Cumberland Metals

Cumberland Metal Industries A New Cushion for a Hard Market

THUNDERCATS Consulting Blair Belliveau Denzel Brock

Dominick Gary Ryan Gunn

Amber Staker

HOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOO!!

Positioning Statement Target

Architectural and Consulting Firms

designing and pricing projects using

concrete piles in regions with high soil

density

Points of Difference

More Efficient and Heat Resistant

Non-friable

Longer Service Life

Recyclable

Frame of Reference

Pile driving curled metal cushion pad that

increases productivity

Reasons to Believe

Reduced changeover downtime saves

$1570 on average job and is 64% more

heat resistant than asbestos pads

Reduces mesothelioma and asbestosis

claims liability by 85%

Service life is 10x longer than asbestos

Salvage value with steel (+$0.04/lb) vs.

disposal costs with asbestos (-$0.10/lb)

Price Ceiling $465.75

Customer Factors • No cushion brand loyalty -5% • Leader in curled metal products +5% • More efficient +5% • Rental companies -5% • McCormack Endorsement +10%

Product Factors • Evolutionary +20% • Non-friable +5% • Reduced heat +5% • Recyclable +5%

Competitive Factors • Low barriers to entry from

other manufacturers -5%

Price Floor $48.23

50/50 = $256.99

Our Price $359.79

Value Pricing

Marketing Mix Product

Pile driving Curled Metal Cushion Pad that

absorbs shock and heat

Price

Value Pricing Model

Higher profit margin for contractors due

to increased efficiency

Emphasize increased pile hammer

longevity with CMI’s increased shock

absorption

Salvage value of metal versus disposal

costs of asbestos

Place

Online (direct sales)

Wholesale to Building Suppliers

Wholesale to Heavy Equipment Rental

Companies

Promotion

Build Expo Show

Product Demo Video

White Papers with Prof McCormack

Webinars

Construction Engineering Magazine Ads

Internal & External Sales Force

Pre-Launch

October 1, 2015 - December 30, 2015

File product patent with U.S. Patent and Trademark Office

Hire and educate internal and external sales force

Launch website with:

• White papers to establish credibility and product validation

• Product demo

• Blog posts

• Interest list sign up

Build Expo tradeshow to cultivate interest lists

Develop ad for Construction Engineering Magazine

Begin production; 750 pads in inventory for launch

Pre-Launch October 1, 2015 - December 30, 2015

Union: Promote increased safety for pile driving workers and

internal contract with union employees

Suppliers: getting the best price for purchasing power

Influencers: Utilizing Professor McCormack’s expertise in

promoting why we matter

Architectural/Consulting engineers: Begin showcasing our

product so that they can influence design changes for our

buyers

Launch January 1, 2016 - March 30, 2016

Initial launch in northern regions with high density soils

Build Expo tradeshow to facilitate first wave of purchasing

External sales team begins outbound sales calls based on interest

lists

Full page ad in Construction Engineering Magazine for January,

February, and March issues

Bi-weekly Webinars on website

Weekly meetings with product supply chain leadership to ensure

operational timelines and procedures are on schedule

Soil Density Map

Post Launch – Year 1 April 1, 2016 - March 30, 2017

Double plant capacity to 500 pads per month

Continue current inbound and outbound marketing efforts

Expand sales target areas to California, Arizona, Florida, Georgia,

Nebraska and southern Canada

Transition from mixed sales team to all internal

Strategic partnership with Vulcan to be preferred cushion pad for

Model #1

Launch scrap metal recycling program

Internships and scholarships to top tier engineering colleges

THUNDERCATS Consulting (Team 3) BUAD 598F-01: B2B CAM Midterm Exam September 22, 2015

CUMBERLAND METAL INDUSTRIES:

A New Cushion for a Hard Market

POSITIONING STATEMENT

Target: Architectural and Consulting firms designing and pricing projects using concrete piles.

