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					   DECOLINE
            - CASE STUDY -




         Presented by Team B
May Nguyen | Derek Fenton | Tyler Boe | Robin Buntain
 Jeremy Flewelling | Elicia Peterson | Dianne Stebner   Team
                                                        BumbleBEE
DECOLINE
  A Product of Canty International




                                            AGENDA

                                           Introduction
                                             Problem
                                          Target Market
                                         SWOT Analysis
                                       Cost Based Pricing
                                     Competitor Based Pricing
                                       Value Based Pricing
                                        Alternatives 1,2,3
                                             Solution
                                          Plan of Action
                                          Assumptions
                                          Key Concepts
                                           References
DECOLINE
  A Product of Canty International




    INTRODUCTION
    Canty International is a Canadian company that manufactures woll
    systems and coverings for business in the hospitality industry.

    They have been approached by Diana Cromwell from Bryant Inns,
    inquiring about a new product that is durable, sound proof, and fire
    resistant with an extended life

    Canty developed the “Decoline”, a techno-fabric and bamboo wall
    covering in response
DECOLINE
  A Product of Canty International




    PROBLEM


    What pricing strategy should Canty International use to set a selling
    price for the Decoline? This should reflect the value of the product
    while still maintaining desired profit levels for target sales of 500 m2
    per month.
DECOLINE
  A Product of Canty International




    TARGET MARKET

    •Hospitality businesses such as hotels, conference centers, and
    spas

    •Greater Vancouver Regional District is single most popular tourist
    destination in BC1

    •Downtown core has 53% of regional hotel rooms and 88% of the
    city’s hotel rooms are located in downtown Vancouver2

    •Mid-range to high-end businesses which place importance on
    creating a quiet ambience and aesthetic appeal
DECOLINE
  A Product of Canty International




    SWOT ANALYSIS

   Strengths
        • Established company in the hospitality industry
        • Innovative R and D department; cutting edge
        • Existing exposure in local industry with customers already
        approaching us with RFP’s

   Weaknesses
      • Decrease in total profits by transferring resources from one
      product to another
      • Liability of equipment investment needed to produce
      Decoline
      • Production levels below optimum capacity (77%)
DECOLINE
  A Product of Canty International




    SWOT ANALYSIS

   Opportunities
      • Build loyal customers like Bryant Inns
      • Maximize profits with the possibility of high perceived value
      of Decoline
      • Capitalize on the booming hospitality industry in Vancouver
      (ie Olympic Games, popular cruise ship port)

   Threats
       • Businesses not perceiving value of the product
       • Unstable economy may stall the hospitality industry
       • Competitors may introduce a competitive product
DECOLINE
  A Product of Canty International




                                     COST BASED PRICING

  Break-Even

  (Assumption $5.40 gained in revenue is also $5.40 spent in costs)

  @500 m2 Decoline sold

                              Costs=Revenues

       12369.24 + 5.40(500) = 500x + 5.40(500)

                                     x = $24.74/m2 (selling price of Decoline)
DECOLINE
  A Product of Canty International




                                     COST BASED PRICING

  Floor Price

  We are creating a floor price that involves setting a price that
  achieves 10% markup on costs

              Rate of markup=M/costs
                          .10=M/$24.74
                            M=$2.47

                     Floor price = $27.21/m2
DECOLINE
  A Product of Canty International




      Potential selling prices and monthly income analysis for Decoline
      Selling Price/m2        $27.21         $35.00            $40.00             $45.00         $76.10
      Revenue               $13,605        $17,500          $20,000         $22,500           $38,050
      Variable costs        $6340.49       $6340.49         $6340.49        $6340.49          $6340.49
      Contribution          $7264.51       $11,159.51       $13,659.51      $16,159.51        $31,709.51
      Fixed costs           $6028.75       $6028.75         $6028.75        $6028.75          $6028.75
      Net income            $1235.76       $5130.76         $7630.76        $10,130.76        $25,680.76
      Profit-volume ratio   53.4%          63.8%            68.3%           71.8%             83.3%

