Executive Summary 1. We see the company considering the penetration to the new market with a new product.

After testing, their prototype cushion pads, consisting of curled metal, performed superiorly to asbestos pads, which are currently the industry standard compliment product to pile drivers. 2. Despite the fact that there's no such a product on the market at the moment. The copmany is likely to face competition from the asbestos pads market (a substitute product) 3. The potential market demand for pads could range between 174,000 to 234,000 per year 4. The traditional distribution structure for asbestos cushion pads is not well established. The company must be aware a key characteristic CMI of market players and influencers in order to tailor their marketing strategy. 5. The critical issues that company shall prepare a sound solutions for relate to product pricing, market potential, market penetration strategy and competitors opposition. 6. The recommended starting price range is $1,299 - $1,899 7. CMI might obtain $107M in annual profits before marketing 8. In order to penetrate the market, CMI must conduct substantial customer-education marketing initiatives 9. There are several marketing alternatives the company might choose to follow (high price, niche strategy, international markets etc) Situation Analysis Company Cumberland Metal Industries (CMI) is a large and well established manufacturer of curled metal products in the US and has experienced significant growth since its founding. Typically, CMI sells products that are then used as raw materials in other products. Furthermore, CMI is sophisticated at developing and manufacturing products for highly technical applications; traditionally in the automotive sector. Its product known as SlipSeal, has been carrying CMI for several years as the market leader, however, CMI wishes to diversify at this time. CMI management is very interested in a new complimentary product that could be used as a cushion pad in pile driving hammers (a technique used by construction contractors). After testing, their prototype cushion pads, consisting of curled metal, performed superiorly to asbestos pads, which are currently the industry standard compliment product to pile drivers. Their curled metal pads lasted longer and were easier to change compared to asbestos?curled metal transmits force without creating significant heat and still remains resilient enough to prevent shock. Furthermore, the growing concern over the health risks associated with asbestos gave CMI's pads an added advantage. Potential government regulations prohibiting the use of asbestos or making them costly to handle, could push contracts of pile drivers toward CMI's cushion pads. Product benefits vis--vis asbestos pads

*Based on the Corelick and Fazio tests Curled metal pads performed 20% - 33% better than asbestos pads. Curled metal pads lasted 10 ? 20 times as long as asbestos pads. Curled metal pads reach up to a mild 250 degrees Fahrenheit whereas asbestos can reach a dangerous and time consuming 700 degrees Fahrenheit. This results in fewer pads driving an increased number of feet with fewer set changes, lowered downtime and potential injuries. Current perception is that pads are merely a necessity and not a vehicle for cost and performance savings and subsequently ignored. Competitors CMI would be first-to-market with their curled metal pads and faced no direct competition with this product offering. However, CMI faced competition from the asbestos pads market. Fortunately, there are no major players in the asbestos pads market. In fact, most pads are unbranded and are often thrown in free when other contracting supplies are purchased or rented, perhaps lowering any sort of product loyalty to asbestos pads on behalf of contractors. Hence, CMI is unlikely to face stiff competition from asbestos pads. While CMI lacked direct competitors in curled metal pads, it is concerned about new entrants encroaching on this space as the product is easily replicable and raw materials readily available. CMI must factor this competitor response into the pricing decision (See Recommendation). Customers Based on industry sources, CMI estimates that approximately 13,000 pile hammers were owned by companies directly involved with pile driving, with another 6,500 to 13,000 being leased. Additionally, hammers are in operations 30 hours per week and 25 weeks per year, which equates to 750 hours per hammer per year. It was further assumed that most jobs average 20 feet of pile driving per hour. Hence, a range of 290M to 390M pile feet are driven annually. Therefore, the potential market demand for pads could range between 174,000 to 234,000 per year. For example, 390M ft / 0.010M ft x 6 pads = 234,000 pads. (See Recommendation for market size in dollars).

