Introduction: Signode Industries Inc., a privately owned company, is the market leader in the steel strapping industry. In the early 1900’s, Signode started out as a producer and marketer of patented steel strap joints and application tools. In the 1950’s, Signode vertically integrated its business and started to purchase and process rolled steel. Signode has since become a low-cost processor of cold rolled steel. Three grades of steel strapping are manufactured: Apex, Box Band Magnus (BBM) and Heavy Duty Magnus (HDM). Today, Signode produces plastic strapping in addition to the steel strapping products and is the only producer of customized steel strapping and steel strapping machines. ...view middle of the document...
It is now January 1984 and Gary Reed, president of Signode Industries’ Packaging Division, has to decide what pricing policy would the best response to the increase in raw material cost. At the end of January, Reed must present his pricing policy at the national
sales meeting. Reed’s presentation will detail his implementation plan for the packaging division’s pricing policy. Reed believes he has three possible pricing policy choices: 1. Pricing Policy #1 - Continue what Signode has done in the past and pass on the raw material increase to the consumer. 2. Pricing Policy #2 - Implement the “no increase option” that would simply maintain its current book prices. 3. Pricing Policy #3 - Implement the “price-flex” policy proposed by Jack Davis, one of the regional sales managers. The price-flex proposal would allow the sales force to continue its premium pricing policy for service-oriented customers and selectively discount pricing for those customers who wanted to purchase on a commodity basis. It is Reed’s responsibility to choose a pricing policy that will maintain profitability, halt market share erosion, provide cash flow to the company in order to meet its financial needs and bolster sagging sales-force morale. Reed’s decision could have a major impact on Signode’s market share and on the steel strapping market.
Critical Issues: 1. What are the existing customers’ needs in the steel strapping industry? In what direction will the steel strapping industry move due to the rise in raw material prices? A clearer understanding of where the steel strapping industry is headed and changing customer needs will help Signode better understand what customers it wants to serve.
2. How will Signode's competitors react to the raw steel price increase? Consideration of what actions the competition may take in response to the raw materials price increase will aid Signode in evaluating the effectiveness of its own pricing policy options.
3. What distribution channel would be most effective and efficient in serving the market? An analysis of the market and customers needs will determine if Signode's distribution methods are the most effective for its product?
4. What is the impact of Signode's value -added service on profitability? Understanding the impact the existing level of service offered has on profitability will help to determine the level of service that is optimal in Signode’s overall strategy.5. How do changes in pricing policy affect Signode’s profitability and market share objectives? Understanding the impact of each possible pricing policy change on profitability and on the firm itself will help management determine which pricing alternative best fits with the objectives of Signode. After analyzing the market and customer needs, a clear comprehension of each alternative's profit impact will allow management to determine which pricing policy to implement and the appropriate actions to take. Analysis: 1. What are the existing...