         Current product monthly income analysis

      Sales volume (m2)     Cost of                Selling price/m2        Revenue         Net income/loss
                            materials/m2
      500                   $6.50                  $11.50               $5750              -$4139.20
      1000                  $6.50                  $11.50               $11,500            -$2292.40
      2000                  $6.50                  $11.50               $23,000            $1401.02
      2598                  $6.50                  $11.50               $29,877            $4391.20
DECOLINE
  A Product of Canty International




      10 year Profit analysis

          Wall Panel    Sales Volume(m2)   Selling price/m2   Monthly income   10 year income
      Current product          500              $11.50          -$4139.20            n/a
      Decoline                 500              $40.00           $7630.76         $7630.76
      Decoline                 500              $45.00         $10,130.76        $10,130.76

      Current product        1000              $11.50           -$2292.40          n/a
      Decoline               1000              $40.00           $21,281.25      $21,281.25
      Decoline               1000              $45.00           $26,281.25      $26,281.25

      Current product        2000              $11.50            $1401.20          $7006
      Decoline               2000              $40.00            $54,620          $54,620
      Decoline               2000              $45.00            $64,620          $64,200
DECOLINE
  A Product of Canty International




      COMPETITOR BASED PRICING


      Research showed that competitor pricing for high value wall paneling and
      systems was in the range of $30 to $75 per square meters. A close
      competitor price was $40 per square meter.
DECOLINE
  A Product of Canty International




      VALUE BASED PRICING

      Achieving value perception based on the price point.

      Setting price high may resonate high value.

      Setting price too high may cause loss of clients.

      Setting price low may signify a bargain to the clients.

      Setting price too low may signify a weak product.

      Consider premium pricing and cost of ownership strategies.
      (Mentioned later)
DECOLINE
  A Product of Canty International




    ALTERNATIVES
   Alternative 1 – Premium Pricing (Competitor-Based Pricing Strategy)
   Priced deliberately higher than its’ competition. Consumers will perceive
   Decoline to be a superior product

   Advantages
   •Allows for premium market penetration
   •Creates an exclusive brand perception and image for Decoline
   •Maximizes the sales price per unit sold

   Disadvantages
   •High cost may cause decreased demand
   •Dissatisfied clients if high expectations aren’t met
   •May be difficult to establish high value and separate itself from competitors
DECOLINE
  A Product of Canty International




    ALTERNATIVES
   Alternative 2 – Price Skimming (New Product Pricing Strategy)
   Clients may be willing to pay a higher price for an innovative new product
   like Decoline. Once sales decrease, the price of Decoline can be lowered to
   capture the next most price sensitive market segment

   Advantages
   •A higher sale price will fortify a premium brand image
   •Consumers will perceive Decoline to be a superior good
   •Flexibility in price, may create value for more price sensitive clients

   Disadvantages
   •Consumers may not want to pay higher prices for wall coverings
   •If consumers fail to see the value in a premium wall covering, Decoline will
   not be profitable
   •Skimming prices may compromise perception as a premium product
DECOLINE
  A Product of Canty International




    ALTERNATIVES
   Alternative 3 – Cost of Ownership Method (Value-Based Pricing Strategy)
   When compared to its competition, Decoline costs less over time and
   consumers will actually save money by making a higher initial investment.

   Advantages
   •Consumers will perceive Decoline to be a cost-effective alternative
   •Positioned to steal market share from its competition quicker
   •Maximizes profits while commanding higher sales prices

   Disadvantages
   •Requires extensive consumer research to determine value perception
   •Pricing must take into account possible changes in value perception
   •Consumers may not be willing to make a high initial investment when
   buying wall coverings, even though they will save money in the long-run
DECOLINE
  A Product of Canty International




    SOLUTION

    Alternative #3, cost of ownership pricing strategy, will be
    implemented.

    This strategy involves comparing the cost of ownership prices of the
    current product and the Decoline. This method creates value in the
    eye of the consumer because the price of Decoline over it’s life time
    will be less than that of the current product.