Channels / Purchase Influencers The first step CMI must take in successfully marketing its new pads is identifying the market players. The key industry constituents are pile manufacturers, architectural/consulting engineers, soil consultants, pile hammer distributing/renting companies, engineering/construction contractors, and independent pile-driving contractors. Each of these players has a key characteristic CMI must be aware of in order to tailor their marketing strategy. Channels Importance Name L M H Pros Cons PH manufacturers X High influential Not a primary purchaser Architectural engineers X Most influential Not a primary purchaser Soil consultants X Influential when use Rarely used PH distributing companies X Contractor contact point Conflicting goals (rental time) Contractors X A the primary buyers Players are fragmented Independent contractors X A primary buyer Fragments; not sophisticated PH = pile hammer Although pile driver manufacturers do not purchase a large dollar volume of cushion pads, they may be very influential in the purchase of pads with their recommendation. Architectural engineers are the "ultimate authorities" in the business. They always specify hammers and frequently specify pads. Pile hammer distributing / renting companies who cater to 25% of the market provide the pads to contractors (often with the first set free). This channel might be hesitant to provide pads that enabled a contractor to return equipment for quickly. CMI's and distributors goals are largely opposed. Engineering / construction contractors are sometimes "one-stop-shops" where job design, pile driving and manufacturing are all done by one company. These channels are often large international firms who go after bigger and more sophisticated construction projects. Independent pile-driving contracts are known as "the frontline buying influence." They are knowledgeable, but not sophisticated. They are a good target for CMI, but further down the line. Aside from these purchasers and influencers, there are few existing market channels for CMI to advertise or develop consumer awareness. There are no national industry associations or publications that significantly influence the pile driving business and the company is unsure how effective word-of-mouth communication would be in their sales efforts. However, there are a few existing mediums that CMI may be able to exploit: Construction-oriented magazines such as Louisiana Contractor feature trade advertising, and Associated Pile and Fitting Corporation

sponsor seminars regarding applications in pile driving. Lastly, an endorsement from Professor R. Stephen McCormack, a respected authority in the industry could go a long way in helping CMI grain credibility and needed traction. The traditional distribution structure for asbestos cushion pads is not well established. The pads are sold by heavy construction supply houses, hammer sales and rental shops, pile manufacturers, and a variety of other outlets. Although, profit margins for distributors are considered reasonable, their total profits are small. Main Problem There are 4 main strategic issues that require a sound decision: 1) What to price curled metal cushion pads such that they maximize profits? 2) Is this a large enough market and a substantial enough opportunity? Will CMI have sufficient capacity? 3) What is the optimal approach to penetrate this market? ? endorsements by key stakeholders are essential. a. The appropriate distribution channels? b. The appropriate B2B promotion tactics? 4) What will be the competitor (and compliments) response after entry? ? there are influencers who would like this not to succeed. Recommendation 1) Price the CMI pads based on their economic value to their customers. We recommend pricing the pads at $1,899 per pad. Please see the calculations in the attachment This price leaves some money on the table for the buyers, but very little. We calculated the explicit economic value at $1,979.39 under the Fazio test. However, the buyers could find even greater value in the less tangible advantages of using this product in the form of lowered injuries, fewer OSHA claims and health care claims. Furthermore, with government regulations on the horizon, it avoids liability claims. Subsequently, the price we recommend gives this value away. We believe $1,899 is the best starting price because switching costs are low and there isn't much risk in trying out curled metal cushion pads. A lower price of $1,299 per pad should be granted to companies who wish to buy in bulk and take advantage of long-term contracts (5 years or more). This lower price will not scare off the likes of companies like Colerick and, moreover, the long-term contracts will help avert potential competitor response.

2) With 234,000 potential pads that could be sold annually, assuming 100% of the market, this lends to a total market size of $463M ($444M under wholesale price). A reasonable 25% of the market would garner CMI $111M in revenues and given that the cost basis is low (BEV = 41 units, see below), CMI should go forward and add 19 more sets of equipment in order to meet this capacity goal (see below). If and when the pads catch on, CMI should increase capacity and overtake more market share. CMI could reach upwards of 50% in a short period. Calculating Break Even Volume (BEV): Equipment includes retooling: Q = FC/(P ? Vc) FC = $75,000 new capacity P = $1,899 Vc = $69.18 Q = 75000/(1899 ? 148.12) = 43 units Calculating needed capacity: Annul forecasted units = 25% X 234,000 = 58,500 units Maximum annual capacity per set of equipment = 250 units /month X 12 months = 3,000 units Sets of equipment to meet annual demand goals = 58,500 / 3,000 = ~20 sets (19 new, 1 existing) Under this revenue and cost scheme, CMI will obtain $107M in annual profits before marketing and other costs of introducing/selling the product (see below). Profit = Revenue ? Costs Revenue=58500 X 1899 Costs = 58500 X 69.18 Profit = 111,091,500 ? 4,047,030 = $107M 3) In order to penetrate this market, CMI must conduct substantial customer-education marketing initiatives. It is imperative that CMI win over the architectural engineers and consultants so that they endorse their product to contractors. This endorsement is critical to boost any traction in this market. CMI should also allocate resources to winning over and promoting endorsements from pile hammer manufacturers and resident academics. Once CMI has these stakeholders in its corner, promotion is simplified. The stakeholders do most of the heavy-lifting in promoting the product to their constituents and CMI only needs to circulate these endorsements in the few trade publications and through their outsourced sales force. As stated in the case, CMI should sign-on construction-oriented manufacturers' representatives as an outsourced sales force that can sell directly to large contractors and distribution and supply houses.

