2. • Problem Iden1fica1on
• Facts
• Assump1ons
• Research
• Target Market
• SWOT Analysis
• Alterna1ve Pricing Strategies
• Solu1ons and Plan of Ac1on
• Course Concepts
• References
2
02/11/2009
3. Problem IdenAficaAon
In order for Canty Interna1onal to remain
compe11ve in the wall covering industry,
maximize profit margins and sales, and aMract
B2B customers, what pricing strategy is vital
for its new product to succeed?
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02/11/2009
4. Facts
• Current wall covering products have a short product life cycle of two years
• Our current and new customers will need to replace their current wall
coverings and will be looking for more durable, eco‐friendly products to follow
the green trend
• The hotel industry is forecasted to grow
• Even with the economic downturn over the last year, markets are expected to
recover
• Hotels will forego the required installa1on costs every two years
• Canty Interna1onal can alter new products to meet changing demand in
industry
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02/11/2009
5. AssumpAons
• New product is eco‐friendly and will be aMrac1ve to customers that will be
replacing their wall‐coverings
• Our target market has old, worn or non exis1ng wall coverings
• Canty Interna1onal is adhering to environmental regula1on policies
• This product will be aMrac1ve to the hotel industry, crea1ng short and long‐
term growth for Canty Interna1onal
5
02/11/2009
6. Research
a) Trends in the Market Place
Forecast Travel AccommodaAon Sales by
• Canada’s travel accommoda1on Sector within Canada:
industry is likely to record stable
growth over the forecasted Sector Year 2009 Year 2010 Year 2013
period.
per million
• Growth in sales is expected to be Hotels 10, 616.60 11,189.10 12,028.60
above 5% in 2010 and a show
modest growth in 2011 of 2‐3%
Chained
7,103.90 7,426.70 7,954.00
Hotels
• Hotel supply has slightly grown
during 2009, and remained
marginally posi1ve Independent
3,512.80 3,762.40 4,074.60
Hotels
• Trends indicate that hotels will be
spending more in the forecasted
period
02/11/2009 6
7. Research (con’t)
b) Pricing
• Decoline product is derived from the cost of
produc1on, the perceived value of the
• Total monthly fixed costs = $6,028.75
product, as well as our compe1tors pricing • Total monthly variable costs = $12.69/m²
Cost of producAon
• Fixed and variable costs calculated at
maximum produc1on (2000m²)
• C = $6,028.75 + $12.69x
• Break‐even selling price per m² is $62.82. Cost & Revenue
• R = S x 500m²
FuncAons
• Our floor price is established at $69.89 (450m²
sold)
• S x 500m² = $6,028.75 + $12.69x
• Ceiling price we have determined to be Break‐even selling
• S = $62.82/m²
$200.00 based on compe1tors’ price strategies price (R=C)
• Decoline will be priced under ceiling offering
customers with incen1ves to buy
7
8. Target Market
Primary target market for Canty InternaAonal is the hotel industry within Canada
Psychographics/Buying
Demographics Geographic
Behaviours
Customer Snapshot
Hotel Outlets Sales per Avg.
Outlet daily Customers in the hotel
(million) room
rate industry want services and
Wall covering industry is
Best 182 3.9 $113.00 products that are
Western expected to grow in
environmentally friendly, as
Delta 234 18.6 $234.00 Canada
Hotels hotels recognize this they will
Holiday 136 6.4 $136.00 have to change their buying
Inn
behavior and cater to their
Renaissance 169 13.7 $169.00
greener consumers.
