Signode Industries Inc 6lp4c

SIGNODE INDUSTRIES, Inc.

PRICING WARS Submitted By : Group 11 Arun Kumar R 28NMP06 Gaurav Kumar 28NMP14 Nakul Tandon 28NMP67 Swaraj Sharan 28NMP87

Case Background 

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Signode deals with steel strappings which are used in packaging Market Leader in the steel strapping industry but market share declined from 50% to 40% Prices of cold steel (major raw material) increased by 6.8% Alpha (major competitor) trying to take market from Signode by selling at lower prices Steel strapping market has become price sensitive and competitors are selling their products at discounted prices (5 to 10% less then signode)

Key Decisions 

Three Alternatives were available 

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Increase the price to counter the Raw Material price increase Maintain the same price Go for “Flex-Pricing” strategy

ALPHA SANFORD BENTLEY AMERICA JERSEY SteelSIGNOD Strapping Industry Comparison E N METAL STEEL

FACTOR S

Market Share

PLYMOUT H

40%

21%

9%

10%

5%

4%

2.9%

100%

95%

93%

95%

90%

93%

90%

Tools (Power)

In-house

Outsource d

Outsource d

Outsource d

1 own rest outsource d

No

No

Service s

Yes

Yes but Low

No

Outsource d

No

No

No

Book Price

Some Facts Capacity Utilization: 71% lower than others  Distributor Problem: Their discounting made Signode’s product 10% to 20% higher marked than its competitor’s.  Market Segment: Signode segments the market on the basis of three factors: By : National, Large, Mid & Small.  By Industry : Primary Metals, Forest Products, Paper, Metal Services, Synthetic Fibers, Cotton, Brick & Transportation.  Price & Service: Relative Price Paid and Service Consumed. 

Alternatives (1/2) Alternative 1: Increase the price to counter the Maintain RM price increase. Pros • Variable cost being high % of Total cost, ideal situation is to maximize profit. • Additional profits will help them to feed R&D which will result in new offerings. • Improve the health of industry.

Profitability

Short Term (High); Long Term (Uncertain)

Market share

Reduction

Cash Inflow

Low

Sales Force Morale

Down

Cons • High Price Differential. • Further reduction in Low and Mid Size customers.

Alternative 2: Maintain the same price. Old Cost of Sales = $181,473,000 New Cost of Sales = $193,812,000 Loss to incur will be ($12,339,000). Cons • Oligopolistic market. Will lead to price wars. • Cannot compete on pricing with companies having underutilized capacity (Sanford, American etc) • Reduction in industry profit will hurt them maximum.

Alternatives (2/2) Alternative 3: Go for “Flexi-Pricing” strategy. Pros • Decision making in the hands of sales force. • Small, Medium and Large s will remain intact. • Selective discounting would meet the competitor’s price. Cons • Market Info might cannibalize other s • Offers to customer without doing costbenefit analysis to meet targets

Maintain Profitability

Short Term (High); Long Term (High)

Market share

Increase

Cash Inflow

High

Sales Force Morale

Up

Recommendations Signode should go for “flex-pricing” strategy (Reasons below): 

Market is becoming price sensitive.

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The changing market Signode is operating in, where steel strapping is becoming a commodity item.

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Signode will always be undercut regarding price by competition.

Other Recommendations: 

Start the process of evaluating how Signode can serve the smaller customers through distributors.

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Evaluate the economic value of the services offered and train the sales force on this concept.

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Implement the 'flex-pricing' plan, initially keeping a close eye on the level of discounting and what the salesforce is doing with it i.e. Using it or Misusing it.

Thank You