4) Pile hammer rental companies are likely to retaliate to CMI's product launch. This could come in the form of a campaign distorting information on the costs and benefits of curled metal products and refusing to carry the products. These channels are the gateway to the last 25% of the market and should not be taken lightly. We recommend, however, that CMI not utilize this channel, as appeasing them to offset their lost revenue in the form of a price cut would not be advantageous and they are unlikely to put forward the attention and care to promote CMI's pads appropriately in their outlets. They may further cut prices and promote the benefits of asbestos pads, but even free asbestos pads are less valuable to customers than CMI pads. Alternatives High Price ? CMI could charge an even higher price to boost its margins. This will likely result in lower market share and perhaps lower total profits, but could be lucrative catering to the larger players in this market and perhaps introducing more customized products. Low Price ? CMI could charge an even lower price to boost market share. This could potentially result in either higher or lower total profits depending on customer reactions. However, it is easier for CMI to make price adjustments from a higher price than a lower price and until it understands its penetration numbers, CMI should enter the market with the higher price. Higher penetration / capacity ? a push for higher penetration (>25%) is a strong possibility for CMI. Given, that there will be little opposition from competitors, CMI can make inroads without well-funded counter campaigns. The key is winning over the purchase influencers and channels. If CMI receives ample kudos from the stakeholders a higher penetration strategy seems appropriate. Niche strategy ? CMI could go with a niche approach fabricating the pads on a customized basis. With this they could charge higher premiums on the products and not have to invest and much higher capacity. This, however, neglects the huge market opportunity in catering to the larger pile driving space. International markets ? CMI could attempt to penetrate the global pads market rather than just the US market. This could lead to greater sales and early dominance in the space, creating a minimum efficient scale that would keep competitors out. This strategy presents some difficulty, however. It treads in strange territory for CMI, which has kept its operations in the US and is familiar with its political, regulatory and cultural climate. Moreover, CMI would likely have to set up a physical presence in the international community, thereby raising their fixed costs (currencies, tariffs, taxes, etc). Implementation Plan Segmenting/Targeting/Positioning Customer contractor segmentation: where to allocate the marketing-spend.

Resource Allocation ? (Total 100%) Large Small Own Equipment 70% 30% Rent Equipment -- -All of the initial marketing effort should focus on buyers under the equipment ownership category. This is because the rental market is considerably smaller and with difficult entry barriers given the conflicting goals of rental firms. This allocation should be amended in the future assuming CMI's cushion pads are successful in the ownership market and demand remains high. Targeting equipment owners gives CMI access to 75% of the market, to larger firms and companies with deeper pockets. Additionally, putting 70% of CMI's marketing resources into large firms is prudent because these customers tend to buy in bulk, are less risk averse and perhaps more willing to agree on long-term contracts. They are also more sophisticated and require more sophisticated and intimate marketing techniques. A plus is that CMI has experience in dealing with large firms from its SlipSeal business and can use this knowledge in future relationships. Smaller firms should require 30% of the resource allocation as they are also an important and substantial segment, albeit less sophisticated. Much of the interaction will be through supply houses when it comes to the small firm market and therefore less blanket and close-contact marketing will be necessary vis--vis large companies. Positioning the product should correspond to the level of sophistication of the large and small firms. More direct sales could take place between CMI and large firms, whereas a supply house will need to take the form of middleman between CMI and the small firms. Product ? the curled metal cushion should be packaged and branded; a departure from asbestos pad marketing. The cushions should ultimately look and feel utilitarian, but should connote an image of advanced technology, cleanliness and safety in order to promote the intangible benefits of the product. Place ? as noted earlier, the channels should swing between using supply houses and direct sales through the contractor manufacturing representatives. In dealing with large customers who buy in bulk, direct sales should take place so that contracts can be negotiated, a reputation established and to make sure there are not any "hold-up" problems with the orders. The rest of the market should be reached through supply houses. Promotion ? promotion in the form of advertising should largely take place through endorsements and trade publications. CMI should give access to and make the primary influencers aware of the metal pad benefits. The more benevolent the endorsements the more this product will catch on. Promotion should also take place through the supply houses, with the acquisition of premium shelf-space and displays that promote the products benefits. Price ? as discussed earlier, two sets of pricing should take place: $1,299 for long-term contract

bulk orders and $1,899 for other orders. By and large, a price skimming strategy is best for CMI Contingency Plans Entering the market CMI must overcome the initial shock that customers will experience when seeing a ten fold increase in price over asbestos pads While the product is technically sound, as was proven by the initial two tests, there is a risk that the industry will not try the CMI pads due to the lack of clear distribution channels and existing attitudes towards pads In the short run, patent protection will be effective in preventing second movers from capitalizing on the promotion and research conducted by CMI. Assuming CMI has a patent for a time period of a few years, the threat of a new type of pad making the curled metal pads obsolete is not en immediate threat. However, once the patent expires, competition will be able to enter the market. Therefore, CMI must focus on building brand recognition for its pads, developing distribution channels and gaining the trust of industry influencers. By gaining wide spread brand acceptance of the curled metal pad, CMI will become the standard and will gain some protection to future threats.