Frame of Reference: Pile driving curled metal cushion pad that increases productivity

Points of Difference: More efficient Safer Non-friable Longer service life Recyclable

Reason to Believe Reduced changeover downtime saves $1570 on average job and is 64% more heat resistant than asbestos pads Reduces mesothelioma and asbestosis claims liability by 85% Service life is 10x longer than asbestos Salvage value with steel (+$0.04/lb) vs disposal costs with asbestos (-$0.10/lb)

MARKETING MIX

Product

We have innovated a new application for curled metal in the construction industry. The curled

steel pad serves as a cushion for pile drivers, absorbing shock and heat, and aims to replace the current

standard pad made of asbestos. We have opted to focus only on the 11 ½” pad as it is the most popular

size (we estimate at 30% of the market). After we have operated in the market for a while and have

gathered more information on size segmentation, we can consider moving into larger pads at little-to-no

cost to us, as the pads use the same machinery regardless of size.

Price

Based on a value pricing model, we have chosen a price of $359.79 per pad or $2,158.74 per 6

pad set. The price floor is at cost at $48.23 based on fixed factory overhead allocated at 180% and

purchase of $50,000 of permanent tooling as shown in Exhibit A. Fixed overhead is allocated differently

CUMBERLAND METAL INDUSTRIES: A New Cushion for a Hard Market 2

than CMI’s standard practice because of the minimal engineering required to develop the product.

To calculate the price ceiling, we looked at savings on cost of pads, savings on time, and savings

on disposal based on a typical job using average numbers calculated from the 3 beta tests. (Exhibit B)

While individual CMI pads cost far more than their asbestos counterparts, a single set only requires 6 CMI

pads, compared to 24 asbestos pads. Additionally, an average job can be done with a single set of CMI

pads, whereas the same job could require 20 sets of asbestos pads. Because the pads are significantly

more resilient, and do not need to be changed as often, further savings can be realized based on the

amount of time those pad changes take.

Pad changes take longer with asbestos pads because there are so many more of them. Workers

can much more quickly switch out a set of 6 CMI pads than they could a set of 24 asbestos pads. CMI

pads allow for additional time savings because they do not heat up as much as asbestos pads. After use,

asbestos pads require cooling time before they can be handled safely. CMI pads can be handled almost

immediately. Considering both of these factors, individual set changing times can be reduced from 20

minutes with asbestos to 4 minutes with CMI and a set of CMI pads can often get a job done without

being changed, whereas Asbestos pads may need to be changed 20 or more times.

The final source of savings comes from disposal costs. Disposal costs for asbestos are $0.10 per

pound or about $0.12 per pad (Atlantic County Utilities Authority). On a job that requires hundreds of

pads, those costs add up. Steel CMI pads, on the other hand, can be recycled for a profit of $0.04 per

pound (Capital Scrap Metal).

Total savings come to an estimated $417.52 per CMI pad. Those savings plus the cost of

manufacturing led to a price ceiling of $465.75. Averaging the floor and ceiling gave us a 50/50 price of

$256.99. We further adjusted the price based on a number of product, customer, and competitive factors.

Product Factors:

We consider the CMI pad to be an evolutionary product, building off of previous technology,

creating a wholly better alternative. The previously discussed heat advantages provide a safer work

environment for employees, as does the material itself. Studies have linked exposure to asbestos to

health problems and consumers presumably don’t want the liability. Finally, the material can be recycled


for salvage value.

Customer Factors:

By purchasing our product, construction companies will become more efficient. The time savings

will not only allow them to finish a job more quickly, and move onto the next, but also will allow them to

underbid competitors for jobs, which are awarded based on who can finish the job the quickest. Rental

companies may be unhappy about the introduction of our product as it will mean that companies will not

need to rent equipment for as long of a period. However, we may be able to alleviate that contention by

informing them that CMI pads will actually allow their equipment to last longer. Customers may be

cautious at first about our product because we have no reputation in the cushion pad market. An

endorsement from Professor McCormack seems likely, which would go a long way to convincing

customers of our quality as should our position as a leader in curled metal products.

Competitive Factors:

Our product is different enough that we shouldn’t have to worry about competitive reactions from

the asbestos pad market. However, one thing we are considering is how easily other curled metal

companies could enter this market. As we proved, it requires very little additional engineering or special

equipment and the marketplace could soon be populated with competitors that could drive our price

down.