Long Term Goal: Market Development within the development and
government industries
02/11/2009 8
9. SWOT Analysis: Canty InternaAonal
Internal Strengths: Weaknesses:
‐ Interna1onally established business ‐ roduc1on capacity is at 77%
P
‐ strong research and development group ‐Produc1on relies on assembly line
‐ produces its own raw materials
‐ Ability to develop innova1ve products to suit customer
needs
‐Materials are produced in an adjacent building resul1ng
in no transporta1on costs
‐Lead 1mes for materials are maximum of 2 weeks
‐Design Lab division maintains quality standards
‐No markups on materials within inter‐divisional goods
transfers
External OpportuniAes: Threats:
‐Forecasted growth in Hotel Industry ‐Derived demand and inelas1c demand
‐Cater to new consumer segments and expand into the ‐Compe1tors are introducing cheaper subs1tutes into the
corporate hospitality, government, and commercial real‐ market place
estate industry ‐Price of raw materials are increasing
‐Customers currently served, will be replacing wall ‐Canadian dollar forecasted to increase in value, making
coverings do to 2 year lifespan of current product products more expensive for Americans
‐Customer loyalty
‐Demand for products with a longer lifespan and greener
technology
‐Introduce automated technology in produc1on to
increase efficiency
‐Develop social responsibility by implemen1ng greener
business prac1ces
‐Patents on Technology
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02/11/2009
10. SWOT – Strengths and Weaknesses
Strengths Weaknesses
• Established business • Produc1on capacity is at 77%
• Strong R&D group • Produc1on relies on assembly line
• Produces its own raw materials
• Ability to develop innova1ve products to
suit customer needs
• No transporta1on costs
• Lead 1me on materials is to be maximum
of 2 weeks
• Design Lab division maintains quality
standards
• No markups on materials within inter
divisional goods transfers
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02/11/2009
11. SWOT – OpportuniAes and Threats
OpportuniAes Threats
• Forecasted growth in Hotel Industry • Derived demand and inelas1c demand
• Cater to new consumer segments and
expand into the development and • Compe1tors are introducing cheaper
government industries subs1tutes into the market place
• Customers currently served will be replacing
wall coverings due to 2 year lifespan of • Price of raw materials are increasing
current product
• Canadian dollar forecasted to increase in
• Customer rebuys value, making products more expensive
• Demand for products with a longer lifespan for Americans
and greener technology
• Introduce automated technology in
produc1on to increase efficiency
• Develop social responsibility by
implemen1ng greener business prac1ces
• Patents on Technology
11
12. Pricing Skimming
Our product is a new specialty item with new
features, from this we gather we can charge a
high price of $150.00/m² and slowly skim down
to $89.99/m² over 10 years
Based on 500m² sold per month:
Revenue $75,000.00/month
Net Income $40,891.25/month
Gross Profit $43,591.25/month
Profit Margin 58.12%
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02/11/2009
13. Pricing Skimming
Advantages Disadvantages
• Compe1tors are unable to enter • If prices are set too low, the
the market as price compe11on product quality is diminished and
will force prices to lower, it is not possible to raise prices
compromising the price skimming without consumer resistance.
strategy.
• Consumers who purchase early
• Long term pricing strategy that and pay a higher price may feel
will ul1mately allow Canty cheated when the prices drop.
Interna1onal to gain a large profit
margin.
• Consumers will likely wait for
prices to drop rather than buying
• Higher ini1al price allows for a immediately.
price quality rela1onship for our
customers (psychological pricing
effect).
02/11/2009 13
15. Market PenetraAon Pricing
Advantages Disadvantages
• Selng a lower price for the introduc1on • Low prices does not signal high
of a new product on the market, allows quality to the consumers.
Canty Interna1onal to build sales,
market share and profits quickly. • If segments in the market are
willing to pay more for Decoline,
• Encourages consumers to purchase the selng a low price is like 'leaving
money on the table’.
product immediately rather than wai1ng
for the pricing to drop
• Canty must have the capacity to
sa1sfy a rapid rise in demand.
• Discourages compe1tors from entering
the market because the profit margin is
rela1vely low.
02/11/2009 15
16. Price Skimming and Market
PenetraAon Pricing Mix
Set the selling price at $89.99/m². In the future
as demand increases for our product and
produc1on costs decrease, the price will skim
down to $64.99/m².
