SIGNODE INDUSTRIES, Inc.

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

Case Background

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

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
Signodes product 10% to 20% higher marked than its
competitors.
Market Segment: Signode segments the market on
the basis of three factors: By Account : 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 accounts
will remain intact.
Selective discounting would meet
the competitors price.
Cons
Market Info might cannibalize other
accounts
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.

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

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.

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

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