1. Curled Metal Products, Inc.
Jennifer Phillips

2. Economic Environment Early 1990’s Economy emerging from recession
Slow growth

3. Curled Metal Products, Inc.
Producer of engine parts for auto industry
Auto industry in recession
Sales had dropped 10% from 1991 to 1992
Net income had decreased 39% during that time
New product developed by engineering department
Cushion pad used in driving piles
Able to use same manufacturing technology

4. Pile Driving Industry Used wood blocks or asbestos as pads
Inefficient and unsafe
Three segments
Segment 1: 20% of market; pile driving contractors with jobs scheduled far into future; own about 20 rigs apiece
Segment 2: 30% of market; large general contractors; usually own a pile driver for larger projects and use own employees
Segment 3: 30% of market; small general contractors; rent equipment as needed and hire pile driving crews

5. Testing the Product
Convinced Colerick Foundations to test the pads on a papermill expansion
CMP pads drove piles 33% faster than asbestos
Eliminated downtime for changeover

6. Issues How should CMP price the pads? How should CMP market the pads?
Use existing equipment or
Purchase $50,000 new tooling
How should CMP market the pads?
Target which segments
Distribution channels

7. Determining Price Costs Competitive products Customer Demand
Cost-plus pricing based on total costs
Achieve desired 45% gross margin
Competitive products
Adding value to CMP pads
Time-saving qualities
Safety
Efficiency
Customer Demand
No statistical data available
Research did indicate that average job was 10,000 feet with 345 million feet of piles driven each year

8. Existing Tooling and Equipment Estimated with Purchase of
Cost Assumptions
Estimate per Pad with
Existing Tooling and Equipment
Variable Costs
Material
$15.64
Labor
28.80
Total
44.44
Fixed Factory Overhead
@ 360% of direct labor
103.68
Total Manufacturing cost
$148.12
Estimated with Purchase of
$50,000 of New Tooling
Variable Costs
Material
$15.64
Labor
11.64
Total
27.28
Fixed Factory Overhead
@ 360% of direct labor
41.90
Total Manufacturing cost
$69.18
Additional capacity of 3,000 pads per year can be added at a cost of $75,000 for additional equipment and tooling.
Total cost reduction of about 53%

9. Marketing Assumptions
No manufacturers dominating business
No structure to distribution
Dealers and renters of hammers provided pads
Heavy construction supply houses sold them
Pile manufacturers offered them
Pads were a necessary part of business
Asbestos pads were priced at $2 to $3 each

10. Analysis

11. Price is based on desired 45% gross margin

12. Results from Colerick TestX
Table A

13. Results from Colerick Test
Lowest possible price to cover costs and still obtain 45% gross margin
Table A 13

14. Results from Colerick Test
Theoretically, this is the highest price.
No savings are provided to customer and marketing at this price would be nearly impossible.
Table A 14

15. Recommendations

16. Set initial price at $250/pad
Results from Colerick Test
Table A

17. Invest in $50,000 New Tooling Maintain 3,000 pad capacity initially
Over 60% higher profit by investing in new tooling. Achieve 65% gross margin

18. Marketing Strategy Get a Patent Target mostly Segments 1 and 2
Usually own equipment
Segment 3 rented equipment; pads provided by rental company
Buy from supply companies

19. Distribution Channel
Find representatives that sell to supply houses and distributors of materials
Offer commission of 1.5% for each set of 6 pads sold
Offer distributors an initial 15% discount for first order of 50 pads
Keep avenues open for direct sales to contractors
Sell on benefits of product
Safer than asbestos
More efficient
Saves substantial amount of time
Less time for each job = more jobs
Representatives and distributors will have to know of these qualities

20. At end of Year 1, determine whether additional capacity is necessary.

21. Sources
Norton, R. “The U.S. Economy Begins to Crawl From the Mire.” Fortune Magazine. November 1, 1993.