Curled Metal, Inc.

Case Study
What should a customer be willing to pay for one of Curled Metal Incorporated's (CMI)
new cushion pads (specific monetary estimate)? What factors are relevant in calculating
willingness to pay in this situation?

Any company should be willing to pay what they were already paying, if not a little bit
more than they were already paying, because each of the tests run, with Kendrick and Corey,
saved several thousand dollars from the reduction in time spent per set changes.

Kendrick Company should be willing to pay at least $3,000 per set based on the fact that
they are paying $3,000 already. The CMI pads offer less down time required when switching the
sets, the products last longer, and performs better than the market standard. Since the CMI pad is
33% more efficient, Kendrick Company will end up saving 25 hours on their 100 hour job. This
will lead to saving $17,850 (714 x 25) dollars of labor per 100 hour job. With the decrease of
labor required, cost per job will also decrease. Overall, when using CMI pads Kendrick
Company will see cost per foot drop from $4.96 to $3.77. (Appendix 1)

Corey Company also used CMI pads and saw savings across the board. Corey Company
should be willing to pay at least $6,000 per set for several similar reasons. While paying $6,000
per set Corey Company will still see savings. Corey Company was 25% more efficient when
using CMI pads. This led to them saving 15 hours on their job in between changing pads per set.
Corey Company saved $10,710 (714 x 15) for their expected 75 hour job. Overall, this leads to
Corey saving $0.89 per foot drilled into the ground. (Appendix 2)

What price should CMI set for one of its new cushion pads? Why? For question #1
and #2, it is helpful to focus only on an 11.5-inch cushion pad.

CMI should charge $750 per pad, equaling $4500 for the total set. This is this midpoint for what
Kendrick and Corey were paying for their market standard sets. While a company like Kendrick would
end up paying more per set, they would still end up saving thousands over the course of the project.

Assuming that CMI uses their already existing equipment, their cost per pad would be $444.36
(Exhibit 6). This would result in a profit margin of $305.64 per pad. With variable costs of $133.32, it
would produce a contribution margin of $616.68 and a contribution margin ratio of 80%. This
contribution margin ratio is almost double what CMI management is hoping for.
How big is the potential market for this product and what should be CMI's strategic and
marketing objectives in introducing this product?

It is assumed that an average of 350 million feet of piles are driven annually. CMI
averages about 10,000 feet of pile driving per set which equals 34,000 total CMI sets required.
With 6 pads per set it can be said that approximately 204,000 CMI pads will be produced. At our
price of $750 the market size is equal to roughly $153,000,000.

While the prices are high the marginal benefits greatly exceed the marginal cost. In order
to reach the target market CMI should take out an ad in the Oklahoma Contractor and make a
commercial. CMI could also speak at Piletalk Seminars in order to spread their brand and gain
recognition among contractors, designers and equipment developers. CMI sent their pads to
Professor Stephen McCormack, which were tested and proven to have positive results. Professor
McCormack would be a phenomenal contact to build a relationship with because his networks
throughout the engineering and `architectural society are prevalent and respected. Independent
contractors would be another ideal solution to spreading the CMI pads throughout the market due
to their eagerness to make money. Yet they still lack the necessary knowledge to produce profit
in the market. By introducing the CMI pads to independent contractors, a relationship is built
through a win-win situation. The contractors are profitable through our knowledge of the market
aspect of the business, and we gain the exposure of our pads through the utilization of them by
these contractors.
Appendix 1

Conventional Pad CMI Pad

for Kendrick

Piles Required 300 300

Feet Per Pile 50 50

Total Feet Per Job 15000 15000

Feet Driven Per Hour 150 200

Total Hours Per Job 100 75

Cost Per Hour (From Table A) $714 $714

Total Cost Per Job Excluding Pads $71400 $53550

Number of Sets Required 20 1

Cost Per Set $150 $3000

Total Cost of Pads Per Job $3000 $3000

Total Cost Per Job $74400 $56550

Total Cost Per Foot $4.96 $3.77

Appendix 2

Conventional Pad CMI Pad

for Corey

Piles Required 300 300

Feet Per Pile 40 40

Total Feet Per Job 12000 12000

Feet Driven Per Hour 160 200

Total Hours Per Job 75 60

Cost Per Hour (From Table A) $714 $714

Total Cost Per Job Excluding Pads $53550 $42840

Number of Sets Required 50 1

Cost Per Set $120 $6000

Total Cost of Pads Per Job $6000 $6000

Total Cost Per Job $59550 $48840

Total Cost Per Foot $4.96 $4.07