Curled Metal Inc.

Overview: Curled Metal Inc. faces the challenge of how to introduce and price its new curled metal cushion pad in the market. The product is highly differentiated from the standard micarta slabs and phenolic plastic pads used in 2008. This gives Curled Metal Inc. a strategic advantage since the company can capture a higher willingness to pay for the superior product while entering the market as a first mover. Competition in the cushion pad industry is mild after evaluating Porter’s Five Forces. Barriers to entry are low and there is no internal rivalry amongst the “small, anonymous job shops” in the market. Cushion pads are a complement good to a high demand service (pile driving) and there are no available substitutes for cushion pads. Customers will be willing to pay more than the $9 market price ^[a]for these in-demand cushion pads because of the many benefits they offer. These company, competition, and consumer conditions put Curled Metal Inc. in a prime position to enter the cushion pad market.
        Market size is 19,500 – 26,000 hammers owned and leased in the US. These hammers collectively drive 290 – 390 million feet of piles each year. Assuming a set of curled metal cushion pads drives 10,000 feet, the market would allow for the sale of 29,000 – 39,000 sets each year. The company should target both hammer owners and lessees (as well as hammer manufacturers and renting companies) because all groups receive the same benefits from using the curled metal product, namely improved performance and higher ease of use. These benefits should clearly be positioned in such a way that curled metal cushion pads offer superior pile driving performance amongst competing pads because the innovative metal technology is stronger, lasts longer, and improves ease of use.

Product: CMI has developed a new cushion pad for the pile driving industry. Cushion pads are used to protect the hammer and pile from wear and tear. CMI cushion pad is made from curled metal that lends it more resiliency and in turn comparative advantage against other substitutes.

Pricing: Pricing analysis was conducted using 2 approaches – traditional profit markup on cost and EVC. We also recommend investing in permanent tooling equipment as quick breakeven calculation shows that Curled Metal needs to sell only 633 units to achieve breakeven. We propose that CMI start with just one size (11.5 inch) and later introduce other sizes. Using the traditional profit markup approach, and applying profit margin of 50% of selling price on base production cost of $207.50(assuming new equipment purchased), we get a price per CMI cushion pad of $415 or $2490 for the set of 6 pads. However, this acts as a lower bound and EVC approach was used to compute an upper bound for the price. Using total spend on pads of $3000 from Kendrick’s project as reference price, we focus on the differentiating value that CMI cushion pad offers over other substitutes available in the market. On Kendrick’s project, conventional pads took 400 minutes to change compared to 4 minutes for CMI pads. CMI pads were also 33% more efficient and led to savings of 24 hours in driving piles. This leads to combined savings of 30.6 hours (24 + 396/60). Given labor costs of $132/hour, the time savings translate to $4039.2 in labor costs. So, using EVC we get the price of 3000 + 4039.2 = $7039.20 for a set of 6 CMI pads. However, as the product is sold through a distribution network, we might have to incorporate their margins in the CMI pricing. We recommend that CMI price its pads around $4950, which gives them a profit margin of 75% and also transfers value to end customers after taking out margins of other players in the supply chain. With this price and production capacity of 250 pads per month, CMI would be able to make $1.8M in gross profits in its first year.

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