I.

Case Analysis

Overview
Cumberland Metal Industries (CMI) is one of the largest metal manufacturers in the world. The
company evolved from selling metal as a finished product to one that used it as a raw material,
increasing sales from $250,000 in 1963 to over $18,500,000 in 1979. Currently, CMI relies heavily on
SlipSeal, which is used as a high-temperature sealant in automobiles.

Although CMI dominates the market for this product, corporate sales figures decreased over the last
year. As a result, the management at CMI realized the importance of diversifying its product-line so
that the company does not rely as heavily on SlipSeal or the automobile industry. With this in mind,
CMI management was very interested in a new product that could be used as a cushion pad in pile
driving. The cushion pads, consisting of curled metal, were superior in performance to the asbestos
pads currently used throughout the industry. The curled metal pads lasted longer than asbestos pads
and were easier to change. Furthermore, the growing concern over the health risks associated
asbestos gave CMI's pads an added advantage.

Government regulations prohibiting the use of asbestos or making them costly to handle, could push
pile drivers toward CMI's cushion pads. The prospects prompted Robert Manicucci, the vice
president of Engineered Products Division at CMI, to declare: Curled metal cushion pads seem to
have more potential than any other product we've ever introduced. A successful market
introduction could as much as double the sales of this company, as well as compensate for the
decline of some existing lines. It almost looks too good to be true.

II. Problem
Thomas Simpson, the manager of the Mechanical Products Group at CMI, was excited about this
new product as well. The pads offered CMI an opportunity to diversify its product line and increase
its sales volume. Furthermore, initial testing demonstrated the significant performance advantages
of the metal pads over asbestos pads.

Despite the sales potential of the new product, Simpson is uncertain how he should market the pads
in order to reach potential influencers and customers. Furthermore, there are no precedents for
advertising or promoting this product line. More importantly, Simpson must determine a price for
the product, as he has promised to call Colerick Foundation Company by the end of the week.

Effectively pricing these pads and following a well-defined market strategy could place CMI as a
perennial market leader. The successful development of the new product is especially important to
CMI because the firm is facing possible financial difficulties caused by slumping sales figures.
 III. Critical Issues

A. The Market for CMI Curled Metal Pads

1. How large is the market for curled metal pads? Identifying the size of the market will
help CMI establish future sales figures and cash flows from the new product.
2. Who are the influencers, channel members, and decision makers in the purchase of the
curled metal pads? Would any of these parties be interested in seeing CMI fail?
Understanding the nature of the market is vital in CMI's attempt to establish a customer
base for its cushion pads.

B. Determining the Price of CMI Curled Metal Pads

1. What is the cost to produce the pads? Should CMI invest in new tooling? Determining the
costs associated with pad production, CMI can gain a better understanding of its pricing
strategy.
2. What is the economic value of the pads to the customers? Determining the economic value
will help CMI institute an optimal pricing strategy.
3. What is the price range of the pads depending on market strategy? Estimating the price
range will help CMI develop an effective pricing and marketing strategy.
4. What is the optimal price of the curled metal pads? Why? What price should be quoted to a
potential buyer such as the Colerick Foundation? This is an important step in determining
the marketing strategy.

C. Marketing Strategy
1. Is it more important for CMI to strive for high profits or build for market share? How price
sensitive is the market? CMI must determine whether it is better to strive for high profits or
high market share. Defining market sensitivity and profit potential will help CMI make this
decision.
2. How should CMI market the pads? What is the plan for effectively reaching the proper
influencers, decision makers, and channel members? Developing a plan to reach the
potential market is a key to CMI's success.
3. Does this product reflect the needs of the customer and is it technically sound? What are the
risks associated with marketing this product?

Answering these questions is important for the long term strategy of the firm.

IV. Analysis
A. The Market for CMI Curled Metal Pads
1. How big is the market for curled metal pads The first critical issue for CMI to consider is the
market for its curled metal pads.

The company should study the market size, existing distribution channels, and competition. Thomas
Simpson, the Group Manager at CMI, had few statistics available to determine the potential U.S.
market for the cushion pads. Based on industry sources and a 1977 Construction Engineering
magazine report, he estimated that approximately 13,000 pile hammers were owned by companies
directly involved with pile driving, with another 6,500 to 13,000 leased. He also assumed that the
total of 19,500 to 26,000 hammers would operate about 30 hours per week and 25 weeks per year,
which equates to 750 hours per hammer per year.

