Scribd Logo
Upload

Welcome to Scribd!

  • 20 views

    Cumberland Metal Industries: Group 6, Section B

    Uploaded by

    Abhinav Gokari
    Cumberland Metal Industries analyzed the market for a new product and determined that barriers to entry for competitors are low but bargaining power lies with Cumberland. Technological superiority means demand is insensitive to price. Costs were estimated conservatively and competitors' cheaper substitutes were considered. A 50% profit margin pricing method was chosen, setting the final price per pad at $140, or $840 per set, which still increases customers' margins by 25%. The high initial price protects profits while experience is gained before competition emerges.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPTX, PDF, TXT or read online from Scribd
    Flag for inappropriate content

    You might also like

    Cumberland Metal Industries: Group 6, Section B

    Uploaded by

    Abhinav Gokari
    20 views6 pages
    Cumberland Metal Industries analyzed the market for a new product and determined that barriers to entry for competitors are low but bargaining power lies with Cumberland. Technological superiority means demand is insensitive to price. Costs were estimated conservatively and competitors' cheaper substitutes were considered. A 50% profit margin pricing method was chosen, setting the final price per pad at $140, or $840 per set, which still increases customers' margins by 25%. The high initial price protects profits while experience is gained before competition emerges.

    Original Description:

    Original Title

    B6_CMI

    Copyright

    © Attribution Non-Commercial (BY-NC)

    Available Formats

    PPTX, PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    Report this Document
    Cumberland Metal Industries analyzed the market for a new product and determined that barriers to entry for competitors are low but bargaining power lies with Cumberland. Technological superiority means demand is insensitive to price. Costs were estimated conservatively and competitors' cheaper substitutes were considered. A 50% profit margin pricing method was chosen, setting the final price per pad at $140, or $840 per set, which still increases customers' margins by 25%. The high initial price protects profits while experience is gained before competition emerges.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPTX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    Download as pptx, pdf, or txt
    20 views6 pages

    Cumberland Metal Industries: Group 6, Section B

    Uploaded by

    Abhinav Gokari
    Cumberland Metal Industries analyzed the market for a new product and determined that barriers to entry for competitors are low but bargaining power lies with Cumberland. Technological superiority means demand is insensitive to price. Costs were estimated conservatively and competitors' cheaper substitutes were considered. A 50% profit margin pricing method was chosen, setting the final price per pad at $140, or $840 per set, which still increases customers' margins by 25%. The high initial price protects profits while experience is gained before competition emerges.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPTX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    Download as pptx, pdf, or txt
    of 6

    Cumberland Metal Industries

    Group 6, Section B

    Market Analysis
    Threat of new entrants low, most competitors are substantially smaller Bargaining power not unevenly concentrated towards buyers

    Competitors have no competence in technical, market or product development Suppliers same as those for existing products

    Most substitutes (asbestos, aluminium etc) are technologically inferior

    Pricing Decision

    Step 1: Selecting the price objective


    Maximizing current profit Profitability of existing products falling No immediate competition

    Step 2: Determining the demand


    Due to technological superiority of product, demand is price insensitive Even at a very high price, net margins of consumers are expected to increase by about 25%

    Pricing Decision (contd.)

    Step 3: Estimating costs


    Cost estimated using addition of permanent tooling To make a conservative estimate, 360% overhead cost also taken

    Step 4: Analyzing competitors offers


    Competition mainly unorganized Currently only asbestos and aluminium pads used, much cheaper than CMIs product Due to lack of resources, competition unlikely to enter in the near future

    Pricing Decision (contd.)

    Step 5: Selecting a pricing method


    Markup pricing: Price is set so as to have an overall profit margin of 50%

    Step 6: Selecting the final price


    Based on calculations, final price chosen is: $140 per pad Hence, price per set: $ 840

    Rationale
    Even at this price, overall margin of customers is expected to increase by around 25% By the time other competitors enter, CMI should have accumulated experience advantage, thereby allowing it to reduce costs further B6_CMI.xlsx

    You might also like