Table of Contents
Introduction .........................................................................................................................................................3
Problem ................................................................................................................................................................3
Key Findings .........................................................................................................................................................3
Product – Decoline ...........................................................................................................................................3
Production........................................................................................................................................................4
Price .................................................................................................................................................................4
Cost Breakdown ...........................................................................................................................................4
Breakeven analysis .......................................................................................................................................4
Assumptions.........................................................................................................................................................5
SWOT Analysis......................................................................................................................................................5
Strengths ..........................................................................................................................................................5
Weaknesses .....................................................................................................................................................5
Opportunities ...................................................................................................................................................5
Threats .............................................................................................................................................................5
Competitive Analysis ............................................................................................................................................6
Target Market ......................................................................................................................................................6
Recommendations ...............................................................................................................................................6
Alternative 1 – Market Penetration Pricing Strategy.......................................................................................6
Advantages:..................................................................................................................................................6
Disadvantages: .............................................................................................................................................6
Alternative 2 - Value-based Pricing Strategy ...................................................................................................7
Advantages:..................................................................................................................................................7
Disadvantages: .............................................................................................................................................7
Alternative 3 – Price Skimming Strategy ..........................................................................................................7
Advantages:..................................................................................................................................................7
Disadvantages: .............................................................................................................................................7
Solution ................................................................................................................................................................8
Implementation Plan ...........................................................................................................................................8
Plan B ...............................................................................................................................................................8
Course Concepts ..................................................................................................................................................9
The Five C’s of Pricing: .....................................................................................................................................9
Pricing Strategies: ............................................................................................................................................9
The AAAs
Product Pricing Strategies: ...............................................................................................................................9
Business to Business Pricing Tactics and Discounts .........................................................................................9
References ...........................................................................................................................................................9
Appendix A ........................................................................................................................................................ 10
1. Amortization Calculations (Straight-Line Amortization Method) ............................................................. 10
Building Table ............................................................................................................................................ 10
Cutting Machine ........................................................................................................................................ 10
2. Break Even Calculations ............................................................................................................................ 10
Break Even at 500m² ................................................................................................................................. 10
Break Even at 2000m² ............................................................................................................................... 10
3. Competitor Costs ...................................................................................................................................... 10
Appendix B ........................................................................................................................................................ 11
Total Costs..................................................................................................................................................... 11
Based on 500m² ........................................................................................................................................ 11
Based on 2000m² ...................................................................................................................................... 11
Margin Calculations ...................................................................................................................................... 11
4. Market Penetration Calculations .......................................................................................................... 11
5. Value-Based Calculations ...................................................................................................................... 11
6. Price Skimming Calculations ................................................................................................................. 11
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The AAAs
Introduction
In March 2009, Bob Sweeny at Canty International, a manufacturer of wall systems and coverings, receives a
request for proposal from a purchasing agent at Bryant Inns. Bryant Inns is a successful multinational firm in the
hospitality industry that operates 150 inns and hotels across Canada.
The proposal from Bryant Inns states that they would like to replace their existing vinyl/paper based wall
coverings for a longer lasting, more durable material. The material would have to meet safety standards and
provide a level of soundproofing. Also, once the material was installed it would have to fit with the décor of the
hotel, be stain-resistant and be priced competitively.
After considering the proposal, the product development group at Canty International, known as the Design
Lab, developed Decoline.
Problem
What pricing strategy can Canty International propose to Bryant Inns that will secure their business while
keeping in mind costs and profits? Will Canty be able to increase their current estimated sales capacity of
500m²/month up to or near their production capacity of 2000m²/month?
Key Findings
Product – Decoline
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B2B product for use by commercial and industrial clients
Innovative new fabric material on a sturdy bamboo core
Extensive testing shows that Decoline is:
 Highly abrasion-proof
 Fire resistant
 Soil-proof and easy to clean
 Soundproof
 Useful for ten years
Can be made is a variety of different colours, textures and designs
Fits with the current track system commonly used in commercial buildings
Supply of raw materials (techno-fibre and backing) ban be secured from another division of Canty
Due to specialized nature of the product, Decoline cannot be mass-produced, it needs to be custom
made to customer specifications
Based on reactions from potential customers, Decoline has potential sales of 500 m2 per month
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The AAAs
Production

Procedure of producing Decoline is as follows:
1. Cut bamboo to desired length
2. Apply cement to top area of bamboo
3. Allow cement to dry
4. Apply techno-fabric on bamboo backing by hand
5. Trim edges and clean top area
50 m² of Decoline require approximately 3 hours and 20 minutes to produce
Maximum capacity based on a 173-hour work month is 2598m²
Experience proves that the actual production capacity is 2000m², 77% of the maximum capacity
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Price
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The product is already manufactured on a regular basis at another division of Canty International
 Raw materials can be acquired at cost from other divisions
 Manufacturing division must replace any materials not meeting quality expectations
Negligible incoming transportation costs
Three tables and a cutting machine must be purchased, both having a life of approximately ten years.