Based on 500m² sold per month:
Revenue $44,995.00/month
Net Income $10,886.00/month
Gross Profit $13,586.00/month
Profit Margin 32.2%
02/11/2009 16
17. Price Skimming and Market
PenetraAon Pricing Mix
Advantages Disadvantages
• Lower price allows Canty • Leaving money on the table
Interna1onal to dominate
market share
• Lose the high quality image
of the Decoline product with
• Lower price strategy would this lower pricing strategy
allow Canty to saturate the
market and obtain a quick
rise in profit • Demand may exceed our
supply and the value of the
company and the Decoline
• Builds a large, long‐las1ng, brand will plummet
loyal customer base
02/11/2009 17
18. SoluAon and Plan of AcAon
• Using the price skimming strategy, we will price the Decoline at
$150.00/m2
A higher ini1al price allows for a price quality rela1onship with our
customers
• Analyzing our produc1on costs closely, we will introduce
automa1on in the manufacturing process
• Increase capacity of produc1on from 2000 m2/month to 4000
m2/month
• Aoer the high‐price market is gradually saturated over 1me,
price will decrease to $89.99 m2
We expect increased sales by sustaining a high profit margin of 79% 18
02/11/2009
19. • Cash Discounts – will reduce invoice costs if the buyer or
customer pays prior to the end of the discount period ( i.e.
payment terms 2/15, n/60)
• Quan1ty Discounts ‐ employ quan1ty discounts which
would give B2B customers incen1ve to purchase a greater
volume of Decoline which would provide a greater benefit
over associated cost
100 m2 at 5.0%
200 m2 at 7.5%
300 m2 at 8.75%
400 m2 at 9.375%
500 m2 at 10.0%
02/11/2009 19
20. Product Development Strategy
• Highly abrasion‐resistant and soil‐proof
• Requires very liMle effort to clean and maintain
• The bamboo backing is specially treated for fire resistance
and imparts a cushioning effect to effec1vely filter sound
• Custom specifica1ons such as colour, designs and textures
• Fits current track systems commonly in use in commercial
buildings
• Es1mated service life is ten years.
02/11/2009 20
21. • We will use excellent sales
representa1ves to directly promote the
benefits and specifica1ons of Decoline
• 2010 Wall Coverings Associa1on
Spring Mee1ng
• Posi1ve word of mouth throughout
• Embassy Suites Tampa ‐ Downtown the hotel industry which will
Conven1on Centre in Tampa, Florida increase brand awareness.
from January 1 to February 2, 2010
• Connect with peers, strengthen our • Design a website that will promote the
network of industry contacts, and share product by specifying materials used
business solu1ons and ideas and the benefits of our Decoline
product
• Sales representa1ves will give out
samples of Decoline • Increase brand loyalty.
02/11/2009 21
22. • Primary focus is North America
• Direct approach selling:
Internet
• Conduct e‐commerce
• Reach a wider market segment more
efficiently and cost‐effec1vely
• Decreases cost
Sales force
• Par1cipate at tradeshows /
conven1ons
• Open up more regional sales
offices in Canada and U.S.
02/11/2009 22
24. References
Davis, Ted. Future Forecast Feeling Fuzzy! (2008). EBSCOhost. Retrieved October 2009, from Business
Source Complete.
Graci, Sonya. Dodds, Rachel. Why Go Green? The Business Case for Environmental Commitment in the
Canadian Hotel Industry? (2008). Anatolia: An Interna1onal Journal of Tourism and Hospitality
Research, 19, (2), pg. 251‐270. Retrieved October 2009, from Business Source Complete.
Grunlingh, Werner. Tourism Sector Monitor. (2009). BCStats, 09‐05. Retrieved October 2009, from
Business Source Complete.
Parker, Philip. The 2006‐2011 World Outlook for Wallcoverings. (2008). Retrieved October 2009, from
Business Source Complete.
Second‐Look Recycled Wallcoverings. (2009, October 29). Retrieved October 29, 2009, from
odysseywallcoverings.com: hMp://www.odysseywallcoverings.com
Spring Mee1ng. (229). Retrieved October 30, 2009, from Wallcoverings Assoca1on: hMp://
www.wallcoverings.org/Events/SpringMee1ng/tabid/86/Default.aspx
Types of Commercial Wallcoverings. (2009, October 28). Retrieved October 28, 2009, from
DoItYourself.com: hMp://www.doityourself.com/stry/commercialwallcovers
Warnock, J. (2008, October 7). EBSCOhost: Despite economy, green hospitality ready to take off.
Retrieved October 28, 2009, from EBSCOhost: hMp://0‐search.ebscohost.com.innopac.lib.bcit.ca/
login.aspx?direct=true&db=hjh&AN=34795860&site=ehost‐live
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