Canty International
DECOLINE
Launching Decoline to market:
Potential pricing strategies
Rogers, Ungaro, Hilton, Gerard, Talbot, Staryk
Set 1E, Team C
11/2/2009
CANTY INTERNATIONAL
CHOOSING OPTIMAL PRICING STRATEGY IN LAUNCHING
DECOLINE TO MARKET
Prepared for:
MKTG 1102
Instructor: Tom Jopling
BCIT School of Business
Prepared by:
BCIT School of Business Students
Brenda Rogers, Jenn Ungaro, Jennifer Hilton, Julie Staryk, Marshall Talbot, Simon Gerard
November 2, 2009
Page 2 of 15
Introduction
Problem
What price should Canty International set for their new product, Decoline, to make sure it
maintains reasonable profit while also ensuring that there is a high degree of perceived value
for current and potential customers?
Target Market
Canty International will market Decoline to large, high volume and public facilities such as
schools, hospitals, offices, and hotels. The desired target market is hotel chains with
approximately 80-200 locations across Canada.
Page 3 of 15
Opportunities for Decoline
Strengths for Decoline
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
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Newest technology
Durable, longer life (10 yrs)
No current competitors or
substitutes
No transportation costs
Low lead time ( 2 weeks)
Current loyal client-base
Customize look for client
Can fit on old tracks
Eco-friendly
Premium product
More in-elastic item
Lower costs to produce than any
competitor (other department
manufactures materials)
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Weaknesses of Decoline
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Expensive start-up costs
Cannot be an off-shelf item
Product is un-known
Small production warehouse
Customer not aware of product
(need awareness)
Loss of perceived value
No competition
No market development causing rise
in advertising cost
Not tested in market
Gain new hotel clients
Appeal to larger group of people
because of the new technology
Broaden target market -new clients
(schools, etc.)
Green marketing popularity
Can raise prices due to new and
improved technology
Huge growth potential
Potential to build client loyalty with
new product
Co branding
Customer relationship management
(contractor)
Hotel industry growth
Recommend current clients replace
old product with new Decoline
Threats for Decoline
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Economy is unstable
Inevitable competition- could undersell
Changing demands of the industry
New product
Baby boomers purchasing behaviour
Hotels involved with exclusive
contracts
A Variable cost increase
Bamboo deficiencies
Page 4 of 15
Pricing Strategy # 1
Value-based Pricing
Price: $50
Increase the price along with the perceived value of Decoline over the old product. This method will highlight
the superior quality and features of the new Decoline technology and satisfy our target market. Decoline must also
emphasize the long term cost savings for our clients, rather than focusing on the higher upfront cost.
Break-Even Analysis
R
e
v
e
n
u
e
s
Units
0
150
200
250
300
350
400
450
500
&
C
o $
s
t
s
20,000.00
15,000.00
10,000.00
Fixed Cost
Variable Cost
5,000.00
0.00
Total Cost
0
400
600
Revenue
Units Sold
Fixed
Cost
Variable
Cost
Total
Cost
Revenue
Profit
6,028.75
6,028.75
6,028.75
6,028.75
6,028.75
6,028.75
6,028.75
6,028.75
6,028.75
0.00
1,903.50
2,538.00
3,172.50
3,807.00
4,441.50
5,076.00
5,710.50
6,345.00
6,028.75
7,932.25
8,566.75
9,201.25
9,835.75
10,470.25
11,104.75
11,739.25
12,373.75
0.00
7,500.00
10,000.00
12,500.00
15,000.00
17,500.00
20,000.00
22,500.00
25,000.00
-6,028.75
-432.25
1,433.25
3,298.75
5,164.25
7,029.75
8,895.25
10,760.75
12,626.25
ADVANTAGES:
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


200
Higher customer perceived value
Ability to raise prices
Charge higher price due to perceived value
Ability to lead customer to believe high value of
product
Break-Even Units: 161
Total Fixed Costs:
Total Variable Unit Costs:
Expected Unit Sales:
Price per Unit:
6,028.75
12.69
500
50
DISADVANTAGES:
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Customers value differently/difficult to control
If low perceived value, customers won’t switch products
Low perceived value = low profit
Pricing Strategy #2
Market Penetration Pricing
Price: $29.99
Set price for Decoline very low to grab initial market share for this product. Dominate the market share with low
pricing. Sell to everyone and anyone. The low profit margins will discourage competitors from entering the market. This
strategy assumes Decoline is the only product in the market, and all customers want it. Lower profit margins would
mean higher sales volumes are required to remain in business. Low price will excite customers, but can also signal low
quality.