The net effects of these factors is +40%, making our price per pad $359.79.

Pricing Alternatives:

We ignored competitive pricing completely because our product is so different that the

competitors’ prices for asbestos pads ($2-$3) is well below our manufacturing price. Another pricing

model we briefly considered was based on CMI’s standard margin of 40%-50% of selling price, which

would put the price at $96.46 per pad. After comparing with our value pricing model, we determined we

would be leaving money on the table.


Market Share:

Presently, there are no other curled metal players in the market, which gives us some freedom

with our pricing without negatively affecting our demand. We estimate the market stands at around

200,000 pads per year. If we segment the market by size and target distribution, our target market

appears to be around 27,000 pads per year (Exhibit D). With our current capacity of 3,000 pads per year

we could easily capture a little over 10% of the market. If we add additional equipment after launch to up

our capacity, we could get around 20% market share. Considering the immense advantages our product

provides and the enthusiasm of the companies that participated in our beta tests, we should have no

problem acquiring enough customers to achieve those numbers.

Place

Our sales will be a mixture of internal and external during the first year of sales. The external

sales force will be responsible for sales to large building supply companies as well heavy equipment

manufactures. These sales will require significant resources during launch and by outsourcing sales

associates that get compensated solely on commission we will be ensuring our expenses do not go over

estimates. In house sales will be performed by an Online Sales Consultants (OSC) who will manage all

leads that come direct to the company through our online efforts. If lead generation surpasses the OSC’s

capacity, leads will be forwarded to the external sales team.

Promotion

A large portion of sales will be captured through tradeshows and we intend to have a large

presence at the Build Expo tradeshows that take place four times each year. A large percentage of

attendees have purchasing power and come to tradeshows prepared to buy. This will allow for interest list

generation, and warm calling opportunities for the external sales team. Continuing our theme of educating

the customer, our product page on the company website will feature product demonstration videos, white

papers written in cooperation with Dr. McCormack and customer testimonial videos. The OSC will be

responsible for blog posts, live chats with customers and bi-weekly webinars.


ADDITIONAL TOOLING AND EQUIPMENT

There are two options available for increasing the efficiency and capacity of our manufacturing.

Existing equipment can be retooled for a cost of $50,000. This would nearly cut our manufacturing cost

per pad in half. Despite that figure, Exhibit F shows that permanent tooling does not make a huge impact

on gross margin. However, it does result in a small uptick, which makes it worthwhile.

Additional equipment can also be added to increase our capacity for $75,000 per 250 pads per

month. We chose not to introduce the increased capacity at launch in order to learn more about the

market, but after launch our numbers (Exhibits D & F) show that it would be a worthwhile investment,

and could even bring our forecasted Net Income numbers up to par with previous years.

TO MARKET STRATEGY

Pre-Launch

The goal during the pre-launch is customer education and cultivating potential buyers in an

interest list. With the determined launch date of January 1, 2016 we will begin pre-launch activities on

October 1, 2015. The most crucial element for Cumberland to retain its evolutionary market standing, we

have filed utility patent with the United States Patent and Trademark office. This will allow for the CMI pad

to be marketed as patent pending and will allow for a significant competitive advantage.

We anticipate that initially the majority of our sales will be wholesale to building suppliers and

heavy equipment rental companies. For the pre-launch and launch we will be using an external sales

force for these customers. During pre-launch, we will be focusing on training the internal and external

sales force so they will be able to affectively educate the consumer. Since the CMI pads will allow for

faster job completion, we anticipate that the rental companies will be the hardest sell. To counteract the

discord from the rental companies due to the potential loss in rental revenue, our sales team will stress

the decrease in the wear and tear on the equipment and the increase in the equipment’s longevity.

We anticipate twenty five percent of sales to come directly from our website. To prepare for this,

we will be hiring and training an in house, online sales consultant to assist the customers with live-chats,

host webinars, write blog posts and engage them on social media. The OSC will be responsible for


providing the external sales team with demo videos and marketing materials on the Cumberland website.

