Cumberland Metal

Industries
Mr. Haidar Alam, AGMPBL0921043

Ms. Priyanka Nemade, AGMPBL0921090

Mr. Dipen Sharma, AGMP BL0921034

Case Overview
 Cumberland Metal Industries (CMI) - One of the largest manufacturers of
curled metal products in the country.

 Sales increased 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.
New product – Cushion pads for pile drivers
 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 (Proved by test
results from Colerick Foundation Company and Fazio Construction).

 The curled metal pads lasted longer then asbestos pads and were easier to
change.

 Furthermore, the growing concern over the health risks associated asbestos
gave CMI's pads an added advantage.
Issues involved
How to price the product?

How to market the product and reach the various

purchase influences?
Setting the price
(Basis: Colerick test)
 To determine the total economic exchange value, the reference value and the
differential value have to be identified.

 As per Colerick Test: The job required 300 piles, driven 50 feet into the
ground, 480 asbestos pads were used (Page 3). The costs for a typical 11 ½ inch
pad set is at $50. Asbestos pads worth $1000 were used (20 pad sets).

 In contrast only 6 pads (= 1 set) of CMI were required. Hence the reference
price for the new CMI pad set is at $166.67 (= $1000/6sets).
Pricing considerations contd....
 In the next step we have to identify all factors that differentiate the new product from
the asbestos pad. Obviously the CMI pad lasts about 80 times longer than the
asbestos one, but that advantage has been mentioned at the reference value.

 Speed factor: We see that CMI’s pads work faster. Using the CMI pads, we can drive
200ft./hr (with asbestos only 150ft./hr can be driven) which makes them 33% faster .

 To do the job with asbestos pads, 400 mins were needed (20 set changes x 20 mins
each).
In total 15000 ft. (=300 piles x 50 ft.) were driven into the ground. Using the asbestos
pads with it took them 100 hrs. i.e. 6000 mins (@150ft./hr) to do the task. To sum
this up it took about 6400 mins (=400+ 6000) to end the job.

 In contrast the CMI pads only required 4 mins for one set change. Here also 15000 ft.
were driven into the ground. But using CMI pads, it only took 75 hrs i.e. 4500 mins
(@ 200ft./hr). That makes a total work time of 4504 mins i.e. 1896 mins less
(=6400-4504) which is equal to 31.6 hrs.
Assuming that contractors rent the pile-driving equipment
for $138 per hour including costs for labor, cranes and diesel
hammer (Ref: Page-4 of case), they could save $4360.80 (=
$138 x 31.6 hrs) by using 6 pads made by Cumberland Metal
Industries.

That leads to a differential value of $726.80 per pad (=

$4360.80/6pads).

Consequentially the total economic exchange value compared

to asbestos pads is $893.47 (= $726.80 + $166.67).

Thus the pads need to be priced for less than $893.47 to

justify its value to the customer.
Calculations on the basis of Fazio test

There is even a “Fazio”- test to determine the exchange

value of the CMI pad. We can proceed in the same
manner as we did for the Colerick Test.

In this case we get a higher exchange value of $1272.44.

That leads from a higher reference value of $400 and a
higher differential value of $872.44.
Pricing Decision
The management expects a contribution margin of at
least 40% of selling price.

If CMI purchases permanent tooling for the 11 ½ inch

pads for $50000, the marginal manufacturing costs
would be at $69.18 (Page 8 of case).

Adding the margin of 40% of selling price, the bottom

border price would be $115.30.
Conclusion
Regarding to the points already mentioned, the price should be between $115.30 and
$893.47 or $1272.44. To take a conservative view on it, $893.47 should be taken as
ceiling price.

Considering the price for an asbestos pad set, which is at $50, a considerably high
priced cushion pad may deter the customers from buying the new metal pads. To
persuade them to buy CMI’s pads, good marketing tools and distribution channels
will be necessary.

By this, all advantages even those non-monetary ones like health or the weight, can
be communicated and the real value of the revolutionary product can be delivered
to the costumer.

We assume that the company would get the new pad patent-protected. This would
keep competitors outside the market and a great market share would be the result
even if the pads are priced closer to the lower border price (say $350/pad).
Selling CMI pads
Purchasers Influencers
Independent pile-driving contractors (Cost Architectural/consulting engineers
saving)
Engineering/construction contractors (Large Pile Hammer Manufacturers
construction projects)
Pile hammer distributing/renting companies
Louisiana Contractor Magazine
"Piletalk“ seminars
Professor R. Stephen McCormack
Major steps & challenges
Architectural/consulting engineers are the most vital influencers
because of their expertise - Considered Ultimate Authority
Convince them by expounding pad’s superior capabilities

CMI may find it a challenge to convince the rental companies because

the overall rental time would be reduced thus reducing their operating
profits.
Rental agency could actually take advantage of the faster turnaround,
allowing them to supply the same number of contractors with fewer pile
drivers

Another group that may wish CMI to fail is organized labour since the
new pads reduce the time necessary for pile driving thus saving on
labour costs. May result in less frequent work for the construction labour
or more layoffs.
CMI should contact labour leaders and push the health benefits of their
pads over asbestos.
Major steps & challenges contd...
Very few existing market channels for CMI to advertise or
develop consumer awareness apart from the purchasers
and influencers

Word-of-mouth communication may not be very effective

Construction-oriented magazines such as Louisiana

Contractor, "Piletalk" seminars and Professor R. Stephen
McCormack are other channels they can pursue

The distribution structure for cushion pads has not been

well established either with no current market leader
Recommendations
CMI should take advantage of the existing networks to distribute their
pads rather than 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. They should highlight
the following:-
 Cost savings benefit of the curled metal pads
 The potential dangers of the asbestos pads
 The CMI brand

CMI should also present the quantitative analysis of cost savings

experienced by the two experiments with Colerick and Fazio to all
potential customers

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
Thank You