Tables are $1550 each and the cutting machine will be $480.00
Cost Breakdown
Monthly Fixed Operational Costs
Supervision
Inspection
Miscellaneous Indirect Labour
Floor Space
Materials
Amortization, tables*
Amortization, cutting machine*
Selling and Administration
Total Monthly Operational Costs
$1,080.00
165.00
84.00
327.00
30.00
38.75
4.00
4300.00
$6,028.75
Variable Costs (per m2)
Techno Fibre
Bamboo backing
Cement
Direct Labour
Total Variable Costs
$7.28
3.30
0.80
1.31
$12.69
*based on a 10 year amortization with $0 residual1
Breakeven analysis2
Monthly Production
500m²
1000m²
2000m²
Break even Selling Price Total Monthly Costs
$24.75 / m²
$12,373.75
$18.72 / m²
$18,718.75
$15.70 / m²
$31,408.75
*based on fixed and variable costs shown above
1
2
See Appendix A for amortization calculations
See Appendix A for break even formula and calculations
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The AAAs
Assumptions
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That Canty International will not exhaust it’s supply of raw materials
That the residual value on the Building Tables and Cutting Machine is $0
That Canty International will be able to accommodate any increases in demand up to 2000m²
SWOT Analysis
Strengths
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Manufacturing facilities already in place
 Design Lab can create products custom made to customer specifications
 Manufacturing division can supply needed materials
Solid interdepartmental supply line
 No profits in interdivisional transfers of finished goods
 Manufacturing division has to replace rejected goods
Minimal transportation costs
 Raw materials produced next to design building
 Short lead time on materials, maximum 2 weeks
Weaknesses
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Heavy reliance on manual labour
 No automated systems in place to increase production
 Skilled labour is very expensive to operate and maintain
No economies of scale
 Current market conditions prevent Canty from creating 'off-the-shelf' items
 Manufacturing limitations also limit variety of products Canty can produce
Opportunities
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New product could be high in demand
 Canty can create products that are vastly superior to the current product
 Multiple customers may be interested in Canty's new product lines
Create new production line
 Semi-automated or fully-automated assembly line production to replace current production
methods
Threats
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Cheaper alternatives
 Canty's current production methods may be too expensive to maintain a competitive advantage
with other inferior products
Long-term sustainability
 Canty is unsure of the long-term effectiveness of their newly developed product
 No current existing market beyond single and specific customer request
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The AAAs
Competitive Analysis
The only competing product is one with a two year life span and a total cost (including installation) of
$16.30m². This product has a two year life span, which means it has a cost of $8.15m²/year.3
Target Market
The current target market is Bryant Inns. Currently, the Decoline product has been made specifically for this
customer. However, Canty International should look at selling this product to any number of commercial
operations with high-traffic buildings. These can include places like schools, restaurants, hospitals, and office
buildings. Currently, Canty has some strategies in place to target new customers including search engine
placement and ads in a Canadian trade magazine.
Recommendations
All pricing strategies assume that Canty is selling an average of 500m² per month as per their preliminary
market research.
Alternative 1 – Market Penetration Pricing Strategy
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Canty International will set the initial price for Decoline low for the introduction of Decoline with the
objective of building sales, market share, and profits quickly
As sales build, Canty’s production costs will decrease and they will be able to further cut prices
We recommend a margin of 26%4, setting the price for Decoline at $33.45/ m²
 The price per year at this margin will be about $3.35/year
Advantages:
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Great potential to build sales, market share and profits
Discourages competitors from entering the market because the price is tough to compete with
Unit cost drops as volume sold increases (experience curve effect)
Disadvantages:
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3
4
Canty International must have the capacity to satisfy any sharp rise in demand
Low prices can be a signal to customers of a low quality product
Consumers may be willing to pay more than what the product is priced for, causing Canty International
to "miss out" on potential profits
See Appendix A for competitor cost calculations
See Appendix B for Penetration Pricing calculations
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The AAAs
Alternative 2 - Value-based Pricing Strategy
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Focus on the overall value of the product as perceived by the potential consumer.
Compare old product to Decoline
 10 year lifespan on Decoline compared to a 2 year life on competing product
 Decoline is durable, low-maintenance, and stain-proof
We have worked out a price that allows the same Cost of Ownership for the customer per year as the
current product
The margin is set at 67%5, making the price $75.00 / m²
 The price per year will be around $7.50/year
Advantages:
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Position Decoline as a quality product, supported by lab testing results that conclude Decoline as highly
abrasion-resistant, soil-proof, heat resistant, sound filter and 10 years service life.
