SIGNODE INDUSTRIES INC.

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 RM price
increase.
Maintain the same price.
Go for Flexi-Pricing strategy
Steel Strapping Industry Comparison

FACTORS SIGNODE ALPHA SANFORD BENTLEY AMERICAN
METAL
JERSEY
STEEL
PLYMOUTH
Market
Share
40% 21% 9% 10% 5% 4% 2.9%
Book
Price
100% 95% 93% 95% 90% 93% 90%
Tools
(Power)
In-house Outsourced Outsourced

Outsourced 1 own rest
outsourced
No No
Services Yes Yes but
Low
No Outsourced No No No
Signode Highlights
Capacity Utilisation: 71%.
Distributer Problem: Their discounting made
Signodes product 10% to 20% higher then its
competitors.
Market Segment: Signode segment 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
RM price increase.









Maintain
Profitability
Short Term (High);
Long Term (Uncertain)
Market share Reduction
Cash Inflow Low
Sales Force
Morale
Down

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.

Maintain
Profitability
Short Term (Low);
Long Term (Low)
Market share Increase
Cash Inflow High
Sales Force
Morale
Up
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 war.
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.








Maintain
Profitability
Short Term (High);
Long Term (High)
Market share Increase
Cash Inflow High
Sales Force
Morale
Up

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
Dont discount every customer.
Value offering to customer without doing cost-
benefit analysis.
Avoid the conversion of flexi discount into
standard price.
Recommendations
Signode should go for flexi-pricing strategy
Recognize the changing market Signode is operating in, where
steel strapping is becoming a commodity item.

Explain that Signode will always be undercut regarding price.

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.

Thank You