He further assumed that most jobs would average 20 feet of pile driving per hour. According to
these figures, a range of 290 million to 390,000,000 of piles were driven annually (calculation:
26,000 hammers x 750 hours/ hammer yr x 20 ft/ hr = 390,000,000 feet/yr). He also assumed that a
total of 6 CMI pads would be required to drive 10,000 feet. Based on these numbers, the potential
market demand for pads could range between 174,000 to 234,000 per year. For example,
(390,000,000 feet/10,000 feet) x 6 pads = 234,000 pads.

In addition, CMI had tested their pads via the Colerick Foundation Company (the1st test) and Fazio
Construction (2nd test). The results bode exceptionally well for CMI. In the first test, Colerick paid
$1,000 for a total of 480 asbestos pads required (20 sets x 24 pads/set).In the second test, Fazio paid
$2,000 for their total of 600 asbestos pads. Colerick needed 6 CMI pads to do the same amount of
work and Fazio needed 5 CMI pads. Without considering savings in time, Colerick would likely be
willing to pay $1,000 for the number of CMI pads needed to drive the same amount of miles.

Therefore, if the price is $1,000 per set of pads and 6 pads are required per set, the price per pad
would be $166.67. For Fazio, where 5 curled metal pads were in a set, and the set was worth $2,000,
the price per pad would be $400. Considering a market size estimate of 174,000 to 234,000 pads per
year, at a price ranging between $166.67 a pad and $400 per pad, sales would range between
$29,000,580 and $39,000,780. At $400 per pad, sales volume would be between $69,600,000 and
$93,600,000.

The below table, Table 1, summarizes the result of this preliminary revenue calculation:

Table 1 Price per pad

Sales (low end)

Sales (high end)

$166.67

$29,000,580

$39,000,780

$400.00

$69,600,000

$93,600,000

The potential revenue, based on pricing the curled metal pads equivalent to asbestos pads, is very
encouraging when comparing the figures in Table 1 to those of the company in 1979, a year that CMI
had net sales of $18,524,428 (see Attachment 3 in the Appendix).
Assuming a price of $166.67 per pad, low-end potential sales of $29,000,580 would represent almost
1.6 times CMI's total net sales. This underscores the projections made by Robert Manicucci at a
meeting discussing the pads, where he stated that company sales could be doubled by metal pad
sales.

2. Who are the influencers, channel members, and decision makers in the purchase of the
curled metal pads? Would any of these parties be interested in seeing CMI fail?

The first step CMI must take in successfully marketing its new pads is identifying the market players.
The key industry constituents are pile manufacturers, architectural/ consulting engineers, soil
consultants, pile hammer distributing/ renting companies, engineering/ construction contractors,
and independent pile-driving contractors. Each of these players has a key characteristic CMI must be
aware of in order to tailor their marketing strategy. Although pile driver manufacturers do not
purchase a large dollar volume of cushion pads, they may be very influential in the purchase of pads
with their recommendations.

The architectural and consulting engineers are also very important purchase influencers. The pile
driver distributing and renting companies represent 25% of the market for cushion pads. However,
CMI may find it a challenge to convince the rental companies to switch over to the metal pads
because the overall rental time would be reduced by contractors who used the pads, thus reducing
the operating profits of the rental firms. The construction engineers and contractors are an
important potential purchaser of the pads and represent an opportunity for CMI to sell the pads on
large construction projects.

The independent pile-driving contractors, primarily concerned with making money, would be
interested in the metal cushion pads for their cost savings. Table 2 summarizes the purchasers of
cushion pads and their primary influencers.

Table 2

Purchasers

Independent pile-driving contractors

Engineering/ construction contractors Influencers

Architectural/ consulting engineers

Pile Manufacturers

Pile hammer distributing/renting companies

Architectural/ consulting engineers

Louisiana Contract or Magazine

Louisiana Contract or Magazine

"Piletalk" seminars Professor R. Stephen McCormack

Of all the influences listed, the architectural/consulting engineer is probably the most vital. Due to
the expertise required in determining the needs of a construction project and risks involved with
these very expensive endeavours, he is generally considered "the ultimate authority". They specify
the hammers to be used in projects and very often mention the pads. If CMI can convince them to
recommend their pads, they can be the most vital purchase influence. They can start by expounding
the pad's superior capabilities.

