9A99A026
David House and Elizabeth M. A. Grasby revised this case (originally written by Robb McNaughton under the supervision of Dr.
Russell Knight) solely to provide material for class discussion. The authors do not intend to illustrate either effective or ineffective
handling of a managerial situation. The authors may have disguised certain names and other identifying information to protect
confidentiality.
This publication may not be transmitted, photocopied, digitized or otherwise reproduced in any form or by any means without the
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organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Ivey Business School, Western
University, London, Ontario, Canada, N6G 0N1; (t) 519.661.3208; (e) cases@ivey.ca; www.iveycases.com.
Copyright © 1999, Richard Ivey School of Business Foundation
Version: 2013-07-23
Steve Davidson was preparing for the August opening of the Catfish Creek Canoe Company (CCC), a
canoe manufacturing shop in St. Thomas, Ontario. Davidson planned to build 30 canoes per year and he
wondered which pricing strategy would maximize his profits.
The initiative for CCC evolved from Davidson’s canoeing and woodworking hobbies. Davidson had
canoed recreationally for more than 20 years and had done woodworking for more than 15 years. In the
past ten years, he had combined the two activities by building three canoes, which he sold for marginal
profits after using them each for a season. When Davidson decided to purchase a canoe for the first time in
the spring, he suffered what he described as “sticker shock”. He could not believe the price and poor
quality of retail canoes. Davidson saw an opportunity to build handcrafted cedar canoes, which would sell
for a premium.
ENTREPRENEURIAL MANUFACTURING GENERATOR
Davidson wanted assistance starting his company, so he enrolled in the 12-week business program at the
Entrepreneurial Manufacturing Generator (EMG) in St. Thomas. The course was based on the case
method and taught by faculty and graduates of the Ivey School of Business and Western University
Engineering Sciences. After completing the 12-week course, students had the opportunity (once they had
drafted an acceptable business plan) to progress to a start-up and mentoring phase conducted on site. CCC
would rent space at the EMG for $351 per month. The shared EMG facility gave Davidson access to a
wide range of business resources, including the EMG instructors and another woodworking shop.
Davidson hoped that the close proximity of these resources would give CCC a competitive advantage.
CCC was going to specialize in 16-foot Peterborough canoes, which were the classic Canadian design.
Peterborough-type canoes were popular worldwide and had gained a reputation as agile, fast and stable.
The canoes would be made from cedar strips and constructed with epoxy.1 Davidson described building
canoes as “relatively easy”, although it took time and woodworking skill. Canoes produced at CCC would
1
Cedar strips are long narrow pieces of cedar. Epoxy is a resin that sets when heated.
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CATFISH CREEK CANOE COMPANY
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Davidson planned to produce 30 canoes in the first year and average one canoe every ten days, which
would leave 65 days to buffer any unforeseen production delays (an experienced craftsman could build 25
to 30 canoes per year). Davidson would have to work seven days a week to maintain the production pace;
however, he felt that he could handle a seven-day schedule for two to three years. Although the first
canoes were scheduled to take almost 12 days to build, throughput time (the time from start to finish)
would decrease as production techniques improved. Davidson knew that he would have to invest in some
equipment which would include an estimated $5,530 for power equipment and accessories; hand tools at
$835; cutters, blades, and bits at $800; benches, stands, and cabinets for $1,600; forms and jigs for $160;
and office equipment for $3,055. Although production costs were expected to decrease as the
manufacturing process developed, Davidson projected that variable costs would total $1,161 per canoe and
selected annual operating expenses including telephone and internet charges, supplies, insurance, and
maintenance would total $8,644. Davidson projected almost $90,000 in sales in the first year, with gross
profits of $52,000.
MARKET FOR CANOES
The market for canoes followed the business cycle. In recessions, canoe sales suffered as many
prospective customers stopped recreational spending. Sales of premium priced canoes were especially
vulnerable. Davidson had reviewed statistics that showed many companies manufacturing canoes were
unable to survive severe downturns in the economy.
MARKETING STRATEGY
Promotion would consist of a Web page, advertisements in canoeing magazines and press releases to
industry and recreational associations. The Internet would be the company’s primary means of promotion
and sale, and Davidson planned on establishing a Web page complete with photographs, diagrams and
interactive order forms. The Internet gave CCC access to thousands of prospective clients at virtually no
cost. The company was also going to place advertisements in the “buyer’s market” sections of the two
most popular canoeing magazines, Canoe & Kayak and Kanawa, which were published in the U.S. and
Canada, respectively. Canoe & Kayak had a monthly circulation of about 100,000. A one-inch
advertisement cost US$140 per month. Kanawa, on the other hand, had a quarterly circulation of about
120,000. An equivalent one-inch advertisement cost Cdn$340 per year. Davidson calculated that he
would only have to sell one canoe per 67,000 advertisement exposures if he produced 30 canoes per year.
