Question 01:

George Reynolds, president of Fortis Industries packaging division had prepared and presented a strategy regarding price-flex and raw material costs. Presentation in the case holds two important aspects, the very first element of his presentation talks about Fortis’s response to changing steel prices. Another thing was about increase in prices related to cold rolled steel in the industry,further a 6.8% percent of increase has been announced by the major U.S. steel companies. Fortis Industries is worried about their cost structure and is trying to replace it without getting affected by the market. The first option to Reynoldsis to increase Fortis’s strapping prices to offset the increased prices of cold rolled steel, this strategy would allow the company to maintain its traditional policy, passing on the raw material cost increases directly to the customers. In any business, passing on increased prices would allow the company to maintain its profit level, but it will also decrease its market share as customers would stop buying the products when they have to bear the increased prices. Fortis’s sales force was also concerned about the increased prices as there were intensified complaints about this increase, the sale force was resisting when they came to know the new prices that would create a negative impact on their market share, as observed by the sales force, the competitors of the company had increased their book value to maintain current price levels which is an effort from them to raise their market share.Alpha Corporation, its competitor recently announced an increase in its book value by 6.8% for a selective group of consumers, if Reynolds adopts a price-flex strategy then he will be doing the same by increasing its manufacturing cost or book value by 6.8% for a selective group of customers.

Fortis industries Harvard Case Solution & Analysis

Another option to Reynolds is to maintain Fortis’s current book prices. Hunter was in favor of this scheme as he observed from the reports that customers in the mid-range and small segments were particularly responsive to low prices and range of huge product choice. Hunter, V.P of sales strongly emphasized on not increasing the price level of its products. Further, there are some cash flow requirements that the company needs to maintain and for that, there should be an increased market share which will support the company’s inflows. Further, Hunter also suggested that increased prices will definitely damage the sales forces’ morale.

Reynolds should institute the price-flex proposal, the strategy of a price-flex model is to discount the book price of strapping consumables by 7 percent to meet the requirements set by its competitors. By pursuing this option, Dennison argued that this will bring back the company’s market share to where they want. The strategy allows both, discounting and charging premium and depending on the needs of their customer and allows the company to increase its market share by 5 to 10 percent. The variable cost of Fortis’s steel will be expecting an increase up to 7 percent increasing the overall cost of the company.................

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