Aside from these purchasers and influencers, there are few existing market channels for CMI to
advertise or develop consumer awareness. There are no national industry associations or
publications that influence the pile driving business and the company is unsure how effective word-
of-mouth communication would be in their sales efforts. However, there are a few existing mediums
that CMI may be able to exploit. Construction-oriented magazines such as Louisiana Contractor
feature occasional trade advertising and Associated Pile and Fitting Corporation sponsor "Piletalk"
seminars in various cities regarding applications in pile driving.

Another purchase influence and potential asset for CMI's marketing strategy is Professor R. Stephen
McCormack, a respected authority in the industry who is familiar to many sophisticated
engineering/construction firms and consultants. His endorsement could go a long way in helping CMI
gain credibility. The distribution structure for cushion pads has not been well established either. No
manufacturers currently dominate the pad business and the existing pads in the market are mostly
unbranded, cut by small, anonymous shops from larger pieces of asbestos or micarta. The pads are
sold by heavy construction supply houses, hammer sales and rental shops, pile manufacturers, and a
variety of other outlets. The smaller pads are sold for a mere $2 to $3 each, while larger pads can sell
for as much as $10.

Although the profit margins for the distributor are considered reasonable, their total profits are
small. Furthermore, the pads are viewed merely as a necessity and are not featured as work-saving
tools. As a result, the pile-driving industry has ignored the cushion pad even though all pile drivers
use numerous sets of them on each job. The below table, Table 3, summarizes the distributors and
their main influencers.

Table 3 Distributors

Influencers Heavy Construction Supply Houses

Engineers, Magazines, "Piletalk", Professor R. Stephen McCormack Hammer Sales and Rental Shops

Pile Manufacturers

In addition to rental companies, a group that may wish to see CMI pads fail is organized labour. As
was made obvious in the two tests, CMI pads reduce the time necessary for pile driving. As a result,
the main savings are in labour costs. Reductions in labour costs will help the contractors and
engineers, but they may result in less frequent work for the construction labour or more layoffs.
Once labour figures this out, they could attempt to sabotage further testing or pressure purchasers.
Although the health concerns arising from asbestos could minimize this possibility, CMI must be
aware of the potential threat.
CMI therefore should contact labour leaders and push the health benefits of their pads over
asbestos.

B. Determining the Price of CMI Curled Metal Pads

1 What is the cost to produce the pads? Should CMI invest in new tooling?
Mr. Simpson had projected cost data developed by his manufacturing engineers. The engineers had
provided two set of data: one set using existing equipment and a second set using new permanent
tooling. As shown in Attachment 4, Part A, the cost of manufacturing using existing equipment for 11
½ inch pad is about $148.12 and the 30 inch pad is about $640.15.

As shown in Attachment 4, Part B, the cost of manufacturing has gone down by use of new
permanent tooling equipment. The cost to produce an 11 ½ inch pad is $74.78 and $359.30 for a 30
inch pad. By using this special tooling, the cost of manufacturing is reduced by 45%.

In Attachment 4, Part B, the cost for manufacturing only 250 pads per month and depreciation cost
is spread over three years. Attachment 4, Part C, reflects the cost of manufacturing more than
15,000 pads per month. Manufacturing more than 250 pads per month had additional equipment
cost of $75,000. Therefore, the manufacturing cost of the 11 ½ inch pads is $77.47 and equipment
cost is spread over three years. Based on the cost savings, CMI needs to invest in permanent tooling.

To achieve 180,000 pads per year production, CMI will need to buy 60 sets of tooling equipment,
which would cost $ 4,475,000. When this cost is spread over three years, with 180,000 units
produced annually, the fixed cost per pad will be $8.28. The actual cost of manufacturing all size

pads is shown in Attachment 4. This cost could be lower if CMI is operating in three shifts, reducing
costs by two-thirds.

2 What is the economic value of the pads to the customers?

The 1st test comparing the performance of CMI pads versus asbestos pads was done at Colerick
Foundation Company in Baltimore, MD. The job required driving 300, 55-foot piles 50 feet into the
ground, contracted at $5 per foot of pile driven. The piles were 10 inch and 14 inch steel H beams,
using 11-½ inch helmets and 11-½ inch cushion pads. The 18 pads were placed in the helmet and
driven until they lost resiliency and pads were added until a complete set of 24 were sitting in the
helmet.