Break-Even Analysis
R
e
v
e
n
u
e
s
Units
0
150
200
250
300
350
400
450
500
Fixed
Cost
6,028.75
6,028.75
6,028.75
6,028.75
6,028.75
6,028.75
6,028.75
6,028.75
6,028.75
&
20,000.00
15,000.00
C
10,000.00
o $ 5,000.00
s
0.00
t
0
s
Variable
Cost
0.00
1,903.50
2,538.00
3,172.50
3,807.00
4,441.50
5,076.00
5,710.50
6,345.00
Total
Cost
6,028.75
7,932.25
8,566.75
9,201.25
9,835.75
10,470.25
11,104.75
11,739.25
12,373.75
Fixed Cost
Variable Cost
Total Cost
200
Revenue
0.00
4,498.50
5,998.00
7,497.50
8,997.00
10,496.50
11,996.00
13,495.50
14,995.00
ADVANTAGES:
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


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
400
600
Revenue
Units Sold
Less profitable per unit sold
Possibly gain more profit from conservative estimate(500)
Discourage competitors
Increase customer loyalty/build market share
Increase volume to build profit
Ability to met demand with %77
Profit
-6,028.75
-3,433.75
-2,568.75
-1,703.75
-838.75
26.25
891.25
1,756.25
2,621.25
Break-Even Units 348
Total Fixed Costs:
Total Variable Unit Costs:
Expected Unit Sales:
Price per Unit:
6,028.75
12.69
500
29.99
DISADVANTAGES:
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
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Less profitable per unit sold
Possible low perceived value
Difficult to raise price in future
“Leaving money on the table”
Long time before break-even and seeing profits
Page 6 of 15
Pricing Strategy #3
Price Skimming
st
2nd Price: $37.99
1 Price: $42.99
Upon entering the market, Decoline will sell at the higher price of $42.99 to catch innovators and early adopters,
who will be willing to pay more. Since Decoline is a complete new innovation in the world of wall coverings as well as an
eco-friendly product, a high price is warranted. This price will not be too high as to deter customers from switching to
the new product from the old. Although, the higher price is still reflecting the great quality and perceived value and will
be very attractive to a large market. Once we notice a decrease in sales due to saturated market or a substitute product
enters the market, we will drop our price to $37.99 and remain competitive. This will keep profit margins and perceived
value high for the product’s life.
R
e
v
e
n
u
e
s
Units
0
150
200
250
300
350
400
450
500
Fixed
Cost
6,028.75
6,028.75
6,028.75
6,028.75
6,028.75
6,028.75
6,028.75
6,028.75
6,028.75
Break-Even Analysis
&
20,000.00
15,000.00
C
10,000.00
o $
5,000.00
s
0.00
t
0
s
Variable
Cost
0.00
1,903.50
2,538.00
3,172.50
3,807.00
4,441.50
5,076.00
5,710.50
6,345.00
Fixed Cost
Variable Cost
Total Cost
200
600
Revenue
Units Sold
Total
Cost
6,028.75
7,932.25
8,566.75
9,201.25
9,835.75
10,470.25
11,104.75
11,739.25
12,373.75
Revenue
0.00
6,448.50
8,598.00
10,747.50
12,897.00
15,046.50
17,196.00
19,345.50
21,495.00
ADVANTAGES:
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No competitors or substitutes
Reach highest value segment (innovator, early adopt.)
