Curled Metal Inc.—Engineered Products Division Case Solution
It is expected that Corey Company incurs less cost per unit as compared to the Kendrick as cost per job for Corey Company is $ 3.67 under CMI and for Conventional, it was 4.96. Hence, the management of the Corey Company could charge extra profit margin as compared to the Kendrick Company. On the other hand,if both companies would charge 20% profit margin, then the selling price would be $219 for Kendrick and $176 for Corey, which shows that there is a huge difference between the selling prices of both companies for CMI under the same ratio of profit margin.
| Without new equipment | ||
| Price per 11 1/2 inches pad | $444 | |
| Average Potential demand for CMI pads monthly | 3,413 | |
| Total cost monthly | $1,515,372 | |
| Selling Price | Low-end price | High-end price |
| $500 | $1,200 | |
| Net sale | $1,706,500 | $4,095,600 |
| Gross profit | $191,128 | $2,580,228 |
| Contribution Margin | 11% | 63% |
| With equipment cost $750000 | ||
| Price per 11 1/2 inches pad | $208 | |
| Depreciation | $5 | |
| Cost per pad | $213 | |
| Average Potential demand for CMI pads monthly | 3,413 | |
| Total cost monthly | $726969 | |
| Selling price | Low-end price | High-end price |
| $500 | $1,200 | |
| Net sale | $1,706,500 | $4,095,600 |
| Gross profit | $979531 | $3,368631 |
| Contribution | 57% | 82% |
| Margin |
It is expected that the value of the contribution under new equipment is significantly greater under both low-end price and high-end price, but total market capitalization under each scenario is considered as $3413 million which expected market potential of sales of the company. Therefore, using manufacturing procedures under new equipment will maximize the financial wealth of the company by maximizing the contribution and profit margin of the company.
Part 2
| Pricing analysis | |||
| Size of cushioning Pad | cost of production with purchased equipment of $150000 | Price of cushioning pads | Price for single pad |
| 11.5 in | $207.54 | $2,500.00 | $12 |
| 14 in | $272.16 | $3,000.00 | $11 |
| 17.5 in | $396.96 | $3,500.00 | $9 |
| 19.75 In | $493.08 | $4,000.00 | $8 |
| 23 In | $581.34 | $4,500.00 | $8 |
| 30 in | $1,061.10 | $5,000.00 | $5 |
It is expected that the price per single pad varies from $5 to $12 for different size of cushioning pads and cost of production is also different for each pad. The cost of production of pad of size 11.5 under CMI is low as compared to the prize per pad under conventional method. However, the sales of the pad are decreasing continuously, therefore increase in price would result in further decrease in sales therefore $12 price per pad would be suitable for new CMI pads. It is necessary for the CMI to charge approximately $3000-$4000 per pad if the company wants to start skimming and also reduce the price later on. On the other hand, if the company wishes to achieve a higher market share in the market thenit is necessary for the company to charge approximately $1000 for per pads. It is recommended to the company to in crease the prices of its 11.5-inch pads which would help in gaining the profit in the market as well as higher the production cost.
Marketing Potential
| Data | ||||||
| total requirement= 290-390 million feet of piles to be driven | ||||||
| one set of curled metal pads- 10000 feet ] | ||||||
| one set of curled metal pads= 4 initially installed, plus two added | ||||||
| market requirement = 29000-39000 sets of curled metal pads | ||||||
| i.e 174000-234000 curled metal pads | ||||||
| market value=$121.8-$163.8 m ( $700 per pad) | ||||||
| Average number of conventional pads required 290 to 360 | |||||
| Market potential | |||||
| Potential demand for pads monthly | 17063 | ||||
| estimated percent demand of market | 20% | ||||
| Potential demand for CMI pads monthly | 3413 | ||||
The potential market for new CMI pads is too big. After evaluating the entire performance of the CMI pads, it is estimated that the potential demand for CMI pads is 3413 which shows that the performance of the CMI product is more efficient than the conventional pads. After calculating the prices values, it is evaluated that the curled metal manufacturing process allows any diameter to be produced from the same band of curled metal. The analysis also shows that the conventional pads has more potentials than the CMI and have 10x longer life than the conventional pads. The cushion pad contains no hazardous material and increase the driving time by 33%.
CMI TARGET MARKET
The target market of the CMI is contractors who compete on a revenue per foot basis. The main advantage of the CMI is that it talks freely with other members but does not reveal competitive secrets. According to the research, it is evaluated that approximately 25% of contractors rent their equipment, and almost 75% own their equipment.
STRATEGIC AND MARKETING OBJECTIVES
The strategic objective of the company is to achieve high profit margins by pricing the right products while, creating a dominate market share in the market. Moreover, the company used the capital investment, production and distribution strategy for its product. The company also protects the IPR for its CMI pads by filing copyrights if possible. However, the company uses advertising positioning and promotion strategies for its products which would help the company in achieving the customer's attention towards the products.
The marketing objective of the company is to promote its industry magazines like Oklahoma contractors which would help the company in promoting its products to the customers with great features. In order to endorse the product in the market, the management team should get Professor Stephen into the company who will be responsible for maintaining the market position of the company as well as take caring the market potential of the company. Moreover, it is necessary for the company to maintain independent pile-driving of the contractors. The soil consultants and consulting engineers should have a significant role in the buying decision process. In addition to this, the company has several options available for marketing its CMI pads. Therefore, it is necessary for the company to drive its sales to the current distributors which would help the company in maintaining its sales force as well as improves the purchasing decision-making process.
MARKETING MIX AND MARKETING STRATEGY
Price
It is necessary for the company to implement the product differentiation strategy for its product which would help the company in achieving its financial growth in the market. The CMI cushion pads reduce the downtime making them a work saving tool. No hazardous materials are associated with the CMI cushion pads as well as significant cost saving while using CMI pads. The price objective of the company is to increase the profit margin as well as maximize the quantity of the product. It is recommended to the company to use the cost plus pricing strategy for its new CMI pads which would help the company in setting the price of the product as well as set a certain..............
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