The same test was done using 6 CMI pads. The result of test data is shown in Attachment 1 in the
Appendix. The test results show that a 33% higher efficiency was achieved when using CMI pads.
Asbestos pads were changed 20 times and each time it took 20 minutes to change. A total of 6.67
hrs of extra time was required throughout the job simply to change the pads. However, when the
CMI pads were used, a set of 6 pads was able to finish job without the need to change them.
In addition to the time saved in changing the pads, the curled metal pads were also more efficient,
saving the contractor a total of 31.67 hrs. As show in Attachment 1, if the savings in variable cost of
equipment, labour and overhead cost is included with the cost of the asbestos pads, the total
economic valve to the consumer value (EVC) is $8537. This figure is 30% of the total costs associated
with the asbestos pads. If the EVC is divided by the number of pads, a value of $1423 is associated
with each pad. According to this, the customer should be ready to pay approximately $1400 for one
11 ½" CMI pad.

The 2nd test was performed at Fabio Construction in New Brighton, PA. The job required 300, 45-
foot concrete piles to be driven 40 feet into ground. 12 asbestos pads were used per set, which had
to be changed 50 times during the course of the job. The same 5 CMI pads were used to finish the
full job.

As shown in Attachment 2 in the Appendix, CMI had a 25% higher efficiency then the asbestos pads,
finishing the job 15 hrs faster. Further savings occurred with the time wasted changing the asbestos
pads, a total of 17 hrs. The total time saved was 32 hrs when the CMI pads were used.

As shown in Attachment 2, if the variable cost of equipment, labour, and overhead are combined
with the cost of the asbestos pads, a total EVC for a set of pads is $9523. Therefore, the value of
each 11 ½" pad is $1,900.

3 What is the price range of the pads depending on market strategy?

The economic value for the tests involving 11 ½" pads ranged from $1400 to $1900, which
represents the maximum a customer would pay in either case. Because there is not enough data to
adequately determine whether the true value for an 11 ½" pad is $1400 or $1900, we should select
the lower of the two as the maximum price. Therefore, the upper price limit for CMI's curled metal
pad is $1400.

On the other hand, if CMI decided to price their product based only on material costs of the existing
product, the price would be closer to $167 (6 CMI pads used, $1000 worth of asbestos pads). This
results in a pricing range of $167 to $1400, with the lower price recovering fixed costs and a small
profit.

4 What is the optimal price of the curled metal pads? Why? What price should be
quoted to a potential buyer such as the Colerick Foundation?

In choosing the optimal price, CMI should take advantage of the performance and operational
benefits that its product offers. Not only are the pads more efficient and last longer, they are easier
to handle, reaching temperature that are almost three times less than those of asbestos. There was
significant savings gained by using CMI pads in both tests, ranging from 29 to 35%. Customers should
be willing to pay for these benefits, especially when presented to them in terms of their economic
value. Therefore, CMI should price the product as close as possible to the economic value for the
customer.

In pricing the pads, CMI should follow a differential pricing strategy with an effort to maximize the
amount of consumer benefit captured with the price. The differential pricing strategy would also
allow CMI to reward early purchasers and help them create relationships. It would also help CMI
negotiate distribution deals. For example, CMI could quote to the Colerick Foundation a relatively
low price of $800 per pad as a first time customer purchasing directly from CMI. Colerick will be
happy to pay this price because they are familiar with the benefits and the EVC, reducing costs by
$600 per pad.

Over time, as the market was established, distributors would be handled differently. Allowing for the
traditional 30% margin that a distributor would carry, CMI should sell to them for a price of $900 or
more. With the mark-up, the customer would pay $1,170 per 11 ½" pad. The distributor would make
$270 per pad, while the customer would realize a benefit of $230 per pad. Both of these profits are
reasonable portions of the total EVC.

CMI should estimate the price of the larger based on their size relative to the 11½" as shown in the
below table, Table 4.

Table 4 Pad Size

Price/pad 11 1/2"

$1,170 14"

$1,424 17 1/2"

$1,780 19"

$1,933 23"

$2,340 30"

$3,052

C. Marketing Strategy
1. Is it more important for CMI to strive for high profits or build for market share? How price
sensitive is the market?

