Question1
How will passing on vs. absorbing the increased raw material costs be perceived by the sales force, by the competitors, and by the customers? Who`s happy, who`s sad?
Answer 1
Fortis Industries had many options to hold theirprices, butt the major option for the company, was to increase the sales price or increase themargin, whichh will be passed on to the customers to overcome the issue of the increase in the price. Furthermore, the company has the option of absorbing the increased cost and it will impact positively on operating margin so that the cost remains the same. If the organization increased its sales price by passing on the cost, then it would affect the customers, which will make the customer unhappy. With this type of decision, the enterprise will be happy and the customer will feel worse impact which is not good for the organization. In this sense the customers are paying additional cost for the same product which they have purchased previously at low price. Due to this action, the customer has two options, either to buy the same product or go for the substitute product with a lower price. This will result in loss and the competitor will gain the advantage.
Likewise, the sales team will become demotivated for this price increase becauseofr the sales team will be satisfied in the customer satisfaction in monetary as well as non-monetary terms. While the customers are not satisfied it will then effect on the sales and the sales team will get demotivated as their hard work had been compromised. Moreover, there target sales growth will slow down or it will start falling like dominoes. The bonus & commission will also be lost with respect to the loss of the customers.
For the competitors, they will gain the advantages of the sales and the increase of their shares in the market. They will reduce the brand name of the Fortis and become the market leader of that particular product. Basically the competitor is the keen watcher of their rivals and their strategy about their product. Whenever the competitors find some loop holes which are beneficial for them, theopportunity oppurtunity and risking the other company’s brand image. The competitors will try reducing their price, where as Fortis wants to increase their price. These all are the effects which come under this pricing strategy of the absorption. The company has to find another alternative for the benefit of the company and maintain its structure. If this extra cost is absorbed by the organization then it is more likely to keep its customers glad and it’s sales team encouraged and this will not only prompt the customer to buy Fortis products due to the reduced price but it will also improve the company’s brand image. The company and its staff will give more responsive to the customers and they will be happy to achieve the targets of the organization. It will also be hopeful for them to achieve their goals and get their commissions and bonuses.
Question 2
How will instituting vs. not instituting price-flex be perceived by the sales force, by the competitors, and by the customers? Who`s happy, who`s sad?
Answer 2
The next option the company has, is to use the price-flex strategy for holding the price of the product which is increasing among the competitors. In this option the company is allowing the discount rate of seven perofnt on premium price in order to remain in the competitive environment and maintain its market shares. These discounts will be offered and given to the ultimate users of that product by the sales teams. On the other hand, for this strategy the customers will move towards that product which is beneficial for the organization. The customer will buy more products on a commodity basis, whereas the premium prices are going to be charged on the basis of the services concerned with the customers. This strategy will not only increase the consumption of the product, but it will create a good relationship with the customers, which will be more beneficial as compared to the absorption methods. The customer ratio related to the product will also increase.
The Sales team will be motivated and it will become easy to sale their product to the consumers. This will create a competitive edge for the enterprise and also boost the level of the revenue and profit with respect..............
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Packaging Division Fortis Industries »produces steel and plastic strapping. In 2007, the company has leveraged buyout. The case focuses on the necessity of packing units to maintain high yields in a declining market for steel band. Beginning in 1998, Fortis was a loss of 1% per year of steel strapping market. Since then, there has also been significant price erosion. President, faced with 1) lower prices to increase market share, or 2) the maintenance / increase in cash flow. Specific decision making revolves around the potential price of a flexible system that is designed to authorize selective discounting the sale of the staff. "Hide
by Rowland T. Moriarty Jr., David May, Gordon Schwartz Source: Harvard Business School 18 pages. Publication Date: December 16, 2010. Prod. #: 511079-PDF-ENG
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