PROBLEM

How should Singapore Metals Limited price their new product, Curl Metal Cushion Pads.

SITUATION ANALYSIS

SML had grown significantly from when it started in 1991 to 2007, growing from

$750,000 in sales to $55 million. The original business was focused on custom-fabricated

components for the chemical process filtration and other highly technical applications. SML

changed its strategy from selling metal as a finished product to selling products that used certain

types of metal as raw material. When they created Sip-Seal they captured a large share of the

available business and began to grow rapidly. They wanted to diversify away from their heavy

reliance on Sip-Seal and the auto industry, which is when they began examining the curled metal

technology. This is when the idea of the cushion pad evolved. There was little attention paid to

pads by most of the industry. The cushion pad made by SML saved many costs to the users and

was also safer to use than competitors products. Allied Construction tested the products and

wanted to place an actual order once the testing was done.

ANALYZE

Singapore Metals Limited created a new product, the SML Cushion Pad, which has major

potential to be successful in the industry. The product must be successfully introduced to the

market in order to guarantee sales and to be able to compensate for the decline in market share

that occurred from 2006 to 2007. This decline in market share has brought a 42% decrease in

income from operations (EXHIBIT 1). The cushion pad already has a potential buyer before the

product has even hit the market, Allied Constructions. They are just waiting for SML to give

them a price for which they will be selling the product for. In order to figure out what prices the

cushion pad should be, costs of making them has to be looked at. The cost per pad with existing

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 equipment is much higher than if SML decided to purchase permanent equipment (EXHIBIT 2).

The decrease in costs will lead to a lower selling price. The permanent tooling cost $150,000.

This means to break-even, SML would have to sell about 482 thirty cm pads, 367 thirty-five cm

pads, 252 forty-four cm pads, 203 fifty-one cm pads, 172 fifty-eight cm pads, or about 94

seventy-five cm pads (EXHIBIT 3). The 30 cm pad was the most popular size and it is estimated

that 250 pads a month would be sold, so it would take almost two months to have a return on

investment.

RECOMMENDATIONS

The first recommendation for Singapore Metals Limited is to come up with a pricing

solution for the curled metal cushion pads. The price should be higher than regular pads because

it is a work-saving tool and they last longer than the regular pads. In order to come up with a

price list, SML has to decide if they should purchase the permanent tooling or use existing

equipment. SML should purchase the permanent tooling due to the fact it reduces overall costs

by half. This increases the profit potential that can be made by selling the equipment. It does

not take long for SML to begin making their money back after their investment in the permanent

equipment, which makes the purchase worth it in the long run. A price list is provided in Exhibit

2, which shows the prices of making the pads with existing equipment or making the pads with

the purchased permanent tooling. Prices are lower for customers using the permanent tooling,

which means it will be easier to make sales. Singapore Metals Limited has a major pricing

advantage and will be a cost-leader due to the fact that little attention has been paid to pads by

the industry. They are the first company to come up with a pad that saves, time, money, and

energy. This being so they have the luxury to price the products high. They will use a cost-plus

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 pricing strategy, meaning they will set the price at the production cost plus a certain contribution

margin.

The second recommendation for Singapore Metals Limited is to come up with a

marketing strategy that will enhance customer knowledge of their product. The first way to do

this is hold conferences for potential buyer in order to introduce the product to them for the first

time. The target customers and potential buyers will be independent contractors and hammer

distributing and renting companies. SML could give away a free set of pads to people that attend

like they did with Allied Construction. SML needs to have a manufacturer representative in

place that is trained on the cost saving benefit of the pads. The pads have many advantages over

the conventional pads: cost saving, safer, time efficient, and it is important that these benefits are

presented to the customer so that they are aware. Word of mouth is a basic and low cost

marketing strategy with beneficial results. Contractors and others talk freely about products and

if one of them mentions how great the SML pads are, the others will want to try out of curiosity.

The third recommendation for Singapore Metals Limited is to come up with a distribution

strategy/plan. In the beginning states of launching their products they should take advantage of

the already existing distribution networks. These would include equipment supply houses and

hammer distribution rental companies. After the market is more developed SML can create their

own distribution network that will reach architectural and consulting engineers. In order to cover

the small contractors they should sell the pads to hardware stores and wholesalers.

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 EXHIBIT 1

Income
Year 2007 2006
Income 6266442 10894584
Change -4628142
% Per Change -42%

EXHIBIT 2
Estimated Cost Per Pad with Existing Equipment
Pad Size 30cm 35cm 44 cm 51cm 58cm 75cm
Variable
Material 46.92 61.71 95.43 121.71 159.48 287.07
Labor 86.40 99.21 150.06 171.21 207.48 355.08
Total 133.32 160.92 245.49 292.92 366.96 642.15
Variable
Costs
Fixed
360% direct 311.04 357.16 540.22 616.356 746.93 1278.29
labor
Total man. 444.36 518.08 785.71 909.28 1113.89 1920.44
Costs
Contribution 222.18 259.04 392.85 454.64 556.94 960.22
margin
Selling Price 666.54 777.14 1178.56 1363.91 1670.83 2880.66
Estimated Cost Per Pad with Permanent Tooling Purchase
Pad Size 30cm 35cm 44 cm 51cm 58cm 75cm
Variable
Material 46.92 61.71 95.43 121.71 159.48 287.07
Labor 34.92 45.75 65.55 80.85 91.71 168.27
Total 81.84 107.46 160.98 202.56 251.19 455.34
Variable
Costs
Fixed
360% direct 125.71 164.70 235.98 291.06 330.16 605.77
labor
Total man. 207.55 272.16 396.96 493.62 581.35 1061.11
Costs
Contribution 103.78 136.08 198.48 246.81 290.73 530.56
margin
Selling Price 311.29 408.24 595.44 740.43 872.02 1591.67

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 EXHIBIT 3
Break-Even Analysis for Permanent Tooling Purchase
Pad Size 30cm 35cm 44cm 51cm 58cm 75cm
Price 311.29 408.24 595.44 740.43 872.02 1591.67
Units 482 367 252 203 172 94
needed to
be sold

EXHIBIT 4
Porter’s 5 Force Model
Threat Risk Level Solution
Barriers to Entry High Patent the pad product
Threat of substitutes Moderate Customer value proposition
Rivalry among sellers Low Product differentiation
Bargaining power of buyers High Product differentiation and
customer value proposition
Bargaining power of suppliers Low Contracts

EXHIBIT 5
SWOT Analysis
Strengths Weaknesses
• Manufactures pads that last longer than • No pricing strategy
competitors’ cushion pads • No distribution strategy
• Can make any size pad with the same • Marketing
amount of raw materials • Decreasing sales
• Has experience with curl metal • Lack of comparable pricing
technology
• First in the industry to come up with a
cushion pad that last longer.
Opportunities Threats
• Little industry attention to cushion pads • Hesitation from hammer distributors
• No real industry leader and renting companies.
• Construction workers are becoming • Industry must accept the idea of these
more concerned with using new pads.
conventional pads due to safety • Importance of pads is overlooked by
concerns. the industry.
• No similar products • Low cost conventional pads.

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