CMI should pursue a marketing plan based on high profits versus gaining market share. Critical to
this strategy is the assumption that patent protection will keep substitutions from entering the
market for 3-4 years. This will protect CMI from competition that may undercut the price for the
cushion pads. The below table, Table 5, shows the profit potential from selling 11 ½" cushion pads
through each of the two strategies.
Table 5

Market Share

High Profits Price

2001400

Market Size

243,000

243,000

Market %100%25%

Total Sales

48,600,000

85,050,000

Variable Costs

70

70

Margin

31,590,000

80,797,500

Difference

49,207,500

The high profit strategy needs to obtain a mere 10% of the market in order to breakeven with the
market share strategy, in which 100% of market share is captured.

The market for cushion pads is generally not price sensitive. Although small contractors are more
money conscious then the larger firms, assuming no suitable substitutes are available, the market
will bear any price up to the point of economic value gained through the cost savings of the curled
metal pads versus the asbestos pads. This will be an effective way for CMI to view the market

in the short term. In the long term, when the patent expires, the market's price sensitivity may
increase.

2. How should CMI market the pads? What is the plan for effectively reaching the proper
influencers, decision makers, and channel members?
CMI should expect the hammer rental companies to resist promoting the curled metal pads due to
the decreased time in equipment rentals. With 75% of all pile drivers owned rather than rented,
these manufacturers deal with a majority of the pile driver users. Therefore, CMI should focus on the
manufacturers' representatives that sell directly to the supply houses and distributors as the primary
distribution channel. In the short term, CMI should take advantage of the existing networks to
distribute their pads rather then start from scratch with their own direct distribution.

The manufacturers' representatives should be trained by a small CMI sales team on how to market
the cushion pads. The focus of the training should be the cost savings benefit of the curled metal
pads, the potential dangers of the asbestos pads, and the CMI brand and product name. The pads
currently in use are generic and not marketed or branded. Establishing a product name is important
in promoting the diffusion of the product in the marketplace.

Although word of mouth is difficult to measure, a branded product can be asked for by name and
referred to by contractors and engineers. When the market develops, CMI may consider setting up
its own distribution networks as a way to gain more of the EVC.

A more sophisticated marketing strategy is necessary to reach the architectural and consulting
engineers. This group is critical because of their influence over the engineering and construction
contractors that work on large projects and are most likely to purchase pads from heavy
construction supply houses. Print advertisements in magazines such as Louisiana Contractor should
be utilized to promote the name, cost savings of the new pads as well as exposing the dangers of the
asbestos pads. CMI should attend the "Piletalk" seminar sponsored by Associated Pile and Fitting
Corporation and sponsor Professor R. Stephen McCormack of Pennsylvania A"M to present on his
research regarding the CMI pads.

CMI should also present on the cost savings experienced by the two experiments with Colerick and
Fazio. This would also be a good venue to increase the awareness of the health issues associated
with asbestos. Even with the print ads and the "Piletalk" seminar the opportunity for promotion is
limited. Therefore, CMI should provide a sample set of pads to the largest pile driving contractors
along with a promotional package explaining the benefits of the pads. If the experience with Colerick
and Fazio is an indicator of the reaction to the pads, the enthusiasm for the pads will spread quickly
through the pile driving industry once they initially try the pads.

To further promote the brand and establish the product in the industry, CMI should establish
relationships with the large pile manufacturing companies such as Vulcan Iron Works and begin a
national association for the pile driving industry. Currently Vulcan hammers have established
themselves as the standard with architectural engineers whom are the most influential group for the
large contractors and also influence the smaller contracting firms.
Professor McCormack should be asked to work with the organization in exchange for grants for
further research in the pile driving industry. This organization would allow CMI pads to reach a large
group of influencers and purchasers and also align the pads with the current standard in pile
hammers. While the rental companies are not the primary target for CMI pads, they are a necessary
distribution channel to reach the smaller contractors that rent pile driving equipment.

Furthermore, rental companies could actually undermine CMI's marketing efforts if they view pad
sales as threatening their bottom line. Because the CMI pads allow a contractor do the same amount
of work in less time, revenues from equipment rental could be reduced. Therefore, CMI should enter
into contract with the rental companies and sell the pads to them at a discounted price to make-up
for the loss in equipment rentals.

An agreement such as this would entice the rental companies to promote metal pads to their
renters. However, this deal means that CMI would be selling pads to rental companies at a lower
price than other distributors, which could prove risky if the differential is discovered. Consequently,
CMI must be prepared to renegotiate the deal with rental companies once the market has been
established or limit its duration.