Target potential customers who are interested in long-term usage, as defined in the Target Market
analysis
Large profit margins means Canty can "play" with pricing via trade and/or volume discount options
Disadvantages:
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High price limits customer base to large client operations such as hotel chains or other large businesses
Lack of consumer research which may cause some issues during implementation stage
Customers may not find Decoline product valuable enough to justify higher up-front costs vs. competing
product
Alternative 3 – Price Skimming Strategy
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Set's a high, profit oriented price for Decoline
After the high-price market segment is saturated, we would reduce the price to capture the lower-price
market
Initial margin would be set at 85%6, which would price Decoline at $165.00 / m²
 Yearly cost would be $16.50/year
Advantages:
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There are no comparable products offered by other producers, therefore clients have no external
reference prices
Would ensure that demand does not exceed the maximum production capabilities of 2000m²
Canty can differentiate its product from competitors by highlighting its relative advantage of customers
not having to disrupt business operations every two years to replace the wall coverings
Disadvantages:
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5
6
If prices are set too high, clients might opt out for the competing product with its lower associated costs
Canty runs the risks of seeing new producers entering the market with equivalent or superior products
at cheaper prices
Canty may see a lack of demand for its product due to a prohibitive price point
See Appendix B for Value-Based Pricing calculations
See Appendix B for Price Skimming pricing calculations
7|Page
The AAAs
Solution
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We suggest that Canty International adopts a value-based pricing strategy (alternative 2)
We believe it is the best price representative of Decoline’s value and superiority to the current product
This price can provide a profitable price while maintaining an equitable price structure with competing
product
Implementation Plan
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We will answer Bryant Inn’s request for proposal with a price of $75.00 / m² (plus installation fees)
We will advertise Decoline to other businesses as outlined in the target market analysis
We plan to offer a volume discount of up to a maximum of 40% for customers who purchase over 500m²
in a single order. This is based on our breakeven point analysis while still allowing us to make a profit
We can offer further trade discount terms of 2/30, n60. Based on the high costs of Decoline we want to
allow our customers a reasonable amount of time to pay while giving incentive to pay early
Success of the pricing strategy will be measured in profits, sales, and an increase in demand of up to
2000m², the current maximum production capabilities of Canty International
Plan B
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Market penetration pricing strategy (Alternative 1)
Low price point, especially the yearly cost, will entice customers to buy our product and will build
marketshare
Will build profits quickly, enabling Canty to recover if they incur a loss from the first solution
8|Page
The AAAs
Course Concepts
The Five C’s of Pricing:
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Company objectives - We analyzed the four company objectives which are profit orientation, sales
orientation, competitor orientation and customer orientation to determine our solution.
Customers - We used this concept to understand our consumer’s reaction to different prices. To analyze
consumer’s perception, we looked at the price elasticity of demand to determine how consumers react to
actual changes in price.
Costs - To determine costs, we used variable costs, fixed costs and the sum which would be the total cost.
We also calculated the breakeven point to determine which price revenues would equal costs.
Competition - Competition was determined by how competitors react to certain pricing strategies. In this
case study, it would be two types of products with different life span.
Channel members - The raw materials are provided in-house at another division of the company. We sell the
finished product directly to the customer.
Pricing Strategies:
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Cost base methods - This method determines the final price by analyzing the costs and not recognizing the
role of consumers.
Competitor based methods - We looked at this method to determine how the firm wants the consumers to
perceive the product compared to its competitors.
Value based methods - Value based pricing method is the solution that we chose because it focuses on the
overall value of the product offered from the consumer’s point of view.
Cost of ownership method- A method we looked at which is used to set prices that figures out the total cost
of owning the product over the life of the product.
Product Pricing Strategies:

We analyzed price skimming, market penetration, and value based pricing methods to assess different
pricing options.
Business to Business Pricing Tactics and Discounts
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Quantity Discounts - We can utilize this price tactic by offering a discounted price based on the volume
purchased.
Trade Discounts - We offer standard payment discount terms to customers that pay within a set amount of
time.
References
Grewal, D., Levy, M., Persaud, A., & Lichti, S. (2009). Marketing Canadian Edition. McGraw-Hill Irwin.
