Curled

CURLED METAL INC. ENGINEERED PRODUCT DIVISION

CONTENTS

I. II. III. IV. V. VI. VII. VIII. IX. X.

Introduction Porter’s Five Forces analysis Critical analysis VRIO Framework Quantative analysis of WTP and Price of CMI Pads Factors determining willingness to pay Reasons for high difference between WTP and CMI Pad price Marketing Strategy Distribution Strategy References

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1. INTRODUCTION Curled Metal Inc. (CMI) specializes in selling metal-based products to various markets. They have managed to capture 80% of automotive market by developing a specialised product called Slip Seal which prevents exhaust gases to escape in an automobile. This has resulted in over $55 million in annual revenue. They are planning to diversify their product line so the dependency on a sole product can be minimized. In due course they have come up with a revolutionary product that is to be used in pile driving process. The introduction of the CMI Cushion Pad has the ability to change the entire industry for its consumers; some of its more prominent features include the capabilities to significantly lower labour and equipment costs, decrease the total amount of pads being used (effectively eliminating waste), and reduce environmental safety concerns amongst the workforce due to the non-toxicity of the pads’ material. The company has successfully tested the product at two sites and the results are encouraging. The two sites are Kendrick Foundation Company and Corey Construction. Kendrick Company is already looking forward to buy the product once the product is commercialised market. Now the CMI Company has to come up with a pricing strategy to successfully commercialise the product.

2. PORTER’S FIVE FORCES ANALYSIS 1. Threat of new entrants Barriers to entry: a. Economies of scale: Curled metal Inc. already owns a facility capable to manufacture the cushion pads at such scale. b. Product Differentiation: Curled metal Inc. is already having superior quality material for cushion pads and that to in variable sizes. c. Capital requirements: for a new entrant initial setup cost will be very high but curled metal Inc. is capable of such investment. d. Access to distribution channel: Uptill now there is no defined distribution channel in place.

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2. Determinants of Supplier power a. CMI purchases wire from outside and performs the flattening and curling operations. b. CMI can backward integrate to decrease the cost on raw materials. c. Switching cost may be higher for the buyer because availability of raw material at such huge scale would be difficult. 3. Threat of substitute product a. Hardwood blocks b. Alternate Aluminium plates ½ inch thick c. Micarta slabs 1 inch thick d. Phenolic plastic slabs 4. Determinants of buyer power a. Major buyer were contractors who don’t want to buy efficient cushion pads that would decrease the renting time piles driving hammers and result in loss of revenue. 5. Rivalry among existing firms a. There is no other major player who specialises in this field. b. Exit barriers is high.

3. CRITICAL ANALYSIS The CMI objective was to gain competitive advantage by differentiation strategy. Advantage (a)

Safety: Significantly reduced the possibility of heat related injury and much lighter than the others pads.

(b)

Efficiency: Cost reduction to contractors.

(c)

Eliminating downtime required for changeover

(d)

Better service life

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Product (a)Three dimensional resiliency (b)Stack of many layer could produce a shock mount, an airflow corrector/an efficient filter (c)Tightly compressed curled metal produced the Slip-deal for auto application Activities Continues R&D: It originally custom-fabricated component for chemical filtration and other highly technical applications. Subsequently, it developed a product called slip-seal to prevent the escape of very hot exhaust gases. Further, it evolved with new application for curled metal technology in driving pile. Manufacturing: To estimated production volume of 250 cushions pads per month by utilizing the manufacturing facilities which were: (a)

One existing utilized equipment

(b)

One permanent tooling cost of $150,000

Selling strategy They considered direct sales force and own distribution outlets, but eventually began to settle on signing construction-oriented manufacturer’s representative.

Problem faced by Curled Metal Inc. (CMI) (a)

Pricing decision

(b)

Channel marketing decision

(b)

Investment in manufacturing equipment

Barriers for CMI to entry (a) View point of major stakeholders The most companies viewed role of pads as a necessary accessory or tangent item instead of viewing them as a potentially value adding or cost reducing part of pile driving. In order to penetrate the market, CMI has to alter the point of view of pile

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driving pads for the opinion leaders, engineering firms and contractors involved in the decision process. (b)View point of secondary stakeholders Secondary stakeholders include pile hammer manufacturers, architectural consulting engineers, soil consultants, Pile hammer distributing & renting companies, Engineering & construction contractors and independent pile driving contractors. The workers who drive piles are also stakeholders since the current pads may be hazardous to their health due to heat related injuries and weight.

