Curled Metal Inc

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University of California, Los Angeles *

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Economics

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Feb 20, 2024

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Analysis Company : Curled Metal Inc. (CMI) was a metal fabrication company that had grown from $750K in sales in 1991 to over $55 million by 2007, largely due to the success of its Slip-Seal product. Known in the auto industry, but relatively unknown unsuccessful elsewhere. Competition : No manufacturer dominated the cushion pad business as most pads were unbranded and cut by small, anonymous shops. Outlets carried these pads as a necessary part of business and the pads did not compare well with other products sold by these outlets in total dollar profit. Because of this, CMI believed it would face an uphill battle convincing industry sales and distribution channels that there really was a market for cushion pads. Additionally, CMI expected difficulty in finding outlets willing to devote the attention necessary for success. Customer : There was little information available to help size a cushion pad market, but CMI was able to distinguish general categories of customers: Pile Hammer distributing/renting companies  Provide pads to contractors with equipment rental.  Concerns over if renters would want to provide pads that would reduce rental time. Engineering/construction companies  Small independents to large international firms running the biggest jobs.  Most difficult to solicit. Independent pile-driving contractors  Primary objective is to make money by pile-driving.  Very knowledgeable about pile-driving. Strategy CMI should enter the market by marketing 11.5” pads to independent pile-driving contractors. For CMI to succeed, they will need to educate their customers on the benefits of switching to their pads. Independent contractors will be the most receptive to this undertaking as these groups are already very knowledgeable about pile-driving and will appreciate the efficiencies of the CMI product. Additionally, if independent pile-driving contractors were to be receptive to the CMI pads, it may help to solicit the bigger engineering/construction companies through word of mouth within the industry. Industry sources indicated that about 75% of pile-driving contractors owned their hammers, implying that a sizable group has a need to buy pads as well as an incentive to buy quality pads that protect their costly hammers. A report by an industry magazine estimated that about 13,000 hammers were owned by companies involved in pile driving. 11.5” pads were the standard size pad, lighter and cheaper to manufacture than bigger sizes, and were the only sample size tested by CMI. For these reasons, CMI should focus exclusively on 11.5” pads for their product launch.

Price Tactics CMI had a minimum pricing requirement that was a 40% to 50% contribution margin after all manufacturing costs. Manufacturing costs for an 11.5” pad was $444.36 with existing equipment and $207.54 after the purchase of permanent tooling. While the lower cost may seem appealing, the sizable upfront investment in addition to the existing concerns with the dollar profit of the pads makes pursuing the lower cost risky and unnecessary. CMI should produce pads with their existing equipment, and this price will need to be at least $888.72 per pad to cover the contribution margin requirements. Our lower bound for pricing is $5,332 for a set of pads. The Corey Construction test shows 31 hours of time savings using the CMI pads or .0025 hours saved per foot of job. At an estimated 194million feet driven per year by 13,000 pile-owning drivers, 485,000 hours are saved throughout the industry for the year. At an average rate of $612 an hour for equipment, labor, and overhead this represents savings of $22,832 per pile-owner per year. At an average of 15,000ft driven per pile-owner per year (194M/13K), each owner would need 2 sets of CMI pads on average. This equates to $11,416 in savings per set of pads, or $1,902 per pad. Our upper bound for pricing is $11,416 for a set of pads. CMI should set their price at the midpoint of the two: $8,374 per set of pads. This price may seem high in comparison to conventional pads, but the value will be understood because we are targeting knowledgeable, profit driven independent pile-driving contractors. Additionally, setting the price at the midpoint will allow for incremental increases in price as market share grows, or reductions if necessary. This price also puts CMI in a competitive position with outlets as the dollar profit of the pads is magnitudes larger than conventional pads.

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