ECODECK PRICING
STRATEGIES
CONSULTIING
PROVIDED BY
INTRODUCTION
In 1998 Eco-Flex turned its focus from oilfields to the flooring industry. 1
Eco-Flex manufactures municipal multipurpose rubber surfaces made from recycled tires. 1
In response to Desmond Baker’s RFP they have developed an interior and exterior use product called Eco-Deck
We have provided a detailed Situational Analysis as well as three pricing strategies.
Solution will present the best pricing strategy and
detailed implementation plan for Eco-Deck that will be the most beneficial for Eco-Flex
AGENDA
PROBLEM STATEMENT
KEY FACTS & ASSUMPTIONS
TARGET MARKET
SITUATIONAL ANALYSIS
COMPETITIVE ANALYSIS
COSTS
ALTERNATIVES & BREAK EVEN
IMPLEMENTATION
SOLUTION
CONTIGENCY PLAN
COURSE CONCEPTS
SOURCES
PROBLEM STATEMENT
What pricing strategy should Eco-Flex implement
during its first-year launch of Eco-deck to reach
$800,000 in sales and maintain a valued perception
of its product in their existing market?
Facts/Findings
FACTS &Key
FINDINGS
• In 1992, Alan Champagne created Eco-Flex.
also referred to as Champagne Edition Inc.2
• Did projects for the oilfield and commercial industry.
2
• 1994, began to use the crumbs from recycled tires, which made products
for diary farmers.2
• 1998, Eco-Flex began focusing on recycled rubber for decks, driveways,
playgrounds, etc…2
• Based in Legal, Alberta. Does business throughout Canada.
3
KEY ASSUMPTIONS
Continued growth as demand for eco-friendly construction products increases
Eliminate the negative perception of used rubber by transforming it into a valued recycled
product
Partnership with Fountain Tire, Eco-Flex is more likely to meet its needs for materials, and will not
need to outsource. 4
TARGET MARKET
BUILDING & CONSTRUCTION INDUSTRY
ECO-CONSCIOUS BUILDING PROFESSIONALS
Derived demand of consumers wanting eco-friendly buildings. Construction
companies are fulfilling their wants by demanding sustainable products that satisfy
their client’s needs
• 11 out 19 largest firms in B.C listed themselves as sustainable or green service
providers.5
• According to Green Building Insider, 92% of Construction Industries support green
and sustainable construction.
• Canada’s largest industry employs 750,000 people representing more than 5% of
all jobs in Canada.
• According to Statistics Canada commercial building construction in British
Columbia alone rose 6.0% to $819 million.
TARGET MARKET
BUILDING & CONSTRUCTION INDUSTRY
3 ECO-CONSCIOUS BUILDING PROFESSIONALS
Within the Building & Construction Industry we will segment
Eco-Deck into 3 target audiences who are eco-conscious professionals.
1. General Contractors
2. Architects
3. Interior Designers
•
Inform clients on Eco-Deck’s ability to withstand heavy users, which
demonstrates the product’s quality.
•
Eco- Flex has a great opportunity to penetrate the sustainable decking
market focusing on these eco-conscious building professionals.
SITUATIONAL ANALYSIS
STRENGTHS
• Eco-Flex is a member of the Canada Green Building
Council. The company is LEED accredited
• Eco-Flex Canadian owned and operated. It’s able to
contribute to the Canadian economy.
• Close proximity to production facility.
WEAKNESS
• Its size in terms of number of employees compared to the
revenue it could generate from its size is not efficient.
.
• Poor online presence.
• Poor brand equity, Eco-Flex is not a well recognized brand,
especially compared to competitors
• Company featured in 2010 Winter Olympics – First
sustainable Olympic Games8
OPPORTUNITIES
THREATS
•
Increase awareness of green technology
•
Increase in construction and development projects
following months of decline. 11
• Economic recession
The recycled rubber industry is expected to grow 2.4%
to $1 billion. 9
• Eco-Flex’s competitor, BuildDirect, received a $4 million
venture funding. 10
•
• By outsourcing, some of Eco-Flex’s suppliers may no longer
benefit from the company’s activities
COMPETITIVE ANALYSIS
COMPETITORS INFORMATION
PRODUCT
VINYL (PVC)
Leading choice in the flooring industry.
Head Offices in Surrey, British Columbia and Kansas, Missouri
ABOUT
30+ years of exp.
DISTRIBUTION
TARGET MARKET
(Composite Wood Decking)
Supplied by Yakima Flooring.
Head Office: Vancouver, British Columbia
E-commerce
Manufacturer and Wholesaler of
Interior and Exterior flooring materials since 1999
100+ Indirect
Distributors Located across North America
8 Distribution Centre’s across North America
Export 100+ countries
Design & Construction Professionals / Homeowners
DIY End Consumer
15 years
AVG 10 years
LIFE SPAN
WARRANTY
COST
LEAD TIME
10 Year Warranty
10 Year Limited Warranty
$75.35 m²
$ 55.97 m²
1 week production
4-8 day delivery
Buyers pay in advance.
