CMI's main challenge is to price their latest innovation, curled metal pads, in a way that reflects the great benefits the product provides. CMI must find a balance between the financial requirements of the company and their customers" perceptions of value. We use in depth cost-benefit and break-even analyses to make recommendations to CMI on pricing and other relevant issues.
Analysis .
The cost-benefit analysis for the Colerick test is presented in Appendix 1. It can be seen that the asbestos pads took 106.7 hours to complete while CMI pads were able to finish in 75.07 hours. With this significant difference CMI was able to save roughly $8520. These savings were from the decrease in the amount of time spent on equipment rental as well as the decrease in labor and overhead costs for pile driving. The total time saved from using CMI's pads was approximately 32 hours. Also, Appendix 1 notes that CMI needed only 6 pads to complete the job as opposed to the 480 pads required when using asbestos pads. The total cost of the asbestos pads was $1,000 or $2.10 per pad. This huge difference in amount of pads needed for the test indicates that potential price of the product could have as a ceiling of $1400 per pad.
Analysis of the results from the second test, with Fazio Construction Company, comparing the 11.5 inch asbestos pad with the CMI pad, is presented in Appendix 2. Results from the second test were considerably similar to that of the first test. The amount of time saved by using CMI pads in test 2 was calculated to be $9520. These savings are due a decrease in time spent on equipment, labor, and overhead. Again, the second results also indicated that, with respect to the perceived value of the time saved, the CMI pads could be priced as high as $1900.
The Break-Even Analysis for Cumberland Metals is presented in Appendix 3 & 4. The company has to choose whether to keep the existing equipment or purchase permanent tooling.