Target Segments
When it comes to deciding who to focus on in the market, Cumberland should try to target the contractors. Contractors who own the equipment required to pile drive make up around 75% of the industry, meaning there are more contractors to sell to than renters. In addition, because they own their own equipment they need to use their own money to buy cushions for the hammers and more dedicated to the maintenance of their machines. This behavior could lead to repeat purchases.
Renters by contrast, do not own the machines they use and thus are less likely to care about the maintenance of the equipment they use. The cushions that they use are likely provided by the equipment renter as part of the deal. As a result they are less likely to be repeat purchasers.
Promotion
Cumberland could try to go for the traditional route of TV commercials and publication ads. More viewers that have no interest in the product will see it than people who do, thus this route is more likely to waste money than help make it.
A better option is to use influential events and individuals to promote their product. Events include “Piletalk” seminars in various cities where designers, contractors, and equipment developers gather together. Individuals include Prof. R. Stephen McCormack who is a respected authority on the theory of pile driving and could potentially endorse CMI’s product. By using these events and individuals, CMI can educate their consumers about the benefits of using their superior product, such as health and safety. Being endorsed by an authority also adds to the brand quality of the product, giving it a great deal of attention.
Distribution
CMI could sell their cushion pads through Hammer sales and rental outlets. However the outlets are not enthusiastic about the sale of cushions and will likely not devote the necessary effort to make sure the pads receive consumer attention. A better idea is for CMI to distribute the pads directly. By using a direct channel Cumberland will have control over the education provided to customers and allow CMI to watch which customers will buy its products.
Pricing
CMI should invest the $50,000 for new equipment. By doing so they save $78.82 every time they manufacture a popular 11½ inch pad. In the long run this will save them a lot of money and lower the required price to gain the desired contribution margin. A lower cost means a lower revenue to cover it.
In the Colerick test, $1440 was spent on 480 asbestos pads while only 6 CMI’s pads were used. In this case CMI pads were worth $240 of asbestos pads. Using asbestos pads 420 minutes was spent driving and changing pads, with CMI’s pads only 19 minutes was spent, saving the workers 6 hours and 41 minutes of work. On average Colerick pays $21 per hour for its labor, totaling$140.35 saved by 6 CMI pads. In total a CMI pad is worth $263.39. CMI could justifiably ask for as much as $264 for each pad. Given that the cost of manufacturing an 11½ pad with the new equipment is $69.18, the required price to earn a 50% contribution margin would be exactly $138.36, or rounded up to $140. With this price and the estimated volume of 250 pads per month, the $50,000 investment can be paid off in 2.82 months or 3 months if rounded up. In summary, CMI should sell only the very popular 11 ½ pads at a price of at least $140 in order to achieve a 50% margin. They should target contractors because owning their machines makes them more likely to by superior tools. Using seminars and authorities will provide CMI with educational promotion that highlights the innovative and superior qualities of its pads. Direct distribution will give CMI full control over the attention given to its product and the ability to monitor its customers.