With a 3 months lead for production and delivery.
COMPETITIVE ANALYSIS
FUNCTIONALITY / DURABILITY/ ASTHETICS
RESIDENTIAL & COMMERCIAL
YES
YES
100% WATERPROOF
✓
✓
SLIP RESISTANT
✓
✓
Minimal
Minimal
28
Standard Colours
Currently 12 variations.
Stock changing consistently
It is made from two natural building blocks and is 100%
recyclable after use
Paint and wood stains create waste WPC is an
alternative to wood and does not need painting.
Made from recycled plastics that would eventually
be thrown in a landfill
YES
NO
MAINTENANCE
DESIGN, TEXTURE, COLOUR
SELECTION
ENVIRONMENTAL
FRIENDLINESS
LEED ACCREDITED
Based on this competitive advantage we believe Eco-Deck has an advantage in….
COSTS
VARIABLE COSTS
MONTHLY FIXED COSTS
DECRIPTION
PRICE M2
SUPERVISION
$1850.00
ECO-DECK
$6.30
INSPECTION
$185.00
TECHNO MATERIAL
$13.58
MISCELLANEOUS
$85.00
FIBRE BACKING
$3.80
FLOOR SPACE
$360.00
ENVIRONMENTAL
CEMENT
$1.55
DIRECT LABOUR
$2.75
TOTAL VARIABLE
COST
$28.00 M2
MATERIALS (INC. SMALL
TOOLS)
SELLING AND
ADMINISTRATION
$65.00
$10,000.00
BUILDING PLATFORM
(MONTHLY AMORTIZATION)
$66.67
SERVICE LIFE (MONTHLY
AMORTIZATION)
$2.33
TOTAL FIXED COSTS
$12,614.00
MONTHLY COST EQUATION
= FIXED COST + VARIABLE COST
= 12,614.00 + 28.00 (X)
ALTERNATIVES
ALTERNATIVE 01.
PENETRATION PRICING
ALTERNATIVE 02.
SKIMMING PRICING
ALTERNATIVE 03.
PRESTIGE PRICING
01. PENETRATION PRICING
$40.00 /m2
•
Aggressively price their product at a
lower cost than other competing
products.
•
The low cost will be attractive in the
eyes of the business’ who are price
sensitive.
•
Generate a large volume of sales which
will yield moderate profits
•
Minimizing amount of competition
within the decking industry.
ADVANTAGES
DISADVANTAGES
Prevents competition – not as
attractive for competition to enter
market based on minimal profits.
Requires a large volume of sales to
create profit
Accelerate diffusion of innovation
Low cost allows high volume of
sales
Difficult to increase the cost to
increase profit
Customers are used to low price
may perceive the product as
inferior or of poor quality
COST ANALYSIS
PENETRATION PRICING $40.00 / m2
BREAK-EVEN POINT =
12,614 ÷ (40-28) = 1,051 m2
Revenue target of $800,000 from 2013-2014
40(x) = $800,000.00 Sales(x) = 20,000 m2 a year or 1,667 m2 a month
02. SKIMMING PRICING
$70.00 /m2
•
Skimming Pricing strategy to sell EcoDeck product at a price of $70.00 /m2
•
Eco Flex will have the ability to gain
the highest level of profits in each of its
product life cycle stages.
•
This pricing will limit the amount of
volume sales,
•
Will allow the product to have a
perceived unique and premium quality.
ADVANTAGES
DISADVANTAGES
Gains the highest level of profits
in each segment
Large profits can lead to increased
competition – competitors realize
the profitability and attempt to sell
similar products
Product is perceived as a premium
product
Competition may challenge the
price point – offering similar
products at a lower rate
Recover fixed costs quickly
Reducing the sales price will
impact the profit of the product
COST ANALYSIS
SKIMMING PRICING $70.00 / m2
BREAK-EVEN POINT =
12,614 ÷ (70-28) = 300 m2
Revenue target of $800,000 from 2013-2014.
70(x) = $800,000.00 Sales(x) = 11,429 m2 a year or 952 m2 a month
01. PRESTIGE PRICING
$85.00
/m2
•
Prestige Pricing strategy at $85.00
/m2 for Eco-Deck
•
Generate the highest possible level
of profits
•
Reach their targeted sales total of
$875,000.
•
Eco-Deck will be perceived as a
premium luxury good within the
decking industry.
