Sparta Glass Products
5 Pages Posted: 21 Oct 2008
Sparta Glass Products has been losing significant market share over the last several quarters in the non-glare-glass market, with a price 10% above the competition. Lowering the price is under consideration. Unfortunately, fully allocated costs are such that the lower price results in a loss. Issues to be discussed and analyses to be conducted include the relevant costs for the decision and the reactions from competitors.
SPARTA GLASS PRODUCTS
In early August 2002, Christina Matthews, the product manager for nonglare glass at Sparta Glass Products (SGP), met with Robert Alexander, the controller of the Specialty Glass Division, to review the product's performance and prepare a pricing recommendation for the coming quarter. Once approved by the division president, the price would be announced and, as was customary in this segment of the glass industry, adhered to for at least 90 days.
The flat-glass industry was a $ 10-billion industry worldwide, of which the United States generated $ 2.7 billion. Approximately 57 percent of domestic production was for the construction industry, 25 percent for the automotive industry, and the remaining 18 percent for specialty products ranging from the mundane, like mirrors, to a wide variety of high-tech applications. Among the many technical applications of specialty glasses were solar panels, laminated and tempered safety glasses, heat- and bullet-resistant glasses, electrical and insulating glasses, photo-technical and photo-sensitive glasses, aerospace glass, and cookware. Nonglare glass was a fairly simple specialty product designed to reduce the glare of reflected light. It was used primarily to frame and protect artwork.
With 2001 sales of $ 345 million, SGP was a midsized, regional glass company serving several niche markets in the southeastern United States. The Specialty Glass Division was one of four divisions, each of which was operated as a profit center. For a number of reasons, SGP enjoyed a dominant market position for nonglare glass in its region: (1) SGP was known for its fast, reliable service, and was willing to deliver glass on short notice at no extra charge in any of a variety of cut-to-order sizes, including the industry-standard delivery size (48-by-96-inch sheets) and all the standard picture-frame sizes; (2) SGP provided an exceptionally high-quality nonglare glass with little light loss and virtually no blemishes; (3) SGP operated its own fleet of delivery vehicles so that delivery times were well managed and shipping charges were kept low; and (4) SGP's salaried sales staff was widely acknowledged for its helpful, courteous service and customer orientation.
The production of nonglare glass, like many other coated-glass products, began with flat glass, the output of one of Specialty Glass's sister divisions. For such derivative products, company policy was for downstream products to be bought within the company at a market-based price that was adjusted on a quarterly basis. The Specialty Glass Division treated the flat glass with a patented coating that provided the desired optical characteristics. This process required specialized equipment only usable in the production of nonglare glass. The finished, treated glass was then cut to order, packaged, and shipped.
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Keywords: competition, pricing, relevant costs
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