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 comparison between all alternatives we concluded that EVC was the best pricing method. This method takes into account the real value to the customer according to which CMI should price each pad at $2,150. Implementation plan: CMI will focus on 11 1/2” pads and initially target independent construction companies and independent pile-driving contractors. These are most price sensitive and accessible. This move will provide CMI time to learn the market and perfect its production line in preparation for supplying larger project developers in the future. CMI will position its pads as a new industry standard while stressing their cost-efficiency and superior performance. It will also advertise in magazines and collaborate with professionals and academics to conduct further testing and publish results. Contingencies: plans regarding potential economic distress, product defects, unfavorable market reception, and alternative distribution channels will be discussed.
I. Situation Analysis
Company: CMI specialized in metal equipment production and experienced a decrease in net sales between 2006 and 2007. The company dominated the exhaust seal market (in auto industry) with its Slip-Seal product capturing 80% market share. Due to shrinking sales and uncertainty regarding market share, management was looking to reduce dependency and diversify its product line. Product: CMI discovered a new application for its curled-metal technology and developed a high-performing cushioning pad for the pile-driving industry. Its innovative pads were far more resilient to heat and lasted longer compared to other available alternatives (micarta slabs and plastic pads). CMI’s pads could potentially shorten the drive-piling process by up to 33% hence reducing expenses. Customers: CMI identified several potential segments that influence the market. Three of these segments – architectural/consulting engineers, soil consultants, and pile hammer manufactures - were not typically direct customers, but were key influencers whose endorsement could bare significant benefits. The former two were particularly important because they held the ultimate authority and could specifically request for CMI pads. Additional segments included direct customers such as large engineering /construction contractors who offered an opportunity for high revenues but were managerially sophisticated and small price sensitive pile-driving constructors who also held potential for high revenue and were more easily accessible. Pile hammer distributing and renting companies, on the other hand, were interested in long-term rental agreements and were therefore likely to resist CMI’s time-efficient pads (at least as long as curled pads did not become an industry standard). Competitors: At the time there were no other curled-metal pads in the market, and conventional pads produced by smaller manufacturers were sold unbranded. CMI’s niche-specific high-performing pads were, therefore, first-to-market in what could be considered a new product category. The lack of patent protection and low entry barriers, however, raised concerns regarding potential imitation. Channels: Despite playing a key role in the pile-driving processes, distribution was considered...