Keep prices high until substitutes arrive in market
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Difficult for competition to break into market
Set price to limit demand to control production
capacity
Higher profit margin allows room to pay commissions
to contractors

400
Profit
-6,028.75
-1,483.75
31.25
1,546.25
3,061.25
4,576.25
6,091.25
7,606.25
9,121.25
Break-Even Units 199
Total Fixed Costs:
Total Variable Unit Costs:
Expected Unit Sales:
Price per Unit:
6,028.75
12.69
500
42.99
DISADVANTAGES:
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Loss of high value segment when price lowers
Customers feel cheated when price lowers
Producing smaller volumes, higher price means higher
production costs
Page 7 of 15
2nd Market Price
Break-Even Analysis
R
e
v
e
n
u
e
s
Units
0
150
200
250
300
350
400
450
500
&
20,000.00
15,000.00
C
10,000.00
o $
5,000.00
s
0.00
t
0
s
Fixed
Cost
6,028.75
6,028.75
6,028.75
6,028.75
6,028.75
6,028.75
6,028.75
6,028.75
6,028.75
Fixed Cost
Variable Cost
Total Cost
200
400
600
Revenue
Units Sold
Variable
Cost
0.00
1,903.50
2,538.00
3,172.50
3,807.00
4,441.50
5,076.00
5,710.50
6,345.00
Total
Cost
6,028.75
7,932.25
8,566.75
9,201.25
9,835.75
10,470.25
11,104.75
11,739.25
12,373.75
Revenue
0.00
5,698.50
7,598.00
9,497.50
11,397.00
13,296.50
15,196.00
17,095.50
18,995.00
Profit
-6,028.75
-2,233.75
-968.75
296.25
1,561.25
2,826.25
4,091.25
5,356.25
6,621.25
Break-Even Units 239
Total Fixed Costs:
Total Variable Unit Costs:
Expected Unit Sales:
Price per Unit:
6,028.75
12.69
500
37.99
Page 8 of 15
Proposed Solution
Price Skimming Pricing
We at Brenda and the Buck-Ups Corp. believe that the price skimming pricing strategy is the most advantageous
in creating our desired profit and maintain perceived value of our product. With this option, we are able to capitalize on
being the first in the market with a longer lasting, eco-friendly product by charging a higher price. Decoline's high initial
price will correspond with its quality and innovative features and reflect its value to customers. When market saturation
occurs and sales drop, we will attract new customers with a lower price point. If a substitute product appears in the
market, we will lower the price accordingly to stay competitive.
Compared to our alternatives, this method delivers a high margin of profit in the beginning as well as maintaining a
reasonable profit margin in the long-term. With this, our sales will remain steady and stable over a long period of time
yielding enduring profits. This long profit life-time is one primary reason for us choosing this strategy and where the
others fell short.
With the initial market price of $43.99, we have the profit margin of 78% which leaves room to go down to our second
market price of $37.99 and still have a desirable profit margin of 54% for the business. At this time, the market will have
a high perceived value of Decoline and will jump all over the new low price for a product with such high quality.
Plan of Action
To get the ball rolling with Decoline we will:
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Contact each of our existing clients and inform them of our new longer lasting product. We will create high
value perception by providing examples of the benefits of our product (better looking, longer lasting, money
saved through not having to close shop to replace existing material as often, fits on same track that they already
have, eco friendly etc....)
Hire 2 (one for Western & one for Eastern Canada) sales representatives with industry contacts, specifically for
Decoline product. Their mandate: to build profitable relationships with Hotel chain purchasers and decision
makers; and close large deals using volume discounts (if needed)
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Launch affiliation program with General contractors who specialize in the hotel market. Set up a commission
based program for any clients referred to Decoline with confirmed orders.
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Sign contract with local designer to design special line of decorative fabrics
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Use existing corner office at Canty International to set up a small storefront showcasing a sample of Decoline
and the related designer fabric choices
Page 9 of 15

List a full page colour advertisement in Roomers & Hotel industry quarterly magazines
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Promote Decoline at our tradeshow booth at: Hotel Association of Canada's Conference &
Tradeshow...and...Tourism Expo
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Launch promotion for Decoline by focusing on long term cost savings & the use of eco-friendly materials. This
Green Marketing appeals to the current trend in the hotel industry.