Finally, Davidson was going to issue press releases to Industry and Recreational Associations with the
introduction of every new type of canoe at a cost of $300 per year.
Based on the promotion strategy, most sales would be direct from the shop to the customers. Professionals
with above-average incomes, who canoed as a hobby, would be targeted. Canoeing for these professionals
might be the hobby itself or part of another hobby such as fishing, hunting and camping. Although
Davidson did not include an estimate of the size of this market segment, he cited statistics from Statistics
Canada that Canadians owned over two million boats, including approximately 640,000 canoes.
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Use outside these parameters is a copyright violation.
have executive features that included walnut decks, brass fasteners and cane seats. The finish would be
hand-sanded, rubbed with epoxy and treated with Carnauba wax, which was a standard technique. In
addition, customers would receive with each canoe, a certificate of authenticity and canoes would be
marked by serial numbers that identified the production number, similar to an art print. Canoes made by
CCC would also be guaranteed for five years, which was long by industry standards.
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According to Davidson, “It would be difficult to find a Canadian who had not owned, ridden in or admired
a cedar canoe.” Indeed, the potential market was very large.
Davidson included a price list of direct competitors who made wood strip canoes (Exhibit 1). In addition
to the 11 companies listed in the business plan, there were many other small manufacturers with sites on
the Internet. The price range of hand-crafted canoes sold on these Web sites ranged from under US$2,000
to over US$10,000. Most sites claimed to sell canoes made from cedar, comparable to the canoes made at
CCC. The competition also included mass-produced canoes sold by well-known manufacturers such as
Coleman and Alumicraft. Mass-produced canoes were lower quality and retailed between $750 and
$3,000, depending on the make, model and size. Other types of watercraft, such as windsurfers, sailboats
and motor boats, also competed with canoes for sales. Prices for small boats and watercraft started at
under $1,000 for low-end windsurfers.
The prices of competing products varies widely and, although Davidson thought his canoes would sell at a
premium, he did not want to price them too high since there would be no sales force to promote the canoes
and most of the sales would be direct to the customer. Davidson was not certain what the impact would be
on the price paid by the customer if he chose to use a retailer rather than direct sales. Davidson also
wanted to maximize profit to provide him with an income. With these considerations in mind, Davidson
analyzed the pros and cons of his pricing strategy and planned to calculate the sales projections and
breakeven points for several different pricing scenarios.
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PRICING
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Exhibit 1
WOOD STRIP CANOE MANUFACTURERS
Low Price
$5,040
$1,820
$100-$600/ft.
$5,500
10’-17’
Limited to
packages
Yes
$4,258
$2,500
$252/ft.
$4,250
4
12’-18-1/2’
Yes
$2,500
$1,700
$2,200
1
15’
Yes
$2,660
$2,660
6
15’-17’
Yes
$5,600
$2,800
Quote by the
job
Quote by the
job
$250-$1500/ft.
2
15’-17’
Yes
$2,600
$2,400
$40-$485/ft.
$2,600
3
16’6”-17’6”
Yes
$3,290
$3,430
$50-$725/ft.
$3,290
3
15’-16’
$2,595
$2,425
$2,650
$2,595
Cheemaun
Canoes (USA)
1
15’-20’
$2,940
$2,940
$1,260
$2,940
Old Towne
Classic Canoes
(USA)
Nor West
Canoes (Cdn)
7
15’-20’
Limited to
Dacron
covering
Limited to
adding
sail
Yes
$4,473
$4,893
Quote by the
job
$4,473
22
12’-26’
Yes
$13,450
$2,165
Quote by the
job
$3,100
# of
Models
Size Range
Northwoods
(USA)
Laughing Loon
(Cdn)
Franklin Cedar
Canoes (USA)
Nashua River
Craft (USA)
Kevin Martin
(USA)
Fletcher Canoes
(Cdn)
Bourquin Boats
(USA)
Bearwood Canoe
Company (Cdn)
8
10’-17’
5
Customize
Custom Price
Mean price
16'-17' Boat
NA
$4,700
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High
Price
(CAD)
Company