in the solution of question 2 when a price range is determined. 6. Value Placeholders

Metal curled pads are less dangerous for health than asbestos pads. They are also more temperature and chemical resistant.

7. Customer Value Model for Colerick and Fazio test

Assumptions:
1. comparison for standard 111/2 standard pads
2. Labor costs for Colerick = Labor costs for Fazio
3. Changes of sets are done by normal labor (\$6-\$8): we use average of \$7 in calculations

| Colerick| Fazio|
Extra revenue| \$ 90 000| \$ 129 600|
Savings of less pads/set| \$ 540| \$ 210|
Savings in time for driving piles| \$ 15 840| \$ 15 840|
= TOTAL VALUE| \$106 380| \$145 650|
+ differential price| See 2.| See 2.|
= Total VIU| | |

2. Based on your calculations in question 1, what is the price range CMI may consider for their cushion pads? Provide a brief rationale.

Value:
\$ 106 380 for Colerick
\$ 145 650 for Fazio
=> Average of \$ 126 015 value per job
\$ 148.12 with existing equipment
\$ 69.18 with purchase of \$ 50 000 of permanent tooling
=> average cost of \$ 108.65 per pad
Price of pads with usual profit margin of 45%:
\$ 108.65 * 1.45 = \$ 157.54...