The case addresses the packaging division of Signode Industries, Inc. The case study focuses on the division's challenge to ensure a high profitability in a declining steel strapping market. The president of the division faces the question of whether to decrease prices in order to gain market share or keep/raise prices to increase the cash flow. Should a price-flex system be adopted to enable selective discounting by the sales personnel?
Rowland T. Moriarty Jr.; David May; Gordon Swartz
Harvard Business Review (586059-PDF-ENG)
November 14, 1985
Case questions answered:
- What should Gary Reed of Signode Industries, Inc. do?
- How will Signode’s sales force, customers, competitors, and investors react to these decisions?
- Why is Signode losing market share?
- What are Signode’s market share and profitability goals? Long-term versus short-term?
- Is Signode the “market leader” and “price leader”? Why?
- Evaluate Exhibit 7.
- What is Signode’s current marketing strategy?
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Signode Industries, Inc. (A) Case Answers
1. What should Gary Reed of Signode Industries, Inc. do?
Mr. Gary Reed of Signode Industries, Inc. should adopt the price-flex model because of the following reasons (referring to exhibit 7):
- The market shows two types of customers – rather inexperienced generalists and experienced specialists. The price-flex model enables the company to cope with these different types of customers.
- Mr. Reed should pass the price increase of 6.8% on cold-rolled steel to the customers who are in the high-cost-to-serve and low-price-paid quadrant.
- Small price increases might be reasonable for customers in the low-cost-to-serve, low-price-paid as well as the high-price, high-cost-to-serve quadrant.
- The top customers (high price paid, low cost to serve) should not be confronted with any change in prices.
In addition, Mr. Reed should focus on increasing the total production volume in the plastics business segment (increase recurring revenue, exclusivity) in order to cope with the debt-related financial burdens.
2. How will Signode’s sales force, customers, competitors, and investors react to these decisions?
Salesforce
- Since the vice president of Marketing (Mr. Hernandez) and other members of the sales force support the price-flex model, one can expect the sales volume to grow. The new model would enable the sales force to overcome the concerns about customer price sensitivity and its relationship to the service component of Signode Industries, Inc.’s value-added system.
Customers
- Since various customers will be charged various prices, the company has to carefully take care of the individual needs in order to satisfy them.
Competitors
- Most of the time, competitors closely followed price changes of Signode Industries, Inc. by introducing…
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