Cumberland Metal Industry Case Study
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Cumberland Metal faced a challenge where they didn’t know what to price their new product, the cushion pads. The pads are primarily there to help contractors drive piles faster. Since they are new to the market, CMI should use the perceived value pricing to price the new product and apply marketing mix consisting of advertising, place, and people.
Perceived Value Pricing
Cumberland Metal Industry (CMI) should set the objective to be a monopoly business and maximize their profits. To become a monopolistic company, they need to get a patent to make sure that their idea it is not being copied by others. Since this new product, the cushion is easy to be copied it is crucial that CMI gets a patent.
CMI pads last longer than an Asbestos by 10 times and the performance increases by 20%. Therefore, when looking to advertise this new product, CMI needs to focus on speed and efficiency because that is what customers are looking for. When we look at the first test, The Colerick Test they spent $1440 for 480 asbestos pads while on the other hand used 6 CMI pads for the same exact job. The CMI pads were worth $240 of the asbestos pads. Time was also saved by using CMI pads in this test. 420 minutes was spent driving, and changing the pads with asbestos where CMI spent 19 minutes with a total of 6 hours and 41 minutes saved. CMI is worth a total of $263.39. They could advertise the total cost to $264 per each pad and show that it is well worth the money and time.
Therefore, CMI should make the decision of purchasing the $50,000 of permanent tooling,
because it will reduce the cost by $78.82 for the use of a popular 11½ inch pad. In the next three months, they can receive the money that they invested in the beginning. ($69.18 * 250 each month = $17,295. $50,000/$17,295 = 2.89 months) The cost of manufacturing the 11 ½ inch pad with the new tooling is $69.18/pad. A 50% contributing margin would $140 to satisfy the profit expectation of the management.
Marketing Mix
The first thing that CMI should do is receive a patent to protect the company from others entering the market.
Next, CMI needs to create a distribution channel that goes directly to the contractors who work or own piles because they would be the ones contributing the 50% of the market share. With having these channels, CMI employees can directly communicate with the contractors to educate their clients