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Signode Industries Inc.

Market leader in the steel strapping


industry.
Secondary product Plastic
strapping.
3 profit centres: Packaging division ($286 mn)
International division ($234 mn)
Fastener & Industrial products division
($138 mn).

Revenue - $658.737 million.

Packaging division
1. Steel Strapping
3 grades:

Apex (33.3% of sales)


Box band Magnus (26.8% of sales)
Heavy duty Magnus (33.4% of sales)
Customized (6.5% of sales) Monopoly

There are presently six major competitors in


the steel strapping industry that account for
92% of steel strapping shipments.
Fall in share from 50% in 1973 to 40% in 1983
Signode had 98% market share in cotton
industry and 82% sharein thebrick industry.

Packaging division
2. Plastic Strapping
Market share of $90 million (53%)
Industry growing @ CAGR of 4%
Replacement for low end steel
strapping i.e. Apex & BBM

3. Tools and Equipment


Standard and customized steel tools
are made
Plastic strapping tools also made, can
only be used with Signode plastic
strapping

Signode Market segments


By Account
National
Large
Medium and
small

By Industry
Primary
Metals
Forest
Products
Paper
Metal
Services
Synthetic
Fiber
Cotton
Brick and
Transportatio
n

By Price and
Services
Relative Price
Paid
Service
Consumed

Steel Strapping market


The total market for steel strapping was declining, competition
was increasing, and customer needs were changing.
In 1983 the industry capacity utilization was estimated to be 6070%.
Steel strapping was a mature market where the main product
was becoming a commodity.
The growth in plastic strapping substituted lower grade steel
strapping at a rate of 2% of the steel strapping market per year.
The price for steel strapping was decreasing because of
increased competition and cost-cutting pressures from buyers.
Although Signodes book prices were competitive, distributor
discounting posed a major problem as this made Signodes
prices 10% - 20% higher.
It had 3 pricing levels- Book-price, standard 4-8-14 percentage
discounts, Price-flex system..

Competitor analysis
Factor
s

Signod Alpha
e

Sanfor
d

Bentley

America Jers Plymo


n Metal ey
uth
Stee
l

Market
Share

40%

21%

9%

10%

5%

4%

2.9%

Book
Price

100%

95%

93%

95%

90%

93%

90%

Tools

Inhoused

Outsour Outsour Outsourc Outsourc No


ced
ced
ed
ed

Service Yes
Yes but No
Outsourc No
low Alpha, Stanford
ed & Bentley
s Major Competitors:

No

No
No

Aside from Signode, none ofthe industry competitors produced


custom steel strapping or machines.
No competitor provided the level of service thatSignode could
provide
Competition only on price.

Major Challenge

How to respond to the 6.8% increase in


the price of main raw material cold
rolled steel ?
Alternatives: Increase the price to counter the raw
material price increase
Maintain the same price
Go for flexi pricing strategy

Alternative 1 - Increase the price to counter the raw material price increase

Pros

Cons

Will help Company to repay the


huge debt taken for LBO

High price differential, may lead


to loss in market share.

Additional profits will help them


to feed R&D which will result in
new offering.

Further reduction in low and mid


size customers.

Improve the health of Industry.

Lower sales force motivation

Alternative 2 - Maintain the same price

Pros

Cons

Will help to maintain the current


market share

Will lead to price wars, Reduction


in the overall industrial
profitability

Consistent Cash flow for the


Company

Gradually deteriorate the


financial health of the Company

High sales force Morale

Alternative 3 - Go for flexi pricing strategy

Pros

Cons

May help Company to maintain


its profitability without loosing
market share

Might create distrust among


customers, if they come to know
about this policy.

Motivates the sales force. Greater


Autonomy.

A greater degree of autonomy to


sales force may lead to
favouritism, leading to loss to
Company.

Very difficult for the competitors


to copy the pricing policy.

Judging customers may prove a


difficult task.

Perfect mix of customer vs. Price

GO FOR FLEXI-PRICING

Other issues and recommendations


Issues

Recommendation

Signodes market share is


declining since 1973 (50%) to
40% in 1983.

Follow the Flexi pricing policy, so


that lower price can be charged to
price sensitive customers.

Constantly increasing price of


the cold rolled steel.

Replacement of the low end steel


product with the high end plastic
strapping division, which might
reduce the bargaining power of the
steel suppliers.

Customized equipment
segment still not profitable.
Simultaneously eating most of
the time and scarce resources
of management.

Increase the selling price of the


customized equipment, as it is
already loss making, so there is no
point in producing it. If it can sell it
at such a price, that can turn it into
profitable venture, otherwise close
it.

Selective cutting of price by


the main competitor Alpha.

Follow the Flexi pricing policy, so


that differential prices can be
charged from various customers to
counter the strategy of Alpha.

Other issues and recommendations


Issues

Recommendation

Steel strapping market was


matured.

A focus should be given on Research


& Development, so that the
Company can come up with some
value added products for both
customers and itself.

Repayment of $300 million of


long term debt taken for LBO,
and future expansion.

A constant amount of cash flows


shall be maintained to repay it on
time, so that further loans can be
taken for the future expansions.

Commoditization of steel
strapping business

A focus should be given on Research


& Development, so that the
Company can come up with some
value added products for which
premium can be charged from
customers.

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