    We are setting a selling price for Decoline of $45.00/m2

    Cost of ownership for Decoline at $5.40/m2 per year compared to
    $8.15/m2 of current product
DECOLINE
  A Product of Canty International




                                     COST OF OWNERSHIP
                                        Current Product
                  Selling price/m2                        Cost of ownership/m2

                       $11.50                                    $8.15



                                           Decoline
                  Selling price/m2                        Cost of ownership/m2
                       $27.21                                      $3.26
                       $35.00                                      $4.04
                       $40.00                                      $4.54
                       $45.00                                      $5.40
                       $76.10                                      $8.15
DECOLINE
  A Product of Canty International




    PLAN of ACTION

    Week 1
    • finalize R and D, cost analysis, concept testing, and order equipment ($5130)
    • hiring sales representative – budget: $18/hour and 6% sale commission
    •Purchase business cards for sales representative - $100
    •Contact graphic designer to produce brochures: budget: $500

    Week 2
    •Send rep on sales call to Bryant Inns’ purchaser, with proposal
    •Take brochure design and print off first-run ($1000)
    •Start pre-fabrication of bamboo backing for first order
    •Start website update process ($600)
    •Develop trade magazine advertisement, purchase the quarterly ad space , and
    purchase search engine optimization ($1200)
DECOLINE
  A Product of Canty International




    PLAN of ACTION

    Week 3
    • begin production of Decoline (conditional on signed contract by Bryant Inns)
    • Launch Decoline marketing campaign (website up, brochures complete)
    •Run booth at BC Hospitality Industry Conference on Nov. 22-24 2009.3 ($1000)

    Week 4
    •Make appointments and send rep on sales calls to downtown hotels - niche
    marketing
    •Do research on new developments in the GVRD and approach them
    •Focus on Ritz-Carlton, Hotel Georgia, Westin Bayshore renovations, and Hotel
    Indigo among other developments
DECOLINE
  A Product of Canty International




    PLAN of ACTION

    Pricing Tactics
    •Quantity discount – If client purchases 2000 m 2 we will reduce the price to
    $40.00/m2 (cannot be combined with early purchase)
    • Early purchase discount – We will extend a 10% purchase discount to any
    client that places an order for Decoline within the first quarter of operations
    • Cash discounts – we will offer 3/10, n/30 terms

    Long-run plan
    • follow up with Bryant Inns and get feedback on Decoline (test marketing)
    •Continue one-to-one marketing, sales calls, cold calls, internet marketing
    •Possibly expand the current product into residential market
    •Consider geographical expansion into developing markets on Vancouver
    Island and Kelowna
DECOLINE
  A Product of Canty International




    ASSUMPTIONS

    -Variable costs do not decrease with larger purchases

    -Everything produced is sold

    -Taxes are not taken into account

    -Fixed costs for the current product are the same as Decoline

    -Cost of installation (labour) is offset by the installation price charged to client

    -For the 10 year income comparisons we are assuming that the client would
    update their paneling every 2 years for the current product

    -The cost of materials for the current product is $6.50/m.4, 5
DECOLINE
  A Product of Canty International




    KEY CONCEPTS
   -Break-even point                     Ch. 12
   -Value based pricing method           Ch. 12
   -Cost of ownership pricing strategy   Ch. 12
   -Fixed costs and variable costs       Ch. 12
   -Premium pricing                      Ch. 12
   -Price skimming                       Ch. 12
   -Pricing tactics                      Ch. 12
   -Quantity discount                    Ch. 12
   -Cash discount                        Ch. 12
   -Beta testing                         Ch. 10
   -Test marketing                       Ch. 10
   -RFP (Request-for-proposal)           Ch. 7
DECOLINE
  A Product of Canty International




    REFERENCES
   B.C Room Revenue Report. (1996).                                         1
          Retrieved October 29th, 2009, from
   http://www.bcstats.gov.bc.ca/pubs/tour/trr9607f.pdf

   Tourism- Economy Sector. (2005).                                          2
           Retrieved October 30th, 2009, from
   http://vancouver.ca/commsvcs/planning/corejobs/pdf/research/11tourism.pdf

   B.C Hospitality Industry, (2009).
          Retrieved November 1st, 2009, from                                3

   http://www.hospitality-trade.com/

   Portafab. (2009).                                                        4
          Retrieved October 27th, 2009, from
   http://www.portafab.com/

   USA Wallpaper, (2009).                                                   5
          Retrieved October 26th, 2009, from
   http://www.usawallpaper.com/

				
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