Signode -- The Problem

• Mr. Gary Reed, president of SI, must decide

• Whether to pass on or absorb a 6.8% increase in the price of cold rolling steel
• Whether to accept the flexible pricing policy (‘Price-flex”) that will authorise
SI salespeople to discount the book price as much as 7%
A typical dilemma faced by many Corporate
• Mature Market—so market share protection is key
• No major Product differentiation—leading to customers buying on
price
• SI is the leader, so competitors give discount on SI’s price
• SI is the leader, its action will dictate the future of the market
• And most importantly, this division is the “cash cow” to fund
expansions of the mother company, so cash is important!
Reed’s immediate Pricing Decisons
• Two major decisions and Four combos
• Accept or reject salespeople’s request for “price-flex” upto 7%
• Pass or absorb the increase in raw material costs of 6.8%

What Should Mr. Reed Do?

Four Combos

Pass Steel-Price Increase to customers

Not Pass III IV

Pass I II

No Price-Flex Price-Flex

Institute the Price Flex programme

Hints:
1. Product Sales of Signode
Signode
Corporation
$658.7

Ind. Prod.
International Packaging
&Fasteners
$234 $ 286
$ 138

Steel (59%) Plastic (41%)

$169 $117

Consumables Hand Tools

Machines (5%) Others (9%)
(79%) (7%)
$8 $15
$134 $12
2. Contribution
• 36% (Exhibit 4; 4th row, last column)
3. Process of Analysis
• What is the financial impact of the decisions?
• How will Sales Force React?
• How will Competitor React?
• How will Customers React?