Cumberland Metal Industries

Strategic Marketing Case Preparation

Cumberland Metal Industries

Description:

Cumberland Metal Industries has developed a new product to help contractors drive piles faster. They are trying to decide how to price it. Provides substantial information on the industry, competition, etc. Students must decide what factors are relevant in making an industrial pricing decision. Decisions must also be made about promotion and distribution channels.

Subjects Covered:

Competition, Distribution channels, Industrial goods, Industrial markets, Industry analysis, Market entry, New product marketing, Pricing strategy, Product management.

Setting:

United States; Construction industry; small; $18 million sales; 1980

Case: Cumberland Metal Industries

1. WhatЎЇs your price for the curled metal pads? Why?

2. How big is this market? What kind of opportunity is this for Cumberland Metals?

3. Does your price affect how much of the market youЎЇll get? How big the market is?

4. How are you going to market these pads?

Case Analysis

Overview

Cumberland Metal Industries (CMI) is one of the largest metal manufacturers in the world. The company evolved from selling metal as a finished product to one that used it as a raw material, increasing sales from $250,000 in 1963 to over $18,500,000 in 1979. Currently, CMI relies heavily on SlipSeal, which is used as a high-temperature sealant in automobiles. Although CMI dominates the market for this product, corporate sales figures decreased over the last year. As a result, the management at CMI realized the importance of diversifying its product-line so that the company does not rely as heavily on SlipSeal or the automobile industry. With this in mind, CMI management was very interested in a new product that could be used as a cushion pad in pile driving. The cushion pads, consisting of curled metal, were superior in performance to the asbestos pads currently used throughout the industry. The curled metal pads lasted longer then asbestos pads and...

I. Case Analysis Overview

Cumberland Metal Industries (CMI) is one of the largest metal manufacturers in the world. The company evolved from selling metal as a finished product to one that used it as a raw material, increasing sales from $250,000 in 1963 to over $18,500,000 in 1979. Currently, CMI relies heavily on SlipSeal, which is used as a high-temperature sealant in automobiles. Although CMI dominates the market for this product, corporate sales figures decreased over the last year. As a result, the management at CMI realized the importance of diversifying its product-line so that the company does not rely as heavily on SlipSeal or the automobile industry.

With this in mind, CMI management was very interested in a new product that could be used as a cushion pad in pile driving. The cushion pads, consisting of curled metal, were superior in performance to the asbestos pads currently used throughout the industry. The curled metal pads lasted longer then asbestos pads and were easier to change. Furthermore, the growing concern over the health risks associated asbestos gave CMI's pads an added advantage. Government regulations prohibiting the use of asbestos or making them costly to handle, could push pile drivers toward CMI's cushion pads. The prospects prompted Robert Manicucci, the vice president of Engineered Products Division at CMI, to declare:

Curled metal cushion pads seem to have more potential than any other product we've ever introduced. A successful market introduction could as much as double the sales of this company, as well as compensate for the decline of some existing lines. It almost looks too good to be true.

II.Problem

Thomas Simpson, the manager of the Mechanical Products Group at CMI, was excited about this new product as well. The pads offered CMI an opportunity to diversify its product line and increase its sales volume. Furthermore, initial testing demonstrated the significant performance advantages of the metal pads over asbestos pads.

Despite the sales potential of the new product, Simpson is uncertain how he should market the pads in order to reach potential influencers and customers. Furthermore, there are no precedents for advertising or promoting this product line. More importantly, Simpson must determine a price for the product, as he has promised to call Colerick Foundation Company by the end of the week. Effectively pricing these pads and following a well defined market strategy could place CMI as a perennial market leader. The successful development of the new product is especially important to CMI because the firm is facing possible financial difficulties caused by slumping sales figures.

III.Critical Issues

A.The Market for CMI Curled Metal Pads

1.How large is the market for curled metal pads? Identifying the size of the market will help CMI establish future sales figures and cash flows from the new product.

2.Who are the influencers, channel members, and decision makers in the purchase of the curled metal pads? Would any of these parties be interested in seeing CMI fail? Understanding the nature of the market is vital in CMI's attempt to establish a customer base for its cushion pads.

B.Determining the Price of CMI Curled Metal Pads

1.What is the cost to produce the pads? Should CMI invest in new tooling? Determining the costs associated with pad production, CMI can gain a better understanding of its pricing strategy.

2.What is the economic value of the pads to the customers? Determining the economic value will help CMI institute an optimal pricing strategy.

3.What is the price range of the pads depending on market strategy? Estimating the price range will help CMI develop an effective pricing and marketing strategy.

4.What is the optimal price of the curled metal pads? Why? What price should be quoted to a potential buyer such as the Colerick Foundation? This is an important step in determining the marketing strategy.

C.Marketing Strategy

1.Is it more important