MMPD – SBR2: Group 4 (Amit, Priyanka, Rubi, Olivia)
Question 1: What should a customer be willing to pay for one of Curled Metal Incorporated’s (CMI) new cushion pads? What factors are relevant in calculating willingness to pay in this situation? Please come to class with a specific monetary estimate of customer value in this situation.
With respect to 11.5-inch cushion pad, a customer should be willing to pay a bit more for one of CMI’s new cushion pad because of more optimum performance compared to conventional pads.
CMI pads drive piles 33% faster than conventional pads, and last for a longer duration of time.
Based on the comparison job in Pennsylvania, some CMI value additions that should be factored in as points relevant in calculating willingness to pay are:
• CMI pads offer greater feet driven per hour while pile driver was at work (not considering downtime) 200 versus 160 in conventional pads
• CMI pads offer more piles driven per set of pads 300 versus 6 in conventional pads
• CMI pads offer less number of pads per set 5 versus 12 in conventional pads
• CMI pads offer less number of sets required 1 versus 50 in conventional pads
• CMI pads offer less number of set changes 1 versus 50 in conventional pads
• CMI pads offer less time to change per set 4 minute versus 20 minutes in conventional pads
• CMI pads incur no charge to Corey cost per set, versus $120 in conventional pads
Monetary estimate of customer value in this situation:
Total job revenue was $324,000 or $27 per foot. Corey paid $120 for each set of 12 micarta pads used. estimated volume was 250 cushion pads per month.
Additional equipment could be added at a cost of $225,000 per 250 pads per month of capacity.
CMI’s curled metal set life is ideally 10 times more than conventional pads, contributing to a performance increase of 20%. Therefore, a customer should be willing to pay CMI’s new cushion pad at an extra 20% from the price of normal conventional pads.
Corporate management expected a contribution margin after all manufacturing costs of 40% to 50% of selling price.
Question 2: What price should CMI set for one of its new cushion pads? Why? Focus on 11.5 inch pads.
We use value in pricing method, whereby there’s a price point at which the customer firm is indifferent or have no preference between your market offering or the competitor’s.
Taking the values for Kendrick Foundation Company, the following cost is derived upon:
Feet driven per hour
Piles driven per set
Number of pads per set
Number of sets required
Number of set changes
Time required for change per set
Kendrick cost per set
To be determined
Annual cost for conventional pads: number of sets required x time required for change x cost per set
= 20 x 20 x 150= 60,000 USD
Since one set has 24 pads, each will be charged at $6.25
Annual cost for CMI pads: number of sets required x time required for change x cost per set
60,000 = 6 ...