There is another aspect that CMI could use to persuade rental companies to promote their pads.
Although the pads would lead to a reduction in equipment rental time, the rental agency could
actually take advantage of the faster turnaround, allowing them to supply the same number of
contractors with fewer pile drivers. For example, if a pile driving job would take three weeks with the
asbestos pads, the contractor would most likely rent the equipment for a month (see Table A in the
case document). This would occur because traditional rental pricing essentially gave the contractor a
free week as the same price was charged to rent for both three and four weeks.

If the CMI pads reduce the pile driving time to two weeks, the rental company could rent the same
equipment out twice in one month rather than once. Not only would the rental company not lose on
the free fourth week, they would actually be able to rent an additional unit. Therefore, they would
be able to reach the same number of consumers with less equipment.

3. Does this product reflect the needs of the customer and is it technically sound? What are the
risks associated with marketing this product?

Currently, the needs of the customer are met with the asbestos pads. Cushion pads are not
marketed, branded or probably even given much consideration; they are simply a necessity rather
than a work saver. Furthermore, the market for curled metal pads is not market driven but rather
technology driven. While the product is technically sound, as was proven by the initial two tests,
there is a risk that the industry will not try the CMI pads due to the lack of clear distribution channels
and existing attitudes towards pads.
The cost saving message of the CMI pads must penetrate the market in order for the pad to be
successful. In addition to changing this attitude, CMI must also overcome the initial shock that
customers will experience when seeing a tenfold increase in price over asbestos pads. Although it
will be challenging for CMI to change the attitude towards pads, the multi-tiered marketing strategy
outlined above should prove effective.

Another concern and potential risk for CMI is competition. In the short run, patent protection will be
effective in preventing second movers from capitalizing on the promotion and research conducted
by CMI. Assuming CMI has a patent for a time period of a few years, the threat of a new type of pad
making the curled metal pads obsolete is not an immediate threat. However, once the patent
expires, competition will be able to enter the market. Therefore, CMI must focus on building brand
recognition for its pads, developing distribution channels and gaining the trust of industry
influencers. By gaining wide spread brand acceptance of the curled metal pad, CMI will become the
standard and will gain some protection to future threats.

In addition to cornering the distribution channels and industry influencers, the firm can invest in
permanent tooling. This would decrease manufacturing costs by as much as 55% (see Attachment 4
in the Appendix). This will position the firm to deal more effectively with the price competition that
may result in the future.

V. Recommendations

The management at CMI is excited about this new product. The pads offer CMI an opportunity to
diversify its product line and increase its sales volume. In addition, initial testing demonstrated the
significant performance advantages of the metal pads over asbestos pads. Obviously, there is a
tremendous potential for this product and it could pay huge dividends for the company. To reap
these rewards, CMI must understand market for cushion pads, settle on an optimal price, and
develop a market strategy that will bring it all together.

The market and distribution network for cushion pads is not well established or defined, as cushion
pads are viewed only as a necessity. CMI must change this attitude by spreading word of its benefits
as a potential work-saver through industry influences. A large portion of their marketing efforts
should focus on architectural and consulting engineers because of their influence over the
contractors who will use the pads. Manufacturers are also important influencers, as CMI can use
their representatives to both market and sell the pads, taking advantage of their existing
relationships with 75% of pile driver users.

CMI should also utilize print advertisements in outlets such as the Louisiana Contractor and host
seminars at venues such as "Piletalk." Professor McCormack may prove a useful influencer as well.
Along with his leadership and the backing of the large manufacturing agencies, CMI could promote a
national pile driving association. This would help establish the pads as a brand name and align CMI
with the industry standard. All of this should work toward the goal of cornering the market for the
next generation cushion pad, one that not only is safer then asbestos but a tremendous cost saver.

In establishing a price for the pad, CMI should follow a high profit strategy. Potential profits are
much higher with this strategy then for one in which market share is the goal. With the tremendous
cost savings obtained by using the metal pads and absence of current competition, CMI should price
as high as possible up to the EVC. For the 11 ½" pads this would mean a price of $1170, which would
leave the customer a value of $230 per pad. However, as a first time buyer, CMI may offer Colerick a
price of only $800, while selling to distributors for $900 so they can obtain a 30% margin in selling to
contractor.