•
Attract the
customers.
quality
orientated
ADVANTAGES
DISADVANTAGES
Can reach targeted sales
forecast with limited volume
sales
High price limits overall volume
of sales which could prevent
company from reaching
forecasted sales totals
Highest profit margins on each
individual sale
High price only caters to small
segment of the industry limiting
cliental
Customers perceive the
product as a premium good
that has no direct competition
Customers may not be willing to
pay the price
COST ANALYSIS
PRESTIGE PRICING $80.00 / m2
BREAK-EVEN POINT =
12,614 ÷ (85-28) = 221 m2
Revenue target of $800,000 from 2013-2014.
85(x) = $800,000.00 Sales(x) = 9,412 m2 a year or 784 m2 a month
SOLUTION
Alternative 2 – Skimming Pricing.
Skimming Pricing will set at an initial price of $70.00 /m2 Eco-Deck
Decrease price semi-annually by 10% will continue to maximize profits
while gaining entry to new segments
Cover majority of the B2B market from
high cost to price sensitive low cost purchasers
Continue to generate sales volume.
Reach their targeted sales forecast for 2014.
Business’ purchasing Eco-Deck will have the perceived level of premium quality, based on the high price
NEXT: Detailed implementation plan for Eco-Deck that will be the most beneficial for Eco-Flex
SOLUTION
MARKETING MIX 4P’S
PRODUCT
• Price Eco-Deck as a premium product - skimming pricing strategy
• High price - reflect added durability and product life compared to competitor’s products.
PLACE
• Available through company website and direct sales
• Sales representative’s will contact and initiate interest of Eco-Deck
PROMOTION
•
•
•
•
•
Eco-Deck we will implement a product launch promotional discount.
First three months - list price of $70.00 m2 with special discount of 5%.
Contacts from trade shows sent direct mail pamphlets promoting sustainability and special product launch pricing
Introductory promotion for freight will be included.
Freight – Absorption pricing will be included for orders valued over $2000.00
PRICE
•
•
•
•
Eco-Flex will use a demand orientated approach for Eco-Deck
Initial price of $70 /m2 will be perceived as high quality sustainable product
Stimulate large sales that will achieve targeted sales forecast of $800,000 in the first year
Long run pricing will see a reduction of 10% semi-annually
IMPLEMENTATION
PHASE ONE – 1-3 MONTHS
1. Pricing Structure & Promotions: Skimming Pricing Strategy -$70.00 per square meter.
• Three month introductory promotional pricing – 5% discount - $66.50.
• Shipping promotion – freight absorption promotion – orders valued over $2000.00 shall receive free
shipping. This shall run for the first 6 months of the product’s introduction stage.
2. Attend prominent Trade Shows in the Canadian construction industry
• Buildex Vancouver, Buildex Calgary, and Construction Canada Toronto.
• Estimated budget $9000.00
• Trade Show Magazine Sponsorship
Estimated cost Buildex Magazine $1485 total.
3. Magazine Print Ad
• Placed in Construction Magazine – Alberta/BC and Construction Canada.
• Average cost of the adds will be $1200.00 for a 6 month period. Total cost will be $36,000.
4. Redesign of Company Website
5. Direct Mail and Email Literature
IMPLEMENTATION
PHASE TWO: 6 MONTHS
1. Skimming Pricing Adjustment
• First of 6 price reductions
• Decrease of 10% to $63.00 m2
PHASE THREE: 12 MONTHS
2.
•
•
•
Assess goals and Achievements
Based on the 4 P’s and original problem.
Were sales targets met as well being perceived as a quality eco-friendly product?
If targets are far off contingency plan shall be evaluated and selected
CONTINGENCY PLAN
PENETRATION PRICING
• Sales forecasts shall still be achievable at an
early stage of the product.
• The low sales price will increase the adoption of
innovation that may have been previously
restricted in Skimming Pricing.
CONCLUSION
COURSE CONCEPTS
COURSE CONCEPT
USAGE IN CASE STUDY
DEMAND ORIENTED APPROACH
1. SKIMMING PRICING
2. PRESTIGE PRICING
3. PENETRATION PRICING
1. Creating product value for Eco-Deck by setting the initial price high to consumers that are willing to pay for
sustainable products
2. Used strategy to present value on product for for eco-conscious consumers
3. Used strategy because sustainable products are in high demand
BRAND EQUITY
Poor brand equity, Eco-Flex is not well-recognized compared to Build Direct
DERIVED DEMAND
Based on derived demand of consumers wanting eco-friendly buildings
TARGET MARKET
Selected by geographic, demographic, and behavioral segmentation
PRICING OBJECTIVES
PROFIT: In implementation, describes how eco-deck can bring in profits for eco-flex
SALES: To increase eco-flex’s profit and market share
BREAKEVEN ANALYSIS
Shows breakeven point of each alternative and helps to decide which would be the best pricing option for eco-deck to
go with.
