Cma Case Analysis Essay

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The maximum price should consider the customers’ WTP advantage which is the difference between the total cost of ownership using CMI’s new cushion pad and using the conventional product. Our customer (Kendrick) could complete the job which required 300 piles driven 50 feet into the ground with only one set of CMI pads. On the other hand, Kendrick had to consume 20 sets of conventional pads for the same job. Kendrick has paid $150 per set of conventional pads, so they might be willing to pay $3,000 for a set of CMI’s pads if all other conditions are same. Only the durability is reflected for this WTP. However, the cost reduction effect by the improved productivity and resiliency of CMI’s pads is much greater. A set of new pads could drive 33% faster while pile driver was at work.…show more content…
Because the Kendrick’s estimated cost for the job was $714 per hour, it can expect $17,850 cost saving for the job with a set of CMI’s pads. If we reflect this economic value to previous $3,000, the Kendrick’s total WTP would be $20,850 per set, and $3,475 per pad. After considering the profit margin for distributors (40%), we can charge $2,482 per pad as a maximum price. However, Sanwal felt the 33% faster speed and 20 times longer life are unusual results, and he believed that the 20% faster speed and 10 times longer life would be more reasonable. When I reflect these conservative conditions, CMI’s can charge $1,595 per pad as a maximum price. An additional test by Corey Construction was conducted, and through the same process, we can calculate the maximum price, $2,387 without conservative viewpoint, so it is very close to Kendrick’s result. All detailed calculations for above processes are shown in Exhibit 3 and Exhibit
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