Appendix ? Calculations Formulae Item Asbestos - Colerick CMI - Colerick Asbestos - Fazio CMI - Fazio Feet driven per hour, net 150 200 160 200 (ft/hr)*(net working time) Feet per hour, gross 87 116 92.8 116 Pile length driven per pile 50 50 40 40 Piles driven per set 15 300 6 300 (Piles driven per set)/(Pads in set) Piles driven per pad 0.625 50 0.5 60 (Pile length driven per pile)*(Piles driven per set) Feet driven per set 750 15000 240 12000 (Pile length driven per pile)*(Piles driven per pad) Feet driven per pad 31.25 2500 20 2400 Number of pads in set 24 6 12 5 Number of sets 20 1 50 1 Number of set changes 20 1 50 1 Time for set change (mins) 20 4 20 4 Cost per set $50 $1,000.00 $40 $2,000.00 (Number of pads in set)*(Number of sets) Total number of pads: 480 6 600 5 (Total gross hours spent)*(Number of sets) Hours of pad service (gross): 8.62 129.31 2.59 103.45 (Hours of pad service)*60 Minutes of pad service: 517.24 7758.62 155.17 6206.90 (Cost per set)/(Number of pads per set) Cost of a pad based on feet driven only: $2 $166.67 $3 $400.00 (Cost per set)*(Number of sets) Total cost of pads $1,000 $1,000.00 $2,000 $2,000.00

(Cost of pad based on feet)/(Feet driven per pad) Cost of a foot per pad $ $0.07 $0.07 $0.17 $0.17 (Pile length per pile)*(Piles driven per set)*(Sets) Total feet driven: 15000 15000 12000 12000 (Total feet driven)/(Feet per hour, gross) Total hours spent (gross): 172.41 129.31 129.31 103.45 (Number of set changes)*(Time of change set) Total time spent on changing (mins): 400 4 1000 4 Formulae Item Asbestos - Colerick CMI - Colerick Asbestos - Fazio CMI - Fazio (Total changing time (mins))/60 Total time spent on changing (hours): 6.67 0.07 16.67 0.07 (Total changing time (hours))*(Total gross hours spent) Avg hours spent on changing per hour: 0.04 0.00 0.13 0.00 (Avg changing hours)*60 Avg minutes spent on changing per hour: 2.32 0.03 7.73 0.04 (Avg changing mins)*(Cost per minute) Cost of changing per hour: $9.20 $0.12 $30.68 $0.15 (Total changing hours)*(Total cost per hour) Total cost of changing: $1,586.67 $15.87 $3,966.67 $15.87 (Cost of changing (asbestos))-(Cost of changing (CMI)) Dollars saved each hour due to changing: $9.08 $30.52 (Net working time)*(% of speed improvement) Minutes saved each hour due to speed: 11.55 11.55 (Minutes saved each hour (speed))*(Cost of a minute) Dollars saved each hour due to speed: $45.82 $45.82 ($ saved each hr (speed)+($ saved each hr (changing)) Total $ saved each hour (changing and speed): $54.89 $76.34 (Total $ saved each hr)*(Total hours spent) Total $ saved (changing and speed): $7,098.49 $7,896.95 (Total $ saved)/(Pads in set) Total $ saved per pad: $1,183.08 $1,579.39 (Cost of a pad based on feet driven)+(Total $ saved per pad) Proposed price of a pad based on cust. value: $1,349.75 $1,979.39

Asbestos Time overhead: (1+.5(moving crane))*15%=1.725 or 103.5 mins => 42% or 43.5 mins overhead out of 103.5 mins or 25 mins out of every hour Overhead: 42.00% 25 mins Net working time: 58.00% 35 mins Percentage of speed improvement: 0.33 Costs per hour:

Hammer: $34.00 Crane: $52.00 Leads: $8.00 Labor: 3 laborers $21.00 1 crane operator $10.00 1 foreman $13.00 Overhead: $100.00 Total hour cost: $238.00 Total cost per minute: $3.97 Assumed ft/hr: 20 Cost per foot: $11.90 Legend: Given Costs Savings in $