TOTAL COST
Eco-flex’s total expenses from producing and marketing eco-deck
FIXED COST
Eco-flex’s stable expenses that do not change
VARIABLE COST
Eco-flex’s expenses that vary by the amount of eco-deck produced and sold
PROMOTIONAL ALLOWANCES
Eco-flex offers 5% discount for the first 3 months
REFERENCECS
1. Eco-Flex. (2012). Eco-Flex Home. Retrieved October 27, 2012, from ecoflex.com: http://www.ecoflex.com
2. Diamond Safety Concepts. (2012). Introducing Eco-Flex: Company Profile. Retrieved October 27, 2012, from diamond-safety.com.
1. Reference USA. (2012). Canadian Businesses: Eco-Flex. (Infogroup, Inc.) Retrieved October 27, 2012, from Reference USA:
http://0www.referenceusa.com.innopac.lib.bcit.ca/CaBusiness/Detail/Tagged/38cd12360b93484e9f0781a5162b73a3?recordId=0540
86616
1. Morton, G. (2002, May 2nd). Old Tires Trending New Territory. (Calgary Herald) Retrieved from UBC Library:
http://search.proquest.com.ezproxy.library.ubc.ca/docview/244945537?accountid=14656
2.
Vancouver Economic Development Commission. (2009, September). Green Building Profile. Retrieved November 1, 2012, from
Vancouver Economic Development Commission (VEDVhttp://www.vancouvereconomic.com/usefiles/files/file/green-buildingprofile.pdf
3. Crawford, E. (2012, October 17). Bussiness Vancouver: News: Real Estate. Retrieved October 22, 2012, from Bussiness Vancouver:
http://www.biv.com/article/20121017/BIV0111/121019934/-1/BIV/bc-sees-largest-increase-in-commercial-building-investment-incanada
4. Chutter, S. (2012). The Canadian Encyclopedia Construction Industry. Retrieved October 30, 2012, from The Canadian
Encyclopedia/ The Encyclopedia of Music in Canada: http://www.thecanadianencylopedia.com/articles/construction-industry
5. Eco-Flex. (2010, January 17). Eco-Flex Press Release. Retrieved November 1, 2012, from Eco-Flex: http://ecoflex.com/news/news.php?newsId=10
1. Technologies, C. (2012, September). Tire and Rubber Recycling in the US: Market Research Report. Retrieved from IBIS World:
http://www.ibisworld.com/industry/tire-rubber-recycling.html
REFERENCECS
10. Kornstrom, G. (2012, October 26). BuildDirect Snags $4 Million in Venture Funding. Retrieved from Business in Vancouver:
http://www.biv.com/article/20121026/BIV0119/121029945/-1/BIV/builddirect-snags-4m-in-venture-funding
11. The Canadian Press (CP). (2012, July 6). Huff Post Business. Retrieved November 4, 2012, from huffingtonpost.ca:
http://www.huffingtonpost.ca
12. Vancouver Economic Development Commission. (2009, September). Green
Building Profile. Retrieved November 1, 2012, from Vancouver Economic Development Commission (VEDV):
http://www.vancouvereconomic.com/usefiles/files/file/green-building-profile.pdf
13. Brucem. (2012, February 8). xraydelta. Retrieved October 29, 2012, from
Wordpress: http://xray-delta.com/2012/02/08/case-study-builddirect-and-a-lean-supply-chain/
14. Buildings.com. (2012). Buildings Article. (Stamats Business Media Inc.)
Retrieved October 19, 2012, from Buildings.com: http://www.buildings.com/tabid/3334/ArticleID/6457/Default.aspx
15. Intertech. (2012). Guide to Green Building Floors. (W.E Imhoff& Company Inc.)
Retrieved October 28, 2012, from intertech.com: http://www.intertechflooring.com/s_guide-greenbuilding.shtml
16 Swartzentruber, S. (2000, July). On Site With Duradeck. Retrieved November 3,
2012, from duradek.com: http://www.duradek.com/_customelements/uploadedResources/OnSiteWithDuradekJLC2.pdf
17. Hamilton, G. (2012, August 30). City of Vancouver Building Permit Values Top $1billion for First Time in 5 Years. Retrieved from
Vancouver Sun:
http://www.vancouversun.com/business/City+Vancouver+building+permit+values+billion+first+time+five/7170670/story.html
18. Index. (2012). (Informa Canada) Retrieved from Buildex Vancouver: http://www.buildexvancouver.com/e_index.htm
19. Other Sponsorship. (2012). (Informa Canada) Retrieved from Buidlex Vancouver:
http://www.buildexvancouver.com/e_spon_other.html
20. Sponsoring. (2012). (Informa Canada) Retrieved from Buildex Vancouver: http://www.buildexvancouver.com/e_sponsoring.htm
CREO
CONSULTING
DYLAN
BRADLEY
EMILY DANIELISZ
KATHLEEN JAMES
JAY CHADHA
CINDY YEUNG
CHERLYN GARAY
MKTG 1102 1G