Cumberland Metal Industries

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 for CMI to strive for high profits or build for market share? How price sensitive is the market? CMI must determine whether it is better to strive for high profits or high market share. Defining market sensitivity and profit potential will help CMI make this decision.

2.How should CMI market the pads? What is the plan for effectively reaching the proper influencers, decision makers, and channel members? Developing a plan to reach the potential market is a key to CMI's success.

3.Does this product reflect the needs of the customer and is it technically sound? What are the risks associated with marketing this product? Answering these questions is important for the long term strategy of the firm.

IV.Analysis

A.The Market for CMI Curled Metal Pads

1.How big is the market for curled metal pads

The first critical issue for CMI to consider is the market for its curled metal pads. The company should study the market size, existing distribution channels, and competition. Thomas Simpson, the Group Manager at CMI, had few statistics available to determine the potential U.S. market for the cushion pads. Based on industry sources and a 1977 Construction Engineering magazine report, he estimated that approximately 13,000 pile hammers were owned by companies directly involved with pile driving, with another 6,500 to 13,000 leased. He also assumed that the total of 19,500 to 26,000 hammers would operate about 30 hours per week and 25 weeks per year, which equates to 750 hours per hammer per year. He further assumed that most jobs would average 20 feet of pile driving per hour. According to these figures, a range of 290 million to 390,000,000 of piles were driven annually (calculation: 26,000 hammers x 750 hours/ hammer yr x 20 ft/ hr = 390,000,000 feet/yr). He also assumed that a total of 6 CMI pads would be required to drive 10,000 feet.

Based on these numbers, the potential market demand for pads could range between 174,000 to 234,000 per year. For example, (390,000,000 feet/10,000 feet) x 6 pads = 234,000 pads. In addition, CMI had tested their pads via the Colerick Foundation Company (the 1st test) and Fazio Construction (2nd test). The results bode exceptionally well for CMI. In the first test, Colerick paid $1,000 for a total of 480 asbestos pads required (20 sets x 24 pads/set). In the second test, Fazio paid $2,000 for their total of 600 asbestos pads. Colerick needed