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1This case was prepared by Professor Patrick Kaufmann and Associate Professor Frédéric Brunel of

Boston University, and Associate Professor Lisa Abendroth of the University of St. Thomas. It is
based on a case written by Jeffrey Sherman and Benson Shapiro (HBS 580-104). This case is written
for class discussion rather than for an illustration of effective or ineffective managerial decisions.

Last updated September 2019

Metal Pad Manufacturer: MetalCo1

Pile driving machines like the one pictured below use a powerful hammer to drive metal or
cement piles into the ground to form the foundations of buildings. Your company, MetalCo,
has invented a new product, a curled metal pad that can be used to cushion the shock
between pile driving machine hammers and the piles. Cushioning pads keep the shock of
the hammer strike from damaging the pile as they are hammered into the ground. Each year
about 300 million feet of piles are driven in the US.

In the past, the pile driving companies simply used
blocks of wood which sometimes caught on fire, so
now they mainly use unbranded pads made of pieces
of asbestos-like material that they buy from local
industrial supply houses for about $3 a piece. These
supply houses sell a wide variety of products needed
by construction companies. They mark-up their
products to sell for 30% over their cost to buy the
products. Typically, pile-driving companies rent their
equipment and pay their workers an hourly wage.
Rental and labor costs together are about $150 per
hour per machine.

MetalCo is a small ($20m in sales) but successful firm
specializing in a metal wire twisting technology typically
used for making various kinds of filters for the
automobile industry. Your new product is a completely
new application of this technology. It is made from
metal wire twisted to form a coil and then wound to
form a pad. The pad is expected to transfer the driving
energy to the pile much more efficiently and is
protected by a patent. Each pad costs $25 to make

and will not require any additional investment in plant or equipment. Your company has a
policy of marking up its products by 50% over the variable costs of manufacturing.

After months of effort, a responsible pile-driving contractor, PileCo, finally agreed to try your
new metal pads – no strings attached. The test job was typical and required 15,000 feet of
piles to be driven. A job this size would require approximately 100 of the asbestos-like pads
and would drive piles at a speed of 100 feet per hour. PileCo appeared to be very excited by
the results. So far all you know is that the new pads significantly increased the speed with
which piles could be driven and that just 5 pads were needed for the entire job.

You are scheduled to meet with PileCo to negotiate selling your metal pads to them directly
(i.e. skipping the supply house) for a period of 1 year. How would you price the new metal
pads? Purpose

The goal of Part 1 is to experience the process of establishing a price from a single perspective.  Specifically, you will be acting as a seller called MetalCo.  Your primary mission is to determine a price you would be willing to accept for metal pads.  In Part 2, you will use this information in a synchronous meeting with a classmate in the opposite role (buyer PileCo) to negotiate a price for metal pads.

Task

Review the case information for the seller / manufacturer of Metal Pads

 .   Note that you will have some of the same information as buyer / customer PileCo , but also some information that is unique to MetalCo .
 Calculate the price you would be willing to accept for metal pads.  
 Consider how you would promote the new pads.
 Upload your analysis as a Word, Excel, or PDF file.  If necessary, it is possible to upload more than 1 file (e.g. Word and Excel).  Be sure to include your math and any rationale that supports how you got there.

  
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