During pre-launch the already live website will be populated with content, including white papers written in

cooperation with Professor McCormack.

The Build Expo tradeshow will be a crucial part of our launch activities. Since eighty three percent

of tradeshow attendees have purchasing power for their companies and seventy two percent of attendees

attend tradeshows with the intent of purchasing, this will be an ideal time to reach our target audience.

During pre-launch, our presence will be small with one or two sales people in a 10 by 10 booth.

In order to fill orders immediately upon launch, we will begin production on October 1, 2015 in

order to have 750 units in the warehouse for initial orders of the 11.5 inch pad. In order to ensure a

smooth production process, we will give special attention to our relationships with certain stakeholder

groups. Cumberland will finalize Union contracts in order to ensure no labor related work stoppages. We

be continually researching suppliers and prices of steel, copper, monel to guarantee the best quality

product at an optimal product.

Safety will be a priority selling point whenever in negotiations with a contractor. Cumberland

needs to obtain Union support for the CMI pad to help facilitate this changeover in the industry. During

pre-launch our internal regional managers will meet with Union leadership in our target market areas and

educate them on the safety and long term health benefits of the CMI cushion pad.

Launch

Cumberland will initially launch the CMI cushion pad in the northwest regions of the United States

with high density soils. The CMI pad performs best with concrete piles which are traditionally used in

areas with high density soils. Our initial target states will be; Washington, Oregon, Idaho, Minnesota,

Wisconsin, Michigan, Vermont, New Hampshire, Massachusetts, New Jersey, New York, Connecticut and

Rhode Island. These states have the densest soils in the United States and the greatest need for the

shortest build time because of the weather. Due to the short window for building in these regions, these

customers will be the most receptive to the increase costs in return for a significantly shorter pile driving

time.


Upon launch, we will increase our trade show presence significantly. We will have a 30 foot by 30

foot booth, complete with monitors showing our demo videos and customer testimonials from tests. Our

full sales team will be in place to answer questions, show samples and complete negotiations of

contracts.

Starting in January 2016 for 6 months, we will have a full page ad in several architectural,

engineering and construction magazines including Construction Engineering Magazine. The

advertisements will be developed during prelaunch. The online sales consultant will begin featuring bi-

weekly webinars on the company’s product website.

To ensure operational timelines, sales goals and quality assurance, there will be weekly

department head meeting with those managers involved with CMI cushion pads. These meetings will be

used to address customer feedback, labor/production issues, supplier constraints and opportunities as

well as research and development opportunities.

Post Launch

From April 1, 2016 to March 30, 2017 Cumberland will enter the post sales period for the cushion

pad. We plan to continue the inbound and outbound marketing efforts currently in place, while expanding

our target market areas out of the north regions of the United States. Our additional target states will be

California, Arizona, Florida, Georgia and Nebraska; all of which have density soil and are prime targets

for our product. We also will launch into southern Canadian regions with dense soil.

In order to meet the new demand, Cumberland will increase capacity at the plant two-fold in order

to produce 500 pads per month. During this post launch periods we will also examine customer feedback

and custom orders to determine if it is profitable to produce pads that are not 11.5 inch on a regular basis.

Untimely, we will want to bring the sales force in house in order to maintain control over the sales

process. During this one year period we will begin the transition, starting with hiring a second online sales

consultant to work with our direct customers. Regional sales representatives will be hired as the demand

in those areas becomes evident.

We will pursue a strategic partnership with Vulcan Iron Works of New Orleans as the preferred

cushion pad with their Model #1. While Vulcan will not be a purchaser of our pads, an endorsement from


them saying that the CMI pad is the best pad for use with the Model #1 would convince many purchasers

of our quality. Vulcan set the standard for pile drivers and we want to do the same for cushion pads. An

alliance with Vulcan is a smart and easy first step toward that goal.

To appeal to green building companies and leverage potential tax credits, Cumberland will launch

a scrap metal recycle program. Cumberland will give a $0.04 future purchase credit per pad to companies

that send their used cushion pads to the company to be recycled.

