Cumberland Case

Introduction and Problem

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 Slip Seal, 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. Now to diversify, 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 than asbestos pads and were easier to
change. 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. Now the management at CMI needs to decide upon
the marketing mix to launch this product, and more importantly, decide on the right price for their new
revolutionary product.

Critical Issues

1) The Market for CMI Curled Metal Pads

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 and who to target?

Understanding the nature of the market is vital in CMI's attempt to establish a customer base
for its cushion pads.

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) Marketing Strategy is 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. And deciding on how should CMI market the pads? What is the plan for effectively
reaching the proper influencers, decision makers, and channel members? Answering these
questions is important for the long term strategy of the firm

Analysis

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
26,000hammers 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
to234, 000 per year. For example, (390,000,000 feet/10,000 feet) x 6 pads = 234,000 pads. After
the successful tests, without considering savings in time, Colerick would likely be willing to pay
$1,000 for the number of CMI pads needed to drive the same amount of miles. Therefore, if the
price is $1,000 per set of pads and 6 pads are required per set, the price per pad would be
$166.67. For Fazio, where 5 curled metal pads were in a set, and the set was worth $2, 000, the
price per pad would be $400. Considering a market size estimate of 174,000 to 234,000 pads
per year, at a price ranging between $166.67 a pad and $400 per pad, sales would range
between$29,000,580 and $39,000,780. At $400 per pad, sales volume would be between
$69,600,000 and$93,600,000.

Assuming a price of $166.67 per pad, low-end potential sales of $29,000,580 would represent
almost 1.6 times CMI's total net sales. This underscores the projections made by Robert
Mariucci at a meeting discussing the pads, where he stated that company sales could be
doubled by metal pad sales.

Who are the influencers, channel members, and decision makers in the purchase of the curled
metal pads? Each of the 6 main players has a key characteristic CMI must be aware of in order
to tailor their marketing strategy (esp. who do they want to target). The pile driver distributing
and renting companies represent 25% of the market for cushion pads. However, CMI may find it
a challenge to convince the rental companies to switchover to the metal pads because the
overall rental time would be reduced by contractors who used the pads, thus reducing the
operating profits of the rental firms. The construction engineers and contractors are an
important potential purchaser of the pads and represent an opportunity for CMI to sell the
pads on large construction projects. The independent pile-driving contractors, primarily
concerned with making money, would be interested in the metal cushion pads for their cost
savings.

Recommendations:

The pads offer CMI an opportunity to diversify its product line and increase its sales volume. In addition,
initial testing demonstrated the significant performance advantages of the metal pads over asbestos
pads. Obviously, there is tremendous potential for this product and it could pay huge dividends for the
company. To maximize these rewards, CMI must understand market for cushion pads, settle on an
optimal price, and develop a market strategy that will bring it all together. The market and distribution
network for cushion pads is not well established or defined, as cushion pads are viewed only as a
necessity. CMI must change this attitude by spreading word of its benefits as a potential work-saver
through industry influences.

A large portion of their marketing efforts should focus on architectural and consulting engineers
because of their influence over the contractors who will use the pads. Manufacturers are also important
influencers, as CMI can use their representatives to both market and sell the pads, taking advantage of
their existing relationships with 75% of pile driver users. CMI should also utilize print advertisements in
outlets such as the Louisiana Contractor and host seminars at venues such as "Pile talk." Professor
McCormack may prove a useful influencer as well. This would help establish the pads as a brand name
and align CMI with the industry standard.

Potential profits are much higher with this strategy then for one in which market share is the goal. With
the tremendous cost savings obtained by using the metal pads and absence of current competition, CMI
should price as high as possible up to the EVC. For pads this would mean a price of $1170, which would
leave the customer a value of $230 per pad. However, as a first time buyer, CMI may offer Colerick a
price of only $800, while selling to distributors for $900 so they can obtain a 30% margin in selling to
contractor