Curled Metal Inc.—Finding the Perfect Price Brief Description of Company and the Situation Curled Metal Inc. (CMI) specializes in selling metal-based products to various markets. With over $55 million in annual sales (FY 2007, Exhibit A), they’ve managed to capture 80% of the automobile industry’s market share by developing and selling a highly specialized product, Slip Seal, designed just for auto manufacturers. They’ve seen a recent slip in sales (a loss of nearly 10% from 2006 to 2007, Exhibit 2), and the pressure is on them to diversify their product line and decrease dependence on the auto industry. They’ve recently developed a new product that aims to revolutionize the pile-driving industry. The introduction of the CMI Cushion …show more content…

Because the price is so steep, however, offering the Cushion Pads at an immediate discount (while still retaining almost 100% profit margins) would allow CMI to develop customers. Figure 1

CMI Cushion Pads: Cost-Based Approach Anticipated Production Fixed Costs per unit Variable Costs per unit: Material Variable Costs per unit: Labor Total Variable Costs Total Costs Required Contribution Margin Total Price per Unit (Variable Costs/%CM) $ $ $ $ $ $ 3000 units 125.70 46.92 34.92 81.84 207.54 0.5 163.68

Figure 2

CMI Cushion Pads Pricing Analysis Unit Price Anticipated Production Fixed Costs per unit Variable Costs per unit Contribution Margin Unit Contribution Price Total Sales Total Costs Net income $ $ $ $ $ $ $

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Option 1: Cost-Plus Approach 163.68 3000 125.70 81.84 50% 81.84 491,040.00 772,620.00 245,520.00

Option 2: Competition-Based Pricing $ 333.33 3000 $ 125.70 $ 81.84 75% $ 251.49 $ 999,990.00 $ 772,620.00 $ 227,370.00

Option 3: Break-even Analysis $ 257.54 3000 $ 125.70 $ 81.84 68% $ 175.70 $ 772,620.00 $ 772,620.00 $ -

Option 4: Value-Based Pricing $ 1,986.34 30710 $ 125.70 $ 893.92 55% $ 1,092.42 $ 61,000,501.40 $ 31,462,553.40 $ 29,537,948.00

Figure 3
CMI Cushion Pads: Competition Based-Pricing Lowest Priced Competitor CMI Cushion Pads Cost of single pad $ 6.25 $ 333.33 Total number of pads in set 24 6 Total number of sets used 20 1 Total feet driven 15000 10000 Total cost of pads $