37801-Quantitative Marketing II : Pricing Strategies
Group Assignment 1
Curled Metal Case
1) What are the core benefits of the new pile pad product for a customer? (list both qualitative factors and factors that you can quantify based on the case).
1-Feet driven per hour performance-( hourly hammer,crane ,labour ,overhead cost) 2-Piles driven per set of pads
3-Number of pads used for each set
4-Time required per change of a set-( hourly hammer,crane ,labour ,overhead cost)
1-Inadequate pads have risk of cracking the pile
2-Most of pads are unbranded
3-There is no real way of distribution, manufacturers offer heavy supply houses carry 4-Distibutors have low absolute amount of margin in pads
5-Other products are made of hazardous materials
6-Heat hazard while the non-CMI pads are under operation
2) For those benefits that you can quantify, calculate the differentiation value of a pile pad. You should get a different number for Kendrick and Corey Construction.
In Exhibit 1 Calculation done according to the Kendrick parameters and used Exhibit 3 to calculate the cost of an hour which total system is waiting for either the replacement of pads or the time lost because of the performance of driving a pile is lower if conventional pads are used. According to the calculation performed, compared to Kendrick and Corey, CMI pads have a differentiation value of $4,254 and $5,702 respectively.
3) What is the reference product? What is the total EVC for a CMI pile pad?
As the reference product the data is taken into account as shown in the Tables for Kendrick and Corey. Assumption is by disregarding the competition response(it is very innovative and totally different product), current pad cost of Kendrick and Corey should be the best alternative to use as reference. So it is basically $6.25/pad for Kendrick and $10/pad for Corey. There are two different EVC need to be calculated. For Kendrick it is $6.25+$4,254=$4,260 And for Corey it is $10+$5,702=$5.712
4) What are Curled Metals’ costs to produce pile pads? Which costs are relevant for the pricing decision? For consistency, use the smallest size pile pad and assume the manufacturing equipment improvements are profitable.
Its cost is shown in Exhibit 4.Total costs are the whole variable costs, fix overhead costs and also the improvement and manufacturing capex per unit pad . However total cost to be taken into consideration is the variable cost or in other words all the avoidable costs for pricing decision which is $81.84 with permanent tool investment.In our case it is a starting business where go-no go decision has to be taken the fixed cost has also need to be taken into consideration at that stage . By fixed cost it is not meant the factory overhead cost but rather the permanent tooling and manufacturing assets. In Exhibit 4 it is shown that with the fixed investment of $150.000 , total variable cost also goes down and also in the question mentioned manufacturing improvements are profitable. As a result for pricing decision we only take into account the material and labor costs.
5) For each customer, what is the feasible range of prices for a single pile pad: maximum and minimum prices? The price range are calculated in question number 2. The two respective price for two different customer segment is assumed to be the range for our product.Apart from the quantitative benefit there are lot of positive qualitative and social effects to be considered. Those are hazardous free material and usage of the product, distribution convenience
6) Outline at least two pricing strategies for Curled Metals. Describe the pros/cons of each strategy and recommend one of them. As part of each pricing strategy, you must address how the product will be distributed. You may want to consider strategies to price discriminate. (please use case information as basis for your recommendation).
As a pricing strategy...
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