APPENDIX
Key Findings
Assumptions
We have made the following assumptions regarding Canty International and their new product, Decoline:
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Capable of replacing all current wall coverings
Actual eco-friendly product
New product technology will be in high demand
Newest and best wall covering available in market
Will be launching only in the Canadian market for the first year, with second year expansion into USA.
Competitor’s pricing is similar to Canty International’s previous product
Fibre= 7.28/m2, bamboo=3.30/m2, cement=0.80/m2
Supervision, inspection, indirect labour, floor space expense, tools, material, selling = total of $5986.
Factory presently operates at 77% capacity for 8.65 hour work day, 5 times/week. Should demand be high for
Decoline, Canty International can add a second shift to double production, while using the same equipment.
Canty International is in good standing with current loyal customer base
Facts of the Case
Canty International is a manufacturer of wall systems and coverings for industrial and commercial use; materials they
were to supply in this case had to be durable, stain-resistant and meet industry safety requirements; they must be
pleasing to the eye, fit with the decor, and contribute positively to the desired quiet ambience of the hotel’s
accommodations and be competitive; Canty International worked with his product development group, known as the
Design Lab; The new produced product consists of a surface layer made from an innovative techno-fabric covering
cemented to a lightweight and sturdy bamboo fibre core; raw materials are produced in an adjacent building; for the 10
square meters requested, their fixed costs are $5986.00 per meters square; variable costs came to a total of $12.69 per
meters square; price per unit totalled at $29.99 per meter square; Cost per m2=$24.70 break even cost at 500 units per
Page 10 of 15
month; The design, texture and colour selection offered has to equal or surpass the competition; To meet the changing
demands of the industry, Canty International specially tints and designs the top layer of material according to the
specifications of each customer. The colour, texture and design requirements change from time to time for each
customer so the techno-fibre cannot be prepared in advance.
Research
Competition Research
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Substitute currently in market: H & L makes ‘Hollteka’, an eco-friendly 'non-vinyl' 'non-woven' wall covering that
is similar to Decoline
Price estimate of Holteka: 20% more than regular vinyl coverings
-NCI ltd. makes the 'commercial standard' vinyl and wood coverings for many big hotel chains (show on their
website: http://www.ncionline.com/)
Current 2 year product sells for $11.50 per m2
New Decoline product sells for $43.99 (Price skimming initial price), that's a substantial difference of $32.49 per
m2. Current customers will need to see the long term cost savings over a 10 year period.
Old Product
Vinyl/paper based
Foam core panels on track system
Two year life span
Sound-proof
New Product
Fabric panel
Bamboo core panel on track system
Easy to clean
Abrasion-resistant
Fire resistant
Ten year life Bamboo backing
Two year life Fabric panel
Customized to order
Sound proofing
Hotel Research
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Overall national accommodation revenue by year: (in billions of dollars)
2003: $11.0, 2004: $12.6, 2005: $14.26, 2006: $17.9, 2007: $18.8
Hotel chains (with 80+ units) listed in the Top 40 Hotel Companies in Canada by Revenue: "Decoline Target
Market"
o Four Seasons, 82 units
o Fairmont Hotels & Resorts 91 units
Page 11 of 15
Concepts Used
Chapter 2:
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
Situational analysis (SWOT): Evaluation of current standings of Canty International and provide insight into new
opportunities, strengths, weaknesses, and threats of creating our new product.
Steps 1-7 of marketing plan: Used in deciding our goal/mission statement; SWOT, market trend, environmental
& competitive analysis; marketing objectives (short and long term); segmentation and target market analysis;
financial analysis.
Chapter 4:
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
Macro-environmental factors: When creating our SWOT analysis we looked at our competitors, economic issues,
and technological changes in our product.
Social Trend: Using green marketing. We realized that our new product could be marketed as environmentally
friendly giving us an advantage over similar products
Chapter 7:
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Characteristics of ‘Business to Business’ buying was used for our final decision of which strategy to use.