To aid in our goal of appealing to the architectural and consulting engineers, Cumberland will

begin offering internships and scholarships to prospective and current students at top engineering

schools in United States such as MIT, Stanford, Berkley and Carnegie Melon. This will allow for future

influencers to have be familiar with the product and ensuring their recommendations in the future.


Exhibit A – Manufacturing Costs

Estimated per Pad with Existing Equipment

11 1/2"

Variable

Material $ 15.64

Labor $ 28.80

Total variable $ 44.44

Fixed factory overhead @ %180 direct labor

$ 51.84

Total manufacturing cost $ 96.28

Estimated w/ Purchase of Permanent Tooling

Variable

Material $ 15.64

Labor $ 11.64

Total variable $ 27.28

Fixed factory overhead @ 180% direct labor

$ 20.95

Total manufacturing cost $ 48.23


Exhibit B – Pricing Calculation (1/2)

Asbestos CMI

Cost per set $ 48.33 $ 289.39

Cost Per Pad $ 2.42 $ 48.23

# sets per job 20 1

# pads per job 480 6

Total pad cost per job $ 1,160.00 $ 289.39

Pad cost savings $ 870.61

per pad savings $ 145.10

Time required per change (hrs) 0.333 0.067

Total change time (hrs) 6.667 0.067

Avg cost per real hour (Table A) $ 238.00 $ 238.00

Total time cost $ 1,586.67 $ 15.87

Time savings $ 1,570.80

per pad savings $ 261.80

Disposal costs (per lb) $ 0.10 $ (0.04)

lbs per pad 1.25 15.50

Disposal costs per job $ 60.00 $ (3.72)

Savings per job $ 63.72

Savings per pad $ 10.62

TOTAL COST PER JOB $ 2,806.67 $ 301.54

TOTAL SAVINGS PER JOB $ 2,505.13

TOTAL SAVINGS PER PAD $ 417.52

Price Floor $ 48.23

Price Ceiling $ 465.75

50/50 $ 256.99


Exhibit C – Pricing Calculation (2/2)

Product Factors

Evolutionary +20%

Non-friable +5%

Reduced heat +5%

Recyclable +5%

Customer Factors

No cushion brand loyalty -5%

Leader in curled metal products +5%

More efficient +5%

Rental companies -5%

McCormack endorsement +10%

Competitive factors

Low barriers to entry from other manufacturers -5%

NET +40%

PRICE $ 359.79

Exhibit D – Market Size/Share

Conservative Aggressive Average

Hammers/yr 19,500

26,000 22,750

Weeks/yr 25 25 25

Hrs/wk 30 30 30

Hrs/yr 750

750 750

ft/hour 20 20 20

ft/yr 15000 15000 15,000

Total ft/yr 292,500,000

390,000,000

341,250,000

ft/set 10,000 10,000 10,000

sets/yr 29,250

39,000 34,125

Pads/set 6 6 6

Pads/yr (Total Market Size 175,500

234,000 204,750

11.5 segment @ 30% 52,650

70,200 61,425

Distributor segment + Direct sales @ 45% 23,693

31,590 27,641

Market Share @ 3,000 per yr 12.7% 9.5% 11.1%

Market Share @ 5,250 per yr 22.2% 16.6% 19.4%


Exhibit E – Sales Forecast

Decem

ber 3

11978

1979

% C

han

ge (a

nn

ual)

1980 (n

o p

ad

s)

% C

han

ge w

/o p

ad

s%

of S

ale

s

1980

(Pad

s+

To

olin

g)

1980 (+

Ad

ditio

nal

Eq

uip

Mo

nth

s 3

-12)