Case Study Handout
9|Page
The AAAs
Appendix A
1. Amortization Calculations (Straight-Line Amortization Method)
𝐴𝑚𝑜𝑟𝑡𝑖𝑧𝑎𝑡𝑖𝑜𝑛 =
𝐶𝑜𝑠𝑡 − 𝑅𝑒𝑠𝑖𝑑𝑢𝑎𝑙 𝑉𝑎𝑙𝑢𝑒
𝑈𝑠𝑒𝑓𝑢𝑙 𝐿𝑖𝑓𝑒
Building Table
Cutting Machine
(3 × $1550) − 0
10 𝑦𝑒𝑎𝑟𝑠
= $465/year
= $38.75/month
𝐴𝑚𝑜𝑟𝑡𝑖𝑧𝑎𝑡𝑖𝑜𝑛 𝑅𝑎𝑡𝑒 =
$480 − 0
10 𝑦𝑒𝑎𝑟𝑠
= $48/year
= $4/month
𝐴𝑚𝑜𝑟𝑡𝑖𝑧𝑎𝑡𝑖𝑜𝑛 𝑅𝑎𝑡𝑒 =
2. Break Even Calculations
𝐵𝑟𝑒𝑎𝑘 𝐸𝑣𝑒𝑛 𝑝𝑜𝑖𝑛𝑡 =
𝑃𝑟𝑖𝑐𝑒 =
Break Even at 500m²
𝑃𝑟𝑖𝑐𝑒 =
$6028.75
+ $12.69
500𝑚²
= $24.75m²
𝐹𝑖𝑥𝑒𝑑 𝐶𝑜𝑠𝑡𝑠
𝑃𝑟𝑖𝑐𝑒 − 𝑉𝑎𝑟𝑖𝑎𝑏𝑙𝑒 𝐶𝑜𝑠𝑡𝑠
𝐹𝑖𝑥𝑒𝑑 𝐶𝑜𝑠𝑡𝑠
+ 𝑉𝑎𝑟𝑖𝑎𝑏𝑙𝑒 𝐶𝑜𝑠𝑡𝑠
𝐵𝑟𝑒𝑎𝑘 𝐸𝑣𝑒𝑛 𝑝𝑜𝑖𝑛𝑡
Break Even at 2000m²
𝑃𝑟𝑖𝑐𝑒 =
$6028.75
+ $12.69
2000𝑚²
= $15.70m²
3. Competitor Costs
Current product price: $11.50m²
+ $4.80 installation fee
= $16.30m² per 2 years
= $8.15m² per year
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The AAAs
Appendix B
Total Costs
𝐶𝑜𝑠𝑡 = 𝐹𝑖𝑥𝑒𝑑 𝐶𝑜𝑠𝑡 + 𝑉𝑎𝑟𝑖𝑎𝑏𝑙𝑒 𝐶𝑜𝑠𝑡(𝑢𝑛𝑖𝑡𝑠)
Based on 500m²
Based on 2000m²
𝐶𝑜𝑠𝑡 = $6028.75 + $12.69(500)
= $12.373.75
𝐶𝑜𝑠𝑡 = $6028.75 + $12.69(2000)
=$31408.75
Margin Calculations
𝑀𝑎𝑟𝑔𝑖𝑛 =
𝑆𝑒𝑙𝑙𝑖𝑛𝑔 𝑃𝑟𝑖𝑐𝑒 − 𝐶𝑜𝑠𝑡
𝑆𝑒𝑙𝑙𝑖𝑛𝑔 𝑃𝑟𝑖𝑐𝑒
4. Market Penetration Calculations
𝑆𝑒𝑙𝑙𝑖𝑛𝑔 𝑃𝑟𝑖𝑐𝑒 − $24.75
𝑆𝑒𝑙𝑙𝑖𝑛𝑔 𝑃𝑟𝑖𝑐𝑒
0.26𝑆 = 𝑆 − 24.75
−0.74𝑆 = −24.75
𝑆𝑒𝑙𝑙𝑖𝑛𝑔 𝑃𝑟𝑖𝑐𝑒 = $33.45
0.26 =
5. Value-Based Calculations
𝑆𝑒𝑙𝑙𝑖𝑛𝑔 𝑃𝑟𝑖𝑐𝑒 − $24.75
𝑆𝑒𝑙𝑙𝑖𝑛𝑔 𝑃𝑟𝑖𝑐𝑒
0.67𝑆 = 𝑆 − 24.75
−0.33𝑆 = −24.75
𝑆𝑒𝑙𝑙𝑖𝑛𝑔 𝑃𝑟𝑖𝑐𝑒 = $75.00
0.67 =
6. Price Skimming Calculations
𝑆𝑒𝑙𝑙𝑖𝑛𝑔 𝑃𝑟𝑖𝑐𝑒 − $24.75
𝑆𝑒𝑙𝑙𝑖𝑛𝑔 𝑃𝑟𝑖𝑐𝑒
0.85𝑆 = 𝑆 − 24.75
−0.15𝑆 = −24.75
𝑆𝑒𝑙𝑙𝑖𝑛𝑔 𝑃𝑟𝑖𝑐𝑒 = $165.00
0.75 =
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