Chapter 12:
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Pricing strategies evaluated cost based, competition based, value based methods to decide how to price our
product.
New product pricing choosing how to price our new product.
Pricing tactics looking at the pricing tactics of the business to business market
The five C's of pricing in coming up with our prices for each option
Break-even analysis in determining the break even point/price
Page 12 of 15
Pricing
FIXED COSTS:
Supervision
Inspection
Indirect Labour
Floor Space Expense
Tools & Materials
Selling/Advertising
TOTAL
$1080
$165
$84
$327
$30
$4300
$5986.00
AMORTIZED EXPENSES:
Tables: 4650/10 years=465 per year/12 months=38.75 per month
Cutting machine: 480/10 years=48 per year/12 months=4.00 per month
5986.00 + 38.75 + 4.00 = $6028.75 Total Fixed Costs per month
VARIABLE COSTS:
Techno fibre 6.55/0.9 m2
Bamboo 2.97/0.9 m2
Cement 8.3 x 96 /10
Labour 13.06/10
TOTAL
= $7.28 per m2 (m2=square metres)
= $3.30 per m2
= 0.80 per m2
=1.306 per m2
=$12.69 per m2
C=F+Vx
C=6028.75+12.69x
Cost per m2=$24.70 break even cost at 500 units per
month
R=C
24.70x=6028.75+12.69x
12.01x=6028.75
x=6028.75/12.01
x=501.98
x=502 units m2
1. Value based Premium: $50
50.00-24.70=25.30 mark-up, 25.30/24.70=102% margin per m2
Profit: $50x500 units=25000, 25000-(24.70x500)=12650 profit per m2
Volume discount of 5% when select clients are purchasing 250 units
50.00x250 units=12500 less 0.05($625)=$11875 net price
Page 13 of 15
Profit: 11875-(24.70x250units)= $5700 profit
2. Price Penetration: $29.99
29.99-24.70=5.29 markup, 5.30/24.70=21.46% margin per m2
Profit: 29.99x500 units=14995, 14995-(24.70x500) =
14995-12350=$2645 Profit
3. Price Skimming: (1) $43.99 (2) $37.99
43.99-24.70=19.29 mark-up, 19.29/24.70=78% margin per m2
Profit: 43.99x500 units=21995, 21995-(24.70x500) =$9645 profit
After competition and when sales are declining:
$37.99
37.99-24.70=13.29 mark-up, 13.29/24.70=54% margin per m2
Profit: $6261
References
Hucal,C. ( 2004, July). Green from Wall to Wall. Retrieved October 26, 2009, from
http://www.edcmag.com/Articles/Cover_Story/8f8837e14c697010VgnVCM100000f932a8c0
Building value through fibrous materials technology. ( 2009, October). Retrieved October 29, 2009, from http://www.hollingsworthvose.com/products/industrial/wallcovering/commercial_applications.htm
Producers of Fine Wall Coverings. (2004). Retrieved October 28, 2009, from http://www.ncionline.com/
Palm Beach County Hotel and Lodging Association. (2005). Retrieved October 29, 2009, from http://www.hotelassociation.com /
Commercial Wall Coverings. (2009). Retrieved October 30, 2009, from
http://www.wallcoverings.org/CommercialWallcoverings/tabid/67/Default.aspx
Multiview. (2009). Fine Wall Systems Suppliers. Retreived October 29, 2009, from
http://ultimatehotelbuyersguide.com/results.php?category=Construction+%26+Design&heading=1012&category_id=536
CrossPoint Fabrics. (2009). Retreived October 30, 2009, from http://www.crosspointfabrics.com/html/home/products_wall.shtm
Various Reviews. (2001, May 1). Tourism Expo 2009. Retreived October 30, 2009, from http://www.biztradeshows.com/tradeevents/halifax-tourism-expo.html
Hospitality Expos. (2009, February 11). Retreived October 27, 2009, from
http://www.hospitalityexpos.com/modules.php?op=modload&name=expo&file=detail&sid=416
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