Net s

ale

s $

20,4

65,0

57.0

0

$18,5

24,4

28.0

0

-9.4

8%

16,7

67,8

21.9

9$

-9.4

8%

17,8

47,1

91.1

9$

18,6

56,7

18.0

9$

Costs

and e

xpenses

Cost o

f sale

s $

11,7

59,6

81.0

0

$11,2

54,9

27.0

0

-4.2

9%

10,7

71,8

38.2

6$

-4.2

9%

64.2

4%

10,9

26,5

34.2

6$

11,0

35,0

56.2

6$

Sellin

g e

xpenses

$ 2

,711,3

20.0

0

$ 2

,976,3

96.0

0

9.7

8%

3,2

67,3

87.5

3$

9.7

8%

19.4

9%

3,4

77,7

14.0

4$

3,6

35,4

58.9

2$

Genera

l and a

dm

inis

trative

exp

enses

$ 2

,362,5

28.0

0

$ 2

,204,2

91.0

0

-6.7

0%

2,0

56,6

52.3

7$

-6.7

0%

12.2

7%

2,1

89,0

42.0

9$

2,2

88,3

34.3

8$

$ 1

6,8

33,5

29.0

0

$16,4

35,6

14.0

0

-2.3

6%

16,0

47,1

05.0

1$

-2.3

6%

95.7

0%

16,5

93,2

90.3

9$

16,9

58,8

49.5

6$

Incom

e fro

m o

pera

tions

$ 3

,631,5

28.0

0

$ 2

,088,8

14.0

0

-42.4

8%

1,2

01,4

62.2

8$

-42.4

8%

7.1

7%

1,2

53,9

00.8

0$

1,6

97,8

68.5

3$

Oth

er in

com

e (e

xpense)

Divid

end in

com

e —

$

208,9

52.0

0

208,9

52.0

0$

0.0

0%

1.2

5%

208,9

52.0

0$

208,9

52.0

0$

Inte

rest in

com

e $

186,6

11.0

0

$ 7

2,9

66.0

0

-60.9

0%

28,5

30.1

4$

-60.9

0%

0.1

7%

28,5

30.1

4$

28,5

30.1

4$

Inte

rest e

xpense

$ (3

1,3

76.0

0)

$ (4

0,6

36.0

0)

29.5

1%

(52,6

28.9

0)

$

29.5

1%

-0.3

1%

(52,6

28.9

0)

$

(52,6

28.9

0)

$

$ 1

55,2

35.0

0

$ 2

41,2

82.0

0

55.4

3%

184,8

53.2

3$

-23.3

9%

184,8

53.2

3$

184,8

53.2

3$

Incom

e b

efo

re in

com

e ta

xes

$ 3

,786,7

63.0

0

$ 2

,330,0

96.0

0

-38.4

7%

905,5

70.2

1$

-61.1

4%

5.4

0%

1,4

38,7

54.0

3$

1,8

82,7

21.7

6$

$ 2

,330,0

96.0

0

Pro

vis

ion fo

r incom

e ta

xes

$ 1

,893,2

82.0

0

$ 1

,168,8

30.0

0

-38.2

6%

721,5

84.8

3$

-38.2

6%

4.3

0%

768,0

34.3

0$

802,8

71.4

0$

Net in

com

e $

1,8

93,4

81.0

0

$ 1

,161,2

66.0

0

-38.6

7%

183,9

85.3

8$

-84.1

6%

670,7

19.7

3$

1,0

79,8

50.3

6$

Assum

ptio

ns:

Divid

end in

com

e w

ill sta

y th

e s

am

e fro

m 1

979 to

1980

Changes fro

m 1

979 to

1980 a

re b

ased o

n th

e p

erc

enta

ge c

hange fro

m 1

978 to

1979

Exp

enses fo

r pads a

re b

ased o

n p

roje

cte

d e

xpenses a

s a

perc

enta

ge o

f sale

s


Exhibit F – Additional Tooling

Existing Equipment w/ Permanent Tooling

Estimated Volume (250pads/month * 12) 3000 3000

Cost per pad $ 96.28 $ 48.23

Selling price per pad $ 393.42 $ 359.79

Pads COGS $ 288,840.00 $ 144,696.00

Pads Revenue $ 1,180,270.00 $ 1,079,369.20

Equipment cost (allocated over 5 yrs)

$ 10,000.00

Gross Profit $ 891,430.00 $ 924,673.20

Additional Equipment months 3-9 Cost (75k/month) $ 675,000.00

Additional pads 2250 Pads COGS $ 108,522.00 Pads Revenue $ 809,526.90 Net Income $ 26,004.90

Cumberland Metals

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