Signode Gross Margins - Case Study Example

An increase of 6.8% on material cost led to an $8.4 million burdens for the company. In this case, the company can either absorb burdens through a reduction of the margins or increase prices. Their past experience indicates that the substitute products and price increases led to a drop of 10% in their market share. Therefore, one can assume that price increases will result in a reduction of revenues by 10%. Gross revenues are calculable for a number of options including; price flex, keeping a constant price, and an increase in price (Jain & Khanna 158). The biggest gross margin will be given by increasing prices, which Signode should do to maximize its gross margins.   

While large and national markets segments have low profitability, Signode needs to ensure its existence as a supplier of steel strapping. If this is lost, getting it back will be a tall order (Jain & Khanna 159). To maintain their current market segment and the loyalty of customers, they should improve the perceived value of the clients who get customization in terms of strapping equipment, tools, and material. Since their competitors have lowered their process below Signode, reduction of price will not result in retention or gaining of market share.