4. THE VRIO FRAMEWORK Valuable Rare YES YES

Costly to imitate YES

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Exploited by organisation YES

Competitive Implication SUSTAINABLE ADVANTAGE

5. QUANTATIVE ANALYSIS OF WTP AND PRICE OF CMI PADS Kendrick 225000 15000 15

Revenue for Kendrick Length of pile driven Revenue per foot

Conventional pads 15000 150 15 20 24 480 20 0.33 106.66

total foot driven feet driven per hour Piles driven per set of pads sets required pads per set pads required set changes time required for set change (hrs) time required to drive the piles time saved time saved assuming 20% increase in efficiency instead of 33%

Correy 324000 12000 27 CMI cushion pads 15000 200 300 1 6 6 1 0.07 75.07 31.59

Conventional pads 12000 160 6 50 12 600 50 0.33 91.65

18.96

real cost per hour

714.00

714.00

CMI cushion pads 12000 200 300 1 5 5 1 0.07 60.07 31.58 18.95

714.00

714.00

total savings

13534.58

13530.30

savings per foot total cost of all pads used cost per set cost per pad

0.90

1.13

3000.00 150.00 6.25

6000.00 120.00 10.00

maximum willingness to pay for CMI pads (1 set)

16534.58

19530.30

maximum willingness to pay for CMI pads per pad

2755.76

3906.06

price charged by CMI per pad (for distributor)

807.93

807.93

price charged by CMI per pad (for customer)

1090.70

1090.70

Difference between price per pad charged and WTP

1665.06

2815.36

Table 3.1 WTP and cost of CMI pads

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Assumption: 1. Revenue per foot of pile driven charged by Kendrick is not changed to determine maximum willingness to pay 2. 45 % contribution margin on all manufacturing costs 3. Price charged per pad = (manufacturing costs)/0.55 4. Mr.Snawal's intuition that increase in performance is 20% instead of 33% has also been incorporated.

6. FACTORS CONSIDERED WHILE DETERMINING WILLINGNESS TO PAY: 1. Average cost savings because of less time consumed by using CMI pads. Cost savings include labour, efficiency and overhead 2. Downtime occurred due to overheating of wooden blocks which does not happen with CMI pads 3. Longer lifetime of CMI pads over conventional pad 4. Is the model sustainable? 5. Time taken for competitors to emulate CMI's pads strategy. An IP protection like patent may help CMI to defer this

7. REASONS FOR HIGH DIFFERENCE BETWEEN WTP AND PRICE CHARGED BY CMI: 1. High amount of savings in time due to increased efficiency. 2. Efficiency and output increased by 33% by using CMI cushion pads. 3. Assuming that both contractors did not change their bid (revenue charged per foot) they would be willing to pass on all the benefits of time saved to CMI (supplier). 4. As there has not been much focus on cushion pads in the pile-driving industry, CMI should enter the market early and try to maintain its competitive advantage. Intellectual

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property right (IPR) protection in the form of patent may help them sustain the competitive advantage and thus increase the WTP of customers.

8. MARKETING STRATEGY

1. Target and try to convince the important influencers to endorse CMI cushion pads. These influencers could be:-

a) Architectural/ consulting engineers and soil consultants, who have a key influence in the buying decision and hence leverage expert power b) Engineering/ construction contractors who bring large value contracts c) Independent pile-driving contractors who bring large volumes contracts

2. Give free first set of pads to potential buyers like independent pile driving contractors and pile hammer distributing/renting companies

3. Get Professor Stephen McCormack of Pennsylvania A&M University to officially endorse the product.

4. Promote in industry magazines like Oklahoma Contractor and try and get a feature in the same

5. Sponsor seminars like “Piletalk” to make people aware about the product

6. Also make a partnership with Prometheus Iron Works, asking them to use the pads on their top level product can be a good marketing strategy.

7. Use word-of-mouth publicity to educate customers about the product’s benefits. The Key influencers to endorse the product could be pile hammer manufacturers, Professor Stephen McCormack, architectural engineers and contractors.

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8. Use effective advertisement in business magazines to target market, publish test results in magazine and newspapers

9. Position the product as:a) Cost effective. b) Efficient, more piles driven per set, energy used efficiently c) Easy to handle as temperature stays within 250 F d) Safe e) Reduces time for changeover

9. DISTRIBUTION STRATEGY 1. Take advantage of the existing distribution networks like Equipment Supply Houses and Hammer Distribution Rental Companies

2. The company could hire sales force and do direct selling through this in-house sales force

3. The company could also start online sales

4. Attempt to go through distributors through push method. Hire independent manufacturers’ representatives for the same

5. Sell directly to contractors, architectural and consulting engineers and engineering firms by educating them on the efficiency and safety benefits of the new CMI pads (a pull approach).

6. The company could also lobby the labour unions to push for higher safety standards and abandon the hazardous used pads and adopt CMI pads

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10. REFERENCES 1. http://www.academia.edu/6510190/Curled_Metal_Inc_-_Case_Study_Solution 2. http://prezi.com/zontqwscszzq/curled-metal-inc/

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