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Signode Industries, Inc. (A) Case Solution
Signode Industries includes steel strap in its production portfolio. Business diversification has led the company into the production of processed rolled steel. The business atmosphere has experienced an alteration; Signode’s raw material price has risen up and this calls for an action. The company’s management has been planning successfully to move ahead of its rivals, but the prices of raw materials are constantly increasing over time. The company has been facing difficulty in the maintenance of its profits and market share. The management needs to devise a plan and pricing policy precisely to help cater to this problem at hand. The key decision makers have devised strategic alternatives to consider and choose from to be successful as always.
Following questions are answered in this case study solution:
Introduction & Problem Identification
Strategic Alternative 1
Strategic Alternative 2
Strategic Alternative 3
Recommended Action Plan
Signode Industries Inc A Case Analysis
1. Introduction & Problem Identification
Signode Industries Inc. is a company specializing in the production and marketing of the steel straps. It has further diversified in the business of processed rolled steel. Signode Industries Inc. sells and deals in three different kinds of steel straps named as Apex, Heavy Duty Magnus and Box Band Magnus. A competent sales force on the basis of geographical segregation is responsible for the sale of the commercial products. The company has enjoyed a large market share over the years since its inception; however, with increasing competition the progress seems to be declining. Increase price cuts by the competition have raised problems for the company. In addition, 6.8% increase in the price of cold rolled steel, raw material of steel straps, has put Signode Industries in a problematic situation. An increase in the raw material would result in the increased price of the final product. The increased price of the final product would have to be passed on to the final customer. The management needs to reconsider its pricing policy to sort out this problem.
2. Strategic Alternative 1
One of the ways to sort out the problem that Signode Industries Inc. is facing is to pass on the increased price to the customer. The company has been working in this industry for quite a long time and has developed a brand reputation among its customers. It has a long history of having loyal customers and now is the time to reap benefits from them. Increasing the price of the final product and taking it from the customer can help the company with the price increase in the raw material. However, the department, which is responsible to make deals with the customers, might be put under pressure in case this pricing policy is adopted. Signode Industries Inc. has adopted this pricing policy in the past for some times and can take the advantage this time also. Maintaining the cost as it is and passing the increased price onto customers might also result in the drop of market share in the beginning but the company needs to keep working. This alternative will result in a decrease in the profitability for the company due to customer turnover. A high morale sales force can work on the brand reputation of the products and help increase the sales even if the price of the raw material increases. The customers might not be welcoming the increased price despite the company’s reputation loyalty for a long time. The competitor’s low price might attract the customers of Signode and take them away; however, proper convincing, and good communication with the customers can make this pricing alternative a successful strategy.
3. Strategic Alternative 2
Another strategic alternative at the hand of Signode Industries Inc. is to keep its current price to a lower level. Maintaining the current price would result in giving a discount of 6.8% to its customers at the expense of the company’s costs increment. This decision might be beneficial as well as not profitable. Maintaining the current price will increase the morale of the sales force which already apprehended the increase in the price of the product due to the increase in the cost of the raw material. This increase in morale might help in increasing the sales of the company since the sales force would be performing better. This way a profit can be predicted due to better performance of sales force as well as maintain the same price of the product as before. Additionally, the market contribution of the product will be maintained in the industry thus creating a better position when compared to the competitors. In this way, greater market share can be acquired by growth in the level of sales; thus leading in a profitable situation. This move shall help in the cash flow requirements of the company. This strategic alternative can help in making an overall win-win situation for the sales force as well as the company in terms of market share, profits and cash flows.
On the other hand, the problem with adopting this pricing policy would increase expense on the company’s account. An increase in the price of raw material and compensation of this increase as a discount to the customers would be a risky strategy. In case if the sales force is not able to work properly the company would not only lose the customers but also would incur more expenses by bearing the increased price of raw material.
4. Strategic Alternative 3
Another strategic alternative at the hand of the decision maker lies in the form of a price-flex policy. This lies in offering a two way pricing policy for its customers. Offering a premium pricing option to customers who are service oriented and a discounted price to customers who want to purchase the products of the company as a commodity can help solve the problem of the company. This two-fold pricing policy can help the company to experience a multiplier effect on its profitability. The customers shall be happy for getting value based on the price that they are charged. The sales force would not have to worry about a high price and customer’s satisfaction. This way the morale and the motivation level of the sales force shall be maintained. The market share of the company shall not fall as it will create a null effect on it. The management would need to work in the area of training in order to train the sales force with the correct identification of customers by offering them the right price. In addition to the training, sales force would have to be under scrutiny in order to observe the outcomes of the strategy. If the company provides a discount on an account one time and charges a premium price next time on the same account, it will result in a negative word of mouth. The management would also have to keep an eye on the numbers in terms of profits, sales and market share to see if the policy works as planned.
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