There has been a decline of sales in the year 2007 of around 9% Also, there has been decline in net income per share
For reference:-
They have now developed a new product (curled metal pile driver pads) that, in field tests, delivers customer benefits that are many times CMI's manufacturing costs. Joseph Fernandez and Rajiv Sanwal of CMI's Engineered Products Division are responsible for formulating a strategy for the new product. A key issue is the price to charge for the pads. The case raises issues of analyzing market potential, aligning price with business strategy, and the implications of a price on development and execution of integrated strategic options.
SWOT ANALYSIS
MARKETING STRATEGIES
Promotion to educate prospective customers and raise awareness about the cost benefit analysis. Seminar: to make people aware Potential buyers: o Independent Pile driving contractors o Pile hammer distributing/renting companies Give free first set of pads Sales Representative:: To educate customers about cost saving of CMI pads and potential dangers of asbestos Building and Promoting brand name o Important in promoting the diffusion of the product in marketplace Word of mouth: Key influencers to endorse the product Pile hammer manufacturers o To influence recommendations Advertisement [Magazine/Newspaper/TV ads] o Effective advertisement in business magazines to target undecided market imitations from competititors struggle to find responsible contractors to use the product no manufacturers currently dominating the market construction personnel are still wary about the product Decreasing Sales Unprecendeted Market No established channels of distributions Experience in curved metal technology Can make any size with same raw material S W T O o Publish test results in magazine & Newspaper WTP AND NET PROFIT ANALYSIS
Potential Market Demand (1 Year) Range 290 Million to 390 Million Feet of piles driven 1 set of Curled Metal pads would drive approx. 10000 feet Potential market for CMI sets Ranges between = 29000 to 39000 1 set requires (4 initially installed pads + 2 added later) 6 CMI pads. Potential market for CMI Pads = 174000 to 234000 (Avg. 204000) pads annually. Although there is a demand of 174000 to 234000 pads annually, the estimated volume of cushion pads is 250 per month i.e. 250 * 12 = 3000 per year Considering only 11.5 inch cushion pad selling
Estimates per pad with existing equipment Estimated with purchase of $150,000 of permanent tooling Sizes (Inches) 11.5 11.5 Total Manufacturing Cost 444.36 207.55 Total Cost for 3000 pads 1333080.00 622656.00 Price @ 40% 622.10 290.57 Total Revenue @ 40% for 3000 units 1866312.00 871718.40 Net Profit @ 40% 533232.00 249062.40 Price @ 50% 666.54 311.33 Total Revenue @ 50% for 3000 units 1999620.00 933984.00 Net Profit @ 50% 666540.00 311328.00 WTP Considering Labor hrs saved per pad 1195.20 1195.20 Total Revenue by WTP with time saved benefits 3585600.00 3585600.00 Net Profit with time saved benefits 2252520.00 2962944.00
** Detailed calculation of WTP and Net Profit for all sizes of cushion pads is explained in attached excel sheet. CMI.xlsx
WHY THERE IS A DIFFERENCE BETWEEN WTP AND REAL PRICE
Relatively new product in the market and will take some time to establish trust factor. CMI wish to take conservative way so as to decrease risks. Presence of various players like, Pile Hammer Manufacturers, Architectural engineers, soil consultants etc would play a huge role in influencing end users. CMIs strategy is to capture highest market share. There is no brand recognition in the industry. Unprecedented market. No established channels of distribution.