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Sign Ode

The document discusses options for Signode Industries given rising raw material costs and competitive pricing pressures. Option 3, adopting a "flex-price" proposal that allows pricing below standard discounts, is identified as the best approach. It would help Signode stem decreases in small and medium customer segments and allow the sales force more pricing flexibility. Close monitoring is still needed initially to control discount levels. The conclusion is that a flex-price approach along with focusing on premium customized offerings and importing materials is the way forward.

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Parsva Saikia
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0% found this document useful (0 votes)
268 views8 pages

Sign Ode

The document discusses options for Signode Industries given rising raw material costs and competitive pricing pressures. Option 3, adopting a "flex-price" proposal that allows pricing below standard discounts, is identified as the best approach. It would help Signode stem decreases in small and medium customer segments and allow the sales force more pricing flexibility. Close monitoring is still needed initially to control discount levels. The conclusion is that a flex-price approach along with focusing on premium customized offerings and importing materials is the way forward.

Uploaded by

Parsva Saikia
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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ñ AMITESHAYAL 09006
ñ A SVASAIKIA 09040
ñ   H I AK H ANNA 09050
ñ SHAILENE SINpH 09053
ñ INSHL THI 090
ñ BENJAMINATTE 0ES04
About Signode Industries

ñ Started in 1914 ± produced and marketed steel strap joints


and application tools
ñ Operates with a divisionalized structure (as of 1983):
* International division: $234 million revenue
* Fastener and Industrial Products division: $138 million revenue
* Packaging division:
o aesponsible for domestic sales of steel and plastic strapping system
± with sales of $286 million
o Also into tools and equipment ± but less 1% steel strapping systems
revenue
ñ Sales through 180 salespeople reporting to divisional vice-
president of sales through 24 district managers and 3
regional managers
Ôurrent Scenario

ñ Price increase of cold rolled steel ± to the tune of 6.8% - of


raw material used in steel strapping
ñ Ôontinued price cuts by competitors
* Alpha Ôorporation ± Signode¶s biggest competitor rumored to sell below
the book price
* Sales force not responsive to the differential pricing of the company or to
the idea of passing on the price increase to the customer
ñ $300 million leveraged buy post recession ± pressure on
domestic Packaging Division to generate capital
ñ Steel strapping substitution by plastic strapping ± to the
tune of 2% per year for Apex and BBM
ñ Decreasing Signode share on each of the small, midrange
and large accounts in the strapping segment
Options for Signode ± Given current Scenario
Increase strapping prices to offset increased
price of raw material

Maintain book prices

Institute the ³price-flex´ proposal

The objective here is to find the optimum pricing decision to:

Increase declining
share in each
customer segment Increase profit
margin to generate
higher capital
Option 1 : Increase price
ñ How much?
* Taking a middle ground between current book price and 6.8% is an
option
ñ Augment it by providing value added services to the largest
customers ± national and large segment
ñ Leverage fact that it is only supplier of custom strapping
* Ôustom tools and machines ± only for Signode strapping
* Alpha stopped producing custom tools and machines from 1978

ñ Possible Pitfalls:
* Increased competition ± Ôustomers began to buy in a commodity type
basis, going for the lowest price
* Ôustom equipment ± high on resource consumption, low on profit
* National and Large segments fine ± still 10% overall decrease ± implies
greater impact of small and medium segments decrease
Option 2 : Maintain book prices

ñ Why?
* Price increase opposed by Sales force
* Price increase lead to decrease in Signode market share
ñ Augment by increasing technical assistance to customers and
sale of low cost specialized machinery
* Focus on custom steel strapping and machines ± as the only manufacturer
* Ôontractually bind the consumables to be used with the machinery to be
specifically from Signode
ñ Try to reduce costs by buying imported steel

ñ Possible Pitfalls:
* Ôustom equipment ± again high on resource consumption, low on profit
* With main competitor Alpha rumored to keep at book price: staying at book
price would still mean Signode are premium priced ± not ideal for converting
new accounts/retaining old accounts
Option 3 : ³Flex-price´ proposal

ñ Why?
* Sales force has been clamoring for it
* Help meet competition prices
* Facilitate plans for acquiring and growing new businesses in 90¶s

ñ Allow decrease of price below standard discount ± help convert


more accounts ± facilitate stemming the drastic decrease in small
and medium segment
* Ôharge premium prices to service oriented customers
* Ôharge lowered prices to customers buying as a commodity
ñ More power to the sales force to take on-the-fly decisions on the
field
ñ Help tap into unexplored markets through lower prices

ñ Pitfalls
* Ôlose monitoring is needed on the level of discount being offered, at least in
the initial stage of its implementation
Ôonclusion

ñ ³Flex-price´ is the way forward


ñ Price a big factor in the market where Signode is operating
in:
* Steel strapping ± now a commodity item
* Ôompetitors selling below Signode prices
ñ Need to differentiate from Alpha and Bentley
* Support premium customers in customized machines and tools ± at a
higher price ± Alpha and Bentley not present here
ñ Serve the small and medium businesses through distributors
* Also evaluate the possibility of pushing more of top grade plastic strapping
in these highly price conscious segments
ñ Ôonsider the option of importing raw materials
ñ Focus on retaining customers ± not on expansion

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