Curled Metal Incorporated’s (CMI)
Q1. What should a customer be willing to pay for one of Curled Metal Incorporated’s (CMI) new cushion pads? What price should CMI set for the pads?
Several factors determine the customer’s willingness to pay for any of the pads. First, the customer considers the risk that comes with the use of the new pads. Besides, the conventional pads have been providing service to the customers, and hence the new pads should be excellent. Also, the time saved for using the curled metal pads plays a crucial role in determining the willingness to buy. Moreover, the customer will also consider the overhead costs for using either of the pads.
Consider a case where the cost of production for the curled metal pads ranges between $440 and $1925. The total number of cushions per month is set at 250 with the sizes ranging between 11 and 30 inches. The cost of production for each unit is obtained by dividing the cost of production by the number of the cushion pad as follows:
- 440/250=$1.76, for the lowest size and,
- 1925/250=$7.7, for the largest size.
Therefore, the cost of production is reasonable if set between $2 and $7.7.
If the company aims at making profits between 30% and $40%, the prices should be set at $3-11$ so that a contribution margin of 50% can be maintained.
The price to be set for the pads is determined by the existing cost of the conventional pads as well as the customers’ income. Although the metal curled pads provide better services and are less risky, the customers should be treated with considerable expenses. Also, the price should not be affected by factors such as the rent since the market will be more competitive if other companies do not rent their equipment.
The case considers the Conventional pads that are priced at $6-$20 for small-large sizes. Therefore, the company can take advantage of enjoying more profits if the prices are set at $6-$20 since customers will be willing to buy the more quality pads. Also, the demand for the 11-inch pads is high and the company can raise the price to $9 while other sizes remain priced lowly to overcome the demand challenge.
Q2. How big is the potential market for this product and what should be CMI’s strategic and marketing objectives in introducing ,this product?
The market potential depends on the willingness of the customers to purchase the pads. The case is set at the production of 250 units of pads per month. The 11-inch pads have a higher demand compared to the other pads. However, the large-sized pads have a low-demand and the market potential may be low. Therefore, the market potential for the small-sized pads should be set at least 300 units so that the sales may offset any deficit for the large-sized pads. The company can set a high-end price for the small-size pads since the high demand promises a consistent market for the pads. Skimming prices can further be used in this case to have the company benefitting from the high demand of small-size pants. For example, the $6 price can be used for wholesale while retail traders buy the pads at $9.
Generally, the market potential will pave the way for the market objectives and strategies. The market will aim at maximizing the profits while establishing a dominant market share. The marketing strategy on the other side will be to convince potential influencers so that curled metal pads can be endorsed in the market. The company should consider having a well-established market and profitability.